Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) Q1 2025 Earnings Call Transcript

Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) Q1 2025 Earnings Call Transcript April 15, 2025

Telefonaktiebolaget LM Ericsson (publ) beats earnings expectations. Reported EPS is $0.12, expectations were $0.09.

Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson’s First Quarter 2025 results. With me here in the studio today are Borje Ekholm, our President and CEO; and Lars Sandstrom, our Chief Financial Officer. As usual, we’ll have a short presentation followed by Q&A. And in order to ask a question, you’ll need to join the conference by phone. Details can be found in today’s earnings release and on the Investor Relations website. Please be advised that today’s call is being recorded and that today’s presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. The actual results may differ materially due to factors mentioned in today’s press release and discussed in this conference call.

We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I’ll hand the call now over to Borje and to Lars for their introductory comments.

Borje Ekholm: Great. Thanks, Daniel, and good morning, everyone, and thanks for joining us today. So we executed well in Q1 despite a challenging and fast-changing macro backdrop. Organic sales were stable with strong growth in market area Americas. Gross margin came in at 48.5%, and we delivered an EBITA margin of 12.6%. The improvement that we saw was broad-based across all segments and market areas, and it’s really thanks to strong execution of our plans. Cloud Software and Services can call out a bit because it also had the first positive first quarter ever. We also continued to make good progress against our strategic priorities in the quarter by strengthening our leadership in mobile networks and announcing new partnerships that will accelerate the development of programmable networks with differentiated connectivity and open API architectures.

In Mobile Networks, we expanded our leading portfolio, and we’re on track to offer a portfolio of 130 radios this year that all support programmable networks. We also announced the first programmable network in Asia Pacific with Telstra in Australia. In Enterprise, we’re seeing improved commercial traction as customers are moving from proof of concept into commercial deployment. One example here is Jaguar Land Rover that’s implementing a private 5G network to fully digitalize their manufacturing, again, benefiting from the flexibility of a 5G network. Another is in Network APIs, where the top 3 U.S. operators have announced they’ll launch a fraud detection API this year in partnership with Aduna. As you may recall, Aduna is the joint venture we announced last year to aggregate and sell network APIs. So we now continue to see the network API ecosystem scaling up with additional partners joining Aduna and the first early revenues coming in.

So we’re seeing good momentum on our strategy built on programmable networks offering differentiated services, which will allow new ways for our operator customers to generate new revenue sources on their network investments. Of course, the current macroeconomic turmoil and tariffs are impacting our industry, and we will not be immune. We’ve taken actions over the many years to actually build resilience into our supply chain, including how and where we develop and manufacture our products. So our focus remains on controlling what we actually can control, including, of course, pricing and spending. And the actions we’ve taken position Ericsson well to succeed across varying market conditions. Let me now comment further on the market development we saw in Q1.

Q&A Session

As you know, in February, we announced the consolidation of our regional structure. So this is the first quarter with 2 new market areas, market area Americas and market area Europe, Middle East and Africa. In market area Americas, sales increased by 20% year-over-year with good growth in North America, partly offset by lower sales in Latin America, where we, of course, face intense competition from the Chinese vendors. Networks grew strongly in North America, benefiting from our previous contract wins, but I would like to single out it’s also from the accelerated network investments by the other customers. And it’s worthwhile to remember that historically, North America is a frontrunner in the adoption of new technology and, thereby, often a leading indicator for other markets.

Sales in Europe, Middle East and Africa declined by 7% year-over-year. And there, you have, of course, that Europe was stable, and that was supported by market share gains and network modernization. In Southeast Asia, Oceania and India, sales decreased by 17% year-over-year as a result of more normalized operator investment levels in India. And here, you remember, we had a relatively high level in Q1 of last year. Lastly, sales in Northeast Asia slowed. This was due to reduced customer investments in some 5G front-runner markets. With that, let me hand over to Lars to go through the financials in detail.

Lars Sandstrom: All right. Let me start by giving you some additional points on the group before discussing the segments more in detail. Net sales in Q1 amounted to SEK 55 billion, and organic sales were stable year-on-year. Reported sales increased 3%, including a currency benefit of SEK 1.8 billion. North America growth was strong for the fourth quarter in a row and sales in Europe were stable. Sales in the other markets declined, particularly in India, which had a relatively strong Q1 2024 and in the Middle East and Africa. IPR revenues slightly increased. The run rate exiting Q1 is approximately SEK 13 billion. Adjusted gross margin was 48.5% in Q1, an increase from 42.7% last year. Margin improved, benefiting from product and market mix as well as cost reduction actions.

Operating expenses were SEK 20.5 billion, flat compared to the prior year. A negative currency impact of SEK 0.5 billion was offset by lower amortization of intangible assets. Adjusted EBITA increased by SEK 1.8 billion to SEK 6.9 billion. In Q1 2024, we had a onetime gain of SEK 1.9 billion. This quarter, EBITA was supported by increased gross income and the EBITA margin was 12.6%. We also had a currency benefit of SEK 0.4 billion. Cash flow was SEK 2.7 billion, a slight decline compared to last year on the back of an exceptionally strong Q4 with early payments. Let’s move on to the financial trends. While the market conditions have clearly been challenging, we have seen a stabilization of sales, rolling 12 month sales bottomed in Q3 2024.

The gross margin trend was driven by product and market mix, supply chain efficiency and cost actions. IPR growth also have contributed. And we again saw a favorable EBITA development, although partly offset by lower sales and somewhat higher operating expenses. Let’s move to the segments then. In Networks, sales increased by 6% year-on-year to SEK 35.6 billion, including a currency benefit of SEK 1.1 billion. So organic sales increased by 3 percentage points. In sales in the market area, Americas, sales grew from — grew 38%. And here, we benefit from contract wins and accelerated network investments in North America, which reflected in part some tariff uncertainty. Other market areas declined, with the largest decline in India, where investments have now normalized.

Networks adjusted gross margin was 51%, benefiting from product and market mix as well as the cost reduction actions in the past years coming through. Networks adjusted EBITA was SEK 7.5 billion, and the EBITA margin increased significantly year-on-year to 21%. The EBITA improvement was driven by improved gross income, partly offset by increased R&D expenses. In segment Cloud Software & Services, sales were stable, with growth in core networks and software sales, offset by lower sales in Managed Services. Organic sales decreased 3%. Sales growth in market area, Southeast Asia, Oceania and India was offset by decline in sales elsewhere. Adjusted gross margin increased year-on-year to 39.9%, benefiting from a higher software share, commercial discipline and delivery performance.

Improvement in gross margin and lower operating expenses resulted in a positive Q1 EBITA. In Enterprise, sales decreased 1% and organic sales were down 7%. Here, Global Communications platform declined by 9%, impacted by the decision to focus on more profitable market segments and to reduce activities in some countries. And here, we expect a stabilization during 2025. Enterprise Wireless Solutions grew by 20%, driven by higher subscriber and product sales in Enterprise Networking. Gross income increased by SEK 0.5 billion and was up year-on-year across all the business in the segment. Global Communications platform increased despite the sales decline. Adjusted EBITA was minus SEK 0.5 billion. Then turning to free cash flow, which was SEK 2.7 billion before M&A in the quarter.

The step down from Q4 reflected an unusual seasonality of lower Q1 share of profit and annual cash bonus payments as well as the unusually high level of early payments in Q4. The cash flow was the result of the improved results and was partly offset by somewhat increased operating working capital, as well as the seasonal payments of incentives and the inflow from IPR payments received from our licensees. Net cash remained at similar levels to last quarter, impacted by the revaluation exchange or exchange rates. Next, I will cover the outlook. The global turmoil we have seen in Q1, and that has continued in recent weeks is already having significant impacts, including currency rates and global trade flows. This can, of course, affect customer behaviors and investment decisions over time.

But so far, we have seen limited impacts. So there is increased uncertainty of our forecast in a number of different areas, and the future is quite difficult to predict. With that in mind, turning first to sales. We expect both networks and cloud software and services to be broadly similar to average 3-year seasonality in Q2. This includes the partial resolution of the Lenovo patent litigation and assumes current exchange rates. The current volatility of currencies makes predictions more difficult. As an example, if the rates at the end of March had been used for Q1, reported net sales would have been approximately 4% lower. Next, Networks gross margin. Here, prediction is also more difficult, tariffs could, of course, change at any time and the broader macroeconomic environment and investment climate remains very uncertain.

So difficult to judge. But from what we see today, we expect network gross margin to be in the range of 48% to 50% for Q2. This includes the positive benefit from retroactive IPR as well as a negative 1 percentage point estimated impact from margins from tariffs. We still benefit from some earlier tariffs mitigation actions in Q2 and if current tariff proposals stay the same, the Q2 impact could be a little bit higher. With that, I hand back to you, Borje.

Borje Ekholm: Thanks, Lars. So looking ahead, we remain confident of our strong competitive position in Mobile Networks and expect Enterprise to stabilize during the remainder of 2025. There is a growing customer interest in our programmable networks and many service providers need to invest in their networks to keep them competitive at current data traffic levels. North America, as I said before, is often a front-runner market. So the recovery in investments gives cause for optimism for our markets. This is, of course, encouraging. But ultimately, the exact timing of investments is in the hands of our customers. Of course, the external environment is also adding uncertainty, but we’re prepared with the actions we’ve taken over the past few years.

We continue to be laser focused on controlling what we can control and respond with actions that position Ericsson to succeed across varying market conditions. This includes pricing reflecting our leadership position, working on our cost base, as you have seen, we’ve done over the past 1.5 years, and how we have managed working capital, which we also have done quite successfully over the past few years, while at the same time, maintain focus on the long-term strategy execution. And this way, we ensure Ericsson can manage short-term market swings, but also that we’re well positioned for the long term. So in closing, our strategy is working. Our momentum is gaining traction, high-performing programmable networks that enable differentiated connectivity or the future.

This will allow our customers to increase monetization of network investments and actually create new growth areas for us. So before going into Q&A, I would like to thank all my colleagues for their really hard work in making these results possible. It’s truly an outstanding team we have here at Ericsson. With that, let’s open up for Q&A, Daniel.

A – Daniel Morris: Thanks, Borje. So we’ll now move to the Q&A part of the call. [Operator Instructions] Okay. Operator, we’re ready to take the first question, please. So the first question this morning will come from Francois Bouvignies at UBS.

Francois Bouvignies: So my question would be on the topic of tariff. So you mentioned this uncertainty and this 1 percentage point impact on tariff. Could you elaborate how the tariffs are impacting your business? This 100 basis points, a bit more details as to the building blocks of this impact? And importantly, with the tariff in mind, do you see any inventory build happening as we speak ahead of this tariff, i.e., could we expect a more negative impact in the second half of the year? That would be my question.

Lars Sandstrom: If you look at the building blocks, I think it’s very much connected to the material flow that we have, both direct components, but also site material, et cetera, that we have in the complete delivery to our customers. And as you know, we have production today well diversified in different parts with production in North America, South America, Europe, Asia, et cetera. So that is the resilience we have built up over the time here. So that is why some parts of this impact is coming on these flows that we see based on the current decisions then that we had last Friday. And I think when it comes to your question there on inventory buildup, we had some inventory buildup already here in Q1 in our own sites to make sure that we have material in place and could handle a bit of the situation. But going forward, we don’t see big impact from that also from a customer perspective. We don’t expect too big impacts from this part.

Borje Ekholm: I would only say one thing that that’s part of Lars’ answer is the ecosystem of component suppliers, right? That’s where we actually invested quite a lot over the years to broaden that, but that’s probably where we need to be a bit more active also to build, call it, the Western ecosystem in that — in those components.

Daniel Morris: So we’re now ready to move onto the next question please. The next question is going to come from the line of Andreas Joelsson at Carnegie.

Andreas Joelsson: And maybe a little bit broader question. You mentioned that there is a need for investing in both programmable networks and in the sort of capacity. But when you discuss this with customers, how do they balance that with all the uncertainty that we have all around the world. And that’s not only not just looking for base stations, but also for 5G stand-alone, for instance, and the APIs, how do you see that progressing throughout the year, not just for the next quarter?

Borje Ekholm: That’s a good question, Andreas. The uncertainty, I think, this is more of a general question where investment climates tend to benefit from certainty, and we’re almost in the opposite end of that spectrum. So you have kind of concerns around that. What I would say, though, is historically, when you look at uncertain periods, the data traffic actually continues to grow. So I think the need for the service providers to make sure that they have cost-effective high-performance networks are going to continue to increase. I have no doubt about that because that’s what we’ve seen in these periods before. What we’re seeing is actually great progress on the network APIs. Of course, it’s driven by the early markets like we said, the launch of fraud APIs that we’re doing jointly with 3 operators in the U.S. is actually critical in shaping this ecosystem.

So I do believe we’re — here it’s so early in the development that actually the general uncertainty doesn’t impact so much, call it that because that we shouldn’t really say it’s driven by the general economy. So I think there, it concerns me less. Where we see on stand-alone, that’s the major shift the industry have to do. I think we’re only at 1 in 4 networks or so, maybe 1 in 3, maybe it’s 1 in 5, but it’s that range converted into 5G stand-alone. And ultimately, to get the capabilities of 5G, we need to convert solid mid-band build-out combined with going to 5G stand-alone. And if you look, for example, in Europe, we’re only at less than half of sites prepared for mid-band and very few operators having launched really stand-alone services.

We’re starting to see some big operators having launched standalone. For example, T-Mobile in the U.S. have, but we see other operators as well, Jio, Singtel, et cetera. So I do think that, that is a next step because your ability as an operator to offer new services increases with the stand-alone. But I would also say the performance of the network increases again, so benefiting your customer experience at the end of the day. So I think we can speculate. I can’t tell you that this is the way it’s going to pan out. But I think there are a bit puts — or gives and takes in this. So I’m rather comfortable that the world is going to migrate towards more build-out, more capacity and more SA as we move along in the year.

Daniel Morris: We’ll move to the next question please. Next question is coming from the line of Andrew Gardiner at Citi.

Andrew Gardiner: So I had another one on the tariff side of things, if I could. And in particular, the reference you make to the slight pull forward in demand for 1Q. I’m just wondering about — or if you can help me with some of the moving pieces as we look to second quarter. You’ve had pull forward to an extent in North America in the first quarter. Lars, you also highlighted the FX headwind that would be present in the second quarter. On my math, based on your rule of thumb, that’s already sort of 4-ish percent headwind quarter-on-quarter. Yet despite those headwinds of pull forward and FX, you’re guiding to normal seasonality. So that’s implying much stronger organic growth quarter-on-quarter than we would normally see. Where is that coming from?

From a regional perspective, is it still strength in North America? Are you starting to see things bottoming elsewhere and you’re expecting other regions to grow above seasonally? Just some of those moving parts would be very helpful.

Lars Sandstrom: I think when it comes to pool-ins, I think it’s more — the correct term is rather the product mix impact it had. So it’s not so much a question about pool-in. It’s more a question that the product mix was a bit different where we had a bit more of, call it, more high-margin product mix supporting in Q1. So that’s on that question. And when it comes to — as you said, on the Q2, yes, on the FX side there, and that implies a slight growth and we also have a bit of IPR, of course, in the retroactive part. And when it comes to the markets there, we have still — as you might remember, during last year, we saw the impact from ramping up. India, North Americas really is starting to come into the numbers in Q2 and then we’re more fully into the numbers for the second half of last year.

So that is still an impact that we can see coming into Q2 and also India coming down to more normalized levels in Q2. So that is a little bit the details I can give to you on that. And it’s based on what we see today coming into Q2 with the product and market mix. That is what our estimate is based on.

Andrew Gardiner: Okay. And just a quick follow-up. I mean how should we then think of that into the second half of the year? I mean you flagged now a stable market as opposed to prior expectations of growth based on the industry analyst forecast and with above seasonal organic trends in the first part of the year, does that not leave you at risk in the second half? What’s your visibility into the customer demand at that point?

Lars Sandstrom: When it comes to outlook, as you know, we guide on the next quarter. And when it comes to full year, we don’t guide on that. What I can say is that if you look at the full year and the flat RAN market, we maintain that view that we had also coming out of Q4. So that is a slight growth if you exclude China then in the RAN market and coming down from the high growth rates that we had during the second half last year coming down to more, call it, normalized levels. And then there is potential for growth. We see investment needs in markets like India and other parts of Asia. But then at the end of the day, it’s the customer who decide when to invest, of course, but that could be some of the moving parts for the second half.

Daniel Morris: We will move on to the next question, please. Next question is coming from the line of Joachim Gunell at DNB.

Joachim Gunell: So very impressive gross margins here anyway we look at it. And on the strength in North America, coming just back to what we just discussed, but can you help us dissect how much of the Q1 strength is a factor of prebuy effects with, say, strong hardware sales and there could be actually some potentially delayed services rollout here since the services percentage of Networks revenue actually declined quarter-over-quarter. So will we see a change in the product mix at, for instance, AT&T, where you will become more service heavy in H2 2025, and that could actually be a drag on gross margins?

Lars Sandstrom: We don’t comment on specific customers, as you know. But as we have talked about before is that we will see a gradual shift when it comes to the product mix for the second half with the rollout programs that we see today in the margin. But I think it’s also worth mentioning that in Q1, yes, North America is a high proportion of the total sales that helps the margin. But what is really driving the underlying margin improvement is, it is broad-based. We see margin improvements in all market areas and all segments here in the quarter. So that is supporting and that is coming from the cost activities and productivity activities we have done for quite some years now and supporting the margin. So that is kind of the building blocks. I don’t know if you want to add more.

Borje Ekholm: No, I think that you said it, it’s the broad-based recovery or improvement that is actually what matters. And I would say the — when you look at the globe over the past few years, we’ve actually taken a lot of effort to try to make us less sensitive to, call it, the geographic mix. So from a margin perspective, it’s much more important that we have been able to deliver the improvement in the underlying business than anything. So then we flag a bit about the, call it, prebuying, but more in the product mix. But I would say the key driver is all the work, my colleagues have put into improving the operations, and that’s really what matters.

Daniel Morris: Moving to the next question, please. Next question is coming from Sandeep Deshpande at JPMorgan.

Sandeep Deshpande: I have a question on margin. The 2 short questions I have on margin are, firstly, you’re seeing this very strong margin. How much of that margin that you see, the gross margin that you’re seeing is coming from the mix? And how much — particularly in terms of the guided margin into the next quarter where you’re guiding, I think, 49% at the midpoint gross margin in the Networks business, is coming from this new deal that you’ve signed and how much of that is one-off because there will be back payments on that deal?

Lars Sandstrom: When it comes — we don’t split up the different margin impacts. But the 3 areas that we highlight is product mix, underlying improvements and, to some extent, the market mix. So those are the 3 components that we try to bring forward. And when it comes to Q2, we don’t disclose how much is retroactive payments, et cetera. But of course, it has an impact, and that’s part of the outlook that we give. And on the other hand, you have somewhat negative impact on the IPRs also coming in with around 1 percentage point. So those are the building blocks. And then there is somewhat of an underlying organic growth then in the quarter as well. So that is the building blocks that we see going into Q2.

Borje Ekholm: And on the IPR. I think it’s also…

Sandeep Deshpande: Also negative IPR you talked about. What was the negative IPR you talked about?

Lars Sandstrom: No.

Borje Ekholm: To clarify the negative…

Lars Sandstrom: So negative is the tariff part.

Sandeep Deshpande: Tariff. Okay.

Borje Ekholm: So it’s worthwhile also to remember that the IPR is actually a partial agreement as well.

Lars Sandstrom: Yes. It’s not a full agreement. It’s a partial agreement that will come.

Daniel Morris: Moving to the next question, please. Next question is going to come from the line of Sébastien Sztabowicz at Kepler Cheuvreux

Sébastien Sztabowicz: On the cost-cutting actions, where are you standing right now? Where are you putting, I would say, the focus those days? And how should we model the OpEx for the full year? Are you still targeting a broadly flattish OpEx for 2025?

Lars Sandstrom: When it comes to OpEx, if you look at what we are doing, we have continuously made decisions and we’ll continue to make decisions. We live in a flat RAN market. And together with an inflationary market, that, of course, will require cost reductions to offset this part. So that is what we are working against. How it will exactly pan out is, of course, I cannot give you that full guidance, but that is what we are working towards. Then there can be some investments within R&D, specific areas within Networks that we address. But on the other hand, we have made decisions in cloud software and services with reductions. So those are kind of the big moving parts that we have.

Daniel Morris: Next question is coming from Fredrik Lithell at Handelsbanken.

Fredrik Lithell: Congrats to strong results. Can I please come back to the margin guidance for the second quarter? If you printed 51% for Networks in Q1 and you guide excluding the tariffs of 49% to 51% in Q2, which sort of is based on that you expect normal seasonal growth of around 8%. So I mean, if we take out the Lenovo part, are you expecting the margins to come down for the sort of the product side excluding the IPRs? Or how should we view that? I’m a little bit confused on this.

Lars Sandstrom: When it comes to the organic growth, I think, as I mentioned there, the currency impact in Q1, if we recalculate that to the rates coming out, it was around 4 percentage points. So I think that can be worth keeping in mind going forward as well. And when it comes to margin, we said 48% to 50%. And then if you exclude the tariff impact, this is based on the what we see in the product and market mix going into the quarter. So I think — and then, of course, there is a bit of support from the IPR in that as well. But — so those are the moving parts that are there. And I will not go in and give exact details on everything. But those are our market estimations that we see when it comes to the product deliveries and service deliveries for the quarter.

Fredrik Lithell: Yes. I think you said at some point that you’re also in Q1, you saw maybe not so much prebuying in sort of before tariffs, but rather than that you had a positive product mix with sort of higher-margin products supporting the Q1 gross margin in Networks. Is that correct that you had that type of effect in the gross margin in Q1?

Lars Sandstrom: Yes. I think we can say that we had a somewhat favorable product mix, both on the hardware and software side here in Q1. But as you know, we are also in a project business, so there can be big deliveries late in the quarter with quite an impact on the margin. So therefore, we try to — this is what we see now, and that is what we are trying to communicate.

Borje Ekholm: And I think it’s also fair to say that the product mix is driven by the traffic development in network. So how much of it is driven by what, is very hard to dissect. So we’re only saying that we saw a bit of shift of product mix in the end of the quarter, as Lars said. How much of that is — I wouldn’t label it necessarily prebuying more as a matter of fact, the needs shifting in the network. We’ll see. But the best visibility is what Lars said.

Daniel Morris: Next question, please. Next question is coming from the line of Richard Kramer at Arete.

Richard Kramer: Just a question that hasn’t been asked yet. Services within Networks has now declined for 8 straight quarters and 4 over the last 5 quarters in Cloud Software. Is this supply-led or demand-led? My question is really, are you making a deliberate change to try to push Ericsson towards structurally higher-margin products business? Or is this a function of customers having less demand for services or you wanting to do less services for them?

Borje Ekholm: It’s a good question, Richard. I will say it actually varies a bit. So if you look at the network rollout have historically been a very difficult business for Ericsson. So we have tried to very proactively reduce that. So that’s what you see coming through in the numbers. It’s still an important part of the offering. So that’s why it’s not going to go away, but I think it’s important to get into higher-margin business longer term. On the Managed Services, there, as you know, we have had, dating back to 2017, rescoping of contracts where we have tried to get out of not attractive contracts. So that’s an element of proactively pruning the portfolio. But you’ve also seen the last, I would say, the last 2, 3 years, a little bit more push on customers for in-sourcing.

So we have had a couple of contracts being in-sourced. I will say what we see now in customer discussions is actually a bit more positive. The complexity in networks are increasing quite substantially when you roll out 5G. So we’re starting to see now customers coming back and actually, we see an increasing sales of managed service, and we had one fairly big win this quarter. And I’m getting a bit more excited about the opportunity here, driven by the demand for resilience and reliability in the networks and combined with the complexity. So I think the picture is a bit mixed here where part is a proactive decision, but part of it is actually a market that’s now starting to come back. So I’m — I think we may have reason to revisit your question if we’re successful on the Managed Services in the next few years actually.

Daniel Morris: Next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank.

Sami Sarkamies: I wanted to ask about market outlook on a regional basis. If you look at Q1 sales to other regions than North America still did not grow even though you continue to talk about pent-up demand. Do you have visibility on improvement during ’25 with potentially black figures before the year-end in other regions than North America?

Borje Ekholm: I think — I mean, what is the case is North America is growing. That’s normally a very good indicator of what happens in the rest. So keep that in mind. The other is Europe has started to grow during second part of last year. Now we’re not breaking out Europe, so it’s combined with other parts of the world. But that indicates that there is a — actually that’s happening that they need to invest in the networks starting to come through. And then we have, which I would say, Southeast Asia, Oceania and India, where India has normalized, and we had a fairly strong Q1 last year. So when you make comparables, of course, that impacts year-over-year. So I think the overall, as we have said, the external analyst talks about a flattish market for the year.

That’s, of course, a recovery from the shrinking of the former years, where we’ve seen a fairly big contraction over the last 2, 3 years, to be honest. So I think we’re starting to see that stabilization and possible improvement going forward, again, typically led by front-runner markets. So I’m — it’s always — I mean, it’s easy to have an opinion about the future. It’s only hard to be right. So let’s think about what we can do here, but we’re trying to give you the best visibility we have.

Daniel Morris: Moving to the next question please. Next question is coming from the line of Ulrich Rathe at Bernstein.

Ulrich Rathe: I wanted to come back to the tariffs in particular, there are 2 aspects of that. The first one is this 1 percentage point impact for the second quarter. I think during your prepared remarks, you said that was reflecting what the status of that was on Friday. Obviously, over the weekend, there were already additional news. I just wanted to make sure I fully understand what the 1 percentage point actually reflects in terms of the status of these tariffs. Does it essentially reflect the — only the removal of the excess tariffs or also this risk of reinstatement that came out over the weekend. And then the second thing is if you could just give a bit more color. I mean, I’m not entirely sure where you would be willing to give more color, but obvious questions in this context are what percentage of the U.S. sales is actually U.S. production in terms of the value depth?

How much capacity do you see in the U.S. amongst third-party contract manufacturers that you can tap or have you already locked in significant capacities? And I mean, there’s any number of questions here. I don’t want to list them all, but if you could just give a bit more color what that resilience that you’re talking about actually comes from.

Lars Sandstrom: If I start, you can continue. Looking at the 1% that we gave, it’s based on where we came out Friday and what we see there. We — that is our current view when we’re coming out today as well. And then as you know, there will be new information coming and how that will impact, we will have to follow. But we just wanted to make sure that at least to give our best estimate where we stand now given the last changes that has been coming. That is what we’re trying to say with this number. And then when it comes to production, we don’t give — we have a U.S. production site where we can produce. We don’t give exact numbers on how much is coming from where. And it is, as I said, we have production in U.S., South America and Europe and part of Asia, and we can shift volumes between sites, but it’s not a quick change, of course.

But we don’t do any big changes now because we don’t know actually where we’re going to land. So we will see here in the coming months if we choose to ramp up or ramp down between different sites. But it’s very depending on where the tariffs actually land at the end of the day here.

Borje Ekholm: And I think it’s also important to tie back to actually the first question. What is it that gives rise to the tariffs actually, components, and really site material, right? So those are the flows that we need to work on. And we need to create, I call it, a Western ecosystem in this, and that’s going to take some time. But that is what really gives rise to the tariffs.

Daniel Morris: We have time for just 1 more question today, please, if we can move the next question in the queue. So the last question for today is coming from Felix Henriksson from Nordea.

Felix Henriksson: Could you talk a bit about the competitive trends that you’re seeing outside of the U.S.? And related to that, the negative organic growth figures that you delivered outside of the Americas, are these sort of related to broader demand weakness? Or has the competitive environment also gotten tougher?

Borje Ekholm: So if you look outside, I think we already last year said that the competition from Chinese vendors have increased. So that’s really not the change. It’s been the same for several quarters now. So I would say that we have some footprint losses, and we have some footprint gains that’s coming in the numbers. So I wouldn’t say it’s a change, but the market has been slower outside of North America. But really, when you focus on the wins or losses, it’s — we’ll have to see where market shares come. But I don’t see — I see some footprint gains and some footprint losses. So I think they are more or less evening out. But let’s see when the final numbers come from the market.

Daniel Morris: So that concludes the call today. Thanks, everyone, for joining.

Borje Ekholm: Thank you.