Title

Presentation

Telefonaktiebolaget LM Ericsson (publ) beats earnings expectations. Reported EPS is $0.13, expectations were $0.11.

Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson’s First Quarter 2026 Results. Joining us by video today is Borje Ekholm, our President and CEO and in the studio, I’m joined by Lars Sandstrom, our Chief Financial Officer. As usual, we’ll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today’s earnings release and on the Investor Relations website as well. Please be advised that today’s call is being recorded, and today’s presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today’s press release and discussed in the conference call.

We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I’ll now hand the call over to Borje and Lars for their introductory comments.

Borje Ekholm: Thanks, Daniel, and good morning, everyone, and thanks for joining us today. Q1 was a solid start of the year and with the results that reflects our continued execution against our operational and strategic priorities. We saw a very large currency headwind during the quarter, probably one of the toughest quarters from a comp ratio as the Swedish krona strengthened towards almost all currencies compared to last year. So this, of course, materially impacted every line of our financial statements with reporting sales falling 10%. At the same time, we performed well operationally realizing strong organic growth of 6%, with all segments contributing. Our results are a testament to our leading portfolio and the investments we’ve been making in furthering our technology leadership.

Over the last few years, we’ve actively managed to reduce dependence on geographic mix. Of course, we realize that North America often receive a disproportionate interest from, I guess, the community — analyst community, but also around the world. And that’s, of course, natural because it is a front-runner market. And this quarter, we saw sales reduced by mid-single digits in North America. But we could still deliver a gross margin of 48.1% for the group and 50.4% for segment networks, indicating that the work we’ve done to balance out the geographic mix is coming through in the results and giving us less sensitivity to geographic mix. Cloud Software and Services continue to execute well. We reached a gross margin of 43.2%. That’s up more than 300 basis points year-over-year.

Revenue seasonality was in line with the guidance we had for the quarter and we saw some deals being pushed into Q2. And we expect to see that, therefore, stronger seasonality than normal next quarter. EBITA came in at SEK 5.6 billion with a margin of 11.3%, and the strengthening of the Swedish krona affected EBITA by SEK 2.2 billion. And you’ve also seen we have the revaluation of the long-term stock-based programs. And all of those are, of course, included in the results. Cash flow during the first quarter is seasonably lower typically. Despite this, cash flow came in at a healthy SEK 5.9 billion with a net cash position of SEK 68.1 billion. And as you’ve seen just a couple of weeks ago, the AGM approved the Board’s proposal on increased dividend and our first share buyback program.

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We will start to execute on the share buyback program next week with a target to buy back SEK 15 billion. In the next phase of AI, we see that high-performance mobile connectivity will become increasingly important. Even so, our planning assumptions for the RAN market remains flat over the longer term. With disciplined execution, we create room to make selective investments in growth to broaden the mobile platform to new use cases and new sectors. We believe the growth will come in areas outside of our traditional CSP markets. And then we’re talking about areas like enterprise and mission critical networks. In our Enterprise segment, which includes our wireless WWAN business, private networks, network APIs or as we now call it, actually network-powered solutions and mobile money, organic growth was stronger, which is encouraging.

There are new markets that we see as key opportunities going forward. Of course, new markets take time to develop but we’re now seeing these efforts start to scale. I would also comment on the loss in Enterprise of SEK 1.4 billion. It’s clearly unacceptable, but it also includes a number of onetime costs and have an improvement plan in place that we’re executing on and we will expect to see that coming through shrinking losses during the rest of the year, comes from growth, operational discipline and of course, at the onetime cost base. We’re also driving several other growth initiatives. And there, we see good progress in mission-critical networks which tend to be a bit lumpy and vary by quarter. We’re experiencing strong interest in several verticals, particularly within Defense Solutions.

In modern defense applications, high performance, and then I’m talking about large capacity connectivity is required. And this will make 5G stand-alone a cost-effective alternative. And we’ve seen a trial with the Italian Navy — or actually deployment with the Italian Navy this quarter. Another very exciting area is 5G-based sensing where one of many use cases is about detecting unconnected drones. And a few weeks ago, we showcased our solution, which is seeing significant customer interest, of course, given a difficult current market environment geopolitically. We see that our technology here has a great market potential, and we’re now starting to invest to capture these opportunities. I would say this is just one example that you don’t have to wait for 6G to get part of new exciting use cases with the technology we have.

So we’re seeing good momentum on our strategy execution, and we’ve strengthened Ericsson operationally. And I would say this is showing now in our Q1 results. With that, let me give the word over to you, Lars, to go through the numbers in some more detail.

Lars Sandstrom: All right. Thank you, Borje. I will begin with some additional comments on the group before moving over to the segments. So net sales in Q1 totaled SEK 49.3 billion with organic sales growing 6% year-on-year. The growth was broad-based and sales grew in all segments and 3 market areas delivered double-digit organic growth, driven by continued 5G rollouts and increased uptake of 5G core. Americas declined 2%, with strong growth in Latin America, more than offset by a mid-single-digit decline in North America following a strong quarter last year. Reported sales decreased by 10%, impacted by a negative currency effect of SEK 7.8 billion then. So organic growth again grew 6%. IPR revenues were SEK 3.1 billion, and this run rate coming out of the quarter is approximately then SEK 13 billion.

Adjusted gross income was SEK 23.7 billion with a negative currency impact of SEK 3.8 billion. Adjusted gross margin was 48.1%, in line with last year, excluding iconectiv. On the cost side, operating expenses, excluding restructuring charges, dropped to SEK 18.4 billion, around SEK 2 billion lower year-over-year, driven mainly by currency as well as the divestment of iconectiv. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Borje mentioned, adjusted EBITA, which excludes restructuring, but includes the other one-offs was SEK 5.6 billion. This is down by SEK 1.4 billion, including a negative impact of SEK 2.2 billion, the divestment of iconectiv and SEK 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter.

The EBITA margin was 11.3%. Cash flow before M&A was SEK 5.9 billion, driven by earnings and reduced net operating assets. So let’s move to the segments. In Networks, sales decreased by 8% year-on-year to SEK 32.9 billion with a negative currency impact of SEK 5.2 billion. Organic sales increased by 7%. Organic revenues grew in 3 of our 4 market areas. 2 strategic markets, India and Japan grew strongly. North America declined, impacted by customer spend reallocation in Q1 this year following recent market consolidation. Customer investments were also elevated last year due to tariff uncertainty impacting the comparison. Networks’ adjusted gross margin decreased slightly to 50.4%, mainly reflecting actions to enhance resilience in the supply chain.

Adjusted EBITA was SEK 6.4 billion, impacted by a negative currency impact of SEK 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITA margin was 13.3%. Looking at the right-hand graph, the rolling 4 quarter gross margin stabilized around 50% and adjusted EBITA margin at around 20%. Moving to the segment Cloud Software and Services. Sales here decreased 9% to SEK 11.8 billion, including a negative currency impact of SEK 1.6 billion. So organically, sales grew by 4%, with growth primarily in core. Adjusted gross margin came in at 43.2%, an improvement from 39.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITA increased to SEK 0.6 billion with a margin of 5.3% despite a negative currency impact of SEK 0.3 billion.

Lower gross income was offset by lower operating expenses here. And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin was around 44% and adjusted EBITA margin around 12%. And these are both new high levels. So reported sales on the Enterprise side decreased 30%, impacted by the sale of iconectiv and currency. On an organic basis, Enterprise grew by 4%, and this marks the second quarter of organic growth. Adjusted gross margin declined to 49.0%, reflecting the impact of the divestment of iconectiv and change in business mix in Global Communications platform. Adjusted EBITA landed at minus SEK 1.4 billion, reflecting the divestment of iconectiv and nonrecurring cost of SEK 0.3 billion in the current quarter. Turning then to free cash flow, which was SEK 5.9 billion before M&A in the quarter.

We delivered a cash to net sales of 13% for the rolling 4 quarters, above our 9% to 12% target. And cash flow generation was strong, supported by earnings and a stronger-than-normal seasonal reduction in operating net assets. Net cash increased sequentially by SEK 6.9 billion to SEK 68.1 billion here in the quarter. The buyback program of up to SEK 15 billion was approved by the AGM and share repurchases will start now soon. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, and Borje will come back to this. The Q2 outlook assumes no tariff changes and the exchange rates specified in the report. For Networks, we expect sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality.

And for Cloud Software and Services, we expect sales growth to be above the 3-year average quarter-on-quarter seasonality. We expect Networks’ adjusted gross margin to be in the range of 49% to 51% and restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in Q1. So with that, I hand back to you, Borje.

Borje Ekholm: Thanks a lot, Lars. So our Q1 results demonstrate the strong execution on our strategic priorities and the actions we’ve taken over the last several years to strengthen the company operationally. This includes how we made Ericsson less reliant on any specific geographical mix, enabling us to sustain healthy margins in varying market conditions as you have seen in today’s report. Our actions also include how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage, enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging as the AI boom is increasing input costs.

We continue to take actions, and Lars mentioned this as well, to mitigate this impact by working closely with both our customers and suppliers, of course, including our pricing. While we believe we’re in a good position, we are not immune to these disturbances. So they will have consequences on price and availability. As of course, AI may be the key driver for our industry longer term, we see AI as a net positive for us. The next phase of AI will see AI being industrialized, shifting focus from current focus on data centers, large language models rather to applications, devices, use cases. This will require advanced mobile connectivity with capabilities such as ultra-low latency and high uplink. This puts us in the middle of the next phase of the AI era.

With our strategy, we are well positioned to capitalize on this opportunity. We’re doing this by providing the industry’s best networks for AI and by expanding the mobile platform to new use cases and sectors. This includes exposing network capabilities through network-powered solutions, allowing developers to use the network capabilities to create new use cases. It also includes opening up new addressable markets such as enterprise solutions based on cellular technology and mission-critical networks. And this will allow us to capture a greater share of the value from connectivity and drive mid-single-digit growth for Ericsson while achieving our long-term margin targets of 15% to 18%. So with that, I think it’s time for some Q&A.

Daniel Morris: Thanks Borje. [Operator Instructions] Thanks, operator. Time for the first question. The first question this morning is going to come from Simon Granath at ABG.

Simon Granath: I have a question on Lars on the memory and cost inflation. And the Q1 margin performance for Networks was, in my view, strong. But given the rising memory prices and as inventory runs down through the year, how confident are you that memory prices won’t be a significant headwind for the rest of the year? And all else equal and on this topic, should we see Q1 marking the highest level for the year?

Lars Sandstrom: All right. Thanks, Simon. When it comes to outlook, we give, as you know, outlook for the first — for the next quarter here. So — but when it comes to memory cost and other semiconductor costs, there is, as we say here, a headwind coming. And — but we should also remember that it is a smaller part of our total cost base, of course. But there is a headwind coming, and we are working hard to mitigate together with our suppliers, but also together with our customers to share the burden here. And then it comes to what can we do when it comes to product substitution, et cetera. And it is a bit too early, I think, already now to say how the impact will be. But you will — if there is — and when there is things happening, you will see that more coming into the second half of the year.

Daniel Morris: The next question will come from the line of Andrew Gardiner at Citi.

Andrew Gardiner: So just on the North American revenue trends that you saw in the quarter, you’ve highlighted the pressure there, Borje, sort of mid-single digit down year-on-year. I’m just wondering what your view for 2026 as a whole is for that region. The comps, as you suggested, were particularly tough in the first quarter given the tariff impact last year and some buy forward. Does that — does the decline that you’ve seen in the first quarter, should that lessen as we come through 2026? Or are there other factors we should be aware of?

Borje Ekholm: You see a lot of forecasts in the market on the North American market. And I would say the development you’ve seen during the first quarter is probably similar to what we should expect for the year. I think that’s fair to say given our customers’ guidance. At the same time, we have a little bit different mix compared to the market where, as Lars noted, we were maybe hit a bit harder than the general market, the first quarter because of the consolidation we’ve seen among the operators in the U.S. that was closed. So if you net-net, I don’t see a changing market condition, but I see a bit better mix for us vis-a-vis the market. And as you noted, we had a tough comp in Q1. But don’t assume the U.S. all of a sudden is going to change direction.

That’s why I want to come back to what I think is more important today is we’re less exposed to North America from a geographic mix perspective and the investments and commitment we have been talking about to diversify our mix. So if we are a bit weaker in North America, but stronger in another market for a quarter, we can actually compensate that and keep a very healthy gross margin. And that, I think, lends for a better predictability of the total company and actually for a healthier way of operating the company. So — well, I think North America always will be important. From a mix point of view, it will be less important going forward. We work with the customers as front-runner customers, but it’s always going to swing a bit up and down in a quarter.

So we’re — on the one hand, yes, I would always prefer them to grow, but the reality is it will swing. So the question is more how we can provide a healthy gross margin, a much more stable gross margin. And I think Q1 is a good indication of the work we’ve done.

Andrew Gardiner: I mean I suppose related to that, I mean you mentioned the other strategic markets. I mean India and Japan have been the 2 you’ve highlighted away from North America. You did see good growth there. I mean is that something that is not just a 1Q impact, but we should expect steady growth from those 2 key markets through the year?

Borje Ekholm: I would — there, we have actually strengthened our market position. So we should see healthy growth as we continue to deliver on those opportunities. So I’m actually very comfortable about that.

Daniel Morris: The next question is going to come from the line of Erik Lindholm-Rojestal from SEB.

Erik Lindholm-Rojestal: Just one question here. I wanted to ask on OpEx and the impact of cost savings. I mean it looks like underlying OpEx is down around SEK 0.5 billion, as you mentioned, despite the one-off impact that you flagged here. So what sort of inflationary pressures do you see in OpEx for the rest of the year? And when should we start to see the impact from the cost savings that you’ve launched in Sweden here at the start of the year, for example?

Lars Sandstrom: Yes. When it comes to OpEx, I think in the quarter here, it’s down organically. I think it’s currency and iconectiv that is impacting and then there is somewhat also underlying cost reduction coming through here. And we are continuously working with that. The inflation we talk about since a big portion of the cost base in OpEx is related to people. Of course, there is an underlying continuous salary increase that is coming that we need to work with. And our working assumption is that we live in the flat RAN market and that we need to accommodate too by continuously working and finding efficiencies and reductions where it is possible. And then we do that continuously. So that is what we are working with here every quarter continuously.

And you saw there was quite a bit of restructuring here coming in the first quarter now, primarily to the Sweden area, but also the rest of Europe. We have activities in North America, in Asia, et cetera. So that is a continuous work that we are doing, and we will continue that also in the coming quarters.

Erik Lindholm-Rojestal: All right. But I guess it’s fair to say that these measures will more so show in the second half then?

Lars Sandstrom: The ones that we announced today or in this quarter, of course, they come more in the second half of the year and into next year. And then we have the previous ones that is coming, you can see now. So that is a continuous work that we do.

Borje Ekholm: I would just add there, by experience, it takes a bit longer than you hope to see it in the numbers. So theoretically, it should come in Q3, of course, or Q2, Q3, but it will be a bit of a delay there. That’s why you see the cost kind of not exactly following the number of employees because it’s simply associated with costs around when we take costs out. So — but you will see it after the second half and into next year.

Daniel Morris: The next question is going to come from the line of Andreas Joelsson, DNB.

Andreas Joelsson: A follow-up on the COGS question that we had. Of course, there’s a headwind coming from the component prices, but you have been able to increase the gross margin in Networks for some time and now it has stabilized. What other areas within costs have you sort of from experience the last few years, learned that there is maybe that you can use to compensate for component price increases. So it’s not just negotiations with vendors and customers that could keep the gross margin resilient, as you say, if you understand that blurry question.

Borje Ekholm: Thanks for the question, Andreas. I can try to give you a notion. Of course, the most important one is to work on the prices. It’s undoubtedly the case, and that we continue to do. The other levers we have, which actually have proven to be very sizable is product substitution, i.e., we can — through technology development, we deliver a product that performs the same, but at a lower price or a lower cost point, I should say. So that actually is maybe the most important one that we’ve been able to do for quite some time. And I feel quite comfortable we’ll get that with the next-generation ASICs coming within not-too-distant future. Then we have also been able to take a lot of costs out on service delivery. And there, I think there are more costs to be taken out.

So I think we have — it’s not — it doesn’t come easy. It doesn’t come in that sense for free. But I do think there is a number of areas we can kind of leverage to protect a healthy gross margin longer term. And that’s why I feel we have kind of reached a different level of performance and control on the cost side. And you know component prices have varied already now. So we’ve been able to handle that in many different ways. And our ambition is clear. That’s what we intend to do going forward as well. And we have a number of degrees of freedom in what we actually do to manage the margins.

Daniel Morris: The next question is going to come from the line of Richard Kramer at Arete.

Richard Kramer: Borje, you mentioned the early stages of physical AI, which would involve greater mobile connectivity. But can you point to anything within your portfolio which could provide a material uplift to group sales growth, especially addressing the sort of data center AI spending boom given that enterprise remains fairly small in the mix?

Borje Ekholm: Yes. Richard, it’s a good question. We’re not going to see any sales directly from data center expansions right now. Our, call it, exposure to AI is more going to come from the applications when you start to see inference play a very different role. So we may not be the frontrunner on the AI wave, but we are rather the longer term, I would say it’s one of our key drivers of traffic in the networks and the connectivity will does look different. That’s why I believe the exposure we have is going to come more from that traffic development from AI moving into implementations, but it’s also going to come from AI in enterprises. And here, we start to see some front-runner industrial companies, still small, but actually picking up demand in 2 areas: enterprise connectivity, i.e., wireless solutions or as a matter of fact, in interest for network APIs and embedding that into enterprise use cases.

So I would like — I don’t want to promote that we have any exposure to data center. So that wave is going to go. We’re more a little bit behind that, I guess, in the — I don’t know what to call it, but kind of benefiting from the overall migration of applications towards AI.

Daniel Morris: Next question is going to come from the line of Felix Henriksson, Nordea.

Felix Henriksson: Good to see the Cloud Software and Services EBITA margin expanding to around 12% on a 12-month rolling basis. I wanted to ask, is there any reason why the margin expansion in this segment should not continue given that growth seems to be led by very margin accretive 5G core demand?

Lars Sandstrom: It’s a good question. I think what we have said is that the first aim here is to reach a stable double-digit margin and then we work from there. And I think we need to remember that the cloud software is also connected to the flat RAN market. So there is — but still, there is an underlying growth that we are able to capture with in the core area, which is good, I think. And we have managed to show that we are having a good market position there. So we continue to work on that. So we don’t promise. We guide quarter-by-quarter, as you know, but we feel we have reached a stable level now in a good way in the company.

Daniel Morris: The next question will come from the line of Ulrich Rathe at Bernstein.

Ulrich Rathe: This is more a question for Lars, please. You talked about how you have immunized margin to the foreign exchange moves by matching cost and revenue better. Can you sort of talk about that a little bit more? And I’m wondering, in particular, 2 areas here. One is to what extent are you still benefiting from hedging that could roll off and produce an incremental headwind if the FX rates stay at where they are? And also, with the current level of FX matching in cost and revenue, what would be the effect of a strengthening — sorry, of a weakening Swedish krona? Would that actually correspond to a material margin driver for you or not?

Lars Sandstrom: I think we need to separate between gross margin and EBITA margin here. On the gross margin, we are fairly balanced in the currency baskets, whereas in the OpEx side, we are much more exposed with the Swedish SEK ratio there. So it’s higher as we get more of an impact from that end. So I think from — so that’s what’s impacting, so to say, the FX mix that we have. So I think that — and if there is a significant change, you would see that more impacting EBITA rather than gross margins in that sense. And then when it comes to hedging, we have some hedging, but rather low levels and they are coming out. So it should not be a big impact going forward.

Daniel Morris: Next question will come from the line of Sandeep Deshpande at JPMorgan.

Sandeep Deshpande: Could I ask — I mean, you’ve seen this weakness in North America. In terms of your exposure to 5G and 5G core outside North America, do you see there is a potential for significant upgrades? I mean that is the market hasn’t shifted as much to 5G or 5G core over the last few years as it has in North America and thus, the growth outside North America could compensate if North American growth over the next few — couple of years is not going to be as strong. And the question I’m asking here is that historically, outside North America, they have not been as keen to quickly upgrade to next-generation technologies like 5G or 4G even before that. So I mean, how do you see that progress, I mean, at this point?

Daniel Morris: Borje, maybe we ask you to take that one.

Borje Ekholm: Yes. That’s a very good question. North America have been a front-runner market. It’s still not fully migrated to 5G SA even there. The only market which is fully 5G SA actually is China. So we see that that’s where the market will go. We see a number of operators today increasingly focused on migrating to — from 5G non-standalone into 5G SA and then 5G advanced. It’s still largely a work in progress. So if you try to give some sort of statistics, maybe 1/4 of the operators have some sort of 5G SA and 5G SA of scale is fewer than that. So I would say that’s actually one of the major opportunities for our industry. And it’s 2 things. Of course, it’s an upgrade cycle for us. But I think more importantly, it will allow the operators to start offering differentiated services.

So you can have network slicing, dynamic network slicing, for example, can happen when you have 5G stand-alone. So the way we think about this is it’s actually one of our more positive opportunities from a medium-term perspective as companies or operators upgrade. And the way to think about this is in order to prepare your network for 6G that eventually will come, you need to actually migrate through 5G standalone into 5G advanced and then have built the architecture that’s prepared for 6G. So I see while not everyone have transitioned today, they will need to go that way. And so it will provide an interesting opportunity for us as operators upgrade. So that’s why we’ve invested in positioning us well on 5G core, and we are now starting to see growth coming through on 5G core.

So it’s actually, I think, a net-net positive for us as we move forward.

Daniel Morris: Next question is coming from the line of Daniel Djurberg at Handelsbanken.

Daniel Djurberg: A question. I was quite impressed by the network gross margin given the geographical mix with large deployment in India and also growth in LatAm. It could indicate that it was capacity heavy. And if that is correct, should we expect more coverage and hardware deployment in second half in India, for example, and Japan, i.e. supportive on gross margins and then also we have the cost inflation that you mentioned.

Daniel Morris: Maybe, Borje, we can start with your thoughts on those 2 markets more broadly and Lars on the margin.

Borje Ekholm: Yes. I know we were often talking about coverage and capacity before. I would say what we have tried to do is actually to reduce the dependence on that as well. So when you look at this, there is always an element of higher-margin software sales versus hardware, but it’s less important going forward. So the comment here is probably to say that there is a tad more capacity, but it’s not meaningfully impacting the profile here.

Lars Sandstrom: Yes. No, I think you covers it well. So I think the outlook you see in — for the Q2 here for Networks is 49% to 51%, and that is what we see now based on the product portfolio and product deliveries and market mix we foresee now. So I think signals rather stability as well.

Daniel Morris: The next question is coming from the line of Sebastien Sztabowicz at Kepler Cheuvreux.

Sébastien Sztabowicz: On the defense market opportunity, you’ve been talking about a $10 billion opportunity in that market. Now you are talking about some trials happening currently in Italy. When do you expect those opportunity to materialize and generate first significant revenue? Is it an opportunity over 3, 5 or beyond 5 years? Just to understand a little bit the phasing and the ramp of this technology.

Daniel Morris: Sure. Borje, your thoughts on the overall opportunity.

Borje Ekholm: I actually think the opportunity is more near term. It’s very hard to judge. But I think it’s a very good question. And your perspective may be as good as ours. What we see though is a very near-term, very strong need in the market for modern, call it, modern warfare involves a lot of AI and actually heavy need of communication and connectivity, therefore. So we see that this is much more of a near-term opportunity. I wouldn’t say 5 years plus. It’s more kind of a mid, call it, use 3 years, for lack of a better word, before this opportunity. But if you start to think about — take a critical site, it could be a sports arena or a nuclear power station or an energy generation station or something like that. The threat from drones are pretty much today.

So when you start to think about when is the technology needed from a risk perspective and protection perspective, it’s actually a near-term risk. So as I know it or as I see it, I think we need to tackle that need when the market is there. So had I wished we would have started a few years earlier, yes. But I think we’re in pretty good shape to start to see these opportunities materialize over the next even maybe 9, 12, 18 months opportunity, and then they start to scale at 2, 3 years. So I’m quite excited about these opportunities because the communication network and the scale we have makes our solutions rather competitive. So I’m actually — I’m thinking this is — our ambition is that this is a nearer-term opportunity than 5-plus years.

But then putting an exact number on it, I can’t, to be honest. But I’m — but the reception we get from customers is very positive.

Daniel Morris: The next question is coming from the line of Sami Sarkamies at Danske.

Sami Sarkamies: I still wanted to go back to the rising input costs that were discussed earlier in the call. I have a 2-part question. Firstly, can you elaborate on your current operator agreements allow you to raise prices if needed? Do they, for example, cater for above normal cost inflation? And then secondly, when you look at your operator customers, are you seeing rising energy costs to have an impact on their behavior and potentially investment plans for the year?

Daniel Morris: Lars, we start with you on the first and Borje…

Lars Sandstrom: We start on the customer side. There are — it depends on the renewal cycle of contracts that we have with customers, and that can vary a bit in different markets and different customers. So there are — but there are still an opportunity, I think, to take this discussion because we are — these are a bit exceptional times. So there is — we need to take this in a good commercial discussion with our customers. And when it comes on the energy impact on operators, I think that is an important part, the TCO where our products with the right investments they do, they can drive down their TCO. So I think in that sense, it helps our competitive advantage in the market. But we have not seen any big impacts yet. But of course, if there is a prolonged situation with high energy costs, that could have an impact, but we have not seen that.

And I think you should also remember the revenue base of our customers is very stable. So they have quite — we have seen this historically. And normally, our industry or our customers are quite resilient over time. I don’t know if you want to add more on that, Borje.

Borje Ekholm: You’ve captured it. What we see and we see an increasing focus on energy efficiency in discussions with customers. So I think this will be a topic — and as Lars said, it kind of goes both ways, right? It’s an opportunity because they need to actually upgrade some of the old equipment, and they actually need to move towards modern. And at the same time, they get a bit tougher on their own cost position. So it kind of sits in that cost a bit [indiscernible] as we say in Swedish, I don’t know what that translates to. But that’s kind of the situation, right? The interesting thing is that when we now are around, we start to see customers talking about how you actually phase out old technology. And we’re even starting to see customers in some markets talk about how do we phase out 4G and actually migrate to 5G and in a way, then have only 5G and 6G.

Of course, 3G being phased out in most regions, except Europe possibly. That will also support energy efficiency. So we’re actually — this energy squeeze leads to a bit of a — when you asked about change in behavior, yes, it is a change in behavior, but much more focused on how do I get on the latest technology curve that helps me with lower process cost. And that will include phasing out 2G, 3G and soon 4G in some markets.

Daniel Morris: Moving on to the next question, please, which is coming from the line of Oliver Wong at Bank of America.

Oliver Wong: I wanted to focus on perhaps the cost from things like logistics and transportation since given ongoing global geopolitical events, it seems like there could be some impact on that. And also perhaps on the instability of the supply chain, could that be a risk to you? So yes, it would be great to kind of discuss about the logistics and transportation costs. How is that relative to perhaps the impact from rising memory in terms of potential headwinds going into the year?

Lars Sandstrom: And I think when it comes to logistics and transportation, we have seen some impact now. But in the total scheme of our cost base, it’s limited. So we should remember that. I think it’s important. And especially now in Q1, we had some additional costs with the Middle East conflict there where we had to do some rerouting, changing transportation lines, et cetera, utilizing then our flexible production system and supply chain. So I think, yes, it has given some, but we have been able to make sure that we deliver to our customers, which is, at the end of the day, most important for us. So I think — and that ties a little bit into your supply chain question there. We have a rather well-distributed supply chain today to manage disturbances.

We have proven that, I think, during the pandemic. We have proven that now during last year on the tariff side, et cetera. So we continuously work with this and try to mitigate when the things are happening. And of course, as we have said on the tariff side, we cannot guarantee that we are immune, of course, but we are, I think, managing it pretty well.

Borje Ekholm: The fair comment is also that we have a distribution hub in the Middle East. So we’ve been impacted for sure already and been able to mitigate that fully by leveraging the flexible supply chain. So I think this — we’ll have to focus on managing it, monitoring and managing it as well as we can.

Daniel Morris: We have time for one final question this morning. We can move to the next. So a follow-up question from Daniel Djurberg at Handelsbanken.

Daniel Djurberg: I know I should ask your customer this and I will, but still Latin America saw good growth in Networks, and this is a geography with really tough competition. To me, your radio access network portfolio is more competitive to [ Pearson ] for many years, you showcased at Mobile World Congress. Can you give — or obviously, can you give any examples of this, if it’s correct? And how we should think about markets like Latin America, Sub-Sahara, Eastern Europe, where you have tough Chinese competition?

Borje Ekholm: It’s a good question. And the reason why I’m hesitating is more that we get into specific customer situations. And I don’t want to talk about that for the simple reason that if I would be our customers, I wouldn’t like us to talk about it because it may be my competitive positioning in the market that I’m revealing. That’s why I think it’s inappropriate for us to talk about customers. But what I can say is that we’ve — we think our — the competitor we have to always beat is one of the Chinese. They’re, of course, very strong. I have no doubt about that. But we can see that we can actually go head on with our product portfolio, thanks to the strong performance, the strong infield performance we see on quality benchmarking when we compete with them, where we come out well.

You can see that in all the — whether it’s Umlaut test or OpenSignal or whatever, we come out well in that comparison. We perform also very well on energy once you’re in the field. And it’s because the way we have focused on developing the products, it’s actually dedicated not to lab trials, but more to infield performance. So operators that looks at that total perspective there we can compete, right? And we’ve seen that in Latin America. We see it some — in Africa, it’s maybe the hardest market to compete. And you’ve seen us fight there. But at the end of the day, we remain competitive, and it depends on operator preferences as well. We certainly, in Southeast Asia, win market share when we compete also with the Chinese competitors.

Daniel Morris: Thank you. So that comes to the end of the Q&A session. Thank you for joining us. Thanks, Borje and Lars as well.

Borje Ekholm: Thank you.

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