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Alcatel-Lucent, S.A. (NYSE:ALU)

Q4 2011 Earnings Call

February 10, 2012 7:00 am ET

Executives

Ben Verwaayen - Chief Executive Officer, Director and Member of Management Committee

Paul J. Tufano - Chief Financial Officer, Executive Vice President and Member of Management Committee

Unknown Executive -

Analysts

Sebastien Sztabowicz - Kepler Capital Markets, Research Division

Achal Sultania

Kai Korschelt - Deutsche Bank AG, Research Division

Vincent Maulay - Oddo Securities, Research Division

Zahid S. Hussein - Citigroup Inc, Research Division

Francois Meunier - Morgan Stanley, Research Division

Anuj Krishan - UBS Investment Bank, Research Division

Simon M. Leopold - Morgan Keegan & Company, Inc., Research Division

Alexander Peterc - Exane BNP Paribas, Research Division

Odon de Laporte - CA Cheuvreux, Research Division

Eric Beaudet - Natixis S.A., Research Division

Ben Verwaayen

So good morning, good afternoon, good evening, depending on where you are. Thank you for joining us at the full year results and Q4 results 2011. As always, we have here an interesting slide for you to read. I encourage you to do so because a lot of people work very hard to get this right.

2011. What can I say about 2011 other than that I think it has been a year in which we have delivered on many different levels? First of all, after the disappointment of Q3, I think we have delivered a Q4 that was what we said it would and then some.

If you look to the most important elements of the year as such, is that we have doubled our profits between 2010 and 2011; we have made significant improvements on our operational capabilities, on our portfolio; and I think we have made very good progress on our cash flow, thanks to a very good performance in Q4.

If you talk about longer term, most important element is what's the relevance that you have to your customers, and we're going to talk about it in this presentation. And then, of course, how do you look to the future? So we look to the future with, I would say, realism. We look to the future with the knowledge of what we have done in the past 3 years. I promised the market, I promised you that we would be, after 3 years, a normal company. The reality is that we didn't fulfill all elements of that promise, and I apologize for that. But I think we are well underway to make good for those elements of the normality agenda that were not met at the end of 2011.

And you can see the indication in the fourth quarter about the capabilities that we have to improve, and that gives us the confidence to have, I think, a pretty robust view on 2012. Our order portfolio is strong. Our order book is strong. We have a clear sight of the improvements that we made operationally in the latter half of 2011. If you see to our cost improvements, Paul will talk about it, you can see that it built up over the year 2011. We may have been somewhat weaker in the first half, but we're certainly strong in the second half. And if you look to what we are doing strategically, I think important also is to look to what we announced today around our patent portfolio.

Let me spend 2 minutes to clarify why this is an innovative approach and why I think it's very important. It's important because the first thing we are not doing is sell our portfolio. That's not what we're doing. It's important to understand that. We have a position in the telecom market for which it is very important that we have the strongest portfolio in patents in the industry, and we will maintain to have that. 29,000 patents that we have is not just an illustration of a strong past. It is, at the same token, a great basis for a great future. That is not at all at stake.

But also in that particular market of patents, innovation takes place, and innovation takes place because people think about value very differently than they may have done in the past. So when we are working together with RPX, we discovered that the ability they have to do syndicate licensing, where basically, you're part of a club, you pay for the usage of it, but you don't own it because we own it, but you have the same protection as if you would buy it, is a very innovative new way of looking to a patent. And it gives us reach far beyond the classical reach that we would normally have because we don't run a patent syndicate. We don't run the capabilities in-house to go out and reach out of our industry to other industries for some of the patent reach, but they do. And they have a capability that we find extraordinarily interesting, extraordinarily interesting for 2 reasons. First of all, as Paul will everybody -- remind every single time, this is time-limited. This is not forever, so the opportunity to go do something is relatively short term. Second, we have the capability, if necessary, we are not satisfied, to walk away. And third, it is nonexclusive, so it allows us to do what we’d normally do. It gives us choice, and it gives us an impact that we think is substantial.

And I think innovation in many different ways of an organization is a sign of strength. So some of the comments I read this morning are really, I think, not really -- are really not on the mark. This is about not selling the family silver. This is about getting a creative capability to leverage the assets that you have. And that is what enterprise is all about.

So with that said, let's look to Q4. Q4, of course, as we said at the end of Q3, was a different Q4 than we've seen in the past. It was not people emptying their budgets. It was people making very deliberate decisions where to invest, for what reason. And if you, therefore, look to the various parts of our business, you can see that in, I would say, real life.

But having said that, IP had the second strongest quarter ever. They have done a tremendous job. Overall, over the year, they grow 10% plus. Every quarter, they added 10 to 15 new contracts, and you will see later, they are now in the networks of approximately 90% of the Tier 1 players in the world and expanding.

If you look to our wireless market, it's interesting to note 3 things: first of all, the U.S. was down; and yes, CDMA was down; and no, that had not a substantial serious impact on our margin. Because if you look to where we are today, we have a much broader portfolio than in the past, where we were absolutely dependent on 1 or 2 things. We have now a much broader spectrum, and you can see that in the numbers.

If you look to Wireless, that was tough Q4. It was tough because most markets had a very strong 1, 2 and 3, and in Q4, they hold their guns. If you look to the order book in the U.S., I can tell you the order book is very strong. So that gives you a feel for where that market is going. It is also a market that is going more and more to the next generation, decisively going LTE, decisively going LTE.

And if you look to Latin America, you have seen the announcement that we made with America Movil, which is a great win for us. It is in the same direction. It's going to the next phase of technology in the wireless space. Small cell's doing very well. We're coming back to lightRadio later.

Optical is typically one of those things where you can see if the spend is withhold. You'll find it in the optical space because you have choices when to do and when to make the investment. Even in that environment, WDM did extraordinarily well. And Submarine is a true asset for us as an organization and have done a tremendous job in running the business.

And in Wireline, we normally don't talk about Wireline that much, but I think in this particular case, it's important to focus on 2 elements. First of all, 72% of everything we do in Wireline is High Leverage Network, so next-generation stuff, 72%. And that means that the exposure to the old is reducing very, very rapidly, and we're looking much more to the new stuff.

Now take for example the xPON business. It grew in the 80%, 80%, which is a tremendous growth. But the reality is for every broadband line in the world -- for every 4 broadband lines in the world, 3 are built in China. So in China, our corporation with China Unicom is truly important since that has been one of the major players in that expansion of the broadband portfolio.

So this is my favorite chart because it shows the progress we're making in the company to move away from the past and go to the future. And you can see that this is the highest percentage we’ve ever reported, 48% High Leverage Networks. And if I look to orders, then the number of orders that we get for High Leverage Network product is twice as high as the number we get for non-HLN product. So that's a clear indication that the world is changing and that we are looking for a much more focused build-out on the IP network capabilities.

Important to note, you will have seen that in the numbers, is that our Software, Services & Solutions business made a tremendous effort in Q4 and improved its profitability substantially. It did a great job because they focused a lot of their business with the value additives, and we cleaned up some of the issues that we had with, let's say, somewhat all the contracts.

You can see that this is a business where you have to make choices because this is a wide business. I'm only going to talk about the next steps going forward. I will tell you what the choices are that we are going to make. But this is a business where profitability has a lot to do where you want to play and how you want to play because the word service, in and by itself, is such a wide area that you have to be absolutely focused on where you can bring the added value in order to make the business work.

Our Enterprise business has done a great job. I have to give them a lot of credit. It was, of course, the quarter in which we had to separate our Genesys business. You know that, that is a closed deal now. But that's hard for an organization that works so close together to disengage in one sense and find its feet in the other sense. And they absolutely did, and they did it in an astonishing speed.

The data business in the Enterprise has clear momentum. In a very difficult market, where Europe is the main focus of that particular business, they did a great job. They did a great job in getting their costs under control and keep it under control and have a great margin performance. So we have an ability with our Enterprise business to make it truly end-to-end.

Look from a service provider perspective. What you have here is a capability to penetrate also the enterprise market and use your network capability not till the front door of your enterprise customers. Let's go beyond and making sure that you are in. And that is the strategy that we will work further. And you have seen that Michel Emelianoff is our new President, and we have thanked Tom Burns for a great job that he has done. And I think that the team, the new team that we have in place truly has to focus on making Enterprise an important part of our business.

So what I would like to do now is to look to the last 3 years, as I said, the journey to normality, and it started, actually, with this chart. At that point in time, we said we have to reset the button on where we're going to play and how we're going to play. Three years ago, we made a massively important decision how to spend our research and development, what we're going to do, how we're going to spend our R&D money and what it means for our customers. So we designed that High Leverage Network concept, and it became very, very popular in the market. And most of our R&D is related to what we've done here. And if you look to the response of the market, it's very hard for you to read, but let me give you a few highlights.

The response of the market has been phenomenal. If you look to IP Service Routers, the whole business around that, 26 out of the 30 top Tier 1 players in the world have now Alcatel-Lucent in their networks. And I can tell you, we've penetrated Japan, which is not an easy market to get into, certainly not on the data. And it's one of those elements where you show that if you have a product philosophy that fits end-to-end and a capability that sets the product apart, you can go into markets that you thought were closed to you.

If you look to, for example, what happens in the left-top corner -- is it left for you? Yes, the left-top corner, where we talk about the Wireless market, in the Wireless market, LTE is a, for us, very important story. It was the first time that we took a gamble and redirected massively amount of our R&D into a new space. That's what we have done with LTE, 20-plus contracts and probably the #2 position or 1 position or wherever, but in the top 2 or 3. We'll tell you that it was a good bet to make. And if you look to the expansion that we now go out of footprint, it tells you even a stronger story with AMX and others.

Then that's not the whole of it because if you then look to the Small Cell business story that we have created, the femto and the others, it gave us access to an other part of the development, that is from big boxes into the world where with the explosion of video, big, in and by itself, is not going to be the answer. So we have to be agile and small, and we have to have the combination and the capability there. It started with the femto. lightRadio is the next one. We have now 7 co-creators, companies that have worked with us in the labs to work and to create the future of lightRadio. And I would say come to Barcelona to see a little bit more of that.

Now a world that has been, for a long time, pretty boring, the copper and fiber world, is in certain parts of the globe, all of a sudden come alive as a very vibrant market, and we talked already about China. There are other markets where that also happens. In Europe, it is somewhat hesitant, but I think it's a matter of time because it is a critical ingredient for the capabilities to deal with this enormous explosion in data and video.

And if you look to the 100G coherent WDM, it's amazing that the number of customers that we get has now been doubled in one year time. So it's going from 30 to 60 in one year time. So this is a technology where clearly, we have something to offer to the marketplace. But that is not enough. And these are the key innovations that I think will bring us a roadmap to answer the question that you may have, and that is why do you think that where you have maybe cleaned the business so far, you're going from clean the business to expand the business and grow the business, and what is it that will carry that?

So here are 4 innovations that are truly going to be game-changers: the FP3, the 400G, 4x as fast as the best in the market so far is, by far, the best-in-class processor that there is in the industry, and it will have its impact in the product launch this year.

If you look to lightRadio, we are in trial, in field. It's no longer just an innovation. It's a reality in the field, and I think that you will see that by the end of 2012, it's commercially available. If you think about the coherent technologies, I already talked about doubling the number of customers, it's going to be a technology that will allow a much closer collaboration between the layer of IP and that of optical.

And last but not least, with the footprint in the world of DSL and copper, the technology to enhance the capabilities so that customers can deal with that explosion of data and, at the same time, differentiate, we think that this is a market that is just getting started. But more important than those 4 elements, in and by itself, is the combination that you're now going to give with capabilities that are far beyond what hardware will do.

This is about software development and service capabilities. And you can see if you look to the build up here, it starts with the infrastructure, and then it goes to what do you have from a service virtualization and enablement, so cloud, cloud capabilities. On top of that, you have the applications. You have the so-what for the customers. And on top of that, you have the capability to have the professional services doing this new capability for our end customers.

So you talk about capabilities on the areas of control, software control. You talk about analytics being a very important element. You talk about operational capabilities. We have chosen 4 elements from an application point of view because, as I said earlier, you can go anywhere, and you can run. So we have chosen payment and charging, mobile commerce, advanced communications and customer experience. Those 4 elements, you can hold us accountable that what we do from a service and software capability will fit those 4. And the capabilities that we have should strengthen the other activities that we do as we have seen in our product portfolio, where the one supports the other and no longer fights the other. The same we will see in our service and service capability.

And that will bring, for the next 3 years, this chart. It will bring HLN as a platform. So the big difference for our customers is that it's no longer, "Give me a network that can deal with the explosion of video and data." It is, "Give me a network that can give me the explosion of video and data and handle it and, at the same time, individualize the capabilities that I will have with my customers to be differentiated." So my customers with my tablets will have different access to applications, will have different individual choices how to go across platforms, across applications and across terminals. That means that you need to have a platform capability that will be, for Alcatel-Lucent for the coming 3 years, the driver for growth.

So the last 3 years have delivered a transformation, and it's good to put that in perspective because in the last 3 years, we have eliminated more than a lot in the complexity of our organization. We have eliminated a lot of stove-piping. We have created a different set of capabilities. But if you translate it to financials, there are only 3 things that you need to know. The first thing is fixed cost. Well, the savings are EUR 1 billion in 3 years, and this has been on absolute apples-for-apples, so differences in pay because of one year more successful than other years, not taking into account. Apples-for-apples, EUR 1 billion. If you look to the profit, it went from a minus EUR 56 million to a plus EUR 610 million. And if you look to free cash flow, this is the free cash flow. It is an improvement, but if you look to free cash flow and you look to working capital, excluding it, because working capital has to do with all those projects that you have in the field, you can see what really happened in free cash flow.

So I think that you can see that 3 years of transformation have delivered something for this organization to understand its cost structure, its operational structure, the way that we go after the market and the choices that we can make. Now all of that is wonderful, but you need a market to be receptive to what you do.

So I think it is, going forward, looking to 2012, good to spend 2 minutes on where we think the markets are. Our order book in the North American market tells us 2 stories. The first story is the build-out will continue. It will be much more focused on the next-generation technology, and it will be about platforms. All will be about mobility and cloud. It will be about making a difference for our customers, making a difference for their customers on a short-term basis.

If you look to Western Europe, Western Europe has a very different approach. It is the preservation of CapEx. Because of uncertainties in certain markets, about uncertainties in some of the economics that surrounds our customers, that is very much focused on wise decisions. Let me put it this way. If you look to Eastern Europe, a very different dynamic, it's about capacity expansion. There are so many hungry customers out there. Let's go, and let's get them.

If you look to Asia, China will be a strong year because they have their fiber cities. They have their 3G, 4G expansion plans, LTE-TD. All those things will happen. It may be, and it will not happen on, let's say, a every quarter is the same approach. Quite surely, it won't, but it certainly will happen in China.

In India, it's a very different story because if you look to Q4 for us, you see APAC down. It's not because of China, it's because of India. Because in India, we can all see the story there. There's such an uncertainty in the market. There are such -- there's such a turmoil that it translates in 2 things. It translates in cautiousness for investments, and it translates into cautiousness in choosing your partners from the vendor's perspective, from our perspective.

If you look to Middle East and Africa, clearly, in the Middle East, we have to deal with some political environment that makes all of those steps very cautious, but that is already taken into account. The rest of Africa is doing very, very well.

If you look to what we can do in Latin America and what you can expect in Latin America and what you can see in the rest of APAC, it's growth. So very different dynamics. You cannot have a one characteristic for all the markets. You have to stay region by region by region. You have to make sure that your portfolio, your investment, your adjustments are also linked to that.

So bearing all of that in mind, it means that we have a positive outlook. We think that we can have higher margins in 2012 than we had in 2011 and that we end with a strong net cash position at the end of 2012. As a company, it's not always easy to communicate to everybody what you need to do. One of the wonderful background noises that you can hear is an indication of what we do. We have been pretty vocal about the fact that our cost structure has to be reduced. One of the elements is a salary freeze, which is not a total freeze, but, let's say, a policy that says not for everybody an automatic salary increase. And it gives a strong reaction from some parts of our population, which I fully understand and appreciate. They thought that you were a great audience to give that message to, so that's why you hear some of the encouragement from the outside.

But it underlines, again, that we are very serious in our focus. This company went through a lot of difficult years. We have made great progress. We haven't reached the normality in all its aspects at the end of 2011, but for sure, we are capable to make it into a good 2012. Paul?

Paul J. Tufano

Good afternoon, and good morning. What I'll do is provide you some color on the numbers and the financials.

First, let me just start with our reported numbers and then translate those into the numbers I’ll actually talk about. Obviously, we settled our Genesys transaction several weeks ago. In the fourth quarter, we counted Genesys in discontinued operations, and therefore, the published financials have that embodied in them. Now what I'll do today is normalize that for you so that you have an apples-to-apples comparison to the activity we talked about before.

But it's, before I do that, important to note that for a full year, we did achieve positive net income. It's the first time since the merger. It's over EUR 1.095 billion, and I think that's a significant accomplishment and also is part of a promise we made in 2008.

If I look at the P&L for the fourth quarter and the full year, I think the thing to note is we did achieve our guidance. We were at 3.9%, as we talked to you last quarter about. That's a EUR 332 million improvement year-on-year, almost 2 full points of operating profit. For the year, we posted revenue growth at constant currency of 2%. Obviously, the fourth quarter as compared to the fourth quarter of last year, which is an extremely strong quarter, we were down. But as we exit the year, we exit the year with a good book-to-bill ratio, strong backlog, especially in North America and Latin and South America.

From a gross margin standpoint, for the full year, we improved our gross margins by 1 full point, primarily as a result of our reductions of fixed cost and expense, as well as positive geographic and product mix. In the fourth quarter, while we saw some erosion in the gross margin of approximately 70 basis points on a quarter-on-quarter basis, we still remained at 35.6%, which I think is extremely healthy in this environment. If you go through that erosion of 70 basis points, it's primarily because of the geographic mix that we saw as we saw more Western European and Asian business in the overall mix of things.

From an operating expense standpoint, on a full year basis, you can see the chart shows 12.3% reduction year-on-year. When you adjust for currency, that's 12.7%. As we told you throughout the course of the year, that was very back-end loaded, and therefore, the fourth quarter shows that. We did achieve an exit run rate of EUR 300 million cost and expense savings for the full year, and we believe we have the momentum going into 2012 to continue our cost and expense reduction.

When I look at revenue by operating segment, Ben went through some of this, but I'll give you a little more color. Overall, for the full year, Networks was up 2%. IP was up 10%. So when you look at the IP/MPLS, the new product-to-product portfolio, that was actually up 16% year-on-year. It was offset by a decline in the legacy. If you look at our Optics portfolio for the full year, it was negative 2%. Submarine actually grew 6% year-over-year. Terrestrial optics was down 3%, primarily driven by legacy platforms. WDM was up 9% for the year, and so was our Wireless Transmission, up approximately 4%.

Our Wireless business grew 5%, primarily on the strength of LTE and CDMA, and we had over 70% growth in PON for the full year. In Services, good growth in MOD, managed services and smart services for N&SI and in application services, where we do custom software creation.

And on Enterprise, 4% for the full year. When you look at that, Enterprise data grew 9%. So very strong position. Genesys grew 8%. If you look at the profitability by our business segments, all segments were profitable in the fourth quarter. All segments were profitable for the full year.

If you look at the overall profitability, the ones we really point out is our Services and Software group that grew EUR 200 million in terms of profitability year-on-year. That's truly a focus on driving profitability in that business. So our Maintenance business was over EUR 100 million of that profit as we look to ensure that we got the right amount of maintenance registrations, as we look at reducing the cost of maintenance and trying to drive additional margins out of that annuity business.

But more importantly, we saw positive margin contribution from our Managed Services business, where, during the course of the year, we looked to renegotiate contracts, where we focused on productivity and utilization of that workforce, as well as in our smart integration services and our system business. So that's a real positive.

If I turn to our cost and expense, clearly, we realize we have not completed the task on cost and expense. While we've taken over EUR 1 billion out through the first 3 years, we recognize we have even more to go. On our last conference call in the third quarter, we indicated that we're going to take an additional EUR 200 million of fixed cost out in 2012, and we articulated that the majority of that will come from SG&A. And you can see from this chart that our 2012 target will have almost 50% from SG&A. The remaining will come from fixed operations from IT and real estate and from R&D, to some degree.

If you remember, over the course of the last 3 years, we've taken reductions in various elements of our cost structure at different levels. In the first year, we had about an equal distribution between infrastructure, R&D and SG&A. As we've pruned the portfolio back in 2010, we added back to R&D and took more out of SG&A and infrastructure. In 2011, we again added back R&D on a full year basis, took more out of SG&A, infrastructure and fixed cost and expense. In 2012, we will get the majority of our reductions out of SG&A.

This is the result of our ability to drive end-to-end processes in the company, reduce complexity, reduce cycle time and get more harmonization amongst all of our countries in various regions. We're able to do that based on the investment we made 2 years ago on rationalizing our IT platform and rationalizing processes. 2012 is the year that we're going to demonstrate that to the bottom line.

In addition to our fixed cost and expense, we also indicated that we're going to reduce EUR 300 million from our variable cost. Now this is more in the gross margin line. It has to do with cost of delivery. In the July time frame, we reorganized the company to put all of delivery operations under one central organization, our global delivery group. And as a result of that, we're able to get better efficiencies, better commonality and better process utilization.

And so as you look at that EUR 300 million savings for 2012, about half of it will come from third-party contractors and suppliers in terms of renegotiation and in terms of better utilization of those activities. About 20% will come from transformation of the work we do on our own, primarily as it relates to the deployment of common tools and common process adherence. And the last will come from productivity, productivity of our workforce both in delivery and installation. But more importantly, in our Managed Services groups where there's been specific focus on driving process commonality across all contracts around the world involved in Managed Services.

If I give a little color on the revenue. As you can see from the chart, North America did exceptionally well for the full year. They were up 11% year-on-year. In the fourth quarter, they were down because of the very strong quarter in the year-ago period. And I think North America is a testament only to the change that's taking place with regards to consumers' desire for rich media, higher order services and our ability to help our customers serve their customers, but also the fact that it gives us tremendous opportunity to deploy the entire portfolio amongst a broad set of accounts in North America. And we think that will continue as we move into 2012.

In APAC, you can see that they were down 4% for the full year. They actually grew in the fourth quarter 9%. China was up 7% for the full year. India was down 41%, and Australia was up 14%. So obviously, we're seeing good growth in China. That growth was accelerated in the fourth quarter.

In Europe, it's down approximately 14% -- excuse me, 7% year-on-year. That's equally split between Western Europe and Eastern Europe. And the Rest of the World, it shows a 4% growth. When you decompose that, our Latin American and South American operations actually grew 28% year-on-year. We saw in our Middle East and Africa group 13% erosion. That is primarily due to the fact that we were heavily concentrated in North Africa, given the events in North Africa over the course of the last year. That was the primary reason for the falloff. Hopefully, as stability resumes in that region, you'll see growth in 2012.

If I turn to the balance sheet, aside from foreign exchange and the currency disposals, very little impact on line items of the balance sheet. I will indicate that as it relates to goodwill, we once again did an impairment exercise at the end of the year. That impairment exercise resulted in no impairments to any business.

Probably the most interesting number on the chart is the net change in working capital. In the fourth quarter, we converted EUR 312 million of working capital reduction. And since this has been a topic we've talked about for a great number of quarters, I'd like to give you some more color on that. With actual rate, we reduced the overall working capital by EUR 312 million. At budget rate, adjusting for currencies, it was about EUR 290 million, which was primarily driven by the reduction in inventory. We saw [ph] the inventories down at budget rate by EUR 325 million, with almost half of that coming from the EMEA region.

Now clearly, inventory has been a focus item of the corporation. We told you last quarter that we would be -- we had done an amount of work over the preceding quarters that we thought would start to yield. It has yielded in the fourth quarter. As we move forward, we expect there to be additional yield. But I think it's a good testament to the organizations and the focus that they deploy.

Overall, from a cash conversion cycle, we ended the year at about a 67-day cash conversion cycle at budget rate. That's an improvement of approximately 4 days from the previous year.

The result of all that is, from a cash flow standpoint, we did generate EUR 541 million of positive cash flow in the quarter. That made the full year a loss of EUR 458 million. But it was an improvement of EUR 360 million, almost 40% from the previous period, which is a positive, primarily driven by that net change in working capital.

There's some other numbers I'd like to point to your attention. Restructuring. Restructuring came in at the year at minus EUR 345 million. Remember, we were telling you earlier that we thought it would be above EUR 400 million. So I think it was good work in containing the cash expenditures on restructuring.

Same thing is true with CapEx, we ended the year with EUR 574 million of CapEx. We guided you to around EUR 700 million, which was the actual in 2010. I think the organization did a fine job in conserving capital expenditures, especially tangible CapEx.

We repaid EUR 50 million worth of debt in the fourth quarter, and we ended the quarter with EUR 4.5 billion of cash and marketable securities.

When you take the proceeds of the Genesys sale into account, at the current euro-dollar exchange rate, that will go up to almost EUR 5.5 billion, EUR 5.6 billion, which is where we are today. The RCF was undrawn. All the covenants were met.

If I turn to Pensions, overall, you see that the pensions declined in terms of funded status by EUR 617 million. When you adjust for currency, that number is really EUR 303 million. So the currency impact shows a larger number than it is. But as you all know, this is an accounting view. When you look at the numbers, the most important thing is what happens to the U.S. pensions, which are based on an ERISA calculation.

During the course of the fourth quarter, we executed the transfer of approximately 1,200 dependents of previously represented occupational employees. That resulted in bringing EUR 345 million of surplus to the management plan. As we sit here today, based on a preliminary assessment, we believe that there will be no funding required through, at least, early 2014 on the U.S. pension plans. So that gives us another several years. Obviously, we need to update some data. We need to update the census data and get the valuation for alternative investments, but we're highly confident that there'll be no funding required through, at least, the early part of 2014 on any U.S. pension.

So just wrapping up, over the course of the last 3 years, we've taken out EUR 1 billion of cost and expense. We're not done. With the momentum we have exiting the second half of this year, we believe we have room for even further cost and expense reduction. Obviously, we're committing the EUR 200 million of fixed cost plus an additional EUR 300 million of variable cost. That, coupled with our ability to manage product mix, will allow us to improve our profitability over the course of 2012 from 2011.

We're currently sitting on the balance sheet with EUR 5.5 billion of cash and marketable securities. We are very optimistic about the proceeds from our patent license agreement with RPX, which Ben has indicated is a limited time offer. And we have the option to approve or not approve. And obviously, it is only one strategy in a multi-strategy process to unlock the value of our patents, which we believe is substantial at 29,000 patents.

And finally, I think over the course of the 3 years, we've done an excellent job of minimizing the potential for funding of our pensions, especially in the U.S. And as I said before, we are highly confident of not having to fund through early 2014.

So in summary, before we go to Q&A, just, again, to reiterate the guidance. 2012 adjusted operating margins higher than 2011 and a strong positive net cash position at the end of 2012.

And with that, we'll take Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]

Unknown Executive

We will take the first question from the room.

Sebastien Sztabowicz - Kepler Capital Markets, Research Division

Sebastien Sztabowicz with Kepler. I've got one question regarding the U.S. market, which grew quite slowly than during 2012. Could you please elaborate a little bit on the mix of CapEx you expect for the remaining quarters and also the potential implication on your margins profile?

Ben Verwaayen

I don't that think we're going to have the ability to be quarter performance-specific. But most of the U.S. market has to do, as I said, with the mobility in the cloud and because it has to do with the proliferation of all these tablets and the smartphones and the explosion that you can see in applications. You may have seen what happened in the last week of December in the U.S. on the number of phones sold, on the number of iPads sold, and it gives you a clear indication that if you want to do precision landing for absolute quarter, you will be in a very difficult position. The margin, maybe you want to say a few words.

Paul J. Tufano

Look, I think on our margins, we're pretty optimistic about maintaining margins in the U.S. Now obviously, there'll be mix changes. I’ll be very upfront. We know CDMA will go down year-on-year. The effect of that will be offset by LTE growth and growth in other parts of our business, such as IP and the like. And we're very hopeful that the new products driven by the FP3 processor actually help us fill that gap quite nicely.

Unknown Executive

We will take the next question from the call.

Operator

Our first question from the call comes from Achal Sultania from Crédit Suisse.

Achal Sultania

So my question is around the details of the structuring of this patent deal. And I appreciate you talk about this arrangement to generate substantial proceeds. Can you give us some range of what numbers you're looking for, and is it the gross amount or the net amount post the charges incurred by RPX? And then a follow-up on this. Will this be a lump sum payment from RPX, or will there be some ongoing royalties as well?

Ben Verwaayen

Want to give it a shot?

Paul J. Tufano

I'll give it a shot. First of all, let me first explain the structure of this arrangement. First off, this is a limited-time offer. And the way it will work will be RPX has a certain period of time to provide us a set of interested parties that want to license our product portfolio. If that amount is achieved, we'll go forward to the next breakpoint, at which time there's another checkpoint. The arrangement will be between the individual company and Alcatel-Lucent. RPX is acting as a middleman in this case. And the value of the transaction with RPX is the fact that RPX has a very large base of members that range a number of different industries. So we viewed it as an opportunity to increase our breadth of coverage in terms of potential licensing activity with companies we probably would never have addressed before and to do it in a manner which is extremely positive. Now the patent portfolio that is being licensed is a specific portfolio. In future years, if this relationship proves to be beneficial, there's an opportunity for additional licensing as we add to our portfolio. So as I said before, I think this gives -- it's an innovative approach. It gives us the flexibility to go to market in a different way than we did before. We have significant flexibility in terms of what we choose to do going forward. And we have an expectation of a dollar value or a euro value that's substantial, but we're not going to disclose that because RPX has to work with their customer base to get toward that number.

Unknown Executive

We will take the next question from the call, please.

Operator

Our next question comes from Kai Korschelt from Deutsche Bank.

Kai Korschelt - Deutsche Bank AG, Research Division

I just had a question on Europe, first of all. If we look to some of the competitors on the Wireless side, it looks like a lot of the Wireless contracts are starting to ramp up to sort of a more stable run rate. So I'm just wondering if that indicates for you that maybe the Wireline CapEx cuts that a lot of the European carriers have been doing to fund those with this wireless expansion, if they are peaking, i.e. are you seeing some sort of stabilization from Europe and it's not getting worse? And I understand, obviously, there's no pickup or improvement right now, but I'm just wondering in terms of the actual run rate. And my second question, just on the IP deal. So at the moment, there is no guaranteed or binding contractual cash inflow that you expect. Most of this, what you just described to us is based on your assessment of the quality of the IP portfolio and then probably indicative interest maybe from some of the other parties. Is that the right way to think about it?

Paul J. Tufano

So I'll take the question on the IP. Clearly, there is no contractual dollar value because we're not selling our portfolio to anyone. What we do have is the expectation based on the analysis we've done with RPX as to what we think the yield could be given the value of our patent portfolio and the types of companies that are in their membership list.

Ben Verwaayen

So on Europe, you can take 2 views. The first view is that we are now at the kind of bottom when it comes to spend because of all the trends that you discussed. And the other view is that it depends all on the macroeconomic environment because if people are cutting back, they -- and some markets are also cutting back on their telecom expense. And I think the reality is that the mix will be very, very wide. Customers will have individual choices to be made. I think that you will see some players in Europe expanding even more aggressive into new areas like LTE. It would not be a surprise to me if you will see that Europe, as such, will not have a homogeneous acceptance of the new technologies. You will see differences. And second, I think that you will see a lot of the same trends that you see in the U.S. from a consumer point of view happening in Europe. So you will also have, from the consumer point of view, a pressure, and for that, I think 2012 will be probably a tee-up for 2013, when I expect in Europe to be an increase.

Unknown Executive

And we'll take the next question in the room.

Vincent Maulay - Oddo Securities, Research Division

Vincent Maulay from Oddo. Maybe 2 quick questions, maybe first a follow-up on Europe. If I understand correctly, it's too soon to draw any conclusion on the fact that Vodafone yesterday talked about a better January compared to December. We do not see any inflection point to a better or less wait-and-see stance on capital spending in Europe in general. And maybe the second question on the gross cash management, on the EUR 1 billion cash you will receive after Genesys, what kind of interest rate we have to assume and what kind of projects you have on to deal with this EUR 5.5 billion gross cash?

Ben Verwaayen

So it's clearly true, what I said just a minute ago, your example. One customer has a very different reality than other customers. So the experience of one player is not necessarily of everybody in the market. The differences are becoming starker because people make choices on how to position their products. And the product is not just the same product for a different price as we had for a long time. There are product differentiations now coming into the market that give a substantial different relationship with their customers. You will see that in churn, and you will see that in the investment needed to serve those platforms. And so I think your example is one example where you can say that yes, the differences will be not per country or per market, very much also driven per individual choice from individual operators.

Paul J. Tufano

Now with regards to the question on the cash, obviously, given our cash investment policies, most of that cash is in short-term securities, so obviously, the yields on those are relatively nominal right now. If the question is what is the use of that cash going forward, obviously, it's going to be repayment of debt.

Unknown Executive

We will take the next question from the bridge, please.

Operator

Our next question comes from Zahid Hussein from Citigroup.

Zahid S. Hussein - Citigroup Inc, Research Division

Just a couple for me. One, what do you think the market will grow at in terms of CapEx? I know it's still a bit early, and you're probably still in discussions with carriers. But it would be very interesting to see what your sort of growth rate is for the year. And do you expect to outgrow the market and take share now that you've got a stronger balance sheet? Second one was really around working capital and how sustainable these improvements are. Should we expect more debt factoring in throughout the year? And finally, in terms of this patent, it sounds like there could be meaningful upside, and you guys are quite excited about it. When would we start to see that coming through? And in particular, what sort of areas of the patent portfolio that you've got should we expect the growth to come from, given your sort of historical patent income? Any color on that would be very helpful.

Ben Verwaayen

Well, these were a lot of questions. You want to start with the last one?

Paul J. Tufano

Let me take the patent portfolio. Obviously, I think that within the first 6 months of this year, we will have an indication as to the appetite for our potential licensees with regard to that patent portfolio. So we sit here again in the July time frame. We'll probably give you a pretty good update as to where we are because, as you know, now that we've announced it, RPX will begin to market. As we market, we'll go through the various discussions. And then there will be a final decision, no go on the first tranche, how we go forward, probably sometime in the June time frame. With regard to what elements of the patent portfolio, I think our patent portfolio is so broad, it covers so many different industries and technologies that it is probably extremely attractive to lots and lots of companies. And that's why we chose to try this approach with RPX, so we can get the broadest coverage of companies out there.

Ben Verwaayen

So on the market, I think it's too early to give you a number for the market. And besides, if I give you a number for the market, it's an average because, as I said, the U.S. is very different than Europe is very different than China or India. Today, in India, you probably will have a very different view of where the market is going than if you are in Japan. So we have to be very focused on the local circumstances in the market. I think we're expecting that capability to have that flexibility in the way we operate, but it's not because of our improvement on the balance sheet because that question would imply that we're using our balance sheet to grow. We don't use our balance sheet to grow. We use our business to grow because we have products and services and capabilities that our customers want. I think that we have demonstrated to our customers, added value. We have helped them to find financing, but it's not that the balance sheet -- the strength of our balance sheet is an indication of our capabilities to compete.

Unknown Executive

We'll take the next question in the room.

Francois Meunier - Morgan Stanley, Research Division

It's François from Morgan Stanley. Congratulations on the cash flow for Q4. It's a good reversal compared to the very poor performance in the first 3 quarters, obviously. But what I'm wondering, if I look at the receivables and the portfolio of receivables you have, it looks like you have increased by EUR 300 million the amount of receivables that you've probably sold to some banks or something. Is this a new level of receivables that you would sell per quarter, or shall it increase in the future? That's my first question to you, Paul. The second question is regarding margins in Networks. If I look at the performance in Q4, it looks like the margins in Networks have decreased by more than 50%. Obviously, the market is difficult, I understand.

Ben Verwaayen

50%? 5-0?

Francois Meunier - Morgan Stanley, Research Division

Yes.

Paul J. Tufano

Not quite 5-0, no, but go ahead.

Francois Meunier - Morgan Stanley, Research Division

But they’ve decreased quite a bit, yes?

Ben Verwaayen

Yes.

Francois Meunier - Morgan Stanley, Research Division

And if I look at, obviously, the market, obviously, it's quite difficult. How do you see the Networks margins going forward into 2012?

Paul J. Tufano

Okay, we'll take the first question -- the last question first. Yes, we did discount more receivables. As you look at the inventory, we reduced the inventory, and unfortunately, given the linearity, this quarter was more back end-loaded, so we discounted receivables, so the present value of the cash this quarter versus January and February next quarter. As we go forward, you'll see us discount receivables as well. And for us, the most important thing is how to drive better sales linearity. If we drive better sales linearity, the collections cycle is more smooth. And in the company, we're focused on a variety of things: number one, how to increase the amount of revenue recognition through the acceleration of milestones in our contracts; number two, how to ensure linearity of sales; and number three, how to make sure that we have as high a rate of current receivables as possible. We made very good progress on the last one. We're starting to make progress in the first and second, and you'll see that become even more evident in '12. Now with regard to the margins, yes, there was erosion in the margins on Networks. Obviously, that's a function of mix. As we saw a different geographical mix, it affects the margin. If we look at overall margins, though, by individual products, in specific geographies, we see margins holding on a majority of our network products. The issue is the mix, mix by geography and the mix by type of technology.

Ben Verwaayen

One of the things -- I mean, you're laughing, but one of the things that is important for us is that the time it takes for a product to come to a certain level of maturity from a margin perspective is shorter. So in the past, you would say it takes a long time for something to equal a margin of, let's say, a very mature product. In today's environment, you can see that products coming through the pipeline earlier reach a phase of a good margin, so that helps to do something with the mix there.

Francois Meunier - Morgan Stanley, Research Division

Yes, sorry, but it's actually on the mix, my question, because probably, what happened in Q4 that the U.S. was less strong than it used to be, so probably because the margin in the U.S. are higher than in the Rest of the World. As you see CDMA continuing to fall, will this continue to be the case in 2012?

Ben Verwaayen

Yes, but you also see LTE growing very fast, and what I'm trying to say to you is that the gap you may assume may not be the gap that you will have to take into your numbers.

Unknown Executive

We will take the next 2 questions from the bridge, please.

Operator

Our next question comes from Anuj Krishan from UBS.

Anuj Krishan - UBS Investment Bank, Research Division

Firstly, just for you, Ben. Some of your competitors, larger ones, particularly on the wireless side, have talked about customer caution in terms of spending continuing for some time, particularly in Europe and also in North America given that the level of spending was quite high. Is that something that you see as well, and whether you can say for the full year, and I appreciate that you'll not give guidance from a quarter-to-quarter basis, but on a full year basis, do you feel confident to be able to grow revenues in 2012? And secondly, for Paul, just on the free cash flow for the full year, you've previously talked about attempting targeting to get to an FCF breakeven. Is that something that you're still going after?

Ben Verwaayen

So if you look to the market, as I tried to explain, there are very different markets and very different dynamics. Is there caution in the market? Yes, there's caution in the market. If you take Europe, there's great caution in the market. Other indicators that there are accelerators in the market, there are also accelerators in the market. So it is the mixture of those 2 that gives me the feel that we are well positioned. If you look to the order book, it's a good indicator. The U.S. is doing very well. IP is doing very, very well from an order book perspective. So that gives a good indication where strength is, probably strength is maintained, where weakness is, probably they need an event to get out of the weakness. That's basically how I see it. It's not going automatically because it's the next day that something will disappear. Something needs to happen to make the change there. So to me, 2012 is something what you have seen in 2011 and then maybe even a more contrast between China and some of the others in the fixed and in the mobile U.S. clearly being on the accelerator again as they were in 2011 and 2010.

Paul J. Tufano

So on the guidance, obviously, we've given guidance that for 2012, we'll have strong net cash position, and that's the official guidance of the company. Now we are still focused on improving and maximizing every line item that fits within the cash flow lines, be it the margin side, be it the change in working capital, be it restructuring or CapEx charges. So we are very, very focused on that, but at the end of the day, our guidance is strong net cash position.

Unknown Executive

Another question from the call?

Operator

Our next question comes from Simon Leopold from Morgan Keegan.

Simon M. Leopold - Morgan Keegan & Company, Inc., Research Division

I wanted a quick clarification and then a question. In terms of clarification, there was a benefit from tax in the quarter. If you could give us a little bit of color as to what happened in terms of that tax benefit and how to think about that trending in 2012. And in terms of my question, I want to see if you could talk a little bit more about the mobility market in 2012. It's my sense that North America looks quite strong from a mobility perspective. You highlighted China, but I'd love to get kind of the overall view of your mobility business.

Ben Verwaayen

So on mobility, I think the U.S. is expanding very rapidly into 4G. You see all the plans, all the big operators talking about it, and that will accelerate, I think, in 2012, 2013. New players in the market on the cloud side. You will get the over-the-top players being part of the ecosystem. That's very important for us as well. Our position in Latin America is growing very rapidly based on the performance that we have in the LTE market and in the small cell market because a lot of the traffic, you cannot solve simply by the macro stuff. You need the small cells and the capabilities of that in order to give the flexibility and the cost points that you need as an operator. If you look to China, it will be LTE-TD that I think will be at least trialed, Chinese-style trialed, which means for most of the other parts of the world, deployment, but trialed in 2012. I think that you will see that a lot of the new innovations on applications are coming from Asia. For a long time, we have underestimated the capability from Asia to be also in the application business. Well, think again. A lot is coming from there. And that will mean that the whole platform capabilities will be a substantial part of the next-generation mobile investment. Don't just think base stations and backhaul. Think platform and platform capabilities. That will be a substantial part. Europe, I think some markets will move forward in spite of the economic climate. Other markets will be somewhat more reluctant. In Eastern Europe, it is capacity, and the capacity game is the same as you have seen in other parts of the world. Eastern Europe and Russia, it is now the run for capacity, capacity, capacity, and I don't think that will be done in 6 months. So that's a longer journey. So I think in the mobility world, it is all about the next generation of customers that will have an integrated approach of service demands that will require a much higher density of the network capabilities than we have seen so far.

Paul J. Tufano

Now with regard to your question on taxes, obviously, over the course of many years, the company had generated losses. So if you look at our net NOLs, we probably have upwards of EUR 15 billion in NOLs. Now because of the fact that we were not generating profits, we never really activated those NOLs for deferred tax assets. This year, we've activated about EUR 800 million, EUR 850 million of deferred tax assets for the full year of 2011. Now if you look at that, about EUR 350 million of that is associated with the sale of Genesys. So if you look on the P&L for the year, you'll see under discontinued operations a EUR 414 million positive. About EUR 350 million of that is from DTA activation for Genesys. Since we're going to have a capital gain on Genesys in the first quarter, we activated this quarter. It will be neutralized out next quarter. If you go above to the tax line, you'll see another EUR 544 million positive for the full year. Here, that's about activation of DTA for about EUR 500 million. The reason for that, quite honestly, is we're now earning a substantial amount of profits in certain jurisdictions, and therefore, we are activating the DTAs to neutralize the tax impact. If you go to our cash taxes, you can see they're quite low at about EUR 81 million. So as we continue to drive profitability with the newer product lines, there will be an opportunity to activate deferred tax assets to match that against the profitability and minimize our cash taxes. And since the number is so large, we're doing it in tranches based on what we believe the next couple of years' profitability will be.

Unknown Executive

A question in the room.

Alexander Peterc - Exane BNP Paribas, Research Division

Alexander Peterc, Exane BNP. I'd just like to understand a little bit the elements of your guidance range of this year as you experienced last year. Of course, the pattern of the top line is quite important for the margin generation, and we saw the adjustment in the guidance you gave us last year. So I'd like to understand, going to this year, given that we started -- we entered this year with a year-on-year decline in Q4 that was minus 10% like-for-like constant currency. That means you have to have quite a lot of acceleration of top line throughout the year. I know you're not guiding on the top line. We do need it to generate -- the EBIT margins will be on par with last year's and could be missing the Genesys EUR 90 million. And if I look at your Networks division, again, I mean, the decline in CDMA was quite substantial when you look at the margins in Networks, and therefore, maybe the 3S division, which had an excellent margin, will make up for that because obviously, CDMA is not going to snap back. So if you could just give us a little bit of the moving parts in your guidance.

Ben Verwaayen

So you have a lot of assumptions there in the question. A smart way to put a question. We have given you guidance after all those considerations that you have, and we understand that. So the fact that we give you the guidance, you could also do reverse engineering about what we think the market will go into. But I'm not going to populate your model. Let me be crystal clear about that. Some of your assumptions, I have tried to say that also to your neighbor, are historically colored. And it may be that the reality in the markets are somewhat more -- somewhat different. So that's one remark. Second remark, if I look to the totality, I think we have some growth perspective in some of the products that we talked about. So you may -- the minus 10% for Q4, we telegraphed it to you. We said to you, listen, in spite of whatever happened in the past, this year, people will not empty their pockets and just use it because it's Q4. It didn't happen. You could see, if you do the analysis, that we were not the only one who came to that realization, that it was not a specific ALU issue. It's a market issue. If you look to the 2012, your assumption is that we need to see that as a trend. I don't see that as a trend at all. I see it as a specific Q4, where there was a different behavior in the past that didn't happen in 2011. I hope for the management of our customers that it won't happen automatically in 2012 because now they may have broken that -- I remember from my previous life, it was very difficult to break that habit. Maybe it's not broken, which is good because then you take your decisions on CapEx based on deliberate decisions, where to spend and when, and not because the organization decides to do that. That's one of the things that Paul has successfully now also implemented here, that we spend because it's not the time of year that you need to spend but because we need to spend. The same is with our customers. That doesn't mean that the totality would go down. It simply doesn't mean that. So I think that if you look to the mix, if you look to the geography and you look to some of the growth elements that we have indicated to you on the innovation pipeline, on the new product introductions, on the move to a platform capabilities that you probably will have an indication why we came to our guidance.

Unknown Executive

We will take our last 2 questions. One from the bridge, please.

Operator

Our next question comes from Odon de Laporte from Cheuvreux.

Odon de Laporte - CA Cheuvreux, Research Division

I had a question regarding targeted saving for fixed costs of EUR 200 million. I wanted to clarify, do you expect to exit Q4 this year with annualized savings of EUR 200 million, or should I understand that differently?

Paul J. Tufano

We said that we will exit Q4 with annualized savings of about EUR 300 million.

Odon de Laporte - CA Cheuvreux, Research Division

No, in 2012, I'm talking about...

Paul J. Tufano

Oh, 2012.

Odon de Laporte - CA Cheuvreux, Research Division

Yes.

Paul J. Tufano

We haven't talked about what the exit run rate will be in 2012. It will depend on the linearity of the savings during the course of the year. So I'm not prepared to give you what the exit run rate in '12 is. But we will get EUR 200 million in absolute in '12.

Unknown Executive

And the last question from the room.

Eric Beaudet - Natixis S.A., Research Division

Eric Beaudet from Natixis. Two quick questions, if I may. The first one is regarding your Service and Software margin, which was extremely high. You mentioned a good cost control on this. But in your press release, also, you mentioned that your network build was very low, and usually, network build-out have lower margin. So the question is how much of that margin improvement in Software is really -- can continue forward because of cost-cutting? And how much was just a one-off because you had a mix which was favorable with very low build-out? And my second question regards lightRadio. A year ago, when you announced your product, you said your first sales would come somewhere in 2012. You're testing it with 7 clients. I'm interested to know when you say you co-develop that product with these clients, would that mean that the first sales are free? How do they co-invest? My idea here is -- when will we actually begin to start to see sales from that? Or just because you're developing it with your partners, does that mean they get 1 year free, 2 year free, maybe 30%, half, throughout the life of the product? Or just what do you exactly mean by that co-developing…

Ben Verwaayen

Sorry, you just missed a great opportunity to go and be in charge of this project because that will be an absolute disaster if we would translate it in that form. This is co-creation. So co-creation is very simple. It's to speed up the development. Traditionally, by announcing a product 12 months ago, we would, today, be halfway -- a process that would have a DR 0 probably at the end of next year. So that's the time frame you normally would have. It would be a brilliant idea, and then you close the doors, and you say -- 2 years later, somebody comes out and say, is this approximately what you want, customer? And then we look to it and say, it may look like it but certainly not what I imagined. And then you go in that process. We have changed the rules here, and we have said to 7 customers, come into the tent, and we discuss with you while we're working, while we're developing, is this what you imagined that it could do, should do, give your input, tell us how it should fit with the others, how would it help you to develop what we think is reducing your energy footprint, is avoiding plan information, is getting all those benefits that we have advertised. And that speeds up the process. The fact that we can announce a commercial availability in 2012 is a record from an idea within 24 months into a commercial capability of this size. So the co-creation is something else than co-investing. It's not co-investing. They not co-invest. They co-create. They bring their engineers. They bring their knowledge of the market. Very likely that if you take the trouble of co-create that you're interested in it, otherwise why do you co-create? But it is commercial terms. It's business terms. There is nothing in there that gives you rebates and the other stuff because you co-create. That's not the way it's organized. Come to Barcelona, and you will see.

Paul J. Tufano

With regards to your question on Services business, the S3G business, if you look at the full year year-on-year OP improvement of EUR 200 million, that did not come about because of a shift in less network build-out. It really came about by a conscious effort to make sure that we had the right coverage on our maintenance contracts for renewals, that we reduced the cost of our maintenance delivery and, more importantly, that we reduced the cost of our service delivery, especially in Managed Services. And then we got the best utilization of our smart service personnel in terms of providing greater value add at the higher level as opposed to the more mundane levels in contracts. So it's an area of focus to get the highest utilization at the lowest cost possible. And part of what we're showing for the EUR 300 million reduction in variable cost is a continuation of that, especially on the Managed Service side.

Unknown Executive

Ladies and gentlemen, thank you for attending, and talk to you very soon. That concludes our Q4 earnings announcement. Thank you.

Paul J. Tufano

Thank you.

Ben Verwaayen

Thanks.

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