Form 6-K Ericsson Reports Third Quarter Results
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

October 22, 2010

 

 

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

 

 

Torshamnsgatan 23, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No  x

 

 

 

Announcement of LM Ericsson Telephone Company, dated October 22, 2010 regarding “Ericsson (SE)—ERICSSON REPORTS THIRD QUARTER RESULTS


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)

By:  

/s/    CARL OLOF BLOMQVIST        

  Carl Olof Blomqvist
  Senior Vice President and
  General Counsel
By:  

/s/    HENRY STÉNSON        

  Henry Sténson
  Senior Vice President
  Corporate Communications

Date: October 22, 2010


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LOGO

THIRD QUARTER REPORT

October 22, 2010

ERICSSON REPORTS THIRD QUARTER RESULTS

“Group sales in the quarter increased 2% year-over-year and was almost flat sequentially, negatively affected by a strong SEK,” says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC). “Sales in the quarter for comparable units, adjusted for currency exchange rate effects and hedging, decreased -5% year-over-year.

Networks sales grew 6% year-over-year with a continued transition from voice to data related business. Global Services sales grew 3% year-over year and accounted for some 40% of total sales. In local currencies Professional Services sales grew 10%. Multimedia sales declined -31% year-over-year.

A key priority has been to mitigate the effects of industry-wide component shortage and supply chain bottlenecks. The situation has gradually improved during the quarter but it remains a challenge to fully meet the demand for mobile broadband. While the supply chain bottlenecks have been resolved the industry-wide component shortage remains.

Net income increased year-over-year and sequentially mainly due to improvements in operational results and Sony Ericsson earnings as well as less restructuring charges. At the same time cash flow was strong in the quarter at SEK 12.7 b.

During the quarter, mobile broadband continued to grow, especially in North America and Japan. In China demand for 2G capacity expansions returned during the quarter. India gradually improved with 2G deliveries and in the 3G vendor selection, we have maintained our market share. Western Europe is still slow although we have been awarded our first modernization contracts. In other markets, development is slow with continued cautious operator investments. Across the world, operator focus is still on reducing operating expenditure and outsourcing of operations.

We see continued growth opportunities in the market and the combined strength of our technology leadership, our scale advantage, along with global presence and skilled employees are our key assets,” concludes Hans Vestberg.

 

     Third quarter     Second quarter     Nine months  

SEK b.

   2010     2009     Change     2010     Change     2010     2009     Change  

Net sales

     47.5        46.4        2     48.0        -1     140.6        148.1        -5

Gross margin

     39     36     —          39     —          39     36     —     

EBITA margin excl JVs1)

     16     14     —          14     —          14     13     —     

Operating income excl JVs

     6.2        5.5        14     5.3        16     16.1        17.1        -6

Operating margin excl JVs

     13     12     —          11     —          11     12     —     

Ericsson’s share in earnings in JVs

     0.0        -1.5        —          -0.1        —          -0.4        -5.6        —     

Income after financial items

     6.1        4.0        52     5.1        20     15.2        12.2        25

Net income

     3.6        0.8        360     2.0        75     6.9        3.4        101

EPS diluted, SEK

     1.14        0.25        356     0.58        97     2.12        1.05        102

Adjusted operating cash flow2)

     12.7        6.9        —          -2.0        —          13.7        15.1        —     

Cash flow from operations

     11.8        5.7        —          -2.7        —          11.4        12.0        —     

Restructuring charges excl JVs

     0.9        2.7        —          2.0        —          5.1        7.0        —     

All numbers, excl. EPS, Net income and Cash flow from operations, excl. restructuring charges.

 

1)

EBITA – Earnings before interest, tax, amortizations and write-downs of acquired intangibles.

2)

Cash flow from operations excl. restructuring cash outlays that have been provided for. Cash outlays in the third quarter 2010 were SEK 0.9 (1.2) b.

 

  1


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FINANCIAL HIGHLIGHTS

Income statement and cash flow

Sales in the quarter were up 2% year-over-year and down -1 % sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, declined -5% year-over-year. The year-over-year net impact of currency exchange rate effects and hedging was slightly negative.

In the second quarter sales were negatively impacted by SEK 3-4 b. by industry-wide component shortages and supply chain bottlenecks. The situation has gradually improved but it remains a challenge to fully meet the demand for mobile broadband. While we have delivered the back-log from previous quarter, we estimate that we had a negative effect on sales also in this quarter of SEK 2-3 b. from component shortage.

Modernization projects, where the installed 2G/3G base is modernized using multi standard radio access technology, often on a turn-key basis, have started. This had a minor impact on sales and margins in the quarter, but will impact gradually more in 2011. 3G rollouts in India have not had any impact on sales or margins in the quarter and will start to impact from next quarter.

Gross margin, excluding restructuring, increased year-over-year to 39% (36%) and was flat sequentially. The year-over-year improvement is an effect of a business mix with a higher proportion network upgrades and expansions as well as positive effects of cost reduction activities.

The cost reduction activities have reduced operating expenses as planned. However, integration of the acquired CDMA and GSM businesses, higher investments in certain R&D areas and growing number of 4G/LTE trials, have resulted in an increase in operating expenses to SEK 13.0 (11.6) b., excluding restructuring charges. The sequential reduction in operating expenses of SEK 0.9 b. follows normal seasonality.

Other operating income and expenses were SEK 0.6 (0.2) b. in the quarter.

Operating income, excluding joint ventures and restructuring charges, amounted to SEK 6.2 (5.5) b. Operating margin increased to 13% (12%) year-over-year and improved sequentially from 11%. The year-over-year improvement follows the positive development in gross margin and the sequential improvement follows the seasonally low operating expenses and higher other operating income.

Ericsson’s share in earnings of joint ventures, before tax, amounted to SEK 0.0 (-1.5) b. excluding restructuring charges, compared to SEK -0.1 b. in the second quarter. Sony Ericsson improved results year-over-year significantly due to efficiency programs and a new slimmer product portfolio and was stable sequentially. ST-Ericsson’s loss was slightly reduced year-over-year and was unchanged sequentially. Restructuring charges in joint ventures were SEK -0.1 b. in the quarter.

Financial net was SEK -0.1 (0.0) b. and unchanged sequentially.

Net income amounted to SEK 3.6 (0.8) b. and earnings per share were SEK 1.14 (0.25) in the quarter. The improvements, both year-over-year and sequentially, are mainly a result of improved operational results and JV earnings as well as less restructuring charges.

Adjusted operational cash flow was SEK 12.7 (6.9) b. in the quarter, up sequentially from SEK -2.0 b. Cash flow from operations amounted to SEK 11.8 (5.7) b. mainly due to improved results and collections.

LOGO

 

Ericsson Third Quarter Report 2010   2


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Balance sheet and other performance indicators

 

SEK b.

   Dec 31
2009
    Mar 31
2010
    June 30
2010
    Sep 30
2010
 

Net cash

     36.1        38.5        25.8        35.7   

Interest-bearing liabilities and post-employment benefits

     40.7        39.3        41.8        40.4   

Trade receivables

     66.4        62.7        69.4        57.8   

Days sales outstanding

     106        117        133        109   

Inventory

     22.7        24.1        29.4        30.3   

Of which regional inventory

     12.9        14.0        18.3        19.1   

Inventory days

     68        75        81        82   

Payable days

     57        59        61        62   

Customer financing, net

     2.3        2.9        3.1        3.5   

Return on capital employed

     4     5     6     8

Equity ratio

     52     53     51     52

Trade receivables decreased sequentially by SEK 11.6 b. to SEK 57.8 (69.4) b. positively impacted by improved collections and the strong SEK. Days sales outstanding (DSO) improved from 133 to 109 days.

Inventory increased slightly sequentially by SEK 0.9 b. to SEK 30.3 (29.4) b. impacted by seasonal build up and larger than normal inventories following supply chain bottlenecks. However, this was partly offset by a strong SEK. Inventory turnover days increased from 81 to 82 days.

Goodwill decreased to SEK 26.3 (30.0) b. due to a strong SEK.

Cash, cash equivalents and short-term investments amounted to SEK 76.2 (67.6) b. The net cash position increased sequentially by SEK 9.9 b. to SEK 35.7 (25.8) b., mainly due to positive cash flow from operations.

During the quarter, approximately SEK 1.7 b. of provisions were utilized, of which SEK 0.9 b. related to restructuring. Additions of SEK 0.8 b. were made, of which SEK 0.4 b. related to restructuring. Reversals of SEK 0.4 b. were made of which SEK 0.2 b. related to restructuring. The lower amount of additions is mainly due to business mix. Provisions will fluctuate over time depending on business mix, market mix as well as technology shifts.

Restructuring cost excluding joint ventures

In the quarter, restructuring charges amounted to SEK 0.9 b. In the fourth quarter 2010, restructuring charges of approximately SEK 1.5 b. is estimated. These cost reductions primarily relate to continuous efficiency activities in service delivery and development, transformation in managed services contracts and product rationalization.

The cost reduction program, initiated in first quarter 2009, was completed by the second quarter 2010. At the end of the quarter, cash outlays of SEK 3.8 b. remain to be made. Cash outlays in the third quarter were SEK 0.9 (1.2) b.

Cost and capital efficiency remain high on the company agenda.

 

Restructuring charges, SEK b.

   2010
Q3
     2010
Q2
     2010
Q1
     2009
Full
year
 

Cost of sales

     -0.4         -1.0         -0.8         -4.2   

Research and development expenses

     -0.5         -0.6         -0.3         -6.1   

Selling and administrative expenses

     0.0         -0.4         -1.1         -1.0   
                                   

Total

     -0.9         -2.0         -2.2         -11.3   
                                   

 

Ericsson Third Quarter Report 2010   3


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SEGMENT RESULTS

 

     Third quarter     Second quarter     Nine months  

SEK b.

   2010     2009     Change     2010     Change     2010     2009     Change  

Networks sales

     26.1        24.5        6     25.5        2     76.3        82.1        -7

EBITA margin1)

     21     16     —          17     —          18     15     —     

Operating margin

     17     14     —          13     —          14     13     —     
                                                                

Global Services sales

     19.1        18.6        3     20.1        -5     57.3        56.1        2

Of which Professional Services

     13.7        12.8        7     14.8        -7     41.8        39.7        5

Of which Managed Services

     5.2        3.6        46     5.6        -7     15.8        12.3        28

Of which Network Rollout

     5.3        5.8        -8     5.2        2     15.4        16.4        -6

EBITA margin1)

     12     11     —          12     —          12     13     —     

Of which Professional Services

     16     17     —          15     —          16     18     —     

Operating margin

     11     9     —          12     —          11     12     —     

Of which Professional Services

     16     15     —          15     —          15     17     —     
                                                                

Multimedia sales

     2.3        3.4        -31     2.4        -4     7.0        9.9        -29

EBITA margin1)

     0     15     —          -5     —          -3     13     —     

Operating margin

     -8     11     —          -13     —          -11     7     —     
                                                                

Total sales

     47.5        46.4        2     48.0        -1     140.6        148.1        -5
                                                                

All numbers exclude restructuring charges.

 

1)

EBITA – Earnings before interest, tax, amortizations and write-downs of acquired intangibles.

Networks

Networks’ sales in the quarter increased by 6% year-over-year, positively impacted by the acquired Nortel businesses. Sequentially sales increased 2%. Mobile broadband sales, including radio, backhaul and packet core, increased in the quarter, especially driven by markets such as the US and Japan. Voice related sales remained slow. As explained in the section Financial highlights sales have continued to be impacted by the industry-wide component shortage.

EBITA margin in the quarter increased year-over-year to 21% (16%). The year-over-year improvement is an effect of a business mix with a higher proportion network upgrades and expansions and cost reduction activities. The sequential improvement is also an effect of good business mix as well as seasonally low operating expenses.

LG-Ericsson had a slow quarter due to cautious operator investments ahead of LTE.

Demand for the multi standard radio base station RBS 6000 is at a high level and production levels are ramping up. Several operators are entering the second wave of mobile broadband, moving from one-size-fits-all business models to offering differentiated quality and pricing models. This development is supported by smart pipes from Ericsson with integrated radio access and (IP based) packet core networks, offering network based quality of service.

LOGO

Global Services

Global Services sales were up 3% year-over-year, and decreased -5% sequentially, negatively impacted by a strong SEK in the quarter. Global services sales account for some 40% of total Group sales with recurring business at a record high level.

Professional Services sales increased 7% year-over-year and 10% in local currencies. Managed Services sales in the quarter increased by 46% year-over-year. The year-over-year growth in Managed Services sales is primarily an effect of the added Sprint contract. The second half 2009 was negatively impacted by the reduced scope of a managed services contract in Italy. Network Rollout sales decreased -8% year-over-year negatively impacted by supply chain bottlenecks as well as lower proportion of turnkey projects.

 

Ericsson Third Quarter Report 2010   4


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The trend with good demand for services targeting the operational efficiency of operators, such as managed services, systems integration and consulting, continued in the quarter. Operators also seek new business models and show increasing interest for network sharing. Sales in the segment are positively affected by mobile broadband demand, while services related to voice continued to develop unfavorably.

EBITA margin for Global Services was slightly up at 12% (11%) year-over-year and flat sequentially. EBITA margin for Professional Services amounted to 16% (17%) in the quarter and increased slightly sequentially from 15% due to lower proportion of network rollouts.

During the quarter, 13 managed services contracts were signed of which eight were extensions or expansions of existing customer agreements. Year-to-date, 38 contracts have been signed, well above the number for full year 2009.

During the quarter, Vodafone Germany selected Ericsson as exclusive partner to manage the field services of its fixed and mobile access and transmission networks as well as fixed core network nodes. Ericsson welcomed 600 employees from Vodafone on October 1.

Ericsson provides support for networks that serve more than two billion subscribers worldwide. The total number of subscribers in networks managed by Ericsson is more than 750 million.

Multimedia

Multimedia sales in the quarter showed negative growth at -31% year-over-year and -4% sequentially. Operators in regions India, Middle East and Sub-Saharan Africa have postponed investments due to delayed upgrades of charging systems and operator consolidations. Our TV solution offering continued its positive development. EBITA margin amounted to 0% (15%) as a result of the lower sales within revenue management. Margin improved sequentially from -5% mainly due to lower cost levels.

A program for return to profitability has been initiated.

Sony Ericsson

 

     Third quarter     Second quarter     Nine months  

EUR m.

   2010     2009     Change     2010     Change     2010     2009     Change  

Number of units shipped (m.)

     10.4        14.1        -26     11.0        -5     31.9        42.5        -25

Average selling price (EUR)

     154        114        34     160        -4     150        119        26

Net sales

     1,603        1,619        -1     1,757        -9     4,765        5,038        -5

Gross margin

     30     16     —          28     —          29     12     —     

Operating margin

     4     -12     —          2     —          3     -17     —     

Income before taxes

     62        -199        —          31        —          112        -853        —     

Income before taxes, excl restructuring charges

     66        -198        —          63        —          151        -838        —     

Net income

     49        -164        —          12        —          82        -669        —     

Sony Ericsson reported its third consecutive quarter of profit showing that the overall performance is stabilizing. Units shipped in the quarter were 10.4 million, a decrease of-26% year-over-year and a decrease of -5% sequentially. Sales in the quarter were EUR 1,603 million, a decrease of -1% year-over-year and -9% sequentially.

Income before taxes for the quarter, excluding restructuring charges, was a profit of EUR 66 (-198) million, following the positive effects of the transformation program and a slimmer product portfolio.

At the end of the quarter, Sony Ericsson had a net cash position of EUR 538 million.

Ericsson’s share in Sony Ericsson’s income before tax was SEK 0.3 (-1.0) b. in the quarter.

 

Ericsson Third Quarter Report 2010   5


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ST-Ericsson

 

     Third quarter     Second quarter  

USD m.

   2010      2009      Change     2010      Change  

Net sales

     565         728         -22     544         4

Adjusted operating income1)

     -85         -77         —          -118         —     

Operating income before taxes

     -129         -121         —          -148         —     

Net income

     -121         -112         —          -139         —     

 

1)

Operating income adjusted for amortization of acquired intangibles and restructuring charges.

Net sales increased 4% sequentially. The operating loss decreased sequentially due to savings generated by restructuring and positive seasonal effects.

Inventory increased by USD 33 million, reaching USD 295 million, mainly reflecting lower demand in certain TD-SCDMA products.

Net financial position was USD 39 million, compared to USD 43 million at the end of the previous quarter. During the quarter trade receivables were sold without recourse, of which USD 179 million were outstanding at the end of the quarter, representing a sequential increase of USD 112 million. During the quarter, a short-term credit facility of USD 50 million, made available by parent companies, was utilized.

The USD 230 million restructuring plan, completed at the end of the second quarter 2010, has now given full impact. The USD 115 million restructuring plan is on track and has started to contribute savings. This plan is expected to be completed by the end of the fourth quarter 2010.

ST-Ericsson continues to be focused on achieving productivity and efficiency gains on top of and beyond the ongoing restructuring program.

ST-Ericsson is reported in US GAAP. Ericsson’s share in ST-Ericsson’s income before tax, adjusted to IFRS, was SEK -0.4 (-0.5) b. in the quarter, including restructuring charges of SEK 0.1 (0.1) b.

REGIONAL OVERVIEW

 

     Third quarter     Second quarter     Nine months  

Sales, SEK b.

   2010      2009      Change     2010      Change     2010      2009      Change  

North America

     12.9         4.0         223     13.1         -1     35.4         14.5         145

Latin America

     3.7         5.0         -27     4.2         -13     11.8         14.2         -16

Northern Europe and Central Asia

     2.4         2.7         -13     2.7         -12     7.3         8.5         -13

Western and Central Europe

     4.3         5.5         -22     4.4         -3     14.0         16.3         -15

Mediterranean

     5.0         5.2         -3     5.6         -11     15.7         18.1         -13

Middle East

     2.7         4.5         -40     3.8         -28     10.5         13.2         -21

Sub-Saharan Africa

     1.8         3.2         -44     3.0         -39     7.2         11.5         -38

India

     2.1         4.2         -49     1.4         58     5.8         11.8         -51

China and North East Asia

     6.9         5.6         24     4.6         51     16.5         18.6         -11

South East Asia and Oceania

     3.8         4.8         -20     3.6         5     11.0         15.7         -30

Other

     1.9         1.8         1     1.6         13     5.4         5.8         -6
                                                                     

Total

     47.5         46.4         2     48.0         -1     140.6         148.1         -5
                                                                     

North America sales increased 223% year-over-year and declined -1% sequentially. North America had a strong quarter and excluding effects from the strong SEK sales grew also sequentially. The mobile data market continues to develop quickly with all main carriers now offering a pre-paid data service to stimulate demand further. With strong growth in data services in the US market we now see operators introducing tiered price plans based on quality and performance. In September, MetroPCS, launched 4G/LTE together with Ericsson in the Dallas market.

Latin America sales decreased -27% year-over-year and -13% sequentially. The region is characterized by major mergers between regional operators and restructuring plans to increase competitiveness. Business in the quarter included 2G and 3G network expansions as well as new managed services deals. The Chilean government launched its national mobile broadband network to cover rural areas, aiming to reach more than three million Chileans when completed.

 

Ericsson Third Quarter Report 2010   6


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Northern Europe and Central Asia sales decreased by -13% year-over-year and by -12% sequentially. In the Eastern part of the region there is both an ongoing 2G expansions and 3G buildouts driven by increased data traffic. In the Western part of the region network modernization is high on operators’ agendas. 4G/LTE trials are planned or ongoing across the region. There is an increasing interest for managed services across the region.

Western and Central Europe sales decreased -22% year-over-year and -3% sequentially, negatively impacted by a strong SEK. Mobile broadband usage continues to increase in the region. Following conclusions of auctions for 4G/LTE in several markets, Ericsson has been selected for a number of 4G/LTE trials now being implemented with major operators. Ericsson is also supporting operators in connection with 3G data capacity and modernization projects.

Operators’ focus on efficiency continued to drive strong interest in exploring business models such as managed operations, network sharing and network transformation leading to opportunities in both services and networks. The UK is at the forefront of network sharing and Ericsson has reached the milestone of consolidating more than 10,000 shared sites for Mobile Broadband Network Ltd (MBNL). Ericsson also extended the managed services business through extensions of existing contracts. This includes a three year extension with Netia Poland, as well as landing a five year managed field service contract for Vodafone in Germany.

Mediterranean sales decreased -3% year-over-year and -11% sequentially. Operator investments in Spain and Greece continue to be cautious due to overall economic environment and price competition among operators. In order to meet demand for mobile broadband services, operators continued to focus on network modernization also during the third quarter, and network speed is seen as a competitive advantage. Operational efficiency continues to be high on the agenda which creates good demand for managed services and consulting in networks as well as in all ICT areas. During the quarter it also became evident that operators are increasing their demand within revenue management and specifically around convergent charging, both for products and system integration.

Middle East sales decreased -40% year-over-year and -28% sequentially due to cautious operator investments in some parts of the region. Development in the region showed large variations where Gulf Countries continued to show good momentum, while most other parts of the region were slow. Services continue to be a large part of the business, representing 44% of total sales in the quarter. Managed services as well as billing and revenue management are growing in importance. Operators are starting to show interest in 4G/LTE with several trials going on throughout the region. Mobile subscriptions in the region are developing positively with net additions for both voice and broadband services.

Sub-Saharan Africa sales decreased by -44% year-over-year and -39% sequentially. The cautious operator investments continued in the quarter due to operator consolidation in the region. The demand for voice services is still the prime driver, generating a continued demand for 2G/GSM in countries such as Central African Republic, Ivory Coast, Togo and Zimbabwe. However, demand for mobile broadband is emerging throughout the region although currently at a low pace. Increased backhaul capacity should make consumer services more affordable and drive further demand. Services sales increased to more than 50% in the quarter.

India sales decreased -49% year-over-year and increased 58% sequentially. In the quarter, investments in 2G/GSM capacity and coverage picked up. Deliveries in the quarter have been under the interim security clearance process. The final government decision on this process is still pending. Main focus for operators has been on vendor selection for 3G rollouts. Deployments of 3G and trials for 4G/LTE are expected in coming quarters. In the 3G vendor selection, Ericsson has maintained its market share and during the quarter Bharti Airtel awarded the majority of their 3G circles to Ericsson.

China and North East Asia sales increased 24% year-over-year and by 51 % sequentially. The year-over-year growth is mainly related to demand for mobile broadband in Japan where sales increased 63%. Sales in China declined -8% year-over-year due to tough comparison following major 3G rollouts in 2009. The sequential increase of 18% in China is primarily related to increased demand for 2G capacity expansions.

LG-Ericsson had a slow quarter due to cautious operator investments ahead of LTE.

 

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South East Asia and Oceania sales decreased -20% year-over-year and increased 5% sequentially. The decline in sales reflects last year’s one-time greenfield network rollouts in the Philippines and Vietnam. In markets with increasing usage of mobile broadband, operator demand for network equipment was good. In Vietnam operator investments are postponed due to upcoming elections. The 3G license process in Thailand is uncertain and high SIM card tax remains in Bangladesh. Services business this quarter included expansions in Bangladesh, Malaysia and Thailand. Services declined in Australia due to reduced scope in the Vodafone Hutchison managed services contract. Multimedia sales were stable year-over-year, with overall good development in multimedia brokering, IPTV in Australia as well as charging in Bangladesh.

Other includes sales of for example embedded modules, cables, power modules as well as licensing and IPR.

MARKET DEVELOPMENT

Growth rates are based on Ericsson and market estimates

The global mobile infrastructure market continued to decline in the first half of 2010, although at a slower pace than in 2009, measured in USD. In the second quarter, operator revenues had increased for three consecutive quarters and we believe that the fundamentals for longer-term positive development for the industry remain solid. Ericsson is well positioned to drive and benefit from this development.

Mobile broadband is being built-out across the world and WCDMA networks covers around 35% of the world’s population. Almost all of these networks have also launched HSPA. HSPA subscriptions now represent around 6% of the world’s subscriptions, up from 4% in the third quarter 2009. Wider coverage and the surge for mobile internet services will drive further uptake of HSPA.

Ericsson findings based on measurements in live networks show that global mobile data traffic more than doubled between second quarter 2009 and second quarter 2010 and mobile data traffic is forecasted to almost double annually over the coming years, primarily driven by 24/7 connectivity and usage of smartphones, tablets and laptops.

Voice traffic is still the main revenue source for operators even though data represents an increasing share as more and more consumers use data traffic generating devices. In average, mobile data revenues, including SMS, constitute for almost 30% of total service revenues, up from 26% a year ago. In average, it has reached 32% in North America, 27% in Europe and 25% in high-growth markets in Asia. In Japan, there are operators whose data revenues account for more than 50% of total revenues. In a basket of five countries, including the US, Japan, Germany, UK and Australia, mobile data revenue grew from 32% in second quarter 2009 to 36% in second quarter 2010. Tiered price plans for mobile broadband are on operators’ agendas and have been introduced this year.

Data traffic uptake in mobile and fixed networks drives need for higher capacity in areas such as backhaul, aggregation, transport, routing based on IP and Ethernet technologies. With operators’ focus on increased network quality and efficiency, the ability to deal with high data volumes while maintaining telecom grade service levels is key. This also drives demand for services targeting the operational efficiency of operators, such as managed services and consulting.

There is continued good growth in the professional services market. Operators’ focus on efficiency drives interest in exploring business models such as managed operations, network sharing and network transformation. The move toward all-IP and increased network complexity will create further demand for systems integration and consulting.

Mobile subscriptions are estimated to have increased by 176 million in the quarter, reaching 5.1 billion. China and India alone accounted for almost 50% of net additions with 29 and 55 million respectively. Global mobile penetration is now 74%. GSM/GPRS/EDGE added 127 of the 176 million net subscription additions in the quarter and will continue to be an important technology for billions of users for many years to come.

The global number of new WCDMA subscriptions grew by 42 million in the quarter to a total of 576 million, of which 380 million are estimated to be HSPA. Ericsson estimates that the global mobile broadband subscriptions will amount to more than 3.4 b. by 2015.

Global fixed broadband subscriptions reached nearly 487 million during second quarter 2010. Growth slowed somewhat, adding 13 million new subscriptions. DSL remains the most widely deployed broadband technology, representing 66% of total subscribers. China is the largest single market with 24% of subscriptions, 115 million, while the Asia Pacific market as a whole represents 41% of the total broadband market. United States is the second largest country with 83 million subscriptions.

From originally having connected places and then people, operators are now moving towards connecting things. Ericsson believes that in the future, every device that can benefit from connectivity will be connected.

 

Ericsson Third Quarter Report 2010   8


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PARENT COMPANY INFORMATION

Net sales for the nine-month period amounted to SEK 0.0 (0.3) b. and income after financial items was SEK 5.9(5.8)b.

Major changes in the Parent Company’s financial position for the nine-month period include: investments in LG-Ericsson of SEK 1.9 b.; decreased current and non-current receivables from subsidiaries of SEK 10.5 b.; increased current other receivables of SEK 2.4 b. and decreased current and non-current liabilities to subsidiaries of SEK 4.9 b. As per September 30, 2010, cash, cash equivalents and short-term investments amounted to SEK 63.3 (62.4) b.

In accordance with the conditions of the long-term variable remuneration program (LTV) for Ericsson employees, 1,402,553 shares from treasury stock were sold or distributed to employees during the third quarter. The holding of treasury stock at September 30, 2010 was 74,982,882 Class B shares.

OTHER INFORMATION

Acquisition of Nortel’s multi-service switch business

On September 25, 2010, Ericsson announced it has entered into an asset purchase agreement to acquire Nortel’s multi-service switch business, MSS. The cash purchase price is USD 65 million on a cash and debt free basis, subject to adjustments. The transaction is subject to court and customary regular approvals.

Acquisition of InCode’s strategy and technology group assets

On September 7, 2010, Ericsson announced it has acquired certain assets of inCode’s strategy and technology group. InCode provides strategic business and consulting services to clients in telecommunications. The acquisition brings approximately 45 consultants in the US and Canada.

Changes in Ericsson’s Executive Leadership Team

On September 20, 2010, Ericsson announced that Torbjorn Possne, previously Senior Vice President and Head of Group Function Sales & Marketing, assumes the role as head of customer unit Vodafone, effective October 1, 2010. A successor to Torbjorn Possne in the Executive Leadership Team will be announced separately.

On September 23, 2010, Ericsson appointed Bina Chaurasia as Senior Vice President and Head of Human Resources and Organization, effective November 15, 2010.

 

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Assessment of risk environment

Ericsson’s operational and financial risk factors and uncertainties along with our strategies and tactics to mitigate risk exposures or limit unfavorable outcomes are described in our Annual Report 2009. Compared to the risks described in the Annual Report 2009, no material new or changed risk factors or uncertainties have been identified in the quarter.

Risk factors and uncertainties in focus during the forthcoming six-month period for the Parent Company and the Ericsson Group include:

 

 

Potential negative effects on operators’ willingness to invest in network development due to a continued uncertainty in the financial markets and a weak economic business environment as well as uncertainty regarding the financial stability of suppliers, for example due to lack for borrowing facilities, or reduced consumer telecom spending, or increased pressure on us to provide financing;

 

 

Effects on gross margins and/or working capital of the product mix in the Networks segment between sales of software, upgrades and extensions as well as break-in contracts;

 

 

Effects on gross margins of the product mix in the Global Services segment including proportion of new network build-outs and share of new managed services deals with initial transition costs;

 

 

A continued volatile sales pattern in the Multimedia segment or variability in our overall sales seasonality could make it more difficult to forecast future sales;

 

 

Effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. with postponed investments and intensified price competition as a consequence;

 

 

Changes in foreign exchange rates, in particular USD and EUR;

 

 

Political unrest or instability in certain markets;

 

 

Effects on production and sales from restrictions with respect to timely and adequate supply of materials, components and production capacity and other vital services on competitive terms;

 

 

Natural disasters, effecting production, supply and transportation.

Ericsson conducts business in certain countries which are subject to trade restrictions or which are focused on by certain investors. We stringently follow all relevant regulations and trade embargos applicable to us in our dealings with customers operating in such countries. Moreover, Ericsson operates globally in accordance with Group level policies and directives for business ethics and conduct. In no way should our business activities in these countries be construed as supporting a particular political agenda or regime. We have activities in such countries mainly due to that certain customers with multi-country operations put demands on us to support them in all their markets.

Stockholm, October 22, 2010

Telefonaktiebolaget LM Ericsson (publ)

Hans Vestberg, President and CEO

Date for next report: January 25, 2011

 

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AUDITORS’ REVIEW REPORT

We have reviewed this report for the period January 1 to September 30, 2010, for Telefonaktiebolaget LM Ericsson (publ). The board of directors and the CEO are responsible for the preparation and presentation of this financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this financial information based on our review.

We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by FAR SRS. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden, RS, and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act regarding the Group and with the Swedish Annual Accounts Act regarding the Parent Company.

Stockholm, October 22, 2010

PricewaterhouseCoopers AB

Peter Clemedtson

Authorized Public Accountant

 

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EDITOR’S NOTE

To read the complete report with tables, please go to: www.ericsson.com/investors/financial reports/2010/9month10-en.pdf

Ericsson invites media, investors and analysts to a press conference at the Ericsson Studio, Gönlandsgagen 4, Stockholm, at 09.00 (CET), October 22. An analysts, investors and media conference call will begin at 14.00 (CET).

Live webcast of the press conference and conference call as well as supporting slides will be available at www.ericsson.com/press and www.ericsson.com/investors

Video material will be published during the day on www.ericsson.com/broadcast_room

FOR FURTHER INFORMATION, PLEASE CONTACT

Henry Stėnson, Senior Vice President, Communications

Phone:+46 10 719 4044

E-mail: investor.relations@ericsson.com or media.relations@ericsson.com

 

Investors    Media
Ase Lindskog, Vice President,    Ola Rembe, Vice President,
Head of Industry and Investor Relations    Head of Corporate Public and Media Relations
Phone: +46 10 719 9725, +46 730 244 872    Phone: +46 10 719 9727, +46 730 244 873
E-mail: investor.relations@ericsson.com    E-mail: media.relations@ericsson.com
Susanne Andersson,    Corporate Public & Media Relations
Investor Relations    Phone:+46 10 719 69 92
Phone:+46 10 719 4631    E-mail: media.relations@ericsson.com
E-mail: investor.relations@ericsson.com   
   Telefonaktiebolaget LM Ericsson (publ)
Andreas Hedemyr,    Org. number: 556016-0680
Investor Relations    Torshamnsgatan 23
Phone:+46 10 714 3748    SE-164 83 Stockholm
E-mail: investor.relations@ericsson.com    Phone: +46 10 719 0000
   www.ericsson.com

 

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Disclosure Pursuant to the Swedish Securities Markets Act

Ericsson discloses the information provided herein pursuant to the Securities Markets Act. The information was submitted for publication at 07.30 CET, on October 22, 2010.

Safe Harbor Statement of Ericsson under the US Private Securities Litigation Reform Act of 1995;

All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “would”, “potential”, “continue”, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; (xii) plans to launch new products and services; (xiii) assessments of risks; (xiv) integration of acquired businesses; (xv) compliance with rules and regulations and (xvi) infringements of intellectual property rights of others.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate or interest rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.

 

Ericsson Third Quarter Report 2010   13


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FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION

 

     Page  

Financial statements

  

Consolidated income statement and statement of comprehensive income

     15   

Consolidated balance sheet

     16   

Consolidated statement of cash flows

     17   

Consolidated statement of changes in equity

     18   

Consolidated income statement - isolated quarters

     19   

Consolidated statement of cash flows - isolated quarters

     20   

Parent Company income statement

     21   

Parent Company balance sheet

     21   
     Page  

Additional information

  

Accounting policies

     22   

Accounting policies (cont.)

     23   

Net sales by segment by quarter

     24   

Operating income by segment by quarter

     25   

Operating margin by segment by quarter

     25   

EBITDA by segment by quarter

     26   

EBITDA margin by segment by quarter

     26   

Net sales by region by quarter

     27   

Net sales by region by quarter (cont.)

     28   

External net sales by region by segment

     29   

Top 5 countries in sales

     29   

Provisions

     30   

Number of employees

     30   

Information on investments in assets subject to depreciation, amortization and impairment

     30   

Other information

     31   

Ericsson planning assumptions for year 2010

     31   

Consolidated operating income, excluding restructuring charges

     32   

Restructuring charges by function

     32   

Restructuring charges by segment

     32   

Operating income by segment, excluding restructuring charges

     33   

Operating margin by segment, excluding restructuring charges

     33   

EBITDA by segment, excluding restructuring charges

     33   

EBITDA margin by segment, excluding restructuring charges

     33   

 

Ericsson Third Quarter Report 2010   14


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Consolidated Income Statement

 

     Jul - Sep           Jan - Sep        

SEK million

   2009     2010     Change     2009     2010     Change  

Net sales

     46,433        47,481        2     148,144        140,565        -5

Cost of sales

     -30,455        -29,337        -4     -96,943        -88,099        -9
                                                

Gross income

     15,978        18,144        14     51,201        52,466        2

Gross margin (%)

     34.4     38.2       34.6     37.3  

Research and development expenses

     -8,218        -7,689        -6     -23,749        -22,966        -3

Selling and administrative expenses

     -5,279        -5,775        9     -19,585        -19,941        2
                                                

Operating expenses

     -13,497        -13,464        0     -43,334        -42,907        -1

Other operating income and expenses

     222        620          2,204        1,422     
                                                

Operating income before shares in earnings of JV and associated companies

     2,703        5,300          10,071        10,981     

Operating margin before shares in earnings of JV and associated companies (%)

     5.8     11.2       6.8     7.8  

Shares in earnings of JV and associated companies

     -1,559        -90          -5,939        -770     
                                                

Operating income

     1,144        5,210          4,132        10,211     

Financial income

     296        168          1,560        916     

Financial expenses

     -294        -302          -830        -1,336     
                                                

Income after financial items

     1,146        5,076          4,862        9,791     

Taxes

     -374        -1,523          -1,460        -2,937     
                                                

Net income

     772        3,553          3,402        6,854     
                                                

Net income attributable to:

            

- Stockholders of the Parent Company

     810        3,677          3,358        6,822     

- Non-controlling interests

     -38        -124          44        32     

Other information

            

Average number of shares, basic (million)

     3,190        3,198          3,188        3,197     

Earnings per share, basic (SEK)1)

     0.25        1.15          1.05        2.13     

Earnings per share, diluted (SEK)1)

     0.25        1.14          1.05        2.12     

Statement of Comprehensive Income

 

     Jul - Sep      Jan - Sep  

SEK million

   2009      2010      2009      2010  

Net income

     772         3,553         3,402         6,854   

Other comprehensive income

           

Actuarial gains and losses, and the effect of the asset ceiling, related to pensions participations

     -73         402         -355         -126   

Fair value remeasurement

     —           -1         -1         8   

Cash flow hedges

           

Gains/losses arising during the period

     2,106         3,111         1,202         1,543   

Reclassification adjustments for gains/losses included in profit or loss

     -295         359         5,149         403   

Adjustments for amounts transferred to initial carrying amount of hegded items

     —           —           -1,261         -136   

Changes in cumulative translation adjustments

     -5,522         -7,721         -3,655         -4,564   

Tax on items relating to components of OCI

     -539         -1,031         -1,565         -544   
                                   

Total other comprehensive income

     -4,323         -4,881         -486         -3,416   
                                   

Total comprehensive income

     -3,551         -1,328         2,916         3,438   
                                   

Total comprehensive income attributable to:

           

Stockholders of the Parent Company

     -3,417         -1,049         2,963         3,442   

Non-controlling interests

     -134         -279         -47         -4   

 

1)

Based on Net income attributable to stockholders of the Parent Company

 

Ericsson Third Quarter Report 2010, October 22, 2010    15


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Consolidated Balance Sheet

 

SEK million

   Dec 31
2009
     Jun 30
2010
     Sep 30
2010
 

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     2,079         2,706         2,868   

Goodwill

     27,375         30,003         26,346   

Intellectual property rights, brands and other intangible assets

     18,739         16,801         17,191   

Property, plant and equipment

     9,606         9,810         9,290   

Financial assets

        

Equity in JV and associated companies

     11,578         11,596         10,079   

Other investments in shares and participations

     256         266         276   

Customer financing, non-current

     830         969         1,246   

Other financial assets, non-current

     2,577         2,692         2,466   

Deferred tax assets

     14,327         16,053         14,208   
                          
     87,367         90,896         83,970   

Current assets

        

Inventories

     22,718         29,397         30,304   

Trade receivables

     66,410         69,385         57,831   

Customer financing, current

     1,444         2,132         2,251   

Other current receivables

     15,146         17,429         18,705   

Short-term investments

     53,926         51,980         54,977   

Cash and cash equivalents

     22,798         15,610         21,197   
                          
     182,442         185,933         185,265   

Total assets

     269,809         276,829         269,235   
                          

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

     139,870         138,309         137,395   

Minority interests in equity of subsidiaries

     1,157         2,115         1,674   
                          
     141,027         140,424         139,069   

Non-current liabilities

        

Post-employment benefits

     8,533         8,498         8,075   

Provisions, non-current

     461         513         408   

Deferred tax liabilities

     2,270         2,431         2,432   

Borrowings, non-current

     29,996         29,491         28,016   

Other non-current liabilities

     2,035         2,296         3,178   
                          
     43,295         43,229         42,109   

Current liabilities

        

Provisions, current

     11,970         12,548         10,529   

Borrowings, current

     2,124         3,797         4,353   

Trade payables

     18,864         20,266         20,724   

Other current liabilities

     52,529         56,565         52,451   
                          
     85,487         93,176         88,057   

Total equity and liabilities

     269,809         276,829         269,235   
                          

Of which interest-bearing liabilities and post-employment benefits

     40,653         41,786         40,444   

Net cash

     36,071         25,804         35,730   

Assets pledged as collateral

     550         579         598   

Contingent liabilities

     1,245         872         920   

 

Ericsson Third Quarter Report 2010, October 22, 2010    16


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Consolidated Statement of Cash Flows

 

     Jul- Sep      Jan - Sep      Jan -  Dec
2009
 

SEK million

   2009      2010      2009      2010     

Operating activities

              

Net income

     772         3,553         3,402         6,854         4,127   

Adjustments to reconcile net income to cash

              

Taxes

     -1,137         -226         -2,405         -952         -1,011   

Earnings/dividends in JV and associated companies

     1,319         123         4,801         800         6,083   

Depreciation, amortization and impairment losses

     3,268         2,270         8,232         7,707         12,124   

Other

     978         -947         -288         -1,642         -340   
                                            

Net income affecting cash

     5,200         4,773         13,742         12,767         20,983   

Changes in operating net assets

              

Inventories

     660         -3,763         -96         -8,690         5,207   

Customer financing, current and non-current

     394         -437         126         -1,243         598   

Trade receivables

     3,655         7,443         10,482         7,581         7,668   

Trade payables

     -2,096         1,292         -5,319         1,770         -3,522   

Provisions and post-employment benefits

     -1,060         -1,726         -2,793         -1,996         -2,950   

Other operating assets and liabilities, net

     -1,076         4,237         -4,192         1,217         -3,508   
                                            
     477         7,046         -1,792         -1,361         3,493   

Cash flow from operating activities

     5 677         11,819         11950         11,406         24 476   

Investing activities

              

Investments in property, plant and equipment

     -690         -1,027         -2 897         -2,702         -4 006   

Sales of property, plant and equipment

     99         17         238         109         534   

Acquisitions/divestments of subsidiaries and other operations, net

     -750         -559         -9 260         -2,507         -18,082   

Product development

     -245         -317         -781         -1,319         -1,443   

Other investing activities

     3 226         -817         2 695         -777         2,606   

Short-term investments

     -17,847         -3,368         -17 749         -1,263         -17,071   
                                            

Cash flow from investing activities

     -16,207         -6,071         -27,754         -8,459         -37,462   

Cash flow before financing activities

     -10,530         5,748         -15,804         2,947         -12,986   

Financing activities

              

Dividends paid

     -20         -238         -5,976         -6,639         -6,318   

Other financing activities

     535         1,165         10,421         2,638         4,617   
                                            

Cash flow from financing activities

     515         927         4,445         -4,001         -1,701   

Effect of exchange rate changes on cash

     -1,263         -1,088         -769         -547         -328   

Net change in cash

     -11,278         5,587         -12,128         -1,601         -15,015   

Cash and cash equivalents, beginning of period

     36,963         15,610         37,813         22,798         37,813   

Cash and cash equivalents, end of period

     25,685         21,197         25,685         21,197         22,798   
                                            

 

Ericsson Third Quarter Report 2010, October 22, 2010    17


Table of Contents

 

Consolidated Statement of Changes in Equity

 

SEK million

   Jan - Sep
2009
     Jan- Dec
2009
     Jan - Sep
2010
 

Opening balance

     142,084         142,084         141,027   

Total comprehensive income

     2,916         4,612         3,438   

Stock issue

     135         135         —     

Sale / Repurchase of own shares

     -87         -60         36   

Stock purchase and stock option plans

     441         658         436   

Dividends paid

     -5,976         -6,318         -6,639   

Business combinations

     -84         -84         771   
                          

Closing balance

     139,429         141,027         139,069   
                          

 

Ericsson Third Quarter Report 2010, October 22, 2010    18


Table of Contents

 

Consolidated Income Statement – Isolated Quarters

 

Isolated quarters, SEK million

   2009     2010  
   Q1     Q2     Q3     Q4     Q1     Q2     Q3  

Net sales

     49,569        52,142        46,433        58,333        45,112        47,972        47,481   

Cost of sales

     -31,957        -34,531        -30,455        -39,335        -28,527        -30,235        -29,337   
                                                        

Gross income

     17,612        17,611        15,978        18,998        16,585        17,737        18,144   

Gross margin (%)

     35.5     33.8     34.4     32.6     36.8     37.0     38.2

Research and development expenses

     -7,080        -8,451        -8,218        -9,306        -7,526        -7,751        -7,689   

Selling and administrative expenses

     -6,863        -7,443        -5,279        -7,323        -7,008        -7,158        -5,775   
                                                        

Operating expenses

     -13,943        -15,894        -13,497        -16,629        -14,534        -14,909        -13,464   

Other operating income and expenses

     342        1,640        222        878        302        500        620   
                                                        

Operating income before shares in earnings
of JV and associated companies

     4,011        3,357        2,703        3,247        2,353        3,328        5,300   

Operating margin before shares in earnings
of JV and associated companies (%)

     8.1     6.4     5.8     5.6     5.2     6.9     11.2

Shares in earnings of JV and associated companies

     -2,236        -2,144        -1,559        -1,461        -372        -308        -90   
                                                        

Operating income

     1,775        1,213        1,144        1,786        1,981        3,020        5,210   

Financial income

     1,260        4        296        314        278        470        168   

Financial expenses

     -457        -79        -294        -719        -438        -596        -302   
                                                        

Income after financial items

     2,578        1,138        1,146        1,381        1,821        2,894        5,076   

Taxes

     -745        -341        -374        -656        -547        -867        -1,523   
                                                        

Net income

     1,833        797        772        725        1,274        2,027        3,553   
                                                        

Net income attributable to:

              

- Stockholders of the Parent Company

     1,717        831        810        314        1,264        1,881        3,677   

- Non-controlling interests

     116        -34        -38        411        10        146        -124   

Other information

              

Average number of shares, basic (million)

     3,187        3,188        3,190        3,194        3,195        3,196        3,198   

Earnings per share, basic (SEK)1)

     0.54        0.26        0.25        0.10        0.40        0.59        1.15   

Earnings per share, diluted (SEK)1)

     0.54        0.26        0.25        0.10        0.39        0.58        1.14   
                                                        

 

1)

Based on Net income attributable to stockholders of the Parent Company.

 

Ericsson Third Quarter Report 2010, October 22, 2010    19


Table of Contents

 

Consolidated Statement of Cash Flows – Isolated Quarters

 

     2009      2010  

Isolated quarters, SEK million

   Q1      Q2      Q3      Q4      Q1      Q2      Q3  

Operating activities

                    

Net income

     1,833         797         772         725         1,274         2,027         3,553   

Adjustments to reconcile net income to cash Taxes

     -628         -640         -1,137         1,394         -166         -560         -226   

Earnings/dividends in JV and associated companies

     1,764         1,718         1,319         1,282         313         364         123   

Depreciation, amortization and impairment losses

     1,852         3,112         3,268         3,892         3,133         2,304         2,270   

Other

     -623         -643         978         -52         -435         -260         -947   
                                                              

Net income affecting cash

     4,198         4,344         5,200         7,241         4,119         3,875         4,773   

Changes in operating net assets

                    

Inventories

     -2,362         1,606         660         5,303         -1,465         -3,462         -3,763   

Customer financing, current and non-current

     -1         -267         394         472         -598         -208         -437   

Trade receivables

     1,810         5,017         3,655         -2,814         3,954         -3,816         7,443   

Trade payables

     -1,360         -1,863         -2,096         1,797         -955         1,433         1,292   

Provisions and post-employment benefits

     -3,265         1,532         -1,060         -157         -1,058         788         -1,726   

Other operating assets and liabilities, net

     -1,878         -1,238         -1,076         684         -1,703         -1,317         4,237   
                                                              
     -7,056         4,787         477         5,285         -1,825         -6,582         7,046   

Cash flow from operating activities

     -2,858         9,131         5,677         12,526         2,294         -2,707         11,819   

Investing activities

                    

Investments in property, plant and equipment

     -1,018         -1,189         -690         -1,109         -659         -1,016         -1,027   

Sales of property, plant and equipment

     25         114         99         296         47         45         17   

Acquisitions/divestments of subsidiaries and other operations, net

     -9,491         981         -750         -8,822         -1,080         -868         -559   

Product development

     -209         -327         -245         -662         -278         -724         -317   

Other investing activities

     -1,417         886         3,226         -89         1,859         -1,819         -817   

Short-term investments

     -424         522         -17,847         678         -3,844         5,949         -3,368   
                                                              

Cash flow from investing activities

     -12,534         987         -16,207         -9,708         -3,955         1,567         -6,071   

Cash flow before financing activities

     -15,392         10,118         -10,530         2,818         -1,661         -1,140         5,748   

Financing activities

                    

Dividends paid

     —           -5,956         -20         -342         —           -6,401         -238   

Other financing activities

     1,874         8,012         535         -5,804         -56         1,529         1,165   
                                                              

Cash flow from financing activities

     1,874         2,056         515         -6,146         -56         -4,872         927   

Effect of exchange rate changes on cash

     53         441         -1,263         441         -42         583         -1,088   

Net change in cash

     -13,465         12,615         -11,278         -2,887         -1,759         -5,429         5,587   

Cash and cash equivalents, beginning of period

     37,813         24,348         36,963         25,685         22,798         21,039         15,610   

Cash and cash equivalents, end of period

     24,348         36,963         25,685         22,798         21,039         15,610         21,197   
                                                              

 

Ericsson Third Quarter Report 2010, October 22, 2010    20


Table of Contents

 

Parent Company Income Statement

 

     Jul - Sep      Jan - Sep  

SEK million

   2009      2010      2009      2010  

Net sales

     27         8         291         26   

Cost of sales

     -10         -5         -1         -17   
                                   

Gross income

     17         3         290         9   

Operating expenses

     -753         -586         -2,336         -2,466   

Other operating income and expenses

     738         1,054         2,211         2,347   
                                   

Operating income

     2         471         165         -110   

Financial net

     620         661         5,676         6,031   
                                   

Income after financial items

     622         1,132         5,841         5,921   

Transfers to (-) / from untaxed reserves

           

Taxes

     -91         -146         -463         -82   
                                   

Net income

     531         986         5,378         5,839   
                                   

Statement of Comprehensive Income

 

     Jul - Sep      Jan - Sep  

SEK million

   2009      2010      2009      2010  

Net income

     531         986         5,378         5,839   

Cash flow hedges

           

Gains/losses arising during the period

     -170         —           442         136   

Adjustments for amounts transferred to initial carrying amount of hegded items

     —           —           -1,385         -136   

Tax on items reported directly in or transferred from equity

     —           —           204         —     
                                   

Other comprehensive income

     -170         —           -739         —     
                                   

Total comprehensive income

     361         986         4,639         5,839   
                                   

Parent Company Balance Sheet

 

SEK million

   Dec 31
2009
     Sep 30
2010
 

ASSETS

     

Fixed assets

     

Intangible assets

     2,219         1,103   

Tangible assets

     527         547   

Financial assets

     101,344         98,995   
                 
     104,090         100,645   

Current assets

     

Inventories

     61         45   

Receivables

     23,704         20,235   

Short-term investments

     53,926         54,977   

Cash and cash equivalents

     8,477         8,361   
                 
     86,168         83,618   

Total assets

     190,258         184,263   
                 

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

     

Equity

     

Restricted equity

     47,859         47,859   

Non-restricted equity

     41,953         41,443   
                 
     89,812         89,302   

Untaxed reserves

     915         915   

Provisions

     1,069         1,033   

Non-current liabilities

     57,011         54,144   

Current liabilities

     41,451         38,869   

Total stockholders’ equity, provisions and liabilities

     190,258         184,263   
                 

Assets pledged as collateral

     550         598   

Contingent liabilities

     13,072         15,467   
                 

 

Ericsson Third Quarter Report 2010, October 22, 2010    21


Table of Contents

 

Accounting Policies

The Group

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee. The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2009, and should be read in conjunction with that annual report.

As from January 1, 2010, the Company has applied the following new or amended IFRS:

 

 

IFRS 3 Business Combinations (revised)

The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, an expansion of the definition of a business and a business combination, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed as incurred.

 

 

IAS 27 Consolidated and separate financial statements (revised)

The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains or losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in income statement.

The following new or amended standards and interpretations have also been adopted:

 

 

IFRIC17, Distributions of Non-Cash Assets to Owners (Issued November 27, 2008)

 

 

IFRS 2, amendment, Group Cash-settled Share-based Payment Transactions (issued June 18, 2009)

 

 

Improvements to IFRSs (Issued April 16, 2009)

None of the new or amended standards and interpretations has had any significant impact on the financial result or position of the Company. There is no difference between IFRS effective as per September 30, 2010 and IFRS as endorsed by the EU. However, the impact on business combination accounting due to the revised IFRS 3 Business Combinations is dependent on type and size of any future arrangement involving business combination.

 

Ericsson Third Quarter Report 2010, October 22, 2010    22


Table of Contents

 

Accounting Policies (cont.)

Changes in external reporting

Change in segments

As of January 1, 2010, Ericsson reports the following segments: Networks, Global Services, Multimedia, Sony Ericsson and ST-Ericsson. The only change compared to previous years is that Network Rollout is now included in Global Services instead of Networks. All other segments are unchanged. With this change the external reporting is aligned with the new internal reporting structure.

Segments as of January 1, 2010:

Networks

Global Services

Of which Professional Services

Of which Managed Services

Of which Network Rollout

Multimedia

Sony Ericsson

ST-Ericsson

Change in geographical break down

As of January 1, 2010, the geographical reporting structure is changed. Instead of five geographical areas, ten regions are reported, mirroring the new internal geographical organization. A part called “Other” is also be reported, consisting of business not reported in the geographical structure, e.g. embedded modules, cables, power modules as well as intellectual property rights and licenses.

Regions as of January 1, 2010:

North America

Latin America

North Europe and Central Asia

Western and Central Europe

Mediterranean

Middle East

Sub-Saharan Africa

India

China and Northeast Asia

South East Asia and Oceania

Other

In 2008 and 2009 Ericsson reported top 15 countries. As of January 1, 2010, top five countries are reported.

EBITA replaces EBITDA

As of January 1, 2010, EBITA and EBITA margin for segments are reported. This is also reported for Network Rollout and Professional Services in Global Services. For the Managed Services sales figures are reported. EBITA is defined as Earnings Before Interest, Tax, Amortizations and write-downs of acquired intangibles. EBITA margin is defined as Earnings Before Interest, Taxes, Amortizations and write-downs of acquired intangibles, as a percentage of Net Sales. Previous years, Ericsson has reported EBITDA. The shift to EBITA is done to better reflect the underlying business.

Numbers have been restated for 2009 accordingly.

 

Ericsson Third Quarter Report 2010, October 22, 2010    23


Table of Contents

 

Net Sales by Segment by Quarter

Since the segments Sony Ericsson and ST-Ericsson are reported in accordance with the equity method, their sales are not included below. Net sales related to these segments are disclosed under SEGMENT RESULTS. Net sales related to other segments are set out below.

 

     2009     2010  

Isolated quarters, SEK million

   Q1     Q2     Q3     Q4     Q1     Q2     Q3  

Networks1)

     28,842        28,795        24,504        31,844        24,704        25,472        26,087   

Global Services1)

     17,486        20,019        18,578        23,137        18,098        20,080        19,076   

Of which Professional Services

     12,799        14,077        12,780        16,466        13,251        14,838        13,736   

Of which Managed Services

     4,178        4,587        3,570        5,098        4,888        5,642        5,227   

Of which Network Rollout

     4,687        5,942        5,798        6,671        4,847        5,242        5,340   

Multimedia

     3,241        3,328        3,351        3,352        2,310        2,420        2,318   
                                                        

Total

     49,569        52,142        46,433        58,333        45,112        47,972        47,481   
                                                        
     2009     2010  

Sequential change, percent

   Q1     Q2     Q3     Q4     Q1     Q2     Q3  

Networks1)

     -25     0     -15     30     -22     3     2

Global Services1)

     -26     14     -7     25     -22     11     -5

Of which Professional Services

     -21     10     -9     29     -20     12     -7

Of which Managed Services

     -2     10     -22     43     -4     15     -7

Of which Network Rollout

     -38     27     -2     15     -27     8     2

Multimedia

     -17     3     1     0     -31     5     -4
                                                        

Total

     -26     5     -11     26     -23     6     -1
                                                        
     2009     2010  

Year over year change, percent

   Q1     Q2     Q3     Q4     Q1     Q2     Q3  

Networks1)

     13     1     -13     -17     -14     -12     6

Global Services1)

     20     27     13     -3     3     0     3

Of which Professional Services

     28     28     9     2     4     5     7

Of which Managed Services

     37     37     -1     19     17     23     46

Of which Network Rollout

     4     24     24     -12     3     -12     -8

Multimedia

     25     23     -4     -14     -29     -27     -31
                                                        

Total

     12     7     -6     -13     -9     -8     2
                                                        
     2009     2010  

Year to date, SEK million

   Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar     Jan-Jun     Jan-Sep  

Networks1)

     28,842        57,637        82,141        113,985        24,704        50,176        76,263   

Global Services1)

     17,486        37,505        56,083        79,220        18,098        38,178        57,254   

Of which Professional Services

     12,799        26,876        39,656        56,122        13,251        28,089        41,825   

Of which Managed Services

     4,178        8,765        12,335        17,433        4,888        10,530        15,757   

Of which Network Rollout

     4,687        10,629        16,427        23,098        4,847        10,089        15,429   

Multimedia

     3,241        6,569        9,920        13,272        2,310        4,730        7,048   
                                                        

Total

     49,569        101,711        148,144        206,477        45,112        93,084        140,565   
                                                        
     2009     2010  

Year to date, year over year change, percent

   Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar     Jan-Jun     Jan-Sep  

Networks1)

     13     7     0     -5     -14     -13     -7

Global Services1)

     20     24     20     12     3     2     2

Of which Professional Services

     28     28     21     15     4     5     5

Of which Managed Services

     37     37     24     22     17     20     28

Of which Network Rollout

     4     14     18     7     3     -5     -6

Multimedia

     25     24     13     5     -29     -28     -29
                                                        

Total

     12     10     4     -1     -9     -8     -5
                                                        

 

1)

For 2009 Networks and Global Services are restated in accordance with the change in segments.

 

Ericsson Third Quarter Report 2010, October 22, 2010    24


Table of Contents

 

Operating Income by Segment by Quarter

 

     2009      2010  

Isolated quarters, SEK million

   Q1      Q2      Q3      Q4      Q1      Q2      Q3  

Networks1)

     3,067         1,265         1,138         2,128         1,540         2,507         3,717   

Global Services1)

     1,520         2,249         1,426         1,076         1,325         1,377         1,891   

Of which Professional Services

     1,749         2,265         1,628         1,347         1,419         1,331         1,925   

Of which Network Rollout

     -229         -16         -202         -271         -94         46         -34   

Multimedia

     44         18         330         263         -335         -479         -187   

Unallocated2)

     -77         -323         -168         -287         -158         -128         -109   
                                                              

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     4,554         3,209         2,726         3,180         2,372         3,277         5,312   

Sony Ericsson

     -2,070         -1,543         -1,036         -1,044         76         134         290   

ST-Ericsson3)

     -709         -453         -546         -351         -467         -391         -392   
                                                              

Subtotal Sony Ericsson and ST-Ericsson

     -2,779         -1,996         -1,582         -1,395         -391         -257         -102   
                                                              

Total

     1,775         1,213         1,144         1,785         1,981         3,020         5,210   
                                                              
     2009      2010  

Year to date, SEK million

   Jan-Mar      Jan-Jun      Jan-Sep      Jan-Dec      Jan-Mar      Jan-Jun      Jan-Sep  

Networks1)

     3,067         4,332         5,470         7,598         1,540         4,047         7,764   

Global Services1)

     1,520         3,769         5,195         6,271         1,325         2,702         4,593   

Of which Professional Services

     1,749         4,015         5,643         6,990         1,419         2,750         4,675   

Of which Network Rollout

     -229         -246         -448         -719         -94         -48         -82   

Multimedia

     44         62         392         655         -335         -814         -1,001   

Unallocated2)

     -77         -400         -568         -855         -158         -286         -395   
                                                              

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     4,554         7,763         10,489         13,669         2,372         5,649         10,961   

Sony Ericsson

     -2,070         -3,613         -4,649         -5,693         76         210         500   

ST-Ericsson3)

     -709         -1,162         -1,708         -2,059         -467         -858         -1,250   
                                                              

Subtotal Sony Ericsson and ST-Ericsson

     -2,779         -4,775         -6,357         -7,752         -391         -648         -750   
                                                              

Total

     1,775         2,988         4,132         5,917         1,981         5,001         10,211   
                                                              

Operating Margin by Segment by Quarter

 

     2009     2010  

As percentage of net sales, isolated quarters

   Q1     Q2     Q3     Q4     Q1     Q2     Q3  

Networks1)

     11     4     5     7     6     10     14

Global Services1)

     9     11     8     5     7     7     10

Of which Professional Services

     14     16     13     8     11     9     14

Of which Network Rollout

     -5     0     -3     -4     -2     1     -1

Multimedia

     1     1     10     8     -15     -20     -8
                                                        

Subtotal excluding Sony Ericsson and ST- Ericsson

     9     6     6     5     5     7     11
                                                        
     2009     2010  

As percentage of net sales, Year to date

   Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar     Jan-Jun     Jan-Sep  

Networks1)

     11     8     7     7     6     8     10

Global Services1)

     9     10     9     8     7     7     8

Of which Professional Services

     14     15     14     12     11     10     11

Of which Network Rollout

     -5     -2     -3     -3     -2     0     -1

Multimedia

     1     1     4     5     -15     -17     -14