Telefonaktiebolaget LM Ericsson (publ) (ERICB) Earnings Call Transcript & Summary

Welcome to the Ericsson business update. [Operator Instructions] Peter Nyquist will now open the call.

Hi all, and welcome to this second call of 2 that we have had in recent weeks. Last week, we had the call from Jan Karlsson, Head of Digital Services, talking about the building blocks to reach profitability. There is a replay to be found on our web, if you want to listen to that again. Today, however, we have our Head of Networks, Fredrik Jejdling, with us, and he is heading up networks. He will talk about the 5G and the RAN market. So the purpose is that we will start with about a 30-minute long presentation. And the rest of the hour, we will spend on answering your questions. And we would appreciate if you keep the questions around more of the strategic topics around networks rather than trying to model out the fourth quarter. So with that, I would like to hand over to you Fred. So please, Fredrik.

Thank you, Peter, and hello, everybody, online and good morning, good afternoon. I'll talk a little bit about largely 3 things today. First of all, wanted to recap a bit on the strategic summary that we presented about a year back in our Capital Markets Day at the time. And it's relevant because those are the building blocks we move forward with as well here as we look out in time here in networks. Then we'll touch upon the RAN market, how we see that and potential upsides to that market. And finally, our ambition and how we intend to compete in that market. So if we move on then to the first slide here. And I just wanted to take us back in a year and talk a little bit about our strategic priorities and takeaways. And from you have part of this a year back, this is on Capital Markets Day. And we talked about, first of all, the most important activities we are conducting to meet our 2022 ambitions. And they are investing in technology and cost leadership. That's our -- the only way we can be relevant to our customers to provide better technology that provides a better performance and cost structure for our customers. That has the added benefit through the investments that we've done in technology, also our gross margin conducive to us. And based upon that gross margin improvement over the years, we then selectively increased our market share based upon that technology advantage and thereby competitiveness that we reach in the market. We also want to help our customer then to take this. As you know, we have a very -- our hardware and software are expandable in that sense, it could be expanded to -- for a very cost-effective expansion leverage in the investments that have been done, whether that is radius for 4G that can be used 5G, and a modular approach to expansion so that the network investments are sustainable over time for our customers. Now for those of you who remember, this is exactly in some other words, what we talked about already back in 2017 as we met the first time presenting a new strategy. And those are activities that will continue to execute upon during this year and next year. Now we also introduced last time, a couple of activities that are relevant for our long-term positioning. And it is linked also to the longevity then of the 5G cycle and our ability then to establish 5G as a connectivity platform for enterprise. We'll talk about that later on. We are in the earlier phase, I would say, of 5G build-out in many countries. And an important component of a well-performing, high-performing 5G network is the densification for mid-band, and that will then form the critical infrastructure, the 5G constitutes. And thirdly, which is important in this geopolitical world as well as in a multi-technology world is that we can lead and orchestrate the standardization and evolution of mobile networks to facilitate scale that has actually driven the adoption of 8 billion subscriptions in the market to date. We also talked not only about our priorities, we also talked about the value creation of R&D that we have been to that point in time, investing in. And here again, we have the shorter-term strategic priorities in the middle here. And we talked at that point in time that we've added about SEK 10 billion in R&D and starting then with an operating income from 2017 of SEK 15 billion By adding SEK 10 billion R&D, we managed to get both the market share growth from 32% to 36%, giving a better top line and improving the percentage margin. So that extra SEK 10 billion resulted in almost doubling of the operating income up until 2020. We also talked about at that point in time about we need to be attentive -- when you're in the middle of an execution, so to speak, and we look at continued market leadership as a focus, we, of course, need to take with us what we've done well. And again, I'll get back to that a bit later on, but there are some product architecture choices we've done. We acquired Kathrein a few years back. and we work with making our services proposition a lot more intelligence driven. Those are items -- those are areas we bring forward with us as we continue execution. But there are, of course, trends in the industry that we need to relate to and be proactive enough to land it to point out in time where we can be competitive over the longer term as well. And those are items like geo supply chain, our ability then to both handle an East West divided supply chain, but added to that came COVID situation and our ability then to mitigate the impact of semiconductor shortage in the market. We need to be able to actively -- proactively drive growth across mid-band and across new segments for 5G. And we need to relate to the openness architectural choices as well as cloud paradigm that is coming to the market. So I'll get back to that later on as well. So the key takeout from the meeting a year back now is that Ericsson is in the lead of the 5G being the fastest-growing mobile generation ever. We will continue for the benefit of our customers and ourselves. And thirdly, we take an orchestrating role in the evolution of mobile networks. Now if we then look at where we are now a year later, and here, I want to again pick up a little bit on 5G as a phenomenon in the market and as a technology or generation of the mobile technology. And again, we see that it's there in print of the world is even increasing. So it's the fastest uptick of any mobile generation. There are a couple of reasons for that. And I would say it's accelerating. And we talked last week about this in our mobility report, where we see already now about 660 million subscription by year-end. But more importantly is that we see a forecasted growth up to 4.4 billion by 2027. And the uptick is linked to a couple of reasons. For those of you who are around 10 years back in 4G, it largely was a pickup in 1 continent in the U.S. and then it's spread, so to speak, across. 5G due to the demands of mobile broadband initially and made the sort of all 3, 4 -- 3 continents, 3 main continents on the slide here, to pick up more or less at the same time with some differences. That combined with above 1,000 5G-ready devices, that made for a quick pickup. And also, we see that the handset cost has decreased quicker on 5G and 4G, meaning that has been a greater pickup. So that's on the market side of 5G. Now we look at what we have done here as a company, again, a year later to Capital Markets Day, we are about 182 live networks globally. And we are pleased to see that we have reached 105 out of those allocated to Ericsson -- awarded to Ericsson, I should say. And we attribute that to the investments that we've done for our customers' competitiveness. And technology leadership in our view, needs to be seen in the eyes of the customer. And when we have the opportunity to end up #1 in their technical commercial rankings, then I think we have an opportunity to claim some technology leadership. And if that is 105 out of 182, that's a good position to be in, in 5G for us. We've also been recognized globally on Gartner and the Frost Radar being a 5G leader, both on innovativeness and ability to execute. And we see also due to some choices we made on the product in terms of large hard back architecture investment in ASICs, application-specific integrated circuits, is that once we swap competitors, we typically deliver -- we do deliver a much better performance. And we see in South Korea post-swap performance being downlink about 68% and uplink plus 163%. And that is linked to better uplink performance of our radio and the radio performance in field. So with that in mind then, how do we see now going forward in -- from where we are in end of 2021 looking ahead. And the rest of the presentation will focus on 2 areas: number one, the market development; number two, our ambition in that market development. And if we look at the graph here, we see the top gray bar showing the global market as defined, the radio access network market as defined by Dell'Oro. We see it with and without China. And if we take without China, and naturally, we look at that, given our latest market share in China, the outside of China becomes more relevant from a market perspective for us to look at. And then we see that we from now on, I have about a CAGR of 3% up until 2025. And our own growth in that has then been again, market share outside China from 2018 as we started talking about the strategy, from 33% up to 39%. And our ambition is that we want to continue outgrowing the market and continue this market share expansion in a slightly grown CAGR for the global market, excluding China. So if we now go in and look at, number one, then the market development here, how do we see that? And this is then -- let me first make the point that -- now this is a bit of a compressed slide from 2010 to up to 2020. We wanted to show the latter end of the cycle here. But it is so that even if you look at the lower forecast, we see a higher peak naturally here of the 5G cycle, but we also see a forecasted extended cycle, and that is because to the next slide here, 5G is to scale in most markets. And we again see then a strong pickup of -- from about 660 million up to 4.4 billion subscribers by end of 2027. And that means we're going for a 25% population coverage up to 75% population coverage by 2027. And there is a massive growth of traffic up by more than 400% in networks also during the same time. So that, to us, represents an extended cycle of investment as shown by Dell'Oro on the previous slide. And we expect that the cycle to be, let's say about 1 year, 1.5 years longer than 4G if we compare the graphs. And again, the height being higher than the 4G level of investments. Now you could always argue forecast, et cetera. And we do see -- when we look at this beyond what was shown on the previous slide, we see certain potential upsides that could, of course, extend the 5G investment cycle. And one of them is being mid-band densification. And we can take a couple of markets where mid-band coverage has come a little bit further and those would be Korea, would be 1 or 2 markets maybe in Europe and China. But the large part of Europe, a large part of U.S. still remain to build mid-band coverage. And the situation is such that in order to deliver the 5G performance in terms of capacity and latency, there is a mid-band coverage expectation or there is a performance expectation that can be delivered to consumers in the industry through a mid-band network. So the key takeaway is that the market will require high-performing, energy-efficient, Massive MIMO radios that are easy to deploy over the next few years. So that is more in the existing mobile broadband area, so to speak. And then there, we believe there are potential upsides also looking at the consumer and enterprise opportunity. And we looked at a couple of parts here because, of course, it's interesting to understand what is the use cases we see beyond the mobile broadband use case. And to start with, we see a significant uptake on fixed wireless access, forecasted revenues of about $57 billion by 2027, and that will probably represent about a 3% growth on top of current levels, attributed then to fixed wireless access. And we think about 20% of the traffic in the networks would be fixed wireless access by 2027. We also see, of course, a lot of immersive media coming along, and that is driven partly by the earlier discussed and mid-band densification coverage that gives -- that gives the opportunity to enjoy VR and gaming, automotive and educational services. And last but not least, then I'll get back to this as well that we see enterprise use cases taking off. And there is a significant potential of $57 billion is from our mobility report related to fixed wireless access, of course, $700 billion is a big potential that we talked about earlier presentations that represent a bigger enterprise opportunity addressable by our customers. So when it comes to consumer and enterprise opportunity here, we still are an early adoption of 5G in consumer and enterprise we see that with a major potential coming. So we go quickly along some of the -- just to break it down on a more regional level, and I want to pick up on a couple of things. First of all, we see, of course, a massive mobile data traffic growth per region that we talked about on the previous slide. But there are a couple of markets that are particularly interesting when it comes to these early discussed buckets around the mid-band enterprise and fixed wireless access. And one of the miss in North America, where we we've previously seen with the exception of one of the CSP there due to the unavailable mid-band spectrum that's now been auctioned out and now being rolled out. We see a big uptick of that coming along here. And it's very important for 5G success in the U.S. and it's a mid-band perfectly suited to deliver the capacity and coverage in the U.S. And we expect U.S. operator to continue to build a good mid-band Massive MIMO network layer. And we see that growth rate shown by -- also by Dell'Oro for 2021 and 2022. So it is we see about 15% growth in 2021 and some growth continued there about 3% continue into 2023 then. So that's the North American market. A big market coming along with the big mid-band deployment. Europe has been a little bit slower. We must say that early on. COVID in thereby also delayed spectrum allocations. I would also say that some European operators had harder time than others to see the business case for building 5G due to some of the regulatory issues in Europe. But we see post COVID a strong activity with accelerating investments across Europe and -- including France, Germany, U.K. and the Nordics. India is also worth mentioning. We got a 3, 4 big players in India, at least 3. And 5G, however, being delayed a little bit. The auction probably happened somewhere in May with deployment towards, let's say, end of the year, mid end of the year. We see a strong uptick as always in the markets, as we can see there, by 414%. And that's, of course, driven by the unavailability -- nonavailability, I would say, of fixed line communication largely, as shown by Jio. So that's a little bit a regional perspective. Now if we then scroll down a little bit and look at if that was the market as such. And again, the extended cycle is linked to 5G is yet to scale. We see upside in mid-band densification in the market, we see a consumer enterprise opportunity with the possibility of extending the cycle. We need to think about what we do there. And as we said many times before, here, we have an ambition to continue to outgrow the market here. And we do that within 4 categories. And it goes back again to the Capital Markets Day and even back to the start of this new strategy a few years back that we'll continue investing in technology leadership for cost and performance. We need to make our customers successful, more successful utilizing our equipment than our competitors. And that is based upon the cost per gigabit per second performance premise, then I get back to some of the portfolio that is offered that to our customers. We, as we said, will continue to work on market share gain based upon the technology and competitiveness, I got to be honest and humble here and say that we have a very sophisticated customer base, and they are very good at choosing the right -- the best technology in the market. And again, that's why it's so important that we are ahead of the curve and invest in technology that make our customers competitive. We have 2 parts here that we spend a little bit more time on today, and that is strength in the global supply chain resilience. And we believe that investing in supply chain, enabling our customers to drive their revenue has become a competitive advantage. And we spent quite a lot of time, both in a geo-divided environment as well as in a constrained component environment to facilitate or generate the ability to supply to our customers during this, call it, pandemic and supply chain shortage crisis. And the last part, which is becoming a very important part for our customers is our ability then to support our customers in their net-zero carbon footprint premise. So if we look then at a little bit historical thing here over the past year, what we have done to strengthen our industry-leading portfolio. And here, I will start with, there are 2 boxes here where we also have a circle, and that is our latest Massive MIMO introduction on the market. And as early as January, we introduced based upon an architecture allowing more processing to happen up in the radio facilitating a 7db performance advantage. And for anyone that has radio planning, that's an enormous advantage in footprint and cell-edge performance throughput performance, allowing for a more cost-efficient build-out. What we also did with this one is that we have a higher level of integration in our ASIC, and the new ASIC allowing ourselves to reduce weight and size down to about 19 kilograms for a Massive MIMO 64 branch radio. A few weeks back, we -- or a few months already now, September, we did a similar thing here as can be seen in the bottom row almost to the right. We launched a similar 32 branch radio, and that weighed in 12 kilograms. And by the introduction of these products, we've taken a firm leadership in the market on the most important segment for building out 5G, which is Massive MIMO. And Here, we continued the integration of the ASIC level, but we also applied a completely different building practice, integrating a lot more functionalities onto 1 board, including radio, antennas, filters, et cetera. And that allowed for weight around 12 kilograms on the market. What fuels this is largely an investment in Ericsson Silicon. And that is our specific circles that we design and build together with partners largely in U.S. This -- we have recruited about, let's say, about 200 people in Austin, Texas, which typically has a lot of these capabilities available. And that has allowed us the choices we made there and the level of integration and the ones we build both in the baseband, up in the radio, has allowed us to drive the technology forward where actually performance matters. The last point I wanted to talk about here is the Cloud RAN. And around -- about a year back, we started talking introducing cloud RAN. About half a year back, we introduced Cloud RAN for the mid-band, including accelerate, including being able to meet quite high demand in mid-band use cases. Now this is a very important addition to our portfolio as it facilitates a more flexible deployment of compute in the network. It can be deployed on any service structure, any public or private cloud. And we believe this flexibility and scalability of this solution will allow us to work practically in the macro network with our customers, but also utilizes a way also to provide 5G into enterprises as was 1 of our longer-term promises as we spoke about in Capital Markets Day last time. So I just wanted to reflect on those portfolio items that we've delivered over the last year. And we remain very focused on continuing that development again, because having the best, most cost in technology for the customers and for us is what we want to continue working on, as we've been doing over the past 4 years strategically. Now I wanted to take a quick check also on the enterprise business. Again, when we introduced the acquisition of Vonage, we talked about our company strategy. And what I've essentially talked about is the top right and top left-hand part here about the extending leadership in mobile networks. That's the base. That's our -- the core of our business. And again, the strategy is again repeated here. But what is important for us is the company is expansion into enterprise. So why is that important for networks then? Well, for a couple of reasons. First of all, if we look at enterprise wireless networks, the solutions we look at there when it comes to dedicated networks, i.e., private networks and mission-critical mobile networks, there's a full reutilization in there of the products that we developed for the macro network, i.e., for the mobile networks on the top of the slide. What is also very important is when you start getting a network platform like the Vonage acquisition that we did, it offers exposure to networks, northbound, i.e., creating APIs that connect enterprises and consumers for that matter, but largely enterprises then to the 5G networks. And that is critical for us because 5G will develop network features and functionalities that are different to those of 4G. And our ability then to utilize advantage to bring those capabilities up, whether that's slicing or whatever it might be, up to enterprises in a way that allows both the CSPs and our sales to capital on that more relative to the 4G generation, that's an important part of the Vonage acquisition. What that also does is both enterprise wireless networks as well as global network platform does is that it actually, over time, also increases the need for investment in the mobile network as such. We have to drink our own Kool-Aid, of course. And when it comes to putting in 5G and enterprises, we -- as you might know -- now we have a factory in -- a smart factory in the U.S. up and running. And we, of course, connected that factory to 5G. And through Industry 4.0 applications, we have around 25 use cases that we applied in the factory. We've seen a tremendous amount of improvement in the productivity and output per employee, even up to 2.2 -- factor 2.2. We see also a reduction in material handling and both energy consumption and the most important thing here from a sustainability perspective is that is 100% renewable energy. And some of the use cases that we're looking at here is 5G-connected automated guided vehicles. We train our people through 5G remotely. But more predominantly, we have the ability to bring up the productivity in the production chain by actually lifting up some network functionalities and local cloud is supposed to have it distributed out in the whole environment, allowing them for a better flexibility. So 2 more points before we get into Q&A. I mentioned before that we -- business continuity has become a key priority in line of 2 recent sort of externalities. One of them is being the geo supply in the sense that the we saw fairly early on when [indiscernible] was actually entity listed about 3 years back in the -- to [ Huawei ]. We were concerned about repercussions and we needed to build integrity into an Eastern and Western supply chain. So we made significant investments in electronics to be able to supply that outside of the -- to be straightforward, the China ecosystem, to create redundancy and being able to supply from a geo-divide perspective disregarding of what would happen. Then what we saw then was the pandemic coming along. It's almost 2 years by now. And then we recognize that we probably need to practically work on 2 things: design and redesign of radios, and we probably need to think about buffering or stocking up components so that we can allow ourselves to a time for that redesign because there's a lead time to that. So that was a large action within -- related to COVID. Then early last year, we fairly early on saw that the semiconductor supply was not in line with the demand on the market. And we quite early worked proactively with our semiconductor partners to try or to secure supply, although the demand over -- was higher than the supply. So we worked a lot on booking wafers, booking capacities, reserving capacities to make sure that we're resilient in even the critical semiconductor chain. Now -- all in all, we see that we have been performing quite well in this area. There were some issues, as we said in the Q3 report regarding some components coming late into the quarter. We have to continue, control and work on this situation and handle the situation. And we're working very hard with both our customers and the supply chain to make sure that we meet our customers' demand. The last part I want to mention, trying to keep to the 30-minute schedule here. It's around sustainability. And sustainability is important. Of course, needless to say, we get a lot of demand on our customers for this type of -- for sustainable solutions. But it's also fair to say that if we want to impact society, there's probably a few businesses that can have that level of opportunity to do so. As an industry, the telecom sector, ICT sector utilized as a carbon footprint of about 1.5%, but we can impact to the bottom right-hand side of the slide, about 15% in other sector emissions, it being travel, industry and so forth and so on. So the impact of what we do as a significant part of other industries, of course. Now we have an internal ambition here to be net zero, as we can see on the -- on our own activities here by 2030. But it all honestly, that's a very small part, single-digit percent of what we actually generated as a carbon footprint. And what is more important for us to focus on is the supply chain and portfolio. And what we actually put out on the site, on ground, that is -- that represents about 80% of Ericsson's footprint, more, a little bit more than 80%, around 15% to 20% relates to the supply chain in terms of carbon footprint. That means that our focus is about making sure that our supply chain that we put to the correct requirement in terms of our customers' commitment to the Paris Agreement -- sorry, our suppliers commitment to the Paris Agreement so that we can recommit that back to our customers. The choices of material we do in the supply chain, the way we build carbon-neutral factories like Lewisville, et cetera, we are structurally walking through in a very robust way, the way we structured the supply chain for decreasing in half the emissions by 2030. The last part, which is very important, which we are partnering with our customers on is to see that the -- what we actually put out there in terms of hardware and software needs to be able to have emissions by 2030. And again, this is where about 80% of Ericsson footprint -- carbon footprint gets generated. Here, we -- our latest evolution in Massive MIMO, and let's say about 25%, 30% energy efficiency generation over generation as well as some of our software development features are our ability to design for sustainability, both on hardware and software, will determine our ability then to ultimately break the energy curve and making the 4G or the 5G network absolutely lesser footprint than the 4G networks. So this is a very important work for us, both from the perspective of society and the way we can contribute as an industry as Ericsson as a company. So just to round off, key takeaways in a way are quite similar to where we were a year back, but the strategy we introduced 2017, updated last year, updated today, remains, and we are on track of execution wise towards our ambitions. We are established now in a market-leading position with the best-in-class portfolio. But it's also important for us that we stay focused, humbled and grateful, of course, with the opportunities been offering from our customers and the awards. But it's equally as important as we look forward, taking the externalities in play and the continued investment level to stay ahead with our customers, enabling a better -- again, more gross margin conducive, positive conducive portfolio and capitalize on the 5G opportunity, also in fixed wireless access and enterprises beyond the mobile broadband case. So with that, I hand back to Peter for some questions.

Thank you, Fredrik. So we are now ready for questions. So Simon, can you open up the queue?

[Operator Instructions] Our first question comes from Daniel Djurberg with Handelsbanken.

Yes, can you hear me?

We hear you perfectly.

That's great. Thank you so much for this opportunity. And thank you, Fredrik, for the interesting update. I think I will start on the semiconductor shortage impact. Thank you for the update there. And so far, impacting Q3 negative and we shouldn't talk too much about Q3, I guess. But any lesson learned in terms of have you seen mainly deferrals rather than cancellations. And if you could say anything on the operational impact on the semiconductor shortage.

First of all, I think we've been proactive in trying to work through, as I said already, from beginning of last year. And we are already now booking up, let's call it, both capacities on the semiconductor side, but we need also to ensure that the lanes, actually, the distribution lanes are also made available for us. So we also make investments in that to facilitate the whole chain because we need to eliminate the weakest link. It -- the Q3 issue is -- was a result of a fragile complete total chain that shows vulnerabilities. We try to eliminate those by being proactive. And I think when we look at Q3, we continue to control and handle that situation. How it will impact next quarter? It's hard to predict, but we continue to make the proactive measures and workloads to our customers and suppliers. And we want to make sure we can meet our customers' demand for this year and the next year as well, of course.

I guess it's 1 question each, sir.

Well, you can -- if you have another question, [indiscernible]

On the Federal Aviation Agency impact on the C-band deployment. Is it -- we learned about 30 days delays or something? Is that impacting your business as well? Or is it more for the operators. -- that will see a delay of taking down the power close to the airports?

No. I mean we see that we are able to manage that situation for us. And we don't expect to see it further delayed. There is a strong support from the administration to get 5G out in the market. And the industry, including ourselves, we work with FAA and FCC to resolve the matter. And this also saw that operation entered into agreement with FCC to modify some of the deployment guidelines around airports until June 2022. And we believe this will allow the deployments to continue without any delays.

We have next question from Frank Maaø.

So my question is relating, Fredrik, to the Ericsson Silicon, and also your ambitions for market share gains and ability to do that through this in a competitive context. And also based on the fact that your biggest competitors no longer have access to the most leading-edge silicon from [indiscernible], TSMC and so on. And haven't really had that for over a year, as far as I have heard of these . So not everyone has access to the same production facilities. And you also mentioned that your customers are very smart with regards to recognizing the best technology and best technology road maps when they now make their choices for the 5G era. And can you speak to how attentive you feel that customers are really in your dialogues with them with regards to the importance of having access to the best leading-edge foundry technology? And if you're sensing any lack of this will really lead CSP to potentially make voluntary swaps for that matter in order to have high performance and energy-efficient mid-band performance for the next few years?

The AC component is -- defines largely the way we can build cost-effective, energy-efficient radios and basebands and the level of integration there facilities that. So, again, the way the customers choose us is typically on a TCO basis and the more -- the higher level of integration and move forward leaning, you are in that -- the better till you come out in those rankings. So I would say that as an output of focusing on differentiating our products for cost of performance, that has given us an advantage in techno-commercial evaluation with our customers. And I would think that together with, of course, overall good customer relationships, and that has given us the opportunity to take this market from 33% up to 39%. So it's a very important component of competitiveness. There are other factors in there as well, of course, but it's an important part. And again, this business has changed quite significantly when it comes to differentiation and the ability to differentiate. It's only 10 years back, you had a 2T2R radio, maybe 1 TDD/FDD, and the premise was to deliver upon cost reductions on that over time. Now it's far more around facilitating a cost per gigabit are production cost for a customer that is far more attractive, and that is driven largely by these type of investments. So I would say that concretely, that has allowed us to take a leading position. And I would also conversely say making wrong decisions in this area is also quite costly for the performance because then you have to work with programmable devices in the radios, which typically doesn't give the same performance, neither in coverage or cost. So I can't really comment on that. But I can say generally that if you have a lack of accessibility to leading-edge nodal density, then you have to work a lot more with software investment to try to compensate that. But when I say compared to competitors, on ground in the market today, we see a performance advantage on the mid-band radio driven by this. So I don't know if that answers your question, Frank?

Yes. I think that answers as far as I guess. But for me, as a very short follow-up here, can you comment about when you expect your ASIC to transition to 5-nanometer process node technology?

We don't really comment on that, but I can say it's in the pipeline.

We have the next question, Simon Leopold at Raymond James.

Thanks for doing this call. Hopefully, I can sneak 2 in. The first 1 I wanted to ask was, what's your take on the group of European operators urging for government support for Open RAN, what are the implications, if any, for Ericsson?

No. Look, I mean we work very closely with all our operators, European operators and global operators. And I think in the case of Europe, there is a question of vendor diversity that they are looking at, and there's a case for innovation. And of course, we work very much with our customers on hope and run solutions such as Cloud RAN and automation on top of that with SMO platform, et cetera. So look, the -- when it comes to the future then, if we look at architectures and structures over time, we work together with our customers and partners over to harmonize and make sure that we can keep these architectures and stand is -- global over time to facilitate the scale in the industry. And then we work closely with all our European and global operators to facilitate that over time. It's likely that those type of interfaces become more open over time. And that's something what we support. We've got to remember that -- as a leader in the telecoms, we have to continue to innovate and be responding to what our customers want. And at this stage, 5G is defined by the products that are here at the market right now that are [ efficient ], secure and work on opening interoperability standards. And we are very much working together with our European customers as well to define the environment which we compete in over the future.

Yes, please. Yes. I'm trying to gain a better understanding of how Ericsson's business would trend when operators move to densification for mid-band. And specifically, what I'm pondering is that a large proportion of the operator spending will go to capitalized labor and installation during that densification phase and therefore, a lower proportion of spending is available for radios. Does this mean that we have to see operators spend more money overall for Ericsson to grow during the densification phase?

I think -- And I'm not sure I quite got the question, but we -- largely, what is -- if you densify network, you would largely reuse the existing site infrastructure or you would utilize -- yes, the installed grid typically look in a city, we have a site-to-site distance of, say, 300, 400 meters an example. So you can largely reutilize those type of deployment scenarios. What we try to do here is combine them with the product, we try to make it as cost efficient as possible in the service layer or in the service as such to get it up and mounted on the site. And that's why we think it's important to build radios that have to weigh 12 kilos because they make the deployment, installation integration so much simple and easier. So of course, the way we design and build our product should allow for lesser spend on the concrete and cement, call it steel and allow for more money to be spent on actual 5G capacity on the mid-band.

Next question is from Peter Nielsen at ABG.

A question related to your initial comments on competitiveness and market share gains that we guess to date has mainly been based on non-standalone 5G. My question relates to how confident and supportive you feel that you can maintain that. We had a very positive presentation by Jan Karlsson last week, as you know. -- outlining the excellent lead in 5G core. How important is that for you to maintain technology leadership and further market share gains. How is the digital services in this respect, i.e., what are the synergies here?

Yes. No, look, I think the -- you're right. First of all, that the initial deployments have been around NSA and now coming in with the core SA portfolio, dual-mode core, that Jan is driving, that has the impact, of course, that the networks get utilized more for what they were built for, which is the full enterprise use case, connecting things with things and things with people. So that's, of course, an important aspect. But I would also like to say that our ability to continue to invest in the network segment and continue to be a leader there. And as I said in the beginning, maintaining the competitiveness for our customers through investment is fundamental to keep and increasing, as I said, our market share, we are -- ambition to increase market share subsequently also from the 39% we have today. And then continued investment to stay ahead is fundamental for us. But there is, of course, an element that when you build a 5G dual-mode core combined with an Ericsson 5G networks, you also have the opportunity as a customer to explore the full 5G opportunity, which in itself is an important catalyst for further investment because it realizes some of the enterprise use cases that we're looking at.

We will move to Aleksander Peterc at Societe Generale.

Thank you for the presentation. Very interesting to go with. I just have 1 question regarding the growth you're plotting. Basically, if I look at the growth projection for the market ex China, it looks to me pretty much flat from '22 to '25. So maybe just help us understand how you will continue to grow your business over this period, how much is going to come from further market share gains? Have you achieved most of your geopolitics related market share gains now at 39%? Or do you think you can go further still? And how much will be the contribution of enterprise businesses and the contribution of M&A in your growth projections over the next 3 years, let's say?

I tried to take note of all the questions. I hope I can summarize reasonable. You're probably right that if we pull the line from 2020 in our graph there, and that gives us a 3% CAGR from that point in time. And if you grow it from 2022, it might be a flattish development. Now that's still a cycle that is extended and peaking higher than the 4G, if we start at that point. And we believe that there are upsides, as we said. So we believe that we could grow on account of 2 reasons, underlying reasons. Number 1 is that we look at the mid-band densification as well as the enterprise and fixed wireless access. Those were the 2 -- the 3 areas we presented that we believe that the overall market could extend both in peak and extension in the back end. So that's number one. And that would drive a different an upside to the Dell'Oro case that we showed earlier on the first slide. Now our own competitiveness. And again, this goes back to our own ability then because as I said, also in that market that we defined a 3% CAGR from 2020 to '25, in that our own ability to compete, that lies in our own investments and for competitiveness in the market. And again, that fits back into the stronger Massive MIMO portfolio. We believe that Massive MIMO is still going to be the major contributor in the 5G development. So our ability then to continue the technology leadership for our customers' benefit and make the right choices. Because, again, our customers are very good at selecting the partners that make sense for them. So we hope we're able to continue meeting their requirements. That's 1 part. Then I think it's very hard to say exactly what proportion out of the 5G growth is going to be enterprise, et cetera. It's still in the early stages. But when we look at what we can do in our own factory, when we look at the conversations with our customers, we believe there is an opportunity to bring 5G into enterprise to make it as ubiquitous connectivity platform.

Okay. Can I have just a quick follow-up, please? Just to come back a little bit on the chipset and leading-edge technology that is required. So you mentioned earlier that some vendors can compensate for the lack of leading-edge technology with more software implementation. But I guess at some point, that runs its course and you can no longer compensate with software, and you really need those leading-edge chips. So do you think at some point in time, competitors that don't have the right technology will just be unable to implement the latest advances and therefore, will be disqualified? Is that likely to happen at some point?

It's very hard to say, to be honest. What we need to focus on is to make the best out of where the people have access to, we need to compete, assuming that everybody has access to the same talent, to the same technology, to the same leading-edge chipsets. And -- so I'm less concerned in a way where their competitors have it or not. What we need to focus on is to make the best of the leading-edge technology we have at hand because if we get -- if we win business only for some on being blocked for certain devices or certain capabilities in the market, that could very quickly -- that is a very loose competitive premise. So I'd rather see it that assuming everybody has the same access to technologies, we should still be the naturally selected supplier in that sense. But it is, of course -- and these things can change very quickly. And there are, of course, alternative foundries that are building up capabilities over time, bringing down the competitiveness or providing that type of competitors also in alternative foundries. But there is, of course, a hardware, software interplay that gets benefited by having leading-edge technologies on both hardware and software.

We'll go to the next question from Sandeep Deshpande at JPMorgan.

There's a lot of discussion today about the mid-band, essentially capacity -- sorry, coverage as well as a capacity build. I mean, some of your customers, particularly in North America, still talk about high-band. And can you talk about what you are doing there and whether this is the focus or this is now with mid-band becoming available across the world, the focus on the high band is less? But of course, I mean, one of the issues there is that 256 Massive MIMO maybe -- could be very well utilized in the high-band frequency. So maybe you can talk about what's happening there? And then I have 1 quick follow-up.

No, we -- it's clearly so that the focus now, I mean, you're right, the U.S. market due to availability of mid-band largely built on ESS partly, i.e., utilizing 5G low band -- or sorry, low-band established low-band with 5G ESS and complemented that with high-band. So C-band is a focus right now. But we believe that millimeter will continue to play a key role. And that is when you want to get a multi-gigabit speeds at the extreme capacity in certain conditions, in certain hospitals, et cetera, you want to utilize all the 3 layers in the network, the low band for coverage, the mid-band and the high band for capacity. And we all know there's a similarly unsaturated demand in the mobile broadband case. But when we get into high-performing enterprise use cases, you need to have dedicated facilities with very low latency and high performance, high throughput type of use cases. So in short, we believe that there is a very strong case for -- and that millimeter wave, we continue playing a key role. And we see our U.S. customers continue investing in that.

Understood. And then my follow-up quick question is on this regional exposure. I mean because of the geopolitical tensions, one of the players is losing share in various markets. I mean we are not yet fully seeing that in your numbers. So I mean, when you talk about this 2% growth or 1% growth from '22 to '25, I mean, theoretically, at least, I mean, if there is going to be share shifts, we will be seeing that over the 3 years, correct?

No, we see -- I mean, if you look historically, we've done them from up to a 39% market share from about 33% a few years back. And we want to continue with that type of evolution, as we said before, that's an ambition. And we believe we have grown in the major markets based upon our own analysis on Dell'Oro. We have seen a strong growth in North America, we see strong growth of market share also in Europe and in certain other markets. So we see a stronger market share growth in the market, and we see that on the totality in certain markets like North America and Europe.

We will move to the last question of this session. And that's from Sébastien Sztabowicz from Kepler Cheuvreux.

One on margin on networks. What do you feel the margin on networks trending moving into 2022. Where do you see some potential upside to your margin and some downward pressures in the coming quarters? And looking at the open-end market, your Nordic competitors has been quite ambitious there and seem to be quite processing well. How do you see the open-end market evolving in the next few years? And how do you plan to protect your incumbent position on the radio access network market going forward?

On the first point, it's important not to look too much at quarter-by-quarter evolution of the gross margin because it's sensitive to -- for quarterly deviations. So if we look at rolling gross margin, we have around 45%. And I would say that's a relevant range or relevant point to look at, possibly some long-term upsides in there, but we want to make sure that we keep room for, call it, our R&D investments and other things we need to do in the market to stay relevant or deals we need to take. So take that as a good guidance. Ultimately, we target the range we've discussed before, which is about 16%, 18% for networks. And again, that may not be a ceiling for us, but we want to make sure we have strategic flexibility around numbers and to do what we believe is right for the long-term strategic positioning for us. Then we look at Open RAN. I think, look, it is, I think we're looking at somewhere between 10% and 15% up by 2025. I think the lowest by 13% total open-RAN market by that time. We are actually participating in this with our cloud RAN solution with our SMO solutions. So -- and on top of that, as I mentioned before, we're actively working towards harmonizing and standardizing interfaces over the medium, long term to make sure that we drive the industry into a position where it can be competitive, both for our customers and ultimately us, and that we are actively participating in several standard phase in force with the ones available, whether that's -- or an alliance or 3G people, whatever it might be. We will ensure that we drive the industry in a position where we believe that we can retain the scale and over time create a standardized environment as well.

Great. Thanks, Sebastian, and thanks, Fredrik, for all these answers, and thank you all for good questions. So with that, I would like to close this call and this -- there will be a replay of this available at our website as soon as possible. So thank you all, and see you around January when we will present our Q4 numbers. Thank you.