Telefonaktiebolaget LM Ericsson (publ) (STO:ERIC.B)

Investor & Analyst Update

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Feb 24, 2020

Good morning, good afternoon, good evening wherever you are around the world, and welcome to this Investor and Analyst Update. Today, as you can see, we are here in Schistas, Stockholm in our studio instead of being in Barcelona. I'm coming back to that a little bit later. With me today, I have our CFO, Karl Melander. Welcome, Karl, as well. So before starting though, I would like to read the following statement. This report contains forward looking statements. Such statements are based on current expectations and are subject to risks and uncertainties that could materially affect our business and results. Please read our earnings report and our most recent annual report for better understanding the risks and uncertainty and please see the last page in the presentation for further information about forward looking statements. Any forward looking statements made during this presentation speaks only as of the date of this presentation and Aeroson expressly disclaims a duty to provide updates to these forward looking statements and these estimates assumptions associated with them. So with that, let's start with this slide. You probably have seen this before, but let's just come back to we were supposed to be today actually in Barcelona. Unfortunately, that event was canceled due to the coronavirus. So instead, we are here in Stockholm. So we have a little bit of an unplugged move of our Congress here in Sten. So and the background is basically that we have done lots of preparations before the event in Barcelona and our thought was to reuse that today instead. But before going into the at the end of the day, let's just go through our investor cycle that we have throughout the year. So as you see here, we should have been in Barcelona today. As I understand, next year, the Barcelona event is supposed to be between the 1st and the 4th of March. On Tuesday next week, we will present our annual report that we will publish at that date And then on the 31st March, we will have our Annual General Meeting. And for those who are interested, you could actually there will be a recorded of Borje's presentation and also subtitle for those who want to see into that. And then we have the Q1, Q2 and Q4 earnings report. And those are basically the same time as last year. We will end this year with a Capital Market Day again a full load Capital Market Day in New York City in New York. So, we're back to the sort of normal procedure as we had in 2018. By that, I will walk into the agenda for today. And bear in mind, for the technology today, we will try actually to connect one person from U. S. And actually one person from the Northern part of Sweden when we get to the Q and A session. So it will be a challenge, but I think we will overcome that. We will start with our CFO, Karl Melander. So Karl, you will introduce us. And he is with me here, of course, in the studio. Karl will talk about the market development and our position in the market. And he will spend some time on OpEx and particularly R and D as a value creator and he will continue to dig down a little bit further into digital transformation. 2nd out is then Tomas Rekord. We prerecorded his presentation here last week. He will do a deep dive into 5 gs, present our platforms, but also do a reflection on our launches in South Korea and Switzerland. And then back to the studio again, Freyr Gaehlin will join and he will present Networks portfolio and dig down a little bit to the acquired entity of Kathrein. Then after Fredrik, we will have Jan Karlsson, who will, among other topics, touch upon 5 gs core and the importance for the customer as well as for Ericsson going forward. And before we enter into the Q and A session, we will have a discussion between Carl and Niklas, who will discussion between Carl and Niklas, who will actually discuss the potential in North America market, but also discuss about what's the impact of the merger between Sprint and T Mobile. And again, that's recorded last week when Niklas was here in Schista. By that, I would like to hand over the word to you. So please, Karl. Thank you, Peter. Thank you and thanks everyone for joining us here in this live webcast from our studio in Schista. So we call this whole event Ericsson on track and we will spend the next couple of hours to show you why we believe that we are on track. In essence, we have delivered a strong 2019 and we see a promising future also for our business. And we are executing on the strategy. We will talk about that today. And we believe we are on track to the targets for 2020 as well as 2022. So a couple of items just to kick off here. In essence, I would say we see a healthy market environment to start with. And the RAN market, which we pay a lot of attention to obviously grew by 5% in 2019 as confirmed by Del Oro. This is 2 percentage points more than we expected when we met actually at the Mobile World Congress last year. So the market has taken off a bit faster. When it comes to Ericsson, we set out to win footprint based on technology leadership here in a selective and disciplined way, obviously. And we have seen some share increases, more about that in a minute. But we also see strong fundamentals in the market, not least in North America where we now have also more clarity on the future when it comes to the merger and more about that together with Niklas Heuvelopp later today. I'd also say that through the investments we have made in technology and also of course staying very close to the customers, We have a leadership in 5 gs now. We have recorded 81 commercial agreements with unique operators and we were the first to launch live 5 gs commercially together with our customers in 4 continents. So now for 5 gs core is becoming more of a reality as well for our customers and we believe we are well positioned also for the 5 gs core investments that will start. So, of course, when it comes to financial performance then as we are here to create long term value for our customers and for Ericsson and our shareholders, we are also not letting go of the present and the performance management of our company today. So I think 2019 performance is a testament to that where we delivered an operating margin of 9.7%, so very close to the 2020 target and where we quadrupled the free cash flow before M and A as well, almost SEK 18,000,000,000 in free cash flow before M and A, which is again 4 times the amount in 2018. All those numbers, just as I said that excluding then SEC and the DOJ, obviously. But let's drill down a little bit more in some of these topics now starting with the market data. And if we look in general at the market now, I would say the environment is beneficial. It's positive when it comes to 5 gs now. And 5 gs is in early stages still. Of course, we see some early adopters going very fast, including U. S, Korea, Japan, China to come as well and accelerating faster than we would have thought a year ago or 2 years ago, even more. But the ramp up will 65% of the world population will have 5 gs coverage by 2025 already. And we believe we are positioned to capitalize on this rapid shift in the market towards 5 gs. And to date, we have shipped already 4,000,000 5 gs enabled radios. The graph that you can see here to your right shows that the estimates for 5 gs revenue have increased all the time with new reports coming out. So it's apparent that this market is growing faster than what we and other analysts would have thought earlier. I would also say that when it comes to the use cases for 5 gs, an early use case will be mobile broadband, but the interesting part of 5 gs, the 5 gs case here will be on enterprise and industrial use cases. And we see this still in early phases, but with a big potential. And again, according to our own research, we believe that there's an addressable market for operators in the enterprise space connected to this of US700 $1,000,000,000 by 2,030. So we believe the enterprise side, the industrial cases and IoT will, of course, drive demand over an extended investment period. If we look at the market shares for Ericsson, we can see that 2019 to start with was a strong year in North America. For us, We strengthened our market position with all the major carriers in North America during the year. Our market share increased 4 percentage points from 48% to 52% now in North America. And given the relations we have there with the carriers and of course, our technology posture there or status, we are continuously confident about that market and our strength there in North America. But it's not only about North America, obviously. We also improved the market position in other geographies as well. So, if you look at EMEA, for example, we put some customer names here where we had and been able to demonstrate technology leadership and have early 5 gs wins. Also, if we look at a market like Middle East and Africa, we have gained good traction there and we also there mentioned a couple of names here where we are early out with 5 gs in those regions as well. I find it interesting to note there now when it comes to market share that in the Q4, if you look at market share outside North America and China, because those markets are large and a bit special. So if you look at the rest of the world outside those two markets, Ericsson's market share grew from 27% in Q3 to 33% now in Q4. So quite a dramatic growth actually. So that's about the market share. Let's look at the financial development. If we move on here and I think this is a summary of the turnaround that we have seen in Ericsson. Starting on the top line side, we've had 6 consecutive quarters of organic growth and we ended 2019 as you know SEK 227,000,000,000. The ambition for 2020 is within the range of SEK230,000,000,000 to SEK 240,000,000,000 there. And the gross margin, of course, you see in this profile a strong improvement earlier and now since Q2 2018, we have delivered gross margins above 36%. And what has driven that, it's really, of course, cost out, not least in service delivery, higher efficiency there, but also the increased penetration of the Ericsson radio system and a better position and competitiveness in that whole portfolio as well. We have addressed critical or non performing non strategic contracts, both managed services and digital services as well that has also contributed quite a lot. As you know, the ambition for gross margin for 2020 now is within the range to 37% to 39%. And finally, to your right side here, if you look at free cash flow before M and A, I mentioned the numbers before, SEK 18,000,000,000 or SEK 17,700,000,000 to be more exact in free cash flow before M and A generated, which is 4 times higher than 2018. And here I would say, aside from a better profit, of course, we've also delivered higher efficiency when it comes to working capital. So working capital days are down to 75 days now, down from 89 year over year as one example, showing that the machinery is more efficient, the lead times are getting shorter now in working capital. The ambition on free cash flow before M and A is strong and earlier we have shown the bridge between operating income and we took the example of an operating margin of 12% that should generate free cash flow before M and A of 8%. So that's how we try to define what we mean with a strong free cash flow. We focus in Ericsson a lot on value creation and of course R and D is a big part of this. That's at the heart of Ericsson. It's fundamental for us for the technology leadership, which in turn gives both competitiveness and improved margins. And we think about R and D in 2 parts. One part, a smaller part is for maintenance R and D. We could call it that where it's about maintaining and improving on the current offering. And then the larger part is about creating the new offerings, new product development for customers. And yes, we increased the reported R and D now by SEK 3,000,000,000 to SEK 38,500,000,000 as you can see in the graph here. So R and D, key for value creation. We also mentioned in the Q4 report other investments we are doing now in digitalization, in compliance and in security. Of course, digitalization, I will speak a little bit more about that in a minute. It's about both customer experience and operational excellence as well. Compliance, of course, to secure our processes and ensure that we do business in the right way. And then security, which both has to do with how we protect our enterprise, but also very importantly product security, which is very high on the agenda now obviously as we enter into 5 gs also. In the graph here, you can see how OpEx has been reallocated from SG and A to R and D, which is an investment again for value creation. But you can also follow here the percentages that as a percentage of net sales, the overall OpEx envelope has come down. Our ambition is to continue on that trajectory, although the investments or the expense levels as such might go up, we expect that to go up a bit in 2024 for the reasons that we have talked about now. A bit further look into R and D, as I said, being at the heart of Ericsson and who we are as a tech company. And the purpose, of course, is to drive both long term sales growth, but also margins. And the proof points that we see so far is, of course, gained market share, grown top line 6 consecutive quarters and strongly improved margins as well. So if you look at the graph here just to put things in perspective and to try to address the return that we get on the R and D investments. If you look at the green bars here, you could see that R and D has increased quite dramatically over this period. And to put a bit of numbers on it, if you take a 4 quarter rolling basis until the Q1 in 2017 and you compare that with the full year 2019, we have increased R and D by SEK 8,000,000,000. But during the same time period, gross income has improved by SEK19 1,000,000,000. So SEK8 1,000,000,000 of R and D investment, SEK19 1,000,000,000 of gross income improvement and you see the gross margin underlying here is portrayed in the graph with this blue line there. So clearly, we see that the idea of investing in R and D is bearing fruit also for margin generation as well as top line growth. I mentioned digitalization before and I wanted to say just a few more words about the efforts we do in digitalization and we do it to reach the next level of efficiencies for our company. We believe that the best result here when we work in digitalization is where we can combine both customer experience and outstanding customer experience with internal efficiency, taking away manual process steps, for example. It's in the combination of those 2 where we really get good results. So that's how we have planned the digitalization efforts we're doing. We have identified 10 projects or lighthouses and we have launched or we launched them. Now some examples you can see here, just to mention a few then supply flow order tracking, which creates better visibility for our customers. You have preventive and automated customer support. We have automated handling of recurring billing, all to be faster, easier to work with and again, as I said, take away manual steps in our own company. So this is an investment and with that comes, of course, the requirement to generate returns. And we are tough on the business cases here and we want to see committed returns, which can either be in the P and L, of course, cost saving, top line growth, but also in shortened lead time, which translates then into reduced working capital. So we are following up on both of these aspects. We intend to invest between €500,000,000 €1,000,000,000 per year in this, provided we see the returns, of course, per year, let's say, over the next couple of years. Payback is between 1 3 years depending on project. But I think it's also important to say that these projects are run-in an independent way. This is not the big mammoth IT project, which can derail or get delayed, etcetera. We are running in an agile format distinct projects, which we can scale globally after having been tested and tried. And if something doesn't work, it's easy to stop one part without jeopardizing the whole. So we believe this will generate value both for our customers, our suppliers and Ericsson as well. So I've talked a lot about value creation and this is important for us in Ericsson. I would say, we have now created a foundation for a bit new ways, enhanced ways of working with value creation. We have clear targets, both for profit and cash flow. We have put incentive schemes in place that support this awareness and drive and decision making in the whole company. For example, we work with economic profit, which is something a metric that everyone with variable pay is measured on. And here we look at both the P and L, of course, the profitability, but also cost of capital to create the link here and get it closer to actual value creation. This has been key, I believe, for the reduction in working capital we have seen. And now, what we're doing now is to continue to embed value creation modeling principles and thinking into both strategic choices and decision making as well as operational more day to day decisions. So much more cash flow focus, thinking value through a value creation lens when we make decisions, always making sure that we have options where we can compare value creation potential in different scenarios options. And what we want to achieve longer term here is, of course, that value creation gets completely embedded in our culture, in our DNA, if you wish, And that all decision making on all levels is just penetrated by the value creation thinking. So we think with mindset and so on, we can do quite a lot here, including monitoring, of course, so that we can early identify both performing as well as non performing activities, so we can allocate capital and resources wisely or reallocate from non performing to performing or more promising. So that's how we think around the value creation in Ericsson. Thank you for that and your attention to this piece. And now we are going to move on in the program. We are going to run a video with Thomas Nourien, as Peter mentioned before. He is Head of 5 gs Commercialization within Ericsson and he will talk about 5 gs from both technical technological and commercial angle here. And although this is recorded, Thomas will join us for the Q and A later. So please roll the film. Good afternoon. I'm Thomas Noreen. I'm Head of 5 gs Commercialization at Ericsson. I'm very happy to be with you over video today. We're going to talk about 3 things. First about 5 gs adoption, then I'll give you a little bit of a technology recap. And then I'll show you how operators can build their networks in a much smarter way with Ericsson 5 gs. When we met last year in Barcelona at that time, then there were no smartphones. There were no mobile subscribers on 5 gs. And boy, we have had a big development since then. We have launched 25 live networks by now. We have been first on 4 continents in North America, in Europe, in Asia and in Australia. And we have over 80 commercial agreements or contracts with operators. So 5 gs has really started to take off since we met last time. If we look at the different markets, the country where we have most usage of 5 gs by far is Korea. So in Korea, there are more than 4,000,000 subscribers by now. And we can really get good measurements of data. You can see that 5 gs is very appreciated by the Korean consumers. They consume between 2.5x and 3x more data when they are on 5 gs versus when they are on 4 gs. So you can see that the applications, the ARVR applications that they have launched has really taken up and they really is really used by consumers. But the outstanding question then is, of course, does it make financial sense for operators? Do they really make money? And if you again look at just official data from the Korean operators, you can see in this picture that since they launched 5 gs, the average revenue per user is increasing. And this is overall a trend that we see with 5 gs. Operators, they try to provide more larger data buckets, faster speeds, new services, bundles with media to offer more. And consumers, they seem to be happy to pay more. We actually did a study a bit more than a year ago when we asked consumers well before 5 gs was launched how much they would be willing to pay extra. And on average, they said 20%. That was a number average all over the world. Of course, you can you wonder how can people say they want to pay more. And they might even not know what 5 gs is. Or most likely they didn't know what 5 gs was. But I think it shows that digitalization and the lifestyles we now have really require a good mobile connection. We do more and more with our connected devices, smartphones and others. And that is really, really appreciated by consumers. And they want more. And with 5 gs operators, obviously, can offer more. So we see that this is taking off. But Korea is not the only example. Korea has built, of course, a large network, 90% population coverage, but so has Switzerland in Europe. And Switzerland has taken a very, very approach that is maybe more similar to what other operators are doing and will do. Swisscom created this coverage by leveraging the installed base they have with Ericsson on 4 gs. So they were able to deploy 5 gs on their installed base of 4 gs radios, in their case on the 2.1 gigahertz band. And in this way, they could complement the additional coverage they get the additional speeds they get with the new spectrum on 3.5 gigahertz. And they can also complement that with the coverage solutions on 2.1. And I'll come more to the great benefits this has over time. But they are not the only one. Also if you go to North America, T Mobile has built on a new frequency band getting a 200,000,000 pop coverage in North America. So they have also paved the way for greater coverage build out in North America. So we see that this is happening in Asia, it's happening in Europe and it's happening in North America. Now let's talk a little bit about the fundamental technologies that are underlying this growth. So to start with, let's look at spectrum because much of what we do in our industry is determined what you can do with spectrum. And as you know, we have built different generations on different frequency bands and we've started to migrate even some bands to later technologies. The color coding we use here is going to be the same throughout the presentation. So orange is 5 gs, green is 4 gs, violet is 3 gs and blue is 2 gs. So over time, we started to build on lower frequencies. The advantage of that is that it has much better coverage than higher frequencies. That's why we started there. But as 4 gs and 5 gs came along, we needed to add capacity and we needed to have a higher throughputs. Therefore, we had to also go for bands where you can create larger bandwidths and those are on higher frequencies. Now the problem with that is that it's more difficult to build coverage because the higher the frequency, the less radio propagation you get. That's physics. So we needed to invent new technologies to address this challenge. And some of those technologies are beamforming, where you direct the beam towards the users instead of spreading it out over multiple users and Massey MIMO, where you can transmit over multiple streams at the same time. So this is a clear development that we had to do. But also in the regular macro frequency bands, there's also an evolution. We need to improve our performance there also. So we are introducing multi band products and more transmission paths also in lower bands. So networks are going through modernizations. Now if we look at what we've done in Korea, we have built this, of course, 5 gs there on a 3.5 gigahertz band. It's a new 5 gs, 5 gs band. The high capacity solution is what you see in the middle here. It's the 6,488 from Ericsson. It's a 64 TRX product. It has an enormous capacity. It's extremely well suited for highly dense areas where you need to do beamforming both horizontally and vertically, for example, with high rise buildings. But most of the network is actually built with a 30 2 39 product, a 32 TRX product. This is more compact. It's more efficient. But again, it's well suffices for absolutely most deployment scenarios. If you go out further in the network more rural, then we upgrade to 4 T4R regular macro radios. So you can actually use that technology, radio technology that we've used in previous generations also for 5 gs. This is, of course, a great advantage. Now Ericsson has some unique capabilities when it comes to massive MIMO. And the trick is basically that we have an architecture that is better suited than many others architectures for this usage. So Ericsson has purpose built ASIC for baseband. It's called the EEMKA architecture. Now what we've done is that we have also taken part of that architecture and part of the base band and built it together with the massive MIMO antenna. And that gives a really superior performance. Well, first of all, it means that the connection between the baseband and the radio and antenna doesn't need to be built out according and scaled towards the number of antenna beams you run. You only need to scale it according to how much user data you get. And that makes the transmission between the baseband and the radio much cheaper. You don't need to have as much capacity in that link. The other thing it does is that by having an industry leading platform that we have designed ourselves that is purpose built lowers energy consumption massively. There is no cost of the shelf hardware general purpose that can match the power consumption that we achieve because it's purpose built. And the last thing is that we can get much better performance in networks because by placing the beamforming processing at the antenna, we can take feedback from the radio signals, from the different users and their radio conditions and adopt our beamforming and beam tracking much faster and better to the users. And this has proven to be a very, very good solution because first of all, it's easier to follow the users as they move. So we get superior mobility with our architecture versus if you had the full beamforming capability at the regular RAM compute site. The other thing is that you get much better coverage. You get 90% better up coverage so for in uplink. So this means that if you have without this functionality, we can you can't get as far with your apps as you can with this. And the last thing is you boost the cell edge uplink speeds by a factor of 10. And to prove this point, let me share you some real drive tests we did recently in Chista. So in this case, we run a drive test numerous times. And what we did, we turned on and we turned off this Uplink booster capability, where you either have the beamforming performed at the antenna or at the regular baseband location. And as you can see here, you get the similar uplink speed much, much further out in the network. You get 90% better uplink coverage. An alternative way of looking at it at the same coverage capability, you get 10 times higher speeds at the same location. So this is, of course, a phenomenal benefit for operators when they build their network. I said it was hard to get the same coverage with the higher frequency bands. With this technology, we really boost the coverage as much as you can even on those high frequencies, a tremendous benefit for our customers. But there's more. We are also making sure that you can reuse your already made investments in infrastructure as well as in spectrum with something we call Ericsson Spectrum Sharing. So this is how it works. So traditionally, the non Ericsson Spectrum Sharing in this slide, You have to have dedicated bands for each technology or you need to have a forced hard split in the same frequency band between the 2 different technologies, for example, 4 gs and 5 gs or 4 gs and 3 gs. Gs. Now when we introduce 5 gs, we realized that you don't want to be dependent only on high frequency bands. So if there is a possibility to run 4 gs and 5 gs at the same time, that would be enormous benefit because then we can introduce 5 gs on the lower bands in the way that Swisscom has done and created 90% population coverage, they can reuse the already made investments they have. So by doing this, we create a coverage layer that is very beneficial. This is possibly the cheapest way to build coverage. But the other thing is that you can combine with carrier aggregation the new lower band and the higher band. So as you can see in this picture, when you do that to the right, you extend the coverage of the higher TDD band. The reason is that you can use uplink on the lower FDD band and you can increase power on the upper D band and thereby extend its downlink coverage. That has, of course, enormous benefits because it gives you better user experience in more places and for more users by being to combine the 2 different bands. And you extend the capacity because you can use your new frequency band, in this case the TDD 3.5 gigahertz band much, much further out. And by doing this, you enable for the next big step for 5 gs standalone. So let me share with you how this works. So the first thing you do is that we can introduce and we do this now in Q2. We introduce 4 gs and 5 gs on the same band, as you see to the left in this picture. This is a software on the Ericsson radio system hardware, and you can totally dynamically change capacity depending on how much usage you have in your band between 4 gs and 5 gs. What we will then do in Q2 this year is that we have a further software package where you can instantly share both for standalone operation and non standalone operation and 4 gs. And this means that our base stations will simultaneously support UEs that either run on a non standalone mode or standalone mode. So maybe I should explain. Non standalone mode means that the UE, the device is connected to 4 gs and 5 gs at the same time. Standalone mode means that it's only connected to 5 gs. But in order for that to work, you need to have coverage. And that is exactly what we create with Ericsson Spectrum Sharing on a lower FTD band. Now why is stand alone important? So there are a number of reasons. So one reason is that we introduced a new architecture for 5 gs core that makes it easier to deploy slicing. You can have multiple slices per device, for example. The other thing is that we introduce a service based architecture. And that means that it's easier to develop new types of services because you can combine network capabilities in a much more flexible way. You also introduce a much less complex architecture. And eventually, you will have less complex devices as well because the device needs to be only connected also makes it easier to speed up control also makes it easier to speed up control signaling. So the access to a webpage becomes much more instant. So we have done some measurements of this. And here you can see the combination of when you have standalone, the orange, the non standalone, the violet and the green, which is LT. And you see from time from left to right, you can see how quickly you get the YUI gets from an idle mode when it's not transmitting or receiving to an active mode. So you can see it starts to get data much faster. And it also gets to higher rates if you are able to combine multiple bands for standalone. So even for end users, this will have a big impact. So standalone is a big thing. The way we introduce standalone in our core network is through our dual mode 5 gs core. So our dual mode 5 gs core is one core network for both 4 gs and 5 gs. And the benefit of this is, of course, that as an operator starts to invest in this architecture, it can smoothly migrate capacity and its investment from 4 gs to 5 gs depending on how fast 5 gs picks up. It's also entirely cloud native architecture, which has a number of benefits. Well, first, it fully uses its microservices. This means that you can more flexibly introduce new applications. You can do canary testing. You have a much more robust operation of the network. The other thing is that we introduce greater degrees of automation, which means that you can as the lifecycle of the core network and its applications evolve, we can manage those applications in a much smoother way. Obviously, we have developed a continuous software delivery mechanism. And we see that if you constantly take in new software capabilities instead of taking large software leases, You can reduce OpEx for introducing new software in total with 60%, 70%. So for the operator, this becomes a much easier task to daily upgrade or not work, as they go along upgrade their network instead of once in a year do a big refresh of the entire network. And lastly, we fully support open. So we have been the driver of the service based architecture in 3 gs PP. We have made more contributions than our 2 closest competitors combined. We can support any implementation of Kubernetes. We can support any vendor of X86 hardware, any virtual machine. And of course, we have a full stack implementation also. But we think this is very, very important because we're going to foresee and come to that more and more new types of developments where you will where you can deploy our 5 gs network. And these will be in sometimes new environments compared to what we have today. Lastly, we see that we have a very, very high performance. So performance depends obviously on what hardware you run and what applications you run. So with one of our Asian customers, we run a real test. We run a test where 3 vendors, Ericsson and 2 others had to perform the same application on the same hardware. So equal and apples to apples comparison. And as you can see, we were 60% to 80% better than our 2 closest competitors. So we have an incredibly efficient usage of our hardware, which is, of course, very important as capacity keeps on growing in the network. Lastly, to support operators to introduce 5 gs, we also introduce AI. And we do that in multiple layers. We, of course, do that for planning, for optimization purposes overall of the network. But we also do that in smart ways in the nodes themselves. So for example, we have functions for more intelligent traffic management, which increases 5 gs coverage enormously. By doing this, we secure that the device is always camping on the most efficient frequency as it moves in the network. We have also evolved carrier optimization. So we make sure that the device is operating on a combination of carriers that is optimized for uplink and downlink, depending on what the user actually is doing or is foreseen to be doing. So with these technologies and more introductions of AI in the network, we are able to squeeze out more capacity and performance of our 4 gs and 5 gs networks. Now let me last finish off by giving you an example how an operator typically can use these technologies to build 5 gs in the most efficient way. So in a very simplified manner, a network looks like this. To the left, you have the city center and out to the right is more rural areas. And you have built multiple layers, in this case, 2 layers of 4 gs, the green, one layer of 3 gs and one layer of 2 gs GSM. And the higher layers, the higher frequencies have obviously a little bit less coverage, less capacity you need. This is your starting point in a simplified way. Many operators have more 4 gs bands, have maybe different 2 gs bands, but the principles will be the same. Now a traditional way of building the network, you have the starting point again to the left, the picture I showed before, and you start to build 5 gs, the orange piece. And you do that, for example, on the 3.5 gigahertz band and you build out the network, you start obviously from the left where you have your dense urban environment and you build out to the right towards where you have less usage. And you start probably to add also some millimeter wave for places where you really need a lot of capacity. And then you continue to build out this and have ultimately good coverage. The challenge with this is, as we saw before, that you have still not as good coverage per site when you run on 3.5 gigahertz versus the lower bands. So you require more nodes to do this. And it also takes longer time. Now luckily, there is an alternative way. So the starting point is the same. But and you also start point number 1, you start by building out 3.5 and we start to do that with non standalone, so the device is connected to both 4 gs and 5 gs at the same time. But point number 1, you don't need to do as much because point number 2, in the striped area, we have combined 4 gs and gs with Ericsson Spectrum Sharing. So you have, A, created better coverage on a lower band B, you can do the corrugation between the bands and you extend the effective coverage of your 3.5 gigahertz 5 gs band. When you've done this, you have more room to invest or to invest in even higher frequencies, millimeter wave. So now you can start earlier to invest in millimeter wave for where you really need the capacity be it for stadiums, other venues, being it for fixed wireless access or other applications where you in your mobile network has an enormous demand for capacity and speed. And as you go along, you continue in this fashion and of course build out more and more of your legacy band, point number 4. You continue to build out your 3.5 and your millimeter wave bands. And you can also afford point number 6 to acquire a new frequency band. And in total, you can see that you get a lot more orange, you get a lot more 5 gs in this way compared to the traditional way of building networks. But it requires that you have access to the Ericsson spectrum sharing, that you have an installed base of hardware that can support it and you can do corrugation. Now what about those unfortunates that don't have Ericsson in their networks? Is there a way to migrate those networks? And yes, there are. So if you look at this picture, you start in a similar way to the left. You have here LiteGreen, which means you have somebody else's 4 gs. And now you want to create the same to the right, the ultimate solution with multiple 5 gs bands as you had in the previous picture and you want to introduce spectrum sharing and so forth. So how do you get from the baseline in this case to the ultimate? Well, the reality is that operators are ongoingly modernizing their network. They need to go to site if they don't have reaction equipment to do baseband capacity increases. They need to typically modernize old radios. The old 3 gs radios were 2 transmit, 1 receive. Now you want to do 4 transmit, 4 receive. You get much better coverage capacity that way. And it's very valuable also from on these bands. You want to introduce multi band radios instead of single band radios. Multi band radios have 40% lower power consumption than 2 single band radios. And you want to as you modernize, you want to capitalize on that benefits also. And typically, you want to introduce new bands, so you need introduce new antennas. And we have penta and hexa band antennas that are that we are coming out also from our from Katharine, for example, that we now have acquired. So operators need to go to site and modernize their old equipment anyway for OpEx reasons and for performance reasons. And as they do that, there are several ways to introduce also Ericsson and get the benefits of Ericsson. One alternative there is that you start to modernize your 4 gs network and you swap that completely. And then you have a starting point and then you modernize gradually your other band your other bands as well, 2 gs, 3 gs, as you need to do that. Alternative B, then you start to reform an existing 2 gs or 3 gs band. Often it's a 2.1 gigahertz band in Europe. And you say, I move all that traffic with my legacy supplier down to 900, for example, and I'm going to modernize this band. I use that as the basis for my anchor point for 5 gs. And then I introduce Ericsson on those bands. Possibly I add the lower band also. And then I modernize the network and I end up in the ultimate solution. So I we believe and we have seen multiple cases now where operators have started to make changes in their network. They are modernizing and they are bringing in Ericsson extensively, several customer gains on that. Now to sum up, 5 gs is really here. This year will be the year, we believe, where you will have much greater ramp up. You will see devices that come down from maybe $1,000 a piece to China Mobile's ambition is to have it less than $300 a piece. That will enable us to scale up. All OEMs will also have 5 gs this year, I believe. You can see that you can build networks in a much smarter way. And you can do that by leveraging the net record investments you've already made and spectrum you already made, investments you already made and you can combine that with new types of AI to squeeze out the most of the networks. And operators start to see positive trends on ARPU, at least the ones that have launched early and been proactive. And they do that by offering a greater service and more capabilities and a better user experience. And they are consumers seem to be willing to pay a little bit extra for that. So with that, I conclude. Thank you very much for your attention. Thank you, Thomas, Noreen, for that. I hope you all found that useful, a bit of a deep dive into 5 gs and Ericsson's capabilities in 5 gs as well. Now on to the next guest here, my friend and colleague, Fredrik Ghedling, Head of Segment Networks to give us an update on the networks business and market. Okay. Please, Fredrik. Thank you so much, Karl. So what I will do here over the next 25, 30 minutes is to, as Karl said, look a little bit at the market update for networks as well as networks update in that market. And thirdly, towards the end, lift a little bit on the lid to see what are we thinking beyond 5 gs. So those are the 3 key topics that we have here. It's great to be here. Let me start off a little bit where Tomas ended and that's on the market side. And if we would say that 2019 was the time of implementing and the first steps of 5 gs, we saw about 13,000,000 subscriptions in place across key continents or key markets like Korea as well as the U. S. Market largely. We now see, of course, China kicking in throughout 2020 with more subscriptions. We have high end mobile phones with early versions of chipsets, early version of telephones and this all in all generations introduced. You see a high price point at the beginning, but ultimately the uptake of any technology lies lesser in the technology itself, but more in the handsets that are offered onto the market. Like any technology as well, the initial capacities in the big cities to offload existing mobile networks. The key exception for that would be Korea where we see a more distributed coverage, possibly also Swisscom. Initially, it is the business that we all know. It's about smartphone. It's about It's about faster smartphones. We managed ourselves to bring up the speeds up to 4 gigabit per second last week in our labs. In live deployments, we look at 500 megabit per second, so mobility and about 1 gig in stationary situation in Korea. And it's built on the version of core networks that we brought in to be able to launch 5 gs earlier, which is what we call the standalone version. Now if we look a little bit at what we think is going to happen over 2020, it's now time for 5 gs to start scaling up. And in that we see a subscription number growing up to, let's say, around €100,000,000 subscription by the end of the year. And that would then mean that it's a faster up take than that of 4 gs as and when that happened. And as I said before, the key driver for that is the handset pricing. And as Thomas mentioned before, the $300 point seems to be where China Mobile, now the major Chinese operator seems to be the price point where volume can start happening on the device side. We think also that the 5 gs the early movers on 5 gs will start deploying a wider coverage. Some of them lucky to have an Ericsson installed base can do that relatively quickly. But we believe that that is likely disregarding a vendor to happen to be able to find a more ubiquitous coverage across geographies as well. We think though that on the totality of the operators about onefour of their operators will actually launch 5 gs by the end of 2020. While the consumer use cases are the ones that are likely to continue and we see the most ARVR type of applications such as in Korea, we see a very rapid growth of the application of 5 gs into other areas and that is what we originally built 5 gs for and that was to connect things with things and things with people and people with things. Those use cases are starting to come into play and we work very much in partnership. And as you know, we go to market with our operator customer, CSPs. But we work also with the industry to enable those use cases to motivate that type of investment in relation to standard type of Wi Fi applications and the benefit of our solutions there. To make all this happen, we need stand alone. My colleague, Jan, will talk a lot more about that later on. But those that type of core architecture will enable network slicing, different type of use cases to be enabled on latency and speed characteristics that are required. So we think that while we enabled 5 gs during 2019, the scale up is likely to happen then on 2020. In this environment here, I would say that we've had a pretty good start at Ericsson. As a matter of fact, we were first to launch 5 gs across 4 continents. And that's also one of the biggest differences between 4 gs and 5 gs that it happens across all major continents across 3 frequency bands at the same time. And I will get back to the challenges and opportunities with that. We now have 81 commercial 5 gs agreements in place. And more profoundly so we are live in around 24 networks. We see then that in those live networks, we have very high performance related to our competitors and that is due partly to what Thomas was talking about our massive MIMO architecture is different to that of our competitors providing a better performance. In the U. S. Market, we have then large on the millimeter wave side, been able to then capture 65% of the U. S. City deployments. And as I mentioned before also, the operator of CSP communication service providers that have our footprint installed can very rapidly deploy 5 gs on existing 4 gs hardware through basically a software upgrade. Performance advantage is also very much linked to that. We build and integrate an open ecosystem of devices. We made sure as we developed 5 gs early on to be very to perform interoperability testing with whatever provider in the market to make sure that anyone stepping into an Ericsson network can enjoy a great experience. So it's early on in 5 gs and but you got to be more happy with a good start than of course a bad start. If I then go a little bit more on the networks update and talk a little bit what we've done here and I wanted to show a little bit the full year perspective here of 2019 or 2018. And we then have shown an organic sales growth with this portfolio that we've developed over the last 3 years of 6% and that is higher growth rate than the market. And we're quite pleased with that. The market perception or the market reaction to portfolio has been, I must say, very positive. And that has enabled us then to grow in key markets for us like the U. S. Market, South Korea, Italian market, Germany and Saudi Arabia. And I think the conscious decisions we take to accelerate the portfolio, the variance and build a more proliferated portfolio serving multiple bands, serving also new technology as 5 gs and massive MIMO is really paying off in the market. Ultimately, the technology leadership we provide is evaluated in the sense that if we get ranked highest in the techno commercial evaluation of our customers, that's technology leadership for us. And in many, many cases that has become the case over the past year. Our gross margin has then increased sequentially over to almost 42%, 41.8%. That's a very important measure for us. It has to do with accelerating a better newer technology into the portfolio and that has been weighing higher than the impact of the strategic contracts that we put forward on the market, which is also important because our market share ambitions are to grow. And that is in itself important for the profitability because it offers scale in both production, purchasing and ultimately the way we provide R and D. So that has given us a SEK24.8 billion operating income. And again, the higher R and D the benefit in gross margin over the high R and D has paid off. So the net effect is positive for us as a company. So that's how we performed over 2019. I would say that with that, we delivered then a 16% call it gross operating income, operating margin and that is then in range with the 15% to 17% that we set forth now for 2020 as we've communicated many times before. Now I want to recap a little bit and then go forward again. And recapping a bit, what did we say about 3 years back when we met at the time in New York for Capital Market Days for networks? We said ultimately, we had 3 strategic priorities that we want to execute on. First of all, we wanted to make sure that we can invest in technology and cost leadership, again becoming the partner of choice for our customers. In their techno commercial evaluations, we need to make sure that we have the technology that come out on top. That actually has also another added benefit that newer technology is also more cost efficient for us. With that extra gross margin benefit, we wanted to do 2 things. First of all, we wanted to selectively expand market share where it makes sense, where the customers again evaluate our technology and the cost competitiveness it provides in their techno commercial evaluation. That was step number 1. Number 2, we wanted to make sure that we could become the undisputed technology leader and leader in 5 gs. So those were the 2 things we wanted to do out of the better gross margin profile. Practically what we've done, just to put a couple of proof points to that execution, we have since recruited then 6,500 R and D engineers over the last 3 years. And had we not done that, we would not have been able to again make that market capture over and above the market growth rate that we've been able to do. At the same time, we need to be a highly competitive cost efficient machinery. And to that point, we also reduced our service engineers and G and A force with about 3,500 people. We plan for about 100 radios to be released in 2020. That is doubling to the levels we were at when we started this journey in 2017. We're introducing now spectrum sharing, which I will get back to, the only economical way to introduce 5 gs onto the market. And we also now are working and we have also concluded a 5 gs standalone call for an end to end data call. We did that just about Q4 here. Market share is steadily growing, but what makes me more pleased in the sense is that key operators choose us for the right reasons for our technology and therefore we've been able to capture key deals that I just mentioned a few here like Verizon, SoftBank and Optus. There's a handful or a number of others beyond that, but that's give me confidence that we are on the right track in our techno commercial development. So if you looked at our Q4 'nineteen result, we grew that 7% quarter 4 over quarter 4 and we increased our gross margin by 1.2 percentage point. So, so far, so good in our execution. Now if we look at what we want to do then, it's really the strategic priorities versus 2020 2022 that we've been communicating before. Those priorities stand firm. It is around becoming an undisputable technology leader. In that sense, we talk about winning the technology race. So it is really out in time, understand what the requirements would be from an operator perspective and being able to deliver that customer value and cost per gigabit per second, being able to do it with the cost structure, including both serviceability, tk and manufacturing costs, that meets the requirements on profitability and ultimately being able to price it in a good way. So that is about delivering that portfolio, winning the technology race, but also making sure that we make the long term bets on technologies that are going to be valid beyond 2023. World class development, we work a lot on ensuring that we can reinvent the scale sense that we can have a marginal lower cost than the revenue per developed radio and that we can do through investments in architecture like modularity, software hardware modularity, product life cycle management tools, etcetera. In next gen supply and services, we are focusing on ultimately for the operator reducing lead times in half through rebuilding our factories into an Industry 4.0 top of a platform, integrating that with our site materials as well as service delivery mean that we can actually significantly reduce lead times. All of this is enabled through digitization. We have a very targeted approach with a select number of customers where we go in and do this type of activities. Compete on value, there's no secret that the radios we build now are far more complex in nature. They deliver far more output, far better cost per gigabit per second. But it's also important that the price points we enter on the market enable us to make money over time on this extra R and D investments that those 6,500 people represent. So for us, it's important that we get the price point right as we manage the erosion in the market in a good way. Finally, a significant part of our business is sourcing. We work very actively both on enabling a more innovative ecosystem, but also, of course, make sure that we can get the best deal and making sure that we can get a very attractive cost base from our 3rd party suppliers and partners as well. So in essence, these are the streams we've been working on for the past 3 years. What we're now trying to do is to intensify them against the want to position 2022 that spells out a clear market leadership based on technology, business and commercial leadership. Just touching upon where we are competing now in the market and naturally so we are in the middle here. And this is our prime market, the radio access network market, where, frankly, different, we invest continue investing for competitiveness and performance in eyes of the customer, cost per gigabit per second. We'll continue doing that to make sure that we are continuing to be a market leader, technology leader in those areas. Last year, we announced actually about exactly a year back the intention to acquire Katharine and Tenabe Systems. We have concluded that deal. We had a start which was a little bit bumpy considering that we had some initial supply issues due to permitting in certain factories. We now resolve that and over the year, we will regain fully production now. And over year, we will continue improving the performance of the Katharine business. The rationale for the Katharine business is undisputed in the sense that it provides a combining radius and antennas makes us enables us to regenerate reinvent the site on behalf of the operators, significantly reducing their OpEx on-site power, site rental. And it's also a critical component for us to be able to deliver next generation antenna integrated radios, massive MIMO, the competence and capabilities we didn't have before. We continue building our own site and fronthaul router portfolio and continue the partnership we earlier announced there. And we are looking into fixed access in the sense that we build an alternative to fixed access being fixed wireless access through utilizing 5 gs radio access. And as I said before, the extension of 5 gs into industries is in use case basis in partnership and through our CSPs. There are a couple of points here why we think we are have a better 5 gs offering than our competitors. Thomas talked it a lot. It is about the way we've architectured our massive MIMO the way we developed our algorithm and the way we allocate RAN compute in the system most cost and performance effectively. I just want to call out a few things that are a couple of them are unique for Ericsson and also the 2 on the left hand side. The 2 on the right hand side, we believe we have a better application, but are not necessarily unique invention. But if we look at the left hand side, what is really critical and what has enabled us to take business at this point in time has to do with the reusability of the 4 gs platform. In other words, if you invest in 4 gs, you don't compromise any and radios and radios that have been bought beyond after 2015. So a lot of there's no choice between 4 gs and 5 gs anymore hardware wise. You can actually reutilize the equipment. So it's a safe and solid investment. Naturally, so if you buy if you need to introduce new bands, you need to buy new radio equipment to serve those frequency bands, but that goes without, say, without any in any type of generation shift. The second point I want to highlight and this is an important point. This has to do with possibly the or not probably the only way you can introduce economically 5 gs into the network. If you remember before, you used to have to reform a certain band of a network capacity to serve either 4 gs or 3 gs. We've taken that problem away with dynamic spectrum sharing. The network will sense what type of device is sending what type of signal and on a millisecond, 1 millisecond basis be able to allocate capacity either on 4 gs and 5 gs. That takes away the problem of taking away revenue generating 4 gs spectrum for non generating 5 gs spectrum and it's a unique Ericsson innovation. The other parts that I want to call out here in 5 gs deployment has to do with carrier aggregation, the way we safely can merge different pipes and ensuring that we can get actually better coverage utilizing the uplink of the low band combined with the downlink capacity on the mid and high band. And that gives us about a 25% extra performance. And the last part, which I know that Jan will speak a lot more about later on is a dual mode core. And this is actually where the magic will happen with 5 gs. These future type of use cases related to connectivity between things and people with things are enabled and the network slicing functionalities will be made available through the 5 gs core. I'll let Jan continue on that later on. So we think we have some unique strengths as we're developing this portfolio and I'm happy to say that our customers have been reciprocating that with extended market share for us. And it is what we talk about a very unique and flexible RAN compute architecture. The way we can facilitate a compute which is the most sensitive function when it comes to performance in the network and the way we can dynamically allocate that from a central to distributed functions even all the way up into the radio where extreme use cases are required. In that sense, we are also looking into virtualized RAN architectures in the future as well. And as you know, we announced a collaboration with NVIDIA to discover the opportunities of these vRAN based architectures. I mentioned before, we have a very modular Ericsson radio system that has been in place since 2015, reusable from 4 gs up to 5 gs. Through the acquisitions of antenna of Kathrein antenna systems, we had the opportunity then to reengineer, re innovate the site concept and make it far less or make it far more, I should say, tight and less much more cost effective. And the last point, which we announced basically about a week back is our new approach to services where we use an intelligent network services based on an AI powered system that look at preemptive services rather than preventive. So before it even happens, we have an opportunity to diagnose the networks and make the necessary patches software wise before a problem is likely to happen. So if we try to lift a little bit on the lid here when it comes to beyond 5 gs the way we see it. And we think there is a concept around agile networks here where we want to be able to utilize the existing network and build use case driven extensions on the networks at the most cost efficient manner. So with the lowest marginal cost, we will be the partner able to bring on new use cases, whether that's a dedicated network for a factory facility, whatever extension else you want to build from your current networks. We think energy optimization is fundamental for this piece as we got to break the energy curve and we're doing a lot of research and development to that end, partly IAPOWER to be able to understand how to dynamically allocate power in the network in the best possible way. Virtualization would be a key concept. It's a technology that really enables a far better utilization of the nodes in the network. And we are then, of course, participating both in 3 gs FIFI as well as in O RAN driving openness in throughout the system. So that's a little bit the way we see 5 gs beyond where we are today. So concluding, we believe we have a very competitive 5 gs and technology portfolio now. It's early days of 5 gs. We remain very focused and humble in terms of the future, making sure we get the right investment to be able to build continue building a better 5 gs today, but also lean forward and look at what comes beyond 5 gs. Thank you so much. And with that, I'll hand over to you. Thank you, Fergik. Excellent. I think as you said, it's no walk in the park, but it certainly feels like we are acting from a position of strength now. Thanks to all the investments made in technology. Yes. No, I can conclude and say that we don't stand still. We recognize it's a very competitive market technology wise, and we need to stay on top of this. So we need to lean forward even more. There's nothing about that. Exactly. I have one question, though, Fjerdik, because and it's a lot in the press, about the coronavirus. Yes. And I thought we could just address that while Jan is coming. Welcome Jan. We'll come back in a second. Obviously, we need to be humble and monitor this situation very carefully and so on. But can we talk a bit about the supply chain so far? We can do that. I think it's possible I should have brought it up, but I think it's a very good question. Naturally so is that we're monitoring this more than daily, I would say. I should start by saying we don't see an immediate impact in quarter 1 right now, but it doesn't mean that we don't monitor detail. And we have a fairly distributed supply chain and we work with ensuring that we have a dual vendor for the critical components, meaning that we can be more flexible in the way we manufacture the equipment. We also have different manufacturing sites. We've got 2 main Ericsson sites, one of them being Nanjing, one of them being Tallinn and we've got a select number of partners. So we actively make sure that we can distribute out manufacturing to where it's needed to meet customer demand. We started up our manufacturing plant a couple of weeks back post people went back to work in China. And so our Nanjing factory is up and running. We got 161 or 170 subcritical suppliers working with us. The key is to ensure that we get lanes booked because the transport and logistics in China is slightly complex. So we make sure we can preemptively book those type of lanes to make sure that we can get our equipment across. Right. Again, we don't see any material impact now in Q1, but we are closely monitoring this. And if there should be a different message, of course, we will go out with that as soon as that would happen. Okay. We're all over that issue for sure from all kinds of aspects, including health and safety of our employees and partners and so on of supply chain serving customers. Yes. Okay. Thanks a lot, Fredrik. Thank you. It's really good to hear about networks. And now I welcome Jan Karlsson, who is Head then of our Digital Services business in Ericsson. And it will be great to hear about the transformation journey and where we are when it comes to digital services. Thank you very much. Really happy to be here to share some of the things which are on top of the digital services agenda. Clicker. I'm the one clicking. So what we'll focus on today is 5 gs core standalone, also known as 5 gs C. Why? Because it's a core new core architecture from 3 gsPP needed to fully realize 5 gs. And it's a super important shift for some of our customers. Some of our customers are making this shift already now in 2020. And this shift goes hand in hand with the shift to cloud native and automation. Cloud native and automation will change fundamentally how we develop, how we sell and how we deliver networks in the future. But first, a few minutes on our strategy execution progress and our financial performance. So don't please read this slide as an exact time line. That is not the purpose. But I think as we all realize, a transformation of a business area spans across various dimensions. And here you can see customers, portfolio, commercial and operations. Continued good strategy execution has taken us to where we are. And an example of that is the portfolio rationalization we started kicked off in the beginning of 2018, which allowed us to accelerate the development of our cloud native product or generation of products. So if I start with the customer dimension first, we've addressed 75% of the 45 critical and bad bank projects by the end of 2019. In the customer dimension as well, it's very encouraging to see how our competitiveness, the competitiveness of our offering has allowed us to increase our net sales. And I want to emphasize as well that on this customer dimension, the move now to cloud native and automation is a move that will take a long time, many, many years to come. If I move on to the product portfolio, we are investing continue to invest in the portfolio to make all targeted software cloud native. And 5 gs Core is the lead product in that portfolio. Commercially, we continue to work across develop, sell and deliver to capture the full value of our software. Commercially as well, we are implementing a beachhead sales strategy where we make sure that we land with beachheads, with anchor offerings and then have an articulation of the rest of our portfolio in attachment to those beachheads. And if I move on to operation, we're of course capitalizing on this technology shift with cloud native and automation, increased industrialization of our service delivery to make our operational efficiency increasingly more competitive. On this next slide, you can see how we've systematically improved our performance with a top line increase and a significant improvement in our bottom line. Yes, we have sales seasonality. You can see this very clearly on this slide. And this will, of course, continue going forward with a very high portion of revenue in the Q4. So earnings will continue to vary between quarters. You can also see how our gross margin has been stable since the past 6 quarters. Going forward, as we continue to address the critical projects and improve with regards to industrialization and automation, we see that gross margin increasing. Now a glimpse into 5 gs core standalone or 5 gs C. What is it? As we all know, our customers have a challenge to grow their traditional business around mobile broadband. For most, it's a very healthy business where the winner is the one that delivers the best customer experience at the lowest cost. And the evolution from 4 gs to 5 gs supports that. It enables operators to provide their customers with a better network performance at a lower cost per gigabit. And the first step to build or to start is to build a 5 gs radio network and upgrade the core network to something that is called 5 gs EPC, Evolved Packet Core. It's the same architecture, the same interfaces as for 4 gs, but with the added ability to connect to the 5 gs base stations or 5 gs NR new radio. This first step is called non standalone or NSA, as you can see on this slide. NSA increases mobile broadband speed significantly and the cost per byte is lower compared to 4 gs, But it does not have the features and functions that will allow CSPs, operators to address new growth opportunities. Fixed wireless access, yes, absolutely. New revenue streams from enterprises, not so much. So the full business potential can only be realized with 5 gs standalone. It makes the networks even faster, more programmable for new use cases. And it makes also the networks more open for innovation. Needless to say, as Frederic has said, we are working in developing our offering across radio and core to be the most competitive on the market across non standalone and standalone. And on this slide, what you can see highlighted in blue are the products in the digital services portfolio. Our portfolio consists essentially of software based solutions with corresponding service delivery and support services. The most important offering in the evolution to stand alone 5 gs is our cloud core. Within cloud core, our 5 gs C. So it's really the anchor in this evolution and it's also a core platform for our business. So what is core all about? The core network provides a number of functions, which are distributed across several software products. The core network acts as a super router of the entire network. All user traffic passes through the core network with different priority, with different security classes. Nothing can be connected to the network without the core network allowing it. It keeps track of all the connected devices. It provides, of course, also the gateways that allows data from external networks like the Internet to be to pass through and be consumed by devices. It also provides the charging information in order for operators to monetize the traffic. The interfaces between the different functions are standardized by 3GPP, and it is very common that an operator chooses different vendors for different functions, different products in the core network. And even if the interfaces are standardized, there is a systems integration job, a service delivery job to deploy the software into the customer environment and to set up, configure the specific features that the operators require. To go beyond the mobile broadband and traditional services, the core network needs to be much more programmable and software defined. It must be possible to more flexibly make use of capacity of resources and of the functionality. And a good example of this is slicing. I think many of us have heard about network slicing before. The slicing support in 5 gs is much more advanced compared to previous generations. So the 1 and the same network can be configured for different characteristics serving different purposes. For instance, one slice for mission critical communication with guaranteed voice and data between first responders and emergency control, one for consumer gaming, another one for field service staff supported by AR equipment. So these additions in 5 gs standalone allow the slices to be kept isolated from each other, making it easier to guarantee security and quality. And it's also possible to have one device connected to various slices, for instance, one for voice and another one for data. In stand alone, the possibility for external applications to be connected are also improved through network exposure. In the past, we focused quite a lot or operators have focused quite a lot on the retail opportunity, business to consumer and business to business. With standalone through exposure capabilities, which are standardized, it opens up for new business opportunities with regards to wholesale. So deploying 5 gs is really the only way to fully reap the benefits of 5 gs, including the radio benefits, performance, low latency and simplified architecture. So non stand alone, the non stand alone option has from the start really only been an intermediate step towards the stand alone architecture. 5 gs is a completely new architecture. It's most of the equivalent network functions from the 4 gs standard have been changed, new functions have been added and the interfaces between the functions are completely new. It's a new architecture. It's a must to provide the programmability and the flexibility, which are needed to address new business. And just to give you a feeling of how big the difference is in an RFP for 5 gsPC non standalone, we typically receive in the request for proposal then from an operator, roughly 1,000 questions. With 5 gs C with standalone, it's more like 5,000 questions or more. It's a completely different level of complexity. The market window for 5 gs is open now, and the leading operators around the world are looking to launch 5 gs standalone within the next 12 to 18 months. And we address this with our dual mode 5 gs core supporting both EPC and 5 gs C. If I go back to this slide as well. In our 5 gs core, in our dual mode core, the EPC functions have been redeveloped from scratch so that we can provide the TCO efficiency that our customers are asking for. And I'm really, really proud of what our employees have been able to do across flexibility, across performance, robustness, really, really good work. And it's not really only about the products within the 5 gs core offering. As I said before, when I mentioned about the beachhead and the anchor offerings, you see 5 gs Core as an anchor offering, which is pulling the rest of the portfolio with it. For instance, the cloud container distribution in our cloud infrastructure, for instance, network managers, service assurance, expert analytics and management and orchestration, for instance, charging and mediation in BSS, 5 gs voice and lawful intercept in communication, to name a few. Now I've said cloud native a number of times, but not really explained what it is and how it will change the way that we and our customers work. So let's watch a video to take a closer look. Cloud native is a methodology and technology that changes the way teams build and run applications. It makes it possible to fully exploit the on demand limitless power of cloud computing. It has and Cloud native allows development teams to compose applications from a collection of microservices, each with a specific purpose, and each can be developed and run independently of other microservices. That makes cloud native applications highly accessible, scalable and fast to create or tear down. Cloud native apps are packaged in containers that are portable between cloud native runtime platforms and automation is a must to manage the services, applications, runtime environment, and the infrastructure resources they depend on. Cloud Native with its microservices architecture allows R and D, service delivery, and customer operations to adopt continuous integration and continuous delivery and deployment. Each microservice can be independently developed, released, upgraded, tested and deployed as soon as they are ready. Data driven insights and customer feedback drive development of corrections, features and functions. Building, testing and releasing software For efficient and high quality software development, we have created the Ericsson application development platform. Its framework provides guidelines and design patterns to consistently develop telco hardened cloud native applications. Its marketplace allows submissions of microservices or the instant reuse of already published ones. Cloud native simplifies operations and greatly increases developer productivity. Applications and services can be pushed live with great speed, efficiency and with 0 impact on the end user experiences. So I think a pretty good video of what cloud native and automation is about. And this for many of you watching here, you might not realize how big a difference this represents for the telecom industry. Typically, we upgrade a product once a year. With this technology, we can go to updates, upgrades once a month, even once a week. And it pulls the vendors and the customers much, much closer to each other, allowing for this automation that was explained in the video. So it allows us to do upgrades or the deployment of new functions without maintenance windows, nighttime and without risking ongoing service. So is this for real? Or is this here and now? Or is this for tomorrow? And on this slide, you can see 2 press releases that were published not so long ago, one with Ericsson and Telstra, where we are first out with a cloud native core in a production environment, and Telstra are fundamentally looking to change their ways of working and really capitalize on the benefits of cloud native in terms of agility, flexibility, efficiency. On the right, you have a press release with KDDI in Japan and together we created a cross organization end to end CICD software pipeline for 5 gs standalone. And this pipeline seamlessly deploy software from Ericsson's R and D organization into KDDI's environment without human intervention. So what does this mean for us? How does this affect our business mix? We will remain a business where software and the corresponding services together create value for our customers. We see that our software portion will increase slightly in the coming years, partly driven by the automation of the service delivery and the industrialization of the service delivery, but also as we reduce the hardware component and focus more on the software value. Systems integration is and will remain a significant portion of our business. You can see to the right that the ratio of our recurring revenue has materially increased over the past 2 years, and it will continue to do so, driven by the increased ratio of software in the sales mix, driven by the continued work to shift the licensing model from perpetual licenses to subscription licenses and driven by CICD with seamless upgrades supporting the move to software subscriptions. As an organization, we are really embracing the new technology, cloud native, automation and industrialization. We've made significant progress, and we have our 1st cloud native offering available today. But we have a long way to go compared to where we are to be where to achieve the targeted operating model. And it's not only about the Ericsson, it's really the balance between Ericsson and our customers. This is not a change we do on our own to fully capitalize on the benefits, for instance, of CICD. It's a joint work between our customers and us. Some products are ahead, some products are a little bit behind. So again, a journey in our transformation. To conclude my final slide. So 5 gs is a must to fully realize the benefits of 5 gs. I think that point hopefully is quite clear. 5 gs allows for services which are more mobile broadband oriented, but also services which are oriented to enterprises and opens up for wider wholesale opportunities. Cloud native and automation are the technology for the future. And in particular with the cloud native core networks. Cloud native and automation can make us and our customers more efficient. And my mission is, of course, to continue to execute on our strategy, focusing on our customers and supporting the organization to progress towards our target and achieve profitability in 2020. And with that, thank you very much. Thank you, Jan, or Jean Jacques, as we call you internally. Some of you. Some of us do that, exactly. Thanks a lot, Jan. I think the transformation journey in digital services had a couple of key components and it's about, I would say, putting the house in order and getting into like a high quality unit here, managing the 45 contracts well on track. It's about cost efficiency, well on track, really a lot of big achievement standard already. But then, of course, growth in the new portfolio because of the fact that legacy has been declining over quite some time and we talked about that. Now you sound very confident when it comes to 5G and how that will be a beachhead for the new portfolio. But what more can you say there about the growth you see in front of you? I think cloud native is a big bet. And like I said, it's not just one product, it's across our portfolio. And we've started, we embarked on this, I think back in 2016, definitely 2017. And it's so encouraging to see that such an investment, such a big bet is really paying off. The feedback we get now from customers is very, very encouraging in terms of our the competitiveness of our product. And I want to emphasize as well that it's not just about the product. If we didn't have those processes, automation, CICD, together with the product, we would not be able to we would not be able and our customers would not be able to capitalize on the benefits. So it's I'm optimistic in terms of the impact of 5 gs already now in 2020 and definitely beyond as well. All coming together now. Okay, great. But that's good to hear and thanks a lot Jan. You will be back for the Q and A a bit later as well. Thank you. Perfect. Thank you so much. And now we will move on in the program here and listen to Niklas Heuveldorp, who is the Head of our North American operation. It's also a video segment here, but also Niklas will be available for the Q and A after this one. So let's roll the film. Hi, Niklas Voivelblop, Ericsson's Head of North America. It's great to have you here and have a chat about the North American market. And I must say, 2019 was a great year for North America and Ericsson in North America as well. Now the carriers that have been working on the 5 gs build out for about a year now. And how has the market played out, would you say? It's been an interesting year, for sure. I mean, North America has now been running in the high band, the millimeter wave, the mid band and the low band. Started it's almost it's soon going to be 1.5 years ago. So already in Q4, early Q4 of last year, Verizon started experimenting with fixed wireless and 5 gs. Then AT and T came out a bit later with mobile wireless focused on the enterprise segment. And during the year, both of them have gone into consumer mobility play as well as more devices have become available. Sprint started in the mid band, entirely consumer focused in a couple of markets. And then T Mobile started with millimeter wave first, but has now just before year end launched nationwide 200,000,000 POPs in the low band. So we're up and running in about 85 cities across North America, 55 of those supplied by us. It gives us about twothree of the cities deployed. I have we feel really proud about that. We had a very fortunate early start into the market. So the 1st 6 months of the year, we lit up most of the cities. Lots of learning. So I mean, I think there is a lot more conviction, passion in the operators now that millimeter wave is here to stay, plays an important role in the build out. But it's also clear that you need to work with all bands to really get the compelling consumer proposition put out. And that's, I think, what we're going to see more of now going forward. Interesting. And interesting to see how they select different strategies. And I think it's great to see that we have also been able to serve those different strategies from our side as well in a good way, building market share. You mentioned enterprise, the enterprise opportunity in 5 gs. That's one sector that many people have great hope for hopes for, of course. And how do you see that playing out so far and into the future? Well, you need to remember, all of our customers have been active in the enterprise play so far in 4 gs. But I really think based on what we've seen so far during 2019 that there is enough evidence to suggest that 5 gs really gives a whole new opportunity. Combine that with the edge compute capabilities, artificial intelligence that operators have been investing in, it seems pretty clear that there is a whole new business opportunity for our customers to seize in the enterprise space, right? We have done research with ADL, as you know. It's pretty clear that there is 20%, 30% potential new upsides for our customers in enabling industry enterprise transformation. Early experiments during the year in the health sector, so we have seen, for instance, processes in hospitals, devices being tracked, patients monitored, early experiments with robots. I mean, we've done some of that as well. Smart manufacturing, of course, asset condition monitoring, AGVs, autonomous guided vehicles. So a lot of experimentation going on that really stresses the network. So it will depend on 5 gs type capabilities to really enable those at scale. But we don't have the devices yet, right? So the ecosystem is still nascent. But I would say the early experiments are really encouraging to see. I think there is a lot of value to be had out there. That's interesting. And our own research talks about the US700 $1,000,000,000 by 2,030. I mean, definitely a big addressable market for the carriers, for the operators. So it's going to be interesting to follow how the actually the U. S. Or the North American carriers take charge of this opportunity to make it come real. What about spectrum, Niklas? Do the carriers have the spectrum they need? And what's going to happen there? They have plenty of spectrum. I mean, the FCC has auctioned out more spectrum in the last 4 years than in all previous years combined. So there has been a lot of spectrum coming into the market. It's primarily been millimeter wave recently. As a matter of fact, there is an auction going on now, 39, 37, 39 and 40 7 gig spectrum. We had 24 just before New Year. So there's a lot of millimeter wave coming into the market. But of course, what everybody is really excited about now is the mid band auctions during 2020. So first, now there's going to be the CBRS auction. That's about 70 megahertz of license spectrum in the CBRS band. And then finally, there is now a motion put in place to also auction 280 meg of the C band in 2 tranches, 100 meg first, 180 meg in the second tranche. A lot of expectations in the market that, that spectrum will come into the market with an auction end of this year, first availability late next year September time frame. And that will, of course, then allow our operators to go a lot faster by building nationwide coverage. I mean, that's one of the lessons learned during 'nineteen. The advantage of having a mid band spectrum or working in the lower bands, it allows you to work on the existing grid and go a lot faster. When you're working with millimeter wave, there's a lot of zoning and permitting that needs to happen. It takes time. Right. So do we without going into specifics on the customers and so on, but do we expect a CapEx boost and following additional spectrum coming out? Do you think that, that will be visible in investment levels? Not the spectrum per se, because we have seen again, as I mentioned, we have seen a lot of spectrum come into the market. I think that is part of our rung business. I mean, there's always been new spectrum added to the market and there is build going on. I mean, just because you have all this millimeter wave spectrum doesn't mean you're going to see nationwide deployments. Millimeter wave is going to be more for citywide coverage kind of scenarios, right? So you will see a different profile on that spend. I think the one question and T Mobile had the new T Mobile has taken a position on that is that they intend to spend more CapEx with the merged entity. So that in itself, I think we all have expectations for and to be seen how fast they can activate and how fast they can go really. Exactly. And I mean, that's a big and very interesting topic in itself, of course, the news on the merger now finally coming through. How will that impact, do you think, the markets, not only for the merged entity, but also the other players? Right. So I mean everybody has known for 2 years that this may very well happen. So everybody, of course, understands what that would mean. It's been 2 years since their first announcement. I don't think that there is going to be any change in strategy by any of the other players. They are executing on their strategies, which are and have been under execution for quite some time now. So I don't think we'll see a change there. They have been very active in the market, as evidenced by media T Mobile, the new T Mobile going to end up doing now with the merged entity with Sprint? T Mobile, the new T Mobile going to end up doing now with the merged entity with Sprint? Because that there has been commitments about an additional $5,000,000,000 spent over a 3 year period. How much of that is going to be in the earlier cycle versus the later cycle? How fast can you go? Because we still have restrictions to deal with. There is zoning permitting. There is work on tower crew capacity that needs to be done still. So we're following that, of course, very closely. We're super excited about the opportunity. So that And then again, we have been looking at this dynamic of consolidation around the world. The consolidation from 4 to 3 has typically shown that the 3 remaining operators have more resources to spend and will invest more, which is also for the benefit of consumers because it builds a better service, a better experience. What is new here now is that we see DISH coming into the market as well and obviously going to try to come in with a disruptive play. And my expectation is that that's going to create a whole new dynamic and maybe open up new market segments altogether. So maybe what we've seen as where we're going from 4% to 3% is good, bringing in a disruptor is bad, may not actually play out that way in North America. I'm optimistic that the way we're going into 5 gs now and this basically doing standalone 5 gs bet in a different way can actually create new market segments and net new revenues for the industry. So that's why we need to stay close to super exciting. And by the way, Charlie has his earnings report here in a couple of hours. So by Monday, we'll know more about that. We will know more for sure about that, exactly. Now but okay. So but that's interesting. I mean, it's going to be good for consumers, for industries and for the general economy, of course. This has now finally happened. That's the way I read what you say. And clearly, we are open for business with all these customers. But you mentioned the word disruption here. So I have to ask you about O RAN. How do you see that from the North American context, threats, opportunity? Natural evolution. I mean, our networks will continue to evolve towards more open architectures. Medium to long term, I would say primarily positive. I mean, I see opportunities to lower R and D costs, bring in 3rd party solutions in a different way. Again, I don't see that any of our customers are really pressing us to reduce the spend. They're trying to get into new spaces. I mean, again, thinking of the enterprise opportunity, I think O RAN may lower the price points so that we can actually go after a bigger market. And again, I mean, we are, of course, betting on being leaders in O RAN as well. So that should be good for us as well. We should participate in that uplift. Short term, there is a bit of an overhype right now in the market, some confusion. So it's not going to be without challenges to get to the end state. But I think, again, medium to long term, I'm convinced it's going to be fast. Good. And I guess an important part is for us to be sit at that table and be part of this development as well. Absolutely. And like we are with the virtualization of different kinds and so on. Absolutely. We talked a bit before about the investment levels and so on. And how would you describe now, again, if you summarize this year and into the future, about what's the investment level? And also on our side, we have talked about shortage of tower crews as well. You mentioned it, I mean, a few minutes ago. Top of mind, obviously, to get big deployment capacity on our side as well. But how do you see, if you summarize these factors playing out now in terms of investments and our capabilities? I mean, generally, we subscribe to the notion. I mean, we've had 2 years of good growth, I mean, double digit last year. Going into this year, I mean, we're coming in at a pretty high build ratio, you could say. I mean, again, everybody has been busy building out the underlying 4 gs infrastructure, the fiber networks to then put 5 gs on top. I think there is a little bit more to be had. I mean, I D'Lor is talking about the 4% year over year growth. I think we'll agree with that. I think there is a bit more growth to be had, in particular now with Sprint T Mobile happening. That should drive an additional spending in the market. We've done a lot of work on the tower crews. We have certified what is 842 climbers last year. And so we're trying to add capacity into the market. So that's going to help. And then also now as we go into millimeter wave and call it city urban deployments, we don't need to send people up a 6 100 foot tower. So we can work with bucket trucks in different form factors. So I'm optimistic as we see our customers shoring up build permits that we can actually pick up some pace there as well. So I think 2020 and going forward is going to be a bit more balanced between macro sites and street environments, rooftops and street sites. So I'm hoping that, that will also allow us to go at a higher pace. Fantastic. Niklas, you're oozing with confidence here. And of course, as you say, not without challenges, but definitely, I think we've you've done a tremendous job there last year in building an even stronger position. Let's continue with that. We feel good, but never complacent about the environment. Never. We are in this super exciting market. So much momentum, so much that's going to happen here. Also really leading the way hopefully then on the enterprise transformation, which is the big bet for all of us. I'm super excited about that. Which could have global rig pellet bets as well, of course. Big bet. Exactly. All right. Thanks a lot, Niklas. Thank you. Thank you. Karl and Niklas recorded a week ago. Yes, about a week ago. About a week ago. You wear the same suit as you did then. I tried to stay consistent. So now we're going to start the most complicated part, I guess, of the whole exercise is trying to dial into Niklas and Tomas. So I will actually start there. Do we have Niklas on the line from the U. S? Can we hear you? I'm here, yes. Great, Niklas. And I will do the same check with Thomas from the northern part of Sweden. Thomas, are you with us? I am. I am. Can you hear me? Great, Thomas. So standby now for the Q and A session. So ladies and gentlemen, we will now start the Q and A session. So if you would like to ask a question, please look at the numbers here on this slide on the left side where you can dial in the numbers from rest of the country and the PIN code in the bottom here. So, if you dial in now under the numbers you see on the screen, press 1 on your push button telephone if you want to ask a question. And if you want to remove yourself, you dial 2 on the same push button telephone. And there can be a little bit of delay here on the video webcast and on your phone lines. So be aware of that. So with those instructions, I would like the operator actually to open up for the questions. So please, operator. Thank you. Our first question is from Sandeep Deshpande from JPMorgan. Yes, hi. Thanks for letting me on. Two questions if I may. I mean, firstly, regarding the U. S, I mean, given what you've seen the recent change in the market in the U. S, I mean, how are you seeing the spending year? And then secondly, based on your presentation, you are very bullish on this dynamic spectrum sharing. But overall dynamic spectrum sharing essentially would mean that you will bring 5 gs into the existing 4 gs bands, which may be already fully congested. I'm not entirely sure how that brings a positive experience to the consumer, though it may bring the ability for an operator to indicate that they have 5 gs already in store? Thank you. Thank you, Sandeep. As we have Niklas on the line, I would ask you to take the first question on the U. S, of course, and then Fredrik when it comes to dynamic spectrum sharing. Niklas, please go ahead. Okay. So yes, as we had communicated earlier, we saw a bit of a slowdown in Q4, but still a very strong full year, 11% up for us. So still running at a very high rate. And now with the T Mobile merger being on track to conclude in a favorable way, we expect that new entity to be up and running in Q2. April 1 is the target date. So that should, of course, lead to a pickup in spending. Then the question is how fast. I mean, they've, of course, been planning for quite some time. I don't have full visibility as to the sequencing and how fast they can start consolidating and then actually putting new equipment on the towers. So it may take some time before we get into, call it, a good cadence. But I would absolutely expect to see the total spending throughout the year to start picking up. Again, I think the Del Oro 4% year over year growth is a good guideline that we also stick to. You're talking about the U. S. Growth of 4%? Yes, sir. Yes. Thank you. You're welcome. Thank you, Niklas. And Fjerdik, what about dynamic spectrum sharing and the consumer experience? Yes, dynamic spectrum sharing. Let's look at the alternative to dynamic spectrum sharing and that is reforming a predictable bandwidth, let's say, 5 to 10 to whatever in partitions of 5. So I think the alternative is to do that. And I think typically 5 gs would be introduced with more mid band or high band. What dynamic spectrum sharing does on the lower band, it allows for coverage across the whole country by not having to allocate the full band, but actually dynamically allocate it. So I think it is probably the only way to do it both from a user experience perspective, but also from a financial perspective. Okay. Sandeep, are you happy with those two answers? Okay. Thank you. Thank you, Sandeep. And then we are ready for the next question, operator. And our next question is from Achal Sultania from Credit Suisse. Hi, good afternoon. Hi, Ashal. The first question hi, Peter. Good afternoon, everyone. So first question, Karl, is on the OpEx side. I just wanted to make sure that I heard it correctly. Like are you saying in your remarks that OpEx to sales ratio will be up from 28.1% last year as we go into 2020? And is that dependent on the sales being at the midpoint of your guidance range? Or is it going to be up either way whether we hit the lower end or the higher end of sales target? Thank you, Arshal. No, what we're saying is consistent with what we said in the Q4 report as well that we do some investments now in OpEx in digitalization, security and compliance and that will increase the absolute amount. But our ambition is still to reduce the percentage of net sales on the total OpEx. So that's our ambition. Okay, understood. And maybe one on the digital services side. Can you give us some more color around how much is legacy now in DSS as a percentage of sales? And any color around how much money those legacy businesses are losing? Just trying to understand like how should we think about the cadence of profitability improvement as we go into 2020 2021? Thank you. Thanks for the question. So if I take we divide our portfolio into a growth portfolio and legacy portfolio. And as you can imagine, our sales over the past years have declined mostly because of the decline of the legacy portfolio. Where do we stand in 2019? 30% of our sales are with the legacy portfolio, 70% are with the growth portfolio. And we see this really flattening out now. We don't see a continued steep decline. And even if there was a big decline, the impact on our total sales is going to be marginal, given that it's only 30%. In terms of 5 gs, it doesn't yet really move the needle. But I think it will in 2020 because, like I said on the call earlier, we see customers wanting to deploy standalone probably faster than we had anticipated because radio is there, terminals are there and the core networks are there. In terms of R and D spend and other data point, I'm not sure how useful it is, but take packet core, we're developing, we're spending roughly fifty-fifty of our R and D on 4 gs and on 5 gs. Why? Because as you can imagine, 4 gs is still paying our salaries, given that 5 gs is not yet moving the needle. Not sure if that was an answer to your question, but some data points at least. Okay. Thanks a lot, Jan. Thanks, Achal. So next question? And our next question is from Johan Alquist from SEB. Yes. Thank you. Three questions, if I may. The first one relates to China. If you can give any update on where you when you expect the Chinese 5 gs rollout to kick off? And then second question to you, Jan. I see your slide on the increasing recurring revenue. And I'm just wondering, do you expect that this transition to increased recurring revenues will not be on behalf of sort of decreased top line? And then the third question, to you, Karl, I'm just I saw some numbers on the utilization initiative you have, which will cost €1,500,000,000 to €1,000,000,000 per year with positive impact from 2021. I just want to confirm that this is included in the OpEx guidance that you left already. Thank you. Maybe I can take the last one first, Johan. Yes, it is. Yes, it is. So we're not providing any new information. It's we may be detailing a little bit that component, but it's in line with what we have said before. So Friedrik, do you want to take the China question? Yes, I can take the China and I can do it fairly quickly. I mean to this point, we've done large scale field trials and evaluations linked to those for 5 gs for the major operators. That we're quite pleased with the outcome of those results. That's good. They are quite demanding. However, the larger scale rollout is a bit depending on the market share allocation, which is likely to happen or the decision on that is likely to happen end of Q1, early Q2. A little bit difficult to forecast. So I'll have to get back on that, Janne, because it depends a lot on that ultimate, call it, allocation then. Yes. And of course, there's supplies across both radio and core, what Friedrik just said. So we have quite encouraging results as well in the evaluations that the Chinese operators are doing for 5 gs standalone. And regarding recurring revenue, to answer your question, Johanna, no, we don't see this impacting top line. We're actually very, very happy with the development of the recurring portion of our revenue and it gives, you can imagine so much more stability, so much more predictability compared to a lower portion of recurring revenue. So I think it's one of the of the past 2 years, I think one of the most powerful metrics of the success of our transformation. So thanks for the question. Okay, Johanna, you're happy with that? Thank you very much. Yes, I am. Thank you. Thank you, Janard. So we'll move into the next question. Our next question is from Frank Marr from DNB. Hi, Frank. Yes. Hi. Thanks for taking the question. So a couple of questions. So you mentioned on the strategy execution part that you have a work stream on how to compete on value. My question goes to how you work. If you could give some more color on how you work actually to capture the value of upgrading the €5,000,000 radios and attach basebands by software upgrades basically, capture the commercial value of that to support 5 gs, DSS, 8 gs RAN, finally, stand alone over the next 3 years or so? I would assume that some you made some giveaways for some features. But if you could elaborate a little bit on potential upside from having that kind of installed base on which to upsell those features. Thank you. Sure. We can do that. Fjerdik? No, I can put a bit of color to that. Typically, we sell our hardware with, what you call, capacities that grow over time as and when the capacity needs to be utilized you deploy capacity to the network. On top of that we have software packages. Now I can't get into the exact commercial detail, but of course, the software upgrade enabling 5 gs is part of that software sales package that we also have forecasted as part of the revenue range that we've given and the growth of 3% to 6%. So that's very much there. Ultimately, all we need to do is Fadi. What is important both from a radio and capacity perspective, hardware capacity perspective is that the price points reflect the increasing richness of the radio. So I mean a 64 TR radio is far fairly quite a bit more complicated and complex than a 2 TR radio. So our ability to work both with the feature of upgrading 5 gs network that we mentioned, but also the way we put new radios into the network and for that matter, baseband, the capacity related to that, those initial price points are very important to get right for us. So those are just some of the flavor of what the parameters that we're working on to be competitive. Now needless to say, it's a highly competitive market and technology advances in technology enable us to gain a temporary advantage around certain aspects. Okay. Frank, did you have a second question or? Yes. So if I may, you made some pretty bold claims when it comes to your infield performance based on your MIMO architecture and also the 5 gs core performance, which is great. But Huawei had this product launch in, I think it was in London last week, where they also made some pretty strong claims, reiterating that they were 12 to 18 months ahead of the competition. They launched a multiband radio with 400 megahertz of ultra wideband bandwidth, I think it was 400 megahertz per carrier and so on. So how would you help us reconcile who is ahead here? No, of course, I mean, it's a good question. I think ultimately, our customer decide in their evaluations who they prefer as a vendor, needless to say. I think what we spoke about specifically on the massive MIMO radio system, we're choosing a bit of a different architecture, enabling us to be more cost efficient in the deployment as well as moving algorithms and software up into the radio meaning that you have a shorter response time. And that is why we see that uplink performance advantage that Thomas can talk a lot more about. Now ultimately, I mean, if you really look at it, we were the 1st operator to launch across 4 continent with 23 contracts. And it's really from that perspective hard to see hard to be behind when you don't really see anyone ahead. It's always going to be in a very proliferated demand of bans across many operators. Sometimes one competitor might be ahead on certain bans, other times we'll be ahead. But we feel comfortable about the way we have developed our portfolio. We feel comfortable about being first on 4 continents with our networks and the 81 commercial contracts. I think that needs to sort of speak for itself. Okay. Frank? Yes. We're good. Yes. And finally, a question to Frederic regarding Open RAN. Could you talk a little bit about limitations that the device ecosystem basically places on the expected short term development of Open RAN. I think you talked about that last week in an industrial event according to Light Reading. If you could elaborate a little bit, Frederic, on the device side limitations that will be there for Open RAN? Yes. I mean, if we look, I mean, starting in the end question there, of course, I mean, our interoperability testing across multiple devices enable a rapid deployment that otherwise would have to be done more a system integration basis if it's done on a 1 on 1 unilateral or bilateral basis. We do it across the network vendor system. I think just to back up a little bit on the not talking maybe Open RAN, but maybe O RAN then or openness in general, I think we need to understand also that 3 gs PP as such is an open environment in such a way that you can participate on fran basis. Anyone is allowed to participate in as an open standard as an environment that has connected 8,000,000,000 subscriptions over the last 20 years. That's the starting point. The second point on O RAN, we've been a member for a little bit over a year now and we have actually been part on bilateral and multilateral agreements being able to standardize and open interfaces like noncritical sort of network management functionality, this call A1. We have been standardizing open up the interfaces across the central unit and distributed unit inside the new 5 gs architecture. So we're working a lot with these type of factors. Now when it comes to certain interfaces, one is to realistically look at the cost performance benefits of what has been developed in the baseband architecture that Thomas talked about. And that gives to the way we see it significant performance advantages and thereby cost advantage as and when deployed in the networks. So we see potentially as also Niklas is alluding to, there could be use cases over time where the performance requirements are limited in certain environments. And if when and if and when those happen, of course, if there are O RAN standards defining that, we will have to be the 1st player playing in those areas as well. So that's a little bit to give you a flavor how we see on O RAN. So we work a lot on openness. Then it comes down to cost performance analysis on the existing bands where we have developed bespoke compute environments that are required for these extreme use cases around 100 to 400 megahertz on mid band compute performance. That takes a lot of the acceleration capabilities and software capabilities that we developed that we spoke about. Again, parallel to that, if use cases develop where ORA specification is sufficient, we need to be first there as well. Great. Thanks, Fredrik. You're happy now, Frank? Yes, thanks. Just wanted to break in and say there was a number which I'm not sure if it came out correctly earlier in the discussion here and it was about the growth in North America according to Del Oro. It's 1% estimated for 2020. Not sure, however, how they have factored in the Sprint and T Mobile merger in those numbers, but it's 1% as per Delora. The world growth is estimated at 4%. Just wanted to clarify that again. Back to you, Peter. Okay. Thanks, Karl. Then we are open for the next question. And our next question is from Simon Leopold from Raymond James. Hi, Simon. Thank you for taking the question. Appreciate you guys doing this call in light of Mobile World Congress being canceled. So good to get this briefing. I wanted to follow-up on your comments regarding your production in China. So a couple of aspects there. 1, help us understand what portion of your revenue is based on production out of China? And I believe you said you didn't expect much of an impact on your production due to the coronavirus. I'm wondering if, 1, you've got some thoughts on what the sort of variances around your confidence in terms of supply chain checks for you? And 2, does this give you some competitive advantage where perhaps your competitors are facing stiffer challenges getting factories up and running or getting components relative to your abilities? Thank you. Yes. Shall I take that, I guess, yes, Simon. I think very relevant question. As we said, this is something that we monitor daily, if not a lot more than that. We can't get into any distribution between the major sites we have and the proportion of revenue allocated to each one of them because we have our 2 main manufacturing sites that we own ourselves. Those are in Tallinn. 1 of them in Nindan, Dhanjin being the second one. Then we got a range of various, what you call, manufacturing services company partners, which we have across the world. And we try to make sure that we can be resilient both from a component supply perspective as well as a manufacturing site perspective as far as we possibly can to serve all our customers in the various markets we serve under. Then we got a 3rd factory as we said, but that is likely to go live here during H1. Now we said limited to no customer impact with the visibility we have today. Of course, it is a and we did start our manufacturing site in Nanjing, started that up in February 10 at midnight. We have been able to onboard people in a sufficient way so far. As I said, we've got about 160 to 170 other critical suppliers up and running. So again, with the information or the data at hand right now, we see limited impact on Q1. But of course, it's an extraordinary sensitive situation. Should it hit 1 of our manufacturing side or should 1 of our suppliers key suppliers be impacted. So we work around the clock to try to mitigate any impact. And of course, as soon as we have contrary information, we'll be sharing that as soon as we can. The challenge is more so from the perspective of logistics in China where travel is fairly limited between the various regions. So it's important for us to proactively ensure communication and travel for those unique components, etcetera, to be able to assemble in Nanjing. So that's what we monitor as closely as we can. The final point was about competitive advantage. I think that's all I can. That is hard to say I can't really. I look after our own supply chain and try to find contingencies for that in any scenario in a very challenging situation. So that's what I put focus on. I can't really answer to our competitors in that. Okay. Simons, was that coronavirus uptick good enough? Yes. No, I appreciate it. I have to imagine you do have some competitive advantage. It's just very difficult to assess what seems to be a fairly fluid situation. But thank you for taking the question. Thank you, Simon. We'll move into the next question. And our next question is from David Mulholland from UBS. Hi, David. Hi. Thanks guys. Just wanted to ask one on the digital services business. And obviously, you've been working for a few years to move towards a cloud native environment and kind of visibility to continuously innovate. I think it was in the last, what, 18 months we had a software glitch in one of your updates that caused some issues. So just as you look to move to this type of an environment, what procedures have you put in place to make sure that as you potentially have this direct link to deploy solutions to your customers' networks that it is robust, that we don't have those risks going forward? I think risks always exist in software. That's just the nature of the beast. But I think since way before, yes, way before the 6th December event in 2018, we had procedures in place of securing good quality in our products. Unfortunately, we there was a fault in one of our processes, which caused this incident. And since then, we've doubled down even more with regards to processes in R and D and verification. And like you're hinting, CICD goes hand in hand with quality. You can't do CICD with insufficient quality. And I'm really proud with the evolution of our product quality across the portfolio. It has steadily improved and just keeps improving. And our sights are set very high going forward. So super relevant question. You can't guarantee 100% quality in software. But I think another point to this, which is really important is the way that our 5 gs is designed in terms of resiliency already in 4 gs with the concept of having MME in pools is improved even more now with 5 gs. So hot topic, very important topic in the discussion between us and the customers when you move to cloud native Kubernetes, how are we ensuring security, how are we ensuring quality. So more than happy to take this offline if you want, where we are and where we're going. But I feel confident with the progress and the plans we have going forward. Thanks for the question. Maybe just one quick follow-up on that then, if it's all right. Just the obviously, your customers are going to remember that December event. So is that still something that comes up in discussions today as you start to move towards 5 gs? And are they comfortable that you've put enough measures in place to still make this type of a transition? Yes. No, I would say so. I think as we all know, we've been around for so long. It's how you deal with a situation that defines you. If you say no, no, no, but if you say yes, we made a mistake and this is how we're going to correct it. So I've been in numerous discussions with the affected customers, but also with other customers about how we're improving our processes to make sure that this doesn't happen again. So again, to answer your question, no, I do not see a business impact because of the December 6, 2018 event. And like I said previously, I feel if anything that we're I would say that we're actually increasing market share in our portfolio and in particular in the packet core area. Very confident about the opportunity in 2020. Thank you, Jan. David, you're good? Yes. Thanks. Thanks, David. We will move into the next question. And our next question is from Alex Duvall from Goldman Sachs. Hi, Alex. Hi, everyone. Many thanks for the question. You talked today about the incremental investment in digitalization, which, of course, is included in your targets. Clearly, you've also recommitted to the market to your EBIT targets, driven by the revenue range and 10% margin target. So I just wondered to what extent there could be scope to dial that down for defer investment through the year should the scenarios evolve a bit differently for regions like China in terms of pricing or market share? And then my second question is, you've talked today about several tangible ways in which you're on track for your 2020 targets. But also, you clearly have these 2022 targets. So as you look forward to that sort of longer term range, I wondered if you could just talk a bit and potentially rank some of the biggest drivers that will help with that progression if we think about things like growth in 5 gs core, which you're obviously quite bullish about, but also digitalization across the business and any other key factors? Many thanks. Sure. Thanks, Alex. Yes, on digitalization, I would say, because of the way we plan and execute on these digitalization projects, they theoretically absolutely can be dialed down as you say if we need to. But let's say, we are definitely not there yet. We are committed to the 2020 target and as well as the 2022. And we believe that the investment in digitalization will give a return that clearly justifies doing that. But theoretically on your question, of course, they are we can scope them up and down if need be for sure. When it comes to 2022, we are firmly committed to those targets as well obviously. And maybe the most useful thing is to hear a bit from Jan and Fredrik when it comes to your thoughts on what is going to take us towards the 2022 levels. I can say, I mean, to start with then the next milestone is, of course, this year. And we said given a range 2020 of 3% to 6% growth on the revenue side in a range of 15% to 17% and on the operating income. In that scenario, there is, of course, you alluded to the China situation, the various scenarios there on China in relation to the U. S. That gives us to our best knowledge that, that is the square, so to speak, that we will land into. Our ability to continue to capture market share in line or faster than the market on rand is, of course, a critical component. And our ability then to turn our R and D into productivity that I talked about and being able to meet this demand with more output on the cost side is, of course, a critical component on meeting the long term targets. So that's why we focus on the combination of a competitive portfolio by 2022, 2023, as I said, and match that with a development force that can sort of break that curve. Those are the levers, I would say, from network side. Good. And Jan? Yes. A couple of comments. One is, I think we've shown our capability to execute on our strategy and layout the strategy and execute on that strategy. If you look back on where we were in 2017, a very, very complicated situation. We could not even talk about 10%, 12% in operating margin. But based on what we've achieved so far, I'm, course confident that we will continue to execute. And it's about continue to execute on the cost side, not just offshoring, relatively low hanging fruit, but automation, industrialization working much smarter compared to how we've been doing in the past. But it's also about the success of the portfolio, the competitiveness of the portfolio. And a couple of points there is, it's all about maybe I'm repeating myself here, but it's all about 5 gs, of course, the evolution to non standalone, but then the standalone opportunity. And there, if you see that 5 gs is an opportunity in itself we need to capture, imagine the upsell opportunity with orchestration, with assurance, with costs. The suite of product is really articulated around those anchor offerings. And allowing us or capturing that anchor position will give us a very strong position to continue to generate the top line that we have in our plans. So like Frederik said, it's all about 2020, stepping stone into for the plan here to reach the 2022 target. Thanks for the question. So thanks, Alex. We can take one more question as we're getting closer to the half hour here. So please, operator, open up for the last question. And this question is from Jorgen Wetterberg from Nordea. Hi, Jorgen. Yes. Hi, yes. Thank you for taking my question. I'll limit myself to one then since we're short on time. I have a question on North America maybe for Niklas. So wondering about the major customers a lot of the major customers have deployed a lot of hardware, antenna sites, etcetera, and that there will be more software upgrades in 2020, 5 gs hardware activation codes, dynamic spectrum sharing functions, etcetera. And then you've also mentioned that services will increase overall. So how will the mix shift here? And how should we think about gross margins? Did you get that, Nikas? Thanks for the question. Yes. Thanks for the question, Jurgen. No significant change in the mix. We saw an uptake on the services mix in our business during 2019. If anything, we'll probably see a little bit more of that. We're going to be very busy rolling networks out, and we have taken some important market share. As for the rest of the business, I don't expect any fundamental change. We're not done with the 5 gs rollout. So don't expect this to go into software only for quite some time. We're going to be busy building and installing base stations. So no significant shift, maybe a bit more on the services side, but we managed that pretty well in 2019. So nothing to add, I think. I hope that clarifies the question. Maybe one more question, if I may. Johan, on the digital services. You said that the 5 gs core launches are being planned for by most major operators and to be operational in 12 to 18 months. When will we see impact on your sales from that? Will it be on the date of the launch? Or will it be before that? So a few operators are and the leading operators, yes, are planning to launch standalone in 2020 in South Korea, in China, in the U. S. And in some European countries. To answer your question, when do we see the impact, when do we expect to see the impact? Yes, when they go live, definitely, definitely. But again, it won't be a big impact in 2020. There will be 5 gs related revenue in 2020, but it won't be big needle mover. That change will come in 2021 and going forward. But where it's so important for us to be selected in those early launches by those leading operators. They are really showing the way, leading the way to the rest of the world. Yes, so good question. Thanks. Thanks, Jorgen. So before closing this event, I actually would like Karl to finalize with some closing remarks. So please, Karl? Yes, I will very briefly then the heading of the event here was Ericsson on track and hopefully we have demonstrated that we are on track. We feel good about the development we've had so far and, of course, never ever complacent, but we think we have a good position now to capture the opportunities provided by the technology shift into 5 gs and to create additional value there. So I hope you found it useful to get a bit of a drill down into the network side, the 5 gs, digital services and North America together with us this afternoon. And I would like to thank you for your participation and for joining us here. So thanks a lot to colleagues. Thanks everyone on the webcast as well. Thank you. Thank you.

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