Ericsson (ERIC) Q3 FY25 earnings call: guidance and Q&A

Given consistent gross margins despite dynamic regional mix, how should investors view the sustainability of margins, and what specific cost-cutting/product cost improvements have reduced regional dependency?

Management explained that structural improvements in the supply chain and service delivery, along with leveraging automation, have reduced geographic mix dependency. While product mix (software vs. hardware) still influences margins, underlying operational efficiencies are driving sustainable profitability.

“The other is on service delivery, where we have improved the way we operate internally by structurally taking out costs. All of these improvements we've done. In a way, actually, it takes out a bit of the mix dependency.”

asked by Andrew Gardiner · answered by Borje Ekholm

Is Edge AI already a discussion point with operators, or is it a future trend for network investments?

Börje Ekholm stated that while current AI investments are data-center centric, the market is moving towards latency-sensitive inference at the edge. This will drive demand for new network capabilities, though it's a trend for the coming years, not next quarter, with devices like AI glasses accelerating it.

“We see the market increasingly moving towards inference. And that, I would say, is going to be much more latency sensitive. And therefore, it will start to move out towards the edge.”

asked by Erik Lindholm-Rojestal · answered by Borje Ekholm

Will the acceleration in Cloud Software and Services, driven by 5G Core deployments, continue into Q4 and 2026, potentially improving mix and gross margins?

Lars Sandstrom confirmed good development in 5G Core, contributing to CSS growth, and expects continued positive development. Börje Ekholm emphasized that operators need to migrate to 5G SA for full 5G capabilities and monetization, which benefits Ericsson's leading 5G Core position and will drive future business.

“The one thing which is important is, of course, that the operators need to migrate to 5G stand-alone, and that is something that's going to be required in order to deliver the capabilities of 5G.”

asked by Sébastien Sztabowicz · answered by Borje Ekholm

What does 'recurring cash flow' mean, and is it due to a better cost base or less volatility?

Börje Ekholm explained that it stems from an improved cost base, a shift towards more software and advanced services in sales models, and active work to reduce volatility in project business terms and conditions. These changes collectively enhance the stability of cash flow generation.

“When you put all of that together, we feel more comfortable about the stability of our cash flow generation going forward. And therefore, we start to talk about the recurring underlying ability to generate cash flow, but it comes out of a couple of changes to cost structure and business model.”

asked by Andreas Joelsson · answered by Borje Ekholm

Can management provide an update on the expected evolution of OpEx for next quarter and longer term?

Lars Sandstrom noted a normal seasonal uptick from Q3 to Q4. For the longer term, with a flat RAN market, continuous cost-cutting will be necessary to offset inflation and salary increases, continuing the trend of headcount reduction (6,000 less year-over-year).

“And when it comes going forward, as we talk about, we live in a flat RAN market, that is our, so to say, planning assumption, and that means that we need to continuously fight with inflation coming through, including salary increases.”

asked by Jakob Bluestone · answered by Lars Sandstrom

Given the material cut in R&D spending, what measures are in place to ensure the company is not underinvesting and risking future competitiveness?

Lars Sandstrom clarified that FX impacts R&D figures. Börje Ekholm added that R&D was focused by exiting non-competitive areas and rebalancing resources due to geopolitical shifts, which removed duplication. He emphasized that technology leadership is not jeopardized, and R&D scaling is benchmarked against competitors.

“So our ambition is clearly to benchmark ourselves there. So it's going to be their ambitions that drive our scaling of R&D. That's been the case for the last several years, at least during my tenure, and it will continue to be the case going forward. So we are not going to jeopardize technology leadership.”

asked by Ulrich Rathe · answered by Borje Ekholm

What defines a 'solid net cash position', and will the accumulated SEK 52 billion be deployed for M&A given past experiences?

Lars Sandstrom stated that a solid net cash position is foundational for maintaining R&D, technology leadership, and customer trust, and for handling market volatilities. Excess cash will be managed via extra dividends and/or buybacks, with a proposal for the AGM. The M&A strategy remains focused on bolt-on acquisitions, with no major changes.

“And when it comes to your question around M&A as well, that has also not changed. We see -- we have the product portfolio we need to a large extent. There could be some bolt-on acquisitions coming to -- into the product portfolio when it comes to geographical spread, but no major ones. So that is also unchanged.”

asked by Richard Kramer · answered by Lars Sandstrom