Hello, everyone. And welcome to today's Ericsson's Fourth Quarter Result as well as the Full-Year Result for 2021. With me here today, I have our CEO, Börje Ekholm, and our CFO, Carl Mellander. So, as usual, we will start with a presentation from Börje Ekholm con and then we will end the session with a Q&A. More information on that you will find on our website, but you have to join the call via telephone to be to ask questions. So, during today's presentation, we will make forward-looking statements. These statements are based on our current expectation and certain planning assumptions, which are subject to risk and uncertainties. The actual results may differ materially due to factors mentioned in today's report or press release and discussed in this conference call. We encourage you to read about these risks and uncertainties in our earnings report, as well as in our annual report. So, today, we're not only presenting, as I said, the fourth quarter result, we're also presenting actually the full year of 2021, an eventful year for Ericsson. But before starting presentation, I would like to ask one question to both Börje and Carl, the sort of the event that stays in your mind when you think about 2021. So, I'll start with you, Börje, what's sort of the situation event that you will think about when thinking back on 2021? Börje Ekholm : I think of a couple of things actually. The first one is really the accelerated rollout we've seen on 5G around the world. And cell phone technology has been a fast scaling technology. 5G is the fastest scaling cell phone technology so far, and it's quite impressive to see. I think that's an important part. We have seen our investments in technology and R&D actually paying off and gaining market share as well. The next part, which I think is equally important, is the step we took with the announced acquisition of Vonage, which will allow us to build an enterprise business where we can monetize together with our customers to CSPs on the capabilities of 5G network by providing the developer community with exposure to the API's we can actually develop in the 5G network. I think that's very exciting for the future.

An eventful full year. So, no opportunities to improve your golf handicap, I guess. Carl, what do you think about if you think about 2021?

I think it's a great testament to the collaboration efforts. The whole team, 100,000 employees in the company, actually delivered on all the things that Börje talked about. And the outcome is so strong. Everything from top line, pleasing the customers and so on, the improved profitability, but also cash flow, of course, which I think is maybe the ultimate testimony here to performance in the business, a record high cash flow for the year, the best we've seen in the history of Ericsson. So, I think that's – it's strong and it's a great team effort in Ericsson.

Great. Thanks, Carl. Thanks, Börje. With that starter, I will actually leave the word to you, Börje, to start your presentation. So please, Börje. Börje Ekholm : Thanks, Peter. And I hope your golf handicap has improved more than mine. Anyhow, good morning, everyone. And welcome to this presentation. I'm very happy that so many of you could join. So, thanks for being with us. I am very proud to present a good ending of 2021 as well as a very strong fourth quarter. I would say today's report is really a direct result of executing on the strategy we put in place to focus on extending our leadership in the mobile infrastructure business. And we do that by investing in R&D for technology leadership, but also that we can leverage this position we have in the mobile infrastructure business to establish and grow into an enterprise business. But more on that later on in the presentation. I also want to take this opportunity to thank all my colleagues at Ericsson for a very strong job done this past year. We faced pandemic challenges, but we've also faced supply chain challenges as well as inflationary pressures. But I must say it's a true testament to their ability to execute, basically great achievement on their part. 5G, as I said before, is the fastest scaling mobile technology we have seen, and deployments around the world have truly accelerated this past year. And we have been able to achieve a leadership position. So, today, we have 109 live 5G networks, we have 170 agreements or contracts with customers on 5G networks. And we have been able to capitalize on this leadership position to gain market share as well. We can also see that the investments we made in technology leadership actually results…

Thank you, Börje. So, good morning, everyone. And thanks for joining. And first, I just wanted to also echo what Börje said earlier. We're very proud of this result. And it's really the result of strategy execution. But let's have a look at the numbers then. So, net sales, SEK 71.3 billion with an organic growth of 2% for the group. And if we then adjust for the drop in Mainland China, where we have lost market share, as we have discussed many times, we have an organic growth of 5%, just as a reference then. And as you saw in Börje's graph of market areas, of course, this growth is really underpinned by our two largest market areas, being North America growing at 15% currency adjusted and Europe and Latin America 12%. This is a clear result in these cases by market share gains with the customer. So, that's encouraging to see. Börje also alluded to the global supply disturbances that remained during the quarter, but really thanks to the supply organization and all the hard work that we managed to continue to build resilience in the supply chain and deliver to customers according to their demand. And in fact, if we look at 2021, we have managed to increase the number of delivered radios every quarter sequentially. And in Q4, that's also true year-over-year. IPR revenues, SEK 2.4 billion in the quarter, including a portion of retroactive revenue from one contract that we signed, somewhat smaller contract that we signed during the quarter. And next quarter, IPR revenues will be impacted by several expiring patent renewal discussions and 5G license negotiations. So, assuming we don't sign those during the quarter, we estimate IPR revenues to be between SEK 1 billion and SEK 1.5 billion in the first quarter…

Thank you, Börje. So we will enter to the second part of this session, and that will be the Q&A. So, operator, can you please kick off that session please?

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The first question is from Alex Duval at Goldman Sachs.

Congrats on the strong results. Firstly, you delivered another quarter of very strong gross margins, both in the quarter, but also on a trailing four quarter basis. Understand you talk about investment in product quality. But I'm just curious to what extent this could be due to having less of a position in China and how much of a structural benefit that is? And more broadly, what are the key drivers of your strong gross margins and how sustainable should we expect that to be in 2022? A lot of investors interested in that, just given one of your competitors appears to be executing better on product quality.

I can start, for sure. I think what we see now when it comes to gross margin, first of all, it's across the board. So, we see improvement in all segments. That's encouraging for us. Not just one part, but all parts. When it comes to the key drivers for gross margin, I think it's really the technology level that we are able to offer to customers in combination with a constant improvement of the cost position also of the product or the offerings. And I think our R&D team is doing a great job in improving the product, designing it for a better cost position, but also actually better and better serviceability, installability in the field, which means a lot as well for the customer satisfaction, of course, for lead times, but also for our gross margins. I think therein lies the key drivers of gross margin. Anything to add, Börje? Börje Ekholm: I would only say that the reality is also that we have actually taken market share, which we should remember – and we've said that before, actually, it's more than dilutive in the short term, but very margin enhancing long term. And if you look at the numbers, you see actually quite a lot of headwind coming that way. So we feel quite comfortable about the gross margin going forward, to be clear on that.

Move forward to Aleksander Peterc at Société Générale.

I have actually two. One is just in terms of regions. Very strong growth in Europe and LatAm. And you commented on that already in your opening remarks. But could you perhaps tell us where you are now in terms of market share gains, momentum there? Is there still more to come in this region due to geopolitical shifts? And where we are in terms of 5G rollouts? Have we seen the peak here? Or do you still see strong growth going forward there? And then the second question is more on targets. So, on meeting or exceeding them nearly on all counts. But don't you think there's now time to have a new set of comprehensive and more relevant targets beyond just the EBITDA, 15% to 18% goal? When do you intend to update us comprehensively on that front? Börje Ekholm: We think we're still relatively early in the 5G rollouts if you look on the globe. So, we will continue to see good demand for 5G going forward. That's for sure. But I would also say one more thing – and that's on market share gains. Your question kind of hinted towards the geopolitical situation being a key driver of the market share gains. I will say it's not. So, in the markets where we have gained footprint, part of it can be explained by geopolitics, but most of it actually is perfectly competitive markets and open markets. So I would say the market share gains in reality comes much more out of it compared to the product portfolio and the big investments we made in R&D to make sure that we are on the forefront of performance. And that's why I want to reiterate that, when we start to look at infield performance of our equipment and networks, we see that we actually have – we come out with very high performance rankings, wherever we do them across the board. And that's something we don't take lightly. It's something we invest for and something that we're committed to deliver to our customers. You take the goal question on target.

Yeah, exactly. Aleksander, you asked about the targets also. I think what is important here is that, first of all, that we exceeded – or sorry, we reached the 2022 target one year early. And, of course, also we do have a different mix. We are investing in enterprise in a way that was not visible back in 2018, when we put up this 2022 target. So, it becomes a little bit less relevant then. What we really want to – the message we really want to send today is that we increased the ambition when it comes to the long term EBITDA, 15% to 18%. And we move it towards us in time and saying that we will have the ambition to reach that already in two to three years, as opposed to a more diffuse or abstract long term time horizon. So, I think that's the key here and we haven't spent time on the particular parts of 2022 targets. Now we look ahead, it's the 15% to 18% EBITDA that will guide us going forward.

We'll move to Dominik Olszewski at Morgan Stanley.

Two of them. The first one is on the Networks outlook. So, if we look at Dell'Oro, they've recently upgraded the outlook for RAM spending cumulatively out to 2025 by about 4%. And roughly half of that is from improving pricing. So, could you comment specifically on your ability to price favorably and maybe tie that into what sounds like more limited supply chain disruptions that you've seen recently? So that's the first question. And the second question is just more briefly, the margin performance in 2021 is strong given that you have 5% increase in the hardware mix. So, could you maybe just directionally give us a perspective on how the mix shift between hardware, software and services for 2022? Obviously, at this point, let's exclude Vonage from our conversation? Börje Ekholm: Should I maybe start with the second one around the mix question there. And it's right, we saw an increase of the hardware mix, which is actually very good because it means that we are shipping a lot of 5G equipment to customers as they build out the networks. Of course, and this is fully in line with what we want to do and our strategy. At the same time, over time, software will increase its share as well as Networks capacities is increased. That's true for Networks. It's true for Digital Services. It's even true for managed services where we're moving towards more of a software like model. And, of course, as well in the emerging business, which is a lot around scalable software solutions. So, I think without going into the specific metrics there, I think we're very happy about hardware having such a big part of the mix now today. And you see that we deliver great margins, even with such a high part…

Just to comment also on the mix question, one thing that we have worked quite a lot on is to improve the resilience in the company. One important part of that is to reduce the exposure to business mix, as well as geographic mix. So, you'll see us talk a lot less about the mix questions today than we did before. And the reason is that resiliency, and that's why we also feel more comfortable about operating the company with a lower, call it, capital or cash position going forward. And I think that's important to keep in mind.

We'll move further to the next question. It's from Francois Bouvignies at UBS.

I have two quick questions, if I may. One clarification, actually. First is, on your 2022 targets, what's the IPR run rate do you assume in terms of sales for the full year 2022? And when you look at your EBITDA target in the two to three years' time, what is the IPR as well that you have in this forecast? i.e. the recent negotiations, do you take that into account or not would be helpful. And the second question is on the OpEx. Maybe Carl, we have many questions around inflation and the impact and the supply chain. Can you help us understand what the OpEx run rate in 2022 may be that you see because you saw some seasonality, which is helpful, but I guess with the current environment, seasonality might be a bit different this time. So, just trying to understand the OpEx run rate in 2022 would be great.

On the OpEx side, and as you know, we refrain from guiding on specific individual lines too much on the P&L. It's really about the bigger value creation picture. But of course, there are inflationary pressures going on. And I can just say that our job when it comes to SG&A is, of course, to keep at cost discipline and efficiency to counter that, to counter salary increase pressures and other inflations. Of course, having said that, there are certain investments that we decide to make. They have to do with compliance and security, digitization as we have discussed before as well. But separate from SG&A, we have R&D. And there, of course, we will invest. If we see long-term value from R&D investments, we will certainly do that. And we will see both in the core business and in the enterprise side, of course, that we increase investments there. When it comes to IPR, I don't want to get into too much of specifics there. Of course, now we are in the situation here with certain renewals going on. So, I'll refrain from talking about the amounts there. But, of course, what we try to do is to maximize the IPR revenues that we have. We had historically a level of SEK 10 billion with a different currency rate perhaps, but this is, of course, the level that we strive to reach and then exceed over time. That's what I can say about IPR.

And, Carl, when you say that your mid-term target is to reach SEK 10 billion or so on the IPR, is it what you assume for your long term targets of EBITDA then of 15% to 18%? Is that what you apply? Or do you assume – yeah, just trying to understand your long-term forecast there.

Yeah, I understand your question. We haven't broken down the 15% to 18% in the components as such. We more see that as what we as a group will achieve in two, three years from now. Of course, there is a desire and ambition to grow the IPR revenues, but also margins in other parts of the business are expected to improve. So, it's going to be a mix, and we don't single out individual components at this stage.

We'll move to Sebastien Sztabowicz at Kepler Chevreux.

One question around China. How do you see the revenue trending in the coming quarters in China? And also, could you please make an update on the actions you have been taking in the country to system profitability, so far where we're staying right now? And the second one would be on the US market. I'm looking at Dell'Oro's forecast for the US, calling for only 3% growth in North America in 2022. But when I'm listening to management of AT&T and Verizon, they seems much more bullish than that in terms of mobile investment for the coming quarters with C-band spectrum deployment picking up. What is your personal view on the US market outlook for the coming quarters?

Should I start with China and you take US perhaps, Börje? On China, we see now that the reduced market share that was announced is the one we have basically in the business. We had some uptick in the fourth quarter, but that's more related to seasonality. So, we can expect that we will keep this level, around 3% market share. Of course, an ambition is to always stay close to customers and try to regain business and regain market share. But for planning purposes, I think we can assume that we will stay on that level for now. We have taken some actions in China to reduce cost and to right-size the organization in relation to this new volume that we see in China. And that's already done. And we've taken that, also restructuring cost associated with that already in Q4. So, that's basically done already. On US? Börje Ekholm: If we look at the Dell'Oro forecast, and I think it's often hard to predict how the ramp up of a new technology would look like and I think that's what we've seen for 5G as well. So, Dell'Oro has been a little bit behind. What is the reality when we look around the world is a very strong demand for 5G and it's on the back of demand from, in a way, consumers and the enterprises to deploy the technology. We see a growing interest from pretty much across the industry sectors being in mining, being manufacturing, being in logistics. So, we see this demand for 5G picking up. That's why I'm, on a more personal level, more optimistic about the growth forecast for 5G as well as the longevity of the investment cycle. Because, of course, you will first have to build coverage, you will have to build performance in dense urban areas, then you're going to build them in suburban, then you're going to build it on the countryside. So, we're going to see – at least, this is my view – a little longer investment cycle than we've seen before. Because the characteristics of 5G is so different from any other mobile technology that, in reality, was only consumer-centric. With 5G, we're opening up one completely new field or new segment, being enterprises. So I think we're underestimating the growth potential in 5G rollout. But we have also said that, not to be caught in our own Kool Aid, it's better to take an external forecast. It will suffer from shortcomings, et cetera, but as you asked, I think it's fair to say that we are more optimistic near term and even more optimistic long term.

We'll move to Frank Maaø at DnB. Frank Maaø: My question is really, first, how should we think about the target range that you will drive this for in Networks? I accept the fact that you say that the 2022 targets for the group is no longer very relevant due to changes in the business mix. But if we zoom in on Networks for a moment, Networks, there's a pretty large discrepancy between the target range and what you actually have delivered. So, my questions would be then, is there any key reasons for any margin erosion year-on-year in 2022? For instance, raw material inflation, component prices sort of rising and so on. Or do you expect that to basically be offset by the efficiencies that you pursue in design and R&D and so on? So, that's kind of my first question. And then, if I may, a quick clarification, actually, if I understood Börje's statement on the DPA breach issue correctly. Did you say that there actually has been a DPA breach? Or was that a misunderstanding on my part? Börje Ekholm: On the DPA, it's a correspondence from the DOJ that there is a breach, and they can determine that – that's kind of their determination. When we have something more to talk about here, we will come back. I just literally – will be inappropriate to discuss any of the details.

Frank, on the question of the target, I think the real focus here is to move now to this long-term two to three year out EBITDA targets. And so far, we haven't broken that down as to segments. Some point, we might come back with that. But so far, that is the group target. 2022 targets were, of course, broken down by segments. And if we look, historically, then at Networks, we have been in this range or even above this range that we provided. We are not here today to guide specifically on Networks for 2022. But the targets remain. That's what we say. Of course, our entire job is to deliver as good a profitability and growth as we possibly can in Networks for this year, but also going forward. So I think that that's about as much as we can say about this. But let's shift focus now to this two to three-year out EBITDA targets. That's really what's going to power our company now.

We'll move to Daniel Djurberg at Handelsbanken.

Congratulations. Two questions, if I may. The first to call, on the tax rate effective at 25%, can you give any guidance or some kind of ballpark would be prudent for 2022 to use, given the mix that you expect? And also, to Börje, except for this cellular enterprise private networks opportunity, a difference that we see at least between 3G, 4G and 5G is this fixed wireless access, first responder network, et cetera. Can you comment a little bit on your view on these markets, if it can also help to prolong the five year cycle?

On the tax rate, I would say the 25% that we have now for 2021, that is a good indication of where we should be with the current mix, geographical mix and so on and the profitability levels we have. I think it's a fairly good assumption to use going forward as well. As you know, we come from much, much higher levels. And it's really how the company is set up. We do have tax losses from past history, as you know, which means that as we become more profitable, the tax rate actually comes down. This is exactly what we see happening now. Then, of course, there will be changes over time in terms of geographical mix. Let's say if we increase the presence strongly in the US, for example, for the enterprise side or other changes that could that could impact this percentage as well. But again, if you look at the underlying business today, this is a fair representation of where we should be. Börje Ekholm: And you're absolutely right, we were a little bit brushing away some of the actually very big opportunities, like fixed wireless access, like first responders. Just as a small comparison, what we see in 4G where actually fixed wireless access have been rolled out in certain countries around the world, we see a very rapid uptake of that service. And that is nowhere near where it will be on a 5G network. So, we're actually very optimistic that we will start to see fixed wireless access to be rolled out across the world, in many geographies and actually provide an additional market segment that today is rather limited. And the interesting thing, when you look at – many countries have a commitment to build out broadband to the consumer and to households and provide 98% coverage and some say 100%, et cetera. Actually, wireless is a much faster way to do that. And you can almost, in most countries, build out the 5G coverage that will give you a true broadband experience for the consumer in much shorter time at a much lower cost than you can do with a fixed network. So, I'm actually convinced that we're going to see fixed wireless access becoming a large submarket in the 5G consumer market. Then we're going to see the enterprises, which clearly has a lot of interest. It's probably going to take a little bit longer for that to materialize than, I think, fixed wireless access. We see first responders around the world, they have already migrated over to 4G, to some extent, but we see an increasing interest to go over to 5G as well. So, there are a number of, call them, new segments, which have not really been factored into the market forecast for 5G. And that's why I say that my perspective is we will see higher growth much longer than anyone predicts today.

We'll move into this session's last question. But I see I have a quite a long line here. And please reach out to either the IR team or the media team, so we can answer those questions. So, the last question is from Peter Kurt Nielsen at ABG.

A question on Digital Services, please. You reiterate your expectations for 2022, with a positive tilt towards the second half of the year. Your comments on your long-term margin potentially exceeding those in Digital Services, would it be correct to interpret your view on Digital Services that once the business turns breakeven, positively impacted by the growing 5G core revenues, the curve towards those profitability targets will perhaps be steeper than initially thought? And the route approached, breakeven to those targets will be quite quick. Would that be a correct interpretation? Börje Ekholm: The reality is that turnaround of Digital Services will be on the back of better software revenues. And that's why I would also say that my prediction is that we will – as soon as reach breakeven and reach the volume to be at breakeven, it's actually a smoother development and faster development to reach the higher margins. But it requires us to gain the volume, the software volume, to reach the breakeven. That's going to take a bit of time, especially when we lost China. And as you know, China is really the first country to roll out any massive traffic on 5G networks. So, that's why it's so meaningful that we lost that. But now, we see that the rest of the world will start to generate those revenues, but they come in the back of this year.

Before ending today's Q&A session and presentation over the Q1 – sorry, Q4 results for 2021, short closing remark from you, Börje. Börje Ekholm: Thanks, Peter. And thanks, everyone, for listening in. We feel that we're continuing to execute on our strategy to extend the leadership in the core mobile infrastructure business, where we see very strong demand for 5G as we have discussed now, but we also see a great opportunity to pivot the company towards an enterprise business, which we will establish over the coming few years. And in two to three years, it will be a meaningful contributor to reaching the long term target of an EBITDA margin of 15% to 18%. And we see that we should be able to do that in the next two to three years. And we're, at least on this side, extraordinary excited about the outlook for the 5G market, but also what we can do in the enterprise field.

Thank you. Börje Ekholm: Thank you.