Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

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

the Securities Exchange Act of 1934

April 27, 2011

 

 

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

 

 

Torshamnsgatan 23, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No  x

 

 

Announcement of LM Ericsson Telephone Company, dated April 27. 2011 regarding “ERICSSON REPORTS FIRST QUARTER RESULTS

 

 

 


Table of Contents

LOGO

FIRST QUARTER REPORT

April 27, 2011

ERICSSON REPORTS FIRST QUARTER RESULTS

 

     First quarter     Fourth quarter  
SEK b.    20111)     20102)     Change     20102)     Change  

Net sales

     53.0        45.1        17     62.8        -16

Gross margin

     38.5     38.5     —          36.6     —     

EBITA margin excl JVs

     14.1     12.8     —          15.3     —     

Operating income excl JVs

     6.3        4.5        39     8.4        -25

Operating margin excl JVs

     11.9     10.1     —          13.4     —     

Ericsson’s share in earnings in JVs

     -0.5        -0.3        —          -0.3        —     

Income after financial items

     5.8        4.1        41     7.8        -26

Net income

     4.1        1.3        220     4.4        -7

EPS diluted, SEK

     1.27        0.39        —          1.34        —     

EPS diluted, excl. amortizations and write-downs of acquired intangibles, SEK

     1.52        0.87        75     1.65        -8

Adjusted operating cash flow3)

     -2.1        3.0        —          16.2        —     

Cash flow from operations

     -2.9        2.3        —          15.2        —     

 

1) 

All numbers for 2011 are stated incl. restructuring charges

2) 

All numbers for 2010, excl. EPS, Net income and Cash flow from operations, are stated excl. restructuring charges. For details see section on restructuring under Financial Statements and Additional Information

3) 

Cash flow from operations excl. restructuring cash outlays that have been provided for

“Group sales in the quarter increased by 17% year-over-year driven by continued strong demand for mobile broadband and especially for the multi-standard radio base station RBS 6000,” says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC). “Sales for comparable units, adjusted for currency and hedging, increased 25% year-over-year. Net income improved from SEK 1.3 b to SEK 4.1 b. mainly related to increased profitability in segment Networks. Cash flow in the quarter amounted to SEK -2.9 (2.3) b. impacted by higher level of work in progress in the regions and continued ramp up of production.

The increase in Group sales was driven by segment Networks where revenues grew 35% year-over-year with an EBITA margin of 20%. The strong demand for mobile broadband resulted in five out of ten regions showing growth year-over-year. Countries with especially strong growth were the US, India, Japan, Korea and Russia. China had continued good momentum for 2G.

Segment Global Services sales decreased -4% year-over-year primarily due to currency exchange rate effects. In local currencies Professional Services grew 3%. EBITA margin decreased to 7% in the quarter mainly due to lower profitability in Network Rollout. Managed Services was flat compared to the first quarter 2010, but grew 11% year-over-year in local currencies driven by a number of new smaller contracts. Segment Multimedia sales were flat year-over-year while EBITA margin dropped to -7%, mainly due to product mix. Our joint ventures showed mixed performance. Sony Ericsson contributed with a profit before tax of SEK 0.1 b. while ST-Ericsson’s loss amounted to SEK -0.6 b.

Sales in the first quarter were not impacted by the devastating earthquake and tsunami in Japan. Our global supply chain of components is partly dependent on Japan and we estimate delays in delivery of certain products. We have taken a number of actions to mitigate the effects to secure that we limit the impact on our customers. These activities include finding and integrating alternative components in our products as well as increasing volumes with second source suppliers. Effects will also depend on Japan’s overall recovery but our best estimate is that we will be able to deliver the majority of these volumes before end of third quarter 2011.

During 2010 we continued to gain market shares in 3G and at least maintained our market shares in 4G/LTE of more than 50%. While GSM will continue to exist for many years, we will see the bulk of investments shifting to 3G/WCDMA and 4G/LTE. In services we increased the market share and we continue to be the leading provider in the industry,” concludes Hans Vestberg.

 

1


Table of Contents

FINANCIAL HIGHLIGHTS

Income statement and cash flow

Sales in the quarter amounted to SEK 53.0 (45.1) b., up 17% year-over-year and down -16% sequentially.

Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 25% year-over-year.

A one-off revenue from the sale of patents of SEK 0.3 b. positively impacted sales and margins in the first quarter. Reported numbers for the first quarter 2010 exclude restructuring charges of SEK 2.2 b., while reported numbers for the first quarter 2011 include restructuring charges of SEK 0.4 b.

 

Gross margin in the quarter was flat year-over-year at 38.5% (38.5%), and was up from 36.6% sequentially. The business mix from second half of 2010, with expansions and upgrades, has prevailed in the quarter. This, in combination with strong sales in segment Networks and continued efficiency gains, have impacted gross margin positively.

3G volumes in India were high, which affected margins negatively. The negative margin effects from network modernization projects, which we indicated in the fourth quarter 2010, have partly materialized in the quarter.

R&D expenses amounted to SEK 8.0 (7.3) b., an increase by 10% year-over-year. The increase is a result of the planned higher investments in radio, such as TD-LTE and IP as well as the acquired LG-Ericsson operations. Selling and general administrative expenses (SG&A) amounted to SEK 6.4 (5.9) b., an increase by 10% year-over-year, representing 12% of sales. This is mainly a result of the acquired LG-Ericsson operations and a growing number of LTE trials. Total operating expenses amounted to SEK 14.4 (13.1) b.

Other operating income and expenses were flat, SEK 0.3 (0.3) b. in the quarter.

SALES BY QUARTER

2010 AND 2011 (SEK B)

LOGO

 

 

Operating income, excluding joint ventures, increased 39% to SEK 6.3 (4.5) b. in the quarter. Operating margin improved to 11.9% (10.1%) year-over-year mainly due to the volume increase.

Ericsson’s share in earnings of joint ventures, before tax, amounted to SEK -0.5 (-0.3) b., compared to SEK -0.3 b. in the fourth quarter 2010. Sony Ericsson contributed with a profit of SEK 0.1 b. while ST-Ericsson’s loss amounted to SEK -0.6 b.

Financial net amounted to SEK 0.0 (-0.2) b. in the quarter. Financial net improved slightly sequentially from SEK -0.3 b. due to higher short-term interest rates and a high cash position.

Net income amounted to SEK 4.1 (1.3) b. The improvements are mainly a result of increased sales volumes and improved profitability in Networks.

Earnings per share were SEK 1.27 (0.39) in the quarter. Earnings per share excluding amortizations and write-downs of acquired intangibles were SEK 1.52 (0.87) in the first quarter.

Adjusted operating cash flow was SEK -2.1 (3.0) b. in the quarter. Cash flow from operations amounted to SEK -2.9 (2.3) b. mainly due to higher inventories and a payment of SEK 1.1 (0.9) b. to pension funds. Cash outlays for restructuring amounted to SEK 0.8 (0.7) b. in the quarter. Cash outlays of SEK 2.5 b. remain to be made.

 

Ericsson First Quarter Report 2011    2


Table of Contents

Balance sheet and other performance indicators

 

SEK b.    Mar 31
2011
    Dec 31
2010
    Sep 30
2010
    June 30
2010
    Mar 31
2010
 

Net cash

     48.2        51.3        35.7        25.8        38.5   

Interest-bearing liabilities and post-employment benefits

     34.8        35.9        40.4        41.8        39.3   

Trade receivables

     60.6        61.1        57.8        69.4        62.7   

Days sales outstanding

     101        88        109        133        117   

Inventory

     32.1        29.9        30.3        29.4        24.1   

Of which regional inventory

     21.1        18.7        19.1        18.3        14.0   

Inventory days

     87        74        82        81        75   

Payable days

     70        62        62        61        59   

Customer financing, net

     4.2        4.4        3.5        3.1        2.9   

Return on capital employed

     13     10     8     6     5

Equity ratio

     53     52     52     51     53

Trade receivables decreased sequentially by SEK 0.5 b. to SEK 60.6 (61.1) b. due to the strong SEK and lower seasonal decline in sales. Days sales outstanding (DSO) decreased from 117 to 101 days year-over-year as a result of higher sales and strong collections.

Inventory increased sequentially by SEK 2.2 b. to SEK 32.1 (29.9) b. The higher inventory level year-over-year is reflecting higher level of work in progress in the regions and continued ramp up of production. Inventory turnover days increased from 74 to 87 days.

Goodwill decreased SEK 1.4 b. to SEK 25.8 (27.2) b. due to a stronger SEK.

Cash, cash equivalents and short-term investments amounted to SEK 83.0 (87.2) b. The net cash position decreased sequentially by SEK 3.1 b. to SEK 48.2 (51.3) b., mainly due to negative cash flow.

During the quarter, approximately SEK 1.1 b. of provisions were utilized, of which SEK 0.8 b. related to restructuring. Additions of SEK 1.3 b. were made, of which SEK 0.1 b. related to restructuring. Reversals of SEK 0.1 b. were made. Provisions will fluctuate over time depending on business mix, market mix as well as technology shifts.

Total number of employees at the end of the quarter amounted to approximately 91,500 (86,500), an increase by 1,200 from December 31, 2010. In the quarter, some 300 individuals joined Ericsson through acquisitions and approximately 1,000 related to our services business, mainly in Brazil, India and China. Main reductions were made in countries in Western Europe.

 

Ericsson First Quarter Report 2011    3


Table of Contents

SEGMENT RESULTS

Networks

 

     First quarter     Fourth quarter  
SEK b.    20111)     20102)     Change     20102)     Change  

Networks sales

     33.2        24.7        35     36.4        -9

EBITA margin3)

     20     16     —          18     —     

Operating margin

     17     12     —          16     —     

 

1) 

All numbers for 2011 are stated incl. restructuring charges

2) 

All numbers for 2010 are stated excl. restructuring charges

3) 

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

 

Networks’ sales in the quarter were SEK 33.2 (24.7) b. The increase of 35% year-over-year was an effect of high mobile broadband sales. Sales were negatively impacted by a strong SEK. Sequentially sales decreased -9%.

Sales of the multi-standard radio base station RBS 6000 continued to be high as well as of packet-core, IP-routers and microwave based backhaul. CDMA and GSM showed good growth year-over-year and LG-Ericsson performed well also this quarter. GSM demand is primarily driven by capacity needs in countries such as China and India. In China, GSM/EDGE is also used as fall back for mobile broadband coverage.

EBITA margin in the quarter increased year-over-year to 20% (16%) and from 18% sequentially. The increase was driven by increased volumes, business mix with expansions and upgrades and continued efficiency gains.

In Europe the captured network modernization deals will give us an estimated market share increase of approximately three percentage points in the combined 2G/3G market.

SEGMENT SALES BY

QUARTER, 2010 AND 2011

(SEK B)

LOGO

 

Global Services

 

     First quarter     Fourth quarter  
SEK b.    20111)     20102)     Change     20102)     Change  

Global Services sales

     17.4        18.1        -4     22.9        -24

Of which Professional Services

     12.6        13.3        -5     16.7        -25

Of which Managed Services

     4.9        4.9        1     5.4        -8

Of which Network Rollout

     4.9        4.8        0     6.2        -21

EBITA margin3)

     7     12     —          13     —     

Of which Professional Services

     13     16     —          16     —     

Operating margin

     7     11     —          12     —     

Of which Professional Services

     12     15     —          15     —     

 

1) 

All numbers for 2011 are stated incl. restructuring charges

2) 

All numbers for 2010 are stated excl. restructuring charges

3) 

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

Global Services sales in the quarter were SEK 17.4 (18.1) b. a decrease of -4% year-over-year, and -24% sequentially. The year-over-year decline is primarily a result of currency exchange rate effects.

Professional Services sales were SEK 12.6 (13.3) b. in the quarter, a decrease of -5% year-over-year and by -25% sequentially, negatively impacted by a low level of integration projects. Managed Services sales increased by 1% year-over-year to SEK 4.9 (4.9) b. and were down -8% sequentially. Currency adjusted sales of Professional Services increased 3% and Managed Services sales increased 11%. Demand for managed services and transformational OSS/BSS projects continued to be high.

 

Ericsson First Quarter Report 2011    4


Table of Contents

Network Rollout sales amounted to SEK 4.9 (4.8) b. in the quarter, flat year-over-year and -21% sequentially. Since network rollout typically lags equipment sales with 6-9 months, sales were negatively impacted by the industry wide component shortage in 2010.

Global Services’ EBITA margin decreased in the quarter, both year-over-year and sequentially. It was impacted by a loss in Network Rollout following large 3G rollouts in India with low margins and the effects of supply constraints in 2010.

EBITA margin for Professional Services decreased to 13% (16%) year-over-year and sequentially due to lower proportion of product near systems integration business and with a percentage point negative impact from restructuring during the first quarter.

During the quarter nine new managed services contracts were signed of which five were extensions or expansions.

Ericsson provides support for networks that serve more than two billion subscribers worldwide. The total number of subscribers in networks managed by Ericsson is more than 800 million, of which 450 million in network operation contracts and 350 million in field maintenance.

Multimedia

 

     First quarter     Fourth quarter  
SEK b.    20111)     20102)     Change     20102)     Change  

Multimedia sales

     2.3        2.3        -1     3.5        -34

EBITA margin3)

     -7     -5     —          16     —     

Operating margin

     -15     -13     —          11     —     

 

1) 

All numbers for 2011 are stated incl. restructuring charges

2) 

All numbers for 2010 are stated excl. restructuring charges

3) 

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

Multimedia sales in the quarter decreased -1% year-over-year and -34% sequentially. Sales of multimedia brokering (IPX) and revenue management were good. However, sales for TV solutions were weaker. EBITA margin amounted to -7% (-5%) due to lower volumes and product mix, partly offset by lower operating expenses.

Sony Ericsson

 

     First quarter     Fourth quarter  
EUR m.    2011     2010     Change     2010     Change  

Number of units shipped (m.)

     8.1        10.5        -23     11.2        -28

Average selling price (EUR)

     141        134        5     136        4

Net sales

     1,145        1,405        -19     1,528        -25

Gross margin

     33     31     —          30     —     

Operating margin

     2     1     —          3     —     

Income before taxes

     15        18        —          35        —     

Income before taxes, excl restructuring charges

     15        21        —          39        —     

Net income

     11        21        —          8        —     

Operating cash flow

     -353        -94        —          -128        —     

Sony Ericsson is executing on its strategy to grow within the smartphone segment and during the quarter over 60% of total sales were smartphones. The company is experiencing some disruptions in its supply chain from the earthquake in Japan.

Cash flow from operating activities during the quarter was negative EUR 353 million, mainly due to inventory investments. New external borrowings of EUR 375 million were made in the quarter resulting in total borrowings of EUR 604 million on March 31, 2011. Total cash balances amounted to EUR 599 million. Guarantees from the Parent Company Telefonaktiebolaget LM Ericsson to Sony Ericsson Mobile Communications AB amounted to SEK 2.0 (1.1) b. in the quarter.

Sony Ericsson estimates that its market share for smartphones was approximately 5% in units and approximately 3% in value.

Ericsson’s share in Sony Ericsson’s income before tax was SEK 0.1 (0.1) b. in the quarter.

 

Ericsson First Quarter Report 2011    5


Table of Contents

ST-Ericsson

 

     First quarter            Fourth quarter  
USD m.    2011      2010      Change     2010      Change  

Net sales

     444         606         -27     577         -23

Adjusted operating income1)

     -149         -114         —          -119         —     

Operating income

     -178         -164         —          -171         —     

Net income

     -178         -154         —          -177         —     

 

1) 

Operating income adjusted for amortization of acquired intangibles and restructuring charges

The company is currently in a shift from legacy to new products. The drop in legacy products was higher than expected during the quarter. Securing the successful execution and delivery of the new products to customers is critical for the long-term value of the company.

The operating loss increased sequentially primarily due to lower sales volumes. The company is taking additional action to improve internal efficiency in product development and further reductions of selling, general and administrative expenses.

The net financial position at March 31, 2011, was negative USD -195 (-82) million. For the second quarter ST-Ericsson expects net sales to decline sequentially primarily due to the ongoing decline in legacy products. By the end of the quarter ST-Ericsson had utilized USD 234 million of a short-term credit facility granted on a 50/50 basis by the parent companies. Ericsson is committed to financially support ST-Ericsson’s execution of their new portfolio.

ST-Ericsson is reported in US GAAP. Ericsson’s share in ST-Ericsson’s income before tax, adjusted to IFRS, was SEK -0.6 (-0.5) b. in the quarter.

REGIONAL OVERVIEW

 

     First quarter     Fourth quarter  
Sales, SEK b.    2011      2010      Change     2010      Change  

North America

     13.2         9.5         39     14.1         -6

Latin America

     4.0         4.0         1     6.1         -34

Northern Europe and Central Asia

     3.4         2.3         46     4.8         -30

Western and Central Europe

     4.8         5.2         -8     5.9         -19

Mediterranean

     4.8         5.1         -5     6.9         -31

Middle East

     3.1         3.9         -22     4.6         -34

Sub-Saharan Africa

     2.2         2.4         -9     2.0         9

India

     3.2         2.3         38     2.8         11

China and North East Asia

     8.6         5.0         74     9.5         -9

South East Asia and Oceania

     3.1         3.5         -12     3.9         -21

Other

     2.6         1.9         37     2.2         25
                                           

Total

     53.0         45.1         17     62.8         -16
                                           

North American sales increased 39% year-over-year and decreased -6% sequentially, negatively impacted by a strong SEK. Growth in the region was driven by continued data traffic increase. Capacity expansions are being carried out via the addition of new hardware as well as software upgrades along with associated services. Since iOS and Android-based devices have been introduced to the market these have become core drivers of traffic growth. In addition, LTE-equipped devices will be deployed in 2011.

Latin America sales increased 1% year-over-year and decreased -34% sequentially. Demand for mobile broadband is increasing in the region, driven by mobile data traffic. At the same time, there are rural expansion projects, driving demand for voice related products and services. LTE trials are ongoing across the region.

Northern Europe and Central Asia sales increased 46% year-over-year and decreased -30% sequentially. The year-over-year increase is mainly driven by build out of mobile broadband coverage in Russia where mobile data traffic shows triple-digit growth. Russia was strong also in the first quarter, spurred by network rollouts with large operators such as Vimpelcom and MTS.

Western and Central Europe sales decreased -8% year-over-year and -19% sequentially due to somewhat cautious spending by major operators while preparing for network modernization projects. Deployment of multi-standard radio base stations has commenced as part of the network modernization program that Ericsson is delivering to Telefónica O2 UK along with the continued supply of core network infrastructure. In Germany LTE roll-out to Vodafone continues.

 

Ericsson First Quarter Report 2011    6


Table of Contents

Mediterranean sales decreased -5% year-over-year and -31% sequentially, negatively impacted by the political unrest in North Africa as well as the general economic situation in Spain, Portugal and Greece. Modernization projects started in Spain and Italy. Managed services developed favorably in the quarter due to new and extended contracts in Spain. Tenders for 4G/LTE spectrum have been or will soon be initiated in Spain, Portugal and Italy.

Middle East sales decreased -22% year-over-year and -34% sequentially, impacted by political unrest in the region. 2G declined in the quarter, while sales of mobile broadband continued to increase across the region. Mobile broadband volumes are now almost on par with 2G volumes. 4G/LTE is expected to be rolled out in parts of the Gulf region later this year. Managed services increased both year-over-year and sequentially while revenue management, consulting and systems integration as well as network rollout had a weak quarter.

Sub-Saharan Africa sales decreased by -9% year-over-year, but increased sequentially by 9%. The sequential improvement is primarily due to 2G expansions. Services had a weaker quarter due to delayed deliveries affecting network rollouts and the continued slow development for revenue management.

India sales increased 38% year-over-year and 11% sequentially. Growth was driven by 3G deployments also comparing to low level investments during first half of 2010 awaiting 3G licenses. BWA license holders are currently deciding on vendors for their TD-LTE networks where initial roll-outs are expected later in the year.

China and North East Asia sales increased 74% year-over-year and was down -9% sequentially. The year-over-year increase is mainly related to growth in mobile broadband in Japan, 2G expansions in China and added sales from LG-Ericsson. In Japan data traffic has doubled over the last 18 months and in Korea it has increased 11 times in the last 12 months. Ericsson is one of the vendors selected for a large-scale TD-LTE trial with China Mobile.

South East Asia and Oceania sales decreased -12% year-over-year and -21% sequentially. Operators’ investments in mobile broadband are not yet compensating for drop in 2G sales. Mobile data services are different levels of maturity across the region. However, data traffic grows both in volumes and subscribers. Multimedia showed good development in the quarter due to the first sales of revenue management solutions for data traffic.

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

MARKET DEVELOPMENT

Growth rates are based on Ericsson and market estimates

Mobile infrastructure market

The global mobile infrastructure market slightly declined in the range of mid-single digits in USD terms in 2010. During the third quarter in 2010, the market conditions improved and growth picked up in the fourth quarter 2010.

Ericsson mobile infrastructure market share, including the Nortel acquisition, increased 2010 in USD terms. The CDMA business, acquired from Nortel, increased market shares in USD terms, driven by strong mobile broadband demand in North America. Measured in shipped radio base stations 2010, Ericsson increased its share of WCDMA/HSPA and strengthened its leading position within 4G/LTE. Due to the industry wide component shortage in 2010 Ericsson could not fully meet the demand for GSM. However, deliveries picked up in the first quarter 2011 and it is Ericsson’s view that the company has at least maintained its market share also in GSM.

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

 

Ericsson First Quarter Report 2011    7


Table of Contents

Telecom services market

The global telecom services market showed positive growth in mid-single digits in USD terms in 2010, mainly driven by continued strong growth in managed services. Operators’ focus on efficiency drives interest in exploring business models such as managed operations, network sharing and network IT transformation. Estimates show that only around 35-40% of addressable operator network operating expenditure is spent externally on telecom services today leaving significant continued opportunities, particularly for managed services.

End user drivers

Global mobile penetration is 79% and total mobile subscriptions have reached 5.5 billion. India and China accounted for about 48% of the estimated 190 million net additions during the first quarter, adding around 65 and 30 million respectively. Indonesia and Vietnam were third and fourth countries in terms of net additions. India has now passed 800 million subscriptions and the US has passed 300 million subscriptions.

Global fixed broadband subscriptions grew by 14 million new subscriptions to reach 523 million during the fourth quarter 2010, mainly boosted by strong growth in DSL in China. DSL represents more than 60% of all fixed broadband subscriptions.

 

     Unit    First quarter     Full year      Ericsson
forecast
 
          2010      2011      Change     2006      2007      2008      2009      2010      2011  

Mobile subscriptions

   Billion      4.8         ~5.5         ~16     2.7         3.3         4.0         4.6         ~5.3         ~6.1   
                                                                                  

Net additions

   Million      160         ~190         ~17     500         620         660         640         ~720         ~730   

Mobile broadband1)

   Million      420         ~670         ~57     55         130         220         370         600         ~1,000   

Net additions

   Million      50         70         ~35     30         70         90         160         ~320         ~450   
                                                                                  

 

1) 

Mobile broadband includes handset and mobile PC for the following technologies: HSPA, LTE, CDMA2000 EVDO, TD-SCDMA and WiMax

Ericsson findings, based on measurements in live networks, show that global mobile data traffic more than doubled in 2010 and mobile data traffic is forecasted to almost double annually over the next few years, driven by 24/7 connectivity and end user demand for bandwidth. Increased proliferation of devices such as smartphones, tablets and laptops will impact the traffic going forward. The traffic forecast could be subject to change if operators start to implement traffic shaping and caps to a larger degree.

To cater for the increased surge for mobile data services, mobile networks are being built-out across the world and WCDMA networks now cover more than 35% of the world’s population. Almost all of these networks have also launched HSPA. At the moment, more than 65% of the commercial HSPA networks have been upgraded, at least partly, to a peak speed of 7.2 Mbps or above. Operators are continuously upgrading to higher speeds and around 6% of the HSPA networks have launched services with 42 Mbps peak speed, currently the highest HSPA speed that is commercially available. In addition, Ericsson has as the first vendor demonstrated 84 and 168 Mbps based on commercial network equipment. Building wider coverage to reach further into the remaining 65% of the population, the availability of affordable handsets, as well as the surge for mobile broadband services and faster speeds, will drive continued strong uptake of HSPA.

Tiered pricing for mobile broadband is now a reality, as many operators today have evolved beyond flat-rate unlimited data models and introduced segmented price plans, such as volume, time or speed based plans. Segmented data price plans intend to attract a wide variety of data users and differentiate the offering, in order to maximize data revenues and to grow service revenues. Many operators in mature mobile broadband markets have today more than offset the decline in voice revenues, not uncommon in mature markets, with increasing data revenues.

In average, a smartphone generates approximately 10 times more traffic compared to a normal feature phone, while a mobile PC user generates 100 times more traffic than a feature phone. There are indications of higher than average per-smartphone traffic in the US networks, however traffic profiles per user do vary considerably between networks and markets.

 

Ericsson First Quarter Report 2011    8


Table of Contents

Yearly WCDMA/HSPA radio access network investments passed GSM investments in 2009, eight years after the 3G introduction in Western Europe. It will remain the dominant access technology for many years to come, in terms of global investment, despite the fact that 4G/LTE is being rolled out and launched. Coexistence of GSM, WCDMA/HSPA, CDMA2000 and 4G/LTE and increasing number of frequency bands pave the way for investments in multi-standard solutions and networks modernization.

PARENT COMPANY INFORMATION

Income after financial items was SEK 3.1 (-0.6) b. The increase in financial net, year-over-year, is mainly due to Group internal dividends. Major changes in the Parent Company’s financial position for the first quarter include; decreased cash, cash equivalents and short-term investments of SEK 2.2 b. and decreased current and non-current liabilities to subsidiaries of SEK 1.8 b. At the end of the quarter cash, cash equivalents and short-term investments amounted to SEK 69.4 (71.6) b. Guarantees to Sony Ericsson Mobile Communications AB are reported as contingent liabilities and amounted to SEK 2.0 (1.1) b. By the end of the quarter ST-Ericsson had utilized USD 117 million of a short-term credit facility.

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 2,625,812 shares from treasury stock were sold or distributed to employees during the first quarter. The holding of treasury stock at March 31, 2011, was 70,462,703 Class B shares.

ANNUAL GENERAL MEETING OF SHAREHOLDERS

The Annual General Meeting of shareholders (AGM) decided, as previously announced and in accordance with the proposal by the Board of Directors, on a dividend payment of SEK 2.25 per share for 2010 and with April 18, 2011, as the date of record for the dividend. The total dividend payment amounts to SEK 7.2 (6.4) b.

In accordance with the proposal by the Nomination Committee, Leif Johansson was elected new Chairman of the Board of Directors and Jacob Wallenberg was elected new member of the Board of Directors, replacing Marcus Wallenberg.

In accordance with the Board of Directors’ proposals, the AGM resolved the implementation of LTV 2011 (Long Term Variable compensation), with the same structure as previous programs but with new performance criteria in the executive performance stock plan.

The AGM also resolved on transfer of shares for implementation of LTV 2011. In addition, the AGM resolved the transfer of treasury stock for previously decided LTV programs.

The AGM resolved in accordance with the Board of Directors’ proposal, on an amendment of the object’s of the company in the Articles of Association (§ 2), to adjust to the Company’s strategy to expand into new industry segments, such as governments, health industry, transport, utilities and mobile money. For more details, see www.ericsson.com/investors

OTHER INFORMATION

Completion of acquisition of Nortel’s Multiservice Switch business

On March 11, 2011, Ericsson announced the completion of the asset purchase agreement to acquire Nortel’s Multiservice Switch business. The acquisition gives Ericsson access to a strong product portfolio and installed base in the data segment while ensuring the supply of the platform for the recently acquired CDMA and GSM units.

The closing follows the announcement on September 25, 2010, that Ericsson was entering into an asset purchase agreement for substantially all of the assets of Nortel’s Multiservice Switch business.

Acquisition of assets from Telenor Connexion

On April 19, 2011, Ericsson announced the acquisition of Telenor Connexion’s machine-to-machine (M2M) technology platform. The acquisition is in line with Ericsson’s ambition to drive the market for M2M communication, adding valuable technology and know-how from Telenor Connexion.

Telenor Connexion will also be first customer on Ericsson’s Device Connection Platform, a service allowing operators to offer M2M connection beyond smartphones and laptops.

The acquisition is not subject to approval from authorities but to contractual agreements before closing.

 

Ericsson First Quarter Report 2011    9


Table of Contents

Assessment of risk environment

Ericsson’s operational and financial risk factors and uncertainties along with our strategies and tactics to mitigate risk exposures or limit unfavorable outcomes are described in our Annual Report 2010. Compared to the risks described in the Annual Report 2010, no material new or changed risk factors or uncertainties have been identified in the quarter.

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

Political unrest or instability in certain markets;

 

 

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

 

 

Natural disasters, effecting production, supply and transportation.

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

Stockholm, April 27, 2011

Telefonaktiebolaget LM Ericsson (publ)

Hans Vestberg, President and CEO

Date for next report: July 21, 2011

 

Ericsson First Quarter Report 2011    10


Table of Contents

AUDITORS’ REVIEW REPORT

We have reviewed this report for the period January 1 to March 31, 2011, for Telefonaktiebolaget LM Ericsson (publ). The board of directors and the CEO are responsible for the preparation and presentation of this financial information in accordance with IAS 34 and the Annual Accounts Act.

Our responsibility is to express a conclusion on this financial information based on our review.

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

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

Stockholm, April 27, 2011

PricewaterhouseCoopers AB

Peter Nyllinge

Authorized Public Accountant

 

Ericsson First Quarter Report 2011    11


Table of Contents

EDITOR’S NOTE

To read the complete report with tables, please go to: www.ericsson.com/investors/financial reports/2011/3month11-en.pdf

Ericsson invites media, investors and analysts to a press conference at the Ericsson Studio, Grönlandsgången 4, Stockholm, at 09.00 (CET), April 27, 2011. An analysts, investors and media conference call will begin at 14.00 (CET).

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

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

FOR FURTHER INFORMATION, PLEASE CONTACT

Henry Sténson, Senior Vice President, Communications

Phone: +46 10 719 4044

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

 

Investors    Media
Åse Lindskog, Vice President,    Ola Rembe, Vice President,
Head of Industry and Investor Relations    Head of Corporate Public and Media Relations
Phone: +46 10 719 9725, +46 730 244 872    Phone: +46 10 719 9727, +46 730 244 873
E-mail: investor.relations@ericsson.com    E-mail: media.relations@ericsson.com
Susanne Andersson, Director,    Corporate Public & Media Relations
Investor Relations    Phone: +46 10 719 69 92
Phone: +46 10 719 4631    E-mail: media.relations@ericsson.com
E-mail: investor.relations@ericsson.com   
   Telefonaktiebolaget LM Ericsson (publ)
Åsa Konnbjer, Director,    Org. number: 556016-0680
Investor Relations    Torshamnsgatan 23
Phone: +46 10 713 3928    SE-164 83 Stockholm
E-mail: investor.relations@ericsson.com    Phone: +46 10 719 0000
   www.ericsson.com
Stefan Jelvin, Director,   
Investor Relations   
Phone: +46 10 714 2039   
E-mail: investor.relations@ericsson.com   

 

Ericsson First Quarter Report 2011    12


Table of Contents

Disclosure Pursuant to the Swedish Securities Markets Act

Ericsson discloses the information provided herein pursuant to the Securities Markets Act. The information was submitted for publication at 07.30 CET, on April 27, 2011.

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

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

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

 

Ericsson First Quarter Report 2011    13


Table of Contents

FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION

 

     Page  

Financial statements

  

Consolidated income statement and statement of comprehensive income

     15   

Consolidated balance sheet

     16   

Consolidated statement of cash flows

     17   

Consolidated statement of changes in equity

     18   

Consolidated income statement - isolated quarters

     19   

Consolidated statement of cash flows - isolated quarters

     20   

Parent Company income statement

     21   

Statement of comprehensive income

     21   

Parent Company balance sheet

     21   
     Page  

Additional information

  

Accounting policies

     22   

Net sales by segment by quarter

     23   

Operating income by segment by quarter

     24   

Operating margin by segment by quarter

     24   

EBITA by segment by quarter

     25   

EBITA margin by segment by quarter

     25   

Net sales by region by quarter

     26   

Net sales by region by quarter (cont.)

     27   

External net sales by region by segment

     28   

Top 5 countries in sales

     28   

Provisions

     29   

Number of employees

     29   

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

     29   

Other information

     30   

Ericsson planning assumptions for year 2011

     30   

Consolidated operating income, excluding restructuring charges

     31   

Restructuring charges by function

     31   

Restructuring charges by segment

     31   

Operating income by segment, excluding restructuring charges

     32   

Operating margin by segment, excluding restructuring charges

     32   

EBITA by segment, excluding restructuring charges

     32   

EBITA margin by segment, excluding restructuring charges

     32   

 

Ericsson First Quarter Report 2011    14


Table of Contents

Consolidated Income Statement

 

     Jan - Mar           Jan - Dec  
SEK million    2010     2011     Change     2010  

Net sales

     45,112        52,966        17     203,348   

Cost of sales

     -28,527        -32,578        14     -129,094   
                                

Gross income

     16,585        20,388        23     74,254   

Gross margin (%)

     36.8     38.5       36.5

Research and development expenses

     -7,526        -7,991        6     -31,558   

Selling and administrative expenses

     -7,008        -6,441        -8     -27,072   
                                

Operating expenses

     -14,534        -14,432        -1     -58,630   

Other operating income and expenses

     302        343        14     2,003   
                                

Operating income before shares in earnings of JV and associated companies

     2,353        6,299        168     17,627   

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

     5.2     11.9       8.7

Shares in earnings of JV and associated companies

     -372        -468        26     -1,172   
                                

Operating income

     1,981        5,831        194     16,455   

Financial income

     278        302         
1,047
  

Financial expenses

     -438        -306          -1,719   
                                

Income after financial items

     1,821        5,827          15,783   

Taxes

     -547        -1,747          -4,548   
                                

Net income

     1,274        4,080          11,235   
                                

Net income attributable to:

        

- Stockholders of the Parent Company

     1,264        4,103          11,146   

- Non-controlling interests

     10        -23          89   

Other information

        

Average number of shares, basic (million)

     3,195        3,202          3,197   

Earnings per share, basic (SEK)1)

     0.40        1.28          3.49   

Earnings per share, diluted (SEK)1)

     0.39        1.27          3.46   

Statement of Comprehensive Income

 

     Jan - Mar      Jan - Dec  
SEK million    2010      2011      2010  

Net income

     1,274         4,080         11,235   

Other comprehensive income

        

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

     -273         388         3,892   

Revaluation of other investments in shares and participations

        

Fair value remeasurement

     —           -1         7   

Cash flow hedges

        

Gains/losses arising during the period

     163         1,624         966   

Reclassification adjustments for gains /losses included in profit or loss

     -290         -921         -238   

Adjustments for amounts transferred to initial carrying amount of hedged items

     —           —           -136   

Changes in cumulative translation adjustments

     -551         -3,417         -3,259   

Share of other comprehensive income on JV and associated companies

     -44         -744         -434   

Tax on items relating to components of other comprehensive income

     11         -222         -1,120   
                          

Total other comprehensive income

     -984         -3,293         -322   
                          

Total comprehensive income

     290         787         10,913   
                          

Total comprehensive income attributable to:

        

Stockholders of the Parent Company

     259         906         10,814   

Non-controlling interests

     31         -119         99   

 

1) 

Based on Net income attributable to stockholders of the Parent Company

 

Ericsson First Quarter Report 2011, April 27, 2011    15


Table of Contents

Consolidated Balance Sheet

 

SEK million    Dec 31
2010
     Mar 31
2011
 

ASSETS

     

Non-current assets

     

Intangible assets

     

Capitalized development expenses

     3,010         3,047   

Goodwill

     27,151         25,782   

Intellectual property rights, brands and other intangible assets

     16,658         15,388   

Property, plant and equipment

     9,434         9,171   

Financial assets

     

Equity in JV and associated companies

     9,803         8,662   

Other investments in shares and participations

     219         239   

Customer financing, non-current

     1,281         1,440   

Other financial assets, non-current

     3,079         3,020   

Deferred tax assets

     12,737         13,090   
                 
     83,372         79,839   

Current assets

     

Inventories

     29,897         32,146   

Trade receivables

     61,127         60,622   

Customer financing, current

     3,123         2,713   

Other current receivables

     17,146         19,745   

Short-term investments

     56,286         52,286   

Cash and cash equivalents

     30,864         30,756   
                 
     198,443         198,268   

Total assets

     281,815         278,107   
                 

EQUITY AND LIABILITIES

     

Equity

     

Stockholders’ equity

     145,106         146,142   

Non-controlling interest in equity of subsidiaries

     1,679         1,560   
                 
     146,785         147,702   

Non-current liabilities

     

Post-employment benefits

     5,092         3,968   

Provisions, non-current

     353         310   

Deferred tax liabilities

     2,571         2,427   

Borrowings, non-current

     26,955         26,196   

Other non-current liabilities

     3,296         3,358   
                 
     38,267         36,259   

Current liabilities

     

Provisions, current

     9,391         9,219   

Borrowings, current

     3,808         4,676   

Trade payables

     24,959         24,849   

Other current liabilities

     58,605         55,402   
                 
     96,763         94,146   

Total equity and liabilities

     281,815         278,107   
                 

Of which interest-bearing liabilities and post-employment benefits

     35,855         34,840   

Of which net cash

     51,295         48,202   

Assets pledged as collateral

     658         589   

Contingent liabilities

     875         853   

 

Ericsson First Quarter Report 2011, April 27, 2011    16


Table of Contents

Consolidated Statement of Cash Flows

 

     Jan - Mar      Jan - Dec  
SEK million    2010      2011      2010  

Operating activities

        

Net income

     1,274         4,080         11,235   

Adjustments to reconcile net income to cash

        

Taxes

     -166         721         351   

Earnings/dividends in JV and associated companies

     313         452         1,476   

Depreciation, amortization and impairment losses

     3,133         2,209         9,953   

Other

     -435         -1,201         710   
                          

Net income affecting cash

     4,119         6,261         23,725   

Changes in operating net assets

        

Inventories

     -1,465         -3,462         -7,917   

Customer financing, current and non-current

     -598         196         -2,125   

Trade receivables

     3,954         -1,610         4,406   

Trade payables

     -955         -255         5,964   

Provisions and post-employment benefits

     -1,058         -752         -2,739   

Other operating assets and liabilities, net

     -1,703         -3,284         5,269   
                          
     -1,825         -9,167         2,858   

Cash flow from operating activities

     2 294         -2,906         26,583   

Investing activities

        

Investments in property, plant and equipment

     - 659         -980         -3,686   

Sales of property, plant and equipment

     47         97         124   

Acquisitions/divestments of subsidiaries and other operations, net

     -1 080         -455         -2,832   

Product development

     - 278         -269         -1,644   

Other investing activities

     1 859         179         -1,487   

Short-term investments

     -3 844         3,706         -3,016   
                          

Cash flow from investing activities

     -3,955         2,278         -12,541   

Cash flow before financing activities

     -1,661         -628         14,042   

Financing activities

        

Dividends paid

     —           —           -6,677   

Other financing activities

     -56         1,240         1,007   
                          

Cash flow from financing activities

     -56         1,240         -5,670   

Effect of exchange rate changes on cash

     -42         -720         -306   

Net change in cash

     -1,759         -108         8,066   

Cash and cash equivalents, beginning of period

     22,798         30,864         22,798   

Cash and cash equivalents, end of period

     21,039         30,756         30,864   

 

Ericsson First Quarter Report 2011, April 27, 2011    17


Table of Contents

Consolidated Statement of Changes in Equity

 

SEK million   

Jan - Mar

2010

    

Jan - Mar

2011

    

Jan - Dec

2010

 

Opening balance

     141,027         146,785         141,027   

Total comprehensive income

     290         787         10,913   

Sale/Repurchase of own shares

     3         23         52   

Stock purchase and stock option plans

     158         107         762   

Dividends paid

     —           —           -6,677   

Business combinations

     -25         —           708   
                          

Closing balance

     141,453         147,702         146,785   
                          

 

Ericsson First Quarter Report 2011, April 27, 2011    18


Table of Contents

Consolidated Income Statement – Isolated Quarters

 

     2010     2011  
Isolated quarters, SEK million    Q1    

Q2

    Q3     Q4     Q1  

Net sales

     45,112        47,972        47,481        62,783        52,966   

Cost of sales

     -28,527        -30,235        -29,337        -40,995        -32,578   
                                        

Gross income

     16,585        17,737        18,144        21,788        20,388   

Gross margin (%)

     36.8     37.0     38.2     34.7     38.5

Research and development expenses

     -7,526        -7,751        -7,689        -8,592        -7,991   

Selling and administrative expenses

     -7,008        -7,158        -5,775        -7,131        -6,441   
                                        

Operating expenses

     -14,534        -14,909        -13,464        -15,723        -14,432   

Other operating income and expenses

     302        500        620        581        343   
                                        

Operating income before shares in earnings of JV and associated companies

     2,353        3,328        5,300        6,646        6,299   

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

     5.2     6.9     11.2     10.6     11.9

Shares in earnings of JV and associated companies

     -372        -308        -90        -402        -468   
                                        

Operating income

     1,981        3,020        5,210        6,244        5,831   

Financial income

     278        470        168        131        302   

Financial expenses

     -438        -596        -302        -383        -306   
                                        

Income after financial items

     1,821        2,894        5,076        5,992        5,827   

Taxes

     -547        -867        -1,523        -1,611        -1,747   
                                        

Net income

     1,274        2,027        3,553        4,381        4,080   
                                        

Net income attributable to:

          

- Stockholders of the Parent Company

     1,264        1,881        3,677        4,324        4,103   

- Non-controlling interests

     10        146        -124        57        -23   

Other information

          

Average number of shares, basic (million)

     3,195        3,196        3,198        3,200        3,202   

Earnings per share, basic (SEK)1)

     0.40        0.59        1.15        1.35        1.28   

Earnings per share, diluted (SEK)1)

     0.39        0.58        1.14        1.34        1.27   

 

1) 

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

 

Ericsson First Quarter Report 2011, April 27, 2011    19


Table of Contents

Consolidated Statement of Cash Flows – Isolated Quarters

 

    

2010

     2011  
Isolated quarters, SEK million    Q1      Q2      Q3      Q4      Q1  

Operating activities

              

Net income

     1,274         2,027         3,553         4,381         4,080   

Adjustments to reconcile net income to cash

              

Taxes

     -166         -560         -226         1,303         721   

Earnings/dividends in JV and associated companies

     313         364         123         676         452   

Depreciation, amortization and impairment losses

     3,133         2,304         2,270         2,246         2,209   

Other

     -435         -260         -947         2,352         -1,201   
                                            

Net income affecting cash

     4,119         3,875         4,773         10,958         6,261   

Changes in operating net assets

              

Inventories

     -1,465         -3,462         -3,763         773         -3,462   

Customer financing, current and non-current

     -598         -208         -437         -882         196   

Trade receivables

     3,954         -3,816         7,443         -3,175         -1,610   

Trade payables

     -955         1,433         1,292         4,194         -255   

Provisions and post-employment benefits

     -1,058         788         -1,726         -743         -752   

Other operating assets and liabilities, net

     -1,703         -1,317         4,237         4,052         -3,284   
                                            
     -1,825         -6,582         7,046         4,219         -9,167   

Cash flow from operating activities

     2,294         -2,707         11,819         15,177         -2,906   

Investing activities

              

Investments in property, plant and equipment

     -659         -1,016         -1,027         -984         -980   

Sales of property, plant and equipment

     47         45         17         15         97   

Acquisitions/divestments of subsidiaries and other operations, net

     -1,080         -868         -559         -325         -455   

Product development

     -278         -724         -317         -325         -269   

Other investing activities

     1,859         -1,819         -817         -710         179   

Short-term investments

     -3,844         5,949         -3,368         -1,753         3,706   
                                            

Cash flow from investing activities

     -3,955         1,567         -6,071         -4,082         2,278   

Cash flow before financing activities

     -1,661         -1,140         5,748         11,095         -628   

Financing activities

              

Dividends paid

     —           -6,401         -238         -38         —     

Other financing activities

     -56         1,529         1,165         -1,631         1,240   
                                            

Cash flow from financing activities

     -56         -4,872         927         -1,669         1,240   

Effect of exchange rate changes on cash

     -42         583         -1,088         241         -720   

Net change in cash

     -1,759         -5,429         5,587         9,667         -108   

Cash and cash equivalents, beginning of period

     22,798         21,039         15,610         21,197         30,864   

Cash and cash equivalents, end of period

     21,039         15,610         21,197         30,864         30,756   

 

Ericsson First Quarter Report 2011, April 27, 2011    20


Table of Contents

Parent Company Income Statement

 

     Jan - Mar      Jan - Dec  
SEK million    2010      2011      2010  

Net sales

     10         —           33   

Cost of sales

     -7         —           -29   
                          

Gross income

     3         —           4   

Operating expenses

     -1,316         -419         -2,956   

Other operating income and expenses

     612         746         3,118   
                          

Operating income

     -701         327         166   

Financial net

     71         2,767         6,645   
                          

Income after financial items

     -630         3,094         6,811   

Transfers to (-) / from untaxed reserves

     —           —           -100   

Taxes

     200         -130         -117   
                          

Net income

     -430         2,964         6,594   
                          

Statement of Comprehensive Income

 

     Jan - Mar      Jan - Dec  
SEK million    2010      2011      2010  

Net income

     -430         2,964         6,594   

Cash flow hedges

        

Gains/losses arising during the period

     —           —           136   

Adjustments for amounts transferred to initial carrying amount of hedged items

     —           —           -136   

Tax on items reported directly in or transferred from equity

     —           —           —     
                          

Other comprehensive income

     —           —           —     
                          

Total comprehensive income

     -430         2,964         6,594   
                          

Parent Company Balance Sheet

 

     Dec 31      Mar 31  
SEK million    2010      2011  

ASSETS

     

Fixed assets

     

Intangible assets

     1,046         989   

Tangible assets

     527         541   

Financial assets

     99,013         100,489   
                 
     100,586         102,019   

Current assets

     

Inventories

     57         37   

Receivables

     21,554         21,793   

Short-term investments

     56,148         52,286   

Cash and cash equivalents

     15,439         17,118   
                 
     93,198         91,234   

Total assets

     193,784         193,253   
                 

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

     

Equity

     

Restricted equity

     47,859         47,859   

Non-restricted equity

     42,974         45,979   
                 
     90,833         93,838   

Untaxed reserves

     1,015         1,015   

Provisions

     960         905   

Non-current liabilities

     52,842         52,190   

Current liabilities

     48,134         45,305   

Total stockholders’ equity, provisions and liabilities

     193,784         193,253   
                 

Assets pledged as collateral

     658         589   

Contingent liabilities

     13,783         15,774   

 

Ericsson First Quarter Report 2011, April 27, 2011    21


Table of Contents

Accounting Policies

The Group

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee. The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2010, and should be read in conjunction with that annual report.

As from January 1, 2011, the Company has applied the following new or amended IFRSs and IFRICs:

 

 

Improvements to IFRSs (Issued by IASB in May 2010)

 

 

IFRIC 14, amendment, the limit on a defined benefit asset, minimum funding requirements and their interaction (November 26, 2009)

 

 

IFRIC 19, Extinguishing financial liabilities with equity instruments (November 26, 2009)

 

 

IAS 24, revised, Related party disclosures (November 4, 2009)

 

 

IAS 32, amendment, Classification of Rights Issues (October 8, 2009)

None of the new or amended standards and interpretations has had any significant impact on the financial result or position of the Company. There is no difference between IFRS effective as per March 31, 2011 and IFRS as endorsed by the EU.

 

Ericsson First Quarter Report 2011, April 27, 2011    22


Table of Contents

Net Sales by Segment by Quarter

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

 

     2010     2011  
Isolated quarters, SEK million    Q1     Q2     Q3     Q4     Q1  

Networks

     24,704        25,472        26,087        36,445        33,249   

Global Services

     18,098        20,080        19,076        22,869        17,435   

Of which Professional Services

     13,251        14,838        13,736        16,704        12,571   

Of which Managed Services

     4,888        5,642        5,227        5,361        4,924   

Of which Network Rollout

     4,847        5,242        5,340        6,165        4,864   

Multimedia

     2,310        2,420        2,318        3,469        2,282   
                                        

Total

     45,112        47,972        47,481        62,783        52,966   
                                        
     2010     2011  
Sequential change, percent    Q1     Q2     Q3     Q4     Q1  

Networks

     -22     3     2     40     -9

Global Services

     -22     11     -5     20     -24

Of which Professional Services

     -20     12     -7     22     -25

Of which Managed Services

     -4     15     -7     3     -8

Of which Network Rollout

     -27     8     2     15     -21

Multimedia

     -31     5     -4     50     -34
                                        

Total

     -23     6     -1     32     -16
                                        
           2010                 2011  
Year over year change, percent    Q1     Q2     Q3     Q4     Q1  

Networks

     -14     -12     6     14     35

Global Services

     3     0     3     -1     -4

Of which Professional Services

     4     5     7     1     -5

Of which Managed Services

     17     23     46     5     1

Of which Network Rollout

     3     -12     -8     -8     0

Multimedia

     -29     -27     -31     3     -1
                                        

Total

     -9     -8     2     8     17
                                        
     2010     2011  
Year to date, SEK million    Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar  

Networks

     24,704        50,176        76,263        112,708        33,249   

Global Services

     18,098        38,178        57,254        80,123        17,435   

Of which Professional Services

     13,251        28,089        41,825        58,529        12,571   

Of which Managed Services

     4,888        10,530        15,757        21,118        4,924   

Of which Network Rollout

     4,847        10,089        15,429        21,594        4,864   

Multimedia

     2,310        4,730        7,048        10,517        2,282   
                                        

Total

     45,112        93,084        140,565        203,348        52,966   
                                        
Year to date, year over year change, percent    2010     2011  
   Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar  

Networks

     -14     -13     -7     -1     35

Global Services

     3     2     2     1     -4

Of which Professional Services

     4     5     5     4     -5

Of which Managed Services

     17     20     28     21     1

Of which Network Rollout

     3     -5     -6     -7     0

Multimedia

     -29     -28     -29     -21     -1
                                        

Total

     -9     -8     -5     -2     17
                                        

 

Ericsson First Quarter Report 2011, April 27, 2011    23


Table of Contents

Operating Income by Segment by Quarter

 

    

2010

     2011  
Isolated quarters, SEK million    Q1      Q2      Q3      Q4      Q1  

Networks

     1,540         2,507         3,717         4,717         5,744   

Global Services

     1,325         1,377         1,891         1,920         1,146   

Of which Professional Services

     1,419         1,331         1,925         1,875         1,486   

Of which Network Rollout

     -94         46         -34         45         -340   

Multimedia

     -335         -479         -187         358         -338   

Unallocated 1)

     -158         -128         -109         -410         -228   
                                            

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     2,372         3,277         5,312         6,585         6,324   

Sony Ericsson

     76         134         290         164         71   

ST-Ericsson -467

        -391         -392         -505         -564   
                                            

Subtotal Sony Ericsson and ST-Ericsson

     -391         -257         -102         -341         -493   
                                            

Total

     1,981         3,020         5,210         6,244         5,831   
                                            
    

2010

     2011  
Year to date, SEK million    Jan-Mar      Jan-Jun      Jan-Sep      Jan-Dec      Jan-Mar  

Networks

     1,540         4,047         7,764         12,481         5,744   

Global Services

     1,325         2,702         4,593         6,513         1,146   

Of which Professional Services

     1,419         2,750         4,675         6,550         1,486   

Of which Network Rollout

     -94         -48         -82         -37         -340   

Multimedia

     -335         -814         -1,001         -643         -338   

Unallocated 1)

     -158         -286         -395         -805         -228   
                                            

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     2,372         5,649         10,961         17,546         6,324   

Sony Ericsson

     76         210         500         664         71   

ST-Ericsson -467

        -858         -1,250         -1,755         -564   
                                            

Subtotal Sony Ericsson and ST-Ericsson

     -391         -648         -750         -1,091         -493   

Total

     1,981         5,001         10,211         16,455         5,831   
                                            

Operating Margin by Segment by Quarter

 

     2010     2011  
As percentage of net sales, isolated quarters    Q1     Q2     Q3     Q4     Q1  

Networks

     6     10     14     13     17

Global Services

     7     7     10     8     7

Of which Professional Services

     11     9     14     11     12

Of which Network Rollout

     -2     1     -1     1     -7

Multimedia

     -15     -20     -8     10     -15
                                        

Subtotal excluding Sony Ericsson and ST-Ericsson

     5     7     11     10     12
                                        
    

2010

    2011  
As percentage of net sales, Year to date    Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar  

Networks

     6     8     10     11     17

Global Services

     7     7     8     8     7

Of which Professional Services

     11     10     11     11     12

Of which Network Rollout

     -2     0     -1     0     -7

Multimedia

     -15     -17     -14     -6     -15
                                        

Subtotal excluding Sony Ericsson and ST-Ericsson

     5     6     8     9     12
                                        

 

1) 

“Unallocated” consists mainly of costs for corporate staff, non-operational capital gains and losses.

 

Ericsson First Quarter Report 2011, April 27, 2011    24


Table of Contents

EBITA by Segment by Quarter

 

    

2010

     2011  
Isolated quarters, SEK million    Q1      Q2      Q3      Q4      Q1  

Networks

     3,052         3,355         4,774         5,597         6,571   

Global Services

     1,770         1,523         1,954         2,117         1,278   

Of which Professional Services

     1,764         1,449         1,980         2,018         1,597   

Of which Network Rollout

     6         74         -26         99         -319   

Multimedia

     -123         -262         -7         538         -163   

Unallocated 1)

     -158         -127         -108         -408         -226   
                                            

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     4,541         4,489         6,613         7,844         7,460   

Sony Ericsson

     76         134         290         164         71   

ST-Ericsson -467

        -391         -392         -505         -564   
                                            

Subtotal Sony Ericsson and ST-Ericsson

     -391         -257         -102         -341         -493   
                                            

Total

     4,150         4,232         6,511         7,503         6,967   
                                            
    

2010

     2011  
Year to date, SEK million    Jan-Mar      Jan-Jun      Jan-Sep      Jan-Dec      Jan-Mar  

Networks

     3,052         6,407         11,181         16,778         6,571   

Global Services

     1,770         3,293         5,247         7,364         1,278   

Of which Professional Services

     1,764         3,213         5,193         7,211         1,597   

Of which Network Rollout

     6         80         54         153         -319   

Multimedia

     -123         -385         -392         146         -163   

Unallocated 1)

     -158         -285         -393         -801         -226   
                                            

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     4,541         9,030         15,643         23,487         7,460   

Sony Ericsson

     76         210         500         664         71   

ST-Ericsson -467

        -858         -1,250         -1,755         -564   
                                            

Subtotal Sony Ericsson and ST-Ericsson

     -391         -648         -750         -1,091         -493   
                                            

Total

     4,150         8,382         14,893         22,396         6,967   
                                            

EBITA Margin by Segment by Quarter

 

    

2010

    2011  
As percentage of net sales, isolated quarters    Q1     Q2     Q3     Q4     Q1  

Networks

     12     13     18     15     20

Global Services

     10     8     10     9     7

Of which Professional Services

     13     10     14     12     13

Of which Network Rollout

     0     1     -1     2     -7

Multimedia

     -5     -11     0     15     -7
                                        

Subtotal excluding Sony Ericsson and ST-Ericsson

     10     9     14     12     14
                                        
    

2010

    2011  
As percentage of net sales, Year to date    Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar  

Networks

     12     13     15     15     20

Global Services

     10     9     9     9     7

Of which Professional Services

     13     11     12     12     13

Of which Network Rollout

     0     1     0     1     -7

Multimedia

     -5     -8     -6     1     -7
                                        

Subtotal excluding Sony Ericsson and ST-Ericsson

     10     10     11     12     14
                                        

 

2) 

“Unallocated” consists mainly of costs for corporate staff, non-operational capital gains and losses.

 

Ericsson First Quarter Report 2011, April 27, 2011    25


Table of Contents

Net Sales by Region by Quarter

 

    

2010

    2011  
Isolated quarters, SEK million    Q1     Q2     Q3     Q4     Q1  

North America

     9,498        13,050        12,861        14,064        13,162   

Latin America

     3,964        4,200        3,667        6,051        4,015   

Northern Europe & Central Asia1) 2)

     2,300        2,679        2,363        4,829        3,365   

Western & Central Europe2)

     5,235        4,414        4,302        5,917        4,806   

Mediterranean2)

     5,060        5,630        5,020        6,918        4,799   

Middle East

     3,948        3,796        2,721        4,634        3,070   

Sub Saharan Africa

     2,418        2,951        1,795        2,030        2,212   

India

     2,303        1,351        2,129        2,843        3,169   

China & North East Asia

     4,950        4,607        6,940        9,468        8,633   

South East Asia & Oceania

     3,517        3,643        3,822        3,920        3,108   

Other1) 2)

     1,919        1,651        1,861        2,109        2,627   
                                        

Total

     45,112        47,972        47,481        62,783        52,966   
                                        

1)   Of which Sweden

     1,047        996        1,023        1,171        927   

2)   Of which EU

     11,065        10,384        9,664        12,594        10,020   
                                        
    

2010

    2011  
Sequential change, percent    Q1     Q2     Q3     Q4     Q1  

North America

     1     37     -1     9     -6

Latin America

     -32     6     -13     65     -34

Northern Europe & Central Asia1) 2)

     -34     16     -12     104     -30

Western & Central Europe2)

     -15     -16     -3     38     -19

Mediterranean 2)

     -28     11     -11     38     -31

Middle East

     -22     -4     -28     70     -34

Sub Saharan Africa

     -37     22     -39     13     9

India

     -33     -41     58     34     11

China & North East Asia

     -33     -7     51     36     -9

South East Asia & Oceania

     -32     4     5     3     -21

Other1) 2)

     30     -14     13     13     25
                                        

Total

     -23     6     -1     32     -16
                                        

1)   Of which Sweden

     43     -5     3     14     -21

2)   Of which EU

     -15     -6     -7     30     -20
                                        
    

2010

    2011  
Year-over-year change, percent    Q1     Q2     Q3     Q4     Q1  

North America

     99     128     223     49     39

Latin America

     -9     -12     -27     3     1

Northern Europe & Central Asia1) 2)

     -20     -7     -13     38     46

Western & Central Europe2)

     -3     -19     -22     -4     -8

Mediterranean2)

     -17     -17     -3     -2     -5

Middle East

     0     -20     -40     -8     -22

Sub Saharan Africa

     -48     -19     -44     -47     -9

India

     -43     -63     -49     -17     38

China & North East Asia

     -15     -36     24     28     74

South East Asia & Oceania

     -32     -36     -20     -24     -12

Other1) 2)

     -19     3     1     43     37
                                        

Total

     -9     -8     2     8     17
                                        

1)   Of which Sweden

     -13     -9     -5     60     -11

2)   Of which EU

     -12     -18     -12     -4     -9
                                        

 

Ericsson First Quarter Report 2011, April 27, 2011    26


Table of Contents

Net Sales by Region by Quarter (cont.)

 

    

2010

    2011  
Year to date, SEK million    Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar  

North America

     9,498        22,548        35,409        49,473        13,162   

Latin America

     3,964        8,164        11,831        17,882        4,015   

Northern Europe & Central Asia1) 2)

     2,300        4,979        7,342        12,171        3,365   

Western & Central Europe2)

     5,235        9,649        13,951        19,868        4,806   

Mediterranean2)

     5,060        10,690        15,710        22,628        4,799   

Middle East

     3,948        7,744        10,465        15,099        3,070   

Sub Saharan Africa

     2,418        5,369        7,164        9,194        2,212   

India

     2,303        3,654        5,783        8,626        3,169   

China & North East Asia

     4,950        9,557        16,497        25,965        8,633   

South East Asia & Oceania

     3,517        7,160        10,982        14,902        3,108   

Other1) 2)

     1,919        3,570        5,431        7,540        2,627   
                                        

Total

     45,112        93,084        140,565        203,348        52,966   
                                        

1)   Of which Sweden

     1,047        2,043        3,066        4,237        927   

2)   Of which EU

     11,065        21,449        31,113        43,707        10,020   
                                        
     2010     2011  
Year to date, year-over-year change, percent    Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec