"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 JVs(1)) 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
flow(2)) 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.
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.
Balance sheet and other performance indicators
Dec 31 Mar 31 June 30 Sep 30
SEK b. 2009 2010 2010 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.
2010 2010 2010 2009
Restructuring charges, SEK b. Q3 Q2 Q1 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
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 margin(1)) 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 12.8 14.8 39.7
Services 13.7 7% -7% 41.8 5%
Of which Managed 3.6 5.6 12.3
Services 5.2 46% -7% 15.8 28%
Of which Network Rollout 5.3 5.8 -8% 5.2 2% 15.4 16.4 -6%
EBITA margin(1)) 12% 11% - 12% - 12% 13% -
Of which Professional 17% 15% 18%
Services 16% - - 16% -
Operating margin 11% 9% - 12% - 11% 12% -
Of which Professional 15% 15% 17%
Services 16% - - 15% -
Multimedia sales 2.3 3.4 -31% 2.4 -4% 7.0 9.9 -29%
EBITA margin(1)) 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.
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.
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.
ST-Ericsson
Third quarter Second quarter
USD m. 2010 2009 Change 2010 Change
Net sales 565 728 -22% 544 4%
Adjusted operating income(1)) -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 2.4 2.7 -13% 2.7 -12% 7.3 8.5 -13%
Asia
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.
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.
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.
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 Torbjörn 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 Torbjörn 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.
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
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
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, Grönlandsgången 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 Sténson, Senior Vice President, Communications
Phone: +46 10 719 4044
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
Susanne Andersson,
Investor Relations
Phone: +46 10 719 4631
E-mail:investor.relations@ericsson.com
Andreas Hedemyr,
Investor Relations
Phone: +46 10 714 3748
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
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.
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