Hello, everyone, and welcome to our call covering the announcement of entering into the merger agreement to acquire Vonage for $21 per share in cash corresponding to a $6.2 billion. With me here today are Börje Ekholm, President and CEO of Ericsson, and Carl Mellander, our CFO. As usual, we will end the presentation with a question. In order to ask questions, you will need to join the conference by phone. Details on that can be found on today's press release and on our websites, ericsson.com/investors.
Before starting, I would like to read the following. We've been making forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risk and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call.
All to read about these risks and uncertainties in our earnings or in our earnings report or in our annual report. With that said, I would like to hand over the word to you, Börje. Please, Börje.
Thank you, Peter. A warm welcome to everyone on the call, and I'm really happy you could join us with such a short notice. Today, we have the pleasure of announcing our intention to acquire Vonage for $21 a share, or that is an enterprise value of $6.2 billion.
Vonage is a leader in the communications platform industry, providing enterprise services across the communication as a service offering. We see this as a very attractive market with a significant growth potential. Vonage has today a global customer base of 120,000, but more importantly, it has over 1 million registered developers. They're also having a good sales growth and very solid sales growth and a good free cash flow generation. It's a strong standalone business.
As we have time to learn more and gotten to know the management, we have been increasingly impressed by the development in the business. As such, we're continuing and are committed to investing in the business as it is today. We're both gonna invest in increasing R&D and sales and marketing in order to accelerate already strong growth prospects in the core business.
We see very good prospect for growth in the current business as well as margin expansion. Over time, we're even more excited about building the next generation revenue opportunity by monetizing quality of services capabilities in the 4G and 5G networks. We will describe, of course, this more in detail today, but what we see here is that we can establish a joint global platform for open innovation.
That is a joint capability that's going to help the industry monetize infrastructure investment that the service providers have made in 4G as well as 5G networks. We see this as a fundamental path to digitalize enterprises. It's all about supporting the developers here in creating new and premium user experiences using advanced 5G APIs.
In addition to consumer use cases, 5G was designed and built for enterprises. We see with 5G, and we discussed this before, can make wireless the primary access technology for enterprises. We see this will require the global development community to also get access to the capabilities that reside in these 5G networks, and they have to be kind of accessed in an easy to consume fashion as well.
With Vonage, we take an additional important step to bring enterprises onto the wireless networks. This acquisition, we see will bring value for the full wireless ecosystem, including CSPs, developers, and businesses. We intend to report Vonage as a new segment in addition to our existing ones.
The current Vonage CEO, Rory Read, will report to me and sit on the Ericsson leadership team. Before we move into details on the acquisition, I just briefly want to recap the strategic journey we've done from the markets update in 2020. We have built out the strength of our core business, this underpinned by investments in R&D to deliver technology leadership in 4G and 5G and resulting in solid financial performance.
This position we're in today means that we have the opportunities to take the next step in developing Ericsson. It gives us also a platform to focus on growing the company by capturing additional market opportunity, but also adding value to our core business. All of this should benefit the CSP customers we have.
The enterprise market, as we see, have a very high growth profile and a very attractive long-term profit pool. It's gonna have more software-like revenues. We have also said that M&A is an important route to gain growth and gain scale and do that in a more controlled way and in a faster way.
To take advantage of current market growth, we continue to be disciplined in our M&A, adding businesses with potential for high margins, and that's gonna strengthen our core as well as enterprise ambitions. Today, we take the next step in accelerating this effort through the acquisition of Vonage.
Building on the success of integration of Cradlepoint that has continued to develop very strongly under our ownership, we will continue with similar light touch integration of Vonage, and that's also why it's a separate segment. Our overall strategy remains intact. Two principal legs. Growth in the core business, where we continue to invest in technology leadership, and we have a strong portfolio that's supporting market share gains.
In addition to that, we also see, of course, that with enterprise applications in the wireless networks, the time for wireless will continue to increase as traffic is increased with the enterprise applications coming on as well. The second leg is of course a focused expansion into enterprise. In the last 18 months, we have extended our presence in the attractive enterprise segment, and that includes our wireless edge solutions we acquired through Cradlepoint last year, dedicated network, cellular IoT, as well as mission-critical networks, where we expect to see a growth of 20%-30% annually.
The second leg of the enterprise strategy, and that's underpinning today's announcement, is to establish a global platform where we can leverage Vonage Communications Platform and extend the platform into 5G, allowing for open innovation and supporting creation of new opportunities and full monetization of the networks.
The first reason why we are acquiring Vonage is because it provides key capabilities to enhance our position in the market. They have a healthy and growing as-a-service business, which is the Vonage Communications Platform. This has a limited cyclicality and accounts for approximately 80% of their revenues.
The business, and Carl's gonna describe this more in detail shortly, is growing at a healthy 25% per annum, and that was reported in the Q3 report, including the API known as the Communication Platform as a Service or CPaaS component, and that has grown 43% per year, significantly ahead of the market. The business has a healthy gross margin profile, 45%, and a strong leadership team that's been able to drive both growth and margin improvements in the underlying business.
Here, Carl will go into a lot more details on that transformation. The second reason, which I want to highlight and spend a bit more time on, is that Vonage creates the impetus for a second leg of our strategy, which is to develop a global open network innovation platform.
Our shared intent with Vonage is to develop a platform that allows developers to access network capabilities, which literally put the power of the wireless network at their fingertips. They will get access to advanced features such as latency and speed, network slicing in the 5G network in a very easy, accessible way. To do so, we need some key building blocks that Vonage provides.
The first being a robust and established developer community that basically knows and have the experience to build applications using strong and easy-to-use APIs. We already have quality of service-related APIs, and we have tested those in networks around the world. In order to take the next step, we need to work with the developer ecosystem. That's going to be critical for the market to capitalize and monetize on those high-performance quality of service APIs.
We need a highly engaged developer community to take advantage of these features and designing new types of applications. The platform will simplify network complexity and provide a one-stop shop for developers to access advanced network capabilities across a global network of CSPs. If you look at Vonage, they operate in three market segments for APIs.
It's communication platform as a service, unified communication as a service, and contact center as a service. All of these three are seeing strong growth driven by accelerating digitalization of enterprises and wider society. Analysts expect a combined growth of 17% CAGR up to 2025, which means that it will reach an addressable market of $69 billion. We also see Vonage growth to outperform the market, and it's driven by...
Well, it's a lot of things, but one of the key drivers is a very strong starting position in the API business, particularly for high-value APIs such as video. To put that in some perspective, Vonage represents about 7% of the API market today, but in the middle of this decade, that total market will be worth more than 50% of the global RAN market.
I t's a sizable market opportunity we're entering here. 5G is one of the largest innovation platforms ever, and we expect that almost all interactions, like calling a taxi or getting a bank security number, will require embedded communication. 5G brings this to a whole new level. Almost every workflow and process will use some kind of communication and network API. For example, it could be low latency, anything like real gaming or XR.
In order to enable that, we need to provide the ecosystem, and especially developers, with a global unified way to access network capabilities in an easy way. Vonage ecosystem of more than 1 million registered developers, under 20,000 enterprise customers, and back-end connections across over 200 CSPs allows them to abstract network complexity and expose functionality to developers.
We in Ericsson provide the underlying technology that makes those connections possible and powers the network. In 5G, we have defined even more advanced network capabilities, such as quality of service and network slicing. That will allow developers to vary speed, latency, security to power completely new applications and use cases. To do so on a global scale and supporting the creation of new use cases, we believe that a platform that can connect with multiple CSPs will be required.
We intend to work with the ecosystem to extend Vonage existing communication platform to support those new use cases and create a global open network innovation platform. Leveraging Vonage developer community and enterprise reach, we will drive usage of of these advanced APIs and in this ensure that the full ecosystem benefits from the monetization of 5G investments beyond mobile broadband.
As a first step, we will work with Vonage to embed advanced network capabilities into their existing APIs. We believe those APIs will be growing very fast and be basically on the build-out of 4G and 5G. We conservatively estimate a market of $8 billion by 2030. We expect an attractive market share based on our leadership position in 5G and a significant API market share.
With that, we put the power of the network at the fingertips of developers and allow for the development of the next wave of premium communication experiences that ultimately will drive more network traffic onto the network, as well as creating new exciting applications. To recap, by combining Vonage developer ecosystem, enterprise customer base, and an API platform with our 5G technology leadership, R&D capability, global reach, and CSP ecosystem, we believe we can accelerate services to the benefit of the whole ecosystem.
This will allow us to win the next wave of platform services as we both enhance existing communication services and develop new and advanced use cases. In doing so, we achieve near-term synergies by extending the current Vonage portfolio through our CSP channels and enhancing their R&D capability and scale, creating revenue synergies of up to $500 million by 2025.
These are, of course, gonna be phased in gradually. In the long term, we expect to capture a significant market share in the global network API market that we conservatively say is about $8 billion by 2030. Now over to you, Carl, who will spend time providing some more details on Vonage market position and historical performance. Carl?
Thank you, Börje. Let me start by providing an overview over Vonage and their capabilities. The company was founded in 2001 with a consumer VoIP offering. In 2013, the company started a journey to become a communications platform business, which they call the Vonage Communications Platform or VCP.
The transformation included the acquisition of Nexmo, which is the base of their API business. APIs we're talking about here, of course, application programming interfaces, which basically is a software intermediary that allows applications and disparate systems to talk to each other, powering and connecting mobile and web apps and enabling the digital value chain. Vonage has continued to evolve this offering through more acquisitions of various players, including NewVoiceMedia and TokBox, to name a few.
They have been on a journey to consolidate these assets into a single business communication platform. We can see this approach now gaining very strong traction in the wider communications as a service market. VCP then.
VCP is focused on delivering value to a large business customer base with offerings targeting all sizes of com panies, from the small home office all the way to large enterprises. As Börje mentioned here, Vonage also has a large base of developers that has grown from approximately 150,000 to more than 1 million over the last five or six years. We intend to continue fostering this developer base and accelerating the great work that Vonage is doing in that space. The company has around 2,200 employees globally.
Key sites are New Jersey and San Francisco in the U.S., but also the U.K., Singapore, and Israel, to mention some of the key sites. The revenue is, and as you can see in the pie chart here, broadly distributed globally with most of the consumer VoIP and a significant portion of the VCP revenue in the U.S. market, but with significant international footprint in the API business.
The bar chart on the bottom right shows how the revenue mix is changing, reflecting the transformation that I mentioned earlier, where VCP is the strong growth driver, now representing around 80% of total revenue in Vonage. We expect Vonage to continue to demonstrate strong growth above the 17% projected market growth rate 2020-2025 that Börje showed earlier.
I talked about VCP being the big growth driver, and let me briefly now describe the VCP business and its three key offerings. In essence, Vonage is building a unified and API-first communication platform that leverages best of breed capabilities in support of businesses' communication. To do so, they combine the communication API business, providing key capabilities such as messaging, voice, and video, and also conversational AI, combining that with unified communication and contact center as a service capabilities.
The unified communication offerings are targeting business customers with a full suite of voice, video, and collaboration capability. The contact center offering is focused on the mid-market, and provides easy access to contact center management capability in the cloud.
The Vonage contact center solution is actually highly integrated with Salesforce, and it is the top-rated contact center offering on the Salesforce app exchange. Vonage also has customers across key segments that have seen significant growth as part of the accelerating digitalization of society. Here to the right, you can see some examples of that.
The segments such as remote healthcare, transportation, remote education, and so on are key growth levers for the VCP solution, and they drive significant opportunity for Vonage and Ericsson as we jointly extend these current capabilities. While we see huge potential in this moving forward, we also see proof points in the significant improvement in historical trends. Vonage today has a revenue of almost $1.4 billion on a rolling four-quarter basis.
As we said before, growth in overall revenue has been impressive, driven by VCP growth. This you can follow and see here in the blue color on the chart to the left. On a rolling four-quarter basis until Q3 this year, VCP grew by 20%. While the other part of the business, the consumer VoIP business declines, we still see healthy business in that segment as well, with high margins providing strong cash flows in support of the transformation and growth of the company.
The growth in VCP is fueled by a growth, as Börje mentioned, in the API business mainly, with messaging and video being key growth drivers there. If you look at the middle section here, you see the Adjusted EBITDA.
It's been fairly flat at group level, but with an underlying mix shift where the VCP profitability improvement is remarkable, reaching profitability on a rolling four-quarter basis now in Q3 2021. We'll come back to that trend a bit more in the next slide in a minute. On the right side, you see the free cash flow trend and development. Free cash flow reached $109 million, which represents then 8% of revenue during the four-quarter rolling as of Q3 this year.
The improvement here that you can see in 2021 was driven by overall improvement in profitability, but also working capital efficiency. I can mention here Vonage has a fairly light balance sheet, mainly comprising IP, and their CapEx mainly relates to capitalized R&D.
As we saw on the previous slide, the VCP business has seen momentous improvement, driven by clear focus from the management team, and all improvement actions will of course continue with full force. Those actions include driving growth across Vonage's product and API and unified communication and contact center business, all of which also drive significant margin improvement and scalability in the business.
There's also been significant work by the management team on driving efficiencies across functions, including, as an example, enabling the sales team to grow the business, but with a smaller cost footprint. You can see on this slide very clearly the resulting profitability improvement and an impressive trajectory. As stated, and the acquisition price amounts to $6.2 billion on a fully diluted cash and debt-free basis, i.e.
enterprise value, and using 8.9 as the exchange rate USD/SEK, which is per close of the markets here on Friday, we would reach numbers in Swedish krona around SEK 55 billion . That acquisition price of $21 per share corresponds to a premium of 28% relative to Friday's closing price of $16.37.
We can see this SEK 55 billion in relation to our cash flow generation. As you know, we generated on a four-quarter rolling basis SEK 31 billion of for M&A until Q3 this year. As mentioned, we expect to close within the first half of 2022, subject to acceptance by Vonage shareholders and regulatory approvals. We intend to fund this by cash at hand.
As you will recall as a reference, our gross and net cash balances by end of Q3 2021 were SEK 88 billion and SEK 56 billion respectively. When it comes to impact to our financials, we will communicate more post-closing. Let me make a few comments already now. Vonage is expecting to add more than $1.4 billion to Ericsson's revenue on a pro forma basis.
This is based on Vonage's 2021 guidance. With a rather limited impact on Ericsson's gross margin percentage to start with. Given the nature of this acquisition, the preliminary PPA here that we have done indicates a meaningful amount of goodwill, around SEK 40 billion, again, applying the 8.9 exchange rate. And also other intangible assets, around SEK 20 billion, which will be amortized over time.
That will have an impact on EBIT of approximately SEK 2 billion per year based on our current accounting principles. Note that that impact of SEK 2 billion obviously is non-cash. We expect the transaction to be accretive to EBITDA on absolute basis in 2022 and onwards, of course, with variations between the years.
Looking at other metrics, earnings per share, again, excluding this non-cash amortization impact, is expected to be accretive from 2024 and onwards. On cash flow, although Vonage alone is free cash flow positive, certain changes in payouts of unvested share-based compensation will result in a slight negative free cash flow impact the first two years. Thereafter, i.e. from 2024, it's expected to be accretive to Ericsson free cash flow.
Börje already mentioned that we intend to report this as a separate segment to ensure transparency. Finally, I want to underline that we remain fully committed to our long-term targets of EBITDA margin 15%-18%, excluding restructuring charges, and free cash flow before M&A of 9%-12%. As well as the 2022 target of an EBIT margin between 12% and 14%, excluding restructuring charges. The latter applies to the Ericsson group, excluding Vonage. With that, thank you, and I hand back to you, Börje.
Thank you, Carl. In closing, I would like to emphasize that our strategy remains true to our core, to extend our leadership in mobile networks. That is, and will continue to be our engine at the center of all we do, and into the future as well. In addition, we now continue to grow in the highly attractive enterprise segment.
Vonage, as a leader in the CPaaS business communication platform business, provides us with an opportunity to address the enterprise market and create scale in terms of customers and developer market access. We intend to invest to accelerate Vonage current business and drive synergies in support of the current business plan. Together, we will elevate the 5G ecosystem by developing the global network platform for the full benefit of CSPs, developers, and businesses.
Vonage will be a new segment in Ericsson reporting directly to me, and we expect to close this deal, as Carl also said, in the first half of 2022. With that, thank you very much for listening in.
Thank you, Börje. Mark, we are now ready to open the Q&A session. Please.
Thank you. Ladies and gentlemen, at this time we will 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 are streaming the webcast, please mute the webcast audio while asking a question to minimize any audio feedback. Our first question.
Yeah, I think we have our first question from Daniel Djurberg from Handelsbanken. Good morning, Daniel.
Okay. Good morning. Thank you for taking my question. Interesting acquisition indeed, and thank you for the transparency also for reporting this separately. My question is, you could start off with the synergy perhaps of SEK 0.4 billion.
If you can just communicate a bit on how you do expect this to materialize in terms of timing, mostly in the latter part or in more in a linear fashion. Also if you could say some of the video API that you said was growing really fast, how large percentage of the communication platform of the is representing the video API, would be great. Thanks.
Thanks. Börje, you wanna start?
If we start on the synergies, we have to align a bit of products first and make sure the product offering is fully aligned. That's gonna take a few months after closing. You will see very limited effects early on, but then starting to build up from 2023 and forward. I mean, our ambition is to have a bit of synergies already in 2022, but
I think we should be more realistic and say that it starts in 2023 and then grow more in the linear fashion from there on.
Thank you.
Maybe you, Carl, take the more financial questions.
Yeah. No, so you asked about the video API, and indeed, one of the key assets here is Vonage's technology leadership in video APIs. This is a substantial part of the growth story here in the API space. We have not quantified exactly what part it is, but it's a clear cornerstone in growing the API business, and one that where Vonage already has demonstrated excellent capabilities and very good customer traction. Of course, we will together take this to the next level as well and push for further growth in that segment.
Perfect. I have one more, if I may, and that is only you talked a little, Börje, a lot of the 5G opportunities and also on 4G on advanced communication that you could bring to the table and accelerate new advanced use cases and so forth. Can you give a little bit more color on examples of what you do have in mind? I know that Vonage has some dispatch APIs, for example, that might be possible to use the 5G over. Any thoughts would be great.
No, you know what you can, for example, do. You can tailor make latency from your device, not necessarily cell phone, could be any device. Which means that you can control how much latency you use in the network for that individual device. That is going to be driving a lot of different type of applications where you have that type of need.
It can be, for example, speed. How do you know, in a way guarantee speed for certain type of applications can be in the manufacturing process, for example, or healthcare for that matter, where you need to have high performance and you need to have an ensured high performance. Think about that, for example, in a also public safety network, ambulatory network, for example.
There are a number of those type of APIs which doesn't exist today, but we have been trialing them over the last few years together with service providers and see them work in real life. What we also see is we need to have a developer ecosystem that actually capitalizes on those. When we put it in hands of developers now, just small scale, they are starting to see very different type of applications. We think this is just the beginning of capitalizing on those type of quality of service APIs in the network.
Okay. Thank you.
Okay. Thanks, Daniel. Now we'll move to the next question, and that's from Carnegie and Predrag Savinovic. Hello, Predrag.
Hi, guys. Good morning, and thank you for letting me on. Question on Vonage going forward. If we just put them in context into IDC defines this market, there are, I guess, two companies that are seen as category leaders and Vonage lagging a bit compared to these two.
These two are also known to invest in R&D to acquire businesses both to scale up and also tied to the technical footprint. I guess to win long-term, you need to somehow bridge this gap. Wondering on how much you intend to reinvest in Vonage and will also allow for Vonage to acquire businesses to be part of this CPaaS consolidation going forward.
I guess, Börje, you wanna start there?
No, you're right. But Vonage is very strong in some very high-value APIs, and those are the more critical ones for the type of use cases we are looking at. So they have a very strong platform there. What we can bring to the table is actually the network understanding where we don't see anyone today with that capability, and we believe we are very uniquely positioned at that. You're gonna see that we already have a global footprint. We know what can be done with the network and what can be presented and exposed in the network. So I do believe we have a bit of a unique position.
What we are looking here with Vonage, it's of course an attractive business by itself, focused on the high-value APIs, but we actually see the developer ecosystem can be levered into this new world of the 5G APIs that we just discussed, and that's where we see the most excitement. I would agree with you, we are also planning for additional acquisitions.
I think that is for sure going to happen, because this is a developing market in many ways, and we will need to do technology acquisitions to add capabilities into the communication platforms and scale that faster. This is a long-term journey where we're starting to define the market for 5G APIs and basically exposing those to the developer ecosystem.
All right. Can I ask a follow-up also on the general M&A strategy? Thinking here, you've done Kathrein, you did Cradlepoint as well quite recently, which are tighter to Ericsson's core, especially Cradlepoint, which can also offer further growth. Vonage is a bit of a new vertical for you. Out of these two strategies, which one is most important going forward? I guess new verticals additional to what Vonage is doing or something closer to Ericsson's core?
I would say it's a great question, first of all. When we look at this, we see with Vonage, we create the open, call it the open platform for network APIs. There you will not see us add a new vertical in that sense. We have been pretty clear about the enterprise networking. Call it the wireless enterprise networking in prepackaged solutions is one avenue.
The other one is an open network platform. With Vonage, we have established a starting point for that second leg in enterprise. There we're gonna, of course, grow that through M&A, but you will not see us add a third leg. That's not part of the strategy. The second leg here is established.
With Cradlepoint, we started the journey of defining the prepackaged solution for enterprises and, you know, we're probably gonna try to look at expanding that with complementary product offerings as well. I wanna take a bit of time on the Kathrein, is really part of the core business and well integrated into our total radio portfolio.
You will see us add technology acquisitions into the core business, as well. And you've seen Kathrein was one, we did CENX, and you have seen others where we're actually adding capabilities into our existing business. That will be an important part and may, you know, size-wise, I think you're from now on going to see much more of the additive type of acquisitions.
All right. That's very clear. Thank you, guys.
Thanks, Predrag. We'll move to the next question from Sandeep Deshpande from JP Morgan. Hi, Sandeep. Good morning.
Hi, good morning. Thanks for letting me on. I have two questions. I mean, actually slightly following on from the earlier question. What Vonage seems to indicate is a completely vertical, whereas your previous two deals, whether it was Kathrein or Cradlepoint, are much more linked to your core business. I mean, given that you're saying that the business is going to be independently run, how is this integration of API, which seems to be the key reason for the deal, going to be integrated with whatever APIs you are creating in 5G?
Because, in the sense that historically, Vonage has been independent of the infrastructure behind it, and so, you need to make it integrated with the infrastructure and thus take it forward. How are you looking at that?
It has to be independent of the infrastructure, just like you say, and the APIs have to be global and open, right? Otherwise, you will not create an ecosystem. For us, it's really the reason why it's independent is that we need to maintain the independence of the infrastructure, right? The creation of APIs, if it comes from the network, you know, think about the current APIs.
When we talk about it, we're really talking about SMS, we're talking about the voice, we're talking about video in different shapes and forms. It's been standardized for 20 years plus in the network. With 5G, we open up for a completely new, we're of course keeping all those APIs, but a whole new set of very advanced APIs. They will need to be defined in the network as well.
That will happen, of course, in our existing business. It's equally important that Vonage can be operated separately because it's all about the independence of the ecosystem. That has to, I think, be maintained, but with the link between the two, we believe we can bring APIs faster to the developer ecosystem by having Vonage in-house compared to anything else.
Thank you.
Thank you. Thank you, Sandeep. Hope you're good with that from Börje. We'll move to the next question, which is from Pontus Wachtmeister at SEB. Good morning, Pontus.
Morning. Congratulations. So I guess, you know, looking at Ericsson historically and going forward, to me, this signals confidence kind of in in you using a lot of your cash to move into new vertical. And also as been mentioned, reporting on it separately, I think is positive from the market's perspective. Can you comment on the process into doing this?
And especially given the history and the market perception of you know, not being super kind of in the market's eyes successfully in acquisitions. Can you say something about the journey coming here and the confidence you have in doing this? I know it's a big, big question, but do you agree that it shows that you are quite, you know, confident that this is the future and this is where you can actually add a lot of value over the next five years?
Yeah. We're, you know, we have respect for our track record in M&A. I think that's fair to start with. I would also say what we have seen with the acquisition of Kathrein, that's today fully integrated into our core business and to our customers. We have more work to do to drive the solutions, the fully integrated solutions between passive and active antennas, for example.
We have more work to do, but it's developing very, very well. We see with the acquisition of Cradlepoint, we've actually been able to keep up and be ahead of the plan we put in place internally before the acquisition. We see that, you know, we have the ability to integrate and run acquisitions in a good way.
We believe we need to leverage that and actually use our collective experience now that we've built to move into new areas, because it's all about also leveraging the capabilities that we have. We think, you know, in reality, at some point in time, somebody will leverage the APIs in a 5G network as well. We believe that with the capabilities we have, we can actually create the market here.
You know, it's something that if you believe in the power of 5G, which we truly do, to revolutionize enterprise, you need to succeed in exposing the capabilities of that 5G network to the global developer ecosystem. If you do that, they are gonna develop new applications that drive traffic onto the 5G network. That will benefit our core business.
It will benefit the service providers to monetize their investment in the 5G network, and you get into a virtuous cycle. If you call that bold confidence, that's in the eye of the observer. We see this as a very big opportunity that is sitting there to just be defined. We see that as a very exciting avenue for Ericsson.
I see. You know, do you feel that in the future, the need for these huge cash positions are less, perhaps, given the potentially lower volatility of the top line and then in the 5G cycle? Or do you-
We-
Would you rebuild that in some, do you see what I'm?
No. Yeah, no, I see your question. Okay, I didn't understand that was your question initially, maybe. No, you know, what we have done over the past four years, we have invested a lot of effort into actually reducing the dependence on business mix, on, you know, call it volatility in the business.
Even now that we have, for example, lost one of the largest markets, it has not really impacted our cash flow generation ability. We have systematically worked to reduce the volatility in the business. It's much more predictable today, which longer term will require much less cash, therefore.
Thank you very much.
So-
One last quick one. Would you say this is more aimed at carriers and consumer services or enterprise 5G? It seems like the first one, but would you say this is-
Right now.
Okay.
Yeah. If you look at where they are today, it's primarily a consumer application in the end. With 5G, we see that this developer ecosystem is gonna move into enterprise applications and enterprise use cases. That's where we see the really big advantage of 5G is.
Of course, you can get some other consumer services being in AR, VR, being in digital avatars, 3D avatars, et cetera. There are a number of applications for consumers for 5G as well. I really think the 5G use cases are gonna be in enterprises.
Thanks.
Is it, Börje?
Sorry for hogging.
No problem. Thanks to you, Pontus. We'll move to the last question for this session. We have another session at 3:30 P.M. CET for all of you to know, so you can ask questions there as well, or revert back to us at IR or the press service as well. Richard Kramer,
Yeah.
You are the last one out.
Oh, hello. Good morning, guys. Can't hear you. Richard, are you? My big question, sorry, we're on our morning call at the same time. My big question would be, as you know, what does this say about your core, the growth in your core business that you are effectively sweeping up your cash and spending it on a new segment that you really only partially addressed? I mean, do you now look at the core 5G infrastructure business and say, this is shifting towards a different business model, and you're not expecting to get growth out of it long term?
You know, Richard, it's a good question. Because when you look at the historical cycles, you have always seen a bit of a cyclicality in the G's, right? You have seen that for 2G, 3G, 4G. It's a bit of tapering off. It's less dramatic than you would think.
As a matter of fact, if you look at our development for the last five or six years, or before then, if you look from during the 4G cycle, we've combined, you know, the 4G cycle in a way with a lot of market share loss. That's why it looked a bit more dramatic for us than actually the underlying market that
Mm-hmm.
It still has the cyclicality. When we look at that, it's really one term. It's actually the consumer mobile broadband that in a way have defined the 4G cycle. Before that, it was in reality a voice market that defined the size of the cycle.
With 5G, we see that there is a real opportunity to actually create a new TAM for the service providers coming from enterprises and coming from digitalization of new workflows and new processes for enterprises. We see that to actually support a much less cyclicality in 5G. It will. You know, for that less cyclicality to happen, we need to create enterprise applications. When we look at Vonage and entering into APIs, you can see it as a separate market.
That's not what we do, because we actually see them as feeding on each other. We can create the new business with the 5G APIs, but those APIs are gonna be needed in order to drive enterprise traffic on the 5G network. We actually believe they, in a way, support as well to create a less cyclicality in the 5G market.
Mm-hmm. Do you think the additional enterprise traffic creates enough demand that could make wireless infrastructure, the core wireless infrastructure market, back into a growth market? Or is this something that's kind of already baked into the traffic and growth forecast behind the sort of long-term 5G infrastructure market?
We do not believe it's baked into the core market forecast for 5G. What's baked into the core market for 5G is in reality a continuation of the consumer use cases.
Okay. Thank you.
Great. Thanks, Richard. With that, the Q&A session is over. Maybe Börje, a short closing remark.
Yeah, I'm gonna say thank you very much for listening in. We are very excited about this move into the 5G APIs. We see Vonage as a great starting platform. They have a strong base business developing well, growing and developing with favorable margins. They have a strong customer base with 120,000 enterprises.
As important, and you've understood that now is the developer ecosystem of 1 million developers or more than 1 million registered developers. We believe by bringing 5G APIs to this developer ecosystem, we can put 5G capabilities at the fingertips of the developers, creating a whole new set of use cases and applications on top of the 5G network.
That's really where we are excited to create that market that's gonna help us to both create the business within Ericsson, but also support our core business.
Thanks, Börje.
Thank you for listening in.
Thank you.
Thank you.