Second First Six
quarter quarter months
SEK b. 2011[1] 2010[2] Change 2011 [1] Change 2011[1] 2010[2] Change
Net sales 54.8 48.0 14% 53.0 3% 107.7 93.1 16%
Gross margin 37.8% 39.0% - 38.5% - 38.1% 38.8% -
EBITA margin
excl JVs 11.4% 13.5% - 14.1% - 12.7% 13.2% -
Operating income
excl JVs 5.0 5.3 -6% 6.3 -20% 11.3 9.9 15%
Operating margin
excl JVs 9.2% 11.1% - 11.9% - 10.5% 10.6% -
Ericsson's share
in
earnings in JVs -0.8 -0.1 - -0.5 - -1.2 -0.4 -
Income after
financial items 4.6 5.1 -9% 5.8 -21% 10.4 9.2 13%
Net income 3.2 2.0 59% 4.1 -21% 7.3 3.3 121%
EPS diluted, SEK 0.96 0.58 66% 1.27 -24% 2.23 0.98 128%
EPS (Non-IFRS),
SEK[3] 1.21 0.85 42% 1.52 -20% 2.74 1.73 58%
Adjusted
operating cash
flow[4] 7.0 -2.0 - -2.1 - 4.9 1.0 -
Cash flow from
operations 5.8 -2.7 - -2.9 - 2.9 -0.4 -
--------------------------------------------------------------------------------
1) Numbers for 2011 are stated incl. restructuring charges of SEK 1.7 b in Q2
and SEK 0.4 b. in Q1
2) All numbers for 2010, excl. EPS, EPS (Non-IFRS), Net income and Cash flow
from operations, are stated excl. restructuring charges. For details see section
on restructuring under Financial Statements and Additional Information
3) EPS, diluted, excl. amortizations and write-downs of acquired intangible
assets
4) Cash flow from operations excl. restructuring cash outlays that have been
provided for
"Group sales in the quarter increased by 14% year-over-year driven by a
continued strong demand for mobile broadband. Sales were negatively impacted by
the strong SEK and sales for comparable units, adjusted for currency and
hedging, increased 27% year-over-year. The strong growth we have seen in the
past quarters continued also this quarter," says Hans Vestberg, President and
CEO of Ericsson (NASDAQ:ERIC). "Operating income, excluding joint ventures,
decreased to SEK 5.0 (5.3) b. in the quarter negatively impacted by a one-off
restructuring charge of SEK 1.3 b related to reduction of staff in Sweden. Net
income amounted to SEK 3.2 (2.0) b., an increase of 59%.
In the quarter we saw a change in market mix where Brazil, China, Germany,
Korea, and Russia showed especially strong growth both year-over-year and
sequentially. The US maintained its high business activity although sequentially
the networks business was somewhat slower while services continued to show good
development.
Segment Networks sales grew 31% year-over-year. In addition to continued
increased sales of mobile broadband, IP network product revenues showed strong
development. Segment Global Services sales decreased -5% year-over-year
primarily due to currency exchange rate effects. In local currencies
Professional Services sales were almost flat. Managed Services sales were down
compared to the second quarter 2010. The underlying fundamental growth drivers
for the services business remain and customer interest is high. Segment
Multimedia sales were down -2% year-over-year, however, with good traction for
revenue management.
The impact from the earthquake and tsunami in Japan was limited in the second
quarter due to successful mitigation activities. Our supply chain has recovered
quicker than expected and lead times for our products are being gradually
restored to normal levels.
The quarter was challenging for our joint ventures and both reported losses.
Sony Ericsson's profitability was impacted by the earthquake in Japan resulting
in supply chain constraints of close to 1.5 million units. There is a continued
strong consumer and operator demand across the smartphone portfolio.
ST-Ericsson increased its loss in the quarter mainly due to recent changes in
the market demand for feature phones," concludes Hans Vestberg.
FINANCIAL HIGHLIGHTS
Income statement and cash flow
Sales in the quarter amounted to SEK 54.8 (48.0) b., up 14% year-over-year and
3% sequentially. Sales for comparable units, adjusted for currency exchange rate
effects and hedging, increased 27% year-over-year. Including acquired businesses
sales increased further 2%-points. The strong growth we have seen in the past
quarters continued also this quarter.
Reported numbers for the second quarter 2010 exclude restructuring charges of
SEK 2.0 b., while reported numbers for the second quarter 2011 include
restructuring charges of SEK 1.7 b. Of the charges, SEK 1.3 b. relates to
headcount reductions in Sweden in mainly sales and administration. The cost
reduction program was concluded and agreed with the unions in mid-June with a
higher than targeted outcome on voluntary redundancies and a larger share of
early retirements. All in all, the activities will result in a run-rate
reduction with full impact in the fourth quarter 2011. Pay-back time is
estimated at 2.5 years.
In the report for the fourth quarter 2010 Ericsson estimated restructuring
charges for 2011 of approximately SEK 2 b. Restructuring charges for 2011 are
now estimated to approximately SEK 3 b. due to the larger scope of the
reductions in Sweden.
Gross margin in the quarter was down year-over-year at 37.8% (39.0%), and was
slightly down from 38.5% sequentially. Restructuring charges related to
activities in Sweden of SEK 0.1 b. impacted cost of sales. Year-over-year,
margins were negatively impacted by 3G rollouts in India as well as network
modernization projects in Europe. A lower share of services revenues had a
positive impact. Sequentially, margins were negatively impacted by a change in
project mix with a higher proportion of services, especially network rollout. In
the first quarter 2011, sales and margins were positively impacted by a one-off
revenue from the sale of patents of SEK 0.3 b.
The network modernization projects in Europe, with their lower margins, will
accelerate during the second half of 2011. Average project duration is expected
to be18-24 months.
Total operating expenses amounted to SEK 15.8 (13.9) b. R&D expenses amounted to
SEK 8.1 (7.1) b., an increase by 14% year-over-year. The increase is a result of
the planned higher investments in radio, such as TD-LTE and IP as well as the
acquired LG-Ericsson operations. Selling and general administrative expenses
(SG&A) amounted to SEK 7.7 (6.8) b., an increase by 15% year-over-year,
representing 14% of sales. Excluding restructuring charges of SEK 1.2 b. related
to activities in Sweden the SG&A to sales ratio was stable sequentially at 12%
and down 2%-points year-over-year.
Other operating income and expenses amounted to SEK 0.2 (0.5) b. in the quarter.
Operating income, excluding joint ventures, decreased to SEK 5.0 (5.3) b. in the
quarter negatively impacted by the one-off restructuring charge of SEK 1.3 b
related to reduction of staff in Sweden. As a result, operating margin decreased
to 9.2% (11.1%) year-over-year. Excluding the one-off restructuring charge
operating margin amounted to 11.6%.
Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.8
(-0.1) b., compared to SEK -0.5 b. in the first quarter 2011. Ericsson's share
in Sony Ericsson's loss was SEK -0.2 b. and in ST-Ericsson SEK -0.7 b.
Financial net amounted to SEK 0.3 (-0.1) b. in the quarter. Financial net
improved slightly sequentially from SEK 0.0 b. due to positive revaluation of
financial assets due to changes in interest rates.
Net income improved year-over-year to SEK 3.2 (2.0) b. due to higher sales
volumes and despite a negative impact from increased loss in joint ventures.
Sequentially net income decreased from SEK 4.1 b. mainly due to the loss of SEK
-0.8 b. in joint ventures and higher restructuring charges.
Earnings per share were SEK 0.96 (0.58) in the quarter. Earnings per share, Non-
IFRS, diluted, i.e. excluding amortizations and write-downs of acquired
intangibles, were SEK 1.21 (0.85) in the second quarter, up 42%.
Adjusted operating cash flow was SEK 7.0 (-2.0) b. in the quarter. Cash flow
from operations amounted to SEK 5.8 (-2.7) b. Cash outlays for restructuring
amounted to SEK 1.2 (0.7) b. in the quarter. Cash outlays of SEK 2.6 b. remain
to be made. In the quarter a dividend of SEK 7.2 b. was paid.
Balance sheet and other performance indicators
June 30 Mar 31 Dec 31
SEK b. 2011 2011 2010
Net cash 42.6 48.2 51.3
Interest-bearing
liabilities and
post-employment benefits 36.1 34.8 35.9
Trade receivables 60.2 60.6 61.1
Days sales
outstanding 99 101 88
Inventory 35.1 32.1 29.9
Of which regional
inventory 22.5 21.1 18.7
Inventory days 89 87 74
Payable days 68 70 62
Customer financing,
net 4.0 4.2 4.4
Return on capital
employed 13% 13% 10%
Equity ratio 52% 53% 52%
----------------------------------------------
Trade receivables were unchanged sequentially at SEK 60.2 (60.6) b. Days sales
outstanding (DSO) decreased from 101 to 99 days sequentially.
Inventory increased sequentially by SEK 3.0 b. to SEK 35.1 (32.1) b. The
inventory continued to be at a high level reflecting higher level of work in
progress in the regions, continued ramp up of production of multi-standard
radio, as well as a result of the mitigating activities taken in connection to
the events in Japan. Inventory turnover days increased from 87 to 89 days.
Goodwill increased SEK 0.5 b. to SEK 26.3 (25.8) b. mainly due to acquisition of
Guangdong Nortel Telecommunications Equipment Company Ltd. (GDNT).
Cash, cash equivalents and short-term investments amounted to SEK 78.7 (83.0) b.
The net cash position decreased sequentially by SEK 5.6 b. to SEK 42.6 (48.2)
b., mainly due to the dividend payout of SEK 7.2 b.
During the quarter approximately SEK 1.9 b. of provisions were utilized, of
which SEK 1.2 b. related to restructuring. Additions of SEK 2.0 b. were made, of
which SEK 1.4 b. related to restructuring. Reversals of SEK 0.5 b. were made.
Provisions will fluctuate over time depending on business mix, market mix as
well as technology shifts.
Total number of employees at the end of the quarter amounted to 97,929 (87,413),
an increase by 6,383 from March 31, 2011. In the quarter, some 1,000 individuals
joined Ericsson through acquisitions and approximately 4,500 related to our
services business, mainly in Brazil, China, India and the US. Main reductions
were made in countries in Western Europe.
On June 10, 2011, Moody's upgraded Ericsson's rating to A3 from Baa1, with a
stable outlook.
SEGMENT RESULTS
Networks
Second First Six
quarter quarter months
SEK b. 2011[1] 2010[2] Change 2011[1] Change 2011[1] 2010[2] Change
Networks sales 33.4 25.5 31% 33.2 0% 66.6 50.2 33%
EBITA margin[3] 16% 17% - 20% - 18% 16% -
Operating 17% -
margin 14% 13% - 16% 13% -
----------------------------------------------------------------------------
1) All numbers for 2011 are stated incl. restructuring charges of SEK 1.0 b. in
Q2 and SEK 0.2 b. in Q1
2) All numbers for 2010 are stated excl. restructuring charges of SEK 0.9 b. in
Q2 and SEK 1.5 b. in Q1
3) EBITA - Earnings before interest, tax, amortizations and write-downs of
acquired intangibles
Networks' sales in the quarter were SEK 33.4 (25.5) b., negatively impacted by
the strong SEK. The increase of 31% year-over-year was an effect of continued
high mobile broadband sales and sales of IP network products such as packet
core, IP routers and microwave based backhaul. Sequentially sales were flat.
Regions Latin America, Northern Europe and Central Asia, China and North East
Asia and Mediterranean showed growth while North America and Japan showed slower
sales.
The CDMA business continued to develop well. In China sales of GSM developed
well driven by capacity needs. Korea developed favorably also this quarter
driven by mobile broadband capacity investments.
EBITA margin in the quarter decreased year-over-year to 16% (17%) negatively
impacted by one-off restructuring charges in Sweden and 3G rollouts in India.
Sequentially EBITA decreased from 20% in the first quarter, negatively impacted
by restructuring charges. In the first quarter 2011, sales and margins were
positively impacted by a one-off revenue from the sale of patents of SEK 0.3 b.
Global Services
Second First Six
quarter quarter months
SEK b. 2011[1] 2010[2] Change 2011[1] Change 2011[1] 2010[2] Change
--------------------------------------------------------------------------------
Global Services
sales 19.0 20.1 -5% 17.4 9% 36.5 38.2 -4%
Of which
Professional
Services 13.5 14.8 -9% 12.6 7% 26.0 28.1 -7%
Of which
Managed Services 4.7 5.6 -16% 4.9 -4% 9.6 10.5 -8%
Of which
Network Rollout 5.6 5.2 6% 4.9 15% 10.4 10.1 3%
EBITA margin[3] 6% 12% - 7% - 7% 12% -
Of which
Professional
Services 13% 15% - 13% - 13% 16% -
Operating margin 5% 12% - 7% - 6% 11% -
Of which
Professional
Services 12% 15% - 12% - 12% 15% -
--------------------------------------------------------------------------------
1) All numbers for 2011 are stated incl. restructuring charges of SEK 0.5 b. in
Q2 and SEK 0.2 b. in Q1
2) All numbers for 2010 are stated excl. restructuring charges of SEK 1.0 b. in
Q2 and SEK 0.7 b. in Q1
3) EBITA - Earnings before interest, tax, amortizations and write-downs of
acquired intangibles
Global Services sales in the quarter were SEK 19.0 (20.1) b. a decrease of -5%
year-over-year, and increased by 9% sequentially. The year-over-year decrease is
a result of currency exchange rate effects. The sequential increase is mainly a
result of increased sales of network rollout as well as consulting and system
integration.
Professional Services sales were SEK 13.5 (14.8) b. in the quarter, down -9%
year-over-year, negatively impacted by currency exchange rate and strong sales
in the second quarter of 2010. Currency adjusted sales of Professional Services
were almost flat year-over-year at 1%. Sequentially Professional Services
increased by 7% with good sales in systems integration business.
Managed Services sales decreased by -16% year-over-year to SEK 4.7 (5.6) b. and
were down -4% sequentially. Currency adjusted Managed Services sales decreased
-5% year-over-year.
Network Rollout sales amounted to SEK 5.6 (5.2) b. in the quarter, an increase
of 6% year-over-year. Sequential sales increased 15% driven by high volumes of
project deployments.
Global Services' EBITA margin decreased in the quarter to 6% (12%) year-over-
year and from 7% sequentially. Margin was negatively impacted by restructuring
charges and a loss in Network Rollout following the effects of supply
constraints in 2010, large 3G rollouts in India and modernization projects in
Europe. The margin impact from restructuring charges was 3 %-points in the
quarter.
EBITA margin for Professional Services was flat sequentially at 13% (13%).
Margins were positively impacted by a higher proportion consulting and systems
integration business and less managed services sales. During the quarter 24 new
managed services contracts were signed, of which nine were extensions or
expansions. Eleven new systems integration contracts were signed in the areas of
OSS/BSS, Service Delivery Platforms and data center build projects.
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 800 million, of which 450 million in network operation
contracts and 350 million in field maintenance. The number of services
professionals employed amounts to approximately 50,000.
Multimedia
Second First Six
quarter quarter months
SEK b. 2011[1] 2010[2] Change 2011 [1] Change 2011[1] 2010[2] Change
------------------------------------------------------------------------------
Multimedia sales 2.4 2.4 -2% 2.3 4% 4.7 4.7 -2%
EBITA -
margin[3] -4% -5% - -7% -5% -5% -
Operating -
margin -11% -13% - -15% -13% -13% -
------------------------------------------------------------------------------
1) All numbers for 2011 are stated incl. restructuring charges of SEK 0.1 b. in
Q2 and SEK 0.0 b. in Q1
2) All numbers for 2010 are stated excl. restructuring charges of SEK 0.2 b. in
Q2 and SEK 0.0 b. in Q1
3) EBITA - Earnings before interest, tax, amortizations and write-downs of
acquired intangibles
Multimedia sales in the quarter decreased -2% year-over-year and increased 4%
sequentially. Revenue management developed favorably year-over-year while TV
solutions continued to be weak. EBITA margin amounted to -4% (-5%). The
improvement year-over-year and sequentially is an effect of introduced
efficiency measures.
The Business Support Systems (BSS) and Operations Support Systems (OSS) markets
are growing, driven by operator demand for business efficiency and operating
expenses reductions, as well as quality of service. In addition, the uptake of
mobile broadband and new connected devices drive demand for flexible and
scalable support systems to monetize traffic and improve offerings. In order to
further strengthen the position in the OSS/BSS area, Ericsson has announced it
had reached an agreement to acquire Telcordia, a company with a key position in
service fulfillment, assurance, network optimization and real-time charging.
Sony Ericsson
Second quarter First quarter Six months
EUR m. 2011 2010 Change 2011 Change 2011 2010 Change
Number of 7.6 -31% 15.8 -27%
units shipped (m.) 11.0 8.1 -6% 21.5
Average 156 -3% 11% 148 1%
selling price (EUR) 160 141 147
Net sales 1,193 1,757 -32% 1,145 4% 2,339 3,162 -26%
Gross margin 31% 28% - 33% - 32% 29% -
Operating margin -3% 2% - 2% - -1% 2% -
Income before -42 - - -27 -
taxes 31 15 50
Income before taxes,
excl restructuring charges -42 63 - 15 - -27 84 -
Net income -50 12 - 11 - -40 33 -
Operating cash flow -224 29 - -353 - -577 -65 -
------------------------------------------------------------------------------
Sony Ericsson's second quarter profitability was affected by the earthquake and
tsunami in Japan. The impact on sales volumes is estimated to close to 1.5
million units, with most of the effect in the early part of the quarter. The
company's shift to Android-based smartphones continues, now representing more
than 70% of total sales.
Cash flow from operating activities during the quarter was negative EUR -224
million, mainly due to negative income, timing of certain payments, and
sequential increases in accounts receivable and inventories. New external
borrowings of EUR 165 million were made in the quarter resulting in total
borrowings of EUR 769 million on June 30, 2011. Total cash balances amounted to
EUR 516 million.
Sony Ericsson estimates that its share in the global Android-based smartphone
market during the quarter was approximately 11% in volume as well as in value.
Ericsson's share in Sony Ericsson's income before tax was SEK -0.2 (0.1) b. in
the quarter.
ST-Ericsson
Second First
quarter quarter
USD m. 2011 2010 Change 2011 Change
Net sales 385 544 -29% 444 -13%
Adjusted -53% -21%
operating income[1] -181 -118 -149
Operating income -222 -148 -50% -178 -25%
Net income -221 -139 -59% -178 -24%
------------------------------------------------
1) Operating income adjusted for amortization of acquired intangibles and
restructuring charges
ST-Ericsson's sales were negatively impacted by continuous decline in sale of
legacy products. The net financial position at the end of the quarter was
negative USD -427 (-195) m. The operating loss increased sequentially primarily
due to lower sales volumes. ST-Ericsson is reported in US GAAP and Ericsson's
share in ST-Ericsson's income before tax, adjusted to IFRS, was SEK -0.7 (-0.4)
b. in the quarter.
By the end of the quarter ST-Ericsson had utilized USD 445 m. of a short-term
credit facility granted on a 50/50 basis by the parent companies.
ST-Ericsson is currently in a shift from legacy to new products, which in the
quarter represented more than 45% of total sales.
Lately, the short to midterm uncertainty in the market has increased due to
changes in the business environment and has reduced demand for legacy products
at certain customers. As a result the company's path to breakeven is expected to
take longer than the previously anticipated second quarter 2012.
Ericsson is committed to support the execution of ST-Ericsson's business plan
and we still believe in the company's recovery to profitability and positive
operating cash flows. However, in the event of a significant worsening of the
current market conditions, we may consider additional actions to improve
performance. Under this scenario the value of ST-Ericsson for Ericsson may be
lower than the current carrying amount of the investment on our books. We will
continuously monitor ST-Ericsson's business evolution and will value the
situation on a quarterly basis.
REGIONAL OVERVIEW
Second First Six
quarter quarter months
Sales, SEK b. 2011 2010 Change 2011 Change 2011 2010 Change
North America 12.3 13.1 -6% 13.2 -6% 25.5 22.5 13%
Latin America 4.9 4.2 17% 4.0 23% 8.9 8.2 10%
Northern Europe
and Central Asia 4.6 2.7 70% 3.4 35% 7.9 5.0 59%
Western and
Central Europe 4.3 4.4 -2% 4.8 -10% 9.1 9.6 -5%
Mediterranean 5.5 5.6 -2% 4.8 16% 10.3 10.7 -3%
Middle East 3.5 3.8 -7% 3.1 16% 6.6 7.7 -15%
Sub-Saharan Africa 2.2 3.0 -25% 2.2 0% 4.4 5.4 -18%
India 2.8 1.4 107% 3.2 -12% 6.0 3.7 63%
China and
North East Asia 9.0 4.6 96% 8.6 5% 17.7 9.6 85%
South East
Asia and Oceania 3.0 3.6 -17% 3.1 -2% 6.1 8.2 -14%
Other 2.5 1.6 49% 2.6 -6% 5.1 3.5 -43%
-----------------------------------------------------------------
Total 54.8 48.0 14% 53.0 3% 107.7 93.1 16%
-----------------------------------------------------------------
North America sales decreased -6% year-over-year, negatively impacted by a
strong SEK, and -6% sequentially. The US maintained its high business activity
although sequentially the networks business was somewhat slower after a period
of high operator investments in network capacity. However, services continued to
show good development.
Latin America sales increased 17% year-over-year and 23% sequentially. In the
quarter network expansions took place as well as new managed services contracts.
Ericsson is delivering the first HSPA+ Dual Carrier network in Latin America,
for Entel in Chile. New contracts for revenue assurance, billing and charging
and IPTV were also signed. Operators' longer term plans rely on IPTV, LTE and
MVNO's. Managed services remain a strong trend in the whole region and
Telefónica Brazil chose Ericsson to provide managed services for field
maintenance in Sao Paulo.
Northern Europe and Central Asia sales increased 70% year-over-year and 35%
sequentially. There was strong coverage related demand for mobile broadband in
Russia. Major network rollouts with larger operators continued to drive network
and services sales in the quarter. Mobile data remains the main source of
operator revenue growth. The Telenor managed services agreement signed in the
quarter creates an important footprint in the Nordic part of the region.
Western and Central Europe sales decreased -2% year-over-year and -10%
sequentially. Pressure on overall mobile service revenues in the region is
leading to network sharing and outsourcing initiatives. Demand for mobile
broadband continues to be strong. Network modernization, including deployment of
multi-standard radio, has started and rollout will accelerate during the second
half of 2011. In the quarter, Ericsson was selected exclusive provider of next
generation packet core by Telekom Austria Group for the Austrian and Slovenian
markets.
Mediterranean sales decreased -2% year-over-year and increased 16% sequentially,
negatively impacted by the political unrest in North Africa and the
macroeconomic environment in Greece. Modernization projects are underway in
Spain and Italy. Investments in mobile broadband are becoming a priority for
operators as data traffic continues to grow driven by smartphone usage. Managed
services also developed favorably in the quarter across the region with for
example a contract for field operations with Vodafone Italy. Tenders for 4G/LTE
spectrum are about to be concluded in Spain and we expect similar tenders to be
initiated in Italy.
Middle East sales decreased -7% year-over-year and increased 16% sequentially.
Political unrest continued to impact sales development in the region. 2G sales
were weak in the quarter, while mobile broadband sales continued to develop
positively across the region. Operators are looking into opportunities to
reducing their operating expenses, resulting in a positive development for
managed services both year-over-year and sequentially.
Sub-Saharan Africa sales decreased by -25% year-over-year, and were flat
sequentially. Subscriber growth is accelerating both in 2G and 3G networks,
driving needs for investments. Mobile broadband is picking up, however from low
levels.
India sales increased 107% year-over-year and decreased -12% sequentially. Sales
were driven by continued 3G deployments and initial 3G rollouts have now reached
a temporary peak following a period of intense deployments. The year-over-year
comparison is easy due to a slow market following license auctions and security
clearance process first half 2010. Broadband Wireless Access (BWA) license
holders are currently deciding on vendors for their TD-LTE networks where
initial roll-outs are expected at the end of the year.
China and North East Asia sales increased 96% year-over-year and 5%
sequentially. Also in this quarter, the strong year-over-year increase is mainly
related to growth in mobile broadband in Japan, 2G expansions in China and sales
growth from Korea. In Korea mobile data traffic is expected to triple in 2011.
Japan had a tough sequential comparison, but underlying fundamentals of
increasing mobile data traffic remain. Ericsson continues to be engaged in a
large scale TD-LTE trial with China Mobile.
South East Asia and Oceania sales decreased -17% year-over-year and -2%
sequentially. Political factors, investment slowdown in several markets and
operator consolidation continued to impact the development in the region. Mobile
data traffic continues to grow across the region and the introduction of social
media-enabled 2G phones is also starting to have an impact. There are some early
examples of tiered pricing in Australia and Indonesia. Across the region
operators are looking into replacing older equipment with multi-standard radio.
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
Addressable markets
The addressable service provider network equipment market was estimated to be
around USD 95 b. in 2010, and to show 3-5% CAGR 2010-2013.
The mobile networks market, excluding WiMax, OSS and site solutions, is
estimated to grow with a 6-8% CAGR 2010-2013, evidenced by very strong demand
for mobile broadband related equipment in the first quarter of 2011. Ericsson
grew its market share in radio access during the first quarter 2011, both
measured in terms of shipped volumes and value.
The addressable telecom services market was in the range of USD 96-101 b. in
2010, with an estimated CAGR of 6-8% 2010-2013. Operators' focus on efficiency
drives interest in exploring business models such as managed operations, network
sharing and network IT transformation. Estimates show that only around 35-40% of
addressable operator network operating expenditure is spent externally on
telecom services today. This leaves significant continued opportunities,
particularly for managed services.
In 2010, the telecom OSS/BSS market for software and systems integration was
valued at about USD 35 b. and is expected to show a CAGR in the range of
6-8% 2010-2013. The OSS/BSS systems integration market is also included in the
telecom services market and should not be double-counted.
Industry development
WCDMA/HSPA networks cover around 40% of the world's population, while LTE
networks only cover a few percentages. WCDMA/HSPA will remain the leading mobile
access technology for many years to come, in terms of global investment, despite
the fact that 4G/LTE is being rolled out and launched. By the end of Q2, just
above twenty LTE networks had been commercially launched, to be compared with
around 400 launched HSPA networks.
Further buildout of HSPA coverage, to reach into the remaining 60% of the
population, will be driven by the availability of affordable handsets, as well
as the surge in mobile broadband services and faster speeds. Around 30% of the
commercial HSPA networks have yet to be upgraded to a peak speed of 7.2 Mbps or
above. In the second quarter, we saw a wave of upgrades to 42 Mbps, the highest
speed currently commercially available.
Data traffic uptake in mobile and fixed networks drives need for higher capacity
in areas such as backhaul, aggregation, transport, and 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 enables operators to provide premium quality
and differentiating offerings to the end users. Recognizing that quality of
service is becoming more important, some operators now differentiate by
deploying superior networks emphasizing end user experience and quality. This
also drives demand for services targeting the operational efficiency of
operators, such as consulting, including network optimization, systems
integration and managed services.
Yearly WCDMA/HSPA radio access network investments passed GSM investments in
2009, eight years after the 3G introduction in Western Europe. Co-existence of
GSM, WCDMA/HSPA, CDMA2000 and 4G/LTE and increasing number of frequency bands
pave the way for investments in multi-standard solutions and networks
modernization.
End user trends
Global mobile penetration is 81% and total mobile subscriptions have reached
5.7 billion. Year over year growth was roughly 15%. India and China accounted
for more than 50% of the estimated 185 million net additions during the second
quarter, adding around 63 and 30 million respectively. Indonesia and Brazil were
third and fourth countries in terms of net additions. China has now passed 900
million subscriptions.
Global fixed broadband subscriptions grew by 15 million new subscriptions to
reach 537 million during the first quarter 2011, mainly boosted by strong growth
in DSL in China. China accounted for more than 40% of all net additions. DSL
represents more than 60% of all fixed broadband subscriptions, while Fiber-to-
the-Home/B represents around 15%.
+-----------------------------------------+------------------------+-----------+
| Second | Full | Ericsson |
| Unit quarter | year | forecast |
| | | |
| 2010 2011 Change|2006 2007 2008 2009 2010| 2011 |
| | | |
|Mobile Billion 4.9 ~5.7 ~15%| 2.7 3.3 4.0 4.6 ~5.3| ~6.1|
|subscriptions | | |
| | | |
| Net additions Million ~170 ~185 ~10%| 500 620 660 640 ~710| ~750|
| | | |
|Mobile Million ~470 ~760 ~60%| 55 130 220 360 ~600| ~900|
|broadband[1] | | |
| | | |
|Net additions Million ~50 ~80 ~60%| 30 70 90 150 ~250| ~300|
+-----------------------------------------+------------------------+-----------+
1) Mobile broadband includes handset, tablets and mobile PC for the following
technologies: HSPA, LTE, CDMA2000 EVDO, TD-SCDMA and WiMax
Tiered pricing for mobile broadband is now a reality, as many operators today
have evolved beyond flat-rate unlimited data models and introduced segmented
price plans, such as volume-, time- or speed-based plans. Segmented data price
plans intend to attract a wide variety of data users and differentiate the
offering, in order to maximize data revenues and to grow total service revenues.
On average in a mobile network, a smartphone generates approximately 10 times
more data traffic compared to a normal feature phone, while a mobile PC user
generates 100 times more traffic than a feature phone. Tablets appear to be
closer to smartphones than mobile PCs in terms of generated mobile data traffic.
There are indications of higher than average per-device traffic in several
networks, e.g. in the US, and traffic profiles per user do vary considerably
between networks and markets. In addition, the amount of traffic generated over
WiFi varies between different types of devices.
PARENT COMPANY INFORMATION
Income after financial items was SEK 4.7 (4.8) b. Major changes in the Parent
Company's financial position for the six-month period include; decreased cash,
cash equivalents and short-term investments of SEK 10.0 b., increased current
and non-current receivables from subsidiaries of SEK 2.2 b. and decreased
current liabilities to subsidiaries of SEK 3.4 b. During the second quarter the
dividend payment of SEK 7.2 b., as decided by the Annual General Meeting, has
been made. At the end of the quarter, cash, cash equivalents and short-term
investments amounted to SEK 61.6 (71.6) b. Guarantees to Sony Ericsson Mobile
Communications AB were unchanged in the quarter and are reported as contingent
liabilities and amounted to SEK 2.1 (1.1) b. During the quarter ST-Ericsson
utilized USD 75.5 million resulting in a balance of USD 192.5 million of the
short-term parent credit facility by June 30, 2011.
In accordance with the conditions of the long-term variable compensation program
(LTV) for Ericsson employees, 1,981,533 shares from treasury stock were sold or
distributed to employees during the second quarter. The holding of treasury
stock at June 30, 2011, was 68,481,170 Class B shares.
OTHER INFORMATION
Acquisition of Telcordia
On June 14, 2011, Ericsson announced it had reached an agreement to acquire
Telcordia, a company with a key position in service fulfillment, assurance,
network optimization and real-time charging. Ericsson will acquire 100 percent
of the shares in Telcordia for USD 1.15 billion in an all-cash transaction, on a
cash and debt-free basis. Closing is anticipated to fourth quarter 2011 with
full effect in first quarter 2012. Approximately 2,600 employees are to join
Ericsson as part of the transaction. The transaction is subject to customary
regulatory approvals and is expected to be accretive to Ericsson earnings within
12 months after closing.
Closing of acquisition of GDNT
On May 12, 2011, Ericsson announced the completion of the asset purchase
agreement to acquire certain assets of the Guangdong Nortel Telecommunications
Equipment Company Ltd. (GDNT).
Nortel patent portfolio
On July 1, 2011, Ericsson stated that, as announced separately by Nortel
Networks Corporation, a consortium of leading technology companies of which
Ericsson is a part, had emerged as the winning bidder for all of Nortel's
remaining patents and patent applications for a cash purchase price of USD 4.5
b. The transaction is expected to close in the third quarter of 2011. Ericsson's
contribution to the transaction was USD 340 million.
Appointment of Ericsson's Nomination Committee
On June 1, 2011, Ericsson announced the composition of the Nomination Committee
for 2011.
Appointments to Ericsson's Executive Leadership Team
On May 17, 2011, Helena Norrman was appointed head of Communications and member
of Ericsson's Executive Leadership Team. The appointment was effective as of May
23, 2011.
On June 7, 2011, Per Borgklint was appointed head of business unit Multimedia
and member of Ericsson's Executive Leadership Team. The appointment was
effective from the same day.
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 2010. Compared to the risks
described in the Annual Report 2010, 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 increased 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 of financing, 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;
* Results and capital needs of our two major joint ventures Sony Ericsson and
ST-Ericsson;
* 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, July 21, 2011
Telefonaktiebolaget LM Ericsson (publ)
Date for next report: October 20, 2011
BOARD ASSURANCE
The Board of Directors and the CEO certify that the financial report for the six
months gives a fair view of the performance of the business, position and profit
or loss of the Company and the Group, and describes the principal risks and
uncertainties that the Company and the companies in the Group face.
Stockholm, July 21, 2011
Telefonaktiebolaget LM Ericsson (publ)
Org. Nr. 556016-0680
AUDITORS' REVIEW REPORT
We have reviewed this report for the period January 1, 2011, to June 30, 2011,
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 Swedish 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 Swedish Standard on Review
Engagements SÖG 2410, Review of Interim Report Performed by the Independent
Auditor of the Entity. 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 International Standards on Auditing
(ISA) and other generally accepted auditing standards in Sweden. The procedures
performed in a review do not enable us to obtain assurance that we would become
aware of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
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, July 21, 2011
PricewaterhouseCoopers AB
Peter Nyllinge
Authorised Public Accountant
EDITOR'S NOTE
To read the complete report with tables, please go to:
www.ericsson.com/res/investors/docs/q-reports/2011/6month11-en.pdf
Ericsson invites media, investors and analysts to a press conference at the
Ericsson Studio, Grönlandsgången 4, Stockholm, at 09.00 (CET), July 21, 2011. An
analysts, investors and media conference call will begin at 15.30 (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
Helena Norrman, Senior Vice President, Communications
Phone: +46 10 719 3472
E-mail:investor.relations@ericsson.com or media.relations@ericsson.com
Investors
Åse Lindskog, Vice President,
Head of Industry and Investor Relations
Phone: +46 10 719 9725, +46 730 244 872
E-mail:investor.relations@ericsson.com
Stefan Jelvin, Director,
Investor Relations
Phone: +46 10 714 2039
E-mail:investor.relations@ericsson.com
Åsa Konnbjer, Director,
Investor Relations
Phone: +46 10 713 3928
E-mail:investor.relations@ericsson.com
Media
Ola Rembe, Vice President,
Head of Corporate Public and Media Relations
Phone: +46 10 719 9727, +46 730 244 873
E-mail:media.relations@ericsson.com
Corporate Public & Media Relations
Phone: +46 10 719 69 92
E-mail:media.relations@ericsson.com
Telefonaktiebolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 10 719 0000
www.ericsson.com
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 July
21, 2011.
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.
[HUG#1532492]
