[Break]Welcome to the 2020 Ericsson Capital Market Day. My name is Peter Nyquist. I will be the moderator today. We were supposed to be in New York today, but out of obvious reason, we had to rethink and make this a complete digital event broadcasted here from the studio, Kista, Stockholm, but also in numerous other places around the world. With me here in the studio, I have our CEO, Börje Ekholm, and our CFO, Carl Mellander. A replay of this event will be posted on our website two hours after we have concluded this event. Please, I urge you also to fill in the feedback survey that you will find on the platform for this webcast as we conclude the event. Hi, Börje, and hi, Carl.
Hi, there.
As you can see, we are practicing distance on the whole event today here in the studio. A capital market day is very much about numbers and plans, how to deliver on those numbers. This year's CMD is no different. Throughout the presentations today, we will hear numbers linked to different achievements and commitments, like 160 5G contracts, SEK 40 billion in R&D, 15%-18% long-term targets, 2.5 billion IoT connections in China, $183 billion US enterprise market in North America, 36% RAN market share, 41% in Digital Services gross margin, 5 times capital turnover in Managed Services, and a SEK 10 billion acquisitions, which opens opportunity for growth in enterprises. The common theme of these numbers is that they symbolize Ericsson's long-term opportunities. They will shape the future of Ericsson.
The major difference, compared to the previous capital market day, is that we will not spend that much time talking about the history. We will be much more future-oriented in this event. An example of actions that will create value for Ericsson going forward are more R&D focus, market share gains, expanding margins, and growth into enterprises. Today, you will see the team talk about how we will execute, what we will do, and how we will do that. Who will we meet today? We will start first part with Börje here in the studio, then via link, we will connect our CTO. We will have our CTO on link. Then after that, we will come back to the studio with our CFO, Carl Mellander. At around 4:20 P.M., we will have CET.
We will have the first Q&A session. I urge you to dial in on the numbers that are posted on this platform. You can also find them on ericsson.com/investors. In the second part, we'll start with our market areas. First out is Chris Houghton, heading up North East Asia, and then we will have Niklas Heuveldop, who's heading up North America. Around 5:00 P.M., we will continue with the segment. Starting that part is Fredrik Jejdling, heading up Networks, and then we will have Jan Karlsson heading up Digital Services, followed by Peter Laurin, heading up Managed Services. The segment part will then be completed with Åsa Tamsons heading up Emerging Business and Others. Around 6:30 P.M. CET, we will have the second Q&A session, and then all the presenters will participate in that session.
I expect to be around 1900 CET, we will have come to the end of the Capital Market Day and with a conclusion remarks from Börje Ekholm, our CEO. Speaking about Börje, I would like you, Börje, to kick off this CMD. Please, Börje.
Thank you, Peter. Again, a warm welcome to everyone to this Capital Markets Update for 2020. Over the last 3 years, we have focused on executing on our focus strategy. The aim here has been to turn around the company and establish ourselves as a leader in 5G. This has been rather successful. We now have a foundation to take the next step. For the future, we can focus on growth, profitable growth. Carl is with me here in the Ericsson studio. It's actually the first time we work together for several months now, sitting in the same office space or close to each other. As we practice, as Peter said, we're working from home at Ericsson. Most of the rest of the management team will therefore join over link.
Hopefully, we can enjoy that over the next few hours here together. Let me start by addressing our global business environment. One critical factor, COVID, has been present in almost all discussions during the year. We've had 85,000 of our colleagues basically working remotely from the early March, and this is something we see continuing for another four to six months. I'm extraordinarily proud of what all our colleagues have achieved during this period. We've been able to migrate to home with no, or maybe some limited impact on our customers, and that's a phenomenal achievement. We've done that at the same time as delivering a strong performance in the company. Our numbers for Q3 were clearly better than for most of the past decade. Partly, that's a result, of course, of good strategic decisions.
I would say it's also thanks to our 100,000 colleagues who contributed their energy and devotion to turning around the company and delivering an extraordinary performance. I don't want to dwell on the features of the external environment too much, but there are a couple of areas I want to hit on. Like all crises, the COVID situation and the pandemic will result in accelerating already ongoing trends. In this case, digitalization. This will be a factor that will surely impact our society for decades to come. The other area, the threat to our planet from climate change, may not be as present in the public discussion just today, but it's probably our biggest challenge as humanity and something we need to tackle head-on. I will come back to that later in my slides.
I want to take just a moment to address some other recent events in the geopolitical sphere, and they could have a potential impact on Ericsson as a company and our near-term business. One area, the Swedish auction for 5G, that is now being paused. I want to comment very briefly on that. Of course, governments, they make decisions regarding national security, and they should do that independent of outside interests. One thing that's important is actually open market competition and global trade that has supported Swedish business interests over many years. We want to win contracts based on fair competition. That's what makes us a better company. Competition is good for us. Actually, it's competition that made us a leader in 5G today. We cannot lose track of other trends that shape the global business environment.
Our business creates value from connectivity, which helps society reach its full potential. Connectivity is a positive disruptor that feeds a force for global good. We first presented our focus strategy in 2017 to turn around our business and position us as a leader in 5G. At the time, we were loss-making and not performing to our full potential. We have now completed the turnaround phase. This is thanks to an exceptional job by all of my colleagues in the company. Let me highlight some of the proof points. Today, we have a lower cost base as we reduced our workforce by close to 20% in net terms. We increased our number of engineers in R&D. Today, the number of engineers in R&D represent a quarter of our workforce.
Our investments in R&D has given us cost competitiveness, and it has allowed us to grow our market share while sustaining profitability. Our gross margin went from 31 to 40% between 2017 and last 12 months, while we at the same time have been able to grow sales organically. Actually, sales have reverted to growth from earlier a sharp fall, despite that we have done some planned contract exits. With these improvements, we're clearly well-placed to reach the financial targets for 2020. Our investments in technology has positioned us as a leader in 5G, with 116 commercial contracts and 69 live networks. We now have a sound, profitable, and more agile business, and this will enable us to take the next step in our chapter and focus on growth with real confidence. We're entering a highly exciting phase of 5G rollout.
A year ago, the speed test for 5G around the world looked like this. Need to push a slide. Well, technical glitch. What we could see is that the number of 5G speed tests that's been done around the world increased sharply over the last year. The slide has gone apparently missing. Going forward, our focus strategy remains largely unchanged. Digitalization is an unstoppable force that touches all parts of society. At its core is an infrastructure built around high-performance, secure mobile networks. The consumer market is well advanced with digitalization. With 5G, we will see a mobile-first approach also to digitalizing enterprises. Actually, the performance of 5G can allow enterprise to use cellular connectivity as their primary choice of connectivity.
This will make 5G one of the biggest platforms for innovation, very similar to what 4G was for the consumer market. With 5G, networks will be even more critical, putting the service provider in a sweet spot, and that's the reason that the service provider will continue to be at the center of our strategy. Our strategy remains to create value for our customers by addressing their needs to grow revenues, improve end customer experience, and continuously improve efficiencies. Through technology leadership, we ensure our customers can optimize their network for future performance and security needs while supporting them to run the optimal cost structure. We need to build on our global scale and skills to strengthen our market position. Continuing to increase our footprint will be a critical part of our forward strategy. We will, of course, continue to be disciplined in our spending.
Mobile broadband for consumers will remain at the core of everything we do. In 5G, we already see an uptick among early adopters in markets like South Korea. In South Korea, there are now close to 9 million subscribers or 5G users. The country has about 98% coverage, and evidence in South Korea shows that the consumer there enjoys three to five times the speed compared to a 4G network. As a result of that, they actually consume two to three times more data than in a 4G network. The launch of dedicated 5G devices, like the new iPhone, will clearly drive demand for 5G as well. From our own research in our Ericsson ConsumerLab, we see that consumers are willing to pay a price premium of up to 20% when they get access to a better wireless technology and wireless speed experience.
The key to realize those benefits, though, for the consumer is really that the network has good coverage and is built out in a good way. That we can see in Korea as they now have reached a big coverage. There was that slide. A bigger potential is actually in enterprises. What we see is that the potential enterprise digitalization revenues that CSPs can capture and can generate is expected to grow by 25% between today and 2030. Specific use cases that require high-performing mobile connectivity that include connected vehicles, real-time automation, and autonomous robotics. Because of the specific speed and performance requirements, we expect to see 5G become the primary connectivity choice over traditional fixed networks. The complex ecosystem comprising vendors, CSPs, device, and chipset manufacturers requires the orchestration of technology leaders and experts.
Ericsson is uniquely well-positioned to be this orchestrator of the ecosystem to design solutions, taking 5G network architecture into consideration. Our enterprise strategy aims to make 5G the primary connectivity choice. Today, it already crosses our existing business segments and our core product portfolio, and we can actually leverage our investments we already do in R&D. In addition, we're also adding enterprise applications. They are tailored for business use. They include dedicated networks and IoT Accelerator. Our customers, the CSPs, are our channel to the market for these packaged solutions. Our solutions will drive additional traffic into our customers' network, and that will allow them to create new revenue streams, leveraging that 5G becomes the primary choice for access technology.
On November 2, we announced the completion of our acquisition of Cradlepoint, this is a good example and an important step forward into delivering on our enterprise strategy. Cradlepoint is an attractive investment by itself, it also complement our existing portfolio of products, it secures us a position in the rapidly growing wireless Edge 1 market for 4G and 5G. Cradlepoint is a clear market leader here. They wirelessly connect IoT devices and workforces across fixed and mobile working locations. A little bit of an example is, of course, that this technology was used by first responders in the U.S., to establish mobile COVID testing units. Cradlepoint gives us access to a key part of the enterprise market. At the same time, it actually, for every installation sold of Cradlepoint, there is a mobile subscription involved. It actually generates revenues for our customers as well.
The reception from our customers around the world has actually been very positive and very supportive of this move. Now we're working together with the team at Cradlepoint to continue to scale the business and take advantage of our global presence. Climate change is one of our generation's biggest challenges, as I said in my introduction. Ericsson has been a corporate sustainability pioneers for decades, and we have reported transparently on the progress for over 25 years. We must play our part in reducing the impact on the planet, but it also makes good business sense. Businesses that take strong and proactive steps to operate sustainably can be more profitable, can be more investable for shareholders, but maybe most importantly, we'll be the employer of choice as well.
We've set science-based targets for our portfolio and created an approach to break the energy curve and reduce the energy intensity of 5G relative to prior wireless generations. This not only helps our customers reduce their energy use and reducing carbon footprint, but it impacts their costs positively as well. The convergence of business and sustainability benefit is where we best demonstrate value to investors, customers, and employees. The Wall Street Journal recently ranked us as 12th on position 12 for the most sustainably run business in the world. Of course, our ambition is to be number one. Increasingly, we see opportunities to think even bigger and work beyond our own industry to influence how whole sectors of economy can decarbonize. Solutions such as smart grids and buildings as well as reducing travel are all made possible by advanced wireless connectivity.
This can support a net reduction of global emission of greenhouse gases by 15%. Responsible decision-making is non-negotiable and is a key driver of value. A strong ethical foundation improves the quality and speed of decision-making. Our compliance culture must be subject to constant scrutiny and continuous improvement, and I'm pleased to see the steps we're taking in this area. The strength on our position today means an exciting next chapter is ahead of us. It also gives us strategic flexibility to make the best choices for Ericsson. Investment in technology leadership will allow us to capture the underlying market growth and to gain additional footprint in our core business. We will also grow in enterprises, which has an exciting potential and an attractive profit profile longer term with more software revenues.
M&A is another important route to grow, and we will continue to be disciplined, adding high gross margin businesses, which strengthens our core and enterprise ambitions. Therefore, our ambitions for the future are to, one, outgrow the market, take market share, and invest in high-growth businesses. Return an EBITDA margin of 15%-18%. That's based on increasing the software content in our business mix, as well as investing in the growing enterprise portfolio. Finally, carbon neutrality in our operations by 2030. This is a foundation in all we do, but it's also a profitable way to do business. As you will note and have already noted, we did not put a timeline on the new targets. This is a very deliberate decision. We created the long-term targets to show what a new strategy for Ericsson can achieve.
It should provide confidence in the kind of business we are building in the coming years and the business mix we're trying to build in the coming years. We formulated this as a long-term target because we know market conditions will vary year by year and conditions will look different, but that will also give us opportunity to act on those possible investment opportunities we see in a better way. I'm confident that with this strategy in place, we can reach the EBITDA targets we put in place here. But it also shows that 2022 is merely a stepping stone of achieving the long-term target. By the way, we're of course going to deliver on the 2022 targets. With that, it's time to give the word over to my colleague, Peter.
Yes. Thank you, Börje. An important red thread and theme for this Capital Market Day is R&D as a value creator. Now let's hear what our CTO, Erik Ekudden, says about how he spends and how he manages his SEK 40 billion in R&D investments per year. Please, Erik, the word is yours.
Thank you, Peter, and hello everyone. Well, I seem to be needing some help with a clicker here initially. It's not coming up. If you then move to the first slide. Okay. It's coming up here. Over the last four quarters, we have invested SEK 40 billion in world-leading research and also a fantastic development team. That investment has really taken us to this position with the world's strongest 5G portfolio. It has also led to the investments in standardization and patents on the technology side that is now taking us to a top position also on the 5G side. This was a situation already when it comes to previous generations, investments in early research and in technology, in standardization, and then of course in patents, and now we are seeing the results of that also in 5G.
This is no easy win, I would say. We have very strong competition. This competition is also the engine of the telecom machinery. This is really where we can drive innovation. Every new release of the standard, new features coming in, of course allowing better experience for users ultimately, but also adding new features and functions so that we can start to address the enterprise opportunity in a much better way with 5G. We took already in 2018, and this is something I showed you back in 2018, the decision to focus the technology investments mainly in the platform itself, enhancing the platform, both on the access side, the LTE and 5G side, on the core network side, but also on the automation and AI side in the middle, as well as investments in technologies that would go on top of the platform, mainly IoT and facilitation.
Two years later, we can see that this has really brought us to the leadership position when it comes to 5G in a growing market. It has also, with the transition to cloud-native across the whole portfolio, but in particular when it comes to the packet core and the orchestration side, the Digital Services portfolio taking us to a very strong position for innovation on top of the platform. I will come back to that. Of course, the investments in AI across the portfolio, but also in terms of the Ericsson Operations Engine, where we are using the operations data from networks being managed to really improve the experience that couldn't be done with manual operations, nor could it be done without a data-driven mindset. These are fundamental investments in the platform itself.
We will also hear much more about growth and the opportunities in the IoT space itself. This comes from the IoT Accelerator. It comes from work that we do with partners in the IoT ecosystem, and of course also from new offerings there, making networks even more suitable to the automotive sector, to advanced IoT across all segments, I would say. To the upper right, just noting that this would not be possible unless we reached out and worked hand in hand with the rest of the ecosystem. Being the orchestrator of the ecosystem, working with technologies to bridge between cloud and the 5G infrastructure, and of course, thereby bringing new enterprise application onto 5G, that's a core part of the investments as well. Now, this has taken us to, I would say, a good starting point for the ramp-up of 5G.
It's good to remember also that when we took the early decisions to build 5G the way it's built in early standardization, of course, research preceding that, it was deliberately so that we could enhance offerings, enhance the platform in generations with hardware, but also with new use cases that are easier to upgrade with software on top of the platform. This was supported, for example, by the smart architecture, both on the air interface that is supporting not only the mobile broadband use case, but everything from low mobility and low data rate, IoT, all the way up to the really advanced use cases that we're now seeing in the AR/VR space, that we're now seeing in the advanced manufacturing automation space.
This is something that is a scalability factor in the air interface to support this, both efficiency-wise as well as with the different performance requirements that are put by the different use cases. Another really important part already from the start, which we didn't have in previous generations, is what we call a lean carrier air interface design. That is a way to save energy. When Börje talked about breaking the energy curve and making sure that when we move to 5G, upgrade to 5G, we are not increasing the energy consumption, although we have a significant growth on data traffic across the networks. This comes back to the original design, not transmitting anything over the air interface unless it's absolutely needed. This also has a benefit that we can upgrade the technology in the coming generations in a backward compatible and very smooth manner.
This very much pioneered by Ericsson in standards. If you take a look at how this has become a leadership characteristic in the field, we've talked about this several times in terms of having all bands supported from the low bands, mid bands, and the high bands across all geographies. It's very much about unique features such as the Ericsson Spectrum Sharing, but it's equally much about being at the technology forefront when it comes to moving to a cloud-native and, I would say, more component-based, leaner way of also building the software, starting of course, in the orchestration and the Packet Core side, but moving all the way into the access network now. Being the leader in terms of the DevOps technologies, being the leader in terms of working with our customers to make this transition to cloud-native, has become a leadership characteristic also in the field.
The 5G Core, I think, is a good example of where we have cemented a strong and leading position there, where we are also allowing a smooth migration for operators through the dual-mode core supporting both 4G and 5G. Having this as a backdrop, the fact that we are continuing to invest in technology and leading in standards, this is really the way we see to drive the ecosystem forward also into the coming generations. I'd like to share with you the word from Neville Ray, one of the drivers and leaders when it comes to network build-out in the world, and this comes from a fireside chat we had just a few weeks ago. Please roll the video.
From a developer and business perspective, you just want this network to work, right? You need this combination of coverage, deep in building, broad into rural communities, wherever folks may go with their devices or the equipment that they're utilizing. They need a level of performance that is really pretty extraordinary with 5G. I think that's one message that I'd like to bring through, Erik, is that I think in the U.S. there's been a lot of claims about when 5G was being launched and how, going back two years, right? If I'm perfectly honest, it's only really been in the last 12 months that we've seen a 5G experience that consumers can start to touch, and it's becoming more and more real as we move through 2020 and into 2021.
We're seeing from the developer community and businesses, huge interest in what we're doing at T-Mobile because finally there's a network where you can bring these experiences and capabilities and this innovation, and you can test it and you can try it and you can work with an invested operator that really wants to fulfill some of these 5G ambitions and capabilities.
This was from the event where we are sharing our learnings and lab environment in Santa Clara, California, the D-15 Lab, the 5G Things event just recently held. What it shows, I think, is that with the networks built out now, 5G networks with a high performance required for new experiences, for new applications, be it on the consumer or on the enterprise side, we are taking the next step. It doesn't come without that investment in the broader ecosystem. I think that takes us to the slide where I'd like to share our view of how 5G is becoming this change agent. It is a digital infrastructure that you have to invest in as a country and of course as an operator to be able to then get the innovation on top, be the orchestrator of the new ecosystem for both consumers and enterprises.
Depicting it here in terms of our offerings towards operators in digital infrastructure. Also looking at these new enterprise offerings that we are bringing through operators, through service providers to enterprises and of course to consumers. Important thing here is that this is really starting from strong infrastructure. It starts from coverage and capacity, but it also adds capabilities such as virtual private networks or network slicing, able to provide the necessary quality of service, the necessary SLAs for enterprises where speed and latency characteristics are built into the business proposition from the operators to the enterprises. This is taking it all the way to the dedicated private networks that customers, operators are offering through to the solution that we mentioned about Wireless WAN Edge solutions just recently with Cradlepoint solution in our case. Again, this comes very much as a partnership effort.
That's why the ecosystem piece working hand in hand with the device and the chipset ecosystem, but also the cloud providers, with their enterprise reach, with their developer ecosystem. They are a very natural partner, both to us as well as our customers when it comes to building enterprise opportunities here. System integrators and content providers for sure as well. But this really comes back to how we can build solutions that are packaged from Ericsson, sold to enterprises through or with service providers in a much leaner way than if you would have to build one specific, one unique installation per enterprise or per industry. Here we get the scale advantage by building the solutions and scaling them across the world, and we get the highest performance through taking requirements from all industries, from all enterprises back into the infrastructure itself.
The way we organize to support this, as you know, is through Networks in radio access and transport, Digital Services in core OSS/BSS, and operations and optimization and Managed Services. I think it's important to note here that all the four business areas are really supporting the enterprise opportunity here, because enterprises need a combination, most likely, of the characteristics given by local or on-prem solutions, as well as wide-area solution, and that's where the strengths of the broader portfolio is addressing enterprise needs across the world. With that, and a remark on what we need to do in terms of collaboration with the ecosystem and the cloud players, I'd like to just roll a second video here from the same event, a fireside chat with the CEO of Google Cloud, Thomas Kurian. Please roll the video.
We see the great promise of 5G is that applications can now be delivered from the network itself, and we see that the enormous excitement is the potential to create this globally ubiquitous fabric where applications can be delivered from within the network, and we see a number of killer applications. I'm sure there are some amazingly creative developers who can create the next generation of applications, and that platform is the enormous opportunity that 5G represents.
That is an example of a partnership with Google. We do have partnerships announced such as with AWS when it comes to working together with operators on creating enterprise offerings, and we believe very much in an open multi-cloud way of working. This is really where we can leverage networks that are global and enterprise and cloud providers that have capabilities that are very complementary. I should, of course, mention also when we talk about D-15 and innovation, that this is a lab and this is an activity that we bring to the whole world. We really see this for all operators, and I would say enterprises across the world to bring this to the labs, innovate, and then bring it back into the field and get it at scale.
This is an example of some of the activities that will take us from today until perhaps 2025 or beyond, even up to 2030, something that we like to call the internet of senses. Already today, we are working very much with advanced haptic feedback. For example, in the enterprise and the enterprise offering, manufacturing, that, of course, leading to increased efficiency and safety. We have similar gains with 5G in our own manufacturing, in our own production when it comes to XR for fast resolution of inspections of circuit boards and working very much with the processes in the factory. This is something that we already have live and many of our engagements, many of the partners that we have working with are on a similar journey to use 5G together with advanced augmented reality on the production process.
The next step is really when we talk about advanced XR, AR, VR, mixed reality, both for consumers and enterprises. Some of the examples that we showcased a few weeks ago, they really bring some of the split rendering capability into the forefront. Instead of having the clunky glasses or clunky VR set that you see on this picture, having lightweight glasses, that is only one or in some cases, a little bit more, two generations of technology away from realizing the same experience with lightweight battery-operated devices for a whole day. This requires, of course, a network edge to be used for the processing, so you move the processing from the devices into the network. Again, really relying on the low latency, the capabilities of 5G when it comes to robustness and resiliency, as well as the bandwidth, of course.
The internet of senses is really this evolution where we would be adding remote feel and remote sense and smell and taste. I think even if you see that this will initially be very limited and perhaps in specific gaming and other applications, the applicability of this really blows your mind. I think even speaking to early adopters around the world as we do in our consumer research, indicate that there is an openness, there is a willingness to explore some of the basics of this already today. Of course, this will take us to remote taste, remote feel, and sense. Smell, sorry. This is still research, but it's moving ahead, I would say, at a relatively steady pace over the coming five years.
With that, again, commenting on the openness when it comes to be supportive of the broader ecosystem, D-15 is our labs where we work together, provide the 5G network with Edge compute, the full IoT stack, and of course, this is where you can introduce network slicing in a controlled way and then scale it out. This is where the work together with high-performance networks can come to life. This is very much appreciated, I would say, by both our operator customers as well as the partners in the ecosystem.
Nowhere else can you get access to the full range of technologies and build on the future together. Taking a look a little bit further out, if we are working with here and now on the commercialization, we are also taking a look at the 2025 and 2030 horizon, and this is something we present every year as our technology trends. For this year, 2020 trends, we are indicating that the drivers, even in a 5-10 years perspective, are relatively easy to look at now. We cannot be sure about the killer applications, of course, but we can look at some requirement spaces, some needs, and some drivers that are likely to influence the platform itself or the network itself. The three ones that we want to bring out this time is digital twins or the merge or the fusion of the physical and the digital world.
It's about the collaborative and automated digital and physical world. This is where not only all the manufacturing processes that are early on the digital twin, but in fact, networks as such and most of the world that we live in will be part of this digital representation or the digital twins. The second one is very much about connecting machines by themselves. Machines don't have the same limitations as humans when it comes to latency. In fact, we will have to improve the performance of the networks another factor of 10 to 100 to be able to keep up with the machines. Intelligent machines communicating over a future infrastructure is requiring new innovation also on the wireless side, also on the mobile side.
Then, as I mentioned, the future vision for what we experience right now, telepresence, Internet of senses, those kind of human interaction drivers will, of course, be there. There we see a lot in terms of the early research, as I mentioned, but this is a field where we are more confident that the steps we are taking right now with augmented and virtual reality, that will pave the way. The four enablers in the network, they are connected to how we're going to build the future networks. The first one, which we call limitless connectivity. This is where we are reaching indoor environments to its full extent. This is where we are reaching hard-to-reach places. This is where we are using technologies beyond the terrestrial networks in some cases.
Limitless connectivity is also brought up because we need to be early on when it comes to paving the way for new spectrum, when it comes to terahertz radios, when it comes to supporting the enormous bandwidth needs, both capacity-wise as bitrate-wise. Second one is on the fusion of the cloud and the access, and that we call the network compute fabric, getting closer and closer to each other. You heard Thomas Kurian of Google giving one example, but this is, of course, the evolution of what we now are investing in for the edge, running applications at the edge, and thereby providing higher performance, better security, robustness, resilience, and helping enterprises to digitalize. The third one is a combination of the performance of the network itself. The trustworthiness comes with robustness, resilience, but also security built in with hardware roots of trust throughout the infrastructure.
The fourth one is the use of the AI and machine learning technologies, automating but also creating new values on top of the network. The cognitive networks that are acting on human intent, but also very much getting to a zero-touch environment. These four enablers are investment areas for the industry at large, but also, as we said, will pave the way for the broader applicability of 5G and wireless technology across society, across the enterprises. That is where I will summarize again where we are when it comes to our strategy. The strategy is really starting with the customer's needs, and that is about the experience. Most of the things that I mentioned are really there to support better experience for consumers and ultimately enterprises, the new revenue streams, and the relentless efficiency.
It is all based on the foundation, which is the technology leadership, the investments that I talked about, but it's also, of course, cost efficiency in everything we do and build. Data-driven operations is more and more important, and this goes into the offerings on the services side. It goes into the offerings in terms of the products and their building capabilities into each and every one of the products is really the foundation for this transition to becoming a data-driven company where the portfolio is leveraging all the operations data to its fullest extent, and then scale across the world. That means that our focus will remain on the digital infrastructure with leadership in 5G, where we have a scalable and resilient and reliable network and the platforms that are associated.
It's about the orchestration across cloud and the networks, and it's about the business enablement that I talked about before. All of this coming with superior efficiency, customer experience first, all of this automated with zero-touch AI-based operations and services. It goes without saying that this is a major transition for our customers and for the whole industry. We are very confident now that with the investments that we have taken across the whole portfolio, we are well equipped to support customers on this journey. Here comes in the way that we work with front-running customers. It is really about consumer experience and bringing consumer values. 5G is, of course, starting in the consumer space. This is about making the investments to accelerate applications. This is where we are working with the edge capability and accelerators at the edge, but it's equally much about the enterprise opportunity.
There, coming back again to the fact that prepackaged solutions that are supporting the digital transformation across more heavy industries, as well as enterprises in general from IoT, dedicated networks, and of course also enterprises on the transition to cloud-native networking, where the virtual private 5G networks, the network slicing, all of those capabilities are really there to support enterprises to get to a more efficient and a more scalable and, of course, global offering when it comes to the network, as well as they are already taking the steps on the cloud side. I would say that the combination of the assets that we have invested in the 5G cycle, both hardware, software, and services, and new needs that we are now introducing mainly by additional software across the portfolio, that is really the strength of the strategy.
The key takeaways here is that on the focused R&D effort, we are seeing the benefit of the investment in R&D. We are also taking that to new areas with a transition to the cloud-native portfolio. We are also seeing the gain when it comes to the broader applicability of the portfolio in the enterprise space. That's where the innovation platform really supports not only consumers, but enterprises. It has the opportunity and it has the capability for upgrades through software. When we work with these partnerships, when we are taking the role as an orchestrator together with the broader ecosystem, then we actually see that values on the enterprise side, they are very real. We saw the numbers before in terms of 25% or more than 25% CAGR between 2022 and 2030. Those are our opportunities to capture with this portfolio, with the addition that we mentioned.
Of course, it all starts with the fact that now more than ever, we are certain about the importance of the digital infrastructure itself. We are also seeing an innovation cycle over the coming five to 10 years, when there will be even more focus on the network piece, the high-performance network piece. With that, hand it back to you, Peter.
Thanks, Erik, for a great presentation. We are now back in the studio. Our next presenter will be the person who will talk a lot about the long-term targets for Ericsson and expand how we will deliver on our EBITDA target of 15%-18%. Our CFO, Carl Mellander, welcome to the stage.
Thank you, Peter. Thank you. Exciting technology presentation, I must say, from Erik there. This is, after all, what powers our company. It's really the technology that we are able to provide. Fantastic. I have three topics that I wanted to cover today, basically. First of all, the foundation we have built for the future. A few words about how we think around value creation and the strategy there. Then, of course, as Peter said, look into the targets a little bit more. Next slide, please. If we look at the next one, which shows really that our strategy is, here we go, visible in the financials. You can see here when it comes to the net sales growth in the third quarter 2018, we started on this growth trajectory, which has continued since then.
We are at around SEK 229 billion in four-quarter rolling in top line. In the third quarter, as you know, we grew by 7% if we adjust for currency and comparable units. The gross margin, quite a remarkable improvement these years. Actually, 10 percentage points or 1,000 basis points from the low point in 2017, now up to a level of 39.6% if you look at the rolling here. Operating income has also followed suit, of course. Come from losses, previous periods to consistent profit and profit improvement. We are at 10.4% operating margin if we look at four-quarter rollings as per Q3. Let's have a look at how this profit is converted into cash.
You can see here, so far, rolling four-quarter again, we have delivered SEK 18 billion of free cash flow before M&A, which is a similar level to last year. I think we're happy to deliver on that level given all the uncertainty we've had this year with the pandemic and so on. Of course, as a consequence of that, we've also been able to build a cash position. Gross cash now stands at SEK 78 billion and the net cash at SEK 42. Remember, within these numbers, we have also paid the SEK 10 billion to SEC and DOJ, which we did in Q4 2019. That has been absorbed here in these growing numbers.
What is not included, on the other hand, is the Cradlepoint acquisition consideration, SEK 1 billion, which actually comes into Q4 instead. Then to the right, you could also see that the strength and balance sheet and this business performance has also been acknowledged by rating agencies. We are now investment grade rated by one of the three agencies, and just one notch below investment grade by two. The latest rating action here was by Moody's in June, where they brought us up to Ba1. We are rather positive here. We believe we are on a positive trajectory towards reaching an investment grade from at least two out of three, which is a target we have from our board as well.
All in all, you could say the focus here on strategy execution, careful use of cash, et cetera, has put us now in a solid financial position from which we can take the next step that Börje talked about in the beginning as well. We'll talk about how we think around value creation next. If we go to the next one, please. Here, one more. As we saw before then, through the performance of the business, but also through focus on cost, focus on capital efficiency, we have built up a certain strength in the balance sheet. Now our job, of course, is to invest also wisely with discipline into new value-creating opportunities. We look across these three main areas, you could say investment areas, being R&D, of course, the first one, market share gains, the second, and also M&A.
In a minute, we'll have a little bit of a look at each one of these as well. I also wanted to say here, of course, that our job is to generate the cash and then to allocate it wisely among these buckets you see here. Then, of course, the board of directors and the shareholders will then decide over time about distribution to shareholders as well. The key here, though, in addition to this, is really to make sure that we embed a value creation mindset in our company in everything we do. Of course, we want managers and employees to think value creation, think future cash flow when they make decisions, whether strategic or operational. Understand properly the risk and opportunity in each case and how it compares with other value-creating opportunities as well.
Let me dive down into these three areas now, starting with R&D. Of course, investing in R&D has been a key to our turnaround. Actually, if I would pick only one area from our focus strategy that has helped underpin or create the turnaround, it's investment in technology. These investments are, of course, very relevant for us to stay relevant for customers, meeting customer expectations, but also to build an ever-stronger patent portfolio. Of course, all of this in turn is key to expanding sales and expanding profitability. Big part of the R&D expansion that we have seen has gone into the Ericsson Radio System, and that has really been a magnificent key, I would say, to market share gains and improvements in margin as well.
You look at the graph here, what you can see in the bottom here is that the R&D spend as a percentage of sales has gone from 13% back in 2017, rolling four quarters, to 17% now. That represents an increase of SEK 11 billion into R&D. We also show in the graph here the correlation between R&D and gross margin. With this SEK 11 billion extra R&D, we have also generated SEK 24 billion of additional gross margin in the same period. You could say that our experience clearly demonstrates the link between R&D investment and generating gross income. This is something we will continue to leverage on going forward as well. Second investment area, if we look at that on the next slide here, is around footprint or gaining market share.
This graph here shows how we have been able to advance the market share in different key geographies. You see North America from 48% to 53% as one example. There is a window now amid the technology shift to 5G that's happening to actually strengthen the position and capture some market share. The way to do that is, again, through technology leadership, of course, which means leading product solutions today, but also a credible roadmap going forward. Credibility from the customer side that we will be there in the long run and continue to invest for state-of-the-art technology. To give that credibility also, the financial strength that we have now is certainly helping. What customers also value is the total cost of ownership. Of course, that's how many bids are evaluated.
Here, I think there's a strong point also in our offering when it comes to its scalability, cost efficiency in installing, operating, maintaining, and so on, networks delivered by Ericsson, and not least, the efficient energy consumption. When we consider footprint gains and deals, of course we are disciplined, and we look at the value creation potential. Sometimes an initial margin dilution is recovered over the lifetime of the contract. That's very important for us. That's how we have driven it so far, and we'll continue to do that. Each opportunity is evaluated on the net present value that it will bring. If we look at the numbers so far, the margins, I think this concept is clearly proven. The third area, M&A. I would say, in general, to start with, we work in a very different way with M&A now.
We have built in solid discipline in the process. We have one global, very competent team, which, by the way, is to some extent rebuilt also with new competence and a new leader for M&A as well over the last couple of years. There we manage the end-to-end process coming from strategy, leading to, of course, surveying, identifying possibilities for acquisition and so on, and going all the way into integration planning, executing the deal, of course, but then also following up afterwards. Careful due diligence, careful integration planning, and then we run follow-ups then to ensure we have true business accountability. Over 36 months or so, we do follow-ups around the performance of the asset that we have acquired, but also how it's developed over time under the Ericsson umbrella. Some of the recent acquisitions, they are well-known to everyone, I think.
Cradlepoint, also we'll talk more about that later. Of course, the market leader in Wireless WAN Edge. Then Kathrein, an acquisition aimed at enhancing the antenna offering for 4G and 5G, but also the competence that is needed for that going forward. When we look ahead then in M&A, these are a couple of thoughts that we have and what we focus on. One is, of course, to strengthen the existing portfolio. Let's say, gap filler, additions to the core. A second one is moving into new markets, but still close to our core business. I think that's a big learning since earlier. The third area is really to acquire technology, but also competence. It could be an acqui-hire type of concept as well.
Last piece on this slide, that we also pursue selective divestment opportunities of what we consider to be non-core areas as well to generate value in that way also. To summarize this part, the value creation strategy is really built on carefully applying capital in the three areas of R&D, of course, of market share gains, and M&A. If we move on, one of the key metrics here to illustrate value creation also is return on capital employed, or ROCE. We show here how we have moved from 2017 to now from a level of about 2% ROCE to 206%. I should say here, we have actually excluded the cash portion here.
The reason for doing that is actually that improvements in capital can become invisible if you include the cash, because if you decrease the working capital, you can increase the cash, and you can't really see the improvement that actually happened in efficiency. This is the way to illustrate that. You could say with this type of return, every dollar, every Swedish krona that we invest in the business will yield increasing returns, and that's what it's all about. How have we then achieved that? I think coming obviously from the portfolio, from the offering we have to customers and economies of scale as we have grown the business. The second one is we worked and continue to work very hard on shortening lead times and getting the machinery within Ericsson to be fast and efficient from order to cash with many, many things.
Equally important, as I mentioned earlier as well, to really embed this value creation and sort of cash flow thinking throughout the organization as well and support that also with the incentives. Each of our segments, they are not plotted in here, but they have their individual characteristics, you could say, with, as an example, Networks Not probably. Networks being high on operating margin. With a rollout type of project business, of course, there's a certain characteristic here on the capital turnover. You have Managed Services, which is a little bit the opposite. Perhaps a bit lower on the profitability axis, but turning over capital much faster. Peter already mentioned the five times capital turnover rate that we have in Managed Services, which is great for returning capital as well. That's the value creation section.
Now we'll go into the targets next. Starting with the long term then. Börje showed the essence of this already, but I'll go through again a little bit and maybe add some. The long-term target here is really focusing on the time beyond 2022. The idea here is that years after 2022 will show some progression towards these targets. As you all know, and we all know, it's not going to be a linear journey because years vary from time to time. Börje talked about varying market conditions and ability to capture opportunity when they arise. This is a long-term target. We start with top line. We say that we will outgrow the market. Again, our base market is typically showing a rather modest growth. We say above 1% here. We can assume that if we look at historical data as well.
Of course, add to that some market share gain, and then add on top of that, our ambition in the enterprise space that Börje described earlier, and also Erik, where 5G and IoT plays a big role as well. Of course, that could come through organic growth, but also via non-organic or M&A activity. The long-term profitability target is now expressed as EBITDA. We make this change, because now if we do more acquisitions, those acquisitions might come with intangible assets, which have to be amortized over time in a linear way. In order to really judge the real performance of the business, we have selected this metric, which then takes out this amortization of intangible assets, because that's mainly an accounting item. We have the free cash flow, of course, a huge focus in the company, as I said before.
It's between nine and 12% of sales. That, of course, generated by that profit, but also capital efficiency. I'll come back a little bit to that in a minute as well. Equally important as the financial targets is the sustainability piece for the planet, as Börje also talked about before. The target is to be carbon neutral by 2030 in our own operations. Doesn't stop there, of course, this is the target that we have selected to talk about what we influence directly. This is, of course, in support of the global overall target of limiting the global warming to 1.5 degrees Celsius, yeah. Next slide, please. If we look at the bridge, how are we going to get to this target? This is an illustrative graph here that we can look at.
Coming from EBIT level today of 10.4% up to this EBITDA of 15%-18%. First of all, we do the conversion of this amortization piece, that gives a little bit. You can see the biggest part here comes from growth from sales. We expect to see increasing sales in Emerging Business and Other, thanks to the efforts we do, investments we do, but also Digital Services and the Networks. This is the largest driver. We also go towards more of a software business. That's what you see in the mix piece here. This is mostly pronounced in Digital Services and Emerging Business and Other. OpEx will decline as a percentage of sales, even though, of course, we will capture opportunities with added R&D for new areas and so on. As a percentage, and that's relevant in this graph, it's decreasing.
You see a higher efficiency from that point of view. That's really the profitability graph. If we then zoom into the free cash flow, which is the next slide here, we will see how we think. This is, again, an illustration of how we come from the EBITDA target down to free cash flow before M&A. This is not, I would say, a commitment line by line or an exact projection. It's more an illustration of how this waterfall might look. It could vary over time. I think the key point here is really the working capital, which we say here will increase by 1% as we grow. Of course, the ambition is to keep that steady on the low level where we are today. We assume that that actually might grow and consume some cash here. That is about the long-term target.
Let's now move to the next one, which is about the more short-term and near-term for a second here. First of all, just to say this again, we said it in the Q3 report also. We are strengthening our confidence when it comes to the 2020 targets, given the performance now, the first nine months of the year. As you see, we are just close to the top-line target of SEK 230. We're at SEK 229. On the profitability metrics, we are above the target that we set out already back in 2017 at the CMD then in New York at the time. Having said that, of course, there's still two and a half or two months at least to go. In two and a half months or so from now, we will know for sure where we will end up, but we are confident.
Okay, we skate on to 2021. These are a couple of points. We think it's mainly to be seen as planning assumptions by segment and also by talking about IPR here. Starting with Networks then, we see the 5G momentum continuing, of course, and we aim here to capture opportunities, again, based on technology to strengthen the market position. Dell'Oro expects the RAN market to grow by 2% in 2021, with China as the main growth engine. In Digital Services, we expect to generate the first substantial revenue from 5G or 5G Core in 2021 and beyond. Here, as we have said before, we have made a decision to increase R&D to capture that opportunity and strengthen even further the new portfolio.
On IPR, which is relevant for segment Networks and Digital Services, we are approaching, and this we have also communicated before, we are approaching some renegotiations of important agreements there. It's possible that we might see some revenue gaps here in 2021 and 2022. Of course, we're confident in the strength of the patent portfolio. It's getting stronger and stronger, of course now with 5G, where we also have a leading position. We will maximize the net present value of the portfolio, of course, but we might see a temporary gap in revenues, as we have said before. In Managed Services, there's a certain volume decrease to be expected still from the contract in North America that we have talked about many times, and also some further planned contract exits.
Otherwise, I think, and Peter Laurin will talk more about this, we are continuing to invest in R&D for AI and automation. Finally, Emerging Business and Other. Of course, the big thing that we are welcoming, Cradlepoint. That is said several times today already. You know about the impact on group EBIT, but on the other hand, it will contribute to the growth of Emerging Business and Other and Ericsson. When it comes to 2022, as you have seen already, we have made certain updates. We keep the group target as is, 12 to 14. Börje mentioned, and I can echo that of course, with the visibility we have now and based on current performance, we are also strengthening our confidence that we will hit these targets here.
We have made some changes between the segments, though. Networks, given the performance we have, we have upped the target to 16%-18% operating margin, excluding restructuring. Digital Services goes in the other direction. We have brought it down to 4%-7%, the reason is what we have talked about several times, the declining legacy sales, but also our decision to invest more in R&D. This is a more realistic level. Jan Karlsson will talk more about it. Managed Services, we also feel confident to increase the target, now it's 9%-11% there. Next slide, please. This is also equal to the earlier bridge. This is about the 2022 target and the bridge showing the road to these targets. You see here, Networks will contribute mainly from top-line growth.
In Digital Services, of course, this is the biggest contributor, as you see, because there the turnaround will continue from where we are today. In summary, it's really the 5G Core revenue, but also a higher share of software that kicks in. I think we can move on to the summary from here, and I'll just summarize the session with three key takeaways. First of all, I think you've heard us say many times how big the focus on generating a strong cash flow is in our company. We will continue that as a key part in our value creation strategy. Secondly, on top of that follows then a disciplined way of allocating capital. We talked about the three main areas here earlier of R&D, market share gains, and M&A, and how we are disciplined in all of those.
Finally, we have now come out with the new long-term targets and EBITDA margin of 15%-18%, free cash flow before M&A of 9%-12%, to outgrow the market, of course, and also the sustainability target, carbon neutral by 2030. That concludes this session, and I hand back to you, Peter. Thank you very much.
Thank you, Carl. Excellent presentation. Very clear now how we're heading towards the long-term targets. Now we will start the Q&A session, the first one. I guess you all will have found the numbers you can dial in for the session. I also hope that I have Erik on the line. Can you hear us, Erik?
Absolutely, Peter. I'm here.
Perfect. You can see the dial-in numbers that you have here. I think we will have then Carl, Börje, and Erik ready for questions. See here, could I have then the first question coming in here? I could see on my screen, please. The technology works out fine here. Let's see. Can I hear anything? Operator, could you maybe guide me here through. Yes. We have the first question here, it's from Predrag from Carnegie. Predrag, could you please ask your question?
Hello, guys. Thank you very much for letting me on. My first question is on the critical patents in 5G. I think you cited 16% there. Could you share with us what this looked like for 3G and for 4G and how this has changed for Ericsson across generations? My second question is on the margin target for Networks for 2022. It is a raise, but it's quite close to where 2020 seems to be landing. Is there anything specific for us to read into this, such as your comments on IPR, U.S. ramp fading while EU ramp building up, or is it conservatism on expectations? Thank you very much.
Thanks, Predrag. I think we start with the first question for you, Erik, I guess, on the critical patent.
sorry, critical patents. I didn't hear the question properly. The position for Ericsson in standardization has been very strong, actually, in 3G and 4G as well. We're continuing on that path. 5G patents, it's a little bit too early to make final judgment on that, as it normally takes some time.
The conversion ratio of our contributions into standard, what becomes an essential part of the standard where we have standard essential patents. That's where we have, according to external evaluations, a strong position. Really standardizing and patenting the most critical technologies. We have a similar situation also for 4G.
Great. Thanks, Erik. Then we have the next question was the targets for 2022 for Networks, and I guess, Börje, you could start there.
I can start. Thanks for the question. I guess you're implicitly asking it should be higher. The reason why we think this is the right target is that we are looking at the longer-term value creation in Networks business. We have opportunities to continue to invest in strengthening the market position and growing the business to create a longer-term value for Ericsson and building a stronger company. That's why we think this is an appropriate target for 2022. Beyond that, of course, the picture is different. That contributes, of course, to the overall target for the company.
Thanks, Börje. We will then move to the next question. I think we have one from Achal from Credit Suisse. Achal, can you hear us?
Yes.
Hi, Achal.
Hi, good afternoon, everyone.
Good afternoon.
Yeah. One question I had was on your position in the U.S. When we listen to your key competition in that market, they seem to have lost market share at Verizon, and they're talking about some pricing pressure with another customer going into 2021. You clearly have gained market share, as you showed in the slide. Maybe can you help us understand how should we think about your market share in the U.S., and any comments around pricing, whether that dynamic is changing now with 5G? Thank you.
I think that's a good question for you, Börje.
Yeah, I also think Niklas.
Exactly
that will join us a bit later, can comment more. What you see in the U.S. portfolio is, of course, that we are strengthening our position, and Carl showed that on his slide. That is due to the technology position we have and our very competitive portfolio, and that traces its roots back to the investments we make in R&D. That has allowed us actually to gain footprint, and it's a challenging market. It's a competitive market as well. We've done that on the strength of the portfolio. Our investments in R&D also has allowed us to get a better cost position overall in our product portfolio. The results is what you see in our overall development as a company. I have really no specific comments to make on that Niklas will not address later on.
Thanks, Achal. As Börje said, we will have Niklas on here after this session, pointing on that, and also be able to ask questions by the end of the day. Are you happy with that, Achal?
Thanks, Peter.
Thank you.
Yeah, thank you, Peter.
Thank you.
Thanks, Börje.
We'll move to Daniel from Handelsbanken. Please, Daniel.
Hi, thank you for taking my question.
Hi, Daniel.
I will just follow with one question here, and that is to double-check your growth ambition. It is to outgrow the market, i.e. more than 1%, and on top of that, you have the market share gain, the enterprise opportunity, and future M&A. It is not in total over 1%, it could be more given these three add-ons, how to think?
Yes, that's correct.
Börje?
Yes, that's correct.
Yes.
Thank you. Perhaps another question on the ESG side. You aim to get to carbon neutrality by 2030, my question is really the key ingredients that you see, how to get there.
It's a combination of initiatives we have. This includes the way we conduct business, so it includes the travel patterns, it includes how we Call it a real estate situation, or take the factory in the U.S., for example, where we have that factory powered by solar panels, for example. That's the way we're going to reach the carbon neutrality, and it's many initiatives across the company.
That's great to hear. Thank you so much.
Thanks, Daniel, for that question. We will have another question from Dominic, actually, from Morgan Stanley. Dominic, can you hear us?
Hi, thank you for taking the questions.
Hi, Dominic.
The first one is just on the software mix that you're projecting to grow into the long term. What share of software mix are you now expecting? What level also of recurring revenue share? I guess that mostly it's going to be related to the Digital Services business, but could you clarify that? The second one is, what proportion of employees are you expecting to have in the R&D business compared to the 25% that you flagged today? Thanks.
Maybe we can start with the proportion R&D with Erik, or if you want to start there. Did you hear the question?
No, I didn't.
No.
The question was, what do you expect, if you go forward on proportion R&D in the future?
Of staff.
Of staff.
Okay. Sorry. I think we are seeing not only the increase in software features, but at the same time, and you will hear much more about that from Fredrik later on here, we have investments to ensure the highest performance networks. That is also on the hardware side. The basic investments are important to maintain that technology leadership. There is an increasing proportion, of course, but ultimately, on the network side, it's going to be a balance between software and hardware.
Mm-hmm. Börje?
I guess the question was more, do we see the percentage of our staff going into R&D to increase? I think the answer there is yes, that's the way it's going to go. With an increasing software portion of the revenues, we're going to see larger and larger share of our workforce to be in R&D. It's not going to see the same growth, but of course, this is something that we have to manage depending on the productivity we see and the output we see. Yes, the answer is, you're going to see a slight increase on that.
I guess the second question, Dom, was about the software mix, if you go further into the long-term targets and what you see in the recurring revenue part as well.
Erik addressed.
Okay
a little bit. We're not talking about specific percentages here today. What we are saying is that we are going towards more of software content, of course, in the company, and of course, in Digital Services, of course in Emerging Business as well. Also, as Erik was talking about in the network side, depending on how network architectures develop over time. It will increase, but we haven't specified any specific numbers on it yet, Dominic.
Okay, Dom.
Thank you.
Thanks.
Yep, that's perfect. Thank you.
We'll move into Andrew at Barclays. Andrew, can you hear us?
Yes, I can, Peter. Thank you for taking the question.
Hi, Andrew.
Good afternoon. Two, if I could. First on Enterprise. There's a clear shift in your strategy over recent periods, and you're outlining it in great detail today. I'm just wondering from a portfolio standpoint, now that you have Cradlepoint in, that's obviously a significant addition to target this future opportunity. Are there other needs that you need in order to meet your vision? Just thinking about the potential for M&A, obviously nothing specific, but are there other holes or do you feel like you've got a critical mass in terms of the type of tools you need in order to address that opportunity? Then a second one, just again on Digital Services. It does seem, certainly in the near term as we look to 2022, that that's a key or the key for margin improvement. Seems to be the biggest swinging factor. It's been a bit weaker of late.
You revised down the targets now due to increased investment. I'm just wondering when should we start to see the more substantial improvement there? Carl, you mentioned revenue coming from 5G Core in 2021. Will that be the trigger or are we going to have to wait more until 2022, sort of a back-end loaded ramp for Digital Services to get us there? Thank you.
If Börje starts with the Enterprise question.
The Enterprise presence, of course, we're gradually building up a portfolio here. What you see now is we have a couple of initiatives that we have discussed a little bit now, but also we'll come back to them also. That's important. We also think here, this is an investment area where we can see that we actually grow our investments over time. That will include M&A as well, in the way where we can see, call it a strong gross margin profile, a strong growth in the company we would look for. We would also make sure that any acquisition target would fulfill the two basic premises of, one, growing the revenues for the mobile operator and the service provider, as well as being a standalone and attractive investment opportunity. Here you will see us look for both organic as well as inorganic growth.
On the digital, we're coming back to the presentation a bit from Jan Karlsson, if you want to just kick off.
I can just kick it off then very quickly, and Jan's going to address this much more in detail. First I would say we have made substantial improvements in the performance of Digital Services. The team there have really executed well on the plan to turn the business around. What we have seen, though, is that we have dropped off faster in the legacy portfolio than we initially planned when we put the targets out. The other thing that we see is that we have increased our investments in, call it the 5G Core as well as in the 5G orchestration in the network. With that increased investment need, we have seen that we needed to revise the targets. The wins we have on the 5G Core is actually very impressive. We have a very high win ratio.
That should translate to beginning revenues in 2021, but the more substantial will be beyond 2021. That's also why we are very comfortable, of course, with the target we put out, that we can execute and deliver on that turnaround. The loss of legacy portfolio put us back a bit compared to what we thought in 2017. That's the fact of the matter.
Great, Andrew, and Jan will come back to Digital Services more in details here in the coming presentations.
Exactly.
Thanks, Andrew. We'll move over to Peter Kurt from ABG. Can you hear us?
Yes, I can. Thank you very much, Peter. I'd just like to follow up on the Digital Services comments, please, if I may. You've obviously outlined why you have reduced the near-term margin targets. Has anything changed for you fundamentally? Are you still seeing yourself reaching the margins, I think 10%, 12%, and you've previously alluded to even beyond that or higher than that in the future? We're just shifting it back a couple of years. Is there any risk that perhaps, particularly in this business with the higher share of software, et cetera, that new competition from relatively new or non-traditional players in this field will perhaps necessitate continued high R&D spend? Is that a risk potentially to margins uplift for the Digital Services? Thank you very much.
On the first question, no, we see no reason to change our long-term perspective on the business. It's going to have a growing software content. What has happened is it put us back a year or two due to the drop-off of the legacy portfolio that we just simply didn't anticipate. Outlook for us still remains the same. Actually, the targets for 2022, we believe we're longer term going to have higher numbers than that. That it's really just more of a delay of execution. The second question was-
New competition
new competition. Yeah. I think when you run a business and you think of any business, you have to realize competition is going to be there. What we are going to continue to do is to lead the development. What happens now is that we're winning 5G Core deals, for example. We're actually beating some of these allegedly new competitors, and we're even swapping them out in certain installations. I feel as long as competition is fair and head on, bring them on. We'll be happy to fight that.
Great answer there.
Maybe-
Yeah. More questions, Peter Kurt?
Erik had a comment, Peter.
Yeah, Erik, you have a comment. Please, Erik. Sorry for that. Yes.
Adding that this transition to the 5G core, which is actually a major undertaking in the industry, we are in a good position because of the early investment and the early decision to actually build a completely new architecture. I think that is really paying off.
Thanks, Erik.
Super. Thank you.
Thank you.
Good answer. Thank you.
We have the next question from Alexander from Societe Generale. Hello, Alexander.
Yes. Hi, good afternoon. Can you hear me well?
We hear you perfect.
That's great. Thank you very much. Thanks for the question. Can I have another stab at the Networks targets 2022? You're on track now to reach 18%, a little more this year, your target range says we're going to stay at the high end or decline from here. You're gaining share, this may continue or even accelerate as two of your main competitors are facing various degrees of difficulties, as we know, Networks are a business of scale with very high fixed costs. I'd just like to understand what's upsetting the substantial economies of scale you have going forward. Is it lower gross margins due to more aggressive footprint acquisition, or is it higher fixed costs that are maybe at unsustainably low levels? It has to be one of the two, so that margins don't actually continue to decline from here.
Just if you could explain that in more detail. Thank you.
Börje can start.
It's a good question, and the reality is when we put the target, it's not that we're going to say that we're going to stop at those numbers, right? That's not what we're trying to say. What we think is with the opportunities we see to continue to invest in the technology and drive new product solutions, as well as the opportunity to capitalize on our portfolio to gain footprint, we believe that's long-term value creative. Here I want to bring it into everyone's attention. That's exactly what we've been doing the past three, four years. We've been systematically investing in product portfolio and the strength of the portfolio and actually gaining footprint. You have seen the gross margin development despite that.
we're not trying to be coy about it in any way, but we're trying to put a reasonable number out for 2022 that we think gives us the flexibility to create the strongest company longer term. I ultimately think it's not about 2022. We could, of course, optimize a number for 2022, but the reality is we focus longer term. We're here to build Ericsson to be a strong company leader five to 10 years out. That's what we are after, and that's what we're investing for. 2022 is just a milestone on that journey. I think sometimes we over-focus on 2022 because it's only there as a milestone to something greater.
Thanks. You're good with that, Alexander?
Yes, that's great. Thank you very much.
Thank you. We'll move to Sandeep at JP Morgan. Sandeep, can you hear us?
Yes. Hi. Thanks for letting me on. Two questions, if I may. From Carl's presentation, if you look at the guidance for beyond 2022, the EBITDA margin beyond 2022, there is a big revenue growth element there in that bridge that has been drawn in that graph, essentially. We have seen in the past that there is a 5G, 4G cycle, and then there is a gap, and then there is a 5G cycle. are we saying now, is Ericsson saying that there is going to be no cyclicality in this spending and this revenue growth is just going to be secularly growing from here, which is why, well beyond 2022, that the revenue growth is going to continue, and that is going to drive this margin improvement at that point? That's my first question. the second question is on IPR.
You've just talked about that there are a few agreements coming up soon for renewal. Will Ericsson's 5G patents be included in those agreements? there was an earlier question on where you stand on the 5G, but do you already know where your position is versus the overall pool in 5G at this point?
Maybe Börje can start with the EBITDA. </edited_transcript
Yeah. What you see in the targets, and it's as you say, sales growth are, of course, an important part. What we see is that if you look at the 4G cycle, yes, there was a clear, and in every G so far, it's been a clear, call it upward trend, and then flattish, and then coming down. What we see with 5G is a bit different because, for the first time, we're actually seeing a G that doesn't really only address or primarily addresses the consumer. It actually addresses the enterprises. We believe that the 5G cycle will have a bit of a different shape to it. What you will see here is that, at least we believe that we see a longer-term, higher level of demand for network build-out, and that's driven by the whole opportunity in enterprises.
now I'm not talking about the enterprise applications, but only the need for a better network and stronger network. we believe we are going to see, call it, a longer 5G cycle than we've seen before, just to make sure the networks are strong enough to handle the enterprise traffic. That's one part. The next part of our growth ambitions, why we think that Ericsson will have less cyclicality longer term or exposure to the G, is that we're building up an enterprise application market, which still will be close to the network and close to the, call it, the network operators, especially mobile network operators. here we see that to create the growth opportunity, as we grow that, our exposure to a whether there is a 5G cycle or not, we can debate in a few years' time.
We say that building up those applications will take out a bit of the G exposure. That's why we feel quite comfortable about a longer-term, more stable growth trajectory for Ericsson than we've seen historically.
I guess your second question, Sandeep, was about the 5G patent portfolio and the way we have used that in modeling as well going forward. Right?
Maybe Erik can comment- </edited_transcript
Eric
on the strength of the 5G portfolio.
On the patent side.
Yeah. I think, as I said before, we feel very good about the strength of the patent portfolio, and this is based on the solid input, as I said, to standardization and the research that preceded that. We do believe that we have the strongest portfolio when it comes to what matters in 5G. When it comes to the licensing, maybe you want to comment on that, Börje, but we already have announced what we have done when it comes to 5G licensing.
Yeah. We have already, as Erik said, we have a couple of agreements on 5G that includes 5G, but most of the renegotiations that we are coming up for here includes 5G. you know our announced pricing as well. we are in those discussions, and we will see where they end up. one thing that we want to say here is that I think it's important, and we say here that very explicitly, there can be gaps in revenues because, for us, and it's back to the same point I made before, we're here to build a stronger company five to 10 years out. That's what we're focused on. therefore, we're not going to trade off that future for any short-term impact on the P&L.
Thanks, Börje. Okay, Sandeep, we will move to the next question. I think we have Amit here from Citigroup. Hi, Amit.
Good afternoon, Peter. Can you hear me? </edited_transcript
We hear you perfect. Hi, Amit.
Thank you. Good afternoon, all. Two questions, if I may. My first question is with regards to the contribution from open and virtual networks.
That you think about in terms of your longer-term ambition. As the traditional network landscape evolves, what's the kind of assumptions you have made with regards to penetration, adoption, and potential pricing implications from the rise of open networks? Any thoughts on that would be helpful. secondly, if I may, I appreciate that you would like to give us a long-term guidance. frankly, it's a bit too open-ended for me right now because it's beyond '22, and it's beyond 1% on the growth number. I guess what I'm trying to understand is what stopped you maybe from giving us some more scenarios instead, which would have made it easier for us to potentially put these numbers and try to think of what they mean longer term?
Whether it's 2025, 2030, greater than one is two, three, four, it's a bit difficult right now to get a feel for what this would mean. Could you give us any more steer in terms of how we should think about these longer-term numbers as we think about the longer-term forecasts that we do in our models? Thank you.
Maybe, if Erik wants to start with the open networks question, the first question from Amit sir. Did you hear the question?
Mm-hmm. Yeah, sure. I think you are referring to the openness when it comes to the radio access network, the Open RAN discussion that is ongoing now, and I think that's an important part. Fredrik will cover that in full detail, including our Cloud RAN launch or the portfolio for 2021. I think it's important to put this in perspective in terms of what we have already achieved when it comes to openness, open standardization, being the leader in open standardization for generations, and also the one company driving openness also when it comes to open source in the telecom world, and for that matter, being the leader and pioneer when it comes to openness on the core side.
We talked about the 5G core, which is a true open horizontal architecture, and it's a true transition, I think, from the previous architecture, the previous generation of how to build core networks into the new horizontal architecture. We are the leader, I would say, and the pioneer when it comes to taking the steps also on the radio access network side. You will hear very much about the importance of performance in this area, and that's why if I comment on it more from an industry and a technology point of view, it is very important for the industry to focus on building out coverage with high-performance 5G now. That's where I would say most customers are putting all their energy. Most of their emphasis is on providing that coverage and capacity of the base layer.
There will be opportunities to drive new growth, perhaps in the enterprise space that we talked a lot about here, perhaps in the indoor space, where we also see that other deployment options. For example, horizontal Cloud RAN options will be very complementary to our high-performance offerings. With this, we see that we can open up new revenue pools for operators and for Ericsson as we're addressing these new opportunities. I think that that's more from an industry evolution perspective and a technology perspective, and it will take some time because we are also very conscious about meeting the energy performance targets, meeting all the other performance targets as we move at the forefront of this change. Perhaps Carl or Börje wants to comment on the financial modeling.
Any comments on the financial modeling around that, Carl or Börje?
Börje.
We're saying that the openness, and Fredrik will talk about the implications of that in much greater detail. What you can say is that we see this, of course, the increasing like O-RAN-like situations are going to make sense in a number of segments. We see those starting to gain traction. We're talking maybe modest impact 2022, so it's later than that when we see that start to impact. In the long-term target, we also include, of course, a modeling on how this future is going to shape up, including that that's a market we will also participate in. That we already, by the way, do with the Cloud RAN announcement the other week. I think save that question a bit and get more specific on it.
On the ambition for targets, why we don't clarify, I think I want to address that a bit head-on. The reality is, in 2017, we put out target for 2020, and we put out targets for 2022. At the time, we got a lot of questions about those levels, and I think both Carl and me left those presentations saying that clearly nobody trusts we can do this. Okay, now we stand here. We don't take it lightly to put the target out. We do that with some real consideration behind the plans, what we see that we can achieve, and that we're comfortable to achieve as a company. That's what we did in 2017, led to that target, and it leads to this long-term target. Again, why don't we specify a year?
I think here the key is we say that we're firmly committed to the 2022 number. That is really a stepping stone on our development towards the longer term. If you look at this, how should I look at it as an analyst? Probably you should think that this is, call it the mid-decade, where we start to see this come to fruition. It should more signal the type of business Ericsson will be
It will be a business with larger software content, it will have higher recurring revenues, and it will have an enterprise business as well, in addition to the more traditional core business we have. That's the type of journey we're on, and that's what we're going to show that we can deliver on. that's also why, is that going to happen in year X or year Y is something that for us, we're here to build a stronger company in a few years' time. If that happens X or Y is less important, but you should take comfort in that's the type of company we're trying to build. Okay, Amit, that was actually the last question for this session. We have a second Q&A session coming up a little bit later.
Please, I urge you to stay on the queue for those who we haven't been able to bring forward. This is the first block, and now we're entering into a two-hour block here, which is going to present the market areas, parts of them, and the segments. The first out is Chris Houghton heading up market area Northeast Asia. He will talk about a lot of things, but one thing that is very interesting in his presentation is IoT adoptions in his region. He will talk about 2.5 billion IoT connections by 2025 in China, a triggering number, as an example. I will leave the word to you, Chris. Are you on here? Can we
Yes, I am. Can you hear me?
Hi, Chris. Yes, we can hear you perfectly.
Hi, Peter.
The floor is yours. </edited_transcript
Okay, great. Well, hello and good morning from Yokohama, Japan. My name's Chris Houghton. I'm heading up MA Northeast Asia. The last time I spoke at the CMD in New York, we talked about our ambition to gain market share in Northeast Asia. We made a very detailed plan about how to take that market share. We pulled that together with some serious investment in R&D, as has been mentioned earlier, to really give us an advantage on the technology to help us to take that market share. I'm pleased now to stand here and say that that plan was very successful, and we've taken market share in 5G. We've improved our position compared to 4G, and it's a great market as well. In this part of the world, it's already tomorrow here where I am, and the operators are treated like that.
They're pushing for the latest technology. The consumers want that. You'll see very early adoption of 5G, all the investment already today going towards 5G. We'll see the 4G networks in Northeast Asia are also very advanced. They're extensive. There's lots of spectrum available, and the quality demands are very high. The 4G networks are super high quality, and 5G needs to be the same, otherwise the consumers or enterprises won't actually use it. 5G is not an overlay network in this part of the world, and we're seeing our operators with big ambitions to roll out large-scale, high-quality networks for their customers and also take an enterprise business. Already in China, you see 150 million terminals connected to the 5G networks and China rolling out with a massive scale of 15,000 base stations a week.
across all the other markets, Börje mentioned the nine million subscribers in South Korea. Taiwan has brought forward its network rollout. Hong Kong network's already up and running. Japan, on the back of the iPhone, because Japan's such a big iPhone market, we're going to see those 5G networks rolled out extensively in 2021. of course, the competitive nature between the different markets is not only with the operators in each market, it's also between each of the market. There's a competition on there as well to build those extensive 5G networks and be a leader in this part of the world. by building those networks, it allows the operators to really tackle the enterprise business and then go after new opportunities there and what a market that is.
If we just take Japan and South Korea first, you can see 150 million IoT connections projected by 2025, which is huge, great CAGR growth, and you can see the different sectors there where those connections will be. Look at China. Just the scale is absolutely amazing, 2.5 billion IoT connections by 2025. As has been said, widely reported, China's making 5G the actual backbone of its industrial plan and connecting all industries going forward. I think that when China launched this plan, I think it got everybody else in the region to wake up, and they all want to do the same thing as well. Of course, it's a smaller scale due to population size, but huge ambitions there as well. If I look at the operators in the region, all of them talking in their quarterly reports about their ambitions in enterprise.
They see this as a new revenue pools for them and how they can gain new business, and as Börje said, extend the curve for them as well. I think this is where we're really going to see this in Northeast Asia. It's a great opportunity. Now, of course, at the moment, we're seeing NSA being rolled out, but standalone networks will be rolled out very quickly here as well. In fact, China Telecom launched its standalone network only last week in China, and I think you'll see the other Chinese operators go standalone during this year. Japan, Korea go standalone probably towards the end of next year. You'll be getting the full capabilities of 5G in Northeast Asia.
All the things that Erik talked about earlier, or the things that his research team are looking at, they will be deployed in Northeast Asia very quickly. I think that's what the operators are betting on. We're betting on working with them to increase our business as well. Now, we're not just waiting for 5G. We're also been working already on the enterprise side with our customers on 4G. I just picked a selection of a few things that we have going on at the moment. In China, we have connected vehicles with our connected vehicle platform. We have a, working with China Telecom, who are, together with the enterprise, GM OnStar, this is General Motors in China, across three of their brands, which is a connected vehicles, connected car platform. Then on the second column there is with KDDI, and Toyota.
That's a connectivity management system with using our IoT Accelerator platform, different platform, connecting KDDI's vehicles, across many different countries. The first one is just in China. The second one is an actual global connectivity management system, different system. We're learning a lot from that platform as well. The third one is a partnership with Fujitsu. We've established a partnership with them, and that's to look at private networks in Japan. In Japan, the government has granted licenses to non-operators to run their own networks. Fujitsu is fronting that and selling our solutions into private networks. In return, we're using Fujitsu as a system integrator when we go global as well. I think the good thing is, here, there's a huge opportunity coming with 5G.
We've already started here with some examples on the 4G, and we continue to do this and, us together with our operators, are learning more about the enterprises and with the full capabilities of 5G, I think this is a very exciting area for the operators and consequently for Ericsson. Just to summarize on the key takeaways. The operators in Northeast Asia will build extensive 5G networks, and we're already seeing that. I mean, big ambition, big investment. In China, I think we're seeing over 600,000 base stations deployed this year. We'll see the same amount next year. Those networks in Japan as well, we'll see really pick up from now into 2021, where the race will really start on the back of the iPhone.
I think that's good for us having those extensive 5G networks built out with great coverage, great people coverage, and regional coverage too. The operators also have an ambition on the enterprise side. They've talked about that. They see the benefits of 5G, and that gives them an opportunity to talk to enterprises in a different way. That's a tremendous opportunity for them, and we're working closely with them to help them realize that. I think if you look from where we are now from where we were before, I think we're very well positioned. We have a better market share on 5G than we did in 4G. We have very advanced customers who are going after a new revenue pool and attacking enterprises and want to work with us to do that.
we're already work getting some experience from 4G of preparing for that as well. I think as we roll out these networks extensively over the next few years, we will see great opportunities to explore the enterprise business in Northeast Asia. That's it from me, Peter. Thank you.
Yeah. Thanks, Chris. Also Chris, you had a good quarter in Q3, in the deployment of 5G in China. Another market area that's been performing well over numerous year now is North America, headed by Niklas Heuveldop, and he's coming up next. One number that I think is very interesting in Niklas' presentation is the value of the enterprise market for the North American operators by 2030, $130 billion. I think you will develop on that, Niklas. I give the word to you, please.
Thanks, Peter. Thanks for having me today. Before I start my presentation, I wanted to just point out that we don't see the take-up in the consumer business, such as Chris described in Northeast Asia yet, in spite of the North American carriers launching the 5G networks early. We have a good understanding of what the consumer expectations are. There have been a lot of pilot activities in both entertainment, sports, and gaming applications with both Apple and Samsung now launching their new 5G phones, which are very much a gaming device. We feel very confident about the consumer segment, and we hold on to our estimate that by 2025, 75% of the subscriptions will actually be on 5G. I was not planning on spending any time on the consumer business today. That's more a matter of building out the networks, which I will touch upon.
Instead, I wanted to talk about the enterprise opportunity, where we are in building out the underlying network, and what we're doing in working with our carriers to accelerate the ecosystem to drive the innovation on top of the networks. Let's come back to Peter's number right away and take a look at the enterprise opportunity as such. It's a $700 billion addressable spend for our customers by 2030 globally. The breakdown in the North American context is $183 billion, and I've decided to just highlight three segments, verticals, where we have been very active. Mind you that some of them we have actually been working on for 10 years, such as the healthcare sector, which now, due to obvious reasons, is seeing an acceleration leveraging wearables and remote patient monitoring type solutions.
We see an opportunity in working with some of our customers to reduce the healthcare costs by up to 16% by leveraging remote patient monitoring solution and wearables. There is a high propensity in the healthcare sector to adopt these type of technologies. 88% of the healthcare providers that we have talked to are already today working on different solutions. A high propensity by the healthcare sector to adopt these type of solutions. There's a good maturity in that sector. Manufacturing, of course, is another vertical that we have spent significant time on, and one-third of the manufacturing sector works with equipment manufacturing. Also there we see a high maturity to adopting these type of solutions. We have worked with multiple smart factory solutions, and we have tested multiple of these use cases.
There is no silver bullet or killer app, but what we have seen is that you don't need dozens of applications either to make the business case. We are basically looking at three, four, five, a handful of use cases, such as autonomous-guided vehicles, asset condition monitoring solution, cobots working with humans. Of course, AR technologies and digital twins is some key digital transformation capabilities for the manufacturing sites. By just using these handful of use cases, we have seen a six percentage point improvement in operating income for manufacturing site operators. A very significant financial impact by leveraging these 5G technologies. Also, not to be forgotten, Börje touched upon it as well, the sustainability impact. Manufacturing represents 22% of the global greenhouse gas emissions. It's a huge sector for us to address with our type of solutions to also improve the carbon footprint.
Talking about carbon footprint, the energy sector, of course, is a large contributor to CO2 emissions. Here we've also been working with smart meters for many, many years on 3G technologies already. With 5G, we now see an opportunity to really help the utility sector pivot to 85% renewables by 2050, which is their ambition, because that will depend on a massive fragmentation of the production of energy into solar farms, wind farms, which again, will rely very much on connectivity for asset condition monitoring and smart grid solutions, where you can actually see what the power consumption in the grid is, because these type of renewable energy manufacturing sites don't produce 24/7. It's very important how you manage the distribution in the energy grid. Great potential in that sector. Where are we in then building out the network platform?
Here it's important to understand that the efforts span across three layers. In the U.S. today, and Canada, we have, in the U.S. to start with, three nationwide networks up and running today. That provides a fantastic platform to continue building on top of. In itself, it doesn't deliver an awesome customer experience yet. It's comparable to 4G. On top of then, the mid-band 2.5 in the case of the U.S. today, there is a lot of activities going on. One carrier has approached 30 million pop coverage and is committed to reaching 100 million population coverage by year-end. There will be a significant mid-band network built out, and here is where you then see real 5G performance, 7-10x what you see in 4G. The ultra-high performance, where you see 20x+ throughput and millisecond latency comes from the millimeter wave.
Here we have built out around 71 cities across the U.S., so it's still a relatively small footprint, but that's where you see the most amazing speeds and performance, of course. A lot of activities to continue building out that part of the network. Essentially building out the platform in three layers so you can address different use cases with very particular performance characteristics. The challenges we're seeing is that, of course, we need to see more mid-band spectrum being allocated. A lot of work now going on with dynamic spectrum sharing technologies. We're working with the Department of Defense to see if they can repurpose more mid-band spectrum for commercial use. Millimeter wave is being held back by zoning and permitting, so we put our factory in the U.S.
We're working with a concealed site solutions partner to figure out different form factors to again expedite the rollout process. There is an increasing demand for tower technicians, and we have now opened our fourth center of excellence to train tower crews to add new capacity to build more sites to the U.S. market. All in all, we have been very busy with our customers over the last three years and been rewarded with a nice uptick in market share. You saw the numbers before, up six points in the last three years, three points in the last 12 months alone. Also on the core side, we've gone from a fourth position in the market to a number one position and doubled our market share.
The efforts that we have made staying close, working with our customers, making sure we satisfy their demands and needs as they build out these networks, has been recognized properly. We feel good about where we are, but to the earlier question, never confident. We need to continue staying close to our customers, of course, now to defend our position and see if we can continue to expand here. If we then look a little bit at a couple of examples of what we are doing in partnering with our customers to drive innovation. I've brought three examples here with me today. One is us working with Verizon since actually 2017 on creating proof of concepts to bring the potential of 5G to life and to spark the innovation on top of the 5G platform.
One example here is work we've done with an Indy 500 company, Penske's, where basically by having 5G connectivity in the car during the practices, they were able to stream live video at 370 kilometers per hour, and in real time, guide the driver to catch the optimum path through the course. The driver ended up winning the 2019 season, and they had three out of five top positions during that year. A great achievement by leveraging the technology is all about real-time video streaming. We've been very busy with AT&T also since 2017, working on hackathons and other activities to try to expose the capabilities, holographic concerts.
The example I have highlighted here is the work we're doing with our interconnect solution in the CBRS spectrum, and in this case, working with a mining operator on an open-air mine with a remote-controlled drilling rig, where we have seen some interesting 30%-40% productivity improvements because now you can keep the rigs running essentially 24/7 by having operators in a remote location with haptic feedback, high-resolution video, and instant responsiveness from the drill rig. In Canada, we are working with a private-public partnership, ENCQOR, five technology providers, seven operators, and over hundreds of different SMEs working on smart city solutions and others to innovate on top of the 5G network platform. The example here would be AR goggles with infrared sensors, where firefighters then will get overlaid information in a smoke-filled room on what is in the room.
Floor plans of the building can be overlaid, all in all, to improve the safety of the firefighters and, of course, making them more efficient in the rescue. The last example I had is from our very own smart factory, which we opened in March, a SEK 100 million investment, where we are seeing a 125% productivity improvement, which then also justifies the investment in the U.S. Of course, this is an incredible location for us to also bring partners such as ABB and Microsoft and test multiple use cases. We, again, we're using autonomous guided vehicles, so we see a 50% improvement in cycle time in our on-site. We're using AR technologies for both training, without which we wouldn't have been able to launch the site during the corona crisis, and also for maintenance, reducing the faults by 50% to reduce the downtime in the manufacturing process.
Last but not least, Börje mentioned it, sustainability. This is 100% renewable energy site, 17% of the energy consumption already today on our solar panels on the site, 24% reduction in energy consumption, and 75% reduction in water consumption. This is a role model factory in terms of sustainable production. Another, again, very good use case for us to test the value proposition of 5G, really. In summing up, we are very busy building out the network platform, and we're partnering with our customers and industry partners to spark the innovation on top. We are very encouraged by the early findings in terms of the value proposition for industries and how 5G can really accelerate the digital transformation in both industries, but also the public sector. With that, back to you, Peter. Thank you.
Thanks, Niklas. That was the last one out for the market area session. I actually recommend you to go to our website to look at the market area presentation we had two weeks ago, because then each we had a talk or a fireside talk with all our market areas in two sessions. You can look at those. They are very interesting. You get more food for thought at those sessions. The next one out is the first on segments. It's Fredrik Jejdling, who's heading up Networks. I think 36% in raw market share is a really good proof point on the strong product offering we have. I know that Fredrik will talk about how we got there, but also where we go from now in that presentation. Please, Fredrik, the word is yours.
Thank you, Peter. Great to be here, if only virtual this time. Before we get in onto agenda, let me start talking a little bit about our strategic priorities and 2022 long-term. We start with this. The good news here is that the most important activities to reach 2022 are actually more or less identical with the activities that we discussed back in 2017, and we look forward to reach the point to where we are today. It is about investing in technology leadership for cost leadership for our operators and for ourselves. With that extra gross margin benefit, we want to make sure we can selectively grow market based upon this technology and cost competitiveness, and ultimately further invest in technology that can enable our customers to drive use case-driven expansion, leverage, of course, their investments that they have made in our networks.
The priorities that took us to 2020 will likely take us over them all the way up to 2022. When we look a little bit beyond that to reach a longer-term ambition and the margin targets that have been talked about here, there is in addition to those three shorter-term or 2022 activities, there are a couple of things that become important for us in networks. first of all, it is really establishing the 5G platform, the connectivity platform of 5G, in the segment beyond the current mobile broadband case, in other words, enterprise. That's where we see a bigger opportunity and a growth opportunity for 5G. The second one is to densify 5G as a critical infrastructure.
We got to remember 18 months into it, we're quite early into the deployment of 5G, and we're in a period now densifying it, making the part of the critical backbone upon which digitization will be built. Without a mobility infrastructure, there will be no digitization in enterprise with 5G. Last point here is to lead and orchestrate, this is to Eric's point as well, the standardization and evolution of mobile networks beyond 2022 and onwards. The first three categories, first three shorter-term activities, same as last time, we applied up until 2022, but three, we're still recognizing there are other factors that will make us successful long-term. If we then look at the agenda for today, we got three points. Relatively little time on the first one, which has to do with 5G market and Ericsson performance.
More so than on how we want to establish a position of leadership longer term. Part of what has been funding us successfully up to this point will be applicable, as I said before, but there are industry-shaping trends that we need to take into consideration to remain a market and technology leader in the market we play. The last part is around execution and financial outcomes. Starting with 5G market and our performance in that market. First 18 months, and here I've chosen to split it into basically a black box representing what has happened in the market over the last 18 months. Ultimately then parallel to that below there, what has been Ericsson's achievement during these 18 months. It seems to be a trend that every generation adopts faster than the previous one. In that sense, 5G is the fastest-growing mobile technology generation.
Under 5G users by end of 2020, expected 2.8 billion by 2025. We got about 112 live networks today globally. The good news in this fastest-growing G is that we have the largest live networks deployed there of 69. We've spoken about 5G and the performance, and ultimately, it may not be super important for a 5G user on a mobile broadband to get 30, 40% extra throughput downlink. For sure, it would be a critical part for building the backbone of industrial use cases and industrial networks. Therefore, early indications of 5G performance delivering the latency and the speed that we design for is important to us. When we compare ourselves in Korea, we have about 29% higher throughput than nearest competitor. We're investing in software functionalities to make sure we can remain in our position.
The next step in a 5G journey is, and Johan will talk a lot more about this, is a standalone deployment. We can enable the functionalities for which 5G actually was designed, connecting with things with people, and doing it on an ultra-low latency basis, creating those additional use cases that we're talking about. We launched a few months back the world's first standalone network together with T-Mobile in U.S. A little bit background here on the first 18 months and what our performance has been in that period. Now, the theme of this Capital Market Days has to do with the value creation or realizing value out of R&D.
I want to take us back a little bit to when we met a little bit over, let's say three and a half years back, the first time we started talking about our focus strategy around 2017 mark. At that point in time, we had a network segment that delivered around SEK 15 billion operating income with a market share outside China of 32%. Now, we decided to do exactly what I talked about on the first slide here, to invest in technology, selectively expand market, and accelerate 5G lead customers. To do that, we actually added around SEK 10 billion in investments to facilitate the proliferated demand and introduction of 5G and leverage on the investment that we had in place. That SEK 10 billion extra R&D investment as to date, if we look at Q3 four-quarter rolling basis, delivered almost twice operating income at SEK 27 billion as we look now.
We have then achieved also market share of 36%. It goes back into prove the value of investing in technology and in R&D, and the impact it has on value creation. Enough about history. Let's look ahead here, and we see this as a bit of a journey. Again, we went back three years or so. We started talking about a focused execution driving up to where we stand today, and here we see a big opportunity for us. We've taken the market share, we've created value, as I explained on the previous slide, and there are two parts here that are important to consider. When you look ahead here, you probably have to look at leveraging those strengths that you've established over the last three years.
You also have to be cognizant of the fact that there are industry-shaping trends that we need to take into consideration as we execute for a continued market leadership long term. Some of our portfolio strengths, and I will talk a little bit about that in the next few slides, but there are some architectural choices that we made in our products. We made some acquisitions to Carl's early point on optimizing the site structure for our customers, integrating active and passive antennas and radios with antennas. That's why we acquired Kathrein. Both the architecture and redefinition of the sites combined with intelligent powered services reducing lead time overall. That gives a far better cost performance structure for our customers, and that is how we dimension our products and services. When we look ahead, that may not be enough to make us successful for 2025.
In that sense, there are three factors we believe that's going to be important for us to consider. Number one, we need to make sure that we have, in this pandemic environment, that other external factors be able to have a supply chain that can deliver disregarding external scenarios that evolves. We see new growth vectors as an opportunity to grow 5G beyond the mobile broadband segment. We also see to some question earlier, which I will get back to, openness and cloud technologies coming in play here. Our strengths we need to take forward equally as much we need to consider some of the industry-shaping trends for us to remain and strengthen our leadership over time. When we look at defining our product roadmap, now we're a little bit here in where we are today.
We're quite diligent in the way that we invest in both delivering a roadmap for the near term, but also evaluating technology areas which are critical for us to be competitive. I can't go through all of them here, but they are the eight boxes on the left-hand side. We talked about custom silicon and embedded processing, where we invested some 600 resources in over the past three years. That has to do building purpose-built ASICs, significantly driving performance in terms of size, weight, and power consumption for our customers. Antenna wideband technology, that is being able to apply lesser equipment on the site with wider band radio heads combined and integrated with antennas. That's why we acquired Kathrein. There are several other parts including cloud and virtualization that are important technology areas for invest in.
What is really critical for us is that we do that in a very strong criteria against a wanted position long term. When we look at the current position depicted by the inner graph here in the spider chart, we then look at expanding that onto parameters through investing in the eight technology areas that would make us competitive in front of the customer, i.e., customer value. That means we need to have the best cost per gigabit per second in the highest-performing network, is the cost and performance premise to our customers. There are several investments on the left-hand side that can enable that. The second part is we need to do it also with the ability to design to cost. That covers not only the manufacturing cost and the direct material, but also supply and logistics.
That's to the point of Niklas, why we started up our manufacturing site in the U.S. to be closer to the customer to do the last-mile deliveries and new product introduction. If we get customer value right and do that better than anyone, our competitors, if we do it at a cost base that is attractive, then we have the ability to commercialize it and price it in a relevant way. This is how we look at our position, our 2025 beyond, and a wanted position and do that in relation to competitors, but also our technology evolves. Now, I just want to take one quick case here on why are customers picking us today, then why do we go from 32% to 36% up to 53% in the U.S. that Niklas was talking about?
Ultimately, the best way is probably to ask the customers, we can only claim technology leadership when we end up high in the technocommercial ranking of the customer. That is at least how I define technology leadership. There are a couple of points here that have been very attractive and important for us. One of them is the way we developed application-specific integrated circuits. We call this mCAM, it is part of the processing capability in the baseband. In order to facilitate critical functionalities far up in the radio, we also apply that into our radio head, as you can see here. That gives an enhanced uplink performance. It's an architecture that none of our competitors have in play.
Those kind of architectural choices and integrated circuits that are dedicated for these type of deployments give us, conservatively spoken, a much better uplink performance. Anyone who knows that knows that it means that there will be a far lesser site count, better capacity cell edge. We see that coming through in Korea and also in our U.S. market. If we then combine that mid-band with the Ericsson Spectrum Sharing on the low band, aggregate that across, you're going to get a nationwide coverage on mid and low band with the best possible coverage capacity. In our view, if we may say so, this is one of the likely reasons why we've managed to grow market share with our customers. Ultimately, the customers decide, and it's only through ending up in the techno-commercial ranking as number one, we'll be able to succeed.
I spoke about this before, and I won't be long here, but one of the most important parts to actually be in business is to have a resilient supply chain. We need to, in this environment that we are in, ensure the continuity for our customers across the whole chain. In supply, we have a combined four own manufacturing sites, the latest one we opened in the U.S. in Dallas that Niklas was talking about, but also a whole set of distributor site with partners. They enable us fairly quickly to allocate production resources to various manufacturing sites, and thereby, depending on the local regulations, be relevant in those respective markets.
Sourcing is a critical part in the sense that if we, with limited market access or any other restrictions, we need to either through balancing up inventory or design out any single vendor dependencies, as we're doing, we ensure that sourcing can actually provide that continuity and not be a bottleneck in our end-to-end supply chain. There are other elements here, but I want to point those out. Our job is to be flexible and provide that flexibility to serve our customers in the various scenario. That's like a ticket to play in this game. Now, I spoke a little bit also about the opportunity for 5G, and let me take a couple of points here why we believe this is interesting for us. A lot of it will be picked up later on by also in the industry presentations.
First of all, 5G, as I said before, is the fastest-growing mobile generation of all the Gs. It has a faster uptake than LTE, and particularly, attributed largely then to what Chris was talking about in China being first out on launching versus their LTE deployment. Still, it is an earlier and faster-growing technology than previous ones. In that, we believe we have a better portfolio and market share position at the same time. The second part, which we believe will happen now, is that even though it's only 18 months of 5G onto the market, give or take some month, but we're still in the early phases. In order to deliver the speed of bandwidth required, there is the requirement of densifying the mid-band across many deployments.
Korea and China are in the process of doing this, but the rest of the world are just in the starting blocks to get this going. The last part for 5G as enabler for growth will be linked to 5G for industry. The digitization opportunity and the volume of business related to that has a faster growth rate than the current growth scenario for service revenue that are present today. There's a breaking point in 2022 when it actually supersedes that. 5G, again, is the basic mobility structure for enabling this digitization across industries, and we look forward to participating with our 5G technology enabling that. Excuse me. In order to be even more relevant, both across the full macro networks, but possibly at a lower level of detail also into indoor and enterprise, is the reason why we launched our Cloud RAN for business.
Now, Cloud RAN is a software-based, COTS-based system where you can place on standard hardware that is available on the market. It is a complement to our existing purpose-built networks, and it offers flexibility and scalability for certain use cases. This is a way of, to a certain extent, disaggregating ourselves by separating hardware and software, because we believe that there are complementary business that can be created by offering this in particular use cases. This is Cloud RAN. Now, Cloud RAN or virtualized RAN, we'll get a demo of this after this presentation. I'll let Per talk more about that later. Now, if we look then, and there was a question early on here on our view on evolving architecture, evolving RAN architectures.
If we look at this, we have been a founding member of 3GPP, and in 3GPP, as a matter of fact. An open front-based community where everybody contributes, and standardization and open interfaces in 3GPP gradually evolved, and we currently have about 100 open interfaces to 3GPP today. We've been part of O-RAN as well, actually since 2018, and we've worked there more around multi-domain orchestration, meaning AI-driven management and control of the networks. We looked at virtualization, and as a consequence of that came our Cloud RAN offering that I spoke about on the previous slide. If we see how likely to evolve over time various architecture, we believe that there are possibly two main RAN segments evolving here.
One of them being an end-to-end integrated, or let's say it like this, a demanding high-performance use case, like the wide area networks that we built today that are fairly complex, that requires a level of integration between hardware and hardware, and hardware and software. Now, this is where we have a focus, and it goes back to the mid-band product that I talked about before. It's also an industry trend that we see, and the companies like Apple and Cisco invest significantly in this area to provide a better solution. This is largely where we see this market to, in a cost-efficient way, energy-efficient way, cost-performance wise, deliver mobile broadband, and wide area networks to our customers. That's our focus area. Now, there are evolving certain segment that are less demanding, that with less demanding applications, so to speak.
In a way, those can then be served by multi-vendor solutions. To a certain extent, our Cloud RAN introduction is participating in that through disaggregating hardware, software, and enable a different architecture more suitable in certain use cases. When it comes to O-RAN lower layer split, that today will be possibly initially then introduced in these indoor use cases and rural use cases that are less demanding, and then seen as a complement to our integrated solution. In most cases also be cloud-based. O-RAN then we see will continue to evolve. To Börje's point earlier on, we see a limited uptake, but starting to gain some volumes for 2023. We look at the low role, which we typically refer to when it comes to market outlooks.
We see around the total volumes up to 2025 to be about 3% on O-RAN specified radios or solutions, and ending in 2050 in about 10%. It's coming in to that level, at least by the assessment of the . There are a couple of points here regarding interoperability. In other ways, making the whole network work from the device all the way specified and down into up to the core. That is something we do today as we sell the products in 3GPP against those specifications. That's something that need to be resolved in this environment. IPR challenges need to be resolved, and that means that currently in 3GPP, there's a robust IPR policy where cross-licensing agreements are signed between the parties. That creates a path for predictability in terms of investments for all the participating parties.
Our SEK 40 billion R&D, which we spoke about total as a company, but it also offers indemnifications against the litigations that could be had in various markets. That's how we also protect our customers. That's how we see an evolution of RAN architecture. In essence, we see an end-to-end integrated segment prevailing, which will complement every certain application with O-RAN over time. If we then go to execution and financial outlook, and I'll be quick on this. Again, strategic priorities up to 2022. I walked those through earlier. For those of you who were in 2017, it's basically the same cross-functional strategy execution framework we're working with a small duration.
It has to do with winning the technology race, investing for now and for the future, transform R&D for efficiency and effectiveness, and allow us to compete on the value based on those increased R&D investments. Our financial ambition, as was mentioned before, has increased a little bit then to 2022, up to 16%-18%, which with this traction on market share and investment, we believe is a viable target for us or ambition. Before I hand over to Per for a quick demo on our Cloud RAN platform, three key takeaways from my side. First, Ericsson is in the lead in 5G. It is the fastest-growing mobile generation ever. We will continue to invest in value-creating technology, primarily for the benefit of our customers. That's why we are less religious about architectures, but look more about the benefit of those options out in time.
We collaborate very closely with customers on both open and integrated architectures. Thirdly, we take on an orchestrating role in the revolution of mobile networks. If we don't get a global scale in the application of mobile network underpinning the digitization in 5G, then we risk to not enable the big opportunity that 5G has in an industry and for us. With that, I hand over back to Peter, and I guess Per for the video on Cloud RAN. Thank you very much
We have delivered on our promise. We have brought 5G to the market, and we did it with what we call purpose-built principles. We designed the software, we designed the hardware, and we integrated it tightly to really get the most out of the system. Now we are adding a complement. A complement fully compatible with Ericsson Radio systems. We have taken all our expertise, built new 5G software stacks, so that they can execute on general purpose hardware. It is Cloud RAN by Ericsson. Today, I'm actually in Ericsson studio, and being in the studio here today enables me to also demonstrate what this means in practice. In a radio access network, there are two key components. You have the radio and antenna part. It typically sits up in a tower like this one or at the rooftop.
The antennas and radios, they come in many different shapes and forms. They are all purpose-built, and they will continue to be purpose-built. that is where the signal from, for example, the smartphone comes in. The other key part of the network is the compute part. In most radio networks today, the compute part sits in a cabinet like this one at the site. A cabinet contains a lot of equipment. There's power, battery backups, fans. here in the middle, you see a board, which is really the brain of the network. It's what we call the baseband or the compute part of the radio access network. This board will now be able then to run on general purpose hardware. Actually, if you have good transport to the site, you don't even need to have it in the cabinet.
It could sit in a computer center and be fully virtualized then. That is what Cloud RAN is all about. You would then ask when to use one solution or the other, and there are different benefits. Of course, if you optimize something for solely one purpose to sit at a site, it's very important what is the power consumption, what is the size? Building products and engineering is all about trade-offs. With then cloud, you can make different trade-offs. You can optimize more for scaling and flexibility. Think of a scenario where you have, for example, a stadium, and you have a lot of users, a big event one day, the next day, very few users. That means you scale up, and then the next, you scale down the usage of the hardware, enabling that hardware to be used for something else.
That is one type of benefit you get from going to cloud. Another benefit is when you really optimize for one type of application, the radio access network. Also, the operation around that network becomes very unique for that domain. If you use general purpose hardware, you can rely on existing frameworks or frameworks common with other domains like transport or core networks, or even the applications that are running on top. We believe that that will enable new innovation, cross-domain innovation, and of course, also orchestration or cross-domains, which will give you services deployed faster in the network. We will see how this develops over time, but we are ready to support our customers, whether they go for a cloud solution or purpose-built, because now we have a solution also for cloud, Cloud RAN by Ericsson.
Thank you, Per, and thank you, Fredrik. We are now moving to the next segment, Digital Services, headed by Jan Karlsson. As you have heard here, a lot of questions that we received in the first Q&A sessions is about improvements in Digital Services. I think though, one actually proof points that the underlying business in Digital Services is performing is the 41% gross margin that you delivered here in Q3. I know, Jan, you will talk about that and many other things. I'll give the word to you, Jan. Please, Jan.
Thank you. I think the gross margin was a little bit higher, actually, but that's okay.
Even better.
Great to be here with you today. I'm Jan Karlsson, and I have the privilege of leading Digital Services. To me, a very exciting dynamic area of Ericsson's business. As an intro, we will show you a short film. Please roll the film. </edited_transcript
Imagine the future, what you'll do, and what the world will look like. Let's fast-forward to 2023. How will things be? At Ericsson Digital Services, we're building the future today with our transformation. Software will be at the heart of our business. With cross-functional teams and new ways of collaborating, we'll build software-based solutions that are fully automated and ready to master complexity. We will be the ones writing the code that never sleeps. Our code makes continuous integration and delivery easy since our entire software portfolio will be cloud native. Our cutting-edge technology that's simple to use, adopt, and scale will enable cars, robots, healthcare, people, and society to experience the full power of connectivity. We'll deliver high-quality, secure software with remarkable speed and accuracy, and our integrated customer feedback constantly makes our software better.
The code we deliver is continuously updated, turning into tangible value that will help our customers future-proof their business, no matter whether it's about upscaling, creating new opportunities, or just making things run faster. From the cities, through the streets, over gravel roads that cross time zones and countries, our software ensures the world doesn't stop.
The film gave us a glimpse of the changes that we as well as our customers are starting to benefit from. I'll cover three perspectives of the Digital Services business in my presentation today. The most important strategy execution achievements, the strategic priorities we have going forward, and the financial journey that we expect that our strategy will result in. First, I want to start from our customers' situation. With what are we helping our customers to succeed? Let's highlight a few needs which are central to our customers. First, our customers want to be capable of applying different commercial models to their offering, not be stuck in traditional bucket-type of price schemes. Two, both consumers and enterprises obviously want their voice and data services to be delivered with agility, with quality, and security.
We see demands for much increased automation driven by a need to decrease cost, but also to enable more agility. With increased focus on the enterprise market, our customers require high-performance programmable networks, which are open for different ecosystems to innovate on. Finally, for enterprises to fully make use of the low latency in 5G services, it must be possible for our customers' network edge to seamlessly meet the enterprise edge. Digital services portfolio is central to address these needs as an integral part of Ericsson's 5G platform, together with networks, managed services, and emerging business. In our leadership, we continue to evolve our offering in line with the changing needs of our customers, where they primarily focus on efficiency and on delivering a better experience to their customers, to turning their network into an innovation platform for business beyond mobile broadband.
As you can see on the slide, the revenue share of the different portfolio areas ranges from 10 to 25%, and the split has varied over time, and we expect it to continue to do so. In the coming years, with the number of 5G core transformations increasing, we expect the packet core area to grow faster than the other portfolio areas. To be clear, all five portfolio areas create strong customer value. All five are progressing well, and all five are expected to contribute to digital services profitability. Now, I want to highlight a few key achievements resulting from the strategic choices we've made since 2017, when our transformation journey started. The choices we made were to address critical and non-strategic projects, to focus our portfolio, to drive a change of the business mix, and to invest in cloud-native and automation.
In 2017, we were burdened with 45 customer projects which were not progressing well. They spanned across different industries. Several of them related to complex transformation programs. They impacted our profitability significantly, and they required a major attention from our organization. I'm now pleased to say that we have reached a point where what's left of the remaining eight customer projects has a normal level of risk exposure. Back then, we also had a too large and fragmented portfolio. Too many solutions not possible to scale to profitability. Now, our portfolio is more focused, much more harmonized, and most importantly, in line with our customers' needs. We've made portfolio bets, making use of cloud-native technology as early as possible, focusing on software-based solutions for 5G, and solutions we saw the potential to scale. We have progressively reaped the benefits of those choices.
Part of the more focused portfolio, we revised the BSS strategy, changing it from requiring customers to perform large transformations, to evolve the install base incrementally to support 5G services. We're proud of how strong our BSS business is today as a result of the execution of that revised strategy. We now have a strong 5G portfolio in place, and with our more focused portfolio, we saw a shift in sales from the legacy portfolio, including hardware, to the growth portfolio, reaching a point where the growth portfolio now represents 75% of the product sales. In all transparency, the shift was, of course, not only due to us becoming more focused.
It is partly a result of the demand of the legacy products declining faster than what we anticipated, which is also the main reason for us not achieving the targeted net sales in 2020, and therefore not reaching the targeted profitability. Going forward, the legacy portion of the portfolio will continue to decline. To sum up, I'm convinced we've made the right choices. With the current business momentum and the customer wins across the portfolio is a very good proof of this. We now have about 200 customers for our cloud and NFV infrastructure solutions. We have about 80 5G core and 5G EPC customers. We offer new and enhanced enterprise communication solutions that have created a strong customer interest. We're rewarded with more than 120 BSS contracts year to date, including nine competitor swaps, and we have now over 100 orchestration customers.
The choices we've made have also resulted in a transformation an industrialized offering. No more opportunity integration business. Instead, all portfolio areas are uniformly software-based. As you can see in the slide, the business mix has changed as a result. The software share has increased somewhat, and the recurring revenue ratio has increased significantly due to subscription being the default licensing scheme. These achievements, addressing the 45 projects, focusing the portfolio, the changed business mix, have resulted in a material improvement of the gross margin. We aim to continue to improve our margins as we continue the transformation towards cloud-native and automation. With all portfolio areas using the same cloud-native design principles, using the same development and delivery tools, this enables more synergies, more possibilities to further streamline our operations across the portfolio. The software share will continue to increase moderately.
Through increased automation and based on changing customer needs, we will more frequently and more automatically deploy software upgrades and updates, which in turn will drive an increase of software subscriptions and recurring revenue. I want to emphasize that services will continue to represent a critical and large part of our business. Our transformation is about capitalizing on the synergies across R&D and services. Despite our customers being initially hesitant about the maturity, about the benefits of deploying cloud-native in their core network, three years ago, we made a choice to start investing in container-based, fully cloud-native solutions. Now it's evident, without any doubt, that it was the right decision. Starting to invest before many others, then accelerating and gaining the maturity we now have, has put us in pole position for 5G.
To fully take advantage of that position and ensure even more business, we decided to increase our R&D investments across several areas, especially in Packet Core. The result? To date, we're winning cloud-native 5G Core standalone contracts across all geographical areas where 5G is being rolled out, most with market-leading customers. Gaining market share in Japan, in South Korea, in the U.S., in Canada, in Western Europe. Contracts are signed, deployments are ongoing, and we will see the revenue in our financials starting in 2021 and progressively increasing. These won deals serve as beachheads for additional business for other areas in the digital services portfolio, as well as in other business areas. We call this our attached strategy. Very simplified, our customers do not only need 5G packet core, they also need orchestration of services and cloud resources.
They need assurance, they need signaling, they need policy management, they need 5G voice, they need functions to enable monetization, et cetera. Of course, all that software needs a cloud infrastructure execution environment to run on. BT is an example of a customer selecting Ericsson not only for their 5G packet core, but for several other functions as well. It's so great to see how BT recently decided to expand the partnership with Ericsson also to 5G RAN. I'd like to take the opportunity to emphasize that 5G stand-alone opens the possibility to create new enterprise value for our customers. 5G core and other products in the digital services portfolio, such as end-to-end orchestration, are at the heart of that change. 5G stand-alone has capabilities which are in line with the evolving enterprise needs.
The lower latency, higher capacity, higher reliability, and a distribution all the way to the edge. 5G stand-alone is also the foundation for our customers and Ericsson to co-create with ecosystems of customers and partners. What type of partners? Enterprise application developers, of course. Aggregators, absolutely. Hyperscale cloud providers such as AWS, Google, and Microsoft as well. We're collaborating with our customers and the hyperscalers to explore and develop these enterprise business opportunities. As an example, Telefónica Germany recently announced their collaboration or their selection of Ericsson and AWS to create industrial 5G solutions and use cases in their market. Yesterday, Telstra and Ericsson announced a collaboration around 5G edge opportunities. We've made choices, and we've set a strategic direction.
Going forward in our strategy execution, starting with a business perspective, we prioritize to grow revenue through 5G core and attached sales, which improves the business mix through an increased share of software and recurring revenue. We will continue to lead in 5G for consumer, including mobile broadband, which is, of course, the lion's share of the business for both our customers and for the Ericsson. Our ambition is to also capture 5G enterprise value together with leading customers with a clear strategy to expand their enterprise business. Looking at the portfolio, we invest in R&D to have our entire growth portfolio cloud-native and to enable an increase in automation for both us and our customers. Over time, we're also evolving the portfolio to enable the emerging 5G enterprise opportunity, and this will just get stronger and stronger.
From an operations point of view, we focus on accelerating our transformation, making it more streamlined for software-based and industrialized solutions, and increasing the cloud-native and automation skills in the organization even more. Over time, we're aiming for a full adoption of cloud-native and automation with the capability to, together with our customers, automatically update and upgrade our software in their live networks, exactly as we shared in the short film. Now, the final item on the agenda, our financial journey. What are our ambitions with the Digital Services segment? What are the levers that will take us there? By looking back at our turnaround to date, taken big steps through a combination of OpEx reduction and an improved gross margin, all based on the strategy execution achievements I shared in the first part of the presentation.
Going forward, the turnaround will be driven by the planned change in our business. We will continue to improve the gross margin through a more favorable business mix across product areas with an increased ratio of high-margin software and through increased automation. The already signed 5G core contracts will start to deliver revenue in 2021. The revenue is expected to increase beyond 2021 when more deployments are made, when more 5G devices become available, and when we see an increase in 5G volumes. Yes, we expect Packet Core to grow faster than the other portfolio areas, and we expect the other portfolio areas to grow in line with the market. Our long-term ambition is low double-digit operating margin, which will be achieved through the same strategy, a focused competitive portfolio, the right business mix, and increased margins.
I'd like to conclude with the key takeaways I would like you to bring with you from this session. Number one, the digital services portfolio is front and center to our customer success in 5G consumer and 5G enterprise. Thanks to the strategic choices we've made and to our execution, we are in a pole position to create even more value for our customers and for Ericsson. Number two, the revenue from won 5G deals will be visible in 2021 and onwards. Finally, we have improved and will continue to improve the margin through the planned change in business mix across both products and commodities. Digital services is a dynamic and exciting area, and we are so encouraged by our customers' and employees' trust in us. Thank you very much for your time.
Thank you, Jan. Very clear, and I think your journey to improve your margin is extremely well presented there in the last slide. You're right, Q3, 43.5%, actually, to be right. You're right there, even better than 41%. Moving on to the next presenter, which is Peter Laurin, heading up Managed Services. One thing that I find extremely interesting in Managed Services is the way you turn over capital five times. That, with your high profitability now, gives fair high return on capital employed. I know you're going to touch upon this and other things in your presentation, Peter. Please, the word is yours.
Very much thank you, Peter, and great to hear the previous presentations as well. I will dive straight into it when it comes to Managed Services, share with you the journey that we're on, and also talk about the progress as well as what lies ahead. The business, if we start with the business as such, and this is also linked, Peter, to your comment about capital turnover. Let me start with the financials. What you see on this slide in blue is the net sales, yellow is the gross margin, and green is then the operating income. What we did in 2017 and 2018 was really the turnaround of the business. What we have done since is that we have invested in AI and automation to significantly improve our profitability. As you see, that has continuously gone up, but also introduced a completely new offering.
We've had a strategy on profitability over growth, and we turned the business from being very people-oriented, top-line focused, to instead be very much solution-oriented with bottom-line focus. It's been a complete change. Now we are operating more than 1 billion subscriptions. We're actually managing 700,000 base stations, completely multi-vendor environment. The financials then, we are at SEK 24 billion in top line. We have an operating margin now, rolling four quarters, that is 7.4%. Here comes the capital turnover part that you mentioned, Peter. Five times, because we tie up very limited capital in our segment. That means that our return on capital employed is more than 35% in this business. We also have a high degree of stickiness in the business.
That means that the contracts are rather long, between three and seven years, on average three and a half years, and the renewal rate is extremely good. That is the essence of the business we are in. Let me then talk about the market and the market attractiveness. The managed services business is increasing fairly stable and steadily with a 3.7% growth. That is then the market that is outsourced today. Looking here at networks, IT, and the optimization space, around 27% is outsourced today. However, if we look at the gray bar at the bottom, and this is quite interesting, gray is representing the network managed services, and this is where we have the largest share of our business. That business is actually only outsourced currently globally to 13%. 87% is not outsourced, meaning that is done by the operator themselves.
This also faces a great opportunity. Not only can we sell our current portfolio to the outsourced market and the ones that have an outsourcing strategy, but with the new portfolio, it also enables us to go after that 87% and the non-outsourced customers. More about that shortly. Why do the operators come and talk to us about operations? It is really linked to what Fredrik and Jan talked about earlier, that the networks are not becoming less complex, they're getting more complex. As we introduce 5G, IoT, we virtualize the core networks, we introduce new offerings, we introduce new devices, and we also want more mission-critical services. The demand on these networks increases, and the alarms increases because the network provides more alarms, and the troubleshooting becomes more complex in a virtualized environment, et cetera.
To manage that and be more data-driven, you need to be very well-equipped on AI and machine learning tools. This is not a nice to have, this is a must-have. That is why we have invested over the last couple of years in a completely new offering to manage these more complex networks of the future, and that is what we call the Ericsson Operations Engine. Let me double-click on that. What is it then? What is the Ericsson Operations Engine, and what are the opportunities that lies ahead? Ericsson Operations Engine sits on a couple of capabilities, and these capabilities are that we have redesigned the complete processes in the way we execute and digitalize them, automated them. We have a complete new set of application platforms.
Jan talked about also, we build on the great product that Jan provides in our underlying infrastructure, and we also have extremely good people. We have upskilled our workforce, and we have also hired a lot of data scientists and engineers to be multi-skilled in our operations.
Okay. I think we have some bad connections here with Peter. what we could do here is if Åsa is ready, I would propose that we go over to Åsa and you make your presentation, and then we'll see if we can return back to Peter as Åsa has completed her presentation. Is that okay? A little bit early now, Åsa, but I guess you're prepared, and I've seen your presentation and it looks great. I think one thing in your presentation, Åsa, that have draw you to the attention is the $10 billion acquisition of Cradlepoint, and I think that has been very much appreciated in the financial community, but also gives you a fantastic opportunity to address the enterprise market. I know that you will speak about that, but other things as well.
I give the word to you, Åsa, and then we'll see if we can go back to Peter as Åsa completes her presentation. Please, Åsa.
Thank you, Peter, and yes, it is very exciting with the Cradlepoint acquisition. I think importantly now, the big opportunity that we see in the enterprise space. 5G wireless, Börje, Fredrik, Eric has laid out already, going to be revolutionary and especially for enterprises. I think it's especially exciting now as we as a technology leader is right now rolling out this digital platform and innovation platform, and you could say the digital backbone for enterprises. It's really a toolbox of new capabilities that will accelerate both positive impact when it comes to financial, social, and environmental results. It will touch every corner of our world and every sector of the economy.
Today I'm going to share how we look at the opportunities in the enterprise segment and how we focus our portfolio to go after value through scalable solutions that address the enterprise market and create more demand for mobile networks and create new revenue streams for the mobile operators, our customers, and for us. I'm going to touch briefly on our segment. I will give a brief overview of the business performance, and then I will go in and discuss and describe the enterprise opportunity, our portfolio, and the recent Cradlepoint acquisition. I'm going to wrap up with some of the strategic priorities we have, as well as the next and the key takeaways.
I think if we look at our segment, our strategy is really to pursue new business opportunities in the enterprise market together with mobile operators, capitalizing on our R&D investments and scale up and investing in value-creating standalone businesses targeting the enterprise segment. we're going to do that with discipline. we have a disciplined approach to growth, which also means that we will constantly evaluate and make sure that our growth, we exit non-strategic businesses and businesses where we don't see the trajectory to a healthy performance and margin. If you look overall, all the businesses we are now investing more in are really focused on delivering solutions that accelerate the cellular adoption in the enterprise segment and offer products that our customers can easily sell and scale.
This will, of course, secure sustainable demand growth in not only for growth, but also for our core business and help our customers monetize on the network investments. Let's take a closer look at the portfolio, the optimization we have done, and the recent performance in our business. Over the last three years, we have worked to increase our focus and improve our financial performance. We have reduced, as you can see, the media business exposure and improved the results. We have done that by divesting a 51% stake in MediaKind. We have reduced the losses in both MediaKind and Red Bee, and this has reduced the running losses in our segment by more than SEK 3 billion. We also exited non-performing businesses. This includes Edge Gravity, which is now being closed down fully and completed in Q4.
It includes the divestment of Enterprise Cloud Billing and some of the non-scalable IoT solutions that did not fit with our platform strategy. In parallel, we are continuing and focusing our investments in scalable platform and solution businesses targeting the enterprise space. Here we are very much focused on tapping into the enterprise opportunity through our global IoT platform that Chris mentioned, and explain a bit how we're launching that in Asia. Our dedicated networks business, which is really a new unit that is now taking our private network solutions into new enterprise segments and through, of course, our latest acquisition, Cradlepoint. I think if we look at the momentum in these areas, we believe there's evidence that we are on the right track. We see market traction across IoT with very strong top-line numbers. We have net sales growing faster than the market.
We have a recurrent revenue model and where we now have 80% subscriber growth on our platform year to date. If we then look at dedicated networks, it's really addressing a new nascent market that we already year to date, we have delivered more than 31 deals of the year. Then obviously with Cradlepoint giving us a very strong position in the enterprise market where we are now having the market leader in the high-growing Wireless WAN Edge market. Their subscription-based model, driving recurring revenues and with a very attractive gross margin profile well above 60%. The investment is really key to our strategy to scale enterprise solutions and capture more value in these high-growing enterprise segments. Let's move on from our current momentum and let's look ahead. I'm going to start by taking a step back and look at the market opportunity.
Enterprises need reliable, secure, and wireless connectivity to really take the next step on their digitization journey and stay competitive. As Börje explained, this creates an opportunity to really move away from the fixed lines and go completely wireless without trading off on security nor reliability. Back to Fredrik's point, it really is grounded on that we really deliver the performance that our customers and the industry expects from these networks. The connectivity needs that we see, they come from global mobility, such as connected cars to local industrial sites and offices. There are a couple of common needs that are driving the demand for this reliable, secure, and wireless connectivity. Because enterprises want to unlock the intelligence of the products. They want to make informed decisions and deliver a much better customer experience. They also want advanced operation.
They want to use these connectivity characteristics to drive automation, to enable asset tracking, and personal safety monitoring of their employees. Finally, they want to create wireless agility to be able to adapt and respond to change whenever and wherever they need to. This has become an increasingly important competitive capability for enterprises and has been further accentuated by the ongoing pandemic. Our portfolio is really targeting this big enterprise opportunity that we see, and it's the biggest opportunity we see in growth beyond our core business. If you look at it, our portfolio is really designed to accelerate growth with mobile operators in the enterprise value pool, targeting global, local, and edge connectivities. If you look across the portfolio, they have a couple of things in common. All the businesses are offering solutions that help enterprise accelerate their digital transformations.
All the solutions are simple, reliable, and secure, meaning that you can trust that it works and that it's secure, and it's easy to get them up and running, regardless of where you need to connect a thing in a market or across markets. They're designed to scale. They're designed to scale to enterprises across verticals and across enterprise applications, and sold to, through, and with enterprise-focused telecom operators and their channel partners across the world. Let me now walk you through and explain how our portfolios scale across our offerings horizontally, how we partner up with telecom operators to bring them to market, and how we make sure that we reuse our R&D and use our technology leadership together with strong ecosystem partnership to deliver easy-to-deploy solutions for different applications and industries.
Finally, how our recent investment, Cradlepoint, with its leading offering, create a completely new starting point for us to further accelerate our play in the enterprise market. I'm going to start with our global connectivity management platform, which I think is a great example of how, through one platform now, enterprises securely can connect, manage, and scale their products and services on cellular networks anywhere in the world. All this through a unified service experience. By offering access to real-time data, enterprises can now unlock intelligence of products and save resources, make smarter decisions, and deliver a much better customer experience. As you can see here, our platform is sold and delivered through 35 telecom operators in more than 100 countries, and we're orchestrating a truly global cellular IoT ecosystem, making it easy for enterprises to onboard and scale globally.
Examples is Brighter, which is delivering and scaling the world's first complete IoT health solution for monitoring and treating insulin-dependent diabetes patients. Another example is Grundfos, that makes 17 million pumps each year, connects its global network of pumps to improve their operations, drive efficiency, and launch new business models, such as clean water as a service to their end customers. The platform helps leading automotive OEMs. Chris mentioned GM OnStar in China as well as Toyota together with KDDI. Together, we are managing and helping them manage the connectivity of the cars over the life cycles so they can support their customers with software updates over the life cycles and launch new connected services to the end users. In common for all these use cases and applications that you see is that all need reliable, secure, and wireless connectivity.
Our operator partners are selling this solution now through our one platform to more than 6,000 enterprises, and we share the revenues through a recurring revenue subscription-based model. We can also talk about how we reuse R&D. It's really important that we leverage the strong technology and product leadership we have. By reusing that R&D and the great products and bringing ecosystem partners, we can actually scale our offerings to new sites and new solutions that meet those enterprises' needs. Our dedicated Networks portfolio package, Ericsson's leading products into pre-configured and pre-integrated, easy-to-sell end-use solutions. Initially, we are very much focused on the manufacturing, mining, ports, and utilities and airports and public safety. Our most standardized solution here can be installed and up and running within an hour.
by working across the whole ecosystem from early research, as Erik spoke about, from product development all the way through sales and integration, we can help enterprises advance operation through reliable, wireless, and secure connectivity. there are many examples where we're doing this today. One example is our dedicated network that is providing Paris airports today with 5G connectivity to improve the travel experience and airport operations. For instance, here we can download data from the airplane by showering it down over the air as the flight is about to land, and hence, saving precious operational time. Another example is in China, where we, together with China Unicom, are developing a 5G smart harbor that will be automated and reduce human labor cost with up to 70%.
In Ludvika, we are deploying the 5G-ready Ericsson Industry Connect solution and helping ABB transform their factory to increase productivity and performance. We sell all these solutions in partnership through or with our telecom operators and their channel partners and taking a reseller approach to sales. Now we're taking the next step in offering solutions to the enterprise market through our recent investment, Cradlepoint. Cradlepoint provides connectivity solutions, including cellular routers, and helps with edge security and SD-WAN capabilities to enterprises, 20,000 enterprises and more than 3,000 public agencies. It has more than 1,500 channel partners, and their solutions make it easy for offices, retailers, first responders to benefit from wireless, secure, and reliable connectivity. Cradlepoint is really the global leader here, and they help drive 5G use cases and adoption of cellular connectivity in the enterprise segment. </edited_transcript
As Börje explained, through its very easy and seamless-to-use edge solution, it drive usage of our networks, but it also complement our IoT platform and dedicated networks portfolio. If you look at the solution as such, it can seamlessly integrate to any type of device across technology type. If you have devices in a factory or, say, for an emergency unit and it has devices that includes connection points including Wi-Fi, cellular, GPS, Bluetooth, it can actually aggregate it all and still use cellular connectivity as the main connectivity source. It's also managed through one software platform, the NetCloud Manager. They offer the solution as a subscription, so it's a bundled subscription with the hardware and software included, and it's delivered as a service.
The beauty is it's not only generating revenues and a service in itself, it also drives demand for new enterprise connectivity revenues for the telco operator. We're now focused on scaling Cradlepoint's business in North America and expand internationally, leveraging Ericsson's strong partnership with service providers and Cradlepoint's established channel partners. We're very excited about Cradlepoint. They provide us a strong entry point to drive adoption of cellular connectivity and strive and pioneer with 5G use cases that we now see coming out to the market commercially. Let's meet with Cradlepoint's CEO, George Mulhern, and listen to what he has to say about the potential of 5G, the enterprises need, and how they create value.
Thank you, Åsa. It's great to be here. Let me start by just saying all of us at Cradlepoint are really excited about becoming a part of the Ericsson family. Business has changed more in the last few years than the previous decade, and it's requiring the enterprise network to transform in order to support those new business needs. We're really entering a period of hyperconnectivity, where it's not just about connecting your branch office anymore on the wide area network. People are needing to connect vehicles. They're connecting things. Kiosks, digital signage, surveillance cameras, all kinds of things. We're really going to have a network with an order of magnitude more endpoints and a much greater diversity of endpoints. For the last 10 years at Cradlepoint, we've been working on a solution for those enterprise customers to support these needs.
It's based on a cloud management platform, a set of software-defined networking technologies, and purpose-built endpoints for branch applications or mobile applications or IoT applications. It uses the cellular network, LTE, and now moving to 5G as the transport. Frankly, every enterprise is going to have all of these things on its network. With the NetCloud platform from Cradlepoint, you're able to manage them all from a single pane of glass and frankly, seamlessly integrate 5G when it becomes available in your area. At Cradlepoint, we've always believed that, and actually history has shown, anything that can be wireless will be wireless. We believe 5G is going to just accelerate this trend to the wireless WAN, and we're very excited to be working on it with Ericsson.
We're very excited about the kind of value we're going to be able to create together for our enterprise customers and our mobile operator partners.
Thank you, George. I'm very excited as well. I'm also happy to share with you also what some of Cradlepoint's customers are using their solutions for. Let's hear from Australian Taylor Construction Company, what use cases are most important to them as they now have the chance to use 5G-powered solutions delivered by Cradlepoint.
Taylor is a dynamic construction and property delivery partner connecting people and spaces. When asked which use case or technologies are most important to
Taylor Construction, Christian Neal, Manager of IT, had this to say. </edited_transcript
The number one at the moment is the HoloLens and the VR platforms. A lot of these augmented and virtual reality technologies are now operating wirelessly, and they require massive amounts of data and CAD drawings and modeling to be pulled down, either from a cloud server or the internet, or even just a local device, and being able to then make those changes in real-time in holographic space reflect back. We're talking upload as well now back to a cloud location and back to that change. That's something that 5G is going to be critical to our business for. We've seen the challenges of trying to deploy that technology on the existing infrastructure, and while we've managed to do it certainly hasn't been smooth or efficient. You can tell it's next-generation technology waiting for a next-generation network.
I think this is a great example of how 5G, in combination with HoloLens and VR technology, actually help a construction company advance their operation. I think it also shows that we're just now scratching on the surface of what type of use cases that will come, and we're excited to see what type of new innovations we will see being powered by 5G as we roll this out to more enterprises to come. With that, I would like to just wrap up the view on our portfolio. As you can see, they're all addressing this sizable, rapidly growing market based on increasing need for secure, wireless, and reliable global, local, and edge connectivity that will really power the next generation of enterprise solutions and innovation. In all these offerings, we are addressing high-growth markets, and our ambition is to grow with at least the market rate.
For IoT, the global connectivity platform, we are addressing a market that is expected to grow to $5 billion by 2024 with a growth rate of 20%-25%. So far, we have, over the last 12 months, been growing with about three times the market rate. If we look at dedicated and site connectivity, dedicated network, we are addressing a nascent market. This has high potential market with strong growth. I would say still the market's being defined. Some analysts have defined a market to a $10 billion opportunity beyond 2025. With Cradlepoint, we are the market leader in the wireless WAN edge market. It's a $4 billion market opportunity by 2024, and where we're expecting a market growth rate of 25%-30% up to 2024. Here again, Cradlepoint is growing faster than the market right now.
If we look at what we will expect and how we will measure our business going forward, we will be very much focused on business growth and our underlying profitability with focus on the gross margin profile as we scale it forward. Here, we will expect an accelerated sales growth as our enterprise offerings are targeting markets with 25% growth. We're also expecting a gross margin improvement going forward. We are investing in businesses in rapidly growing market and with healthy gross margin potential that is 40% or 50% or even higher as example, the Cradlepoint business. Given that, we also expect the investment intensity to go down over time as our business scale from an OpEx of a gross margin level of 2.5 today in 2020 and reaching around 1.5 in the midterm, and obviously over the long term should contribute profitably to the company.
If we look at the short term, Cradlepoint will hamper the EOL outlook, but it's expected to contribute to positive operating cash flow starting in 2022. With that, I would like to wrap up and summarize. 5G and IoT open up clearly new opportunities in enterprise for our operator customers and for us. We're going to focus our new growth investments into enterprise value pools and continue with a disciplined approach to growth, capitalizing on our R&D investments and our strong partnership with service providers. We're going to continue to build on our strong momentum in the new business and targeted these high-growing segments. The Cradlepoint acquisition is here helping us to both accelerate growth, bring important capabilities, and where we see an important opportunity to accelerate adoption of cellular even faster. With that, I would like to wrap up and thank you all for listening.
Looking forward to the Q&A and discussion in a few minutes.
Thanks, Åsa. Very good. We will try to connect with Peter again, maybe move from fixed to wireless on the topic of wireless. See here if we have Peter. You're back. If the quality works this time, Peter, we will see you ending your presentation then, or take it up where you ended last time.
All right. Thank you, Peter, and I hope it works better now. It shows the importance of a solid internet connection. The good thing with this technical glitch is also that I can bring in what Åsa said into my presentation, because to operate these more complex networks, including the enterprise and the IoT opportunity, requires a very different approach. I'm so happy that we have taken the investment early on in the Ericsson Operations Engine to do just that. Let me double-click on the Ericsson Operations Engine. What is it? It consists of a set of capabilities. We have transformed the processes, simplified the processes, digitized the processes. We have based this on a very solid tool suite where you have the best of breed from Jan Karlsson and the digital services.
We have invested in our people with upskilling our staff, hired new data scientists and data engineers. We have invested, and this is a key part, in our own IPR. We have invested in automation, and we have invested in AI use cases. This differentiates us from competition. The key thing here is also that we have packaged the offerings as we go to market now in four distinct areas. We have network management services, we have cloud and IT services, the NDO space, this is network design and optimization, and the new area, and thanks also for the focus on the enterprise services. This is where we help the operators as they take our products from, for example, then Åsa's domain and deploy, say, a dedicated network. If they want, we can operate that for them as they address their customers.
it could be an SD-WAN solution and so on and so forth. there is a key part of this with the commercial models. We have these four offerings, but then we have three sellable objects. We have base packs, value packs, and software packs. The base pack is really the, you can say, the traditional, more larger outsourcing offerings. That's the scope. we have enhanced that scope with significant more capabilities with AI and automation. we have value packs and software packs, smaller and more nimble offerings, either on top of the base packs or standalone.
This is a key part that not only are we addressing the customers that have an outsourcing strategy with our base packs and value packs and software packs, but we also have decoupled here the services part, so we can also address the other, if you remember, the 87% that is non-outsourced, we can address them with the value packs and the software packs. This is a key asset. On the software packs today, we have launched a network design optimization, the software packs, and this is using AI and machine learning to then enhance your networks. Already now we see great traction here, and we have some SEK 300 million contracted only in 2020. The key thing here is that this is just the beginning, and we will add then software packs in all areas as we go forward. Okay.
let us see what has this benefited, or what is the value that we have brought to the market? that is the offering. now I'm happy to be able to share that we started to invest in the Ericsson Operations Engine back in 2018. We launched the offering in 2019 at Mobile World Congress, and since then, we've brought in around 10 large operators onto the offering. We have actually some 430 million subscriptions that we operate today on the Ericsson Operations Engine. what are the benefit then? What are the tangible proof points that we see in the market? Two very important network performance key indicators is the mean time to resolution, or the MTTR, as well as the network unavailability. Both of these are very clearly linked to the user experience.
What we can see that when we use this data in AI-driven operations, we reduce the reduction in mean time to repair with 24%. That's what we see in these 10 contracts to date. We have 60% reduction in the unavailability. What that actually means is that on a cell, we have 10 minutes more uptime every day. That's two and a half days in a year on every cell. Significant network performance gains. If I look at the efficiency, we have increased the level of automation across the board end-to-end. Let me zoom in, and if I bring your attention to the pie chart here, this is a distribution of how we resolve the 50,000 alarms that come in on these 10 contracts every day. 67% of them are fully automated, meaning that with closed-loop actions, we resolve the ticket.
When it comes to the other 20%, it's human-guided. This means that the automation gives the engineer, a human person, a best next action. Since these are live networks, some actions actually require a human expert to look at the problem before we take an action. 87% is now automated, and that enables us to put those extra, or that capacity of experts onto the very critical and hard manual tickets that are out there, the 13% in this case. All in all, it's heavily automated and enables us to then improve the network performance. That is in the network operation center. The few alarms that then are hitting the field and actually dispatches an engineer and sends a person to a site. The good thing is that the Ericsson Operations also limits that as much as possible.
We see now effect of sending 20% less truck rolls into the field, and that's a costly part. That's on the network operations. On optimization, we equally see big benefits. Here we have seven contracts out there right now, and we see benefits both on the performance side as well as the efficiency. This is really about sort of sweating the assets, doing all you can with the assets you have. Here we see 15% improvement in the throughput and so on, and also better utilization of the experts. Really happy to see the performance that we see on the Ericsson Operations Engine in the field. It's still early days, but very encouraging. All right. Let me then sum up. What is our wanted position?
If we look ahead, we want to be a leader in AI and data-driven telecom operations and optimization, delivering the best network and services experience in the most cost-effective and sustainable way. This is a key part of it, the sustainable way. This is the only thing we've added over the last years. This is an area that we see is more and more important for our operators. You heard Börje talk about it in the beginning, and this is also an area where we see that we can add a lot of value. I will shortly show a demo of our energy infrastructure operations value pack that I hope you will find as interesting as we do. Before that, I would like to talk about what we're going to do, how we're going to do it, and who is going to do it.
We're going to focus on the what part here. It's really about transforming all contracts into the Ericsson Operations Engine and increase the sales, not only to the existing base of customers that are all already outsourced and have an outsourcing strategy, but also take the capabilities in our offering with value packs and software packs to also address the non-outsourced market. We believe that's super exciting. How we're going to do that is then continue to invest in the AI and automation capabilities. A key part for the future is really leveraging the large data sets that we have access to that actually sets us apart from any other industry, that we have a huge installed base with a lot of data to leverage from.
Who is going to do it is really going to be the staff that we have that we're going to upskill and continue to upskill to get the fully data-driven organization. With that, I would like to wrap up on the four key things for us, and that's really about the people. We're going to continue to competence develop, and then we're going to continue to invest in R&D, in the AI and automation capabilities. We're going to sell with the Ericsson Operations Engine to the existing customers with outsourcing strategy, as well as to the new segment that we now open up, which we believe is super exciting. Last but not least, we're going to continue to work on the profitability. As you heard Carl mention in the beginning, we have now increased our commitment for 2022 that we're very excited about.
With that, I would like to switch gear and introduce a demo to you where we address the energy part for the operators. Please, Peter, roll the tape.
Digitalization is a key enabler for reducing CO2 emissions. At the same time, energy use is increasing when mobile network operators expand their networks to meet the demands on booming internet and mobile services usage. With the new sustainability approach, your mobile service experience can become more sustainable, using less energy and with lower CO2 emission. In a world where everything is connected, radio sites in a telecom network are expected to be always up. With state-of-the-art technology, these sites provide the high-speed network coverage for us to be connected wherever we are. However, these networks consume a substantial amount of energy. Considering thousands of sites in a network, there is a need to reduce energy and carbon footprint. We have identified that each site can save up to five metric tons of CO2 emissions yearly.
Imagine applied to 1 million sites, we'll save 5 million metric tons of CO2 emissions, the equivalent to taking 1.6 million cars off the road. Let us explain how the new Ericsson Energy Infrastructure Operations makes this possible. Radio equipment at telecom sites are powered up and supported by a range of other equipment to deliver always-on performance and continuous operations. However, optimization of passive infrastructure is often missed out, as this equipment is hard to measure and control. With the Energy Infrastructure Operations, we make passive equipment visible and measurable by deploying a set of sensors. Data from these sensors are aggregated and routed to our analytics engine, where we apply efficiency scenarios and realize savings powered by AI. The ICT industry currently consumes between 3%-4% of global electricity. Leading service providers have set new goals to deliver a cleaner, greener footprint.
With this solution, targets for CO2 reduction can be met. Everyone can stay connected and use mobile communication even more and still be on track for an environmentally sustainable lifestyle. Let's unlock the potential for a more sustainable communications experience now.
In the past, when we talked about operating and optimizing the telecom network with our customer, it was very much centered around cost efficiencies and network performance. Now we're adding a third dimension: sustainability. What I would like to show you today is the new value pack, the Energy Infrastructure Operations. It's an end-to-end solution addressing the energy consumption on a site. The benefits are actually over and above what we provide on the RAN feature side. This is a multi-vendor solution that is very powerful. Please let me show you. On a site, there is different types of equipment. You have the active parts with the radio antennas and so on, and you have the passive parts with the DC generator, the batteries, the air conditioning units, and so on.
What we do is that we collect, with sensors, the data on every unit, center it around the site controller, who then takes that data up in the energy management server in the cloud. By that, we have the data to control the site through analytics and closed-loop actions, meaning no human intervention, and optimizing on a site-per-site basis the energy demands. Super powerful. The good thing with that is that we can drive down based on the needs and the demands of the specific customer without any user experience degradation. What does that mean then on the commercial part? On the commercials, we see that this solution is paying back in 14 months, and the CO2 emission reduction is significant. In this case, this is an 8,000 sites network, provides 33,000 metric tons reduction. That's actually equivalent of 11,000 vehicles.
let me bring you a customer who's been part of developing this and seen the power and the effect of both the energy consumption as well as the environment itself. Please let me introduce Ruza Sabanovic, CTO of the Telenor Group. Thank you.
In Myanmar, we have over the last three years reduced our per site energy consumption by over 20%, while at the same time traffic has increased by six times. Ericsson and Telenor Myanmar have in collaboration taken another positive step in utilizing machine learning and data analytics on Ericsson Inside platform to further optimize energy use and maximize site availability.
Great. Thank you, Peter, for that presentation, for that video. We have a few minutes for a couple of questions, so I urge you again to call the numbers that is presented now on this slide. what I will do now is call out, see who we have on the list now. let's see very quickly here how that will work out. Wait some seconds here. Do we have any questions or not?
No questions.
Hello, operator. Do you see any questions yourself or Hi. Yeah, here we go. I will actually start with Simon at Raymond James. please, Simon, please direct also who you want to ask the question to. Simon, one question at a time, please.
Yes. Thank you, Peter. I wanted to ask about the strategy for targeting the enterprise market. I guess what I'm trying to get a clearer picture on is the go-to-market strategy. Is this more about partnering with your carrier customers or about building a channel or establishing a direct sales force? With that in mind, I'm trying to understand implications for your expense structure. You've talked a lot about investment in R&D, not about investing in sales and marketing. Thank you.
I guess that's a question for Åsa to start with. Please, Åsa.
Yeah, happy to. Our strongest go-to-market channel is the service providers, and we see that several of our service providers are now investing to go after the enterprise market. We are fully focused on partnering with them. With that said, of course, that will require us to also invest in a stronger ecosystem collaboration, both to make sure we have the right solutions, but also to make sure that the service providers and their channel partners know how to install and use and sell our products. Our focus is really on the partnership with the service providers and models where we can drive more revenue from them, which I think Cradlepoint is an excellent example of.
Thanks, Åsa. We'll move to the next question. Fredrik, Danske Bank, I guess you have a question.
Thank you very much. Thanks for all the presentations. Very interesting to listen to all of you. Many questions, but I will keep it short. Maybe to Fredrik Jejdling. You talked about densifying in the 5G world, densifying for the operators in the network. Can you describe that a little bit more on the challenges and opportunities and how you see that will go by? Because I guess that you will miss out a lot of the performance if you're not have the possibility to densify your networks in the 5G world. Thank you for that.
Well, thanks, Fredrik, and you're absolutely correct, and you kind of answered the question to a certain extent there. In order for 5G to get a maximum performance, there is, of course, the availability of spectrum that needs to be there. If you only work on utilizing the lower band, for example, and don't add the mid and the high band, you're not going to get the throughput and the downlink performance and the experience of a customer that you might expect. We see that there are many very different ways to go about this, but typically the way we see it is that you would work out the mid-band coverage in large areas.
You will combine them then with the low band and aggregate those carriers together to both utilize the mid-band but also enhance the performance of that mid-band by connecting it up to the low band because you get a better coverage by doing that. China and Korea have taken a path where they start covering with mid-band, getting a good performance. Europe has largely built a fairly limited coverage of mid-band and utilized the spectrum sharing to cover the low band, which is good. Also the type of cases then where we see an extended coverage of mid-band to complement and enhance the performance. Similar thing in the U.S., where some are taking a path of building a millimeter wave combined with the low band. Also there we see the C-band auctions coming up now, and mid-band has also been allocated one of the operators there.
We see that being built out now, let's say starting end this year or beginning early next year. </edited_transcript
Thanks, Fredrik. We'll take one more question before we go to the final remarks from Börje. It's Sami from Nordea. Sami, please ask a question. Hello, Sami, can you hear me? I guess not. Let's move to Johanna then at SEB. Johanna, can you hear me? Johanna?
So we unfortunately lost the sound, and you were disconnected. This is your operator speaking. So we are now going to go back to Fredrik from Danske Bank. Please go ahead.
I guess Fredrik asked this question. let's do so. We have some technical issues. I think we will just now wrap this Capital Markets Day 2020 up. it's going to be also an exercise because I think Börje is going to try to show it was misplaced in his slides, and he's going to try to show those two slides that was missed in his opening presentation. we'll start with that, and then Börje will conclude this event. I'll move, see if this work.
Thanks, Peter. Yeah, we'll try to wrap up today's event. I know it's been an intensive day, so thanks, everyone, for listening in. I think, let's put on what I intended to show before, which I think is a great illustration of the traction in 5G. Just putting on how the number of downloads actually looked like little more than a year ago, or speed tests done on the 5G network, and it looks like this. You can see almost nothing except possibly in Northeast Asia. Just look at how it looks today. There you see the illustration. What goes on in reality is that 5G is rolling out faster than any other technology before in the wireless space. It's starting to get used in many regions of the world where we're starting to get the infrastructure in place.
This is the backdrop against our strategy that we had in 2017, a focused strategy, really driving towards turning around the company, and secondly, to establish ourselves as a leader in 5G, and that we did. With that, let me just close out with the ending summary of this event and what your key takeaways. Over the last three years, we have completed the turnaround of the company. Today, we are in a very different position. We have a solid financial position, good operations, and now we have the flexibility and the ambition to take the next step and write the next chapter in the book about Ericsson. Now we're turning towards the future. We are continuing to invest in technology leadership, leading in 5G to serve our existing customers in the best possible way.
That will allow us to grow with the market, but more importantly, it will allow us to gradually also gain market share with our existing customers. What we are also doing is that we're investing in growing in the enterprise space. Here we see that to be a future growth engine for the company that can contribute substantially to our long-term growth rate. Finally, you've heard today that we have outlined how we believe our long-term business will look like and the earnings potential and growth potential in our current business. With that, we're going to sum up today. We've been spending four hours together, so thank you, everyone. Thank you for the team, my ET colleagues who've been here as well, to show what we have done so far and our strategy for the future.
With that, I can say we're fully confident on reaching our long-term targets of 15% to 18% EBITDA margin, and outgrow the market. On the journey towards that, we're going to pass 2022, and we're fully committed to the near-term targets in 2022. With that, thanks, everyone, for participating. Thank you, Peter, for moderating this, and have a great evening, everyone. Thanks.