Edgar Filing: ERICSSON LM TELEPHONE CO

Form 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

¨	Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

x	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2007

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from/to

¨	Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of event requiring this shell company report:

Commission file number 000–12033

TELEFONAKTIEBOLAGET LM ERICSSON

(Exact Name of Registrant as Specified in Its Charter)

LM ERICSSON TELEPHONE COMPANY

(Translation of Registrant’s Name Into English)

Kingdom of Sweden

(Jurisdiction of Incorporation or Organization)

SE-164 83 Stockholm, Sweden

(Address of Principal Executive Offices)

Roland Hagman, Vice President Group Function Financial Control

Telephone: +46 8 719 53 80, Facsimile: +46 8 719 42 22

SE-164 83 Stockholm, Sweden

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of Each Class	Name of Each Exchange on Which Registered
American Depositary Shares	The NASDAQ Stock Market LLC
B Shares	The NASDAQ Stock Market LLC	*

*	Not for trading, but only in connection with the registration of the American Depositary Shares representing such B Shares pursuant to the requirements of the Securities and Exchange Commission

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:


B shares (SEK 1.00 nominal value)		14,823,478,760
A shares (SEK 1.00 nominal value)		1,308,779,918
C shares (SEK 1.00 nominal value)		0

Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

x Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board x Other ¨

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 x Item 18 ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

CONTENTS


Form 20-F 2007 Cross Reference Table		i

Operational Review		1

Letter from the Chairman		21

Board of Directors’ Report		22

Report of Independent Registered Public Accounting Firm		48

Consolidated Financial Statements		50

Notes to the Consolidated Financial Statements		54

Risk Factors		144

Share Information		151

Shareholder Information		157

Remuneration		159

Information on the Company		164

Forward-Looking Statements		179

Corporate Governance Report 2007		181

Management’s Report on Internal Control Over Financial Reporting		208

Supplemental Information		209

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

FORM 20-F 2007 CROSS REFERENCE TABLE

Our Annual Report on Form 20-F consists of the Swedish Annual Report for 2007, with certain adjustments to comply with U.S. requirements, together with certain other information required by Form 20-F which is set forth under the heading Supplemental Information. The following cross reference table indicates where information required by Form 20-F may be found in this document.


Form 20-F Item Heading			Location in this document	Page Number
PART I
1	Identity of Directors, Senior Management and Advisors		Not applicable

2	Offer Statistics and Expected Timetable		Not applicable

3	Key Information
	A	Selected Financial Data	Four-Year Summary	4
			Supplemental Information
			Exchange Rates	209
	B	Capitalization and Indebtedness	Not applicable
	C	Reason for the Offer and Use of Proceeds	Not applicable
	D	Risk Factors	Risk Factors	144

4	Information on the Company
	A	History and Development of the Company	Board of Directors’ Report
			Summary	22
			Acquisitions and Divestments	37
			Capital Expenditures	35
			Notes to the Consolidated Financial Statements
			Note C26 Business Combinations	123
			Note C32 Events After the Balance Sheet Date	142
			Information on the Company
			General Facts on the Company	166
			History and Development	164
	B	Business Overview	Information on the Company	164
			Supplemental Information
			Operating Results	209
			Risk Factors	144
	C	Organizational Structure	Information on the Company
			Organization	176
			Supplemental Information
			Investments	220
	D	Property, Plant and Equipment	Information on the Company
			Manufacturing and Assembly	174
			Notes to the Consolidated Financial Statements
			Note C27 Leasing	127

4A	Unresolved staff comment		Not applicable

5	Operating and Financial Review and Prospects
	A	Operating Results	Board of Directors’ Report
			Goals and Results	28

ERICSSON ANNUAL REPORT ON FORM 20-F 2007


Form 20-F Item Heading			Location in this document	Page Number
			Notes to the Consolidated Financial Statements
			Note C20 Financial Risk Management and Financial Instruments	111
			Supplemental Information
			Operating Results	209
			Risk Factors	144
			Notes to the Consolidated Financial Statements
			Note C1 Significant Accounting Policies	54
	B	Liquidity and Capital Resources	Board of Directors’ Report
			Balance Sheet	34
			Cash Flow	34
			Capital Expenditures	35
			Notes to the Consolidated Financial Statements
			Note C19 Interest-Bearing Liabilities	110
			Note C20 Financial Risk Management and Financial Instruments	111
			Note C25 Statement of Cash Flows	122
	C	Research and Development, Patents and Licenses	Board of Directors’ Report
			Research and Development	36
			Information on the Company
			Innovation for Technology Leadership	165
			Intellectual Property Rights (IPR) and Licensing	166
	D	Trend Information	Board of Directors’ Report
			Market Environment and Trends	24
			Goals and Results	28
	E	Off-Balance Sheet Arrangements	Board of Directors’ Report
			Off Balance Sheet Arrangements	34
	F	Tabular Disclosure of Contractual Obligations	Board of Directors’ Report
			Material Contracts and Contractual Obligations	39

6	Directors, Senior Management and Employees
	A	Directors and Senior Management	Corporate Governance Report 2007
			Members of the Board of Directors	193
			Company Management	197
			Notes to the Consolidated Financial Statements
			Note C32 Events after the Balance Sheet Date	142

ERICSSON ANNUAL REPORT ON FORM 20-F 2007


Form 20-F Item Heading			Location in this document	Page Number
	B	Compensation	Notes to the Consolidated Financial Statements
			Note C29 Information Regarding Employees, Members of the Board of Directors and Management	129
			Note C32 Events after the Balance Sheet Date	142
	C	Board Practices	Corporate Governance Report 2007
			Board of Directors	186
			Members of the Board of Directors	193
			Company Management	197
			Notes to the Consolidated Financial Statements
			Note C29 Information Regarding Employees, Members of the Board of Directors and Management	129
			Note C32 Events after the Balance Sheet Date	142
	D	Employees	Board of Directors’ Report
			Employees	44
			Information on the Company
			Working at Ericsson	177
			Notes to the Consolidated Financial Statements
			Note C29 Information Regarding Employees, Members of the Board of Directors and Management	129
	E	Share Ownership	Share Information
			Shareholders	154
			Corporate Governance Report 2007
			Members of the Board	193
			Company Management	197
			Notes to the Consolidated Financial Statements
			Note C29 Information Regarding Employees, Members of the Board of Directors and Management	129

7	Major Shareholders and Related Party Transactions
	A	Major Shareholders	Share Information
			Shareholders	154
	B	Related Party Transactions	Notes to the Consolidated Financial Statements
			Note C30 Related Party Transactions	140
	C	Interests of Experts and Counsel	Not applicable

iii

ERICSSON ANNUAL REPORT ON FORM 20-F 2007


Form 20-F Item Heading			Location in this document	Page Number

8	Financial Information
	A	Consolidated Statements and Other Financial Information	Consolidated Financial Statements	50
			Please see also Item 17 cross references
			Report of Independent Registered
			Public Accounting Firm	48
			Board of Directors’ Report
			Legal and Tax Proceedings	45
			Supplemental Information
			Dividends	212
	B	Significant Changes	Notes to the Consolidated Financial Statements
			Note C32 Events after the Balance Sheet Date	142

9	The Offer and Listing
	A	Offer and Listing Details	Share Information
			Offer and Listing Details	152
	B	Plan of Distribution	Not applicable
	C	Markets	Share Information
			Stock Exchange Trading	151
	D	Selling Shareholders	Not applicable
	E	Dilution	Not applicable
	F	Expenses of the Issue	Not applicable

10	Additional Information
	A	Share Capital	Not applicable
	B	Memorandum and Articles of Association	Supplemental Information
			Memorandum and Articles of Association	211
	C	Material Contracts	Board of Directors’ Report
			Material Contracts and Contractual Obligations	39
			Acquisitions and Divestments	37
			Notes to the Consolidated Financial Statements
			Note C32 Events After the Balance Sheet Date	142
	D	Exchange Controls	Supplemental Information
			Exchange Controls	215
	E	Taxation	Supplemental Information
			Taxation	215
	F	Dividends and Paying Agents	Not applicable
	G	Statement by Experts	Not applicable
	H	Documents on Display	Information on the Company
			Documents on Display	168
	I	Subsidiary Information	Not applicable

ERICSSON ANNUAL REPORT ON FORM 20-F 2007


Form 20-F Item Heading			Location in this document	Page Number
11	Quantitative and Qualitative Disclosures About Market Risks		Board of Directors’ Report
			Risk Management	40
			Notes to the Consolidated Financial Statements
			Note C20 Financial Risk Management and Financial Instruments	111

12	Description of Securities Other than Equity Securities		Not applicable

PART II

13	Defaults, Dividend Arrearages and Delinquencies		Not applicable

14	Material Modifications to the Rights of Security Holders and Use of Proceeds		Not applicable

15	Controls and Procedures
	A	Disclosure Controls and Procedures	Corporate Governance Report 2007
			Disclosure Controls and Procedures	203
	B	Management’s annual report on internal control over financial reporting	Management’s Report on Internal Control Over Financial Reporting	208
	C	Attestation report of the registered public accounting firm	Report of Independent Registered Public Accounting Firm	48
	D	Changes in internal control over financial reporting	Corporate Governance Report 2007
			Disclosure Controls and Procedures	203

16	Reserved
	A	Audit Committee Financial Expert	Corporate Governance Report 2007
			The Audit Committee	190
	B	Code of Ethics	Corporate Governance Report 2007
			High Standards in Business Ethics	181
	C	Principal Accountant Fees and Services	Notes to the Consolidated Financial Statements
			Note C31 Fees to Auditors	141
			Corporate Governance Report 2007
			Audit Committee Pre-Approval Policies and Procedures	203
	D	Exemptions from the Listing Standards for Audit Committees	Corporate Governance Report 2007
			Independence Requirements	204
	E	Purchase of Equity Securities by the Issuer and Affiliated Purchasers	Not applicable

PART III

17	Financial Statements		Consolidated Income Statement	50
			Consolidated Balance Sheet	51
			Consolidated Statement of Cash Flows	52
			Consolidated Statement of Recognized
			Income and Expense	53

ERICSSON ANNUAL REPORT ON FORM 20-F 2007


.Form 20-F Item Heading		Location in this document	Page Number
		Notes to the Consolidated Financial Statements	54

18	Financial Statements	Not applicable

19	Exhibits¹⁾
	Exhibit 1	Articles of Association, incorporated by reference to our Form 6-K dated May 16, 2006
	Exhibit 2	Not applicable
	Exhibit 3	Not applicable
	Exhibit 4.1	Memorandum of Agreement, dated 25 October 2005, Telefonaktiebolaget LM Ericsson and Marconi Corporation plc incorporated by reference to our Form 20-F dated May 18, 2006
	Exhibit 4.2	Agreement and Plan of Merger Between Telefonaktiebolaget LM Ericsson (Publ), Maxwell Acquisition Corporation and Redback Networks Inc. Incorporated by reference to our Form 20-F dated June 7, 2007
	Exhibit 5	Not applicable
	Exhibit 6	Please see Notes to the Consolidated Financial Statements, Note C1 Significant Accounting Policies	54
	Exhibit 7	For definitions of certain ratios used in this report, please see Financial Terminology	5
	Exhibit 8	Please see Supplemental Information, Investments	220
	Exhibit 9	Not applicable
	Exhibit 10	Not applicable
	Exhibit 11	Our Code of Business Ethics and Conduct is included on our web site at http://www.ericsson.com/about/code_business_ethics/index.shtml
	Exhibit 12	302 Certifications
	Exhibit 13	906 Certifications
	Exhibit 14	Not applicable
	Exhibit 15.1	Consent of Independent Registered Public Accounting Firm

The Company’s holding in Sony Ericsson Mobile Communications AB meets the requirements of SEC Rule 3-09 under Regulation S-X for the provision of separate financial statements of Sony Ericsson, a non-listed Swedish company that has a December 31 fiscal year end. Pursuant to SEC rules, the financial statements of Sony Ericsson will be filed as an amendment to this Annual Report as soon as practicable after they become available.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

EVERY MOMENT COUNTS

Freeze any moment in time. anywhere in the world. No matter where you look, you will find people taking advantage of telecommunications: at home, on city streets, in remote locations, at work, in transit.

They are talking, working, keeping in touch, exchanging ideas, buying, selling, checking news, downloading information, watching videos. No matter what they are doing, it’s a new, natural part of their lives. In many ways, Ericsson is at the heart of this. Our technology and services make these moments possible.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

THE ERICSSON ADVANTAGE

Ericsson provides communication networks, professional services and multimedia solutions to the world’s largest and most demanding operators and service providers.

We are also engaged in bringing telecommunication to benefit people in developing areas of the world.

LONG-TERM DEDICATION TO OUR CUSTOMERS

The essence of the telecommunication business is long-term and trusted relationships between vendors and operators. With records of service exceeding a century in almost every market in the world, Ericsson has some of the strongest operator relationships in the industry. Simply put, operators know what they get when they choose to work with Ericsson—a trusted partner committed to making them as successful as they can possibly be.

TECHNICAL SUPERIORITY

For more than 130 years, Ericsson’s commitment to research and development has been at the heart of the Company’s vision to provide the means for people everywhere to communicate. In addition to substantial contributions to standardization organizations, Ericsson has one of the industry’s strongest patent portfolios with approximately 23,000 granted worldwide. Furthermore, we capitalize on our investments by creating, securing, protecting and licensing our portfolio of patents in support of our business goals.

OPERATIONAL EXCELLENCE

Simple, efficient and effective processes that consistently yield high-quality products and services with low cost of ownership provide competitive advantage. In this way we help our customers become as successful as they possibly can. Operational excellence, combined with our core values of professionalism, respect and perseverance, is instrumental to our ways of working.

THE ERICSSON VISION

Our vision is to be the prime driver in an all-communicating world. A world in which all people can use voice, text, images and video to share ideas and information whenever and wherever they want. As the leading supplier of communication networks and services, Ericsson plays a vital role in making such a world a reality.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

FOUR-YEAR SUMMARY


SEK million	2007		2006		2005		2004
Net sales	187,780		179,821		153,222		131,972
Operating income	30,646		35,828		33,084		26,706
Financial net	83		165		251		-540
Net income	22,135		26,436		24,460		17,836

YEAR-END POSITION
Total assets	245,117		214,940		209,336		186,186
Working capital	86,327		82,926		86,184		69,268
Capital employed	168,456		142,447		133,332		115,144
Net cash	24,312		40,728		50,645		42,911
Property, plant and equipment	9,304		7,881		6,966		5,845
Stockholders’ equity	134,112		120,113		101,622		80,445
Minority interests	940		782		850		1,057
Interest-bearing liabilities and post-employment benefits	33,404		21,552		30,860		33,643

OTHER INFORMATION
Earnings, per share, basic, SEK¹⁾	1.37		1.65		1.53		1.11
Earnings, per share, diluted, SEK¹⁾	1.37		1.65		1.53		1.11
Cash dividends per share, SEK¹⁾	0.50		0.50		0.45		0.25
Stockholders’ equity per share, SEK¹⁾	8.44		7.56		6.41		5.08
Number of shares (in millions)
—outstanding, basic, at end of period¹⁾	15,900		15,881		15,864		15,832
—average, basic¹⁾	15,891		15,871		15,843		15,829
—average, diluted¹⁾	15,964		15,943		15,907		15,895
Additions to property, plant and equipment	4,319		3,827		3,365		2,452
Depreciation of property, plant and equipment	3,121		3,007		2,804		2,434
Acquisitions/capitalization of intangible assets	29,838		18,319		2,250		1,950
Amortization of intangible assets	5,433		4,237		3,269		2,306
Research and development expenses	28,842		27,533		24,059		23,421
—as percentage of net sales	15.4	%	15.3	%	15.7	%	17.7	%

RATIOS
Operating margin	16.3	%	19.9	%	21.8	%	20.2	%
Operating margin excluding Sony Ericsson	12.5	%	16.7	%	20.3	%	18.6	%
Cash conversion	66	%	57	%	47	%	80	%
Return on equity	17.2	%	23.7	%	26.7	%	24.2	%
Return on capital employed	20.9	%	27.4	%	28.7	%	26.4	%
Equity ratio	55.1	%	56.2	%	49.0	%	43.8	%
Capital turnover	1.2		1.3		1.2		1.2
Inventory turnover	5.2		5.2		5.1		5.7
Trade receivables turnover	3.4		3.9		4.1		4.1
Payment readiness, SEK million	64,678		67,454		78,647		81,447
—as percentage of net sales	34.4	%	37.5	%	51.3	%	61.7	%

STATISTICAL DATA, YEAR-END
Number of employees	74,011		63,781		56,055		50,534
—of which in Sweden	19,781		19,094		21,178		21,296
Export sales from Sweden, SEK million	102,486		98,694		93,879		86,510

1)	Data will be impacted by the reverse split with effective date in June 2008, resolved by the Annual General Meeting of Shareholders April 9, 2008.

Selected financial data for 2003 have been omitted because such information cannot be restated in accordance with IFRS without unreasonable effort and expense.

For definitions of the financial terms used, see Financial Terminology.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

FINANCIAL TERMINOLOGY

Capital employed

Total assets less non-interest-bearing provisions and liabilities.

Capital turnover

Net sales divided by average Capital employed.

Cash conversion

Measures the proportion of profits that are converted to cash flow. Total cash flow from operating activities is divided by the sum of net income and adjustments to reconcile net income to cash—expressed in percent.

Cash dividends per share

Dividends paid divided by average number of shares, basic.

Compound annual growth rate (CAGR)

The year-over-year growth rate over a specified period of time.

Days sales outstanding (DSO)

Trade receivables balance at quarter end divided by Net Sales in the quarter and multiplied by 90 days. If the amount of trade receivables is larger than last quarter’s sales, the excess amount is divided by Net Sales in the previous quarter and multiplied by 90 days, and total days outstanding (DSO) are the 90 days of the most current quarter plus the additional days from the previous quarter.

Earnings per share

Basic earnings per share; profit or loss attributable to stockholders of the Parent Company divided by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share; the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential ordinary shares.

Equity ratio

Equity, expressed as a percentage of total assets.

Inventory turnover

Cost of Sales divided by average inventory.

Net cash

Cash and cash equivalents plus short-term cash investments less interest-bearing liabilities and post-employment benefits.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Payable days

The average balance of Trade payables at the beginning and at the end of the year divided by Cost of sales for the year, and multiplied by 360 days.

Payment readiness

Cash and cash equivalents and short-term investments less short-term borrowings plus long-term unused credit commitments. Payment readiness is also shown as a percentage of Net Sales.

Return on capital employed

The total of Operating income plus Financial income as a percentage of average capital employed (based on the amounts at January 1 and December 31).

Return on equity

Net income attributable to stockholders of the Parent Company as a percentage of average Stockholders’ equity (based on the amounts at January 1 and December 31).

Stockholders’ equity per share

Stockholders’ equity divided by the Number of shares outstanding, basic, at the end of the period.

Trade receivables turnover

Net sales divided by average Trade receivables.

Value at Risk (VaR)

A statistical method that expresses the maximum potential loss that can arise with a certain degree of probability during a certain period of time.

Working capital

Current assets less current non-interest-bearing provisions and liabilities.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

DEAR FELLOW SHAREHOLDERS,

This year’s theme “Every Moment Counts”, is at the very core of Ericsson’s vision of an all-communicating world. We are helping to create a world in which all people can have access to information, entertainment, social networks and more, whenever and wherever they want. It is exciting to talk about products and services that enrich the everyday lives of billions of people around the world.

Given such industry dynamics, I think it is important to put this year’s developments into a longer-term perspective. When I joined Ericsson five years ago, the Company was emerging from one of the deepest crisises in its history. Our focus then was and still is to “generate sustainable growth and provide competitive returns to our investors, regardless of day-to-day market fluctuations.” By basing our strategy on technology leadership, economies of scale, operational excellence, a focus on the consumer and lower cost of ownership for our customers, we have consistently outperformed the competition.

We continued to make progress during 2007, but, during the autumn, we experienced significant unexpected margin compression in our networks business as a consequence of a changing business mix. Although 2007 was one of the most profitable years in the Company’s history, our operating margin fell well below expectations at the end of the third quarter, which made us issue a profit warning in mid-October.

Market growth has continued to slow down, especially in mature markets, and we find it prudent to plan for a flattish mobile infrastructure market for 2008. Consequently, we will adjust our cost basis to be in line with the anticipated market development while continuing our R&D investments and thereby further strengthen an already strong competitive position.

A thorough review of our strategy, the business environment and our ways of working show that our strategy has been effective and should not be changed.

We are determined to continue to improve our position even in an increasingly challenging market. Our longer-term outlook remains positive and we are aiming to do for broadband communications what we have already done for telephony—make it mobile and available to everyone, everywhere. In addition, we intend to lead the industry in migrating fixed and mobile networks into a converged IP-based network which is able to efficiently handle all forms of telecommunication, applications and services.

Ericsson already has a good starting position for taking the lead in this migration, and with the acquisitions of Marconi, Redback and Entrisphere we:

•

Provide broadband services to homes and offices over optical fiber, radio or copper with our fixed broadband access portfolio.

•

Provide broadband services to mobile devices with our mobile broadband technology.

•

Interconnect fixed and mobile access with our optical and radio transmission systems, softswitches and IP-routers.

•

Manage service delivery and revenues with an IMS-based service network.

•

Support operators in planning, implementing and operating their networks with our Professional services.

Whether you are at home, at work or anywhere else, we will be there, ensuring that your multimedia services work seamlessly, regardless of what device you are using or how you are connected. This puts Ericsson in an even stronger position.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Consumers are quickly becoming accustomed to having affordable mobile broadband services available with the same performance on the go as on their PC at work or at home. It has only been a few years since the introduction of Web 2.0 applications like YouTube or Facebook, and yet people already expect to be in control of how they use the Internet—to instantly share content they create themselves as well as access content created by others.

We all have a basic need and desire to communicate and with the rapid deployment of mobile networks in emerging markets, we have come far in our ambition of making communications for all a reality. But now it’s time to further expand the social, economic and environmental benefits of telecommunications by also making mobile broadband available and affordable for the majority of the world’s population.

A year ago, we established segment Multimedia to better address and develop the potentially huge market for access and distribution of content, advertising and multimedia communications via broadband IP-based networks. We made several strategic acquisitions to improve our capabilities in these areas in addition to our own ongoing activities.

Over the coming years, we will see new services, new devices and new ways of communicating but, more importantly, many more people connected. Think about what this means in terms of making a person’s life better by making every moment count even more. I take great pride in the part Ericsson plays in making that happen.

Yours truly,

Carl-Henric Svanberg

President & CEO

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

OUR BUSINESS FOCUS 2007

—BUILDING ON LAST YEAR’S PROGRESS

1. Reaching more people

We provided access for many new subscribers that previously could not afford service or lived outside coverage areas.

We implemented solar panels to power radio base stations in remote areas.

We extended our leadership in telecom services—supporting over 1 billion subscribers—24 hours/day—seven days a week.

More than 650 million people can now pay for multimedia services with their mobile phones using Ericsson’s IPX payment and delivery solution.

2. Increasing speed and capacity

HSPA takes off: 81 commercial 3G/HSPA mobile broadband networks out of a total of 166 around the world were powered by Ericsson at year-end.

Fiber access technology enables delivery of HD-TV services over IP networks. We acquired Entrisphere to complement our fixed access portfolio with fiber.

We delivered a variety of optical and radio transmission solutions to operators to accommodate the increasing data traffic as people generate and share more of their own content.

3. Preparing for the future

Through Ericsson ConsumerLab, we conducted more than 40,000 interviews, to gain valuable insight on consumer behavior and trends.

We supported operators preparing for an all-IP network environment by deploying softswitch, IMS and transport solutions.

We also supported customers merging their mobile and fixed networks into one full-service broadband network.

Ericsson invested in fixed broadband and multimedia, acquiring Tandberg Television, Redback Networks, Entrisphere, Drutt, Mobeon and LHS.

4. Expanding our role

Our market share increased, with numerous new and expanded agreements to supply network equipment and/or services during the year. The new buildouts pave the way for future upgrades and expansions.

We continued our progress as prime integrator and managed services partner by

•

managing large technology shift projects.

•

integrating multi-vendor equipment in customer networks.

Over 28,000 service professionals in more than 140 countries provide local competence and global expertise.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

OUR STRATEGY

The notion of an all-communicating world is rapidly gaining momentum and drives the convergence of the telecommunications, Internet and media industries.

By helping operators to evolve and improve their networks to efficiently handle multimedia capabilities, we are creating a world in which all people can have affordable access to information, entertainment, social communities and more, whenever and wherever they want. In the course of making people’s lives easier and more productive we are spurring socio-economic development which brings our vision closer to reality.

With the ambition of being the prime driver in an all-communicating world, we have divided our operations into segments that create competitive advantage and best meet the needs of our global customer base.

Networks—technology leadership, a broad product portfolio and scale enables Ericsson to excel in meeting the coverage, capacity and network evolution needs of fixed and mobile operators.

Services—expertise in network design, rollout, integration, operation and customer support within a global structure with robust local capabilities enables Ericsson to better understand and respond to the unique challenges of each customer and capitalize on the trend to outsource a broader range of activities to network equipment suppliers.

Multimedia—innovative application platforms, service delivery and revenue management solutions combined with leading content developer and application provider relationships enables Ericsson to uniquely help customers create exciting new and differentiated multimedia services.

Phones—The complementary strength of Sony Ericsson Mobile Communications, our joint venture with SONY, further enhances our consumer perspective for superior end-to-end offerings.

The synergies generated by the combined strengths of the segments differentiate the Company through a continuous focus on operational excellence to better leverage our economy of scale in technology development as well as in product and service delivery and customer support.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NETWORKS

13% operating margin.

1% sales growth year-over-year.

Ericsson’s largest business is network infrastructure, and scale is critical for our continued market leadership. We have worked hard to secure our scale advantage in mobile networks and to strengthen our fixed broadband and core network portfolios. This puts us in an even better position for long-term profitable growth.

NETWORKS STRATEGY

There are three core elements to our strategy for maintaining our leadership in mobile networks and further strengthen our position in fixed and converging networks:

Technology leadership: Ensuring our customers are first to market with the best networks and end-to-end solutions with the lowest total cost of ownership.

Economies of scale: Through lower development and production cost per unit delivered.

Operational excellence: Benefiting from efficiency—from R&D, supply and all the way through rollout and operational support.

In short, a company that can deliver the best solutions most efficiently at larger volumes is difficult to beat. Let’s look at the progress we’ve made in key parts of our networks business during the past year.

EXTENDED LEAD IN MOBILITY

On the mobile side, we continued to build on our strength in GSM. As we eagerly look toward the future, it is easy to overlook that 2007 was yet another record year for GSM shipments, as global mobile penetration reached almost 50 percent.

We have also expanded our position in 3G/WCDMA/HSPA, with which operators can introduce mobile broadband with such multimedia services as TV, video, music and high-speed Internet access.

Additionally, we have invested in HSPA modules for laptop computers and fixed modems, which will give consumers another way to enjoy mobile broadband services and drive the demand for more mobile broadband capacity.

The road, of course, doesn’t stop there. Ericsson is very active in establishing Long-Term Evolution (LTE)—the step beyond 3G that will address operator needs for user demands for an even more powerful and convenient mobile broadband experience.

A COMPREHENSIVE FIXED BROADBAND PORTFOLIO

We improved our fixed broadband networks portfolio by continuing our acquisition strategy that began in 2005 with Marconi, which strengthened our transmission offering.

Our January purchase of Redback Networks instantly gave us a strong position for helping operators deliver Internet, telephony, TV and mobile services over IP-based broadband network infrastructures.

In February, we announced our acquisition of Entrisphere, which provides gigabit passive optical networking (GPON) technology for networks that deliver content-rich services to homes and enterprises, e.g. to PCs and high-definition TV.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

The key to delivering multimedia services with telecom-grade quality is the core network, where the evolution to Internet Protocol (IP) begins. Ericsson and other industry leaders are expanding the IP Multimedia Subsystem (IMS) foundation for many exciting multimedia applications that people can enjoy on any device wherever they are. Here, our technology and scale advantages mean that our customers will be able to launch and also generate revenues from these services as they benefit from a lower total cost of ownership.

MILESTONES DURING 2007

We had a number of significant achievements in 2007:

•

In May, mobile operator MTN Nigeria took delivery of Ericsson’s millionth GSM radio base station. Since its introduction in 1991, GSM has connected more than 2.6 billion users. Today, Ericsson has deployed GSM networks in more than 100 countries.

•

We signed a GSM expansion framework agreement, valued at about USD 1 billion, with China Mobile.

•

Vodafone chose Ericsson to be sole supplier of IMS (IP Multimedia Subsystem) in a number of important markets.

•

We announced Ericsson Tower Tube, a 5m-diameter, 40m-high flexible concrete radio base station site concept that is better for the environment, cost-efficient to build and run, and visually more attractive.

•

We won multi-billion USD contracts to supply GSM and WCDMA/ HSPA equipment and related telecom services to Bharat Sanchar Nigam Ltd (BSNL), and Bharti, the largest telecom operators in India.

•

Mobile TeleSystems OJSV (MTS), Russia’s leading mobile operator, selected Ericsson to supply and deploy a 3G/HSPA network.

•

AT&T chose Ericsson to provide equipment for the planned deployment of GPON for high-bandwidth service delivery, including IP-based video services to homes throughout the US.

LOGO

•

German operator Deutsche Telekom rolled out Ericsson’s VDSL2 broadband access solution across Germany’s largest cities.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

A SHIFT IN OUR BUSINESS MIX

Our business model in Networks is based on a three-part sales mix of build-outs, expansions and upgrades, where we are normally able to offset lower margin network build-out sales by higher margin sales into the installed base.

As 2007 progressed, Networks’ business mix had a high proportion of new network buildouts and break-in contracts, where price competition is most intense. The ongoing shift to new switching technology also grew significantly and affected the business mix. Late in the third quarter, the sales in certain markets unexpectedly declined sharply. All of this led to significantly lower gross margin and put pressure on cash conversion.

GOING FORWARD

The new network buildouts and break-in contracts will continue to affect the segment’s margins, at least for the near term, but our significant market share gains enlarge our footprint for follow-on sales of more networks as well as multimedia and services over the longer term.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

PROFESSIONAL SERVICES

15% operating margin.

16% sales growth year-over-year.

Ericsson’s services business helps operators generate more revenues, run their businesses more efficiently, and evolve their networks to meet customer demands. Once again, every moment counts—the more time operators can dedicate to adding value to their offering, the more satisfied their customers will be.

OUR STRATEGY FOR SERVICES GROWTH

Support Ericsson’s mobile, fixed and multimedia solutions. Networks’ and Multimedia’s global customer base is also the foundation of our services business. Through existing partnerships, we are in a position to provide services that ensure our customers get all the benefits they can from Ericsson’s solutions. Through our daily work, we get first-hand insight into each of our customers’ technologies, organizations and businesses.

Expand our services business. In addition to the opportunities that arise naturally from our installed base of products and solutions, Ericsson also pursues services business through consulting, systems integration and managed services.

OUR SERVICES PORTFOLIO

Our dedicated Professional Services staff—a combination of global competence and local capabilities—gives our customers the freedom to focus more on their customers.

Our competitive strength in professional services comes from our skills and our scale. By applying efficient tools, methods and processes based on our technology leadership, global customer base and local presence, we have further developed and grown our product-based services business as well as managed services and systems integration.

Our services portfolio is based on six primary offerings:

Managed Services ranging from designing, building, operating and managing day-to-day operations of a customer’s network. This also includes hosting of services, applications and enablers as well as providing network coverage and capacity.

Customer Support for more than 800 networks securing more than 1 billion subscribers around the world. We minimize risks to our customers by making sure networks and services work the way they should.

Systems Integration, to support customers in integrating new technologies and applications as well as equipment from multiple suppliers, including taking on the broad responsibility of “prime integrator”.

Business Consulting to help customers to identify and address market opportunities, challenges and technology shifts.

Network and Technology Consulting to help operators plan, design, optimize and evolve their networks.

Educational Services to ensure that our customers’ employees have the skills and competence necessary for working with today’s complex technologies.

In addition, we have Network Deployment and Integration which includes rolling out, expanding, restructuring, upgrading and migrating networks.

(Note: This offering is part of and reported under the Networks segment.)

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

MILESTONES DURING 2007

During 2007, we continued to outpace the market, with 16 percent growth. An important trend developed: Tier-one operators have become more interested in managed services, as they see the results that the early adopters get from outsourcing. Secondly, more operators asked us to serve as the prime integrator when introducing new multimedia services and when facing challenging technology shifts. Here are some noteworthy achievements during the past year:

•

We entered a managed services agreement with France Telecom covering operations, rollout and field maintenance of the operator’s mobile network in Belgium and in the Netherlands.

•

Vodafone selected us to manage the supply and distribution of multi-vendor spare parts for its mobile networks across several of its major European operating companies including those in Germany, Spain and Portugal.

LOGO

•

KPN signed a five-year managed services contract with us for access network field maintenance in the Netherlands.

•

We acquired the Spanish company HYC, focusing on consultancy and systems integration of IPTV solutions.

•

We won a six-year managed services deal for operation and maintenance of Deutsche Telekom’s microwave network in Germany. The agreement reflects the maturation of the managed services market, as it was the first managed services contract for an incumbent operator in its home market.

•

We were selected to design, plan, deploy, optimize and manage Bharti Airtel’s GSM network and its prepaid platform across large parts of India.

GOING FORWARD

Ericsson’s early foray into services has created considerable advantages in skills and in scale, even though consolidation among other vendors has increased competition. We will continue to build on our early successes by working to grow in such areas as managed services, systems integration and consulting. We will achieve our targets mainly through organic growth, but we may make smaller acquisitions in strategic areas or add resources to support growth.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

MULTIMEDIA

—1% operating margin.

14% sales growth year-over-year.

Ericsson established its Multimedia segment to better address operator needs for applications, solutions and devices to encourage subscribers to increase their usage. This was a year of direction setting, of organizing our areas of existing strengths and of supplementing those areas with strategic acquisitions. Along the way, we have taken important steps in assuring Ericsson’s future growth.

MULTIMEDIA STRATEGY

To remain competitive, telecom operators have to deliver value beyond voice services. This means they must extend beyond the traditional confines of telecom and into the Internet and media industries. This injects a new level of complexity and different business model possibilities for operators. Ericsson’s intent is to be the enabler of new revenue-generating services and applications.

In this new environment, Ericsson develops the multimedia solutions and acts as a facilitator to match operators and service providers with the right tools to distribute media and Internet content to their customers. Our expertise in managing complex networks capable of delivering IPTV, mobile TV, music solutions, messaging and user-generated content helps them give consumers the multimedia experience they want—flexibly and profitably.

On the media side, content providers benefit from our global presence and our relationships with operators around the world.

Our revenue management offerings help operators navigate different billing models, from the subscription basis of the telecom world to the content-specific basis of the media industry. To ensure multimedia services that deliver the experience people expect, Ericsson also develops and licenses mobile technology platforms for mobile devices.

Ericsson’s multimedia strategy applies to the enterprise market as well, with unified communications (i.e. across PCs, phones and mobile devices), IP-based private branch exchanges and centrex solutions for operators serving the enterprise market.

A BROADER PORTFOLIO

Our ambition for growth required that we move swiftly into new territories with key acquisitions, to both complement existing areas of strengths and extend into new ones.

In March, we acquired Mobeon, a supplier of IP-based voice and video mail—key elements of our multimedia strategy. The acquisition of Mobeon allows us to develop our new messaging architecture more quickly, allowing easier integration of new applications with established messaging methods, such as SMS, voicemail and MMS.

Next, we improved our position in the IPTV and networked video solutions market by acquiring Tandberg Television in April. A world leader in video encoding and compression technology as well as on-demand and interactive video, the company brought a wide customer base with cable, satellite and telecom customers in more than 100 countries. Integration has been successful, and we now have a complete IPTV offering available around the world.

With the addition of Drutt Corporation in June, we extended our Service Delivery Platform (SDP) leadership with products and features that make it possible to acquire, launch, deliver and charge for content to mobile devices.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

We also acquired postpaid billing and customer care leader LHS to complement our proficiency in prepaid and real-time charging. The combination will allow operators to manage all users and services—prepaid or postpaid, mobile or fixed—in the same way.

MILESTONES DURING 2007

Here is an overview of Multimedia’s performance in 2007:

•

Ericsson and Turner Broadcasting announced a collaboration to develop Internet, broadcast news and entertainment content—including CNN International and Cartoon Network—for mobile multimedia environments.

•

Telefónica España selected our mobile TV solution to provide consumers with rich mobile TV content and services.

•

Together with TV production company Endemol, we developed ‘Me-On-TV’ to enable consumers to upload, publish and share live or recorded video content via any mobile device, from anywhere to any screen around the world.

•

Vodafone Iceland selected our end-to-end IPTV solution to provide an integrated solution in the evolution toward converged multimedia consumer services, based on Ericsson IMS.

LOGO

•

Etisalat implemented our real-time convergent charging and billing solution, which enables them to offer the same services to all subscribers regardless of pre-paid or post-paid payment options.

•

We introduced the first WCDMA mobile plat form with HSPA capability, to enable mass-market HSPA multimedia devices capable of handling new services—including interactive mobile TV and video calling—that require both fast uplink and downlink data speeds.

GOING FORWARD

Multimedia is a huge market with the potential for strong growth and new customers from media and Internet companies. Although it is a fragmented market, Ericsson has a strong position in several multimedia areas—mobile platforms, service delivery platforms, and charging are all showing strong growth with healthy margins. IPTV, IMS and messaging are areas in which we are making significant investments. Furthermore, our relationship with Sony Ericsson provides a foundation for a strong business going forward.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

PHONES—SONY ERICSSON

12% operating margin.

18% sales growth year-over-year.

Sony Ericsson—with a broad portfolio and a strong momentum, and with the ambition to become one of the top three mobile phone suppliers.

Sony Ericsson Mobile Communications is a 50/50 joint venture between Ericsson and Sony Corporation, founded in 2001.

In 2007, Sony Ericsson sold over 100 million hand sets, 18 percent more than the previous year, and captured market share by increasing sales of lower priced handsets in emerging market such as Latin America and Eastern Europe.

Although average selling price declined during 2007, the company maintained double-digit margins by controlling cost and focusing on internal efficiencies.

Sony Ericsson continued to set the standard in sophisticated and fashionable feature-rich phones, especially in the area of music and imaging through the use of Sony sub-brands Cyber-shot^™ and Walkman^®. At the same time, the company increased the number of lower priced models in the portfolio, bringing compelling product propositions to the lowest priced handsets in the line-up. The Walkman^® brand was extended with low and mid-end models such as the W200 and W300, and imaging models were extended with the K310 and K550.

In 2007, Sony Ericsson also announced its intention to expand its PlayNow™ content distribution application into a full-service proposition offering ring tones, full-track downloads, games, wallpapers and themes. The extended service, rebranded PlayNow™ Arena, will be fully integrated with the TrackID^™ music discovery service enabling consumers to discover, try and obtain new music direct to their mobile phones. Sony Ericsson is committed to helping operators drive traffic while giving consumers access to new music and content that bring the features of their mobile phone to life.

Sony Ericsson continued to broaden its accessory portfolio. From Bluetooth headsets, car kits, music speakers and Bluetooth watches that discretely tell the owner who is calling, Sony Ericsson finds attractive ways to extend the features and user benefits of its phones.

GOING FORWARD

Sony Ericsson continues to develop a broader range of products with a further expansion into the low- to mid-range device market while maintaining margins and profitability. Its higher-end models continue to build brand awareness. In 2008, PlayNow™ Arena will deliver a wider range of content, including games, themes, and millions of music tracks and thousands of mastertones from major and independent labels. With an expanded multimedia experience, Sony Ericsson is in position to build on its strong performance in 2007.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

OUR PEOPLE AND CULTURE

—KEY TO ERICSSON’S SUCCESS.

Our core values

Ericsson’s position as a world-class company starts with our people. Respect, professionalism and perseverance are the values at the foundation of our culture. For decades, they have served as guidance in our daily work—how we relate to people and how we do business.

Among the most important components of an organization is a committed base of employees, and Ericsson today has a global workforce of 74,011 employees. During 2007, our annual measurement of employee satisfaction (measured as Human Capital Index) reached 70 percent, which puts us among elite companies—60 percent satisfaction is regarded as an area of strength.

During the past year, we have worked hard to ensure a smooth integration of the companies we have acquired. To be successful, systems and processes must be aligned. Most importantly, however, the people must know they are part of the Ericsson culture.

Furthermore, continuous personal competence development is essential for us to supply and support our customers in a demanding and changing marketplace. To ensure they have the right tools, methods and skills necessary to succeed in their roles, all employees have their own individual competence plans and update them each year.

Ericsson’s Code of Business Ethics

Our Code of Business Ethics summarizes the policies and directives that govern the relationships among our internal and external stakeholders. The Code has been translated into more than 20 languages to ensure all employees understand our policies, our directives and the importance of conducting all business activities in an ethical manner.

All employees must regularly review the Code and agree to its principles.

For more details, please see Ericsson’s Corporate Governance Report 2007.

Diversity at Ericsson

Ericsson’s workplace is characterized by respect for individuals and their contributions to innovation, customer success and performance at all levels. Ours is an environment in which people of different backgrounds with a multitude of perspectives, values and beliefs are assets to the organization and the teams in which they interact.

Diversity is integrated and communicated throughout Ericsson. It is at the heart of our core value of “Respect,” in which we emphasize equal opportunities.

Corporate Responsibility We pursue a number of activities to maximize positive social, ethical and environmental effects and to control risks.

Risks are controlled through several Company initiatives and policies, including the Code of Business Ethics, the Environmental Management System and the Code of Conduct. Benefits of our technology are promoted via the development of an energy-lean product portfolio and by highlighting the positive socio-economic contributions that communications bring to markets.

For more, please see Ericsson’s Corporate Responsibility Report: www.ericsson.com/corporate_responsibility

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

LETTER FROM THE CHAIRMAN OF THE BOARD

Dear Shareholder,

While this year was a dynamic and eventful one for Ericsson, it was a disappointing time for you as an investor. Just as you suffered from the significant share price decline, so did many Ericsson employees and Board members. At least some part of this development reflects the general sentiment affecting most listed companies.

No doubt, Ericsson’s third quarter result was a negative surprise to all of us, but the Company is stronger than ever, remains financially healthy and will pay a dividend the same as last year’s. I am confident about Ericsson’s longer-term prospects and believe the current strategy is effective and should not be changed.

When considering a more challenging market, Ericsson has a good geographic distribution and a diverse customer base, where no single country or customer represents more than 10 percent of sales. In addition, Ericsson has the operational flexibility and resources to adjust to the short-term challenges of a weaker network equipment market or increased competition, while at the same time is well positioned to continue to grow within services and multimedia.

The Company’s position of strength is confirmed by independent perception studies, in which existing and potential customers consistently rank Ericsson well ahead of the competition. The same can be said of the internal perception, with the employee opinion survey showing that the Company has now achieved a level of excellence.

The success of any company depends on the leadership of its management and the quality of its workforce, which means that we must engage and retain the best talent at all levels of the Company today and for the future. It is therefore essential that executive remuneration policies and practices are competitive and in line with industry norms. A thorough assessment of the current remuneration system by external experts shows that the Company’s remuneration plan is appropriate and reasonable.

During 2007, in particular, I was able to visit many Ericsson facilities around the world. It was my pleasure to meet so many highly motivated and well-qualified employees who are totally dedicated to their roles in the Company’s continued vitality.

I am honored to work for you as the chairman of Ericsson—a vibrant company that plays an important role in changing the world for the better.

Thank you for your continued support.

Sincerely,

LOGO

Michael Treschow

Chairman of the Board

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

BOARD OF DIRECTORS’ REPORT

This Board of Directors’ Report includes a discussion and analysis of Ericsson’s consolidated financial statements and operational results for 2007 as well as other information. It includes forward-looking statements regarding a variety of matters, including future market conditions, strategies and anticipated results. Such statements are based on judgments, assumptions and estimates, which are subject to risks and uncertainties. Actual results could differ materially from those described or implied by such forward-looking statements. For further discussion, please see “Forward-looking Statements” and “Risk Factors.”

The discussion and analysis of the results are based on Ericsson’s consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of these financial statements requires management to apply accounting methods and policies that involve difficult, complex or subjective judgments and estimates based on past experiences and assumptions determined to be reasonable. The application of these judgments, estimates and assumptions affects the reported amounts of assets and liabilities and contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Under different judgments, assumptions or estimates, these amounts could differ materially.

Please see Notes to the Consolidated Financial Statements—Note C2, “Critical Accounting Estimates and Judgments,” for more information about the accounting policies we believe to have the most significant effect on Ericsson’s reported results and financial position. The external auditors review the quarterly interim reports, perform audits of the annual report and report their findings to the Board’s Audit Committee.

The terms “Ericsson”, “the Group”, “the Company”, and similar all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries. Unless otherwise noted, numbers in parentheses refer to the previous year (i.e. 2006).

SUMMARY

Ericsson increased sales by 4 (17) percent to SEK 187.8 (179.8) billion in 2007. Organic growth (i.e. excluding acquisitions) was 8 percent in constant currencies. In an environment with a significantly weaker US dollar affecting reported sales and income negatively, Ericsson still produced one of the highest incomes of its 130-year history. Net income attributable to stockholders of the parent company was SEK 21.8 (26.3) billion. Earnings per share attributable to stockholders of the parent company was SEK 1.37 (1.65). Cash flow from operating activities was SEK 19.2 (18.5) billion. Cash flow before financing activities was SEK – 8.3 (+ 3.6) billion, after investments for acquisitions of SEK 26.3 (18.1) billion.

Ericsson made good progress in strategically important areas such as:

•

Securing scale advantages by significantly increasing mobile systems market share, especially in emerging markets such as China, India, Russia and Africa.

•

Strengthening the Company’s position within the Networks segment in fixed broadband access and transmission as well as IP routing.

•

Making complementing acquisitions to strengthen Ericsson’s competence and product portfolio in IP technology, IPTV and multimedia.

•

Increasing market share in professional services through new managed services contracts, especially in Western Europe.

•

Refinancing maturing borrowings and increasing committed credit facilities for greater financial flexibility and improved credit ratings.

•

Attaining the position as the fourth largest mobile phone supplier through the Sony Ericsson joint venture.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

During the year, the Company announced a significant number of new or expanded agreements to supply network equipment and/or related services to operators around the world. The aggregate value from these agreements was the highest in five years.

The Company’s good progress has been somewhat tempered by a change in business mix within the Networks segment. The business mix now has a higher proportion of break-in contracts and contracts with large content of network rollout services and third party products which negatively affects gross margins. Adding to this effect is the ongoing shift to new switching technologies, where the Company is building a new footprint which has similar competitive characteristics, e.g. open bidding process, as new network buildouts.

In the third quarter, there was an unexpected shift in the business mix, with a relatively higher proportion of new network sales and a lower proportion of expansions and upgrades sales, resulting in significantly lower margins. This triggered the profit warning which caused the share price to decline significantly. Although the degree and speed of margin compression within Networks was unexpected, some degree of volatility and deviations from forecasts is likely to occur in any network equipment vendor’s quarterly results.

LOGO

Professional Services sales, especially managed services, showed strong growth. The scale for continued profitable growth is now well established—particularly in Western Europe.

The new Multimedia segment made good progress in establishing their operations and quickly expanding the portfolio with several acquisitions. The Company continues to invest for a leading market position in networked media and IP-based applications and services.

Sony Ericsson Mobile Communications continued its strong performance, profitably gaining market share and ending the year as the fourth largest mobile device supplier. The joint venture has strong momentum toward its ambition of achieving a top three position. Sony Ericsson also contributed significantly to Ericsson’s operating income and cash flow.

During the year, the Company acquired Redback Networks, Tandberg Television and LHS as well as several smaller companies. These aquisitions have already helped Ericsson win several significant contracts. The expanded product line along with the addition of specialist resources should help the Company benefit in a number of growth areas related to IP, such as routing, multimedia applications and services.

While we believe the Company is well positioned for the longer term and remains the most profitable among its peers, there are several challenges in the shorter term. These include macroeconomic and geo-political

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

risks, exposure to the US dollar, greater competition with intensified price pressure, a slower growth environment and the margin effects of an unfavorable Networks business mix. However, the Company has strategies and action plans to address these challenges.

MARKET ENVIRONMENT AND TRENDS

This was another record year for mobile communications with some 586 (500) million new subscriptions and over 1100 (980) million mobile phones shipped. As expected, overall growth of the network equipment market during the first half of the year was similar to 2006 but then unexpectedly slowed during the third quarter. Using mobile operator capital expenditures spending estimates as a proxy for the mobile network equipment market, we believe the mobile systems market grew slightly below the Company’s expectation of mid-single digits.

At the end of 2007, the 3.3 (2.7) billion mobile subscriptions worldwide represented a global subscription penetration of 49 (41) percent. (Note: The number of actual individual mobile subscribers is significantly lower, perhaps some 15–20 percent but possibly more, because of inactive subscriptions and people having multiple subscriptions.)

The Company expects the number of mobile subscriptions to grow to more than 4 billion during 2009, thus creating further need for new and expanded mobile networks and corresponding professional services.

Strong growth in emerging markets

The historical price/performance trend in both mobile phones and network infrastructure has expanded the addressable market significantly, making mobile communications affordable also in emerging markets. Capital spending on mobile networks in emerging markets grew an estimated 17 percent and now represents almost half of the total market. Developed markets declined an estimated 8 percent.

More mobile subscribers and growing average MOU (minutes of use) should sustain demand for network construction and expansion in emerging markets. These projects are increasingly provided on a turnkey basis which, by its very nature, dilutes short-term margins and cash conversion because of substantial installation, systems integration and third-party content. While turnkey projects are likely to continue to represent a large proportion of networks sales, these effects should decrease as the initial phase gives way to expansions and upgrades.

CDMA operators switching to the GSM/WCDMA track

CDMA operators around the world continue to switch to the GSM/WCDMA track. During 2007, CDMA operators in Brazil and Israel made the switch and operators in India, Vietnam and New Zealand have decided to change. Even in the US, a major CDMA operator has announced plans to deploy next-generation mobile broadband networks using the long-term evolution (LTE) of the GSM/WCDMA track.

3G/WCDMA to soon overtake GSM

Although GSM continues to represent the majority of the mobile systems market, its growth is slowing as 3G/WCDMA is starting to accelerate. Demand for new GSM networks is mainly in emerging markets, especially Asia and Africa. GSM should remain the predominant technology for emerging markets in the near to mid-term, but the Company expects 3G deployments to soon start in earnest in such populous countries as Brazil, China, India and Russia. This along with the projected 3G network expansions and upgrades in more mature markets indicate that sales of 3G/WCDMA will soon overtake GSM globally.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

At year-end, there were nearly 180 million subscriptions on 197 (146) commercial 3G/WCDMA networks, of which Ericsson is a supplier to 129 (91). The High Speed Packet Access (HSPA) version of 3G/WCDMA is now deployed within 166 (96) commercial networks in 75 (51) countries. Ericsson is a supplier of 81 (46) of these networks, which represent the vast majority of HSPA users. Despite this growth, the number of potential subscribers covered by commercial 3G/WCDMA networks is less than a third of those covered by 2G/GSM services. This provides a significant opportunity for equipment suppliers to upgrade 2G networks to 3G.

LTE becoming main choice for next-generation mobile broadband

As consumer demand for higher speed mobile data services, accelerates, especially for video, operators must find ways to reduce costs and improve service performance to meet this demand. Unlike WiMax or Ultra Mobile Broadband (UMB), two alternative radio technologies, LTE has the advantage of providing an evolutionary path that leverages existing GSM/WCDMA as well as CDMA networks. The Company believes that an LTE-based network offers more compelling life-cycle economics to an operator than alternative technologies. This is the main reason Ericsson has chosen not to invest in WiMax or UMB.

The Company’s commitment to, and substantial R&D investment in, LTE has received strong support from the largest operators in the industry. Verizon and Vodafone, joint owners of U.S. based Verizon Wireless, announced plans to deploy next-generation mobile broadband networks using LTE. They have a coordinated trial plan for LTE that begins in 2008 with Ericsson as one of the suppliers. More recently, NTT DoCoMo announced that they had selected Ericsson to supply LTE-based network infrastructure in Japan. In addition, China Mobile and AT&T Wireless recently announced that they would follow the LTE-path. Ericsson is currently a major supplier to both of these operators. We are encouraged by this strong momentum and agree with the Company’s assertion that LTE will most likely be the predominant technology for next-generation mobile broadband networks.

Bundling and flat-rate tariffs

Operator investments in fixed networks have been driven by the need to replace lost revenues from voice that may have been captured by mobile or VoIP (Voice over IP) as well as from increased competition amongst operators. A well established strategy for customer retention has been the so called triple-play (i.e. bundling of voice, Internet and television), sometimes in conjunction with flat-rate pricing. This has accelerated the conversion to all-IP broadband networks with increased deployments of broadband access, routing and transmission along with next-generation service delivery and revenue management systems.

Similarly, mobile operators are also turning to bundling and flat-rate pricing, especially when combining mobile voice with mobile broadband. This trend is expected to accelerate with the introduction of mobile TV. In developing markets, voice and text messaging remain the primary services. Since there are limited fixed networks available in such markets, mobile broadband will become increasingly important as the demand for Internet access grows.

In such a converged world with more and more IP related services, the demand for systems integration services is expected to continue to grow strongly.

Operator consolidation

Operator consolidation continues in several regions. In the Americas, consolidation has reduced the number of operators by more than half. In Europe, mergers continue as well as other types of combinations, such as network sharing and outsourcing of network operations. In other regions, operator consolidation has led to the emergence of rapidly growing pan-regional operators, particularly in the CEMA markets (Central and Eastern Europe, Middle East and Africa).

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Although operator consolidation does not impact the underlying growth of the mobile market, it often disrupts market development by creating delays in procurement, reducing total capital expenditures, while increasing pricing pressure on vendors as the combined entities have stronger negotiating power.

Network sharing

The overall impact of network sharing will ultimately be neutral for mobile equipment vendors. To a certain extent, short-term disruption of capital expenditure plans or re-negotiation of contracts with the network sharing companies may be somewhat compensated by increased sales of professional services, especially network integration and managed operations. Over the longer term, the majority of savings will come from shared plant and property as the equipment has to be dimensioned for the peak traffic demand of the combined networks.

Good growth opportunities for managed services and systems integration

Compared with network deployment services, which tend to grow more or less in line with the equipment market, demand for managed services (i.e. network operation and hosting services) as well as systems integration is growing more rapidly. The potential market for network operation services is larger than the potential market for network equipment and related deployment services. A mature operator is estimated to typically spend some 5–6 percent of annual sales on equipment to build a network, but spends approximately 10–12 percent of sales to operate that network. More than 75 percent of network operation expenses today are believed to be handled in-house by operators but they are increasingly being outsourced as operators realize the competitive advantages and potential cost savings. Consequently, the market for such managed services is expected to show good growth prospects going forward.

Network development increasingly driven by non-voice traffic

Rather than enhancing their legacy voice-centric installed base, the Company expects operators to increasingly target spending on next-generation communications equipment that will raise revenues by enabling new services and/or reduce operating costs. Therefore, Ericsson believes the following key technologies will drive industry growth for the next several years: mobile broadband; IP and multi-service switching; fixed broadband access and IPTV; VoIP and IP multimedia subsystems (IMS); and metro optical and radio transmission. Finally, Ericsson expects operators to accelerate the transition from legacy technologies such as TDM (circuit) switching and ATM (packet) in favor of IP- (Ethernet) based technologies for both switching and transmission; all areas which the Company continues to invest heavily in.

Notwithstanding the positive trends in mobile broadband, with rapidly increasing data traffic, market conditions for mobile network equipment are expected to remain challenging in developed markets. Ongoing operator consolidation, especially in Western Europe, where the technology shift for more efficient networks, as well as changing regulations, such as price caps for roaming and lower call termination fees, is affecting operator willingness and need to increase network investments in the near term. This trend is most pronounced for highly penetrated GSM networks, in which demand for upgrades and expansions has rapidly diminished as operators spend more to expand and enhance their 3G networks.

Price/performance developments create opportunities as well as challenges

A continously improving price/performance ratio driven by technological development enlarges the mobile communications market by making the cost of services affordable to more and more of the world’s population. But it can also hurt vendors that do not stay ahead of the technology cost curve. Scale is essential to Ericsson’s ability to sustain the large R&D program needed for technological leadership. Moore’s Law implies that the processing speed, capacity and capabilities of digital electronics will improve exponentially at an ever lower cost

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

and size. This affects communications technology as it does other areas of digital technology. Normal price erosion and continous improvements in spectrum utilization have historically been offset by unit volume increases.

Technology shift affecting product mix

Since operators can build and operate softswitch-based networks much more economically compared to a monolithic circuit switch, operators are motivated to replace the circuit switch with softswitching rather than to continue spending on older technology. This trend is accelerating, and softswitches now represent the vast majority of shipped capacity but only account for slightly more than half of Ericsson’s switch sales. This growth is masked by the decline in legacy circuit switching sales. Furthermore, since these are initial deployments, the margin profile is that of new business but is creating an installed base for future sales. This shift, like all others, will eventually reach a steady state and the underlying growth will become visible.

Evolving competitive landscape

The need for scale in R&D, production and support has led to consolidation among our competitors. This could have challenged Ericsson’s scale advantage within mobile networks. The Company chose to defend its competitive position through organic growth rather than with disruptive and high risk megamergers. The rapid market share gains indicate the success of this strategy but it has come at a certain cost, as price levels for some contracts have been very competitive. With a scale advantage reestablished, the Company will now focus more on capitalizing on these gains and its leading position to derive more follow-on sales of expansions and upgrades from the enlarged installed base.

Price competition for mobile networks—for winning new contracts and strategically increasing market share for a scale advantage—was intense again this year, especially against Chinese competitors. Although these competitors have increased their market share, especially in China, Ericsson has also increased its market share, including in China.

New radio spectrum being allocated

Much needed radio spectrum is being allocated to mobile communications as frequency bands previously used for analog TV broadcasting are made available. Late in the year, Sweden was one of the first markets to make the change. In the US, auctions are scheduled for the first half of 2008. Other markets are expected to follow during the coming years. In addition, a number of mobile operators have started to refarm their existing spectrum in the 850/900 MHz bands for 3G/WCDMA buildouts, where allowed by regulators. Due to superior radio propagation characteristics at lower frequencies, an operator can potentially build a network with significantly fewer cell sites for a much lower total cost of ownership compared with 1900/2100 MHz spectrum.

Global economic development

Although the Company expects the market conditions of 2007 to continue during 2008, the most recent economic outlook from the Organization for Economic Cooperation and Development (OECD) forecasts a slowdown in real GDP within the 30-nation OECD area but a continued “brisk growth” in such emerging economies as Brazil, China, India, and Russia. However, while we agree that emerging markets contribute significantly to world trade growth, we are doubtful if these emerging economies are resilient enough to be unaffected in the event of a material slowdown in the us and major Western European markets.

We do not want to postulate a view on how the global economy will develop, but we believe that if an economic recession should occur it would have a less pronounced impact on mobile networks demand than in the

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

recession of 2001–2003. Operator balance sheets are much healthier now and there is significantly greater geographic diversification where emerging markets now account for a much larger and faster growing portion of network investments. In addition, mobile operator capital expenditure spending is not at unsustainably high levels and networks are well utilized unlike during the last market downturn.

GOALS AND RESULTS

Our ultimate goal is for the Company to generate growth and a competitive profit that is sustainable over the longer term. Ericsson aims to be the preferred business partner to its customers; especially to the world’s leading network operators by being the market and technology leader for the supply and operation of network infrastructure. As the market leader, the Company uses economies of scale to develop superior products and services that provide competitive advantages. In addition, when Ericsson’s network equipment and associated services are combined with its multimedia solutions and mobile handsets from the Sony Ericsson joint venture, the scope of Ericsson’s operations extends to complete end-to-end telecommunication solutions.

LOGO

We monitor the Company’s performance according to three fundamental metrics: customer satisfaction, employee satisfaction and value creation. We believe that highly satisfied customers along with empowered and motivated employees help to assure an enduring capability for competitive advantage and value creation. The Company’s objective is to have a leading market share, a faster than market sales growth, a best-in-class operating margin and a healthy cash conversion.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Customer satisfaction

Every year, a customer satisfaction survey is independently conducted by the CFI Group, in which approximately 9,000 employees of some 380 fixed and mobile operators around the world are polled to assess their satisfaction with Ericsson compared to its main peers. This year’s results show a continued upward trend and Ericsson was ranked as excellent while the Company’s peers were ranked on average as acceptable.

Employee satisfaction

Every year, an employee survey is independently conducted by Research International. In 2007, 90 (90) percent of Ericsson employees participated in this survey. The results show a continued upward trend, especially in the Human Capital Index, which measures employee contribution in adding value for customers and meeting business goals. Ericsson has now reached a level considered excellent by external benchmarking.

Value creation

Although margins fell below the levels of the last several years, the Company strengthened its market position and continues to perform better than its peers. A strong balance sheet, flexible operational model and a strengthened industry-leading position provide the means for handling any near-term pressure on margins. In the longer term, the increased market share and footprint enlarges the opportunity for future sales of expansions and upgrades.

Management has several metrics by which they measure the Company’s progress relative to their ambitions:

•

Increase sales at a rate faster than the market growth.

As previously mentioned, we believe the mobile systems market grew slightly below the Company’s expectation of mid-single digits in USD terms. Ericsson’s mobile systems sales increased by 9 (15) percent in constant currencies, the Professional Services market showed good growth and Ericsson’s Professional Services sales grew by 19 percent in constant currencies, compared with an estimated market growth of approximately 12–14 percent;

•

Deliver best-in-class operating margin, i.e. better than the main competitors.

With an operating margin of 13 (17) percent for the Group excluding Sony Ericsson, Ericsson’s operating margin continued to be the highest among its main competitors;

•

Generate cash conversion of over 70 percent.

The cash conversion for the full year was 66 (57) percent. Reflecting an increased focus on cash flow, a longer-term cash conversion target of over 70 percent was introduced and communicated during 2007. The Company also communicated that this target was unlikely to be achieved shorter term, mainly due to continued expansion of large turn-key projects in emerging markets and demand from customers for more favorable payment terms. During 2007, the Company also launched a Strategic Focus Area addressing cash flow to secure continous improvements in our sourcing, supply and sales processes.

The cash conversion is expected to gradually improve as a result of this program and as the growth in turn-key projects slows down to be more in line with the Group’s overall growth.

Sales

Group sales grew 4 (17) percent, driven by higher professional services sales. Acquisitions contributed an estimated 1.5 percentage points. With the average USD exchange rate some 9 percent lower, fluctuations in foreign exchange rates had a rather significant negative effect on reported sales as approximately 50 percent of sales were USD related.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

SALES PER REGION AND SEGMENT 2007


SEK billion	Networks		Professional Services		Multimedia		Total		Percent change
Western Europe	28,085		17,287		7,313		52,685		-1	%
CEMA¹⁾	36,435		8,305		3,921		48,661		5	%
Asia Pacific	43,101		9,061		2,467		54,629		14	%
Latin America	12,972		4,274		1,137		18,383		12	%
North America	8,392		3,965		1,065		13,422		-15	%

Total	128,985		42,892		15,903		187,780		4	%

Share of total	69	%	23	%	8	%	100	%
Percent change	1	%	16	%	14	%	4	%

1)	Central and Eastern Europe, Middle East and Africa

Segment Networks


	2007		2006		Percent change
Sales	128,985		127,518		1	%
of which network rollout	18,507		16,410		13	%
Operating income	17,398		21,722		-20	%
Operating margin	13	%	17	%
EBITDA margin	19	%	22	%

Mobile network buildouts, especially in emerging markets, represented the majority of sales. Sales of related network rollout services grew 13 percent to SEK 18.5 billion during 2007, reflecting increased demand for turnkey projects and a larger market share in mobile systems. The Company reported mobile systems sales growth of 3 percent; however, using constant currencies, management estimates that such sales grew by approximately 9 percent.

Networks’ business continues to grow where network buildouts and break-in contracts are predominant and price competition is most intense. Such lower gross margin sales have been historically balanced by sales of products with a typically higher gross margin. Ericsson’s market share gains, including many large turnkey projects, combined with relatively lower sales of upgrades and expansions has unfavorably altered the business mix resulting in lower margins.

The ongoing technology shift from circuit-switched core networks to softswitch solutions has also negatively affected networks sales and margins. With an economic life of 10–12 years, this transition would reasonably be expected to take a number of years. However, the economics of the newer technology is such that operators are increasingly replacing their legacy switch nodes rather than continuing to invest in them. Bidding for the replacement opens the installed base to competition, but the Company is building an even larger installed base by capturing an increased market share. However, the growing sales of softswitches are currently insufficient to offset the more rapid sales decline of legacy circuit switching expansions and upgrades.

Price competition remains intense and has also affected margins, but Network’s gross margin development has been more affected by the business mix shift. The Company’s success in replacing competitors’ installed base with certain operators to more rapidly gain market share has also been a significant part of this development. The Company has in some cases offered to share in the cost of the change-out with the operator for the opportunity to enlarge the installed base.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Sales of optical and microwave transmission systems to fixed as well as mobile operators showed good growth. Overall sales of fixed networks, however, grew in line with the market. The Company’s ambition is to grow faster than the market. In support of this, the Company has significantly strengthened its offering by combining Ericsson’s own products with those acquired with Redback Networks and Entrisphere.

Furthermore, Ericsson is using Redback as the platform to combine and focus all of its IP efforts under one organization and leadership headquartered in Silicon Valley. We believe this concentration of resources will be sufficient for Redback to seriously challenge the market leaders.

The alignment of Ericsson’s and Redback’s sales channels is progressing according to plan, but with some dampening effects on Redback’s sales growth during the transition. Lower sales of domestic legacy products in the US have been offset by increased sales of new products internationally. In combination with Ericsson, Redback finished the year with 87 new customers in 68 countries and now counts 15 of the top 20 fixed network operators and three of the top mobile operators amongst its customer base of more than 300 operators. We remain optimistic regarding growth opportunities for all-IP networks with IP routing, IMS, broadband access and transmission. The Company continues to invest in these areas, with the ambition to be the first vendor to be able to converge fixed and mobile networks on one platform—offering operators significant savings and new revenue opportunities.

Segment Professional Services


	2007		2006		Percent change
Sales	42,892		36,813		16	%
of which managed services	12,172		9,491		28	%
Operating income	6,394		5,309		20	%
Operating margin	15	%	14	%
EBITDA margin	16	%	15	%

Professional Services sales were particularly encouraging, growing at 16 percent to SEK 42.9 billion. Growth measured in local currencies amounted to 19 percent compared with an estimated market growth of some 12–14 percent. Managed services sales grew by 28 percent to SEK 12.2 (9.5) billion, as the Company continued to win contracts for network operations and hosting services. At year end 2007, Ericsson-managed network operations served approximately 185 (100) million users.

Operating margin is stable in the mid-teens despite the higher proportion of managed services. This is mainly due to successful transformation of operations undertaken to the Ericsson ways of working and continuous cost optimization of the managed services businesses. A large managed services agreement in the UK has been adjusted and the scope has been somewhat reduced to accommodate network sharing. This will affect managed services sales but the Company does not expect margins to be affected.

Ericsson won several breakthrough managed services deals during the year, including a pan-European multi-vendor spare parts management agreement with Vodafone, managed operations for parts of T-Mobile’s network in the UK, and managed operations for Deutsche Telekom’s transmission network in Germany. In addition, more than 1,000 systems integration contracts were signed during the year, including a multivendor network management solution for Wataniya Algeria, IT development and maintenance of business support solutions with Telecom Italia, and a Slovakia border control solution as part of the Schengen boundary expansion.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Segment Multimedia


	2007		2006		Percent change
Sales	15,903		13,877		14	%
Operating income	-135		714
Operating margin	-1	%	5	%
EBITDA margin	4	%	6	%

Sales growth for the newly formed segment amounted to 14 percent, driven mainly by acquisitions. Organic growth was 2 percent and reflects a challenging comparison to prior year’s results. The segment is operating on a more or less break-even level as investments to build a leading position in networked media and messaging continues. The ambition is to be the key enabler for new services and applications based on IPTV, IMS and content aware billing solutions.

This was a year of direction setting, organizing existing strengths and supplementing these areas with acquisitions. With the exception of enterprise solutions, sales opportunities for Multimedia show a positive trend, and the integration of the acquisitions are well on track. Multimedia solutions made good progress with new business development, especially for mobile platforms and revenue and service management systems. Ericsson is now a mobile platform supplier to nineteen handset manufacturers, including 4 of the top 10. However, Sony Ericsson continues to account for the majority of the volumes.

This year was a transition year for Tandberg Television, as the long process to complete the acquisition disrupted their momentum early in the year. However, since completion of the acquisition, Tandberg has shown progressive sales growth and has now regained their momentum as market leader. Entering 2008, the Company believes Tandberg is well positioned in terms of operational efficiency, new product pipeline and sales momentum. Tandberg is a key element of Ericsson’s IPTV ambitions.

A number of key deals and partnerships were closed in Multimedia. Ericsson partnered with Turner Broadcasting to develop Turner’s content for Internet, broadcast news and entertainment, including CNN International and the Cartoon Network for mobile multimedia environments. A global partnership agreement was signed with Endemol International B.V. to develop interactive TV and user-generated content via Ericsson’s Me-On-TV solution.

The multimedia market is quickly evolving and converging: industries, (telecom, media and internet), technologies and payment options. End-to-end revenue management solutions must be able to handle convergent technologies including IP-based broadband services, a variety of business models and partner relationships, as well as be payment-option agnostic. Ericsson acquired LHS to form a strong constellation of prepaid and postpaid solutions ready to immediately capture this opportunity. Ericsson’s leadership in real-time charging and mediation, together with the leading billing and customer care solutions of LHS, make the combined companies a leading player in revenue management and significantly strengthen Ericsson’s overall multimedia offering.

Entering 2008, the Multimedia segment is now established and focus will continue on supporting service providers to be able to offer a superior user experience to their customers.

Segment Phones

See Sony Ericsson Mobile Communications under Partnerships and Joint Ventures.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Regional Overview

Ericsson’s sales distribution between developed and developing (emerging) markets within the Networks business continues to shift toward emerging markets, which now accounting for 52 (46) percent of sales which indicates a growth of some 14 percent in these markets. Considering that most sales in emerging markets are in some way linked to the USD, underlying growth in constant currencies was even more significant.

Sales in market areas Asia Pacific, CEMA and Western Europe are of similar volumes, but the business mix differs significantly. Asia Pacific is mainly driven by new networks and expansion of network coverage to accomodate strong subscriber growth, whereas sales growth in Western Europe is driven by managed services and higher demand for mobile broadband and broadband transmission. Despite continued buildout of 3G along with HSPA upgrades, overall sales of mobile systems in Western Europe declined as operators invested less in GSM. The CEMA region is more like Asia Pacific, although Central and Eastern Europe are maturing rapidly in terms of GSM subscriber penetration. The Americas are gradually returning to growth, which is driven mainly by 3G deployments and professional services. Asia Pacific became the largest region in terms of sales, with turnkey network construction projects as the main growth contributor. GSM remains the predominant technology in the region, but 3G deployments have begun in several countries with additional licenses expected to be issued in additional countries during 2008. Similarly, 3G deployments are underway or about to begin in emerging markets such as Russia, Brazil and India. We continue to await China’s decision on 3G deployments, but demand for GSM continues in the meantime. Although domestic suppliers have become more competitive and increased their share, Ericsson has maintained its market position in China. The Company expanded its leading position in rapidly growing India, while political unrest in certain markets negatively affected sales particularly during the second half of the year.

Margins and operating expenses

The Company’s ambition is to generate a competitive return on sales. With best-in-class operating margins of 16 (20) percent and 13 (17) percent excluding Sony Ericsson, the Company continued to perform well, albeit at lower than recent year’s levels due to the development within Networks previously described. Professional Services’ operating margins were stable at 15 (14) percent even with the strong sales growth of managed services. Multimedia showed mixed results over the year and in general is performing at a break-even level despite the large R&D investments in IPTV and IMS. Sony Ericsson contributed 3.8 (3.2) percentage points to the operating margin.

Operating margin was lower as a result of Networks’ gross margin facing unexpected pressure during the second half of the year. Operating expenses as a percentage of net sales increased slightly. Some of the acquired companies had a higher proportion of operating expenses relative to sales. The Company also increased sales and marketing expenses to support the integration and personnel training of Ericsson’s sales and marketing staff to support the broader product portfolio.

With a slower market growth and increased pressure on margins, the Company will need to make larger than normal cost reductions. Therefore, an acceleration of operational excellence (i.e. process efficiency) activities will be undertaken. Cost savings of SEK 4 billion will be made with full effect in 2009. All parts of the business will be affected. The main focus areas are SG&A, sourcing, supply and service delivery. The one-time charges are estimated to be SEK 4 billion, which will be taken as each activity is decided.

Other income statement items

Ericsson’s 50 percent share of Sony Ericsson Mobile Communications’ pre-tax income increased from SEK 5.9 billion in 2006 to SEK 7.1 billion in 2007.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Other operating income declined to SEK 1.7 billion from SEK 3.9 billion in 2006, when Ericsson made a capital gain upon the divestment of the Defense business.

The financial net decreased slightly from SEK 0.2 billion in 2006 to SEK 0.01 billion in 2007 due to reduced cash and increased borrowings.

Income after financial items was SEK 30.7 (36.0) billion.

Net income attributable to stockholders of the Parent Company decreased to SEK 21.8 (26.3) billion. Diluted earnings per share were SEK 1.37 (1.65).

Balance Sheet

Total assets amounted to SEK 245.1 (214.9) billion at year-end. The main items contributing to the 14 percent increase were assets related to acquisitions and higher trade receivables, reflecting high seasonal business activity in the last quarter of the year due to a higher completion rate of large projects, especially in markets with longer payment terms.

Deferred tax assets decreased by SEK 1.9 billion net to SEK 11.7 billion. Utilization of tax loss carryforwards was SEK 2.5 billion while acquisitions added SEK 2.0 billion during the year.

Net cash decreased from SEK 40.7 billion to SEK 24.3 billion, mainly as a result of acquisition and build up of working capital for turnkey projects.

Maturing borrowings were refinanced. Long-term committed credit facilities were increased from USD 1 billion to USD 2 billion to improve flexibility to manage volatility if necessary. Payment readiness was 64.7 (67.5) billion.

Equity increased to SEK 135 (120.9) billion and the equity ratio decreased to 55.1 (56.2) percent.

Return on Capital Employed (ROCE) was 20.9 percent compared to 27.4 percent in 2006.

RETURN ON CAPITAL EMPLOYED 2005–2007


		Percent
2005		28.7
2006		27.4
2007		20.9

Off balance sheet arrangements

There are currently no material off-balance sheet arrangements that have or would be reasonably likely to have a current or anticipated effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Cash flow

Cash flow from operating activities was SEK 19.2 (18.5) billion, of which SEK 12 (11) billion was generated in the fourth quarter. The strong ending of 2007 is mainly due to the decrease in working capital as a result of a high completion rate for turnkey projects. The cash conversion improved from 57 percent in 2006 to 66 percent in 2007. Net operating assets increased by SEK 10.1 billion, reflecting continued working capital build-up in turnkey projects and particulary in trade receivables (which increased by SEK 9.4 billion).

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

The scope of a managed services agreement was renegotiated to allow for network sharing. This resulted in advance payments of SEK 3.2 billion, of which half affected the operational cash flow and the other half affected financing activities.

Ericsson’s share of Sony Ericsson’s operating income before tax for 2007 was SEK 7.1 billion and SEK 3.9 billion was received as dividend during the year.

CASH FLOW


SEK billion	2007		2006		2005¹⁾
Income reconciled to cash	29.3		32.5		35.1
Changes in operating net assets	-10.1		-14.0		-10.0

Cash flow from operating activities	19.2		18.5		25.1
Cash flow from investing activities	-27.5		-14.9		1.0

Cash flow before financing activities	- 8.3		3.6		26.1
Cash flow before financing activities adjusted for acquisitions/divestments and short-term investments	14.4		12.4		19.6

Cash flow from financing activities	6.3		-15.4		-6.1

Cash conversion²⁾	66	%	57	%	72	%

1)	Excluding pension trust fund (Sweden).

2)	Cash flow from operating activities divided by net income reconciled to cash.

Cash flow from investing activities was SEK –27.5 (–14.9) billion, of which SEK –26.3 (–18.1) billion were used for acquisitions, SEK –4.7 (3.0) billion for capital expenditures and other investment activities and SEK 3.5 (6.2) billion in short-term investments. Cash flow before financing activities adjusted for the major acquisitions/divestments as well as the short-term investments amounted to 14.4 (12.4) billion. Cash flow from financing activities was SEK 6.3 (–15.4) billion and mainly consisted of a bond issue in the second quarter of SEK 11.1 billion less shareholder dividends of SEK 7.9 billion. In certain countries, there are legal or economic restrictions on the ability of subsidiaries to transfer funds to the Parent Company in the form of cash dividends, loans or advances. Such restricted cash amounted to SEK 5.8 (5.8) billion.

Inventory Turnover (ITO) and Days Payable were improved somewhat compared to 2006. However, Days Sales Outstanding (DSO) increased due to growth in turnkey projects and in markets with longer payment terms. Efforts to further improve capital efficiency and cash conversion will continue.

WORKING CAPITAL EFFICIENCY MEASURES


	Target		2007	2006	2005
Days Sales Outstanding (DSO)	<	90	102	85	81
Inventory Turnover (ITO)	>	5.5	5.2	5.2	5.0
Payable Days	>	60	57	54	52

Capital expenditures

We continuously monitor the Company’s capital expenditures and evaluate whether adjustments are necessary in light of market conditions and other economic factors. Capital expenditures are typically investments in test equipment used to develop, manufacture and deploy network equipment. However, the increase in capital expenditures from 2006 to 2007 came mainly from investments needed to support the rapidly growing services business and establish stronger presence in certain markets.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

The following table summarizes annual capital expenditures during the five years ended December 31, 2007:

CAPITAL EXPENDITURES 2003–2007


SEK billion	2007		2006		2005		2004		2003
Capital expenditures	4.3		3.8		3.4		2.5		1.8
of which Sweden	1.3		1.0		1.0		1.1		1.1
as percent of net sales	2.3	%	2.2	%	2.2	%	1.9	%	1.5	%

Excluding acquisitions, we do not expect capital expenditures in relation to sales to differ significantly in 2008, remaining at roughly 2 percent of sales. In addition to normal capital expenditures, there are commitments to repay SEK 3.1 billion of debt. With a net cash position at year-end of SEK 24.3 (40.7) billion, we expect the Company to be able to cover all capital expenditure plans and customer financing commitments for 2008 by using funds generated from operations with no additional borrowing required.

We believe the properties that the Company now occupies are suitable for its present needs in most locations. As of December 31, 2007, no material land, buildings, machinery or equipment were pledged as collateral for outstanding indebtedness.

CREDIT RATINGS

Both Moody’s and Standard & Poor’s (S&P) credit rating agencies raised Ericsson’s credit rating during 2007, although S&P lowered their outlook from stable to negative on November 27, 2007. At year-end, ratings of Ericsson’s creditworthiness were Baa1 for Moody’s and BBB+ for S&P, both of which are considered to be “Investment Grade.”

ERICSSON CREDIT RATINGS YEAR END 2005–2007


	2007	2006	2005
Moody’s	Baa1	Baa2	Baa3
Standard & Poor’s	BBB+	BBB–	BBB–

RESEARCH AND DEVELOPMENT

A robust R&D program is essential to Ericsson’s competitiveness and future success. With most R&D invested in mobile communications network infrastructure, Ericsson’s program is one of the largest in the industry. The efficiency of the R&D activities has been improved, enabling a faster time to market for products and increased investment in new areas such as multimedia solutions while decreasing R&D as a percentage of sales. The Company reduced R&D lead time more than 25 percent this year and have reached their target of a 50 percent reduction in time to market one year ahead of plan.

R&D PROGRAM


	2007		2006		2005
Expenses (SEK billion)	28.8		27.5		24.1
As percent of sales	15.4	%	15.3	%	15.7	%
Employees within R&D at December 31¹⁾	19,300		17,000		16,500
Patents¹⁾	23,000		22,000		20,000

1)	The number of employees and patents are approximate.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

During 2008, R&D expenses, including the amortization of intangible assets from acquisitions, are expected to remain roughly the same in absolute terms as for the annualized run rate during the second half of 2007, i.e. ~SEK 30-31 billion. Currency translation effects could affect the actual level of reported spending.

PARTNERSHIPS AND JOINT VENTURES

During 2007, Sony Ericsson Mobile Communications reported strong unit volume and sales increases, which caused their income before tax to improve significantly from last year. The improved performance is mainly the result of focusing on imaging, music and enterprise phones, while at the same time increasing the number of lower priced models. Sony Ericsson’s ambition is to achieve continued profitable growth through the combination of technologies and expertise from their parent companies to better leverage their own capabilities.

Each parent company was paid a dividend of EUR 424 million. The joint venture results are accounted for in accordance with the equity method. For more information, see also Notes to the Consolidated Financial Statements—Note C1, “Significant Accounting Policies”.

SONY ERICSSON RESULTS 2005–2007


	2007	Percent change		2006	2005
Units sold (millions)	103.4	38	%	74.8	51.2
Sales (EUR m.)	12,916	18	%	10,959	7,268
Income before tax (EUR m.)	1,574	21	%	1,298	512
Net income (EUR m.)	1,114	12	%	997	350
Ericsson’s share of Income before tax (SEK billion)	7.1	21	%	5.9	2.3

For more information on transactions with Sony Ericsson, please see also Notes to the Consolidated Financial Statements—Note C30, “Related Party Transactions”.

ACQUISITIONS AND DIVESTMENTS

Acquisitions or divestments completed during 2005, 2006 or 2007 are described in the tables “Acquisitions 2005–2007” and “Divestments 2005–2007”.

In total, the company has spent SEK 42.4 billion net in acquisitions/divestments during the last three years (2005–2007).

Acquisitions were made for SEK 26.3 billion in 2007, SEK 18.1 billion in 2006 and SEK 1.2 billion in 2005. Divestments were made for SEK 0.1 billion in 2007, SEK 3.1 billion in 2006 and SEK 0.03 billion in 2005. For more information, please see Notes to the Consolidated Financial Statements, Note C26 “Business Combinations”.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

ACQUISITIONS 2005-2007


Company	Description	Date
HyC	Spanish company with around 110 employees that specialize in design and systems integration of IPTV networks.	Dec 30, 2007

LHS	German provider of post-paid billing and customer care systems for wireless, wireline, and IP telecom markets. Purchase price SEK 2.7 billion.	Oct 1, 2007

Drutt	Swedish company, with around 85 employees, that develops Mobile Service Delivery Platform which enables mobile operators to mobilize and charge for any content to any device, over any delivery channel.	June 28, 2007

Tandberg Television	Norwegian global supplier of products for digital TV solutions, including IPTV, HDTV, video on demand, advertising on demand and interactive TV applications. Purchase price SEK 9.8 billion.	May 1, 2007

Mobeon	Swedish company, with around 130 employees that develop IP messaging software technology.	Mar 15, 2007

Entrisphere	US-based company, with around 140 employees, that develops gigabit passive optical network (GPON) technology for fixed broadband access, i.e. FTTx.	Feb 12, 2007

Redback Networks	US supplier of multi-service routing platform for broadband services such as VoIP, IPTV and Video On-Demand. Purchase price SEK 14.8 billion.	Jan 23, 2007

Distocraft Oy	Assets of Finnish company specialized in software development and with around 40 employees that develop mobile network performance management systems.	Aug 31, 2006

Netwise	Swedish-based supplier of software for presence management, team collaboration, integration of mobile phones, IP telephony and multimedia for enterprise.	Aug 11, 2006

Marconi assets	Certain assets related to broadband access, optical and radio transmission, data networks and service layer were acquired from UK-based Marconi. Purchase price SEK 19.4 billion.	Jan 23, 2006

TUSC	Australian company, with around 80 employees, specializes in systems integration for telecommunications, utilities and enterprises.	Nov 24, 2005

Axxessit	Norway-based technology company that supplies multi-service next-generation SDH metro transmission equipment.	Sept 13, 2005

Teleca OSS	Swedish company with around 40 employees, supplier of service assurance, network management and operator charging solutions as well as other tools to improve the quality of operator services toward consumers.	July 4, 2005

NetSpira Networks	Spanish company with around 20 employees, that provides software for content aware and event based charging.	June 3, 2005

Ericsson S.p.A.	In the first quarter 2005, a Residual Public Offer was launched for the remaining shares in Ericsson S.p.A. in Italy and subsequently Ericsson S.p.A. was delisted from the Milan Stock Exchange. Purchase price SEK 0.6 billion.	1Q 2005

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

DIVESTMENTS 2005-2007


Company	Description	Date
Ericsson Microwave Systems (EMW)	Swedish provider of radar, command and control systems for defense applications. Cash flow effect SEK 3.1 billion.	Sept 1, 2006

Shares in Anoto	Swedish company that licenses a digital pen and paper technology.	May 30, 2005

MATERIAL CONTRACTS AND CONTRACTUAL OBLIGATIONS

Ericsson is party to certain agreements which include provisions that may take effect, be altered or cease to be valid due to a change in control of the Company, as a result of a public takeover offer. Such provisions are not unusual for certain types of agreements such as joint-venture agreements, financing agreements and certain license agreements. However, none of the agreements that Ericsson currently has in effect would entail any material consequences due to a change in control of the Company.

Material contractual obligations are outlined in the following table. Operating leases are mainly related to offices and production facilities. Purchase obligations are related mainly to outsourced manufacturing, R&D and IT operations and to components for our own manufacturing. Except for those transactions previously described in this report, Ericsson has not been a party to any material contracts over the past three years other than those entered into during the ordinary course of business.

CONTRACTUAL OBLIGATIONS 2007


	Payment due by period
(SEK million)	Total	<1 Year	1-3 Years	3-5 Years	>5 Years
Long-term debt¹⁾²⁾	23,659	3,625	7,968	3,630	8,436
Capital lease obligations³⁾	1,875	171	284	210	1,210
Operating leases³⁾	11,895	3,147	3,708	2,308	2,732
Other non-current liabilities	1,714	102	132	147	1,333
Purchase obligations⁴⁾	9,376	9,376	—	—	—
Trade Payables	17,427	17,427	—	—	—
Commitments for customer financing⁵⁾	4,185	4,185	—	—	—

Total	70,131	38,033	12,092	6,295	13,711

1)	Including interest payments.

2)	See also Notes to the Consolidated Financial Statements—Note C20, “Financial Risk Management and Financial Instruments”.

3)	See also Notes to the Consolidated Financial Statements—Note C27, “Leasing”.

4)	The amounts of purchase obligations are gross, before deduction of any related provisions.

5)	See also Notes to the Consolidated Financial Statements—Note C14, “Trade Receivables and Customer Financing”.

CORPORATE GOVERNANCE

In accordance with the Swedish code of corporate Governance, a separate Corporate Governance Report including an Internal Control section has been prepared. There have been no amendments or waivers to Ericsson’s Code of Business Ethics for any Director or member of management.

A separate Corporate Responsibility Report is also published, addressing Ericsson’s activities regarding social responsibility, environmental and human resource issues.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

The corporate bodies involved in the governance of Ericsson are:

•

The shareholders through voting in annual general meetings or extraordinary general meetings and their appointed Nomination Committee for nomination of members of the Board and auditors

•

The Board of Directors and its Finance, Remuneration and Audit Committees

•

The President and CEO

•

The management

•

The external auditors

The Board of Directors works according to Work Procedures that outlines rules regarding the distribution of tasks between the Board and its Committees as well as between the Board, its Committees and the President and CEO. The external auditors examine the financial reports and assess the management by the Board of Directors and the President and CEO.

Ericsson’s operations are governed by its Ericsson Group Management System, consisting of:

•

Ericsson’s organization, with its segregation of duties distribution of work and delegation of authority.

•

Group policies and directives, including a code of Business Ethics.

•

Group-wide standard business processes, including processes for strategy and target setting as well as operational processes and processes for accounting, financial reporting and disclosure.

For more information regarding the Board of Directors and its committees, please see the Corporate Governance Report.

Changes to the Board membership

The Board of Directors is elected each year at the Annual General Meeting for the period until the next Annual General Meeting. At the Annual General Meeting on April 11, 2007, the following board members were re-elected: Michael Treschow as Chairman of the Board, Marcus Wallenberg and Sverker Martin-Löf as Deputy Chairmen, Sir Peter L. Bonfield, Ulf J. Johansson, Nancy McKinstry, Börje Ekholm, Katherine Hudson, Anders Nyrén and Carl-Henric Svanberg.

Board remuneration

Members of the Board who are not employees of the Company have not received any compensation other than the fees paid for Board duties as outlined in Notes to the Consolidated Financial Statements—Note C29, Information Regarding Employees, Members of the Board of Directors and Management. Members and Deputy Members of the Board who are employees (i.e. the CEO and the employee representatives) have not received any remuneration or benefits other than their normal employee entitlements, with the exception of a small fee paid to the employee representatives for each Board meeting attended.

RISK MANAGEMENT

Risk taking is an inherent part of doing business. Risks and opportunities are managed in our strategy and target setting processes and in all operational processes. Risks are identified, probability of occurrence assessed and potential consequences estimated. Actions are then taken to reduce or mitigate the risk exposures and limit potential unfavorable consequences. Controls and monitoring activities are in place to ensure effective risk management.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

We broadly categorize risks into operational risks and financial risks. We also manage risks related to financial reporting and compliance with applicable laws and regulations. Our approach to risk management reflects the scale and diversity of our business activities and balances central coordination and support with delegated risk management responsibilities within each operational unit.

For more information on risks related to our business, see also Risk Factors on page 144.

Operational risk management

Risk management has been integrated within the Ericsson Group Management System and each business process. The operational risk management framework applies universally across all business activities and is based on the following principles:

•

Risks are dealt with on three levels to ensure operational effectiveness, efficiency and business continuity: in the strategy process, in annual target setting and within ongoing operations by transaction (e.g. customer bids/contracts, acquisitions, investments, product development projects) and by process.

•

In the strategy and target setting processes, a balanced scorecard approach is used to ensure a comprehensive assessment of risks and opportunities across several perspectives: financial, customer/market, product/innovation, operational efficiency and employee empowerment.

•

In the strategy process, objectives are set for the next five years. Risks are then assessed and strategies developed to achieve these objectives. To ensure that actions are taken to realize the strategies, focus areas are identified to be included in the near-term planning and target setting for the upcoming year. The five-year strategy and one-year targets are approved annually by the Board of Directors.

•

Each risk is owned and managed by an operational unit that is held accountable and monitored through unit steering groups and Group Management.

•

Approval limits are clearly established with escalation according to defined delegations of authority. Certain risks, such as information security/IT risks, corporate responsibility risks, physical security risks and insurable risks are centrally coordinated. A crisis management council is established to deal with ad hoc events of a serious nature, as necessary.

Financial risk management

We have an established policy governing the Group’s financial risk management. This is carried out by the treasury function within the parent company and by a customer finance function. These are both supervised by the finance committee of the Board of Directors.

The policy governs identified financial risk exposures regarding:

•

Foreign exchange risks, as the Company has significant transaction volumes and assets and liabilities in currencies other than SEK. The largest foreign exchange exposure was towards the USD and related currencies, which represented approximately 50 percent of sales in 2007. Spending exposure towards USD was approximately 35 percent. A variety of hedging activities are used to manage parts of the foreign exchange risks.

•

Interest rate risks, as the values of cash and bank deposits, borrowings and post-employment liabilities as well as related interest income and expenses are exposed to changes in interest rates.

•

Credit risks in trade and customer finance receivables, including credit risk exposures in identified high-risk countries, as well as credit risks regarding counterparties in financial transactions,

•

Liquidity and financing risks, where the company’s treasury function manages the company’s liquidity through monitoring of its payment readiness and refinancing needs and sources.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

During 2007, there have not been any defaults in the payment of principal or interest, or any other material default relating to the indebtedness of Ericsson.

For further information on objectives, policies and strategies for financial risk management, see notes to the Consolidated Financial Statements—Note C14, Trade Receivables and Customer Financing, Note C19, Interest-Bearing Liabilities and Note C20, Financial Risk Management and Financial Instruments.

Financial Reporting Risks

To ensure accurate and timely reporting that is compliant with financial reporting standards and stock market regulations, we have adopted accounting policies and implemented financial reporting and disclosure processes and controls. Please refer to the report on internal control over financial reporting, included in our corporate Governance report.

Compliance Risks

The Company have implemented a number of policies to ensure compliance with applicable laws and regulations, including a Code of Business Ethics, covering among other areas: labor laws, trade embargoes, environmental regulations, corruption, fraud and insider trading. Regular training is conducted in this area in the form of seminars as well as e-learning on internal training web sites where employees take courses and tests and get certificates for passed courses.

Internal audits are routinely conducted in the areas of trade compliance, fraud, security, health and safety, the environment and supply chain management. During 2007, the company also included audits of the internal implementation of the code of Conduct.

CORPORATE RESPONSIBILITY

Corporate Responsibility (CR) is about integrating the environmental, social and ethical imperatives into the way the Company works and throughout its value chain. The Company ensures that it has the controls in place to minimize risks and also strives to generate positive business impacts by connecting the core business to the betterment of society. Ericsson believes this leads to an enduring capability for value creation as well as a competitive advantage.

Ericsson supports the UN Global Compact and its ten guiding principles. The Company sees these principles not only as guiding principles, but also as a prerequisite for sound, long-term business. As such, Ericsson is committed to responsible business practices for sustainable economic growth from which all the Company’s stakeholders benefit. This commitment to employees, customers, shareholders and the broader global community is underscored by external recognition of the Company’s efforts. During 2007, ericsson was again included in the FTSE 4Good and was the only company in its sector to be noted on the carbon Disclosure project’s (CDP) global leadership index, and ranked 3rd overall on the CDP’s Nordic Index.

Ericsson publishes a separate corporate responsibility Report annually, which provides comprehensive information about the Company’s corporate responsibility and related activities.

Human Rights

Ericsson believes that publicly available and affordable telecommunications is a fundamental prerequisite for social and economic development. as one of the world’s largest providers of communications equipment and services, the Company plays a vital role in achieving this objective, especially in emerging markets. Ericsson

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

joined the Business Leaders’ Initiative on Human rights (BLIHR) in 2006. BLIHR aims to find practical applications of the universal Declaration of Human rights within a business context and to inspire other businesses to do likewise. Ericsson’s participation in BLIHR reinforces a longstanding commitment to human rights and corporate responsibility activities.

Ericsson has undertaken a number of measures to demonstrate that it is a force for good in emerging markets. For example, during 2007 Ericsson commissioned McGrigors Rights, an independent third party, to perform a Human Rights Impact Assessment on Ericsson’s operations in Sudan. Overall it was concluded that Ericsson can demonstrate non-complicity in human rights abuses and convincing “substantial actions” for investors and concerned stakeholders regarding its business operations in Sudan. The full results are presented in Ericsson’s 2007 corporate responsibility report. it should be noted that Ericsson is not included on the Sudan Divestment Task Force’s list of divestment targets.

Community Involvement

The Company is committed to being a responsible member of the global society and of the local communities in which it operates. During 2007, a CR sponsorship Directive was established to ensure that all CR sponsorships are connected to the use of telecommunications to support social and/or environmental causes.

Ericsson believes that telecommunication, by its very nature, has a constructive role to play in the proactive engagement in local economic, environmental and social challenges. Ericsson is encouraging economic growth in emerging markets through its communication for all program.

Ericsson Response is a global initiative to rapidly provide IT, communication solutions and telecom experts anywhere in the world in response to human suffering caused by disasters. Ericsson response assists the disaster relief operations of the UN Office for the Coordination of Humanitarian Affairs (OCHA), UN World Food Programme (WFP) and the International Federation of Red Cross and Red Crescent Societies (IFRC).

During 2007, after an earthquake in Peru, Ericsson Response provided support to the relief operation in cooperation with IFRC. In cooperation with the Swedish rescue services agency (SRSA), Ericsson Response supported the UN in the establishment of operational offices in the Central African Republic. In addition, Ericsson was the winner of the 2007 PMI (Project Management Institute) Community Advancement Through Project Management Award.

Employees are encouraged and empowered to make positive individual contributions to the world around them. Their contributions take many forms, determined by the employees according to local needs. for example, they may be in the fields of health care, social and humanitarian aid, scholarships and other educational support, art and culture, the environment or children’s welfare as well as many other activities.

Energy and Environment

Ericsson’s most significant environmental impact relates to the energy consumed by the operation of its products during their active life time. The Company has set ambitious targets in this area. By the end of 2008, the Company intends to improve the energy efficiency of its 3G/WCDMA radio base station portfolio by up to 80 percent, from a 2001 baseline. Performance on annual improvement targets is included in the Corporate Responsibility Report.

The Company continues to work actively in developing energy efficient products and green site solutions, including solar, wind, fuel cell and biofuel technologies. Ericsson introduced a number of innovative hardware and software solutions during the year, including the radio base station power saving feature, and the Ericsson Tower Tube—a completely new, environmentally designed, site concept.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

During 2007, Ericsson was awarded both the Elektra European Electronic Industry Clean Design award for its energy efficient power modules and the Energy-Efficiency Innovation award by the China Center for Information Industry Development (CCID).

We believe that the Company is in compliance with all material environmental, health and safety laws and regulations required by its operations and business activities. Ericsson provides public information on radio waves and health and supports independent research to further increase knowledge in this area. Ericsson currently co-sponsors more than 45 different ongoing research projects related to electromagnetic fields (EMF), radio waves and health. Since 1996 the Company has supported more than 90 studies. Public health authorities and independent expert groups have reviewed the total amount of research. They have consistently concluded that the balance of evidence does not demonstrate any health effects associated with radio wave exposure from either mobile phones or radio base stations.

From August 13, 2005, Ericsson has complied with the EU Directive on Waste Electrical and Electronic Equipment (WEEE). Ericsson’s global end-of-life treatment program is called the Ecology Management Provision, and was initiated three years before the WEEE requirements became law in the EU. This proactive approach gives Ericsson an effective tool to meet waste-management challenges in all markets around the world. From July 1, 2006, Ericsson is in compliance with the EU Directive on Reduction of Hazardous Substances (RoHS). Ericsson is assessing the effects of the June 1, 2007, European Community’s REACH (Registration, Evaluation, Authorization and limitation of Chemicals) regulation to ensure timely compliance with its requirements.

Employees

Every year, an employee opinion survey is conducted with a high level of employee participation. The continued high participation rate of 90 percent reflects employee recognition that management actively uses the survey as a tool to further develop the workforce satisfaction and performance. Management’s main ambition going forward is to sustain the current level of excellence and encourage an even higher level of employee participation.

Employee headcount at year-end was 74,011 (63,781). Most of the additions were due to acquisitions of Redback, Tandberg and LHS as well as part of outsourcing agreements with operators to support the growing managed services business. During the year, 6,657 (6,432) employees departed while 16,887 (14,158) joined the Company. Please see Notes to the Consolidated Financial Statements—Note C29, Information Regarding Employees, Members of the Board of Directors and Management.

Executive Remuneration

The Board, through its Remuneration Committee continues to be mindful of the debates around the world on executive salaries and benefits. We remain confident that current policies and practices concerning authorization, compliance and control of senior executive remuneration within Ericsson are appropriate and reasonable. Principles for remuneration and other employment terms for top executives were approved by the Annual General Meeting 2007 and are further described in Notes to the Consolidated Financial Statements—Note C29, Information Regarding Employees, Members of the Board of Directors and Management.

The proposed remuneration policy for Group Management for 2008 remains materially the same as the policy resolved by shareholders for 2007, which is described in Note 29.

The Board of Directors’ proposal for implementation of a Long Term Variable compensation plan for 2007 and transfer of shares in connection therewith was not approved by shareholders at the Annual General Meeting on April 11, 2007. At a subsequent Extraordinary General Meeting on June 28, 2007, Ericsson shareholders

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

agreed and approved a slightly modified Long Term Variable Compensation Program 2007 for all employees. As of December 31, 2007, there were no loans outstanding from, and no guarantees issued to or assumed by Ericsson for the benefit of any member of the Board of Directors or senior management. Please see Notes to the Consolidated Financial Statements—Note C29, Information Regarding Employees, Members of the Board of Directors and Management.

LEGAL AND TAX PROCEEDINGS

In the fall of 2007, Ericsson was named as a defendant in three putative class action suits filed in the United States District Court for the Southern District of New York. The complaints allege violations of the United States securities laws principally in connection with Ericsson’s October 2007 profit warning. At the conclusion of various pending procedural motions and after plaintiffs file a consolidated amended class action complaint, Ericsson intends to seek the dismissal of the lawsuits.

Following issuance of the third-quarter profit warning, the OMX Nordic Exchange Stockholm brought an inquiry to determine whether the Company appropriately issued the profit warning and made appropriate disclosure at the November 20 management briefing. The Company believes it has complied fully with all stock market and other obligations, and is cooperating fully with the inquiry. The Financial Services Authority in England has initiated a similar inquiry.

Ericsson, Sony Ericsson Mobile Communications and the Korean handset manufacturer Samsung have settled the companies’ multiple patent litigations in the US, UK, Germany and the Netherlands, including the proceedings in the US International Trade Commission (ITC) under Section 337 of the Tariff Act of 1930.

In October 2005, Ericsson filed a complaint with the European Commission requesting that it investigate and stop US-based Qualcomm’s anti-competitive conduct in the licensing of essential patents for 3G mobile technology. At the same time, Broadcom, NEC, Nokia, Panasonic Mobile Communications and Texas Instruments each filed similar complaints claiming Qualcomm is violating EU competition law and failing to meet the commitments Qualcomm made to international standardization bodies around the world that it would license its technology on fair, reasonable and non-discriminatory terms. The Commission opened a first-phase investigation in December of 2005. In August 2007, it decided to conduct an in-depth investigation of the case as a matter of priority.

Together with most of the mobile communications industry, Ericsson has been named as a defendant in six class action lawsuits in the United States where plaintiffs alleged that adverse health effects could be associated with the use of mobile phones. In 2006, plaintiffs voluntarily dismissed four of those lawsuits. The two remaining cases are currently pending in the federal court in Pennsylvania and the Superior Court of the District of Columbia.

In another suit filed in the US, Freedom Wireless inc., a technology company, sued Cingular Wireless LLC and Ericsson claiming the two defendants built their prepaid wireless telephone service on Freedom Wireless’ patents that allow mobile telephone customers to purchase increments of airtime for any mobile phone.

Ericsson is engaged in litigation with an Australian company, QPSX, in the Federal Court of Australia. QPSX’s claim relates to an alleged breach by Ericsson of a patent license agreement. Ericsson has contested the claim. In April 2007, QPSX filed a patent infringement lawsuit against Ericsson et al. in the Eastern District of Texas alleging Ericsson infringed a QPSX patent related to asynchronous transfer mode (“ATM”) technology.

In December 2006, the Stockholm City Court acquitted all current or former employees of the Parent Company who had been indicted by the Swedish National Economics Crimes Bureau for evasion of tax control. This judgment has in part been appealed by the prosecutor. The Svea Court of Appeals will hold its main hearing in the first half of 2008.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

For income tax purposes, Swedish fiscal authorities have disallowed deductions for sales commission payments via external service companies to sales agents in certain countries. Most of these taxes have already been paid. The decision covering the fiscal year 1999 was appealed. In December 2006, the County Administrative Court in Stockholm rendered a judgment in favor of the fiscal authorities. Also this judgment has been appealed.

PARENT COMPANY

The Parent Company business consists mainly of corporate management, holding company functions and internal banking activities. The Parent Company business also includes customer credit management, performed on a commission basis by Ericsson Credit AB.

The Parent Company is the owner of the majority of Ericsson’s intellectual property rights. It manages the patent portfolio, including patent applications, licensing and cross-licensing of patents and defending of patents in litigations.

The Parent Company has 7 (7) branch offices. In total, the Group has 55 (51) branch and representative offices.

Net sales for the year were SEK 3.2 (2.6) billion and income after financial items was SEK 14.7 (13.6) billion. Patent license fees are included in net sales from 2007, instead of in other operating income and expenses. Prior years have been restated accordingly. Exports accounted for 59 percent of net sales in 2007 (63 percent of adjusted net sales in 2006). No consolidated companies were customers of the Parent Company’s sales in 2007 or 2006, while 46 percent (29 percent in 2006) of the Company’s total purchases of goods and services were from such companies. Major changes in the Parent Company’s financial position for the year include increased investments in subsidiaries of SEK 30.3 billion, mostly attributable to the Tandberg, Redback, Entrisphere and LHS acquisitions; decreased other current receivables of SEK 2.2 billion; decreased cash and bank and short-term investments of SEK 8.4 billion; increased notes and bond loans of SEK 11.1 billion through the bond issue program; and increased current and non-current liabilities to subsidiaries increased by SEK 4.7 billion. At year-end, cash and bank and short-term investments amounted to SEK 45.6 (54.0) billion.

As per December 31, 2007, Ericsson had 16,132,258,678 shares. The shares were divided into 1,308,779,918 Class A shares, each carrying one vote, and 14,823,478,760 Class B shares, each carrying one-tenth of one vote. The two largest shareholders at year-end were Investor and Industrivärden holding 19.49 percent and 13.36 percent respectively of the voting rights in the Company.

In accordance with the conditions of the Stock Purchase Plans and Option Plans for Ericsson employees, 19,022,349 shares from treasury stock were sold or distributed to employees during the year. The quota value of these shares is SEK 19.0 million, representing less than 1 percent of capital stock, and compensation received amounted to SEK 103.7 million. The holding of treasury stock at December 31, 2007, was 231,991,543 Class B shares. The quota value of these shares is SEK 232.0 million, representing 1 percent of capital stock and related acquisition cost amounts to SEK 516.2 million.

PROPOSED DISPOSITION OF EARNINGS

The Board of Directors proposes that a dividend of SEK 0.50 (0.50) per share be paid to shareholders duly registered on the record date of April 14, 2008, and that the Company shall retain the remaining part of non-restricted equity. The Class B treasury shares held by the Parent Company are not entitled to receive a dividend.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

Assuming that no treasury shares remain within the Company on the record date, the Board of Directors proposes that earnings be distributed as follows:


Amount to be paid to the shareholders		SEK 8,066,129,339
Amount to be retained by the Parent Company		SEK 27,158,601,830

Total non-restricted equity of the Parent Company		SEK 35,224,731,169

As a basis for its proposal for a dividend, the Board of Directors has made an assessment in accordance with Chapter 18, Section 4 of the Swedish Companies Act of the Parent Company’s and the Group’s need for financial resources as well as the Parent Company’s and the Group’s liquidity, financial position in other respects and long-term ability to meet their commitments. The Group reports an equity ratio of 55.1 (56.2) percent and net cash amounts to SEK 24.3 (40.7) billion.

The Board of Directors has also considered the Parent Company’s result and financial position and the Group’s position in general. In this respect, the Board of Directors has taken into account known commitments that may have an impact on the financial positions of the Parent Company and its subsidiaries.

The proposed dividend does not limit the Group’s ability to make investments or raise funds, and it is our assessment that the proposed dividend is well-balanced considering the nature, scope and risks of the business activities as well as the capital requirements for the Parent Company and the Group.

POST-CLOSING EVENTS

Divestment of enterprise PBX solutions

On February 18,2008, Ericsson announced the divestment of its enterprise PBX solutions business to the Canadian company Aastra Technologies. The agreement involves transfer of approximately 630 employees of which some 360 are based in Sweden. The transaction is expected to close in April 2008.

Ericsson’s enterprise PBX solutions business includes IP PBX, converged PBX systems and branch office solutions. Sales in 2007 amounted to approximately SEK 3 billion. The purchase price is SEK 650 million excluding net of assets and liabilities. A capital gain of approximately SEK 200 million is expected.

On March 19, 2008, Sony Ericsson announced that moderating sales growth of mobile phone units is expected to negatively impact net sales and net income before tax for the first quarter of 2008. Sony Ericsson further announced that it expects gross margin to remain relatively stable for the first quarter of 2008 compared with the first quarter of 2007.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Telefonaktiebolaget LM Ericsson (publ):

We have completed integrated audits of Telefonaktiebolaget LM Ericsson (publ)’s 2007 and 2006 consolidated financial statements and of its internal control over financial reporting as of December 31, 2007, and 2006, and an audit of its 2005 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, statements of recognized income and expense and cash flow statements present fairly, in all material respects, the financial position of Telefonaktiebolaget LM Ericsson and its subsidiaries at December 31, 2007, and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with International Financial Reporting Standards as issued by International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European union. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of sponsoring organizations of the tradeway commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting appearing under item 15(b) of the Annual Report on Form 20-F. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our integrated audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Stockholm, April 16, 2008

PricewaterhouseCoopers AB

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

CONSOLIDATED INCOME STATEMENT


Years ended December 31, SEK million	Notes	2007	2006¹⁾	2005¹⁾
Net sales	C3, C4	187,780	179,821	153,222
Cost of sales		-114,059	-104,875	-82,764

Gross margin		73,721	74,946	70,458

Research and development expenses		-28,842	-27,533	-24,059
Selling and administrative expenses		-23,199	-21,422	-16,800

Operating expenses		-52,041	-48,955	-40,859

Other operating income and expenses	C6	1,734	3,903	1,090
Share in earnings of joint ventures and associated companies	C12	7,232	5,934	2,395

Operating income		30,646	35,828	33,084

Financial income	C7	1,778	1,954	2,653
Financial expenses	C7	-1,695	-1,789	-2,402

Income after financial items		30,729	35,993	33,335

Taxes	C8	-8,594	-9,557	-8,875

Net income		22,135	26,436	24,460

Net income attributable to:
Stockholders of the Parent Company		21,836	26,251	24,315
Minority interest		299	185	145

Other information
Average number of shares, basic (million)	C9	15,891	15,871	15,843
Earnings per share attributable to stockholders of the Parent Company, basic (SEK)	C9	1.37	1.65	1.53
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK)	C9	1.37	1.65	1.53

Revenues for intellectual property rights (IPR) related to products are included in Net sales instead of Other operating income. In 2006, SEK 2,038 million (SEK 1,400 million in 2005) of Other operating income were reclassified. Accordingly, the related cost previously reported as part of Research and development expenses is reported as Cost of sales or Selling and administrative expenses, depending on the nature of the cost. In 2006, SEK 388 million (SEK 395 million in 2005) of the costs were reclassified.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

CONSOLIDATED BALANCE SHEET


December 31, SEK million	Notes	2007	2006
ASSETS
Non-current assets
Intangible assets	C10
Capitalized development expenses		3,661	4,995
Goodwill		22,826	6,824
Intellectual property rights, brands and other intangible assets		23,958	15,649

Property, plant and equipment	C11, C26, C27	9,304	7,881
Financial assets
Equity in joint ventures and associated companies	C12	10,903	9,409
Other investments in shares and participations	C12	738	721
Customer financing, non-current	C12	1,012	1,921
Other financial assets, non-current	C12	2,918	2,409
Deferred tax assets	C8	11,690	13,564

		87,010	63,373
Current assets
Inventories	C13	22,475	21,470
Trade receivables	C14	60,492	51,070
Customer financing, current		2,362	1,735
Other current receivables	C15	15,062	15,012

Short-term investments	C20	29,406	32,311
Cash and cash equivalents	C20	28,310	29,969

		158,107	151,567
Total assets		245,117	214,940

EQUITY AND LIABILITIES
Equity
Stockholders’ equity	C16	134,112	120,113
Minority interest in equity of subsidiaries	C16	940	782

		135,052	120,895
Non-current liabilities
Post-employment benefits	C17	6,188	6,968
Provisions, non-current	C18	368	602
Deferred tax liabilities	C8	2,799	382
Borrowings, non-current	C19, C20	21,320	12,904
Other non-current liabilities		1,714	2,868

		32,389	23,724
Current liabilities
Provisions, current	C18	9,358	13,280
Borrowings, current	C19, C20	5,896	1,680
Trade payables	C22	17,427	18,183
Other current liabilities	C21	44,995	37,178

		77,676	70,321
Total equity and liabilities¹⁾		245,117	214,940

1)	Of which interest-bearing liabilities and post-employment benefits SEK 33,404 million (SEK 21,552 million in 2006).

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

CONSOLIDATED STATEMENT OF CASH FLOWS


Years ended December 31, SEK million	Notes	2007	2006		2005
Operating activities
Net income		22,135	26,436	¹⁾	24,460	¹⁾
Adjustments to reconcile net income to cash	C25	7,172	6,060	¹⁾	10,700	¹⁾

		29,307	32,496		35,160

Changes in operating net assets
Inventories		-445	-2,553		-3,668
Customer financing, current and non-current		365	1,186		-641
Trade receivables		-7,467	-10,563		-5,874
Provisions and post-employment benefits		-4,401	-3,729		-15,574
Other operating assets and liabilities, net		1,851	1,652		7,266

		-10,097	-14,007		-18,491

Cash flow from operating activities		19,210	18,489		16,669

Investing activities
Investments in property, plant and equipment	C11	-4,319	-3,827		-3,365
Sales of property, plant and equipment		152	185		362
Acquisitions of subsidiaries and other operations	C26	-26,292	-18,078		-1,210
Divestments of subsidiaries and other operations	C26	84	3,086		30
Product development	C10	-1,053	-1,353		-1,174
Other investing activities		396	-1,070		13
Short-term investments		3,499	6,180		6,375

Cash flow from investing activities		-27,533	-14,877		1,031

Cash flow before financing activities		-8,323	3,612		17,700

Financing activities
Proceeds from issuance of borrowings		15,587	1,290		657
Repayment of borrowings		-1,291	-9,510		-2,784
Sale of own stock and options exercised		94	124		174
Dividends paid		-8,132	-7,343		-4,133

Cash flow from financing activities		6,258	-15,439		-6,086

Effect of exchange rate changes on cash		406	58		-288
Net change in cash		-1,659	-11,769		11,326

Cash and cash equivalents, beginning of period		29,969	41,738		30,412

Cash and cash equivalents, end of period	C20	28,310	29,969		41,738

1)	Minority interest is reported as net income instead of Adjustments to reconcile net income to cash. In 2006, SEK 185 million (2005 SEK 145 million) have been reclassified.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE


Years ended December 31, SEK million	2007	2006	2005¹⁾
Income and expense recognized directly in equity:
Actuarial gains and losses related to pensions	1,208	440	-3,221
Revaluation of other investments in shares and participations
Fair value remeasurement reported in equity	2	-1	-3
Transferred to income statement at sale	—	—	-147
Cash Flow hedges:
Fair value remeasurement of derivatives reported in equity	584	4,100	-3,961
Transferred to income statement for the period	-1,390	-1,990	1,404
Transferred to balance sheet for the period	—	99	—
Changes in cumulative translation adjustments	-797	-3,119	4,265
Tax on items reported directly in/or transferred from equity	-73	-769	1,523

Total transactions reported in equity	-466	-1,240	-140
Net income	22,135	26,436	24,460

Total income and expense recognized for the period	21,669	25,196	24,320

Attributable to:
Stockholders of the Parent Company	21,371	25,101	24,028
Minority interest	298	95	292

1)	As from January 1, 2006, Ericsson has adopted the new option in IAS 19 to charge actuarial gains/losses to equity. Earlier periods have been restated accordingly.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS


C1	Significant Accounting Policies	54
C2	Critical Accounting Estimates and Judgments	72
C3	Segment Information	74
C4	Net Sales	80
C5	Expenses by Nature	80
C6	Other Operating Income and Expenses	81
C7	Financial Income and Expenses	81
C8	Taxes	82
C9	Earnings per Share	84
C10	Intangible Assets	85
C11	Property, Plant and Equipment	88
C12	Financial Assets	89
C13	Inventories	91
C14	Trade Receivables and Customer Financing	92
C15	Other Current Receivables	96
C16	Equity	96
C17	Post-employment Benefits	101
C18	Provisions	109
C19	Interest-bearing Liabilities	110
C20	Financial Risk Management and Financial Instruments	111
C21	Other Current Liabilities	121
C22	Trade Payables	121
C23	Assets Pledged as Collateral	121
C24	Contingent Liabilities	121
C25	Statement of Cash Flows	122
C26	Business Combinations	123
C27	Leasing	127
C28	Tax Assessment Values in Sweden	129
C29	Information Regarding Employees, Members of the Board of Directors and Management	129
C30	Related Party Transactions	140
C31	Fees to Auditors	141
C32	Events after the Balance Sheet Date	142

C1 SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements comprise Telefonaktiebolaget Lm Ericsson, the Parent Company, and its subsidiaries (“the company”) and the Company’s interest in associated companies and joint ventures. The Parent Company is domiciled in Sweden at Torshamnsgatan 23, 164 83 Stockholm.

The consolidated financial statements for the year ended December 31, 2007, have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU, RR 30:06 Additional rules for Group Accounting, related interpretations issued by the Swedish Financial Reporting Board (Rådet för Finansiell Rapportering), and the Swedish Annual Accounts act. Further the Company’s financial statements are prepared in accordance with IFRS as issued by IASB.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In light of the SEC’s rule release “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without reconciliation to US GAAP”, which became effective on March 4, 2008, reconciliation of equity and net income is not made to accounting principles generally accepted in the United States (US GAAP), neither in this annual report nor in the Company’s annual rapport on form 20F.

The financial statements were approved by the Board of Directors on February 22, 2008. The balance sheets and income statements are subject to approval by the annual general meeting of shareholders.

NEW STANDARDS AND INTERPRETATIONS ADOPTED AS FROM JANUARY 1, 2007

•

IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements—Capital Disclosures (effective from January 1, 2007). IFRS 7 introduces new disclosure requirements to improve the information about financial instruments.

The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The company applies IFRS 7 and the amendment to IAS 1 from annual periods beginning January 1, 2007.

The new standard, IFRS 7, and the amendment to IAS 1 relate to changes in disclosure or presentation and has therefore not had any impact on financial result or position.

The following IFRICs have been applied as from January 1, 2007:

•

IFRIC interpretation 7 applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies.

This Interpretation provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency.

•

IFRIC 8 scope of IFRS 2.

This Interpretation applies to transactions when the identifiable consideration received appears to be less than the fair value of the equity instruments granted.

•

IFRIC 9 Reassessment of Embedded Derivatives.

This interpretation determines when an entity shall reassess the need for an embedded derivative to be separated.

•

IFRIC 10 Interim Financial Reporting and Impairment. An entity shall not reverse an impairment loss recognized in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost.

None of the new IFRICs have had a significant impact on financial result or position.

Amendment issued by the Swedish Financial Reporting Board

In March 2007, an amendment to URA 43 Accounting for special payroll tax and tax on investment returns was issued. The amendment had no impact on the Company’s financial result or position due to the fact that the Company had applied the principles of this interpretation prior to the amendment.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CHANGES IN FINANCIAL REPORTING STRUCTURE

Business segments

Ericsson reorganized its operating structure as from January 1, 2007. From the first quarter report 2007, the Company’s financial reporting has been adapted to reflect this new structure. The Company also took this opportunity to make other modifications to further enhance transparency with additional disclosures.

Ericsson reports the following business segments: Networks, Professional Services, Multimedia and Phones, represented by the share in earnings of Sony Ericsson.

The changed segment reporting is in accordance with the objectives set forth in IAS 14 Segment reporting. The business activities previously reported in Other Operations have been merged into the new segments to better leverage the opportunities provided by internal business combinations.

Business segment Networks includes products for mobile and fixed broadband access, core networks, transmission and next-generation IP-networks. Related network rollout services are also included. In addition, the power modules and cables operations, previously reported under Other Operations, are now included within Networks, as well as the acquired operations of Redback and Entrisphere.

Business segment Professional Services includes all service operations, excluding network rollout reported under Networks. Services for systems integration of IP- and core networks previously reported as network rollout are now reclassified as professional Services. Sales of managed services as a part of the total Professional Services will continue to be disclosed, since this represents service revenues of a recurring nature. The acquired operation of HyC Group has been included in Professional Services.

Business segment Multimedia includes multimedia systems, previously reported under segment Systems, and enterprise solutions and mobile platforms, previously included in Other Operations. The acquired operations of Tandberg TV, Mobeon, LHS and Drutt have been included in Multimedia.

For each of the business segments, the Company has reported net sales and operating margin quarterly. In addition, the Company has continued to disclose sales of mobile systems, including relevant parts of Networks and Multimedia.

The nature of the acquisitions made during 2007, including those acquired within Multimedia, has not resulted in any significant addition or amendment to the accounting policies of the Company.

CHANGES IN ACCOUNTING POLICIES AND REPORTING

Royalty revenues for intellectual property rights

Within the consolidated income statement, royalty revenues for intellectual property rights (IPR) related to products are included as part of Net Sales instead of Other operating income. Accordingly, the related costs, previously reported as part of Research and development expenses, are reported as Cost of Sales or Selling and administrative expenses, depending on the nature of the costs.

Research and development expenses

These were prior to 2007 called “Research and development and other technical expenses” but are from 2007 renamed “Research and development expenses”. This change is only related to adoption of IFRS terminology and has not resulted in any changes of amounts.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Statement of cash flows

Cash flow from operations is disclosed as before, but the subtotals “Cash flow from operating investing activities” and “Cash flow before financial investing activities” are no longer reported. Note C25, “Statement of Cash Flows” includes additional breakdown of adjustments to reconcile net income to cash, operating net assets and investing activities.

BASIS OF PRESENTATION

The financial statements are presented in millions of Swedish Krona (SEK). They are prepared on a historical cost basis, except for certain financial assets and liabilities that are stated at fair value: derivative financial instruments, financial instruments held for trading, financial instruments classified as available-for-sale and plan assets related to defined benefit pension plans. Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less cost to sell.

BASIS OF CONSOLIDATION

The consolidated financial statements are prepared in accordance with the purchase method. Accordingly, consolidated stockholders’ equity includes equity in subsidiaries, associated companies and joint ventures earned only after their acquisition.

Subsidiaries are all companies in which Ericsson has an ownership interest and directly or indirectly, including effective potential voting rights, has a voting majority or in which Ericsson by agreement has control of or retains the majority of the residual or ownership risk of the entity. This means that the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. At acquisitions, consolidation is performed from the date control is transferred. At divestments, deconsolidation is made from the date when control ceases.

Intra-group balances and any unrealized income and expense arising from intra-group transactions are fully eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

ASSOCIATED COMPANIES AND JOINT VENTURES

Investments in associated companies, where voting stock interest including effective potential voting rights is at least 20 percent but not more than 50 percent, or where a corresponding influence is obtained through agreement, are accounted for according to the equity method. Under the equity method, the investment in an associate is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. Ericsson’s share of income before taxes is reported in item Share in earnings of joint ventures and associated companies, included in Operating Income. This is due to that the majority of these interests relate to Sony Ericsson, an interest that is held for non-financial purposes. Ericsson’s share of taxes is included in item Taxes. Unrealized internal profits in inventory, as well as other assets in associated companies and joint ventures purchased from subsidiary companies, are eliminated in the consolidated accounts in proportion to ownership. Losses in transactions with associated companies and joint ventures are eliminated in the same way as profits, unless there is evidence of impairment.

Also when associated companies and joint ventures sell to the Company, unrealized internal profits and losses occur. Eliminations are made also of such profits and losses.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Undistributed share in earnings of associated companies and joint ventures included in consolidated equity are reported as Retained earnings, subsequent to acquisition.

BUSINESS COMBINATIONS

At the acquisition of a business, an allocation is made of the cost of the business combination in which fair values are assigned to acquired assets, liabilities and contingent liabilities, for example intangible assets such as customer relations, brands and patents, based upon appraisals made. Goodwill arises when the purchase price exceeds the fair value of recognizable acquired net assets.

As from the acquisition date, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. Corporate assets are allocated to cash-generating units in proportion to each unit’s proportion of net sales. An annual impairment test for the cash-generating units to which goodwill has been allocated is performed in the fourth quarter, or when there is an indication of impairment. An impairment loss is recognized if the carrying amount of the cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of the goodwill allocated to the unit and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis. The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value. An impairment loss in respect of goodwill is not reversed.

FOREIGN CURRENCY REMEASUREMENT AND TRANSLATION

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Swedish Krona ( SEK), which is the Parent Company’s functional and presentation currency.

TRANSACTIONS AND BALANCES

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortized cost are recognized in profit or loss, and other changes in the carrying amount are recognized in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

GROUP COMPANIES

The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

•

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

•

income and expenses for each income statement are translated at average exchange rates; and

•

all resulting net exchange differences are recognized as a separate component of equity

There is no significant impact due to a currency of a hyperinflationary economy.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to stockholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

STATEMENT OF CASH FLOWS

The cash flow statement is prepared according to the indirect method. Cash flows from foreign subsidiaries are translated at the average exchange rate during the period. Payments for subsidiaries acquired and/or divested are reported as cash flow from investing activities, net of cash.

Cash and cash equivalents consist of cash, bank and short-term investments and are highly liquid financial instruments that have a remaining maturity of three months or less at the date of acquisition.

REVENUE RECOGNITION

The Company offers a comprehensive portfolio of telecommunication and data communication systems, multimedia solutions and professional services, covering a range of technologies.

The contracts are of four main types:

•

delivery-type

•

contracts for various types of services, for example multi-year managed services contracts

•

Licenses for the use of the Company’s technology or intellectual property rights, not being a part of another product.

•

construction-type

The majority of the Company’s products and services are delivered under delivery-type contracts including multiple elements, such as base stations, base station controllers, mobile switching centers, routers, microwave transmission links, various software products and related installation and integration services. Such contract elements generally have individual item prices in agreed price lists per customer.

Sales are recorded net of value added taxes, goods returned, trade discounts and rebates. Revenue is recognized with reference to all significant contractual terms when the product or service has been delivered,

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

when the revenue amount is fixed or determinable and when collection is reasonably assured. Specific contractual performance and acceptance criteria may impact the timing and amounts of revenue recognized.

The profitability of individual contracts is periodically assessed, and provisions for any estimated losses are made immediately when losses are probable.

For sales between consolidated companies, associated companies, joint ventures and segments, the Company applies arm’s length pricing.

Definitions of contract types and related more specific accounting revenue recognition criteria

Different revenue recognition methods, based on either IAS 11 construction contracts or IAS 18 revenue, are applied based on the solutions provided to customers, the nature and sophistication of the technology involved and the contract conditions in each case. The contract types that fall under IAS 18 are:

•

Delivery-type contracts are contracts for delivery of a product or a combination of products to form a whole or a part of a network as well as delivery of stand alone products. Medium-size and large delivery type contracts generally include multiple elements. Such elements are normally standardized types of equipment or software as well as services such as network rollout.

Revenue is recognized when risks and rewards have been transferred to the customer, normally stipulated in contractual terms of trade. For delivery-type contracts that have multiple elements, revenue is allocated to each element based on relative fair values. If there are undelivered elements essential to the functionality of the delivered elements, or, if fair values are not available for all elements, the Company defers the recognition of revenue until all elements essential to the functionality have been delivered or fair values exist for the undelivered elements.

•

Contracts for various types of services, include services such as: training, consulting, engineering, installation and multi-year managed services and hosting. Revenue is generally recognized when the services have been provided. Revenue for managed service contracts and other services contracts covering longer periods is recognized pro rata over the contract period.

•

Licenses for the use of the Company’s technology or intellectual property rights, i.e. not being a part of a sold product. These mainly relate to mobile platform technology and other license revenues from third parties for the right to use the Company’s technology in design and production of products for sale. Revenue is recognized based on the number of mobile devices or other products that are produced and made available for the market by the customer.

The contract type that fall under IAS 11:

•

Construction-type contracts. In general, a construction type contract is a contract where the Company supplies a customer with a complete network which to a large extent is based upon new technology or includes major components which are specifically designed for the customer. Revenues from construction-type contracts are recognized according to stage of completion, generally using the milestone output method.

EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income attributable to stockholders of the parent company by the average number of shares outstanding (total number of shares less treasury stock) during the year.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Diluted earnings per share are calculated by dividing net income attributable to stockholders of the Parent Company by the sum of the average number of ordinary shares outstanding and dilutive potential ordinary shares. Potential ordinary shares are treated as dilutive when, and only when, this reduces earnings per share.

FINANCIAL ASSETS

The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Regular purchases and sales of financial assets are recognized on the settlement date. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost, using the effective interest method.

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Separate assets or liabilities are recognized if any rights and obligations are created or retained in the transfer.

The fair values of quoted financial investments and derivatives are based on quoted market prices or rates. If official rates or market prices are not available, fair values are calculated by discounting the expected future cash flows at prevailing interest rates. Valuations of FX options and Interest rate Guarantees (IRG) are made by using a Black-Scholes formula. Inputs to the valuations are market prices for implied volatility, foreign exchange and interest rates.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling or repurchasing in the near term.

Derivatives are classified as held for trading, unless they are designated as hedges. Assets in this category are classified as current assets.

Gains or losses arising from changes in the fair values of the “financial assets at fair value through profit or loss”—category are presented in the income statement within Financial income in the period in which they arise.

Loans and receivables

Receivables are initially recognized at fair value and subsequently measured at amortized cost, less allowances for impairment charges. Trade receivables include amounts due from customers. The balance represents amounts billed to customer and amounts where risk and rewards have been transferred to the customer but the invoice has not yet been issued.

Collectibility of the receivables is assessed for purposes of initial revenue recognition.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Dividends on available-for-sale equity instruments are recognized in the income statement as part of financial income when the Company’s right to receive payments is established.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analyzed between translation differences resulting from changes in amortized cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognized in profit or loss; translation differences on non-monetary securities are recognized in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the income statement.

Impairment

At each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss—measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss—is removed from equity and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement.

An assessment of impairment of receivables is performed when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement within selling expenses. When a trade receivable is finally established as uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against selling expenses in the income statement.

FINANCIAL LIABILITIES

Borrowings

Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

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Trade payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Derivatives at fair value through profit or loss

Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value through profit or loss. Changes in the fair value of these derivative instruments that do not qualify for hedge accounting are recognized immediately in the income statement within financial expenses.

Financial liabilities are derecognized when they are extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Derivatives are initially recognized at fair value at trade date and subsequently re-measured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either:

a hedge of the fair value of recognized liabilities (fair value hedge);

a hedge of a particular risk associated with a highly probable forecast transaction (cash flow hedge); or

a hedge of a net investment in a foreign operation (net investment hedge).

At the inception of the transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note C20. Movements in the hedging reserve in stockholders’ equity are shown in Note C16. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.

a) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group only applies fair value hedge accounting for hedging fixed interest risk on borrowings. Both gains or losses relating to the interest rate swaps hedging fixed rate borrowings and the changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk are recognized in the income statement within Financial expenses. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity.

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b) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to an ineffective portion is recognized immediately in the income statement within financial income or expense.

Amounts deferred in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place), either in Net Sales or cost of sales. When the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in Cost of Sales in case of inventory, or in Depreciation in case of fixed assets. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss which at that time remains in equity is recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within financial income or expense.

c) Net investment hedge

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in equity. A gain or loss relating to an ineffective portion is recognized immediately in the income statement within financial income or expense. Gains and losses deferred in equity are included in the income statement when the foreign operation is partially disposed of or sold.

FINANCIAL GUARANTEES

Financial guarantee contracts are initially recognized at fair value (i.e. usually the fee received). Subsequently, these contracts are measured at the higher of

•

the amount determined as the best estimate of the net expenditure required to settle the obligation according to the guarantee contract, and

•

the recognized contractual fee less cumulative amortization when amortized over the guarantee period, using the straight-line method.

The best estimate of the net expenditure comprises future fees and cash flows from subrogation rights.

INVENTORIES

Inventories are measured at the lower of cost or net realizable value on a first-in, first-out (FIFO) basis.

Risks of obsolescence have been measured by estimating market value based on future customer demand and changes in technology and customer acceptance of new products.

INTANGIBLE ASSETS OTHER THAN GOODWILL

These assets consist of capitalized development expenses and acquired intangible assets, such as patents, customer relations, brands and software. At initial recognition, capitalized development expenses are stated at cost while acquired intangible assets related to business combinations are stated at fair value. Subsequent to

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initial recognition, both capitalized development expenses and acquired intangible assets are stated at initially recognized amount less accumulated amortization/impairment. Amortization and any impairment losses are included in research and development, mainly for capitalized development expenses and patents, Selling and administrative expenses, mainly for customer relations and brands, and Cost of Sales.

Costs incurred for development of products to be sold, leased or otherwise marketed or intended for internal use are capitalized as from when technological and economical feasibility has been established until the product is available for sale or use. These capitalized expenses are mainly generated internally and include direct labor and related overhead. Amortization of capitalized development expenses begins when the product is available for general release. Amortization is made on a product or platform basis according to the straight-line method over periods not exceeding five years. Research and development expenses directly related to orders from customers are accounted for as a part of cost of sales. Other research and development expenses are charged to expense as incurred.

Amortization of acquired intangible assets, such as patents, customer relations, brands and software, is made according to the straight-line method over their estimated useful life, normally not exceeding ten years.

The Company has not recognized any intangible assets with indefinite useful life other than goodwill.

Impairment tests are performed whenever there is an indication of possible impairment. However, intangible assets not yet available for use are tested annually. An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount is the higher of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows after tax are discounted to their present value using an after-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Corporate assets have been allocated to cash- generating units in relation to each unit’s proportion of total net sales. The amount related to corporate assets is not significant. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amounts. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount, net of amortization, that would have been determined if no impairment loss had been recognized.

PROPERTY, PLANT AND EQUIPMENT

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is charged to income, generally on a straight-line basis, over the estimated useful life of each component of an item of property, plant and equipment, including buildings. Estimated useful lives are, in general, 25-50 years for buildings, 20 years for land improvements, 3 to 10 years for machinery and equipment, and up to 5 years for rental equipment. Depreciation and any impairment charges are included in Cost of sales, research and development or selling and administrative expenses.

The company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing a component and derecognizes the residual value of the replaced component.

Impairment testing as well as recognition or reversal of impairment for property, plant and equipment is performed in the same manner as for intangible assets other than goodwill, see description under “Intangible assets other than goodwill” above.

Gains and losses on disposals are determined by comparing the proceeds less costs to sell with the carrying amount and are recognized within other operating income and expenses in the income statement.

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LEASING

Leasing when the Company is the lessee

Leases on terms in which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that type of asset, although the depreciation period would not exceed the lease term.

Other leases are operating leases, and the leased assets under such contracts are not recognized on the balance sheet. Costs under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

Leasing when the Company is the lessor

Leasing contracts with the Company as lessor are classified as finance leases when the majority of risks and rewards are transferred to the lessee, and otherwise as operating leases. Under a finance lease, a receivable is recognized at an amount equal to the net investment in the lease and revenue is recognized in accordance with the revenue recognition principles.

Under operating leases, a balance sheet item of property, plant and equipment is reported and revenue as well as depreciation is recognized on a straight-line basis over the lease term.

INCOME TAXES

Income taxes in the consolidated financial statements include both current and deferred taxes. Income taxes are reported in the income statement unless the underlying item is reported directly in equity. For those items, the related income tax is also reported directly in equity. A current tax liability or asset is recognized for the estimated taxes payable or refundable for the current year or prior years.

Deferred tax is recognized for temporary differences between the book values of assets and liabilities and their tax values and for unutilized tax loss carryforwards. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and tax loss carryforwards can be utilized. Deferred tax is not recognized for the following temporary differences: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profits, and differences related to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

Deferred tax is measured at the tax rate that is expected to be applied to the temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted by the reporting date. An adjustment of deferred tax asset/liability balances due to a change in the tax rate is recognized in the income statement, unless it relates to a temporary difference earlier recognized directly in equity, in which case the adjustment is also recognized in equity.

The measurement of deferred tax assets involves judgment regarding the deductibility of costs not yet subject to taxation and estimates regarding sufficient future taxable income to enable utilization of unused tax losses in different tax jurisdictions. All deferred tax assets are subject to annual review of probable utilization. The largest amounts of tax loss carryforwards are originated in Sweden, with indefinite period of utilization.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PROVISIONS

Provisions are made when there are legal or constructive obligations as a result of past events and when it is probable that an outflow of resources will be required to settle the obligations and the amounts can be reliably estimated. However, the actual outflow as a result of an obligation may differ from such estimate.

In the ordinary course of business, the Company is subject to proceedings, lawsuits and other unresolved claims, including proceedings under laws and government regulations and other matters. These matters are often resolved over a long period of time. The Company regularly assesses the likelihood of any adverse judgments in or outcomes of these matters, as well as potential ranges of possible losses. Provisions are recognized when it is probable that a liability has been incurred and the amount can be reasonably estimated based on a detailed analysis of each individual issue.

The provisions mainly relate to product warranty commitments, customer contract loss provisions, restructuring and other obligations, such as unresolved income tax and value added tax issues, claims or obligations as a result of patent infringement and other litigations, supplier claims and customer financing guarantees.

Product warranty commitments consider probabilities of all material quality issues based on historical performance for established products and expected performance for new products, estimates of repair cost per unit, and volumes sold still under warranty up to reporting date.

For losses on customer contracts, provisions equal to the total estimated loss are recorded when a loss from a contract is anticipated and possible to estimate reliably. These contract estimates include any probable penalties to a customer under a loss contract.

A restructuring obligation has arisen when the Company has a detailed formal plan for the restructuring (approved by management), communicated in such a way that a valid expectation has been raised among those affected.

The Company provides for estimated future settlements related to patent infringements based on the probable outcome of each infringement. The ultimate outcome or actual cost of settling an individual infringement may vary from the Company’s estimate. The Company estimates the outcome of any potential patent infringement made known to the Company through assertion and through the Company’s own monitoring of patent-related cases in the relevant legal systems. To the extent that the Company makes the judgment that an identified potential infringement will more likely than not result in an outflow of resources, the Company records a provision based on the Company’s best estimate of the expenditure required to settle infringement proceedings.

At various intervals, the Company gives some of its suppliers and/ or subcontractors forecasts of expected purchases and also sometimes commits to minimum purchase levels during a certain period. The agreements often include compensation clauses for the event that material deviations from original plans regarding production volumes or product mix should occur. As a result of actual deviations from committed purchase levels or of received actual claims from these suppliers and/or subcontractors, the Company makes provisions for estimated compensation. Additionally, provisions are made for estimated charges as a result of known changes in design specifications that are provided to production subcontractors. Amounts for provisions and subsequent net amounts at settlements are charged to the corresponding item in the income statement, i.e. costs related to component suppliers, production subcontractors and installation subcontractors are included in Cost of sales. Costs regarding development subcontractors are included in Research & Development, and costs related to

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

IT-providers and other services are included in Operating expenses or Cost of sales, depending on the nature of the service. Such provisions are monitored closely on a regular basis, with any additions/reversals charged or credited to the same account as the initial provision.

POST-EMPLOYMENT BENEFITS

Pensions and other post-employment benefits are classified as either defined contribution plans or defined benefit plans. Under a defined contribution plan, the Company’s only obligation is to pay a fixed amount to a separate entity (a pension trust fund) with no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits. The related actuarial and investment risks fall on the employee. The expenditures for defined contribution plans are recognized as costs during the period when the employee provides service. Under a defined benefit plan, it is the Company’s obligation to provide agreed benefits to current and former employees. The related actuarial and investment risks fall on the Company.

The present value of the defined benefit obligations for current and former employees is calculated using the Projected Unit Credit Method. The discount rate for each country is determined by reference to market yields on high-quality corporate bonds that have maturity dates approximating the terms of the Company’s obligations. In countries where there is no deep market in such bonds, the market yields on government bonds are used. The calculations are based upon actuarial assumptions, assessed on a quarterly basis, and are as a minimum prepared annually. Actuarial assumptions are the Company’s best estimate of the variables that determine the cost of providing the benefits. When using actuarial assumptions, it is possible that the actual result will differ from the estimated result or that the actuarial assumptions will change from one period to another. These differences are reported as actuarial gains and losses. They are for example caused by unexpectedly high or low rates of employee turnover, changed life expectancy, salary changes, changes in the discount rate and differences between actual and expected return on plan assets. Actuarial gains and losses are recognized in equity in the period in which they occur. The Company’s net liability for each defined benefit plan consists of the present value of pension commitments less the fair value of plan assets and is recognized net on the balance sheet. When the result is a net benefit to the Company, the recognized asset is limited to the total of any cumulative past service cost and the present value of any future refunds from the plan or reductions in future contribution to the plan.

The net of return on plan assets and interest on pension liabilities is reported as financial income or expense, while the current service cost and any other items in the annual pension cost are reported as operating income or expense.

Pension cost calculated according to IAS 19 differs from pension cost calculated according to Swedish GAAP. Payroll tax related to actuarial gains and losses are reported in equity together with the recognition of actuarial gains and losses.

SHARE-BASED EMPLOYEE COMPENSATION

Share-based compensation only relates to remuneration to employees, including key management personnel. Under IFRS, a company shall recognize compensation costs for share-based compensation programs to employees, being a measure of the value to the company of services received from the employees under the plans.

Stock option plans

In accordance with IFRS 1 and IFRS 2, Ericsson has chosen not to apply IFRS 2 to equity instruments granted before November 7, 2002.

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IFRS 2 was applied for one equity settled employee option program granted after November 7, 2002. The vesting period for this program ended during 2005, and Ericsson recognized compensation costs representing the fair value at grant date of the outstanding employee options. In the balance sheet, the corresponding amounts are accounted for as equity. The fair value of the options was calculated using an option-pricing model. The total costs were recognized during the vesting period (3 years), i.e. the period during which the employees had to fulfill vesting requirements. When the options are exercised, social security charges are to be paid in certain countries on the value of the employee benefit; generally based on the difference between the market price of the share and the strike price. Such social security charges are accrued during the vesting period.

Stock purchase plans

For stock purchase plans, compensation costs are recognized during the vesting period, based on the fair value of the Ericsson share at the employee’s investment date. The fair value is based upon the share price at investment date, adjusted for that no dividends will be received on matching shares prior to matching. The employees pay a price equal to the share price at investment date for the investment shares. The investment date is considered as the grant date. In the balance sheet, the corresponding amounts are accounted for as equity. Vesting conditions are non-market based and affect the number of shares that Ericsson will match. For shares under performance-based matching programs, the Company assesses the probability of meeting the performance targets when calculating the compensation costs. Compensation expenses are based on estimates of the number of shares that will match at the end of the vesting period. When shares are matched, social security charges are to be paid in certain countries on the value of the employee benefit. The employee benefit is generally based on the market value of the shares at the matching date. During the vesting period, estimated such social security charges are accrued.

SEGMENT REPORTING

Financial information is provided to the Board of Directors for both primary and secondary segments. These segments are subject to risks and returns that are different from those of other segments.

Primary segments

A primary segment is a business segment consisting of a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of the other business segments. Mainly the following factors have been considered when identifying the differences:

•

Commonality in products and services regarding technology, research and development.

•

For which market and to what type of customers the segment’s products and/or services are aimed

•

Through what distribution channels they are sold

Secondary segments

Secondary, geographical segments are defined based on similarities in economic and market conditions, risks and returns for particular geographical environments.

BORROWING COSTS

The Company does not capitalize any borrowing costs. Such costs are expensed as incurred.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NON-CURRENT ASSETS HELD FOR SALE

To be classified as an asset held for sale, the asset must be available for immediate sale in its present condition and its sale must be highly probable, requiring that the appropriate level of management has authorized the plan to sell and that there is an active plan to complete the sale.

Non-current assets held for sale are measured at the lower of carrying amount and fair value less cost to sell.

GOVERNMENT GRANTS

Government grants are recognized when there is a reasonable assurance of compliance with conditions attached to the grants and that the grants will be received.

For Ericsson, government grants are linked to performance of research or development work or to subsidized capital expenditures as governmental stimulus to employment or investments in a certain country or region. Government grants linked to research and development are normally deducted in reporting the related expense, whereas grants related to assets are accounted for deducting the grant in arriving at the acquisition cost of the asset.

NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended December 31, 2007, and have not been applied in preparing these consolidated financial statements:

•

IFRS 8 Operating Segments. This standard prescribes measurement and presentation of segments and replaces IAS 14 Segment reporting. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting to the Board of Directors An entity shall apply this IFRS in its annual financial statements for periods beginning on or after January 1, 2009. The Company plans to apply this new standard as from January 1, 2009.

•

IAS 1 Presentation of Financial Statements has been revised and the revised standard shall be applied for financial periods beginning on or after January 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The changes apply particularly to the presentation and names of the financial statements and the presentation of owner changes in equity and of comprehensive income. Thus, the standard requires a company to present, in a statement of changes in equity, all owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income. The Company plans to apply this revised standard as from January 1, 2009.

•

Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that a company capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for the Company’s 2009 financial statements and will constitute a change in accounting policy for the Group. The amendment to the standard is still subject to endorsement by the European union. In accordance with the transitional provisions, the Group will apply the revised IAS 23 to qualifying assets from the effective date. The revised standard is not expected to have a significant impact on the financial statements of the Company. The Company plans to apply this revised standard as from January 1, 2009.

•

IAS 27 (Amendment) Consolidated and Separate Financial Statements (effective from July 1, 2009). The amendment to the standard is still subject to endorsement by the European Union. The change implies, among other things, that minority interest shall always be recognized even if the minority interest is

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negative, transactions with minority interests shall always be recorded in equity, and, in those cases when a partial disposal of a subsidiary results in that the entity loses control of the subsidiary, any remaining interest should be revaluated to fair value. The change in the standard will influence the accounting of future transactions.

•

IFRS 2 Share-Based Payment (Amendment) Vesting conditions and cancellations (effective from January 1, 2009). The amendment to the standard is still subject to endorsement by the European Union. The amendment affects the definition of vesting conditions and introduces a new concept of non-vesting conditions. The standard states that non-vesting conditions should be taken into account in the estimate of the fair value of the equity instrument. Goods or services that are received by a counterparty that satisfies all other vesting conditions shall be accounted for irrespective of whether the non-vesting conditions are satisfied. A liability included in a share-based arrangement shall be remeasured based on fair value at the date of cancellation or settlement. The amendment is not expected to have a significant impact on the financial statements of the Group. The Company plans to apply this new standard as from January 1, 2009.

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IFRS 3 (Amendment) Business combinations (effective from July 1, 2009). The amendment to the standard is still subject to endorsement by the European Union. The amendment will have an effect on how future business combinations are accounted for, i.e. the accounting of transaction costs, possible contingent considerations, and business combinations achieved in stages. At present, the Company plans to apply the standard from January 1, 2010.

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IFRIC 11 IFRS 2—Group and Treasury Share Transactions requires a share-based payment arrangement in which a company receives goods or services as consideration for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regardless of how the equity instruments are obtained. IFRIC 11 will become mandatory for the Company’s 2008 financial statements, with retrospective application required. It is not expected to have any significant impact on the consolidated financial statements.

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IFRIC 12 Service Concession Arrangements provides guidance on certain recognition and measurement issues that arise in accounting for public-to-private service concession arrangements. This interpretation is still subject to endorsement by the European Union. IFRIC 12, which becomes mandatory for the Company’s 2008 financial statements, is not expected to have any significant effect on the consolidated financial statements.

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IFRIC 13 Customer Loyalty Programmes addresses the accounting by companies that operate, or otherwise participate in, customer loyalty programmes for their customers. This interpretation is still subject to endorsement by the European Union. IFRIC 13 relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13, which becomes mandatory for the Company’s 2009 financial statements, is not expected to have any significant impact on the consolidated financial statements.

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IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction clarifies when refunds or reductions in future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements (MFR) on such assets. This interpretation is still subject to endorsement by the European Union. IFRIC 14 also addresses when a MFR might give rise to a liability. IFRIC 14 will become mandatory for the Company’s 2008 financial statements, with retrospective application required. The Group has not yet determined the potential effect of the interpretation.

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C2 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements and application of accounting standards often involve management’s judgment or the use of estimates and assumptions deemed to be reasonable at the time they are made. However, other results may be derived with different judgments or using different assumptions or estimates, and events may occur that could require a material adjustment to the carrying amount of the asset or liability affected. Following are the accounting policies subject to such judgments, estimates or assumptions that the Company believes could have the most significant impact on the reported results and financial position.

REVENUE RECOGNITION

Parts of the Company’s sales are generated from large and complex customer contracts. Managerial judgment is applied regarding, among other aspects, degree of completion and conformance with acceptance criteria and if transfer of risks and returns to the buyer has taken place to determine if revenue and cost should be recognized in the current period, and the customer credit standing to assess whether payment is likely or not to justify revenue recognition. Estimates are necessary e.g. in evaluation of contractual performance and estimated total contract costs for assessing whether any loss provisions are to be made or if customers will reach conditional purchase volumes triggering contractual discounts to be given.

TRADE AND CUSTOMER FINANCING RECEIVABLES

The Company monitors the financial stability of its customers and the environment in which they operate to make judgments regarding the likelihood that the individual receivables will be paid. Total allowances for estimated losses as of December 31, 2007, were SEK 1.4 (1.4) billion or 2.2 (2.7) percent of our gross trade receivables. Credit risk for outstanding customer financing credits is regularly assessed and based on these judgments allowances are recorded for estimated losses.

INVENTORY VALUATION

Inventories are valued at the lower of cost or net realizable value. Estimates are required in relation to forecasted sales volumes and inventory balances. In situations where excess inventory balances are judged to exist, estimates of net realizable values for the excess volumes are made. Inventory allowances for estimated losses as of December 31, 2007, amounted to SEK 2.8 (2.6) billion or 12 (12) percent of gross inventory.

DEFERRED TAXES

Deferred tax assets are recognized for temporary differences between the carrying amounts for reporting purposes of assets and liabilities and the amounts used for taxation purposes and for unutilized tax loss carryforwards. The largest amounts of tax loss carryforwards are in Sweden, with an indefinite period of utilization (i.e. with no expiry date). The valuation of tax loss carryforwards, deferred tax assets and the Company’s ability to utilize tax losses is based upon management’s estimates of future taxable income in different tax jurisdictions and involves management’s judgment regarding the deductibility of costs not yet subject to taxation. In note C8 Income Taxes, more information is provided.

At December 31, 2007, the value of deferred tax assets amounted to SEK 11.7 (13.6) billion. The deferred tax assets related to loss carryforwards are reported as non-current assets.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ACCOUNTING FOR INCOME-, VALUE ADDED- AND OTHER TAXES

Accounting for these items is based upon evaluation of income-, value added- and other taxe rules in all jurisdictions where we perform activities. The total complexity of rules related to taxes and the accounting for these require management’s involvement in judgments regarding classification of transactions and in estimates of probable outcomes of claimed deductions and/or disputes.

CAPITALIZED DEVELOPMENT EXPENSES

Development costs that meet IFRS’ intangible asset recognition criteria for products that will be sold, leased or otherwise marketed as well as those intended for internal use are capitalized. The starting point for capitalization is based upon management’s judgment that technological and economical feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. Capitalization ceases and amortization of capitalized development costs begins when the product is available for general release. Impairment testing is performed after initial recognition whenever there is an indication of impairment. Intangible assets not yet available for use are tested annually. The definition of amortization periods as well as the evaluation of impairment indicators require management’s judgment. The impairment amounts are based on estimates of future cash flows for the respective products.

At December 31, 2007, the amount of capitalized development expenses amounted to SEK 3.7 (5.0) billion.

ACQUIRED INTELLECTUAL PROPERTY RIGHTS AND OTHER INTANGIBLE ASSETS, INCLUDING GOODWILL

At initial recognition, future cash flows are calculated, ensuring that the initial carrying values do not exceed the discounted cash flows for the items of this type of assets. Impairment testing is performed after initial recognition whenever there is an indication of impairment, except for goodwill for which impairment testing is performed at least once per year. At initial recognition and subsequent measurement, management judgments are made, both for assumptions and regarding impairment indicators. Negative deviations in actual cash flows compared to estimated cash flows as well as new estimates that indicate lower future cash flows might result in recognition of impairment charges. For further discussion on goodwill, see Note C10 intangible assets. Estimates related to acquired intangible assets are based on similar assumptions and risks in assumptions as for goodwill.

At December 31, 2007, the amount of acquired intellectual property rights and other intangible assets amounted to SEK 46.8 (22.5) billion, including goodwill of SEK 22.8 (6.8) billion.

PROVISIONS

Pension and other post-employment benefits

Accounting for the costs of defined benefit pension plans and other applicable post-employment benefits is based on actuarial valuations, relying on key estimates for discount rates, expected return on plan assets, future salary increases, turnover rates and mortality tables. The discount rate assumptions are based on rates for high-quality fixed-income investments with durations similar to the Company’s pension plans. Expected returns on plan assets consider long-term historical returns, allocation of assets and estimates of future long-term investment returns. At December 31, 2007, provisions for pensions and other post-employment benefits amounted to net SEK 4.9 (6.1) billion. For a sensitivity analysis and more information of estimates and assumptions, see note C17 Post-Employment Benefits.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Warranty commitments

Provisions for product warranties are based on current volumes of products sold still under warranty and on historic quality rates for mature products as well as judgments and assumptions on future quality rates for new products and estimates of costs to remedy the various qualitative issues that might occur. Total provisions for product warranties as of December 31, 2007, amounted to SEK 1.8 (3.0) billion.

Provisions other than warranty commitments

Other provisions mainly comprise amounts related to contractual obligations and penalties to customers and estimated losses on customer contracts, risks associated with patent and other litigations, supplier or subcontractor claims and/or disputes, as well as provisions for income tax and value added tax unresolved issues. The nature and type of risks for these provisions differ and management’s judgment is applied regarding the nature and extent of obligations. The estimates related to the amounts of provisions for penalties, claims or losses receive special attention from the management. At December 31, 2007, Provisions other than warranty commitments amounted to SEK 7.9 (10.9) billion. In note C18 Provisions, more information is provided.

RISKS IN FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Hedge accounting and foreign exchange risks

Foreign exchange risk in highly probable sales in future periods are hedged using foreign exchange derivative instruments designated as cash-flow hedges.

Establishing highly probable sales volumes involves gathering and evaluating sales estimates for future periods as well as analyzing actual outcome on a regular basis in order to fulfill effectiveness testing requirements for hedge accounting. Deviations in outcome of sales might result in that, according to management’s judgment, the requirements for hedge accounting are not fulfilled.

For further information regarding risks in financial instruments and related judgment and estimates, please see C14 Trade receivables and C20 Financial Risk Management and Financial Instruments.

Other areas that require certain judgments

Other areas that require judgment by management are:

•

whether or not consolidation shall be made of entities where the Company does not have formal voting rights exceeding 50 percent, but where the Company might have control due to other circumstances,

•

whether to classify a counterpart as a related party or not for disclosure purposes, and

•

classification of leasing contracts as operating or financing leases, both when the Company is a lessee and when it is a lessor.

C3 SEGMENT INFORMATION

When determining the business segments, the Company has looked at which market and to what type of customers the Company’s products are aimed, and through what distribution channels they are sold, as well as to commonality regarding technology, research and development.

Ericsson har reorganized its operating structure as from January 1, 2007. For further details see note C1 Significant Accounting Policies.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PRIMARY SEGMENTS

Ericsson has the following business segments:

•

Networks, that includes products for mobile and fixed broadband access, core networks, transmission and next-generation IP-networks. Related network rollout services are also included. In addition, power modules and cables operations are included within Networks, as well as the acquired operations of Redback and Entrisphere.

•

Professional Services, that includes all service operations, excluding Network rollout reported under Networks. Services related to systems integration of IP- and core networks are classified as Professional Services.

•

Multimedia, that includes multimedia systems, enterprise solutions and mobile platforms. The operations of the acquired operations of Tandberg TV, LHS, Drutt and Mobeon are also included in Multimedia.

•

Phones, consisting of Ericsson’s investment and share in earnings of the Sony Ericsson joint venture.

SECONDARY SEGMENTS

Ericsson operates in five main geographical areas: (1) Western Europe, (2) Central and Eastern Europe, Middle East and Africa, (3) Asia Pacific, (4) North America and (5) Latin America. These areas represent the geographical segments.

BUSINESS SEGMENTS (PRIMARY)


2007	Networks		Professional Services		Multimedia		Phones	Unallocated	Eliminations	Group
Net sales	128,985		42,892		15,903		—	—	—	187,780
Inter-segment sales	32		10		2		—	—	-44	0

Total net sales	129,017		42,902		15,905		—	—	-44	187,780

Share in earnings of JV and associated companies	61		66		-3		7,108	—	—	7,232

Operating income	17,398		6,394		-135		7,108	-119	—	30,646

Operating margin (%)	13	%	15	%	-1	%	—	—	—	16	%
Financial income										1,778
Financial expenses										-1,695

Income after financial items										30,729

Taxes										-8,594

Net income										22,135

Assets¹⁾²⁾	107,819		36,974		18,739		—	70,682	—	234,214
Equity in joint ventures and associated companies	850		298		206		9,549	—	—	10,903

Total assets	108,669		37,272		18,945		9,549	70,682	—	245,117

Liabilities³⁾⁴⁾	39,819		19,101		4,915		—	46,230	—	110,065

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1)	Segment assets include property, plant and equipment, intangible assets, current and non-current customer financing, accounts receivable, inventory, prepaid expenses, accrued revenues, derivatives and other current assets.

2)	Unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.

3)	Segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.

4)	Unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.

Other segment items


2007	Networks	Professional Services	Multimedia	Phones	Unallocated	Eliminations	Group
Property, plant and equipment and intangible assets
Additions to property plant and equipment	3,264	806	249	—	—	—	4,319
Acquisitions/capitalization of intangible assets	15,401	2,973	11,464	—	—	—	29,838
Depreciation	-2,601	-367	-152	—	-1	—	-3,121
Amortization	-4,630	-237	-566	—	—	—	-5,433
Impairment losses	-105	-1	—	—	—	—	-106
Reversals of impairment losses	297	—	—	—	—	—	297
Gains/losses from divestments	—	—	—	—	280	—	280

GEOGRAPHICAL SEGMENTS (SECONDARY)


2007	Net sales	Total assets	Additions/ capitalization of PP&E and intangible assets
Western Europe	52,685	160,606	12,127
—of which Sweden	8,395	117,887	2,671
Central and Eastern Europe, Middle East and Africa	48,661	10,737	230
Asia Pacific	54,629	26,852	1,124
—of which China	13,598	9,915	704
North America	13,422	32,815	20,528
—of which United States	10,529	31,573	17,668
Latin America	18,383	14,107	148

Total	187,780	245,117	34,157

—of which EU	58,978	161,251	10,609

For employee information, see note C29, “Information Regarding Employees, Members of the Board of Directors and Management”.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


BUSINESS SEGMENTS (PRIMARY)
2006	Networks		Professional Services		Multimedia		Phones	Unallocated		Eliminations	Group
Net sales	127,518		36,813		13,877		—	1,613		—	179,821
Inter-segment sales	176		34		17		—	2		-229	0

Total net sales	127,694		36,847		13,894		—	1,615		-229	179,821

Share in earnings of JV and associated companies	18		21		43		5,852	—		—	5,934

Operating income	21,722		5,309		714		5,852	2 231	⁵⁾	—	35,828

Operating margin (%)	17	%	14	%	5	%	—	—		—	20	%
Financial income											1,954
Financial expenses											-1,789

Income after financial items											35,993

Taxes											-9,557

Netincome											26,436
Assets¹⁾²⁾	100,792		21,141		6,657		—	76,941		—	205,531
Equity in joint ventures and associated companies	918		170		280		8,041	—		—	9,409

Total assets	101,710		21,311		6,937		8,041	76,941		—	214,940

Liabilities³⁾⁴⁾	42,837		17,718		4,011		—	29,479		—	94,045

1)	Segment assets include property, plant and equipment, intangible assets, current and non-current customer financing, accounts receivable, inventory, prepaid expenses, accrued revenues, derivatives and other current assets.

2)	Unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.

3)	Segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.

4)	Unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.

5)	Unallocated operating income include the effect of the divesture of the Defense business by SEK 2,963 million.

Other segment items


2006	Networks	Professional Services	Multimedia	Phones	Unallocated	Eliminations	Group
Property, plant and equipment and intangible assets
Additions to property, plant and equipment	3,462	291	74	—	—	—	3,827
Acquisitions/capitalization of intangible assets	16,403	1,512	404	—	—	—	18,319
Depreciation	-2,689	-271	-47	—	—	—	-3,007
Amortization	-4,015	-116	-68	—	-38	—	-4,237
Impairment losses	-303	—	—	—	—	—	-303
Reversals of impairment losses	31	—	—	—	—	—	31
Restructuring expenses	-2,400	-402	-106	—	—	—	-2,908
Gains/losses from divestments	—	—	—	—	2,945	—	2,945

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

GEOGRAPHICAL SEGMENTS (SECONDARY)


2006	Net sales¹⁾	Total assets	Additions/ capitalization of PP&E and intangible assets
Western Europe	53,182	158,773	20,704
—of which Sweden	7,809	125,578	17,819
Central and Eastern Europe, Middle East and Africa	46,413	8,139	147
Asia Pacific	47,884	24,853	419
—of which China	11,776	9,088	206
North America	15,862	10,893	798
—of which United States	13,878	10,231	739
Latin America	16,480	12,282	78

Total	179,821	214,940	22,146

—of which EU²⁾	58,983	160,074	20,763

1)	Revenues for intellectual property rights (IPR) related to products are included in Net sales instead of Other operating income.

2)	Restated for Bulgaria and Romania which entered into the European Union as from 2007.

For employee information, see note C29, “Information Regarding Employees, Members of the Board of Directors and Management”.

BUSINESS SEGMENTS (PRIMARY)


2005	Networks		Professional services		Multimedia		Phones	Unallocated		Eliminations	Group
Net sales	114,134		26,324		10,496		—	2,268		—	153,222
Inter-segment sales	750		178		5		—	155		-1,088	0

Total net sales	114,884		26,502		10,501		—	2,423	⁵⁾	-1,088	153,222

Share in earnings of JV and associated companies	92		57		-11		2,257	—		—	2,395

Operating income	26,583		4,355		229		2,257	-340		—	33,084

Operating margin (%)	23	%	16	%	2	%	—	—		—	22	%
Financial income											2,653
Financial expenses											-2,402

Income after financial items											33,335

Taxes											-8,875

Net income											24,460
Assets¹⁾²⁾	79,703		12,905		3,891		—	106,524		—	203,023
Equity in joint ventures and associated companies	879		140		256		5,038	—		—	6,313

Total assets	80,582		13,045		4,147		5,038	106,524		—	209,336

Liabilities³⁾⁴⁾	58,938		6,938		1,255		—	39,733		—	106,864

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1)	Segment assets include property, plant and equipment, intangible assets, current and non-current customer financing, accounts receivable, inventory, prepaid expenses, accrued revenues, derivatives and other current assets.

2)	Unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.

3)	Segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.

4)	Unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.

5)	Net sales includes Defense business.

Other segment items


2005	Networks	Professional services	Multimedia	Phones	Unallocated	Eliminations	Group
Property, plant and equipment and intangible assets
Additions to property, plant and equipment	2,769	491	105	—	—	—	3,365
Acquisitions/capitalization of intangible assets	2,250	—	—	—	—	—	2,250
Depreciation	-2,468	-258	-77	—	-1	—	-2,804
Amortization	-3,282	-63	–8	—	84	—	-3,269
Impairment losses	-109	—	—	—	—	—	-109
Reversals of impairment losses	380	—	—	—	—	—	380
Gains/losses from divestments	—	—	—	—	56	—	56

GEOGRAPHICAL SEGMENTS (SECONDARY)


2005	Net sales¹⁾	Total assets	Additions/ capitalization of PP&E and intangible assets
Western Europe	42,554	154,159	4,576
—of which Sweden	6,724	133,448	3,502
Central and Eastern Europe, Middle East and Africa¹⁾	39,948	7,891	113
Asia Pacific	32,212	20,290	285
—of which China	11,544	8,964	123
North America	19,432	13,754	552
—of which United States	17,904	12,988	453
Latin America	19,076	13,242	89

Total	153,222	209,336	5,615

—of which EU²⁾	47,342	154,075	4,639

1)	Revenues for intellectual property rights (IPR) related to products are included in Net sales instead of Other operating income.

2)	Restated for Bulgaria and Romania which entered into the European Union as from 2007.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For employee information, see note C29, “Information Regarding Employees, Members of the Board of Directors and Management”.

C4 NET SALES

An increased part of Ericsson’s products and services are sold as parts of delivery type contracts including multiple elements. The nature of the products and services being sold, and the contractual terms taken as a whole, determine the appropriate revenue recognition method. The contracts are of four main types:


	2007	2006	2005
Sales of equipment and network rollout	138,011	137,758	123,010
Of which:
—Delivery-type contracts	130,890	123,206	104,998
—Construction-type contracts	7,121	14,552	18,012
Professional Services sales¹⁾	42,892	36,813	26,324
Licenses²⁾	6,877	5,250	3,888

Net sales	187,780	179,821	153,222
Export sales from Sweden	102,486	98,694	93,879

1)	2006 and 2005 are restated to reflect new organization.

2)	Revenues for intellectual property rights (IPR) related to products are included in Net sales instead of Other operating income. In 2006 SEK 2,038 million (2005 SEK 1,400 million) of Other operating income were reclassified.

In note C1, “Significant Accounting Policies”, the definitions of the different contract types are disclosed.

C5 EXPENSES BY NATURE


	2007	2006	2005
Goods and services	113,195	108,033	86,630
Amortization and depreciation	8,554	7,244	6,073
Impairments, net of reversals	1,435	876	508
Employee remunerations	44,771	42,821	34,458
Interest expenses	1,695	1,789	2,402
Taxes	8,594	9,557	8,875

Expenses incurred	178,244	170,320	138,946
Less:
Inventory changes¹⁾	802	3,791	2,872
Additions to Capitalized development	1,053	1,353	1,174

Expenses charged to the Income Statement	176,389	165,176	134,900

1)	The inventory changes are based on changes of inventory values prior to allowances (gross value).

The impairments, net of reversals, mainly relate to an increase of obsolescence allowances.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

C6 OTHER OPERATING INCOME AND EXPENSES


	2007	2006	2005
Gains on sales of intangible assets and PP&E	78	27	29
Losses on sales of intangible assets and PP&E	-104	-158	-120
Gains on sales of investments and operations¹⁾	296	3,038	205
Losses on sales of investments and operations	-16	-93	-149

Capital gains/losses, net	254	2,814	-35

Other operating revenues²⁾	1,480	1,089	1,125

Total other operating income and expenses	1,734	3,903	1,090

1)	The gains on sales of investments and operations for 2006 mainly relate to the sale of the Defense business in the third quarter.

2)	Revenues for intellectual property rights (IPR) related to products are included in Net sales instead of Other operating income. In 2006, SEK 2,038 million (2005, SEK 1,400 million) of Other operating income were reclassified.

C7 FINANCIAL INCOME AND EXPENSES


	2007		2006
	Financial income	Financial expenses	Financial income	Financial expenses
Contractual interest from financial assets	2,293		1,952
Of which from financial assets at fair value through profit or loss	*1,094*		1,190
Contractual interest from financial liabilities		-1,543		-1,416
Of which from financial liabilities at fair value through profit or loss		—		—
Net gain/loss on:
Instruments at fair value through profit or loss¹⁾	-181	-60	-60	-366
Of which included in fair value hedge relationships		-7		-414
Available for sale	—	—	—	—
Loans and receivables	-342	—	—	-160
Liabilities at amortized cost	—	11	—	383
Other financial income and expenses	8	-103	62	-230

Total	1,778	-1,695	1,954	-1,789

1)	Excluding net gain from operating assets and liabilities which was SEK 762 (1,748) million reported as Cost of Sales

IFRS 7 was implemented January 1, 2007. The breakdown of the comparison figures for 2005 as above are not available. Financial income and expense for 2005 was SEK 2,653 million and SEK –2,402 million respectively.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

C8 TAXES

In summary, the Group tax expense for the year was SEK 8,594 (9,557) million or 28,0 percent (26,6) of the income after financial items.

INCOME TAXES RECOGNIZED IN THE INCOME STATEMENT

The following items are included in Taxes:


	2007	2006	2005
Current income taxes for the year	-4,115	-4,565	-3,635
Current income taxes related to prior years	-294	-169	138
Current income taxes related to prior years	-294	-169	138
Deferred tax income/expense (–)	-2,227	-3,582	-4,753
Share of taxes in joint ventures and associated companies	-1,958	-1,241	-625

Taxes	-8,594	-9,557	-8,875

RECONCILIATION OF ACTUAL INCOME TAX RATE TO THE SWEDISH INCOME TAX RATE:


	2007		2006		2005
Tax rate in Sweden	-28.0	%	-28.0	%	-28.0	%
Effect of foreign tax rates	0.2	%	-0.4	%	-1.5	%
Current income taxes related to prior years	-1.0	%	-0.5	%	0.4	%
Recognition/remeasurement of tax losses related to prior years	-0.7	%	1.2	%	—
Recognition/remeasurement of deductible temporary differences related to prior years	1.5	%	0.2	%	1.1	%
Tax effect of non-deductible expenses	-2.6	%	-3.7	%	-1.5	%
Tax effect of non-taxable income	2.8	%	4.5	%	2.8	%
Tax effect of changes in tax rates	-0.2	%	0.1	%	0.0	%

Actual tax rate	-28.0	%	-26.6	%	-26.7	%

CHANGE IN DEFERRED TAXES:


	2007	2006
Opening balance, net	13,182	18,128
Recognized in income statement	-2,227	-3,582
Recognized in equity	-73	-769
Acquisitions/disposals of subsidiaries	-2,120	-124
Translation differences	129	-471

Closing balance, net	8,891	13,182

Tax effects reported directly to equity amount to SEK –73 million, of which hedge accounting SEK 255 million and actuarial gains/losses on pensions SEK –328 million.

Deferred tax asset are amounts recognized in countries where we expect to be able to generate corresponding taxable income in the future to benefit from tax reductions.

The significant tax loss carryforwards are related to countries with long or indefinite periods of utilization, mainly Sweden and the US. Of the total deferred tax assets for tax loss carryforwards, SEK 5,219 million,

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SEK 2,911 million relate to Sweden with indefinite time of utilization. With our strong current financial position and profitability during 2007, we have been able to utilize part of our tax loss carryforwards during the year, and we are convinced that Ericsson will be able to generate sufficient income in the coming years to utilize also remaining parts.

Benefit from a previously unrecognized tax credit of a prior period that is used to reduce deferred tax expense amounted to SEK 465 million.

INVESTMENTS IN SUBSIDIARIES

Due to losses in certain subsidiary companies, the book value of certain investments in those subsidiaries are less than the tax value of these investments. Since deferred tax assets have been reported with respect also to losses in these companies, and due to the uncertainty as to which deductions can be realized in the future, no additional deferred tax assets are reported.

DEFERRED TAX BALANCES

Tax effects of temporary differences and unutilized tax loss carryforwards are attributable as shown in the table below:

TAX EFFECTS OF TEMPORARY DIFFERENCES AND UNUTILIZED TAX LOSS CARRYFORWARDS


	2007				2006
	Deferred tax assets		Deferred tax liabilities	Net balance	Deferred tax assets	Deferred tax liabilities	Net balance
Intangible assets and property, plant and equipment	438		4,044		312	855
Current assets	1,878		14		2,146	5
Post-employment benefits	1,121		100		1,229	96
Provisions	1,693		5		2,277	40
Equity	708		97		1,036	352
Other	3,647	¹⁾	1,553		2,197	1,423
Loss carryforwards	5,219		—		6,756	—

Deferred tax assets/liabilities	14,704		5,813		15,953	2,771
Netting of assets/liabilities	-3,014		-3,014		-2,389	-2,389

Net deferred tax balances	11,690		2,799	8,891	13,564	382	13,182

1)	Refer mainly to R&D credits and intellectual property rights.

ERICSSON ANNUAL REPORT ON FORM 20-F 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

TAX LOSS CARRYFORWARDS

Deferred tax assets regarding unutilized tax loss carryforwards are reported to the extent that realization of the related tax benefit through future taxable profits is probable also when considering the period during which these can be utilized, as described below.

At December 31, 2007, these unutilized tax loss carryforwards amounted to SEK 17,734 (23,137) million. The tax effect of these tax loss carryforwards are reported as an asset. The final years in which these loss carryforwards can be utilized are shown in the following table:


Year of expiration	Tax loss carryforwards	Tax effect
2008	29	8
2009	32	9
2010	8	1
2011	287	79
2012	152	33
2013 or later	17,226	5,089

Total	17,734	5,219

C9 EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income attributable to stockholders of the Parent Company by the average number of shares outstanding (total number of shares less treasury stock) during the year.

BASIC, EARNINGS PER SHARE


	2007	2006	2005
Net income attributable to stockholders of the Parent Company (SEK million)	21,836	26,251	24,315
Average number of shares outstanding, basic (millions)	15,891	15,871	15,843

Earnings per share, basic (SEK)	1.37	1.65	1.53

Diluted earnings per share are calculated by dividing net income attributable to stockholders of the Parent Company by the sum of the average number of ordinary shares outstanding and dilutive potential ordinary shares. potential ordinary shares are treated as dilutive when, and only when, this reduces earnings per share.

DILUTED, EARNINGS PER SHARE


	2007	2006	2005
Net income attributable to stockholders of the Parent Company (SEK million)	21,836	26,251	24,315
Average number of shares outstanding, basic (millions)	15,891	15,871	15,843
Dilutive effect for stock option plans¹⁾	10	17	25
Dilutive effect for stock purchase plans	63	55	39
Average number of shares outstanding, diluted (millions)