[Ericsson discloses the information provided herein pursuant to the
Swedish Securities Exchange and Clearing Operations Act and/or the
Swedish Financial Instruments Trading Act. The information was
submitted for publication at 07.30 CET, on October 16, 2007.]
All numbers are preliminary and unaudited.
Ericsson (NASDAQ:ERIC) expects sales of SEK 43.5 b., an operating
income of SEK 5.6 b. and a cash flow of SEK -1.6 b. for the third
quarter 2007. This is below the company's own as well as current
market expectations and primarily a result of an unexpected shift in
the business mix."The unexpected development in the quarter is mainly due to a
shortfall in sales in mobile network upgrades and expansions which
resulted in an unfavorable business mix that also negatively affected
Group margins," said Carl-Henric Svanberg, President and CEO of
Ericsson. "All other businesses performed as expected. The effect of
market dynamics is always a matter of judgment. This quarter we have
underestimated the effects."
Ericsson's networks business continues to develop most rapidly in
regions where new network rollouts and break-in contracts are
predominant. This is where competition is intense as it builds
footprint for long-term profitable growth. So far the margin
pressures from these business activities have been offset by higher
margin sales such as network expansions and upgrades. Such expansions
and upgrades have a short sales cycle and builds during the quarter.
This quarter, sales of these higher margin offerings did not
materialize as much as in previous quarters. High margin software
sales are also lower than normal.
The Professional Services segment continues to show strong growth and
stable margins. The Multimedia segment is expected to also show a
strong growth with operating income slightly above breakeven level,
reflecting the continued investments in new business areas."In infrastructure scale is critical for success. Our strategy to
regain scale advantage through increased mobile systems market shares
has been effective. The present market dynamics are however working
to our disadvantage from a short-term financial perspective. Now that
we have reestablished our scale advantage from the pre-industry
consolidation we will shift our focus slightly and capitalize on our
market share gains," said Carl-Henric Svanberg
FINANCIAL HIGHLIGHTS
Income statement and cash flow
All numbers are preliminary and unaudited.
Second
Third quarter quarter Nine months
2006
SEK b. 2007 2006 1) Change 2007 Change 2007 1) Change
Net sales excl.
divested
operations 43.5 40.9 6% 47.6 -9% 133.3 124.1 7%
Net sales 43.5 41.3 6% 47.6 -9% 133.3 125.6 6%
Gross margin 35.6% 38.2% - 43.0% - 40.6% 41.5% -
EBITDA margin 17.4% 25.4% - 23.9% - 21.8% 23.2% -
Operating income 5.6 8.8 -36% 9.3 -39% 23.0 23.6 -3%
Operating margin 12.9% 21.2% - 19.4% - 17.3% 18.8% -
Operating margin
ex Sony Ericsson 9.0% 16.5% - 16.4% - 13.7% 16.0% -
Income after
financial items 5.6 8.9 -37% 9.3 -40% 23.1 23.8 -3%
Net income 2) 4.0 6.2 -36% 6.4 -38% 16.2 16.5 -2%
1)Excludes sales from the in 2006 divested defense business, Ericsson
Microwave systems.
2)Attributable to stockholders of the parent company, excluding
minority interest.
The year-over-year sales increase of 6% consisted of organic growth
of 4%. The USD has continued to weaken during the quarter and
affected reported sales growth negatively.
The decline in gross margin is mainly due to an unfavorable business
mix consisting of a high proportion of new network rollouts and lower
software sales. In addition to the good growth in network rollout,
sales of transmission systems, with a lower margin, showed strong
growth, also negatively affecting Group gross margins.
Operating income amounted to SEK 5.6 (8.8) b. in the quarter and SEK
23.0 (23.6) b. year-to-date. In the Networks business mix, new
network rollouts are now dominating and in combination with lower
sales of software this caused the group operating margins to decline
significantly during the quarter. Sony Ericsson's pre-tax profit
contributed 4% to Group operating margin in the quarter.
Cash flow from operating activities is estimated to be SEK -1.6 (4.8)
b. in the quarter and SEK 7.2 (7.5) b. year-to-date.
SEGMENT RESULTS
All numbers are preliminary and unaudited.
Second
Third quarter quarter Nine months
2007 2006 2007 2007 2006
SEK b. 1) 2) Change 1) Change 1) 2) Change
Networks sales 28.5 29.2 -2% 33.7 -15% 91.6 88.7 3%
Of which
network rollout 4.0 3.5 14% 4.3 -7% 12.1 10.9 11%
Operating
margin 8% 9% - 19% - 15% 15% -
EBITDA margin 13% 15% - 24% - 20% 21% -
Professional
Services sales 11.0 8.7 26% 10.3 7% 30.8 26.3 17%
Of which
managed
services 3.4 2.2 50% 2.9 15% 8.9 7.0 27%
Operating
margin 15% 12% - 15% - 15% 14% -
EBITDA margin 16% 13% - 16% - 16% 15% -
Multimedia
sales 4.0 3.1 31% 3.7 10% 11.0 9.3 18%Operating
margin 1% 3% - 0% - 3% 2% -
EBITDA margin 7% 4% - 5% - 7% 3% -
Total sales 43.5 40.9 6% 47.6 -9% 133.3 124.1 7%
1)Acquired companies are included from date of acquisition.
2)Excludes sales from the in 2006 divested defense business, Ericsson
Microwave Systems.
Networks
Sales in Networks declined mainly due to lower sales of expansions
and upgrades of mobile networks with its related high software
content. Sales of lower margin network rollouts and break-ins
currently represent the majority of the networks business. It is this
shift in business mix that is negatively affecting group margins
rather than a change in the underlying margins.
Professional Services
Sales in Professional Services grew by 26% year-over-year and
continue to outpace the market. Managed services grew by 50%
year-over-year. More than two thirds of Professional Services
revenues are currently of a recurring nature.
Multimedia
Growth was 31% year-over-year. Operating income in the quarter was
slightly above breakeven level. The businesses Ericsson Mobile
Platforms, Service Delivery Platforms, Tandberg Television and
Charging are all showing strong growth with healthy margins. IPTV,
IMS and Messaging are new business development areas with significant
R&D investments but with limited sales.
REGIONAL OVERVIEW
All numbers are preliminary and unaudited.
Third quarter Second quarter Nine months
Sales, SEK b. 2007 2006 1) Change 2007 Change 2007 2006 1) Change
Western Europe 12.3 11.5 7% 12.4 -1% 37.3 35.3 6%
Central and
Eastern
Europe, Middle
East
and Africa 12.0 10.7 12% 11.5 4% 34.4 31.5 9%
Asia Pacific 12.0 11.6 3% 16.6 -28% 40.9 33.9 21%
Latin America 4.2 4.2 1% 4.1 4% 11.6 11.7 0%
North America 3.0 2.9 4% 3.0 -1% 9.1 11.8 -23%
1) Excludes sales from the in 2006 divested defense business,
Ericsson Microwave Systems.
North American sales increased slightly year-over-year, however
Ericsson had expected a more significant increase driven by mobile
network expansions and upgrades of the installed base which so far
has not materialized. In Western Europe Ericsson was also expecting
similar sales which did not occur due to ongoing operator
consolidation in several major markets.
Sales development in Asia-Pacific was flattish due to lower mobile
systems sales in China. The underlying business activity is ongoing
at a healthy level but invoicing varies quarter by quarter due to the
nature of the Chinese market. Sales in Australia were down as a
result of the completion of the initial HSPA network rollout.
Excluding China and Australia sales growth was 17% in the region. All
other regions developed as expected.
PLANNING ASSUMPTIONS
For the fourth quarter of 2007 our planning assumption is Group sales
of SEK 53-60 b. and operating margins in the mid-teens, including
Sony Ericsson.
For the market in 2008, our early expectation is that the current
conditions will prevail.
EDITOR'S NOTE
Ericsson's third quarter report for 2007 will, as earlier announced,
be published on October 25, 2007, at 07.30 (CET).
Ericsson invites media, investors and analysts to a press conference
at Kistavägen 25, Stockholm, at 10.00 (CET), October 16.
An analyst and media conference call will begin at 15.00 (CET).
Live audio webcasts 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.
FOR FURTHER INFORMATION, PLEASE CONTACT
Henry Sténson, Senior Vice President, Communications
Phone: +46 8 719 4044
E-mail: investor.relations.se@ericsson.com or
press.relations@ericsson.com
Investors
Gary Pinkham, Vice President,
Investor Relations
Phone: +46 8 719 0000
E-mail: investor.relations.se@ericsson.com
Susanne Andersson,
Investor Relations
Phone: +46 8 719 4631
E-mail: investor.relations.se@ericsson.com
Media
Åse Lindskog, Vice President,
Head of Media Relations
Phone: +46 8 719 9725, +46 730 244 872 E-mail:
press.relations@ericsson.com
Ola Rembe, Vice President
Phone: +46 8 719 9727, +46 730 244 873
E-mail:press.relations@ericsson.com
Telefonaktiebolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 8 719 00 00
www.ericsson.com
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Litigation Reform Act of 1995;
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other than statements or characterizations of historical facts, are
forward-looking statements. These forward-looking statements are
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