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. As usual, we will start with a presentation from, Börje and Carl, and then we will end this 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 able to ask questions. 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 result 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 this risk and uncertainties in our earnings report as well as in our annual report. 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. Before starting presentation, I would like to ask one question to both Börje and Carl, the sort of event that stays in your mind when you think about 2021. I'll start with you, Börje. What's sort of the situation, event that you will think about when thinking back on 2021?
I think of a couple of things, actually. The first one is really the accelerated rollout we've seen on 5G around the world. You know, cellphone technology has been a fast-scaling technology. 5G is the fastest scaling cellphone 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 in 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, the CSPs, on the capabilities of 5G network by providing the developer community with exposure to the APIs we can actually develop in the 5G network.
I think that's very exciting for the future.
An eventful year, so an opportunity to improve your golf handicap, I guess. Carl, what do you think about 2021?
I think it's a great testament to the collaboration efforts of 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, via improved profitability, but also cashflow, of course, which I think is the, maybe the ultimate, testimony here to performance in the business. A record high cashflow for the year, the best we have seen in the history of Ericsson. I think that's it. It's strong, and it's a great team effort in Ericsson.
Great. Thanks, Carl. Thanks, Börje. With that as a starter, I will actually leave the word to you, Börje, to start the presentation. Please, Börje.
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. 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 a enterprise business. 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. I must say it's a true testament to their ability to execute. Basically, a 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. 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. 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 in a performance of the networks, of the deployed networks for our customers. We have recently seen, basically in three different independent benchmarks, that the winners in each of the benchmarks have one thing in common. They actually rely on Ericsson for their primary vendor relationships. It shows that while you know the measurements always vary by benchmark and the standards vary by benchmark, we can see that we can deliver network performance that's second to none, and that's ultimately what's going to drive our business going forward. Now let's hit on a couple of key benchmarks from the fourth quarter. The momentum in our core mobile infrastructure business continued throughout the quarter.
This is of course something that's basically the cornerstone of the company. We're not gonna lose focus on that, even as we expand into enterprises. We offset the impact from the reduced market share in mainland China by growing elsewhere. Organically, total growth was 2%, but if we exclude China for just comparisons, our organic growth was 5%. For the whole of 2021, we saw an 8% growth if we exclude China. Profitability remained very strong, and we had the gross margin in the fourth quarter of 43.5% versus 40.6% the year before. Basically, that's a result of improvements in all segments. EBIT margin reached 17.3%, and free cash flow before M&A was SEK 13.5 billion.
For the full year, our gross margin was also 43.5%, EBIT margin 13.9%, and free cash flow SEK 32.1 billion. I would say all of them are indicators of the resiliency and strength of our underlying business. In our Q3 call, I shared a little bit more about our thoughts on our growth plans into enterprise. Of course, I'm delighted about the step we took during the fourth quarter with the announcement of our intent to acquire Vonage. Based on learnings from our past acquisitions, Vonage will remain a standalone entity in Ericsson and operate with limited integration. This is the model we deployed actually for Cradlepoint and the integration of Cradlepoint. There we have been able to execute in line with our investment case.
That's despite supply challenges as well as a relatively slow pickup of 5G modems in the beginning of the year. The light integration will allow Vonage to continue to execute on growing the business as well as on the financial performance. In parallel with that, we will also start to invest in our Global Network Platform that basically will allow CSPs as well as ourselves to monetize the features of the 5G network. We'll call it the performance characteristics or APIs of the 5G network. By developing the APIs, we can actually, through the Vonage acquisition, expose the APIs to the Vonage developer ecosystem to drive completely new applications onto digitalizing enterprises, but also for consumers.
Of course, in addition to Vonage, our enterprise business consists of our dedicated networks as well as Cradlepoint and IoT. That's part of the more wireless mobile networks that we are focusing on as well. We expect Vonage to close here during Q1 or possibly into Q2, depending on regulatory approvals and shareholder votes. I would also just touch upon the correspondence that we received from the DOJ during the fourth quarter, where there is a breach in the deferred prosecution agreement as Ericsson basically failed to provide certain documents and factual information. I'm sorry to say, but at this point in time, we will have no further information to share.
I will say that we will update the market as soon as we have additional information about the matter, and then we will share it, of course. In the meantime, I would also say that we continue to invest very heavily in building a world-class compliance program and basically a culture of integrity at the company. We're taking significant investments. We took them already last year, and we will continue to do that during 2022. Our commitment to be world-class in compliance stands firm. We reached also our targets, financial performance targets for 2022, of 12%-14% EBIT margin, basically one year early. I remain very confident about the future growth of our core business, the core mobile infrastructure business.
For 2022, we see the targets to remain in place, i.e., the 12%-14%, if we exclude the Vonage acquisition. However, we also see that when we determined the target for 2022, that's back in 2018, our business mix looked a bit different, and our investment mix looked a bit different. What we see now, while we're of course committed to the targets, we see an opportunity to develop a very strong enterprise business that we see will allow us to also improve profitability over time.
Our focus now is therefore to accelerate the achievement of what we said would be the long-term target of 15%-18% EBITA margin, and we should be able to do that no later than two-three years out. We're very excited about the opportunities we see in Enterprise, but it's also important that we make sure to accelerate to reach the long-term target. As I think that will put us on a very different growth trajectory as well as profitability development. In the last few years, we've also taken steps to improve the capital efficiency of the company, and basically we see today that we can operate the company with much less capital than we could before.
Basically that allows us to pay cash for the Vonage acquisition, and at the same time, it does not impede our ability to invest in growing the rest of our company and the rest of our business. When we take all these factors into account, the board has decided to propose a dividend of SEK 2.50 per share. That's an increase of 25% compared to last year, and it reflects the confidence that we have and stability we see in our business. Now moving on to market area performance for the fourth quarter. Starting with Europe and Latin America, sales increased by 12%. Breaking that down, we can see that Europe grew 11% and Latin America 17% in organic growth.
This strong development was driven by growth in both Networks as well as Digital Services and is really on the back of market share gains. 5G momentum continues in North America, where we saw very good development. Sales increased by 15%, driven by strong demand for 5G. It's worth to remember in the year, we've actually signed now 5G contracts with all Tier 1 operators, representing the biggest contracts in our company's history, and that's been done in North America, of course, or in the U.S. In Middle East and Africa, sales increased by 5% and largely driven by growth in Africa, where Digital Services in particular saw a strong demand for software upgrades. Sales in Northeast Asia decreased by 22% year-over-year, and that's on the back of materially lower market share in Mainland China.
Finally, Southeast Asia, Oceania, and India, their sales decreased by 13% versus 2020, and that's really a tough comparison in the fourth quarter, primarily for Networks. Networks actually shrank, but we saw a good development in Digital Services instead. Let's look now at the market segments or business segments. If we start with Networks, sales adjusted for comparable units and excluding Mainland China grew by 6%, and we saw double-digit growth in North America, Europe, and Latin America. Gross margin increased to 46.4% compared to 43.5% year-over-year, and that's really due to operational leverage. In Digital Services, sales adjusted for Mainland China increased 3%.
Gross margin increased to 43.4%, driven by increased software sales, which is actually in line with the strategy we have for Digital Services. Digital Services continues to develop according to the plan. What we are starting to see, though, is that as 5G Core or at least starts to go live with customers, we are starting to see revenues being generated from those contracts. For 2022, we expect a limited loss for Digital Services, but the improvement is going to be tilted towards the second half of the year, and that is due to the 5G networks are increasingly starting to carry traffic throughout 2022. Managed Services sales declined year-over-year, basically as new deals could not fully offset lower customer demand.
We also had contract rescoping as well as planned exits. To grow profits, we will accelerate the ongoing transformation towards a more software-driven offering with higher margin potential. In Emerging Business and Other, we're seeing increasing momentum for our 5G portfolio in dedicated networks as well as Cradlepoint. Both sales and gross margin improved with Cradlepoint as the main contributor. The development of Cradlepoint, as I said before, is well in line with our acquisition plan. With that, I'm gonna leave the word over to Carl to go through a little bit more of the details in the report. Carl.
Will do. Thank you, Börje. Good morning, everyone, and thanks for joining. First I just wanted to also echo what Börje said earlier. We're very proud over this result, and it's really a result of strategy execution. Let's have a look at the numbers then. Net sales SEK 71.3 billion with an organic growth of 2% for the group. If we then adjust for the drop in Mainland China where we have the lost market share, as we have discussed many times, we have an organic growth of 5%, just as a reference there.
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 at 12%. This is a clear result in these cases by market share gains with the customers, so that's encouraging to see. Börje also alluded to the global supply disturbances that remained during the quarter. 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. 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. Next quarter, IPR revenues will be impacted by several expiring patent renewal discussions and 5G license negotiations. 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 2022. Börje showed us earlier the graph on gross margin numbers, the rolling four quarter profile there. As you saw, gross margin then excluding restructuring charges amounted to 43.5%, which is an improvement of 290 basis points year-over-year with improvement in every segment. In Networks, we saw continued operational leverage.
In digital services, the share of software as a portion of total sales increased. Of course, both of these fully in line with strategy. In digital services again, the 5G Core sales started now to progress well, and we saw revenues increasing in the quarter as we deliver on these contracts. Of course, this will continue going forward as well. To date, we have landed 50 5G Core contracts. R&D expenses, as you see, now SEK 11.7 billion, up from SEK 10.5 billion, and this is really following our decisions to invest across the group in the 5G portfolio, but also the addition of Cradlepoint if we make the year-over-year comparison. EBIT at SEK 12.3 billion or an improvement of 12% versus last year.
Of course, this represents an EBIT margin of 17.3%, as Börje mentioned as well, which is a 150 basis point improvement year-over-year. I wanted to point out net income as well. Strong growth on net income level, 41% up year-over-year to SEK 10.1 billion. Of course, it's a result of the improved earnings as such, but also reduced taxes. We'll come back to taxes a little bit more when we look at the full year performance in a moment here and free cash flow as well. Let's do exactly that. Let's turn over to the next slide and look at the full year in numbers.
Reported sales, as you see, then SEK 232.3 billion, which is rather flat reported than compared with last year, but organically, it's a growth of 4%. And again, if we were to exclude China, it's a growth of 8%. Hardware now actually consists of 46% of the sales mix in the group. That's up from 41% in 2020, which is a strong development as well. It shows the demand for our offering. Gross margin improved 290 basis points, again to 43.5%. Continued improvements across the board in spite actually of the drop of IPR revenues of about 1.8 billion less than last year.
In Networks, continued operational leverage. I said that before also commenting on the quarter, but that's also true for the full year. The gross margin in Networks was 47% improvement of 320 basis points in Networks. Digital Services, 42% gross margin impacted, of course, as we have discussed quite a lot in these calls earlier, impacted by the initial costs for 5G Core contract deployment. As I said during the year, we have seen a good increase in revenues from the 5G Core contracts, and we expect that to continue as the traffic in 5G network grows. OpEx, as you see here, SEK 68.8, SG&A, rather flat. There on SG&A, we continue to focus on efficiency and tight cost control throughout the organization.
R&D, on the other hand, grew because we are investing in the 5G portfolio. You see a growth by SEK 2.6 billion year-over-year here. We invest in cloud native 5G portfolio in Digital Services, and in Networks, of course, in our 5G portfolio, plus the Cradlepoint acquisition, which also contributes here. EBITDA margin came out at 14.6%. As you know, this is the metric we use for the long-term target. As Börje's now said, and this is an important piece of the report today, that we say that the long-term target is now going to be reached, that's our expectation and ambition, within two-three years.
Continuing down the P&L and the EBIT margin here, SEK 32.3 billion, excluding restructuring, up from 29.1. This is then at EBIT margin of 13.9%, which is just at the upper part of the range for the 2022 target, which thereby is reached one year early, as Börje said already. Also a few comments on tax then. As now our profitability grew, we were also able to utilize a bit more of the tax assets we have, the withholding tax assets. Effective tax rate now came out at 21% compared actually with 35% in 2020. There was a one-off benefit from impaired withholding tax assets that we were now able to utilize in the fourth quarter.
If we add that back as a bit of a one-off, the effective tax rate would be at 25%, still down 10 percentage units than from 2020. Earnings per share, fully diluted, SEK 6.81. I wanna mention return also. Return on capital employed came out at 18.4%, which is an increase from 17% last year. Both of these numbers include the cash position to the full extent, but we can also calculate excluding cash, and then ROCE would then have been 37%. Let's move from P&L metrics into cash flow and look at how the earnings translated into free cash flow then.
First of all, cash flow from operating activities increased to SEK 15.2 billion in the quarter, and that led us to a full year outcome of SEK 39.1 billion, and this is about SEK 10 billion better than 2020. We do put a lot of focus on working capital in our company end to end, and we have seen the curve improve over all these years since 2017. Of course, this year I can say the working capital was, or this quarter, I should say, the working capital was helped by certain prepayments also by customers. The other important factor that happened in working capital is really the increased investments in inventory levels to manage the supply situation.
On the other hand, that was offset at least partly by an increase in accounts payable during the quarter. If you continue down this table, then you see the free cash flow of SEK 13.5 billion, and this is really the key metric for us, free cash flow before M&A. That led us to a free cash flow before M&A for the full year of SEK 32.1 billion, which is an increase of SEK 10 billion from the year before. That in turn was actually an increase of about SEK 15 billion from the previous year, 2019. This translates for the full year into 13.8% free cash flow as a percentage of net sales.
As you know, we have talked about the long-term target on this metric between 9%-12%, so we clearly beat that target also in 2021. On the back of this strong cash flow generated during the year and in the quarter, we managed to increase our net cash position with SEK 10 billion. It now amounts to SEK 65.8 billion. The gross cash position is SEK 97.6 billion, up around SEK 26 billion if you compare with a year ago. The majority of that increase comes from cash flow that we have generated in the business and a smaller part, let's say about SEK 2 billion, comes from net activities from long-term debt.
We have checked the history books of Ericsson and so far we haven't found a higher net cash position than the SEK 65.8 billion in the history of the company. Vonage, mentioned already by Börje, expected to close now Q1 or Q2, and that's, as you know, a $6.2 billion acquisition. Of course we have, as we have continued to build up the cash position now compared with when we announced the acquisition, we are going to be able to fund this with cash at hand. That's good.
Before handing back to you, Börje, here, I just wanted to point you in the direction of page 13 in the report where we have included certain key data points, including the Dell'Oro market forecast, for example, and some data on seasonality, et cetera. With that, thank you, and I hand back to you, Börje.
Thank you, Carl. To sum up, we're proud to report a solid quarter to complete a very strong year for Ericsson. We continue to be well positioned to take advantage of the market growth opportunities as 5G continues to ramp globally. The business momentum remains very strong. With the strong core mobile infrastructure business, we can now take advantage of growth opportunities in the enterprise segments. Our expansion into enterprise is focused on leveraging our capabilities from the core mobile infrastructure business. In a few years, we will have fundamentally shifted our business mix towards much higher portion of revenues coming from enterprises with a higher growth potential as well as profit potential. Our strategy is on track.
We invest in R&D to deliver technology leadership, which in turn can drive incremental growth in our core business. In wireless enterprise growth, we're committed to closing, of course, the Vonage transaction and thereby we can continue the excellent work already begun by Rory and the rest of the Vonage team. We hope they will join us very shortly. In the longer term, we see here that we will also leverage the platform we get through Vonage to create new, very valuable APIs for wireless communication and network capabilities, and that's going to be delivered through our Global Network Platform. All of this means better monetization potential for both our customers, the CSPs, as well as Ericsson, by providing the 5G APIs to Vonage global developer community.
I'm truly excited of what lies ahead as we gear up for growth, where we expect the enterprise segment, as I said, to provide higher growth potential as well as profitability than our core infrastructure business. This makes it now our key focus to really achieve the long-term target of EBITA, a margin of 15%-18%, and we should be able to do that no later than two-three years out. At that point in time, we will have a better profit potential or profit mix as well as growth potential in the company. With that, I would like to conclude this part of the presentation and give the word back to you, Peter, for questions.
Thank you, Börje. We will enter to the second part of this session, and that will be the Q&A. Operator, can you please kick off that session, please?
Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you'd like to ask a question, please press zero one on your push-button phone. If you'd like to decline from the polling process, please press zero two . If you're streaming the webcast, please mute the webcast audio while asking a question to minimize any audio feedback.
Great. Thank you. The first question is from Alexander Duval at Goldman Sachs. Good morning, Alex.
Good morning, everyone, and congrats on the strong results. Thank you very much for the question. Firstly, you delivered another quarter of very strong gross margins, both in the quarter but also on a trailing four-quarter basis. I understand you talk about investments 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. More broadly, what are the key drivers of your strong gross margins and how sustainable should we expect that to be into 2022? A lot of investors are interested in that just given one of your competitors appears to be executing better on product quality. Many thanks.
Do you take?
I can start for sure. Thanks, Alex. I think what we see now when it comes to gross margin, first of all, it's across the board. We see improvement in all segments. That's encouraging for us. It's 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 the constant improvement of the cost position also of the product or the offerings.
There, 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?
I would only say that, you know, the reality is also that we have actually taken market share.
Mm.
which we should remember, and we've said that before, actually is margin 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. We feel quite comfortable about the gross margin going forward, to be clear on that.
Yeah. Thanks, Börje. Thanks Alex for that question.
Many thanks.
Move forward to Alexander Peterc at Societe Generale. Hello, Alexander.
Yes, good morning. Thanks for the question. 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. 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? The second question is more on targets. Congratulations on meeting or exceeding them nearly on all counts.
Don't you think there's now time to have a new set of comprehensive more relevant targets beyond just the EBITA 15%-18% goal? When do you intend to update us comprehensively on that front? Thanks a lot.
We think we're still relatively early in the 5G rollouts, if you look on the globe. We will continue to see good demand for 5G going forward, that's for sure. 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 would say it's not. 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. I would say the market share gains in reality comes much more out of a competitive product portfolio and the big investments we made in R&D to make sure that we are on the forefront of performance.
That's why I want to reiterate that when we start to look at in-field performance of our equipment and networks, we see that we actually come out with very high performance rankings wherever we do them across the board. 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. Maybe you take the goals question or targets question.
Yeah, exactly. You, Alexander, you asked about the targets also. I think what is important here is that first of all we reached the 2022 target one year early. 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.
The message we really want to send today is that we increase the ambition when it comes to the long-term EBITDA 15%-18%, and we move it forward towards us in time, and saying that we will have the ambition to reach that already in two-three years, as opposed to a more diffuse or abstract long-term time horizon. I think that's the key here. We haven't spent time on the particular parts of 2022 targets. Now we look ahead, it's the 15%-18% EBITDA that will guide us going forward.
Okay.
Very much.
Thanks, Alexander, for those two questions. We'll move to Dominik Olszewski at Morgan Stanley. Good morning, Dom.
Hi. Morning, everyone. Thank you for taking the question. Two of them. The first one is on the Networks outlook. If we look at Dell'Oro, they've recently upgraded the outlook for RAN spending cumulatively out to 2025 by about 4%, and roughly half of that is from improving pricing. 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? That's the first question. The second question is just more briefly. The margin performance in 2021 is strong given that you have 5% increase in the hardware mix. Could you maybe just directionally give us a perspective on how the mix shifts between hardware, software and services for 2022?
Obviously at this point, let's exclude Vonage from that conversation. Thank you.
Should I maybe start with the second one around the mix question there? 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, 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 are moving towards more of a software like model. Of course as well in Emerging Business, which is a lot around the scalable software solutions.
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. You see that we deliver great margins even with such a high part of hardware. Which means is another proof point of what we've said many times before, that the differences in margin between services, hardware and software has actually decreased quite a lot over time. Used to be very large differences, but now we're able to deliver both services, hardware and software with decent profitability levels, and we are very happy about that. Overall, I would say the overriding strategy is to increase the software share, which we also see, for example, in Digital Services in this quarter.
When it comes to your question on the market and the Dell'Oro outlook, yeah, I think we can repeat when it comes to 2021, the market outlook has constantly increased, the projections have increased. Now, Dell'Oro's looking back at 2021, looks at 13% growth, 2021, and now it's 3% or 4% for next year, depending on if China is included or not. Let's see what will happen with the market. We clearly see very good momentum, that's for sure, and very high demand from the customers as evidenced in the fourth quarter then. You mentioned the supply.
I think we said everything we could around that, we managed to navigate through these disturbances in the fourth quarter and we will certainly continue to monitor that very carefully going forward.
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. That one important part of that is to reduce the exposure to business mix as well as geographic mix. So you see us talk a lot less about the mix questions today than we did before, and the reason is that resiliency. That's why we also feel more comfortable about operating the company with a lower, call it, capital or cash position going forward. I think that's important to keep in mind.
Thanks, Börje, and thanks, Dom. We'll move further.
Thank you.
To the next question. It's from François-Xavier Bouvignies at UBS. Good morning, Francois.
Good morning, everyone. I have two quick question, if I may. I mean, one clarification actually. First is, on your 2022 targets, what the IPR run rate do you assume in terms of sales for the full year 2022? When you look at your EBITDA target, in a two-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. The second question is on the OpEx. Maybe Carl. I mean, 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, you know, with the current environment, seasonality might be a bit different this time. Just trying to understand the OpEx run rate in 2022 would be great. Thank you very much.
Mm-hmm.
Thanks, François.
Should I take it?
Yeah.
Yeah. 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 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.
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. I'll refrain from talking about amounts there. 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.
Carl, just when you say that your midterm target is to reach SEK 10 billion or so on the IPR, is it what you assume for your long-term targets or EBITDA then of 15%-18%? Is that what you apply or do you assume? Yeah, just trying to understand your long-term forecast.
I understand your question. We haven't broken down the 15%-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 will or are expected to improve. It's going to be a mix, and we don't single out individual components at this stage.
Thank you very much.
Okay.
Thank you. Thanks, François, for those two questions. We'll move to Sébastien Sztabowicz at Kepler Cheuvreux. Good morning, Sébastien.
Yeah. Hi, everyone, and thanks for taking the question. One question around China. How do you see the revenue trending in the coming quarters in China? Also, could you please make an update on the actions you have been taking in the country to shift profitability so far, where we are standing right now? The second one would be on the U.S. market. I'm looking at Dell'Oro's forecast for the U.S. calling for only 3% growth in North America in 2022. When I'm listening to the management of AT&T and Verizon, it 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 U.S. market outlook for the coming quarters?
Thank you.
Should I start with China and you take, U.S. perhaps, Börje?
Yeah.
Yeah. 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. We can expect that we will keep this level around 3% market share. Of course, an ambition is to always stay too close to customers and try to regain business and regain market share. 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. That's basically done already.
On U.S.
Yeah. If we look at the lower forecast, it's often hard to predict how the ramp up of a new technology would look like. I think that's what we've seen for 5G as well. The lower 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, you know, across industry sectors being in mining, being manufacturing, being in logistics. We see this demand for 5G picking up.
That's why we're, you know, I'm on a more personal level more optimistic about the growth forecast for 5G as well as about the longevity of the investment cycle. Because of course you will first have to build coverage. You will have to build, you know, the performance in dense urban areas, then you're gonna build them in suburban, then you're gonna build it on the countryside. So we're gonna see at least, in 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.
You know, 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. You know, as you asked, I think it's fair to say that we are more optimistic near term, and even more optimistic long term.
Thanks, Börje. Thanks, Carl, for those answers. Thanks, Sébastien. We'll move to Frank Maaø at DNB. Good morning, Frank.
Yes, good morning. My question is really, you know, first, how should we think about the target range that you have provided for Networks? I accept the fact that you're saying that the 2022 targets for the group are no longer very relevant due to changes in the business mix. If you zoom in on Networks for a moment, there's a pretty large discrepancy between the target range and what you actually have delivered. My questions would be then, you know, is there any key reasons for any margin erosion year-on-year in 2022, for instance, raw material inflation, component prices rising, and so on?
Do you expect that to basically be offset by the efficiencies that you pursue in design and R&D and so on? That's kinda my first question. 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? Thank you.
On the DPA, it's a correspondence from the DOJ that there is a breach and they can determine that. You know, that's kind of their determination. When we have something more to talk about here, we will come back. I just literally would be inappropriate to discuss any of the details.
Okay.
Okay. Frank, on the question of the target, I mean the real focus here is to move now to this long-term, two to three year out, EBITDA targets. So far we haven't broken that down as to segments. At 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. 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 profitability and growth as we possibly can in Networks for this year, but also going forward. I think that that's about as much as we can say about this. Let's shift focus now to this two- to three-year-out EBITDA targets. That's really what's gonna power our company now.
Thanks, Frank. We need to move to the next question. Th ank you, Frank. We'll move to Daniel Djurberg at Handelsbanken. Please, Daniel.
Thank you very much, and thank for taking my question and congratulations. If I may, the first to call on the tax rate effective at 25%. Can you give any guidance or some kind of ballpark what could be prudent for 2022 to use as a given the mix that you expect? To Börje, except for the cellular enterprise private networks opportunity, a difference that we see at least between 3G, 4G, and 5G is this Fixed Wireless Access, first responder networks, 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? Thank you.
Okay. Thanks, Daniel. Yeah, 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 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. Of course, there will be changes over time in terms of geographical mix.
Let's say if we increase the presence strongly in the U.S., for example, through the enterprise side or other changes that could impact this percentage as well. Again, if you look at the underlying business today, this is a fair representation of where we should be.
You're absolutely right. You know, we're 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 has been rolled out in certain countries around the world, we see a very rapid uptick or uptake of that service, and that is nowhere near where it will be on a 5G network. 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.
The interesting thing, when you look at, you know, many countries have a commitment to build out broadband to the consumer and to households and provide, you know, 98% coverage, and some say 100%, et cetera. Actually, wireless is a much faster way to do that. 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. I'm actually convinced that we're gonna see fixed wireless access becoming a large sub-market in the 5G consumer market. Then we're gonna see the enterprises, which clearly has a lot of interest. It's probably gonna 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. We see an increasing interest to go over to 5G as well. There are a number of, call them new segments, which have not really been factored into the market forecast for 5G. That's why I say that my perspective is we will see higher growth much longer than anyone predicts today.
Thanks. Thanks, Daniel.
That's good.
Thank you.
Thanks very much.
Yeah. Thank you, Daniel. We'll move into this session's last question, but I see I have quite a long line here, and please, reach out to either the IR team or the media team, so we can answer those questions. The last question is from Peter Kurt Nielsen at ABG. Please, Peter.
Thank you, Peter. I'll keep it brief. Thank you, gentlemen. A question on Digital Services, please. You reiterate your expectations for 2022 with a positive tone towards the second half of the year. Your comments on your long-term margins 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 post a breakeven up to those targets will be quite quick. Would that be a correct interpretation? Thank you.
The reality is the turnaround of Digital Services will be on the back of better software revenues. That's why I would also say that my prediction is that we will, as soon as we 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 gonna take a bit of time, especially when we lost China. As you know, China is really the first country to roll out any massive traffic on 5G networks. That's why it's so meaningful that we lost that.
now we see that the rest of the world will start to generate those revenues, but they come in the back of this year.
Thanks, Börje. Thanks, Peter Kurt.
Excellent. Thank you.
Thank you.
Thank you very much.
Before ending today's Q&A session and presentation over the Q4 results for 2021, a short closing remark from you, Börje.
Thanks, Peter Nyquist, 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. We also see a great opportunity to pivot the company towards an enterprise business, which we will establish over the coming few years. In two-three years, it will be a meaningful contributor to reaching the long-term target of an EBITA margin of 15%-18%, and we see that we should be able to do that in the next two-three years. We're, at least on this side, extraordinarily excited about the outlook for the 5G market, but also what we can do in the enterprise field.
Thank you.
Thank you.