Marco Wiren: Yes, as we said last year in quarter four as well that the inventory level issue was more on ’23 issue and it’s much less an issue this year. What we see now in North America is that of course the macroeconomic environment is also impacting our customers’ investment levels and we will see this during this year as well. But we’ll also mention that quarter one is exceptionally low and we see that this is a low point of mobile networks and top line as well.
David Mulholland: Thanks, Sebastian. We’ll take our next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.
Sami Sarkamies: Hi, thanks for taking my question. I have a question regarding your balance sheet. It’s looking quite overcapitalized relative to your net cash target range. And if you think about the share buyback programs you have decided for this year, next year for €600 million, that’s unlikely to kind of fix the overcapitalization issue. Are you willing to revisit the share buyback program decision before ’26 as I think you may be in a position to buy back more than the €600 million that has been decided already?
Pekka Lundmark: Yes. Thank you, Sami. And yes, we are — we had a very good cash generation this year in quarter one and about €1 billion and the net cash is at €5.1 billion at the moment. We will look into this more over time and what actions we should take. But of course, in the end, it is the Board of Directors’ decision what they want to do. And as we’ve said that our target is to have net cash position between 10% to 15% of our net sales, and that target remains. So, there’s no immediate actions that are expected, but of course, this is something that the company and the board is looking over time.
David Mulholland: Did you have a follow-up, Sami?
Sami Sarkamies: Yes, maybe regarding the gross margin at Mobile Networks, you commented that half of the improvement was not sustainable. Is that going to normalize already in the second quarter?
Pekka Lundmark: Yes, I would say that as we mentioned, it’s more about retrofit and warranty and that kind of costs that were exceptionally low in the first quarter and we expect that this should be more normalized going forward.
David Mulholland: Thanks, Sami. We’ll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.
Simon Leopold: Thank you very much for taking the question. I wanted to see if you could talk a little bit about the diversification efforts. You didn’t update us this quarter, I think on the portion of revenue coming from enterprises and other non-telcos. And within that, if you could elaborate on your expectations for how particularly the web scaler could develop if you could envision your switching business contributions there getting bigger than optical and routing? Thank you.
Pekka Lundmark: Well, this is not the negative comment about optical and routing in any way, but we absolutely target to grow the switching business as quickly as possible. But of course, when you deal with the large — especially with the large web scalars, it takes time with these customers to ramp up volumes. But that business is clearly ramping as we speak and it is ramping based on some real deals that we have with these customers. In general, the non-CSP business, which is the part of share of which we intend to grow, we had also in that segment, customer segment, good order intake growth in Q1, much better orders than in Q1 last year. And we do expect that when we look at the full-year that the double-digit top line growth will continue in the non-CSP segment.
David Mulholland: Do you have a follow-up, Simon?
Simon Leopold: Yes. Just a brief follow-up, I know it’s a gradual transition, but any updates you can offer in terms of displacements of Huawei, particularly in Europe? Has there been progress there? Thank you.
Pekka Lundmark: Yes, it is gradual progress. So, it’s difficult to give you any kind of overnight changes or anything like that. But in typical Chinese vendors account 20% to 30% in markets outside of China, outside of the U.S. of course, We estimate that last year in Mobile Networks and network infrastructure, the Chinese vendors have roughly or had roughly €12 billion in sales outside of China. And about half which is €6 billion of that in Europe, and this is obviously an ongoing discussion in several European countries that how they should deal with that question. But gradually the importance of this opportunity for us is continuing to grow.
David Mulholland: Thanks, Simon. We’ll take our next question from Richard Kramer from Arete. Richard, please go ahead.
Richard Kramer: Thanks very much. Pekka, I appreciate this might be a difficult question, but when you look at MN sales, they’re down by about a third, but R&D is actually up and remaining well over €500 million and your guidance is for a low single-digit-margin. How do you potentially reduce exposure over time to MN given what’s going to be a lower margin profile for that business and reduce scale? Is there any way to bring down that R&D expenditure while remaining competitive? Or is that just simply going to be the lower margin portion of your business for the foreseeable future?
Pekka Lundmark: Well, obviously, when we are implementing our cost reductions and you remember what we announced on a group level after Q3, €800 million to €1,200 million cost reduction. I think we said that about 60% of that would be Mobile Networks, but clearly implemented in such a way that we would always protect R&D output, because that is crucial. We are not going to let the situation repeat itself where we were behind our competition in 5G competitiveness in the early stages of 5G. Now we have caught up and we intend to stay in that lead when we gradually develop towards 5G Advanced and then 6G. So, that is something that we will always protect, but having said that, of course, there are always ways to improve R&D productivity.
And that is something that we are investing heavily on and with pretty good results. We’ve been able to increase our R&D output and productivity with fairly stable R&D investment. And this is something that we expect to continue in the future. I’m not saying exactly where the R&D volume in terms of euros in MN will be in the future through AI with copilots for software programmers et cetera. There is a real case for improving software R&D productivity. And of course, we will seek to take maximum advantage of these opportunities as well.
