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Ericsson's (ERIC) CEO Hans Vestberg on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Conference Call

April 21, 2016 08:00 AM ET

Executives

Peter Nyquist - VP of IR

Hans Vestberg - President and CEO

Jan Frykhammar - CFO

Analysts

Alex Duval - Goldman Sachs

Sandeep Deshpande - JPMorgan

Richard Kramer - Arete Research

Edward Snyder - Charter Equity Research

Simon Leopold - Raymond James

Francois Meunier - Morgan Stanley

Garrett Jenkins - UBS

Kai Korschelt - Bank of America Merrill Lynch

Operator

Welcome to the Ericsson's analyst and media conference call for the first quarter's reports. To view visual aids for this call, please log onto www.ericsson.com/press or www.ericsson.com/investors. [Operator Instructions] As a reminder, replay will be available one hour after today's conference call. Peter Nyquist will now open the call.

Peter Nyquist

Okay. Thank you, operator, and hello, and welcome to this Q1 call. With me here today, I have our CEO and President, Hans Vestberg, our Chief Financial Officers, Jan Frykhammar, and our Head of Marketing and Communication, Helena Norrman.

During the call today, we will make forward-looking statements. These statements are based on our current expectations and certain planning assumptions. They are all subject to risks and uncertainties. The actual result may differ material 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.

With that said, I would like to hand it over to Mr. Hans Vestberg for the first part.

Hans Vestberg

Thank you, Peter. Okay. So let's take a quick look at the key developments in the quarter. We can only say that the momentum and the discussion on 5G, IoT and cloud from Barcelona has continued. It's the main topics of our discussions. The other is, of course, the digital transformation of our customers. Everything from preparing the virtualization for 5G, or preparing the OSS, BSS for a more customer centric way of working. That's clearly where we see our customer moving, and they are moving pretty fast. They are arising both opportunities and challenges. We're seeing the same markets having a weak macroeconomic environment this quarter. It's just that they haven't been in there for quite a while right now.

And both the currency fluctuations and the macroeconomic environment in these countries, of course, after awhile it becomes hard for our customers to invest, and where are markets like Brazil, Russia, Portugal, Middle East where we have now had this challenge for quite a while. And that remains, even though they are going from 3G to 4G demand in these markets, it is a more challenging environment there. We have less coverage product in Europe. One of the larger operators Europe have finished the big rollout of 4G.

So that, of course has coming to a halt. And you can see it in from our figures as well, that we have a decline in our European business. If you look at our sales, we continue with the same statement we had in three the third quarter and in the fourth quarter, that North America, our normal broadband is having a stable business for us. We had the good progress on IPRs in the quarter. We had a little bit mix in our gross margin, where we had a challenging quarter for global services, both from a network rollout point of view, but also the professional services point of view. And it happens from time-to-time, that we will have some challenges in services.

But we will also have a measurement that comes in quite quickly, and on the network rollout, where we need to adjust our service delivery resources, that we already started within the end of the quarter, and we will continue to pursue that in the second quarter. And then, some markets have certain labor rules and contractual agreements that it takes long a little bit longer. But here, we can adjust pretty quickly on the over capacity that we will had on network rollouts. The overall program, the SEK9 billion is tracking. It's coming in steps, but it's tracking, and we continue to execute on that, and that should be finished done in 2017, and that we still believe we can and should do.