Telefonaktiebolaget LM Ericsson Building Blocks for Digital Services to Reach Profitability Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Frank Maa° - DNB Markets, Research Division - Analyst : My first question is relating to actually the part that you mentioned about CI/CD and gaining the bridge on R&D using that cognitive capability as a way to gain gross margins and operating leverage in the business over time. To deploy -- so far, from what I've heard from some industry contacts is really that customers in the CSP space typically are quite conservative, right? And you also mentioned that increasingly, we have seen some -- more and more customers buying into the concept of CI/CD and the whole product being delivered more as a Software-as-a-Service offering perhaps, where you can actually gain leverage on economies of scale through centralized way of delivering things. Would you say that, that is still challenging, especially with the Tier 1 customers that you were referring to? So would that be more easier to get acceptance from the more mainstream and smaller operators? And how do you -- would you manage customization requirements from customers and so on and really in practice gain that leverage? Jan Karlsson - Telefonaktiebolaget LM Ericsson (publ) - Senior VP, Head of Business Area Digital Services & Head of Segment Digital Services Yes. No, great. Thanks for the question. So the -- you would not believe when we spoke about CI/CD 3, 4 years ago, the level of the awareness and interest and confirmed plans to go down that route was not very high. But today, it is very much the case. It's a requirement for many operators. And then the -- how to say, the competence and the capability to actually go down the CI/CD route varies operator-by-operator. But I would say to answer your question that we have some of the biggest Tier 1 CSPs in the world, who are one of the most demanding actually with regards to CI/CD. But you also see some of the more smaller Tier 3 -- Tier 2, Tier 3 operators who are also very involved. So it depends. It's not so much the size, actually. It's more within the CSP, the competence, the maturity, the level of investment, the level of preparation that they have done in order to go down this path. And so it's not I can't go to a country and say, here, they will be more conservative. It's really defined by that particular CSP, how they work. But over time, like we say in one of the final slides, we see that everybody will go down this route. It is absolutely fundamental. It's an opportunity and it's a way also to improve quality and to reduce costs. So we -- I don't know if that answers your question, but it's -- that's how we see it basically. And we are so totally committed to go down this path. This is one of the opportunities we have with the new technology to be much more agile compared to how we've been operating in the past. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2021 / 2:00PM, ERICb.ST - Telefonaktiebolaget LM Ericsson Building Blocks for Digital Services to Reach Profitability Call Maybe another comment on this is from a security point of view as well. It's extremely important to have this -- to ensure a higher degree of software freshness, it is also fundamental to implement CI/CD. Thanks for the question.

Question: Frank Maa° - DNB Markets, Research Division - Analyst : Yes. I would have a couple of other questions as well, but we can have them later if we have room for that perhaps.

Question: Frank Maa° - DNB Markets, Research Division - Analyst : Just an additional question, if I may, then on a couple of competitive developments over the last week or actually announcement. So we've seen -- you mentioned, first, Japan, that you've increased the market share in Japan. And last year, you announced this 5G dual core contract with KDDI. But this week, also Nokia had a quite comprehensive announcement of various set of software -- add-on software in addition to a number of [VMS] there. So to what extent are you stealing with a significant share in KDDD (sic) [KDDI?] That's my first question. And the second question on the competitive front is really with regards to what was the reference to private networks that you mentioned as kind of the third layer of growth going forward. And we saw AWS now launching an offer in private 5G this week, potentially with -- using some small competitors of yours and so on and pre-integrate them, a lot of third-party stuff and distribute that. But how do you -- do you see that? Perhaps you're a bit overengineered with that kind of telco CSP type of full-stack product in the private 5G space. But rather, you can see some data on the simpler solutions being pre-integrated and distributed by webscalers like AWS or Microsoft in the future for at least a big part of the private 5G market. Jan Karlsson - Telefonaktiebolaget LM Ericsson (publ) - Senior VP, Head of Business Area Digital Services & Head of Segment Digital Services It's a super good question again as well. If I start with the first one, typically when -- especially a large Tier 1 CSP like KDDI, they typically, and you saw that in the example that I shared on the slide, you didn't see 30 functions. We saw -- I think there was 14 from us, which has been really good. But typically, a Tier 1 says, "Okay, I'm going to use somebody for policy. I'm going to use somebody for charging. I'm going to use somebody for user plane and maybe the same vendor for control plane in 5G Core. And that's in fact what happened in KDDI. So KDDI picked us for 5G Core with many function. And what you could see in that press release was that Nokia had been picked for policy and for charging and for UDM, I think. Those were the main areas where KDDI selected Nokia. So this is -- I would say the norm is that you find that the CSP actually divides that, let's say, whole cake, not just [packet core by sphere] but the different surrounding functions across the different vendors. This is just how it is. 3GPP, it's the beauty here of being able to mix and match. I would say in the KDDI case, now that we are super comfortable with the market share that we won and are in our best here to fulfill on our commitment. On the second question, with AWS launch a few days ago in the private network area, I think, first of all, competition is good. It's great to see the innovation here that they can bring to the market. We have a very competitive private network solution. The latest product or version is called [EP 5G.] And what we've done there, (inaudible) big, big massive core that works with very high capacities. We've scaled it down. We've industrialized across radio and core and management, something that we think is very competitive from a commercial point of view, very competitive from a life cycle managed deployment and life cycle management point of view. So we're really holding our own. And I think that's one of the benefits of our offering, is that it's tightly integrated. You don't have to go in, "Okay, I'm the system integrator and I have to take on all kinds of integration pains." Now what we have is something that is really pre-integrated. And also, maybe why are we able to do that? Because we're capitalizing on the cloud nativeness of our software. So it can scale up to very, very large volumes, and it can scale down to very low volume. So let's see now how successful we are with our offering going forward. But to me, in general, I think it's just great to see the innovation that the hyperscalers can bring to the table. Great question. Thank you.