HMS Networks AB

STO:HMS

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to the HMS Networks' Q3 Report for 2022. [Operator Instructions] Today, I'm pleased to present CEO, Staffan Dahlstrom; and CFO, Joakim Nideborn. Please go ahead.

[Staffan Dahlstrom, executive]

Thank you, operator. Good morning. Staffan Dahlstrom here. And we have an interesting presentation for today. But I'm myself sitting in Stockholm and Joakim sitting in south part of Sweden. So let's see if we can sync this. But the agenda for today is as normal. I'll make a short introduction and summary. I'll make a short business update, but then Joakim will give the highlights of the financial report that was finished -- was presented earlier today. And then we end up with Q&A at the end.

So let's move into some of the quick summaries. If you haven't read the report, we are delivering a solid Q3, good growth on net sales. We see a quite good order intake, but Joakim will deep -- dive a bit deeper into this because it's quite complex with boost orders, currency and something that makes this complex. We're super happy to keep on reporting good results. But this was all-time high, SEK 179 million. We are super happy with a strong EBIT and a strong margin. We see a fair cash flow, but we are building up some inventory and we are consequently delivering a good and solid earnings per share.

And just a reminder for you who are quite new to our business, HMS is hardware meets software. We run with hardware products, software products for industrial communication. We have 4 businesses in our integrated offer, where we go to market throughout the world in a common sales area, our business units of Anybus, Ewon, Intesis and Ixxat. Then we have our not yet integrated businesses with WEBfactory, Procentec, where we are working with integration. And in probably 2023, these 2 businesses will be integrated in offer. And then we have a part owned business in Spain, Owasys, where we own 60% of that business and consequently, that is not integrated in our business.

And talking about our business on high level, we talk about our playing field. We have 2 major customer groups. We have on one side makers of industrial equipment. And this is our big portion of the business, but we also have a growing expanded business with users of automation system. And if you look on just high-level summary of our revenue, our business models and our go-to-market, we start on the left side with the makers of industrial equipment. We have 2 major categories. We have the device manufacturers that represent a larger portion of our business, 43%, where we have a very well working model of design wins, quite long design win process, but also a very sticky business where we become integrated into the customers' bill of materials deep inside their hardware and software in their devices.

Complex sales process, because the competition here is more substitute, other technologies or make things by your own engineers. So, we go to market through a direct sales channel with our skilled sales engineers. Also, on makers of industrial equipment, we have our machine builders, growing part, 35% of our revenue. And here, of course, our dream is to be part of every machine as a standard equipment. But in most cases, we are specified as an option, an option if you need, for example, remote access to that machine, if you need an integration to a production line, then we are integrated as an option to the specification. We have a combination of direct sales for large accounts and also distribution sales for many small customers.

On the user side, we work with the users. And the users here is what we call the Volkswagen, the BASF kind of companies, the companies -- large companies that use automation systems in their facilities. It's 22% of the revenue, and it's been smaller, but we are doing some acquisitions here and growing quite quickly here. You can see the project sales will be coming to becoming part of a project whether building or renovating a facility, but also more and more also traditional product sales through our websites and through our commercial channels. And here we go to market either through traditional distributors, but to a large extent, also e-commerce that is specialized on industrial automation and communication.

All right. So if we take a little bit of really high level on our vision and mission, we are sticking to our vision of becoming the World's Greatest Industrial ICT Company. For us industrialized is information and communication technology, but we really focused on the industrial side of this. And we have a very important mission that is super important for our customers, where we help them enable valuable data and insights, allowing our customers to increase productivity and increase their sustainability. These are the 2 major drivers for our customers. It used to be primarily productivity, but we also now see that sustainability, energy saving is increasing importance for our customers.

We have 2025 objectives, very important for us, environmental goal. We want to become net positive in our CO2 emissions, both in Scope 1, Scope 2, Scope 3, but also how we help our customers to make a smaller footprint when it comes to CO2 emission where we do a lot of great things for our customers. We believe that happy and high-performing employees generate loyal customers. So, we focus a lot on our net promoter scores, both with staff and our customers, where we have high scores. And of course, we are a growth company. We love growth, but we also like to be profitable on this journey. So SEK 5 billion is our revenue target for 2025, and we want to have a profitability that is beyond 20%. And you will see today that we are performing well on that target.

But let's move quickly into a business update before Joakim talks about the numbers. We see continued solid demand. It is complex with our order intake and Joakim will dive into that. We see improvement in the component availability. This used to be a really, really tough challenge for us. It's still tough, but we think it's getting better and better and this will also ease the coming quarters.

We don't really see any clear signs of market slowdown. Of course, some of our customers are concerned about the future. But still we see solid order intake and things going quite well. So, so far, no clear indication of market slowdown. We also see that for the last 6, 7 quarters, our customers have been building up much more inventory since our lead times and generally the industry lead times have gone up. And we've tried to be really transparent about what is real orders, what is boost orders and what is currency. So, we'll show you some good pictures later on this.

But also to meet this all-time high order book we're having, we also continue to build our component inventory, which is a bit weak on our cash flow there. And as we reported on the last report, quarter 2, we made an acquisition of our Australian distributor, Global M2M. And they are now integrating our Asia Pacific market units. And we believe that Australia is an important market for us going forward. But of course, this is not a big business. It's EUR20 million -- SEK 20 million at the moment. But we believe that this is an important market for the future and some that will add additional growth to us.

So with this quick summary, I would like to hand over to Joakim to talk more about our financial results and numbers.

[Joakim Nideborn, executive]

All right. Thanks a lot, Staffan. I'll try to do that, and good morning to everyone. So let's kick it off with looking at the order intake, as we normally start with. And if you have a look at the upper left graph, you might see that it looks a bit dramatic. It's not as dramatic as it looks like. We have now SEK 675 million in order intake, which is a growth of 1% reported, but minus 11% organic. And we have pretty big FX effects from the weakening of the Swedish krona that continued throughout the quarter, as you know. And that's why we can report the positive growth in the reported numbers.

No M&A effects in the quarter for the first time in a while. And what's really happened now we need to dive into is boost orders have been wearing off quite a bit. And I'll show you this more on the next slide exactly how this looks like. The fact that we have this weakening of the Swedish krona has also given us some SEK 50 million in revaluation of the order book. And the way we show the order in figures, looking at the closing balance that order book, minus the opening balance, plus the sales. So with this big FX movements, we also get this effect. We want to report it separately. So, we understand what the underlying demand really is.

For the first time in many, many quarters, we see a book-to-bill in constant currencies that are below 1. And normally, you would see that as a bad thing. We think in one way, it's not bad. We need to start delivering out our order book and giving our customers still the volumes that they need. So in one way, this is nothing strange. And we believe that we're going to continue to see a trend of our book-to-bill that's below 1 throughout next year as well, given the big order book and the big boost effect that we had for now some quarters. One thing that I wanted to mention specifically is Anybus that continues to be surprisingly strong in net sales. We have good comparable quarter that we're measuring against and still showing organic growth in orders. It just shows that we have a really strong offering and it's still highly relevant even if it's been around for some years.

So taking a look at the underlying demand and orders a bit more. So, we've been having this graph now for some quarters, where we show the boost effect in the light blue and then the left of the quarters we're also showing the FX revaluation impact on the order book, which also impacts the order intake the way we present it. And here, you see that the most interesting thing is then the dark blue one, which shows the underlying demand. And here we are -- maybe you could say it's slightly down compared to Q2, but it's still a pretty big uptick compared to 2021.

So we are, as Staffan also said, quite positive that we don't really see any major signs of any slowdown in the market. It's the normalization of the boost effect that we expected, that is coming, and we think that will continue into Q4. And at some point, we also -- we're going to see the reversal of this boost effect that will probably happen sometime during next year, of course, difficult to say exactly when.

I also wanted to show you our order book, which is actually growing now this quarter. And the only reason it's growing is that we have this FX effect. Otherwise, since we had the book-to-bill in constant currencies below 1, it would have been reduced slightly. But it's still growing. We're almost at SEK 1.5 billion, which is for us extremely high level, and you see the history from 2020 and 2019, we had completely different levels.

Of course, the company has grown, but this is just a completely different customer behavior that we're seeing. And you see also the proof of that on the right-hand side in this graph showing orders for delivery longer out than 3 months. We would've been having a big ramp-up over 2021. And now we can say that we are quite stable, and we expect this to start coming down slowly in line with our delivery capacity is becoming better and better. And component availability is, of course, the main challenge in order to improve the delivery capacity.

So continuing on that, now going over to the sales. We're happy to see that we are having another record quarter of SEK 624 million or 32% growth, 23% organic growth. And year-to-date organic growth is 15%. So it's a solid development. And then of course, we could have been better if we had better component availability. Also here, really good to see that Anybus is delivering well. We've had a very good order intake for some quarters on Anybus, and now we're managing also to convert that to sales. So that's very strong. 42% organic growth on Anybus compared to last year is, of course, a very good number.

On the other brands, we -- I think, basically, all brands, we could have been performing a little bit better if we had better component availability. And looking forward, we think that we will have a slow improvement. Maybe couple of quarters ago, we thought it would be more of a clear cut that we would be seeing a completely different market. It's getting better, but it's going slowly and there is still some problems and other device issues that we need to handle and work with. So we expect to be, again, slowly improvement over the coming quarters and that's how we hope we will develop. And also, looking here, you have no acquisition effects on the sales side. So 23% organic growth and then another 9% from the currency.

Sales per region, pretty similar to what we normally see. 60-20-20 is what we normally say between EMEA, Americas and APAC, and it's a similar situation now. And pretty similar to what we had last year as well, but nothing strange. Then go over to the profitability. And here, we have a record quarter of SEK 179 million in EBIT, of course, a result that we're very pleased with. 28.7% margin compared to 21.5% a year ago and pretty far beyond that target. So that's very good.

Now we need to remember also that we have Q3 is the quarter that would normally perform the best. And here, we have solid volumes as we saw on the sales side with record volumes on the sales we have managed, which is very positive. This is maybe one of the strongest numbers in the report, the gross margin of 63.6%. We will now, for the first time, actually managed to compensate ourselves for the COGS increases that we've seen over pretty much a year's time now from the inflation on the component side.

And now we're managing with the price increase that we've done throughout the year, managed to compensate ourselves really for that. And then you see this marketing uptick on the gross margin side, which is, of course, helping us a lot on the bottom line as well.

We also need to mention the fact that we have a very favorable FX situation, which is the weak Swedish crowns. This is giving a positive EBIT impact of SEK 10 million in comparison to the same quarter last year. That's, of course, boosting a little bit as well. And the way the currencies are at the moment is very solid for us. On the OpEx side, I want also to mention that we are -- we have been doing, you've seen this before this year, we've been doing some investments in the sales and marketing organization also compared to 2021, which was a difficult year. We see COVID hit around and now we're managing to travel more and meet more customers, which we believe is positive for the future.

And then you know also that Q3 is low in OpEx. I need to mention that we have about SEK 20 million in lower OpEx due to vacation effects. And this is, of course, something that will come back in Q4. And with the investments we're doing, we expect to be maybe some 15% to 20% up in OpEx in Q4. So, I think this Q3 is a very strong result with a 28.7% margin, but it's not necessarily a representative for the future performance.

Earnings per share, I want to touch upon that as well, SEK 2.9, of course a record here as well. Maybe worth to mention, given the large FX effects, we're getting higher net financials than normally, we have SEK 11 million in the quarter. And the main things that are striking in there is the revaluation of our option-related debt and also additional purchase price reservations related to the Owasys acquisition that we did last year.

And having a look at the cash flow then, it's SEK 118 million, slightly better than recent quarters, still quite hit by the inventory buildup that we're continuing. We're building inventory with another SEK 50 million, and this is majority -- to the majority related to components. And we've been seeing the same trend throughout the year and we've been trying to improve or increase our component inventory to be better in the delivery performance towards our customers. And this is also why we're managing to grow the business cycle in the quarter compared to previous quarter that we have many components available.

So when we have these shortage components, in many cases, it's the processors that are being in the shortage components at the moment. When we get those components out, then we can deliver. And we want to make sure that we have that situation going forward as well when we expect the volumes to ramp up slightly, then we need to have this extra inventory. So [ it's hitting ] our working capital short term, but we believe it's the right decision for the business in the near future.

Also with the higher sales levels, we have some receivables buildup that is also impacting the cash flow a little bit. But good to see that we're improving and this is maybe not our first priority at the moment. Now it is to make sure that we can deliver, and then we have to live with the fact that we're hanging a bit behind on the cash flow. That will come back next year. And also, as you see, year-to-date, we've been building this inventory of SEK 129 million. And overall, I think we're still in a good position with an average working capital of less than 10% of sales.

The final slide I want to touch upon is the net debt situation. And here, you see that we are moving sideways compared to Q2 roughly. 2 things worth mentioning there is one is that we're having some new rental contracts that is being hit by IFRS 16. So, this is increasing from SEK 80 million to SEK 163 million. And then no dramatics in that. It's not the impact of covenants or anything, but it's something that needs to be there. And then on the other hand, to compensate for that with the profits we're doing, we're managing to lower our, what we call here, all other net debt, the dark blue when it goes from SEK 235 million to SEK 155 million. And that's maybe what's interesting here. It's -- that's where we have our interest bearing debt. That's where we have our covenants pay debt. So, that's what we're following. And you see that we're doing very well here. We have a net debt to EBITDA of 0.72. So, I think we have plenty of room for future acquisitions and investments that we want to go after. So all in all, quite solid balance sheet from our perspective.

And then, I would like to hand over to Staffan to summarize before we go over to questions.

[Staffan Dahlstrom, executive]

Thank you, Joakim. So as you hear, we think we are delivering quite stable quarter. But 2 things we would like to highlight. I think, first, we see a stable demand but, of course, there are uncertainties ahead. We see order intake looks softer, but I think you've seen also that we are transparent about the changes. And if you look on the real demand, it is pretty solid when we take away for the boost orders in this effect. And as Joakim mentioned, we're expecting that the boost orders will be coming back on the negative side. But we need to get back on short lead times and eat up the order book we're having. So, we are quite positive about this.

We see that the component availability is slowly improving. And in general, our customers remain positive. And I think that's, of course, worries about the future. Everybody talks about that everybody else see weak markets, but our customers are still quite solid and we think we are in an industry that is holding back -- holding up quite well for the time being.

And secondly, I must say, I'm very happy with the continued solid execution. Very important that we can improve our gross margins. We are back on the high levels we had in the beginning of last year. A lot of work with the price adjustments and working with our cost side, but this also indicates that we have a position where we can raise prices to some of our customers and we are getting away with it and that's very important. That shows that we are important.

We talked about our expanded inventory. I think it's important that we allow ourselves to also expand our inventory to make sure we can eat up our order book. And of course, we are super happy with all-time records in sales. And was it plus 77% of earnings? No. Strong quarter, and we are happy with this, but we need to be a little bit careful for being agile for the coming quarters. But so far, we are not too concerned about the coming quarters.

So with that, I would like to open up for Q&A.

[Operator]

[Operator Instructions] Our first question come from Joachim Gunell at DNB Markets.

[Joachim Gunell, analyst]

So starting off with the very strong Anybus growth that's quite surprised a little bit here. Can you talk a bit more about what drove this stellar organic growth?

[Staffan Dahlstrom, executive]

Joakim, would you like to take that? Or...

[Joakim Nideborn, executive]

Yes. I can take that one. I think in terms of the sales growth, it's not surprising at all for us, Joachim, because we've had this really good order intake and we have a lot of those boost orders that we received [indiscernible] Anybus business. Since you have a lot of embedded business here, making the customer super dependent on this component for them to be able to deliver. So, I think that was expected that we should have a good sales growth in that sense. So some of those deliveries might very well go through some increased safety stocks and so on for the customers.

What may be surprised a little bit more was that we were still doing so well in the orders. We thought maybe that we -- this SEK 50 million boost effect that we saw is to a large extent related to Anybus and that we still have customers building that inventory. We thought maybe that was passed in Q2 since we saw a pretty strong decline towards the end of Q2 in this boost effect. So, I think those are maybe be the main things beyond the fact that we have a very strong -- the business is still very strong. And I think that's also what we see here. There is not really any signs of this underlying slowdown there.

[Joachim Gunell, analyst]

Okay. And -- I mean, it's a very dynamic environment out there, since everybody is looking for the canary in the coal mine. But based on -- yes, with regards to lack of [ robustness ], what are you guys seeing at the HMS, call it, month-over-month through the quarter, how order development projected that? And if you are seeing, I mean, are you worried to a certain degree of any sort of, call it, cancellations within the order books and so forth?

[Staffan Dahlstrom, executive]

I start. I think we still see -- if you look on October so far, we still see a good and stable order intake. I think we have some customers that have built -- are talking about maybe delaying some shipments, but we don't see any cancellations. In general, we don't allow any cancellations. And most customers, they need the material, but of course, they are changing their planning. But so far, we see -- we could deliver more if we had more components. But still -- we are still in a situation where component situation is still limiting our ability to deliver. So, that's a bigger problem than a few customers who is talking about maybe they have a little bit of high inventory in their warehouses. So, I think we haven't seen that change yet.

[Joachim Gunell, analyst]

Perfect. And just finally, if you can comment anything a bit on how much of the -- I mean, the density of the organic growth, so basically split up between what is volume and what is pricing? That would be helpful. And then whether customers, if you have seen any like sequential change to customers' willingness to accept price increases?

[Staffan Dahlstrom, executive]

If I start -- Joakim, you can fill in. But I think in general, we are -- of course, the customers are not super happy with the increased prices. But I think since this has been industry-wide, I think most customers understand this and we have good dialogues with the customers. But I also feel that we are increasing pricing, some of these effects are still to come. So, we are just in the middle of this. So, we expect that some of these effects of increased prices have not been materialized. So, I think there will be more to come there.

Joakim, can you give some more details on that?

[Joakim Nideborn, executive]

I think you're right, Staffan. I think we may be halfway there in terms of the effects that we see from price increases. So, we still have some effects to be seen in Q4 and Q1 next year from the things we've been taking. And then in terms of putting a number to it, I think I'm going to pass on that one, Joachim. It's a single-digit number when it comes to price increase growth in the quarter. And we'll come back to that in Q4 and then see when we have the more or less complete picture.

[Operator]

The next question comes from Klas Danielsson at Nordea.

[Klas Danielsson, analyst]

Yes. So, I'll kind of try to build a bit upon Joakim's questions. You asked on the October delivery rates and [indiscernible] demand and so forth. But I was just wondering and seeing as you were kind of mentioning the components are moving a bit more freely heading into Q4 and so forth. And so I was just wondering, could you maybe help us quantify your sales capacity for the next quarter a bit, maybe based on how it's looking in September and how it's started in Q4 as well? I will start there.

[Staffan Dahlstrom, executive]

Klas, good question. We still see -- how should I -- maybe the right way, we still see some pickup on the delivery side. In general, we get more stability in what we get promises from our component suppliers, but we still see some hiccups. So it's still a bit unpredictable. We are not at max capacity in our delivery performance. So, we are still having more production capacity to use. But the component availability, even if it is improving, it's still limiting our capacity, I would say. So it depends a bit. Our quarter 4 performance will be a bit dependent on component availability still.

[Klas Danielsson, analyst]

Yes. And as you mentioned on the max capacity, how is your max capacity? And how much headroom do you have still up until that level?

[Staffan Dahlstrom, executive]

We have a supply strategy that is a mix of outsourced and in-house production. And you can say that in general, the majority of the high-volume standardized products are made at our EMS suppliers in Europe and in Asia. The high flex low-volume products are mainly done in-house. So, we have a good mix there. But this means that we are probably faster to ramp up in high volume. We do that through EMS suppliers. So that doesn't really require a lot of investments. That's maybe a 3-month to 6-month horizon because we know that our partners have more capacity. When we do the high flex low volume ramp-up, then it's more about the hiring in own people and expanding our factories in Sweden and Spain, which is a longer process. But I would say that maybe it's a 6-month horizon in general to increase production capacity more than beyond 10%, 15% to 20%, something like that. That requires 6-month window, I guess.

[Klas Danielsson, analyst]

Okay. Okay. All right. That's interesting. And then -- I mean you touched upon this already in this call, I think a bit. But just on the kind of boost side, and obviously, you have some increasing lead times and inventory buildups in there that's driven orders and that's reversing a bit. I mean, could you give us any indication of how much of an impact you should be able to see there over the coming quarters? I mean, should we expect you to go from having kind of SEK 200 million in order books that you had last year on a quarterly basis to now having minus SEK 200 million? Or could you -- or should it be flat? Or I mean, what sort of level should we expect?

[Joakim Nideborn, executive]

So maybe I can take that one because we've been really seeing, of course, around that a lot that we hit. And now taking into consideration that over the last 7 quarters, we have now built up SEK 950 million in these boosted orders, of course [indiscernible]. When Staffan and I discussed this the other day, we said that is really the net effect. So of course, some of that has been delivered out, but then we obscured some more, so SEK 950 million. Basically, the SEK 1.5 billion order book is maybe the SEK 950 million more than what it should be. So that's basically how we look at it. And that's still building up over 7 quarters. So, we've been really seeing that it's -- and the way it's been building up is almost like a normal distribution, right, over time. So it was slow in the beginning, then it was high in the middle and then was slow in the end.

Our best guess is that we will have something similar in terms of that distribution on their way out. And how many quarters that could be over? We don't really know, but maybe a good guess could be that it should be the same period that it's been building up over. So it's not going to go overnight that we're pretty sure of. So if you just reverse that normal distribution over another, say, 6, 7, 8 quarters, I think that's probably our best guess that it will even out something like that. You're probably going to see that we -- as I said in the beginning, maybe we'll have a book-to-bill slightly lower than 1 for now for a couple of quarters. That will have a little bit of this reverse boost effect with us for the next year and then probably into 2024 as well.

[Klas Danielsson, analyst]

Yes. Yes. That's great. Very good. So -- good. And then I think just to end off, I know this is -- or I had 2 questions actually. I know this is a real difficult ask, but could you maybe try to kind of help us understand how your customers' inventory typically look like? I mean, how many months do they typically have in inventory of your products? And how much do they have now? If you could maybe help us a bit on that.

[Staffan Dahlstrom, executive]

If I start in general, we see different behaviors in different markets. If you look on some of our large Japanese customers, some of them have inventory for 12 months going forward, which is very high and very long, but that's the Japanese style. Maybe their cost of capital is not so high either. If we see on the European side, it's a little bit mixed. But I would say that quite many of our customers are having, I would say, maybe 4 to 6 months of inventory in general.

But the challenge is that in some of our products, we are an option, which make it difficult for our customers to say, they don't know how many of their products is using our components. Some of them have higher inventory because they want to have buffers. Some of them are a little bit lower because of the utilization rate of our components. But I would say it's probably at least double from what it used to be, at least double. So, there's a buffer there that over time need to be reduced, of course, to get into normal. But if that takes 4 quarters or 8 quarters, we don't know yet.

[Klas Danielsson, analyst]

Right. And that's fantastic. Then last one for me. Gross margins, super strong this quarter. I think it surprised me a bit on the upside, for sure. You do mention still that you have some price increases to come just now earlier on this call. Should we expect increases in gross margins further over the coming quarters? Or is this a reasonable kind of level to expect?

[Joakim Nideborn, executive]

Maybe I start, Staffan. Couple of things that I maybe should clarify before. We have one part that is driving the gross volumes with about 1 percentage point. It's also that we have stock revaluation of the inventory that we keep in other currencies and Swedish crowns. So that is helping the margins with a little bit more than 1 percentage point. That will, of course, not be the case if the current -- the Swedish crowns were not to be weakened further. So, that will be reversed.

On the other hand, right, that we still have some price increases to come, that will strike through, that will help us. So, I mean, just a rough guess would be that we should be able to be on this level where we are maybe slightly better in Q4. And yes, something like that. So, I think that's also what we said when we started. We did this work in 2020. It's long time ago now. And we saw margins splitting up to close to 64% in the first half of 2021. So that's where we should be able to be. That's our expectation. And then we have maybe a couple of 10 percentage points left to getting there.

[Operator]

The next question comes from Viktor Högberg, Danske Bank.

[Viktor Högberg, analyst]

Staffan, just a clarification question because I lost the line. What did you say on OpEx guidance for Q4?

[Staffan Dahlstrom, executive]

So I said that in Q3, we are -- the run rate is SEK 20 million higher than what we're showing due to the vacation effect. And then I also said that we expect to be somewhere between 15% to 20% up in Q4 versus Q3. And that does not mean -- maybe you have to clarify that as well. That does not necessarily mean that the run rate will be that much higher because as always, we have these big first trade shows that we do in Q4 that costs some extra. Q4 is always our highest quarter in terms of cost and Q3 is always the lowest one.

[Viktor Högberg, analyst]

Yes. Perfect. Sorry for that. Next question. On your comment on this that you expect a somewhat weaker order intake in the coming quarters, is that purely on the comparables being so strong in the recent periods? Or did you bake any macro uncertainty into that comment as well?

[Staffan Dahlstrom, executive]

Well, I think in general, the main thing here is -- on the order intake is the boost effect, I think, then the reversal the coming reversal of these things, that's the majority of effects we're seeing.

[Operator]

[Operator Instructions] There are no more questions. We just received one more question. It's from Simon Granath at ABG.

[Simon Granath, analyst]

Regarding the gross margin, one driver has been the reduction of additional cost for component purchases. Could you guide us on how much this versus price increases drove gross margins? And also, would you say that the components are starting to reach more normal levels in terms of pricing for them?

[Staffan Dahlstrom, executive]

Maybe I will take that one. Yes. So, good question and maybe let me take the opportunity to clarify. So, we had 2 things basically that's been an impact on gross margin in terms of the component cost. One is that, let's call, inflation driven, the fact that everything is getting more expensive. That is, of course, still there. And it's been -- it's not been accelerating into Q3. It's pretty much from the levels that we saw in Q2. So that's good. It's just slightly, slightly up. And the other part is the spot purchases that we have been having to do on components when you pay maybe 10x or 100x more for a single component to get that last component out of a couple of hundred components to finalize the product.

Here, we've been seeing much lower volume in Q3 compared to Q2 and basically half the volume what we've been buying on the spot market. And the main reason for that is that the component availability is better. So not only does it impact the lead times, it also impacts the margins that the component availability is better. And we still think that we'll have to do some of those spot purchases. Some of the suppliers are now also working over their product portfolio and may be choosing to put some of their older products end of life, which is also causing more difficulties in the sourcing situation. So, we still think that we'll see some spot purchases going forward, but it's on a much lower level than we saw in Q1 and especially in Q2 when we think it probably peaked in Q2.

[Simon Granath, analyst]

That's very clear. And 2023, obviously, there is lots of uncertainty amongst how customers will spend, et cetera. But how would you say that you are currently positioning yourself in terms of investments and spending into resources, R&D, marketing, et cetera? Have you made any delta now versus the Q3 report, for example?

[Staffan Dahlstrom, executive]

Well, I think we are going to our 2022 planning as we speak here. And of course, we are -- like everybody, I guess, in the market, we are anticipating higher costs based on inflation. That's clear. But we need to -- we need to be agile, but we need to be -- we are a combination of careful and opportunistic here. And we try to make sure that we navigate this in a way that we maximize our opportunities but try to be a little bit of cautious on the risk side as well.

I think it's -- we are -- we're trying to be a little bit careful, but still there are good opportunities out there in the market, and we don't see that we are in a position where we should do a lot of savings or reductions. We still want to expand, but we're going to expand in a good and smart way with us being close to the customers and really hear what they are saying. But so far, we are optimistic about 2023. And of course, we have a fantastic order book. So, we are not so afraid of the revenue and the profit next year, but we are keeping investing in sales, marketing and innovation. I think we are just being careful, but still making sure that we are not passive. We need to stay active here.

[Simon Granath, analyst]

And as a final question, you mentioned in the report some about 5G, and it feels like we have not spoken too much about 5G since your Capital Markets Day in 2020. Would it be possible for you to give a brief update on how the market has developed since and also the mid- to near-term outlook regarding that?

[Staffan Dahlstrom, executive]

Yes. I think this is a very interesting technology as we write upon. But as you know, in our industry, new technology take years to establish themselves, and that's what we're seeing here. We also see that there's a lot of interest in special applications, in manufacturing, in mining and this kind of application of 5G where the technology itself is really promising. And we do a lot of proof of concepts and have good customers on board here. But we also see that some of the technical specification and this becomes a bit technical, but there's a feature called ultra-low latency, which is super cool and very interesting for synchronization of robots and stuff like that. And that part of the specification in 5G is not completed yet.

So, there are some lags in the specifications that is still for the future and we are seeing a little bit as expected. This is a technology adoption that will take time. But the interest is there and the market will come, but the commercial breakthrough will still take a couple of years. And the reason we are investing here is mainly to making sure that we are ahead of the curve here and engage early with these new customers. But commercially, it will take maybe -- we talked about 2025 as the breakthrough year at the Capital Markets Day. I think that's been quite valid. 2025, this will be part of our revenue. But until then, it's much more of exploring and innovating with customers at the moment.

[Simon Granath, analyst]

Interesting stuff will be -- to follow in the future as well.

[Operator]

There are no more questions at this time. So, I hand the word back to the speakers for any closing remarks.

[Staffan Dahlstrom, executive]

Thank you very much. And thank you all for participating to this quarter 3 call. We really appreciate your support and interest in our company here. And as you hear, we are super motivated, continue to making sure we take opportunities we see in front of us, but also we are a little bit careful and being staying close to our customers for the future.

So with that, I would like to thank you all and wish you a fantastic day today. Goodbye.