Hello, everyone, and welcome to the presentation of Ericsson's third quarter 2026 results. Joining us today we have Per Narvinger, our President and CEO, and also Lars Sandström, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A. In order to ask a question you'll need to join the conference by phone. Details are available in the earnings release and also on the investor relations website. Today's presentation contains forward-looking statements and is being recorded. Actual results may differ materially due to various risks and uncertainties. Please refer to today's earnings report and the annual report for additional information. I'll now hand the call over to Per for his introductory comments.
Thanks, Daniel, and good morning, everyone. Today marks my first earnings call as CEO of Ericsson. I'm pleased to begin by reporting a strong third quarter, where we are executing well in a challenging environment. Looking at top line, organic sales grew 7%, with organic growth in all segments. Growth was driven by solid customer demand in strategic markets and effective commercial execution. Our gross margin was 47.7%, and EBITA margin came in at 17%. The quarter demonstrates the earnings leverage we create with sales growth and discipline on costs. Lars will soon go through the numbers in more detail. Let me give a few more general reflections first. Since the announcement of my appointment, I have spent a lot of time meeting with customers, and a consistent theme is the need for increasingly intelligent and autonomous networks to improve performance, efficiency, and customer experience.
With the rapid development of AI, it's obvious that many new applications are going to be dependent on mobile connectivity. This means that networks will need to be even more reliable and resilient in the future. We are well-positioned to help our customer on this journey. With AI models optimized for their use cases and leveraging Ericsson's purpose-built silicon, we enable our customers to get more out of their spectrum assets without increasing power consumption. We will continue to invest and make sure we stay on the forefront of this development. At the same time, we remain realistic about the market. The RAN market is broadly flat, and component costs are increasing in the wake, of course, the AI boom. So far, we've been able to mitigate with tactical actions such as product substitution and upselling. These tactical efforts, however, they will not be enough long term.
We are also taking structural action, including portfolio optimization, raising prices, supply chain measures, and efficiency improvements. Many customer contracts are multi-year, so structural mitigations will take time to flow through. We will not be immune to higher component costs, but protecting the value of our technology and the profitability of our mobile networks business remains our top priority. We are also maintaining cost discipline while at the same time prioritizing the investments needed for technology leadership and supporting our customers. The organizational changes that we announced today are part of that work. From January, we are creating a market area, Asia-Pacific, by combining Northeast Asia with Southeast Asia, Oceania, and India. This will help us operate more effectively across the region while maintaining strong customer focus at country level.
We are strengthening our focus on seamless connectivity and want to make sure that we can offer a rich indoor portfolio that leverages the full R&D competence in the company. We are therefore making changes to Enterprise Wireless Solutions to capture these R&D synergies, drive product innovation, and accelerate the growth with both CSPs and enterprise customers. These changes will also create a leaner executive team with clear accountability and ability to move fast in a dynamic market. With that, I will hand over to Lars to go through the financial results in more detail.
All right. Thank you, Per. I will begin with some additional comments on the group before moving on to the segments. Net sales in Q3 totaled SEK 59.5 billion, with organic sales increasing 7% year-over-year. Sales in all market areas grew with the exception of Americas, which reported a slight decline of 1%. In Americas, sales grew slightly in North America, but were lower in Latin America. In the other market areas, sales were driven by Japan, India, Vietnam, and the Middle East. Sales in market area other grew with enterprise sales broadly stable and growth in IPR. IPR revenues were SEK 3.9 billion, with an increase of SEK 0.8 billion year-over-year. Part of the increase is due to retroactive revenue related to previously unlicensed periods. The current IPR run rate is approximately SEK 13.5 billion. Turning to the rest of the P&L.
Adjusted gross income was SEK 28.4 billion, with a gross margin close to 48%. Gross income increased year-over-year by SEK 1.4 billion due to higher sales in mobile networks. Gross margin was broadly stable. On the cost side, we were affected by component cost increases, mostly in Networks. I will cover this in more detail later. Operating expenses excluding restructuring charges improved to SEK 18.4 billion, around SEK 0.7 billion lower year-over-year. Cost reduction actions are mitigating wage pressures. Adjusted EBITA was SEK 10.1 billion, excluding the divestment of iconectiv. EBITA increased year-on-year. The EBITA margin was 17%, ensuring the benefits of operating leverage with higher sales. Cash flow before M&A was SEK 4.9 billion, driven by earnings and impacted by higher inventories. I will come back to this later. Let's move to the segments. In Networks, sales increased by 9% year-over-year to SEK 38.7 billion.
Year to date, organic sales grew by 4%. Organic sales grew in all markets areas with exception of Americas. North America grew slightly, while Latin America declined. Sales were driven by three main building blocks. First, our strong commercial momentum in the past 12-18 months is translating into share gains and financial performance in strategic markets, for example, Japan. Second, we are seeing a near-term shift in customer behavior with some customers accelerating spend before price increase. Third, good commercial execution on the near-term sales mitigation activities. As you know, we put this in place to support sales and margins as component costs increase. Networks adjusted gross margin was stable at 50.3%, benefiting from product mix and retroactive IPR licensing revenues, offsetting some of the component cost increases. Adjusted gross income increased to SEK 19.4 billion.
Adjusted EBITA was SEK 9 billion, up from SEK 7.2 billion last year, mostly due to higher sales. Adjusted EBITA margin was 23.1%. Looking at the right-hand graph, the rolling four quarter adjusted gross margin was around 50% and adjusted EBITA margin around 21%. Moving over to Cloud Software and Services. Sales increased by 3% to SEK 15.8 billion. Growth was broad-based across the commodities and benefited from growth in adjacencies, leveraging our capabilities into non-CSPs verticals. Adjusted gross margin came in at 43.5%, broadly stable compared to last year. Adjusted gross income increased to SEK 6.9 billion. Adjusted EBITA increased slightly to SEK 2.0 billion, with a margin close to 13%. Looking at the right-hand graph here, the rolling four quarter adjusted gross margin was around 44% and adjusted EBITA margin around 13%.
On Enterprise, reported sales decreased by 10% due to the sale of iconectiv in the prior year. On an organic basis, Enterprise sales grew by 1%. Within Enterprise, we are seeing good customer momentum in the Enterprise 5G private networks. As Per mentioned, the changes announced today will capture R&D synergies, drive product innovation, accelerate growth. Adjusted gross margin declined to 50%, reflecting the impact of the divestment of iconectiv. Adjusted EBITA landed at minus SEK 0.5 billion and improved sequentially. Efficiency actions are underway to improve profitability further. Turning to free cash flow, which was SEK 4.9 billion before M&A in the quarter. Cash flow generation was supported by earnings, but impacted by increased operating net assets, mainly inventories. The buildup in inventory was due to higher component prices, as well as the usual buildup of finished goods ahead of Q4.
We delivered a cash flow to net sales of 11% for the rolling four quarters within our 9%-12% target. Net cash increased sequentially to SEK 60.7 billion. Gross cash increased to SEK 98 billion. We raised a EUR 500 million bond in Q3, preparing for upcoming maturities. The share buyback continued in Q3, with SEK 4.5 billion of cash flow used for buybacks impacting net cash. Year to date, this has delivered SEK 8 billion back to shareholders with 79 million shares repurchased alongside SEK 5 billion of dividends. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation. We are not immune. The industry is entering a period of higher input costs, and the financial impact will continue to build up in the coming quarters.
Our near-term mitigation actions across the business, mainly commercial measures, are working well so far. As Per mentioned, we are continuing with our plans to gradually implement longer-term structural actions. These will be needed to more sustainably offset these impacts and protect our position in the value chain. We are adjusting pricing in current tenders and discussing to broaden price increases and commercial mitigations with current customers. We are also continuing efficiency and supply chain actions. Turning to the Q4 outlook. The outlook assumes the exchange rates specified in the report. For Networks and Cloud Software and Services, we expect sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality. We expect Networks adjusted gross margin to be in the range of 49%-51%, benefiting from product mix. Restructuring charges for 2026 will be elevated, as you have already seen in the first nine months.
With that, I hand back to you, Per.
Thank you, Lars. Let me close with three messages. First, we are executing from a position of strength. The quarter demonstrates the earnings potential of Ericsson when customer demand, commercial execution, and cost discipline come together. Second, we are acting decisively on challenges ahead. We are addressing higher component costs and a broadly flat RAN market while protecting the investments that underpin our technology leadership. Third, the opportunity ahead is significant. AI will increase the demand placed on mobile networks and create new opportunities for our customers. With our technology, customer relationships, and the actions we are taking, Ericsson is well-positioned to deliver sustainable, profitable, long-term growth across the Group. Finally, I'd like to give a big thank you to all of my Ericsson colleagues for their contribution to the quarter and their commitment to our customers. With that, Daniel, let us open up the line for questions.
Thanks, Per. We'll now move to the Q&A portion of the presentation. As usual, to ask a question, please press star one and one on your phone and wait for your name to be announced. If you're streaming the webcast, please mute the webcast audio while asking a question to avoid any feedback. As usual, if I can request one question per participant, so we have time to hear from as many of you as possible, please. Thank you. Operator, we're now ready to go to the first question. The first question today is going to come from the line of Simon Granath at ABG. Please go ahead, Simon.
Thank you. Morning, Per, Lars, and Daniel, and especially congrats on the new position, Per. I have a question around investment trends in light of recent news about satellite operators potentially looking into buying and building their own terrestrial network. Could you talk about whether you see this as an emerging opportunity for Ericsson? What is your assessment as to how operators are responding to this? Are they revising any CapEx RAN priorities due to these industry dynamics? Thank you.
Thank you, Simon. It's a very good question. We discuss satellite with most of our customers at the moment, to be honest. First of all, for the end user, satellite communication will be a fantastic addition to terrestrial networks. What we see will be very important is to have a seamless connectivity between outdoor and indoor. Obviously, that's going to be one of the challenges for satellite, how to take the outdoor coverage indoor. We believe that for our customers, that seamless high-performing experience is going to be very important. That's also one of the reasons now that we are consolidating our R&D efforts in the indoor segment, meaning that we then also move our activities from our Enterprise Wireless Solutions business area into Networks. Overall, we would want to see this as it actually shows the importance of connectivity.
There will be more players for connectivity, but you cannot rely on satellite alone. You're going to need the terrestrial coverage as well. We basically see it as positive.
Thanks for the question, Simon.
Thank you.
Moving to the next question, please, Operator. The next question is going to come from the line of Andreas Joelsson at DNB. Andreas, please go ahead.
Thanks a lot, and good morning, everyone. A question on sales and the demand and how we should look at that going forward. It is very strong in the quarter, obviously, and the outlook for Q4 states that it will be normal seasonal patterns, also a quite strong end to the year. Then you say that the market is broadly flat. So how should we look at this into 2027? Is a flat market also the most likely going forward? Also how that impacts your long-term mitigating or actions to the higher component costs? Can you be a little bit more clear in what you do to further mitigate? Because you have obviously been quite successful so far. Thanks.
Thank you, Andreas. Maybe I start. So what we are seeing is a strong quarter in sales. As you are alluding to, there is a lot of headwind on the cost side. We of course sit on fairly long contracts with our suppliers. We also sit with long contracts with our customers. That means in the short term, what we can work with is tactical actions, and that would be things like upselling, making sure we do product substitution, so we have products with a better cost profile in what we are selling. Those are the kind of tactical actions we are taking. You could also probably see some kind of signal that looking at the product mix because there are less services. So maybe some of our customers are now trying to buy before price increases.
Because we are signaling that we do see that this AI demand will continue, meaning, of course, cost on the components will be high also next year. You can only do tactical actions for so long, so that means we need to get some of these more long-term actions in place for next year, meaning we need to get prices up with our customers as, of course, then contracts get renewed. Over time, this will, of course, ripple through the P&L. Our view is that this is structural, everyone is having the same challenge, meaning in the end, we as a supplier cannot absorb these costs. They have to be passed on. But of course, there can be a transition period, and that is what we are saying, that 2027 could be such a transition period. But obviously this quarter we have managed well with tactical actions.
I do not know if there is anything you want to add to that, Lars.
No, I think you asked on the demand and our ability to grow, and I think we have not changed our view on the RAN market per se. Then, of course, we work closely with our customers. How can we grow? How can we, with our technology, gain market share, et cetera? What can we do in adjacencies, et cetera? So our clear ambition is, of course, to capture some of that opportunity also in 2027, as we have done in 2026.
Thanks for the question.
Very good. Thank you.
Thanks, Andreas. Moving on to the next question please, Operator. The next question is going to come from Sandeep Deshpande at JP Morgan. Please go ahead, Sandeep.
Yeah. Hi, good morning. My question is regarding, you've had a third quarter, which was much better than seasonal, and now you're guiding the fourth quarter to be seasonal levels of growth. Is this showing some kind of share gains by Ericsson or something else happening in the market, given that you continue to say that the market is flat? This doesn't seem like a normal sort of behavior, or it was that because Q2 was below seasonal, that you had Q3, which was well above seasonal. I'm just trying to understand the dynamics of the guidance at this point.
Sure. Yeah. No, I think you're right in that, Sandeep, that as you said, we were a bit weak in Q2, as we said, and we were coming out stronger in Q4, as we also said. Looking at where we are year to date in Networks, we are around 4% up year to date. I think that is stabilizing again. To measure share gains in just one single quarter, I think that is too short-term to think like that. We have some improvements in some markets where we are prioritizing, so we see that happening, for example, in Japan, which is good, but it's not the big driver in that sense, and especially not in a single quarter.
Thank you.
Thanks, Sandeep. Moving to the next question please, Operator. The next question is going to come from the line of Daniel Djurberg at Handelsbanken. Please go ahead, Daniel.
Thank you, Daniel, and good morning, Per and Lars. My question would be on if you can comment a little bit more on the actions you do in the Enterprise business area, and how soon we should expect the remaining parts, i.e., the Global Communications Platform, to show profitability. Thanks.
Thanks, Daniel. Let me start. What we're announcing today is the Enterprise Wireless Solutions, which we have had as a business area, and we will dissolve the business area as such, but of course, continue with the portfolio and the solutions. We are taking what we call neutral host and EP5G, and we are actually then moving them to Networks where we believe we can get a better R&D muscle, and we can then also accelerate the journey towards profitability. There will still be parts left. What actually used to be Cradlepoint, we will keep as a standalone unit, and that unit will be headed up by Yossi Cohen, who is also our Head of Americas. That business is actually showing strong improvements, and we are getting to black numbers. That will then stay in what today is the Enterprise segment.
What is then the other big part is, of course, what used to be Vonage. When it comes to Vonage, we made one change in the quarter in leadership, and Christophe just coming on board have, of course, the target not just to grow the business, but we have also been very clear that we need to look at the cost on the cost side of Vonage business. It is absolutely my experience in this company that we rarely succeed by just having growth. We also need to look at the cost side. That is the target at hand for Christophe, and of course, we will come back and report progress as we go along. But it's absolutely a priority to get to black numbers quicker on the Enterprise segment.
Thank you.
Thanks, Daniel. Moving to the next question please, O perator. Next question comes from the line of Jakob Bluestone at BNP. Please go ahead, Jakob.
Thanks, Daniel. Could I ask you about the magnitude of the pull-ins that you are seeing? You mentioned that you are seeing customers responding, behavioral changes ahead of potential price hikes. If you can help us understand how big a contributor was that actually to your growth, just so we can break down what are more underlying structural growth drivers and what is maybe perhaps a little bit more phasing related?
[Jakob?]
Yeah. Thanks. As I mentioned there in the beginning, we talk about three areas of growth drivers in this quarter, and this is one of the three. We don't quantify each of them, but as we bring up those three, you can derive a bit of conclusions from that, I think. It's there. It's not super big. That's why I also tried to talk a little bit on the year-to-date growth in Networks of around 4%, to give a more flavor of how it's performing. So there is some pull-ins coming, but it's not that it's a big material impact going for 2027 from one quarter of this.
Thanks. Thank you.
Thanks, Jakob. Moving to the next question please, operator. The next question will come from the line of Felix Henriksson from Nordea. Please go ahead, Felix.
Hi, guys. Thanks for taking my question, and good morning. I'd like to double-click on the near-term tactical commercial measures that you've used in offsetting the component cost inflation, especially when it comes to upselling. What kind of products have you been successful in upselling? And how sustainable you see this sort of as a lever for offsetting the component cost inflation that you're witnessing? Thanks.
Thanks, Felix. So maybe I will elaborate a bit on what kind of contracts we typically have. So we write frame agreements maybe three or five years out. Of course, in those contracts, we can only include what we know at the time. Of course, as we develop new products, we can set the right price on those products as they become available. With tactical, you could see it as you try to sell, of course, the newer products. Because obviously they have then the right price structure and cost structure. You could also look at, there is always differences across the portfolio. If the cost of certain memory is going up, you might have more or less memory in different type of products in your portfolios. You might try to steer sales towards those that are better.
Of course, you can always try to find upsell, or do upselling, trying to find new opportunities on software side or in other areas that will actually help the margin. So those are what we would call as tactical activities. Of course, you cannot continue to do that forever. In the end, you need to get the right prices in your price book.
Got it. Thanks. Very helpful.
Thanks for the question, Felix. Moving on to the next question please, Operator. The next question comes from line of François Bouvignies from UBS . Please go ahead, François .
Thank you very much. I have a quick question on OpEx. You are doing a lot of work on the OpEx side. You talk about inflation of components. And obviously you are OpEx down this quarter. This year you could have a good cost control. How should we think about the OpEx next quarter and next year, more importantly? Do you expect some inflation there, or the cost measure would lead to flattish or maybe down OpEx? Just directionally, how should we think about OpEx from here, given all the work you are doing?
Yeah. When it comes to OpEx, if we think next quarter, there is always a bit of seasonality in Q4. So I think that you can expect also this year. There is a continuous that we have with salary increases that we need to work with. I think that we have had the intention and the hard work that we should offset any of these inflationary impacts that we see coming into OpEx. That journey continues going forward as well. I think this quarter we have done pretty okay. You have seen the restructuring measures that we have done impacting both OpEx and cost of sales, of course. That journey will need to continue because we live in this, as we talk about the flat RAN market. As long as we don't see any change there, we need to continue that work.
Any direction for next year? Flat, up, down? Just direction. I don't care about the number.
No, I think the direction is that we need to continue to offset any salary increases. Then with the component cost impact, we need to rethink also, is there more that we need to do? But I think for now on, it's still to offset and then continue work.
Thank you.
Thanks, François . Moving to the next question, please. The next question comes from Stéphane Houri from ODDO. Please go ahead, Stéphane .
Yes. Hello, good morning. Thank you very much. The question is about the market and the pricing. In a flat RAN market, how much pricing do you think you can realistically pass through to the operators? Do you expect to fully offset the component inflation in 2027, or is there some gross margin dilution built into your thinking? Thank you.
Thanks.
Thank you. Maybe I start and then Lars can pitch in. We are talking about headwind in 2027. That is, of course, because as I tried to say in the beginning, it takes some time for this to ripple through with all customers and in the full P&L. Our view is that over time, we need to pass on this cost, and our customers, in the end, will have to pass on the cost, the increased CapEx they get to their end users. This is more a timing question on how it plays out. Of course, while you have that, you try to mitigate as much as possible with the more short-term tactical actions, as I said. But we are flagging that 2027 is probably somewhat of a transition year. But we will of course work to mitigate. I don't know if you want to-
I think you capture it well. When it comes to, I think everyone understands this. You meet a lot of customers, and they understand the situation. Of course, nobody likes it, and our operators in large parts of the world are struggling with return on capital employed. That is why it takes a bit of time to get this through, but everyone understand it.
Okay. Just one short follow-up. How do you work with your component manufacturers or suppliers? Do you have regular meetings to update prices, or do you fix the prices for a certain period as much as you can?
We have a lot of meetings with our suppliers, I can tell you. Everyone, of course, want to increase their prices similar to us wanting to increase prices with our customers. I do not think there is an easy answer or a universal answer to the question you have. Of course, in some areas, we have to work with committing on volumes in order to simply have the supply resilience. But there is not one simple answer to that. But I would say the supply and sourcing organization is having an intense year.
Okay. Thank you.
Thanks, Stéphane . Moving to the next question, please. Next question is coming to the line of Sami Sarkamies at Danske Bank. Please go ahead, Sami.
Hi. I have a broader question for you as a new CEO. Could you highlight the areas where Ericsson needs to improve the most and summarize the changes you are now implementing as CEO? I guess, you knowing the company well, it will not take that much time for these changes to happen.
Thanks for that question, Sami. We are performing well in our core business, so in BCSS and BNEW. We, of course, have to make sure that we stay in the strong position we have and then defend our leadership, and I think many of the questions today are around that part. The area where we, of course, have more work to do is in the Enterprise segment. We announced some changes today. As I mentioned before, we are also going to be focusing on trying to get to black numbers faster for Vonage, so working with cost. With the changes I also make, we make some changes to the market area structure today. While doing that, we believe we can support our customers better, also get some cost synergies.
It also means that I will get a somewhat leaner executive team, which I think is important because it means we can be faster and more agile in a very dynamic environment that we operate in. Having said all this, I think the largest challenge at hand is, of course, that we operate in a market that is very flattish. If you ask me what is the more long-term challenge we have, it's of course to find growth. I would say you can put the growth in different type of buckets. You could put the growth in more the working with what you have. We have already talked about market share gains whenever it makes sense. You can put another bucket where we help our customers, of course, to get deploying new use cases, increasing their revenue, also meaning more money should be flowing our direction.
There's also an element then of business development. What can we do in adjacent fields? What could we do with mission-critical networks? How to leverage sensing technologies for different type of industries, including also defense. I also put enterprise in that bucket because we haven't really gotten the growth or the benefit from what you could do more in the enterprise segment and with network APIs. I would say trying to find long-term growth will of course be something we are working with, but they will also come in different type of buckets.
Thank you.
Thanks for the question, Sami. Moving to the next question, please. Next question will come from the line of Robert Sanders from Deutsche Bank. Please go ahead.
Yeah, good morning. Maybe you could just update us on your views around putting GPUs into the baseband. Have you completely closed the door to doing that, given you seem to be working more on the custom silicon side? Is there a scenario perhaps where you reconsider that point of view if T-Mobile, for example, demonstrates significant jumps in spectral efficiency over the next sort of year? Do you see yourself just philosophically just against that approach altogether? Thank you.
Thank you for that question. We are not philosophically against anything. We always try to do what makes business sense. We have disaggregated our software and hardware, meaning we have a lot of flexibility on what path to embark on in the future. Having said that, right now, we see that it's an extraordinary asset to have your own ASICs. That really makes it possible for us to get our functionality fast. It makes it possible for us to be very cost competitive. I also want to mention, you might have heard us talking about us getting new features out there based on AI functionality. We have one on my favorite features. It's called AI-Native Link Adaptation. It's been around in the industry for as long as I've been, so it's more than three decades. I know we've been trying to optimize it.
Now replacing that with an AI model, we get 10% gain in spectrum efficiency. Today, we have that deployed commercially. Commercial deployment with three operators, and we have more than 60,000 base station running this functionality. We are reaping these AI gains today.
Reaping gains from AI is not about what platform you execute on. It's actually to get the functionality out there, of course, to create these innovative models and reap the benefits. We are leading in this space, but of course we are not ruling out any other platform. Of course, we continuously evaluate what is more cost-efficient to run on. But AI is not something that will happen 2028. It's happening here now in our networks.
Thanks for the question, Rob. Moving to the next question please, Operator. The next question comes from the line of Ulrich Rathe from Bernstein. Please go ahead, Ulrich.
Yeah, thanks very much. I wanted to ask about free cash flow. In Q2, I think you said free cash flow was affected by inventory building for the deliveries in the third quarter. Now you're mentioning inventory build-up again, also in the context of component cost. Could you elaborate on that a little bit? In this context, could you also please clarify whether the IPR catch-up revenue were already collected in free cash flow in the third quarter, or whether that's a stretched-out collection? Thank you.
Yeah. First on the IPR, it's not in this quarter. It's coming in incoming quarters primarily. When it comes to inventory build-up, as you see over this year, we have had quite a big build-up over the quarters. That is partly through building inventories. As I said, and as you mentioned, therefore the delivery's coming out for Q4, but also the cost increase. We have been talking about component cost increases, and they are impacting inventories as well. So you see it in both ends, so to say, and it's coming into the inventory side as well. We are working on ensuring that we have the stability in the supply chain, and that means that we have inventories coming up a bit and also a bit on the market mix impacts with lead times.
In some markets we have longer lead times, and that is also what you see in this inventory build-up.
Thank you.
Thanks, Ulrich. Moving to the next question, please, Operator. The next question will come from the line of Oliver Wong at Bank of America. Please go ahead, Oliver.
Hi. Thanks for taking my question. Wanted to also ask about AI RAN. I was curious to what extent you think that AI RAN could be driving revenues today, maybe in terms of market share, and also whether there's any dynamics related to the custom silicon we're focusing on versus the GPUs from the customer standpoint that you could flag. Thank you.
Sure. Thank you. It is a revenue opportunity because it's obvious we are providing value. The example I just gave with 10% more in spectrum efficiency, we could put it in the context of SpaceX buying spectrum last week for $8 billion . Obviously, if suddenly you get 10% more out of that spectrum, you could very quickly, of course, translate that to $800 million of value. So of course, that value we feel, of course, some of that should come back to Ericsson. So we definitely see it as a potential upsell with customers. We absolutely see that that will be a differentiator when you're competing in the market. Again, we are doing this on custom silicon. The feature I mentioned earlier today, that one can be executed on basebands out there deployed today already. Obviously, we will always come with next-generation hardware. Who knows?
Maybe we will deploy on GPUs in the future, but then you need to go out to the site and deploy that new hardware. Here you have an area where we can actually start deploying these models already today and reap the benefits. Of course, that is a fantastic value for our customers. Some of that value should, as I said, come our way.
Great. Thank you.
Thanks for the question, Oliver. Moving to the next question, please, Operator. Next question is coming from the line of Sébastien Sztabowicz at Kepler Cheuvreux. Please go ahead, Sébastien.
Yeah. Hi, everyone. Thanks for taking my question. On a midterm view on 6G, even though we remain quite far away from first deployment, do you expect the normal upgrade cycle with 6G with a tangible hardware refresh cycle, or there is a risk to see more of a software upgrade cycle this time, given the reluctance of many large operator around to embark on a major CapEx cycle when it comes to 6G? I'm just curious about your sentiment with the next cycle. Thank you.
Sure. It's a good question. We, of course, discuss this intensely with our customers as well. It's always difficult to say exactly what will be the case until the standard is set. Our ambition for sure is that most of our portfolio should be upgradable to 6G, meaning of course that you can reuse basebands, you can reuse radios also for 6G. There will for sure be some new spectrum bands coming with 6G, and then obviously you need to deploy new radios. Not so different from when 5G came about. We see that there will be some additional CapEx, but also you'll be able to reuse the legacy or the equipment you have out in the field today. Of course, in the end it depends what services will run on top of the network.
I think that is really the million-dollar questions, because you can today have much more advanced services and use cases on top of 5G networks as well. I think the more difficult question is when will that start materializing? When will we see more AI devices out in the networks that probably will generate much more uplink traffic? The way we see, of course, 6G will help in this. For example, in 6G you will be able to have a more dynamic allocation between uplink and downlink. Of course we will support 6G on many of our existing products, but also of course have new 6G products.
Thanks for the question, Sébastien. We have time just for one or two more follow-up questions. Moving to the next question, please, operator. We have a follow-up from Daniel Djurberg at Handelsbanken. Please go ahead, Daniel.
Thank you, Daniel. Yeah, I will be brief here. On these growth green shoots, you mentioned first responders, defense, hybrid SatCom, and potentially enterprise as well. We know that China, India, U.S. is a little bit ahead, but we're also seeing some forward-leaning European operators going for Quality on Demand and recently also 5G slicing in Germany, Italy, et cetera. Can you comment if this is a little bit of a trend towards the programmable network that you have spoken about for years?
Thanks, Daniel. Yes, I think it is. That is part of the challenge we have, right? We start talking about what is possible so long in advance that when it actually starts happening, it becomes old news. We actually start seeing now that some of our customers are making use of the 5G standalone functionality, and that is, of course, something we have been talking about for a long time. Having said that, we do not see it happening in volume yet. You also bring in mission-critical, and it is quite different in nature because mission-critical, for example, Blue Light networks. Of course, if you sell a new Blue Light network, it is an entire network, and it becomes a bit black or white, where either you have one or you do not have one. So that is a very good business already today.
But really what we are waiting for are, of course, the kind of use cases you are alluding to with making use of the Quality on Demand type of functionality that we now have in more than 5G SA networks. Again, think of AI applications. I am convinced that we will have people so dependent on AI agents that you will want to be guaranteed that you have access to that agent always. That means you cannot have what you have today because today is the best effort paradigm. You are not guaranteed that you will be able to watch your favorite video whenever. But if you have an AI agent, that, in my mind, speaks for having this kind of network slicing where you have different quality on different services. This will happen. It is a matter of time.
As you are also saying, we see good examples of this being implemented worldwide, even if the volume is not there.
Perfect. Thanks.
Thanks for the question, Daniel. We have time just for one brief final follow-up. We take one more question, please, Operator. From Andreas Joelsson from DNB. Please go ahead, Andreas.
Thanks a lot for taking my question again. Sorry, you will hate this question, but if you would see 2027 and if you didn't do anything or be successful in mitigating the component price increase, how much would that impact the gross margin if 2027 would be this transition year that you talked about earlier? Thanks.
Lars. Yeah. We do not give numbers on that. I don't know if Lars wants to have a go at it, but otherwise, I'll just say you could look at just on the server business to get a feel for how much the memory cost increase we're talking about. It will have dilution effect significant if we're not taking action. I think that's what we are saying. As you see, we have also been very successful in this quarter with tactical action. Again, you should see this over time that it could be an intermediate year 2027, but we will, of course, make sure and try to minimize the impact.
No, I think that's right. It's a question, as you said, on phasing. How much will the tactical mitigations, how will they phase out and how will they be replaced by the more structural activities that we implement? That is actually not easy to answer today. There will be some impact, and we have highlighted that also in the report.
Thanks a lot. Sorry, I had to try.
Thanks. We understand.
Thanks, Andreas. Thank you, everyone, for joining. That concludes the conference call today. Thank you.