Hello and welcome to the Ericsson’s Analyst and Media Conference Call for the Fourth Quarter Report. To view visual aids for this call, please log on to www.ericsson.com/press or www.ericsson.com/investors. Peter Nyquist, please now begin your call.

Thank you, operator and hello everyone. And welcome to this Q4 call. With me today, I have our CEO, Hans Vestberg; our CFO, Jan Frykhammar; our Head of Global Services, Magnus Mandersson; and our Head of Marketing and Communications, Helena Norrman. During the call today, we will be making forward-looking statements. These statements are based on our current expectation 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 as well as 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 those words, I would like to hand it over to you, Hans, please.

Thank you, Peter. Let me just make a brief overview of the market development in 2015 and trying to highlight a couple of things that I think have been very important for 2015. I think first of all the strong focus on 5G and Internet of Things was -- 2015 was really the year of that. We saw more and more operators in industry for us focusing on 5G and of course which drives also the whole Internet of Things. Secondly, we saw also big drive in the year of 2015 from -- transition from 3G to 4G. We almost hit the I guess 1 billion subscriptions on 4G but still quite a lot of 3G subscribers are going to be turned into 4G but clearly emerging market [audio gap] customers that are in mature 4G markets. Transformation means virtualization, IT transformation, to be able to work straight [ph] the future of the networks, which also is a clear market development during 2015. Finally, we also saw a year with various -- many currency movements and big currency movements, both on the positive side and negative side. We also saw weaker macroeconomics in parts of the world impacting customer investments, I think that and I will comeback o some of it later on. If you take a stab on Ericsson and see the key developments and without no particular priority, of course we think we have done great job with our IPRs, we that we disclosed for the first time in 2011; we signed some really important IPR agreements in 2015, Apple of course being one of them and then we announced in 2016 also that we have Huawei. That means that we have basically signed up all major handset manufacturers and infrastructure manufacturers in the industry and have a…

Yes. Hello everyone. Let me then talk a little bit about some other aspects of the P&L and balance sheet. We start with the IPR and licensing business, Hans has mentioned a lot already. But I think if you look historically then on the performance of this business, we have tripled revenue from the licensing program during the last five years. So that’s a very good monetization of the research and development that we invest in. We have obviously signed a contract with Apple, initial payment, ongoing royalties, so we can conclude that we have now cross license agreement as Hans said with all major handset and infrastructure suppliers. And if you remember the presentation at the Capital Market Day in November last year, we talked about the IPR and licensing strategy being first and foremost of course to secure that we have a good penetration of agreements in the telecom space and then expand the portfolio to other industries as Internet of Things and 4G and 5G and so forth start to become used by other industries. So, we feel that we are now focusing of course on making sure we sustain all the contracts we have but also expand the business into these new industries. The majority of these contracts are in U.S. dollars. So, I think it’s important to also to remember that when you do modeling and so forth. If we look at the cost and efficiency program, we have updated the numbers here with actual numbers where it’s possible, so 2016 is actuals. Otherwise the run-rate that we estimate in terms of run-rate savings is the same as we presented in November last year. So, 6 billion run-rate in 2016 and going then up to the full effect of 9 billion in 2017. So no…

Thank you very much, Jan. Let me briefly then go into the segments; we have heard Jan talking about and me as well. But starting with Networks, Networks then in the fourth quarter had flat sales after a year of declining when comes to organic FX adjusted, this quarter also flat. Partly of course in the fourth quarter IPR revenues and Jan talked about additional hardware in North America drove it but also India, Nigeria, Mexico good development. On the other hand I mentioned Russia and Brazil that are investing a little bit less as well as parts of Middle East. We see good momentum in our Voice over LTE and the core Networks which are driving that at the moment as well in the whole portfolio of Networks, it’s more than only radio. Sequentially, I talked about China came back in the fourth quarter; we were down in the third quarter, more driven by Ericsson and our customers. Income, very good income improvement, upto 19% operating margin, one parameter is IPR, the other of course is the leverage that Jan talked about. We are getting lower R&D driven by the cost and efficiency program that is yielding a better bottom-line. We also had some write-offs in Networks business of 0.4 in the quarter. Full year then a little bit different, sales increased with 5%, which of course is organic FX adjusted sales on negative 8% totaling SEK 15.8 billion in operating income, excluding restructuring and of course which is improvements from last year. That’s Networks; Magnus what about the segment Services.

Thank you, Hans. Let’s talk a little bit about that. So Q4 we saw a small growth on organic FX sales 4%, driven by less demand in Latin America, Sub-Sahara and as well as continued lower demand for network rollout. However, we are seeing still good growth in professional services, driven both with consulting and systems integration, also managed services. Worthwhile to mentioning here, 26 of managed service contract was signed in the quarter and 21 in consulting and systems integration. We increased our sales 17% quarter-on-quarter on mainly on professional services and network rollout, leading up to actually the highest profits we have seen excluding restructuring or services in the quarter with SEK 2.7 billion and very much driven by the improved result in network rollout. 2015 full year, we broke magic SEK 100 billion, SEK108 billion now, up 11%. Good growth in professional services in all regions throughout the whole portfolio, all our different business lines. We did over 100 contracts in managed services; we did 65 big contracts with the consulting and systems integration. As Jan also said, we were able to push up the delivery efficiency number to over 50%, which also resulting in the bottom-line improvement. We also see network rollout coming down then in Japan, North America and Latin America. And this of course are big infrastructure countries for Ericsson. Our operating income then totally for the year is up 3 billion or 200 basis points. So, I think that’s worthwhile for you to put in your model. And then of course we have a restructuring on network rollout -- sorry, network rollout’s operating income is then improved with coming up to 400 million minus from almost 2.2 billion a year back. So with that I’m handing over to you, Hans.

Yes, segment support solutions had a quarter that was extraordinary you can say; 22% growth of course and high IPR revenues here as well but not only that. The strong TV and media sales in North America that we’ve been waiting for came in the fourth quarter. This is very important for the investments we’ve done in TV and media. We had of course the sequential growth 70% which is very-very large. Profitability wise, SEK 1.9 billion in profit in the fourth quarter, driven again by the higher IPRs, but also the leverage that we have in support solutions where we get higher sales values as we’re working a lot with software here and recurrent software. Full year, then were flat sales here for support solutions and reported sales was up 19%; bottom line, SEK 2 billion over the course of the year, which compared to last year, which was flattish. So we have a leveraged model and of course with the, what I talked about the market development of transformation, our customers with the portfolio we have here of course we expect that we’ll continue to be able to move this in the market together of course with the professional services which is even more drive when it comes to revenue in this area of transformation. Talking about transformation, two parts of it, we are on a very active sort of action plan to transform. And remember 2014, the numbers was big when it comes to transforming the employees, the same for 2015. 17,000 people left the Company, the majority non-voluntary, 15,000 added. And the 15,000 added was in three buckets, acquisitions, M&A and then of course we’re ramping up in the centers, the global service centers that Magnus is handling in India, Mexico and Romania in order to…

Thank you. So operator, you can open the Q&A please.

Thank you. [Operator Instructions] Our first question comes from the line of Pierre Ferragu from Bernstein. Please go ahead with your questions.

So, I have a question actually on your last comment Hans about your dividends. It’s impressive to see the trajectory [ph] of the dividend over the last six-seven years and you’re up almost another 10% this year. But when we look at your free cash flow bridge, you’re basically putting all the cash you have left from what you generated this year, which is the [ph] generated CapEx, acquisitions, et cetera. So your coverage is not very strong. So, I understand it reflects also as you said your outlook and your position, the position of your balance sheet. But it would be good to better understand how you think of it because from there what I see, maybe you’re telling us going forward you’re going to give back 100% of your free cash flow into the dividend, or maybe thinking we’re going to get to a more reasonable ratio, like maybe 50% and in that case it means you expect your free cash flow to double or maybe you’re just telling us that once your cash power and your balance sheet is going to be very low you’re just going to slash the dividends. So, of course depending on what you have in mind of course these three scenarios; it has a huge impact on how we should think about Ericsson going forward. So, if you can give us a bit of a perspective of how you think about it that would be really great.

Thank you, Pierre. So, yes, you’ve seen a development on dividend and of course we still have a strong balance sheet. It’s important to remind you that. I mean Jan went through it; we have SEK 66 million on the gross cash and almost SEK 19 billion in net cash. So, we still have kept that level all the time through the years and that we think preparedness is enough if we need something. Then we’re going to see -- I mean again it is a judgment of the board every year what they believe should be appropriate dividend and so forth has been this growth. And I cannot really speculate in next year or what portion of the net income that will be dividended out. But we, -- at least Jan and I, we will work hard to generate free cash flow and so we can have a good dividend. But ultimately, it’s going to be the board that decides it.

Yes. Pierre, can I make two comments in addition to Hans. One is of course that if we start with the CapEx numbers, you know and we know that what we are working with in terms of the global ICT centres as one example is of course to change the way we do testing of our own software in order to structurally allow us to take down the CapEx over time as well as the R&D cost related to testing. So that’s one key improvement that we are working with in order to have also an ever better free cash flow over time. The other element is of course that when you think about the -- if you look the last let’s say seven, eight, nine, years, or so on the working capital performance, of course we tied up lot of capital during the European modernization project. And during 2015, we have tied up a lot of capital mainly in regards to Mainland China for the deployments and so forth. So, what we are working really is of course to try to get into more recurring revenue and a business mix that has more recurring revenue, both for services as well as software. So yes, to support what Hans said, it’s important to think about those things as well.

Thank you. Our next question comes from the line of Edward Snyder from Charter Equity. Please go ahead, your line is now open.

You mentioned something, Hans, 5G especially regard to [indiscernible] saturated in the U.S. there too or you got pretty much all your coverage here. I know there is a lot of discussion about that but it’s real kind of scattershot technology. Are you seeing anything develop whether it’s clean slate or Cat-0 or LSA, and VLT [ph] or any of the very many different standards that people are talking about approaches, because you’ve got anything from IoT all the way to higher bandwidth millimeter-wave. So just trying to get a feel for at least initial deployments, are we getting a theme here on how they’re approaching 5G? And then if you can maybe on the timing where it starts to become at least material to your revenue? And then in terms of growth in other regions here, that was a very strongest quarter and it’s been so for India for a while. How do you see that in the first half of the year; do you expect this to continue or is it mostly catch-up vantage or there is a big mix shift in the last two years over who is growing who is not, just trying to get an idea of how consistent you expect it to be in 2016? Thanks.

Thanks Ed. Starting on technology then, I think that first of all, I mean the emerging markets that are transitioning from 3G to 4G, that we will see coverage in those countries. On a more mature 4G market, we’re going to see what you are talking about the next total evolution of 4G advanced or something like that. Everything from narrowband IoT, of course the different, the variation on unlicensed 4G, LAA and LTU that were fee income into our technology and all in all what it’s doing is capacity enhancement on the 4G networks. And I think that’s what I was trying to say as well. Yes, there are some markets that have done their decent 4G coverage, they are now going into capacity mode and of course that capacity modes also mean that they are going to use more frequencies, more IoT possibilities and that drives transformations where of course, both virtualization is happening on the application layer together with BSS, OSS where both our strength in BSS, OSS and virtualization and services will become very important. But correct that we’re going to see this market be little bit different in this moment, how they’re going to pan out. On India, yes, we have seen I would say four quarters of -- I want to remind myself, rolling very good growth, we started almost 100% in the beginning of the year. You need to remember that they came from a very low level of uncertainties on investments in India; the carriers were not investing [ph] because they were uncertain. Since then of course a lot of spectrum has been bought and they see a great benefit of mobile broadband going up. So, it’s a little bit too early for me to judge if it will keep up that level, but it’s a large market and coverage to be done 4G in India. But again the carriers will define pace on that. We are well prepared. However, in the Indian market, remember more than half of our business in services, which is an important piece of running networks, managed services, which is very important here. So we both have the recurrent revenue and then we have the network business. So, it’s a very global type of markets for us.

So, you mentioned that U.S. is pretty much full coverage now 4G as Japan and Korea, China just come back here. Any estimate about how far you think China has to go before they achieve similar kind of coverage rate? And then Jan, IPR, most of that one-time payment that you’ve got from Apple, is that mostly showing up networks or where on your segment [indiscernible]?

It’s all with the risk when I do a blanket general statement that we’re fully covered in U.S. I understand that might be different with different carriers and so on. But some of them have done a very big job to get coverage in the U.S. On China, we can only say that they have big plans and they have been on a very high pace for quite a long time. The plans are still to make a very huge coverage in China. They will pass some 350 million to 400 million for the subscriptions in the year 2015, which is an enormous rollout. But as far as we see, we see both, handsets coming out; the usage going up on 4G and of course a coverage layer. So that seems to keep up the pace they have done for the last six quarters. We can only see what they’re reporting and they are committed to the national broadband, because this is way beyond sort of only doing it for consumers; it’s also way for bringing a new infrastructure into China, to digitalize China.

On the IPR side, I mean we haven’t changed the allocation keys between segment network and support solutions, it’s the same keys that we have used now for, I don’t know six, seven years or so. In terms of the isolated Q4 revenue, I mean I’m not going to comment that in detail, but if you look at the full year portfolio, of course it’s -- I mean it’s a big portfolio. We had of course -- we are happy with the success of the Apple settlement. I think a way to look at the licensing business in 2015, good way to look at it is to look at the 2014 numbers, since most of the business is in the U.S. dollar terms, and convert that into relevant U.S. dollar exchange rates. I think that’s probably a good base for modeling. There will always be contracts coming in and out and so forth in this portfolio.

Thank you. The next question comes from the line of Alex Duval from Goldman Sachs. Please go ahead. Your line is now open.

Yes. So good afternoon everyone, many thanks for the question, actually I had a couple. First of all, just to understand on network revenues. It looked like you had high-single-digits decline if we exclude the year-on-year benefit from patent. Just wondered if you could give a bit more color on a couple of more regions, specifically Europe given that spring [ph] is ending and also on the U.S. given the coverage of 4G is very advanced. And then next just in terms of the gross margins, they were obviously a little below consensus expectations. I wondered to what degree are you seeing any pricing pressure from players like Huawei and ZTE and also have you looked to emerging markets and rolled out to 4G there? There have been some discussions in the past about potential pricing pressure as equipment vendors aim to capture new install based. Are you seeing any of that at the moment?

So, if we look at the quarterly revenue profile and so forth, I think that what’s described in terms of networks and business performance in the report are the relevant underlying factors. I think that we had recovery in the business, also underlying business in the quarter. However, net-net for the full year in constant currencies, it’s been a challenging year for networks, no doubt about that, but there was somewhat of a recovery also from an underlying point of view. Then when we look at the gross margin, well it is related to the things I said. We had a good Q4 of 2014 in terms of software sales that was fully offset in terms of sales of hardware; hardware has a different volume profile than software in terms of the competitive landscape and so forth. There is no change compared to what we had reported in the third quarter and the second quarter and so forth. The main underlying factors here, it has to do with whether it’s big footprints that are available and so forth. No changes to that.

Thanks.

I don’t know if we answered all the questions, you had so many.

Are you happy with those answers Alex or was there something more you wanted?

I’ll leave it at that. Many thanks.

Our next question comes from the line of Achal Sultania from Credit Suisse. Please go ahead, your line is now open.

So, a couple of questions, first on IPR, given -- you’re saying Hans that you’ve already got all the major vendors -- agreements with all the major vendors in place. Should we now expect that your IPR revenues should broadly grow in line with the handset market in revenue terms, more or less?

The ones that we have IPR agreements on the handset of course will be more in line with that, that’s true, but we also have with the infrastructure vendors and we also have with non-mobile infrastructure cross licenses. But on the handset there are of course some smaller vendors that are local handset manufacturers we don’t have agreement with, we are working with; for example have a legal situation with Xiaomi but other than that we have the majority of them. So, I think your statement is right there for many reasons.

So I think Jan just mentioned that we should take 2014 as a base for IPR revenues in trying to estimate forecast for 2016, but obviously there’s a big difference between 2014 and ‘15 and partly it’s because of FX and partly because of Apple. So, I’m just trying to understand like shouldn’t 2014 taking as a base would be much lower for 2016, wouldn’t it or am I missing something.

Well, I was just trying to give you a different way of modeling 2016. Of course there is always contracts in and out. I was just wanting you to understand that we think that 2014, if you currency adjust that and then also have an assumption around the market overall development then probably that’s a good modeling scenario for 2016. I was trying to give you some help.

Right, okay. And one question on the network side. So obviously, like in the U.S. we’ve seen some sort of a recovery in the second half last year. Do you expect things to -- how should we think about CapEx trends going forward? Do you expect things to stabilize here or you think that there may be couple of more quarters where we see continued improvement like I’m just trying to get a sense of what to expect near term in the U.S.?

I think that our -- what we’re trying to express in the report is very much the following, right. I mean we have said if you look at the base -- first, if we start with the full year 2015 compared to 2014 on networks and you look at the business in U.S. dollar terms, it’s approximately 20% down. Then if you look at isolated quarters during 2015, since the second quarter, we’ve been stable basically. So, when we talk about stable development, Hans and I, we talk about the reference from the second quarter and a stable scenario. Then we have some catch-up capacity business then this time related to hardware. So, I think the scenario we’re looking at for 2016 is continuation of the stable environment with some pockets of opportunities for growth then driven by the underlying fundamentals which would be then quality [ph] and capacity enhancement. That’s the way we view the scenario for analysis [ph].

And are we seeing like any new rollouts relating to the spectrum that was auctioned last year or not as yet?

I think, I mean my view is when I say stable with some pockets for opportunities for growth, that’s of an all inclusive statement.

We used to say that people that people that buy spectrum want to build on it, because it’s pretty expensive. But also when you look at North America, I think it’s very important to remember that networks business is one but what the North American management has done, they have also developed a very strong service business, a very strong support solutions basis which has been growing quite nicely. So, one needs to look at that we have a base in North America on basically all fronts of the Company of the larger telecoms market in the world. So one needs to -- when you look and assess North America, you need to think about it broader than all the networks. Networks, it’s correct as Jan said, has been covered very good on 4G; now we see sort of the capacity coming in and some positive growth as Jan speaks about and all the technologies that Ed talked about. That’s how you should view it.

Thank you. The next question comes from the line of Gareth Jenkins from UBS. Please go ahead, your line is now open.

Thanks, a couple if I could, maybe one for Jan to start with. I just wondered if you could remind us on the SEK 9 billion cost saving target, whether that is a cash cost savings, i.e. including capitalized R&D or whether it’s a P&L cost saving target? I just noticed that you had about SEK 1.8 billion benefit through the P&L from capitalized R&D this year. And then, I’ve got a second question maybe after that on. Thank you.

The program is about real efficiency in the Company. So, it’s a P&L target. So, when we talk about in the report that most part of the run rate savings in Q4 comes from the cost reduction and efficiency programs, that’s correct and part of it has also to do with capitalized R&D. So, the way I look at it is it’s really savings and efficiencies. Then, capitalized R&D, that number will depend upon how much of major development efforts we have and they tend to go in cycles. We have been now during this year on a cycle of lots of major development programs such as the new Ericsson Radio System, such as the next generation OSS systems and so forth. So they tend to be more cyclical. When we talk about the 9, we talk about things that we can impact with efficiencies in the Company.

And then the second question is just on -- sorry to come back on this one but on mix going forward. So, I think if we ex IPR, your margins for hardware and software combined in networks are mid single-digits currently. How do we model mix going forward? Do you think you can drive more software in the mix through this year and next or do you think you can actually do anything to bring the margins of the hardware platforms up? Thank you.

I think that we have several of these initiatives, and as you remember the Capital Markets Day, we both have initiatives on platforms; we’re coming down to new platforms and fewer platforms which are more cost competitive. And the second is that our products having a much higher degree of software, so we’re of course driving as company that pricing transformation. It takes time as we said before but of course our aspiration as you know we have outlined for 2020 is that 75% of our revenues should be software and services. So, we are on that path and of course the buckets -- forces are there as well. But clearly our way of working and our way of pricing should go more to software.

And what I want to say there Gareth that in terms of the cost reduction and efficiency program, of course I’ve mentioned a few things that we are driving in terms of cost of -- fixed cost of sales reductions and that we also will put even more effort on those items for 2016 and ‘17 of course. Then if you read in the networks segment, we’ve also mentioned the status of the Ericsson Radio System. That’s an important platform for us also in terms of not only because of the benefit it gives to customers but also for the cost element. So, we are driving a lot of different activities to impact what we can impact ourselves. And then of course as Hans said, I mean there is also software element here. But our philosophy continues to be that we drive the things we can really impact our sales volume.

Thank you. Our next question comes from the line of Richard Kramer from Arete. Please go ahead your line is now open.

Just to try to keep at a broad level, as you say Hans. What makes Ericsson a growth business? Because we’ve just seen another year where you talk about the targeted areas; in Magnus’ business, he talks about 30% more contracts signed but sales are down. What should we be looking for in 2016 and beyond? Is it simply the decline of the legacy business; is it changing customer behavior; what is going to make Ericsson a growth business again coming off a year where you had so many initiatives but the sales line was down? And then I have a follow-up for Jan. Thanks.

I think we need to have a little bit more balance [ph] on it and of course in constant currency we were slightly down in the year, but in Swedish kronas of course was enormous growth. And of course exchange rate is helping us. On the other hand, as I said in the beginning, the exchange rate movement is also making a headwind in certain markets. So I think you need to balance that out. At the same time, the target areas are now coming to critical level, very much fuelled by professional services of course. And they are now SEK 45 billion and 18% of Ericsson. So, for every sort of 10%, 15%, you can grow that, that’s starting to give you a basis point. So I think that we have our long term program to really continue to push for this. And I think that I’m happy that we’re pushing all this. If we wouldn’t do that, I think we will be having sort of even tougher time on the top-line. So, I think we are doing everything in the strategy that we can push for and can control. Then there are market forces that sometimes beyond our control, but I promise you this executive team will push everything we can control all from top-line, software, transformation, target areas and cost down, and that we will continue to do.

And for Jan, the biggest portion of the cash or an equal portion of the cash that you saw in fourth quarter really came from squeezing what was the industry’s highest working capital to sales ratio. Is that something that you think you can continue? Because typically when we’ve seen declines in inventory, they’ve been precursors of declines in overall network sales. But should we be expecting that you squeeze further and bring down DSOs, payables and inventories down further in 2016 or we see the same cycle we’ve seen in the past which is successive squeezes of working capital and then expansions of it?

I think the major -- first and foremost, we continue to work with the things we can control in terms of working capital which means in the end of the day actual efficiency in terms of cycle time. So, the majority of the working capital is really tied up in projects. Of course once you reach the billing milestones, it’s the method of cash collection, but the majority of the working capital is sitting in the projects, so that’s why a lot of the initiatives focusing on that. Then this year -- and I agree with you that working capital performance has not been good in 2015 up until the fourth quarter, is shifting very much in business mix. And if you look at the working capital and the European modernization projects around 2011 or so and this year, it’s very much a business mix. If I look at the slow efficiency things we are driving, we have gained good traction there. But I think again our aim is to improve what we can improve in terms of structural efficiency and of course also commercial terms. But this 2015 was really around business mix predominantly. So, I think there is potential to improve working capital going forward, not only because of doing projects in better way but also thanks to more recurring business models.

Thank you. Our next question comes from the line of Sebastien Sztabowicz from Kepler Chevreux. Please go ahead. Your line is now open.

Hello everyone. Could you just provide some color on the profitability of the targeted areas today; where are you standing right now and do you have any specific target or margin ambition for this business for the mid-term? And also as the business grew more than 20% year-over-year last year, what was the organic growth last year, please? Thanks.

The last question…

Organic growth in targeted areas.

Okay. The organic growth in targeted areas is above 10%. So we remember we talked about the market growing more than 10% for target areas, we’re well above 10% also in the target areas when it comes to constant currency. So that’s very important. Then you asked about the profitability and going forward about targeted areas. We’re not disclosing that way. But as I said, we have been a phase where we invested the first couple of years, which of course were taking down the operating income. Now we are getting more to a natural situation, meaning that we are not adding anything. The plan is right now the next three years here is to see that this is adding to our profitability in absolute money in bottom-line, that’s the plan we have. And this is of course sizable right now in 4 billion to 5 billion. Now we should see the benefit of the investments we’ve done in this area.

I also think that I want to refer you back to the model that I described at the Capital Market Day with the profit improvement bridge there consisting of three different buckets, one being efficiency; one being monetization of footprints; and the third being growth in targeted areas. And of course, if you look at those three buckets, the efficiency we are tracking well towards the 9 billion, which is the main KPI on the efficiency bucket. And monetize footprint piece, of course one portion of that has to do with capacity and related both hardware and software sales and also professional services and also IPR. And I think on the IPR side, we’re tracking well. The last item is of course targeted areas. And if you look at that bridge, we have the ambitious to have a good return on that business in the mid-term.

Our last question comes from the line of Kai Korschelt from Merrill Lynch. Please go ahead. Your line is now open.

So, I just had a couple, the first one was just on OpEx. I remember a couple of years ago you did provide I think OpEx guidance and it looks like you’re making pretty good progress. I’m just wondering, could you give us any color in terms of the run rate which is coming down quite a lot? But from what I can tell, we should be tracking well below 60 billion this year. So, I’m just wondering if you had any thoughts on that. And then the second question was on the gross margin side. I think clearly it was boosted by the IPR income and I think some of it is probably one-off and some of it is recurring. So, I’m just wondering, clearly I think many investors are trying to understand what the underlying growth margin would have been if we removed the non-recurring part. So, any comments would be appreciated, thank you.

Okay Kai, on the OpEx, and the best way to look at OpEx is of course again from the net savings perspective, coming back to the 9, we have said that approximately 4.5 is related to OpEx in that number during 2017 compared to 2014. We have also commented on the capitalized R&D element. We also have amortization of intangibles in there which is also disclosed. So the 4.5 is again addressing real efficiencies, real cost savings. So, the other two items will depend a bit on -- I mean amortizations will obviously depend on the level of M&A that we are making and the capitalized R&D is a bit cyclical depending on projects. So, I think with that you can model your picks yourself. I think the second question was…

Gross margins.

Yes, more the gross margin Q4 if we kind of strip out the non-recurring part of IPR; actually there was probably also recurring part of incremental IPR income.

No, but I will of course -- I openly disclosed that. Now I think that -- so what I’ve been trying to say Kai is that if I look at the -- you look at the performance in Q4 2013, and the performance in Q4 2014 and the performance in Q4 2015 we have had very strong gross margins in all of those four quarters. That’s typically not the Q4 profile as we all know. We typically have a 100-150 basis points or so lower gross margin in Q4 because of project completions. In Q4 2013, it was Samsung; in Q4 2014 we had a lot of software; and in Q4 2015, we have integration that we have talked about here very strong IPR. So, I think underlying gross margin is okay, but it’s impacted by the mix between hardware and software. I think going forward; we will work hard on the things we discussed on this call, to improve underlying gross margin. We have that ambition, normal seasonality if you want to call it that.

So, it’s more of a seasonal I guess decline or slowdown which we didn’t see in the last year or two, is that what you’re saying?

Well, I mean we had obviously Q4 2013 -- we’re happy to sign another significant licensing agreement in Q4 2016, if you can come up with one, otherwise it’s going to be more normal seasonal pattern.

As Jan said, we usually have a lot of completions in the fourth quarter, and that’s been the historical path for us. So, it’s nothing unusual. Then we need to start continue to work on, getting overall gross margin up. Then we all need to remember when we have this debate about the gross margins, Services has the lower gross margin that doesn’t mean they have lower bottom line. So also that services is growing, might deteriorate the gross margin but it should not deteriorate overall profitability. We need to look at the segment each year how they’re working. But I think hopefully you’ve got the color of the gross margin in the fourth quarter and it’s very similar to fourth quarter...

We have had -- I think Hans and I, we have had together calls for Q4 where they had a good bottom line because of top line but the gross margin has been down to I think 30 percentage points or so. So, what I’m saying is there is a little bit seasonality business mix in this quarter. So, doesn’t exclude the fact that we work hard on the things we can control going forward.

Okay, thank you.

Before Hans will conclude this call, I would like to -- I think there is a slide as well, invite you all to the Mobile World Congress which will kick off with the press conference on Monday 22nd I think of February. And we will have lots of activities for the investor and analyst community throughout the coming days. So, please you can sign up on our website for the event. So, please Hans, you can conclude the call.

So thank you very much. I think we have discussed the focus on 2016 and how we now go forward in this market. We will definitely do a lot of things on the things we can control, and that goes everything from our core business as well as the targeted areas and our cost programs. And of course we are happy to see you in Mobile World Congress where we will talk about our new offerings and how we want to continue to keep our world leadership, both in technology and services. Thank you very much.