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, 2011

¨	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 5.00 nominal value)			3,011,595,752
A shares (SEK 5.00 nominal value)			261,755,983
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ 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 ¨ Item 18 x

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 2011

This annual report discloses and includes references to financial measures that may not be prepared or presented in accordance with IFRS, and we refer to these measures as non-IFRS measures. Reconciliations of these non-IFRS measures to the most relevant comparable IFRS measures can be found on page 41 and pages 242–245 of the annual report.

CONTENTS


FORM 20-F 2011 CROSS REFERENCE TABLE			i

LETTER FROM THE CEO			1

THE MARKET			5

OUR BUSINESS			7

HOW WE STAY AHEAD			9

OPERATOR PORTFOLIO			11

2011 HIGHLIGHTS			17

FIVE-YEAR SUMMARY			19

SHARE INFORMATION			20

LETTER FROM THE CHAIRMAN			28

BOARD OF DIRECTORS’ REPORT			30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			70

CONSOLIDATED FINANCIAL STATEMENTS			71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			76

RISK FACTORS			163

FORWARD-LOOKING STATEMENTS			175

CORPORATE GOVERNANCE REPORT 2011			177

REMUNERATION REPORT			214

UNCERTAINTIES IN THE FUTURE			222

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING			223

SUPPLEMENTAL INFORMATION			224

RECONCILIATIONS TO IFRS			242

GLOSSARY			246

FINANCIAL TERMINOLOGY			249

SHAREHOLDER INFORMATION			252

SIGNATURES			256

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

FORM 20-F 2011 CROSS REFERENCE TABLE

Our Annual Report on Form 20-F consists of the English version of our Swedish Annual Report for 2011, with certain adjustments made 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 Document	Page Number
PART I
1	Identity of Directors, etc.		N/A

2	Offer Statistics & Timetable		N/A

3	Key Information
	A	Selected Financial Data	Five-Year Summary		19
			Reconciliations to IFRS		242
			Financial Terminology		249
			Supplemental Information
			Exchange Rates		225
	B	Capitalization & Indebtedness	N/A		-
	C	Reason for Offer & Use of Proceeds	N/A		-
	D	Risk Factors	Risk Factors		163

4	Info on the Company
	A	History and Development of the Company	Operator Portfolio
			Mobile Broadband		11
			Managed Services		12
			Operations & Business Support Systems		13
			Board of Directors’ Report
			Vision and Mission		33
			Strategy		34
			Business Focus 2011		36
			Cash Flow—Capital Expenditures		48
			Notes to the Consolidated Financial Statements
			Note C26 Business Combinations		144
			Note C32 Events After the Balance Sheet Date		161
			Supplemental Information
			General Facts on the Company		224
			Company History and Development		225
	B	Business Overview	Our Business		7
			Operator Portfolio		11
			How We Stay Ahead		9
			Board of Directors’ Report
			Vision and Mission		33
			Strategy		34
			Business Focus 2011		36
			Business Results—Regions		51
			Business Results—Segments		54
			Material Contracts		66

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading			Location in Document	Page Number
			Corporate Governance		63
			Sourcing and Supply		65
			Sustainability and Corporate Responsibility		60
			Notes to the Consolidated Financial Statements
			Note C3—Segment Information		96
			Note C31—Contractual Obligations		161
			Risk Factors
			Market, Technology and Business Risks		163
			Regulatory, Compliance and Corporate Governance Risks		171
	C	Organizational Structure	Supplemental Information
			General Facts on the Company		224
			Investments		240
	D	Property, Plants and Equipment	Supplemental Information
			Primary Manufacturing and Assembly Facilities		226
			Notes to the Consolidated Financial Statements
			Note C11—Property, Plant and Equipment		110
			Note C27—Leasing		146
			Board of Directors’ Report
			Cash Flow—Capital Expenditures		48
4A	Unresolved Staff Comments		—

5	Operating & Fin’l Review & Prospects		—
	A	Operating Results	Operator Portfolio		11
			How We Stay Ahead		9
			Board of Directors’ Report
			Business Results—Regions		51
			Business Results—Segments		54
			Notes to the Consolidated Financial Statements
			Note C1—Significant Accounting Policies—Group Companies		76
			Note C20—Financial Risk Management and Financial Instruments—Foreign Exchange Risk		133
			Risk Factors
			Regulatory, Compliance and Corporate Governance Risks		171
			Board of Directors’ Report
			Risk Management		64

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading			Location in Document	Page Number
			Supplemental Information
			Operating Results		226
			Taxation		232
	B	Liquidity and Capital Resources	Board of Directors’ Report
			Financial Position		45
			Cash Flow		48
			Risk Management		64
			Notes to the Consolidated Financial Statements
			Note C19—Interest-Bearing Liabilities		132
			Note C20—Financial Risk Management and Financial Instruments		133
			Note C25—Statement of Cash Flows		142
	C	R&D, Patents & Licenses	Five-Year Summary		19
			Board of Directors’ Report
			Strategy—Technology Leadership		35
			Competitive Assets—Technology Leadership as an asset		39
			Financial Results of Operations—Operating expenses		43
			Consolidated Financial Statements
			Consolidated Income Statement and Statement of Comprehensive Income		71
	D	Trend Info	Operator Portfolio		11
			How We Stay Ahead		9
			Board of Directors’ Report
			Business Results—Regions		51
			Business Results—Segments		54
	E	Off-Balance Sheet Arrangements	Board of Directors’ Report
			Financial Position—Off-balance sheet arrangements		48
			Notes to the Consolidated Financial Statements
			Note C14—Trade Receivables and Customer Finance—Credit Risk—Finance Credit Risk		115
			Note C24—Contingent Liabilities		142
	F	Tabular Disclosure of Contractual Obligations	Board of Directors’ Report
			Material Contracts		66
			Notes to the Consolidated Financial Statements
			Note C31—Contractual Obligations		161

6	Directors, Senior Management and Employees		—
	A	Directors & Senior Management	Corporate Governance Report 2011
			Members of the Board of Directors		193

iii

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading			Location in Document	Page Number
			Members of the Executive Leadership Team		203
	B	Compensation	Board of Directors’ Report
			Corporate Governance		63
			Corporate Governance Report 2011
			Committees of the Board of Directors—Remuneration Committee—Remuneration to Board members		188
			Members of the Executive Leadership Team		203
			Remuneration Report		214
			Notes to the Consolidated Financial Statements
			Note C17—Post-Employment Benefits		123
			Note C28—Information Regarding Members of the Board of Directors, the Group Management and Employees		148
	C	Board Practices	Corporate Governance Report 2011
			Board of Directors		184
			Members of the Board of Directors		193
			Members of the Executive Leadership Team		203
			Notes to the Consolidated Financial Statements
			Note C28—Information Regarding Members of the Board of Directors, the Group Management and Employees		148
	D	Employees	Five-Year Summary		19
			Board of Directors’ Report
			Business Focus 2011		37
			Notes to the Consolidated Financial Statements
			Note C28—Information Regarding Members of the Board of Directors, the Group Management and Employees		148
	E	Share Ownership	Share Information
			Shareholders		25
			Corporate Governance Report 2011
			Members of the Board of Directors		193
			Members of the Executive Leadership Team		203
			Notes to the Consolidated Financial Statements
			Note C28—Information Regarding Members of the Board of Directors, the Group Management and Employees		148

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading			Location in Document	Page Number
7	Major S/Hs and Related Party Transactions
	A	Major Shareholders	Share Information
			Shareholders		25
	B	Related Party Transactions	Notes to the Consolidated Financial Statements
			Note C29—Related Party Transactions		158
	C	Interests of Experts & Counsel	N/A

8	Financial Information
	A	Consolidated Statements and Other Financial Information	Consolidated Financial Statements		71
			Please see also Item 17 cross references
			Report of Independent Registered Public Accounting Firm		70
			Notes to the Consolidated Financial Statements
			Note C4 Net Sales		102
			Supplemental Information
			Memorandum and Articles of Association—Dividends		230
	B	Significant Changes	Board of Directors’ Report
			Post-Closing Events		67
			Notes to the Consolidated Financial Statements
			Note C32—Events After the Balance Sheet Date		161

9	The Offer and Listing
	A	Offer and Listing Details	Share Information
			Offer and Listing Details		23
	B	Plan of Distribution	N/A
	C	Markets	Share Information
			Stock Exchange Trading		20
	D	Selling Shareholders	N/A
	E	Dilution	N/A
	F	Expenses of the issue	N/A

10	Additional Information
	A	Share Capital	N/A
	B	Articles of Association	Supplemental Information
			Memorandum and Articles of Association		229
	C	Material Contracts	Board of Directors’ Report
			Material Contracts		66
			Notes to the Consolidated Financial Statements
			Note C31 Contractual Obligations		161

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading			Location in Document	Page Number
	D	Exchange Controls	Supplemental Information
			Exchange Controls		232
	E	Taxation	Supplemental Information
			Taxation		232
	F	Dividends and paying agents	N/A
	G	Statement by Experts	N/A
	H	Documents on Display	Supplemental Information
			General Facts on the Company		224
	I	Subsidiary Information	N/A

11	Quantitative and Qualitative Disclosures About Market Risk
	A	Quantitative Information about Market Risk	Board of Directors’ Report
		Quantitative Information about Market Risk	Risk Management		64
			Notes to the Consolidated Financial Statements
			Note C20—Financial Risk Management and Financial Instruments		133
	B	Qualitative Information about Market Risk	Board of Directors’ Report
		Qualitative Information about Market Risk	Risk Management		64
			Notes to the Consolidated Financial Statements
			Note C20—Financial Risk Management and Financial Instruments		133
	C	Interim Periods	N/A
	D	Safe Harbor	N/A
	E	Small Business Issuers	N/A

12	Description of Securities Other than Equity Securities
	A	Debt Securities	N/A
	B	Warrants and Rights	N/A
	C	Other Securities	N/A
	D	American Depositary Shares	Supplemental Information
			Depositary Fees and Charges		237
PART II

13	Defaults, Dividends, Arrearages and Delinquencies		N/A

14	Material Modifications to the Rights of Security Holders and Use of Proceeds		N/A

15	Controls and Procedures		—
	A	Disclosure Controls and Procedures	Corporate Governance Report 2011
		Disclosure Controls and Procedures	Disclosure Controls and Procedures		209
	B	Management’s annual report on internal control over financial reporting	Management’s Report on internal control over financial reporting		223
	C	Attestation report of the registered public accounting firm

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading			Location in Document	Page Number
	D	Changes in internal control over financial reporting

16	Reserved		—

	A	Audit Committee Financial Expert	Corporate Governance Report 2011
		Audit Committee Financial Expert	Audit Committee—Members of the Audit Committee		188
	B	Code of Ethics	Corporate Governance Report 2011
			Code of Business Ethics		178
	C	Principal Accountant Fees and Services	Notes to the Consolidated Financial Statements
			Note C30 Fees to Auditors
			Corporate Governance Report 2011
			Committees of the Board of Directors—Audit Committee		188
	D	Exemptions from the Listing Standards for Audit Committees	Corporate Governance Report 2011
			Board of Directors—Independence		184
			Supplemental Information
			Independence Requirements		238
	E	Purchase of Equity Securities by the Issuer and Affiliated Purchasers	N/A
	F	Change in Registrant’s Certifying Accountant	N/A
	G	Corporate Governance	Corporate Governance Report 2011
			Board of Directors—Independence		184
			Supplemental Information
			Independence Requirements		238

PART III

17	Financial Statements		—
			Consolidated Income Statement and Statement of Comprehensive Income		71
			Consolidated Balance Sheet		73
			Consolidated Statement of Cash Flows		74
			Consolidated Statement of Changes in Equity		75
			Notes to the Consolidated Financial Statements
			Note C1—Significant Accounting Policies		76
			Note C16—Equity and Other Comprehensive Income		119
			Report of Independent Registered Public Accounting Firm		70

18	Financial Statements		N/A

vii

ERICSSON ANNUAL REPORT ON FORM 20-F 2011


Form 20-F Item Heading		Location in Document	Page Number
19	Exhibits
	Exhibit 1	Articles of Association
	Exhibit 2	Not applicable
	Exhibit 3	Not applicable
	Exhibit 4	Not applicable
	Exhibit 5	Not applicable
	Exhibit 6	Please see Notes to the Consolidated Financial Statements, Note C1 Significant Accounting Policies	76
	Exhibit 7	For definitions of certain ratios used in this report, please see Financial Terminology	249
	Exhibit 8	Please see Supplemental Information, Investments	240
	Exhibit 9	Not applicable
	Exhibit 10	Not applicable
	Exhibit 11	Our Code of Business Ethics is included on our web site at
		www.ericsson.com/code-of-business ethics
	Exhibit 12	302 Certifications

	Exhibit 13	906 Certifications

	Exhibit 14	Not applicable

	Exhibit 15.1	Consent of Independent Registered Public Accounting Firm	70

viii

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LETTER FROM HANS VESTBERG

Dear shareholders,

The world is entering a new communications era. Technology is enabling us to interact, innovate and share knowledge in entirely new ways—creating a dynamic shift in mindset. At Ericsson, we are just beginning to explore the possibilities of what we call the networked society.

At its foundation, three forces must come together: mobility, broadband and the cloud. When these combine, you can get access to anything, anytime, anywhere. But the networked society is about much more than what the individual can achieve. Eventually, everything that benefits from being connected will be connected—and this will fundamentally change our world. It is amazing what is happening around us, global mobile broadband subscriptions grew by 60% to reach a total of almost 1 billion at year-end. We forecast almost 5 billion mobile broadband subscriptions by 2016.

At the same time, the data consumed by smartphone users is surging. Across all devices, mobile data traffic is expected to grow 10 times between 2011 and 2016. Increasing subscription numbers and traffic levels drive increased complexity in networks. In turn this puts further demand on our ability to deliver cutting-edge solutions and to understand our customers’ needs.

Prime driver and thought leader

I believe that Ericsson has the necessary assets and strengths to be the prime driver and thought leader in the networked society. Our key assets are technology and services leadership, as well as global presence and scale.

We focus on early involvement in creating new technologies, strong contributions to standardization work and development of intellectual property rights. We pioneered the development of digital AXE switching, GSM, WCDMA/HSPA and LTE, resulting in 30,000 granted patents. In 2011, we increased our investment in R&D to further strengthen our technology leadership and we currently have more than 22,000 employees in R&D.

Today, customers in more than 180 countries use our solutions and services. In 2010, we started delivery of our multi-standard radio base station RBS 6000. We have carried out the quickest product ramp-up in our history and by the end of 2011 the RBS 6000 accounted for almost all our radio base station deliveries. This gives us significant scale advantages.

Our services offering covers all areas within the operational scope of a telecom operator. We have 56,000 services professionals around the globe and we manage networks that serve more than 900 million subscribers. We estimate our market share in telecom services at over 10%, making us the leader in this market.

Sustainability and Corporate Responsibility

We continue to be strongly committed to Sustainability and Corporate Responsibility. We remain focused on our ambitious targets, including our carbon footprint intensity reduction goals. Over the last decade we have increased 3G/4G radio base station energy efficiency by over 85%. The result is that despite the growing bandwidth demands of the networked society, we are able to keep the energy consumption per subscriber at a low and constant level.

We see an increasing interest from customers to drive energy efficiency in their networks, and to use broadband to shape the low carbon economy of the future.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Such diverse events during 2011 as the Arab Spring and the publication of the UN guidelines on Business and Human Rights, show the increasing importance and relevance of human rights in our business. Our policies remain strong and we are committed to high levels of governance standards wherever we do business in the world. We will continue to give people in all parts of the world access to communications, improving quality of life. Our separate Sustainability and Corporate Responsibility Report will provide additional information on these topics.

Leading ICT player

We are a leading Information and Communications Technology (ICT) player. Many people are surprised when they discover that we are the world’s fifth largest software company. The vast majority of our R&D engineers are engaged in software development.

Our long-term ambitions are to grow faster than the market, deliver the industry’s best-in-class margins, grow earnings in joint ventures and generate strong cash conversion. The Annual General Meeting approved the transformation of these ambitions into clear targets in the Executive Performance Stock Plan.

We have identified three growth levers. The first is portfolio momentum in mobile broadband, managed services and operations and business support systems (OSS/BSS). The second is to gain market share. The third is mergers, acquisitions and partnering.

In 2011, we grew revenues by 12% to SEK 227 billion and sales for comparable units, adjusted for currency effects, increased by 19%. Early internal market data indicates that we increased market share in mobile network equipment by 6 percentage points to 38%. This makes us the world leader, twice as big as the second largest player. We gained market share through our strategy to capture footprint when networks are modernized in Europe, by preserving our relationships with the most successful operators and by gaining market share with new customers. During the year, we announced the acquisition of Telcordia, a leading player in OSS and BSS. We also announced the divestment to Sony Corporation of our share in the 50/50 joint venture Sony Ericsson. The transaction is a logical strategic step that makes it possible for us to focus on enabling connectivity for all devices, handsets and beyond.

Gross margin declined due to a changed business mix with more coverage projects, modernization projects in Europe, and a higher share of services sales. Net income increased to SEK 12.6 billion. Our JVs had a tough 2011 and both reported losses. Ericsson has a strong financial position with a net cash position of SEK 39.5 billion.

Solid industry fundamentals

We carefully monitor the potential impact from increased economic uncertainties around the world. Short-term, we expect operators to continue to be cautious with spending, reflecting factors such as macroeconomic and political uncertainty.

With the move towards the networked society, we remain confident that the fundamentals for longer-term positive development in the industry remain solid. With strong customer relationships and one of the world’s largest and best pools of industry talent, we believe Ericsson is well positioned to continue to drive and to benefit from this development.

Hans Vestberg

President and CEO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

FINANCIAL RESULTS IN SHORT

LOGO

NET SALES

SEK 226.9 (203.3) billion, +12%

OPERATING MARGIN¹⁾

9.6% (12.0%)

NET INCOME

SEK 12.6 (11.2) billion, +12%

NET CASH²⁾

SEK 39.5 (51.3) billion

CASH AND CASH EQUIVALENTS

SEK 38.7 (30.9) billion

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

EPS³⁾

SEK 3.77 (3.46), +9%

DIVIDEND⁴⁾

SEK 2.50 (2.25), +11%

1)	Excl. share in earnings of JVs. For 2011 incl. restructuring charges of SEK 3.2 billion and for 2010 excl. restructuring charges of SEK 6.8 billion.

2)	Cash and cash equivalents plus short-term investments less interest-bearing liabilities and post-employment benefits. For a reconciliation to the most directly comparable IFRS measures, see page 242–245.

3)	EPS diluted, SEK.

4)	Dividend for 2011 as proposed by the Board of Directors.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

THE MARKET

TELECOM TRENDS

Everything is going mobile. This evolution is driven by video, cloud-based services, the internet and machine-to-machine (M2M) connectivity. It changes how consumers behave and how they leverage mobility to communicate and to improve their daily lives, through existing and new services. Users now demand connectivity anywhere and anytime.

Enterprises are also beginning to exploit the new opportunities provided by mobility, both to improve efficiency, such as by streamlining processes, and to find new business models.

Important driving forces are new, more affordable smartphones, and the many new connected devices on the market. The total number of mobile subscriptions globally (excluding M2M) reached approximately 6 billion at year end 2011, of which close to 1 billion were for mobile broadband. Approximately 30% of all handsets sold during 2011 were smartphones compared to around 20% for 2010. Out of the installed base of subscriptions worldwide only around 10% use smartphones.

Globally, the average mobile PC user currently generates about 2 Gbytes of data per month, while a high-traffic smartphone user generates approximately 500 Mbytes per month. Usage has been increasing over time. With all these devices and 24/7 connectivity, we expect global mobile data traffic to grow tenfold by the end of 2016.

Operators are capitalizing on this changing market, enabling users and machines to leverage connectivity in new ways. During 2011 various operators started to introduce tiered pricing, to provide price plans, such as volume, time or speed-based plans, which are better aligned to users’ needs. As a result of that, operators are able to create various business models to capitalize on different consumer and enterprise segments.

In order to enable these new services, improve user experience and provide tiered pricing, operators are investing in and transforming their operations and business support systems (OSS and BSS). These systems monitor and optimize network performance for customer relations handling and subscriber support. OSS/BSS investments also enable operators to optimize operations and reduce costs.

To accommodate for the increase in data traffic, operators are putting in new equipment and upgrading their networks for greater efficiency and better revenue capture. Network capacity can be increased through additional features, such as software upgrades, as well as through additional equipment, such as radio base stations and transmission.

In today’s competitive markets, speed and capacity alone are not enough to ensure best user experience and provide differentiation. Quality of service is becoming an important way for operators to differentiate.

OUR CUSTOMERS

Our business is defined by long-term relationships mainly with large telecom operators around the world. We serve approximately 400 customers, most of whom are network operators. Our ten largest customers, of which half are multinational, account for 44% of net sales. Our customers operate in a wide range of local economies and are at various technology stages. They have different business focuses depending on the maturity of the mobile broadband market.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

We set up a new go-to-market model in 2010, with ten regions which approach customers with solutions and services. With this, we are moving towards a solutions-led sales approach, selling the full breadth of the portfolio.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

OUR BUSINESS

Our mission is to innovate to empower people, business and society. We are a world-leading provider of network infrastructure, telecom services and multimedia solutions, which in combination meet a broad range of operator needs. To best reflect our business, we report five business segments, two of which are the joint ventures Sony Ericsson and ST-Ericsson.


	NETWORKS	GLOBAL SERVICES	MULTIMEDIA

	Segment Networks develops and delivers mobile and fixed infrastructure equipment and software. We are a market leader in 2G/GSM and 3G/WCDMA mobile technologies. We now provide all-IP 4G/LTE networks as the evolution of mobile broadband. Our portfolio also includes CDMA solutions, as well as xDSL, fiber and microwave transmission.	With more than 56,000 services professionals globally, we deliver managed services, consulting and systems integration, customer support and network rollout. We manage complex projects with advanced IS/IT competence and multi-vendor experience, using a mix of local knowledge and global expertise.	Segment Multimedia develops and delivers software-based solutions for operations and business support systems (OSS and BSS), real-time, multi-screen and on-demand TV and consumer and business applications. Revenue management, i.e. software based solutions for charging and billing, is part of BSS.

NET SALES (SHARE OF TOTAL)	SEK 132.4 billion (58% of total sales)	SEK 83.9 billion (37% of total sales)	SEK 10.6 billion (5% of total sales)

MARKET SHARE ESTIMATES	38% in mobile network equipment. Twice the size of the second largest competitor	More than 10%. Larger than any of our competitors	Three markets with different dynamics and players

MARKET POSITION	Number 1 in mobile networks	Number 1 in telecom services	Number 1 in real-time charging & billing

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

JOINT VENTURES

Our joint ventures focus on enabling superior user devices. Sony Ericsson’s and ST-Ericsson’s results are reported according to the equity method.

In October 2011, we announced that Sony would acquire Ericsson’s 50% share in Sony Ericsson. The transaction took place on February 15, 2012.


	SONY ERICSSON	ST-ERICSSON
	A 50/50 joint venture with Sony Corporation, Sony Ericsson offers mobile phones, accessories, content and applications.	A 50/50 joint venture with STMicroelectronics, ST-Ericsson offers wireless platforms and semiconductors for leading handset manufacturers.

NET SALES	EUR 5,212 million	USD 1,650 million

MARKET POSITION	10% market share in the Android smartphone market	Number 3 in thin modems

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

HOW WE STAY AHEAD

PRINCIPLES

We interact with our customers based on the following principles:

•

A customer-first perspective: we work hard to understand operators’ needs, objectives and constraints. This allows us to function as a partner, sharing our global expertise through the solutions we deliver.

•

Innovation: our solutions are forward-looking and future proof. A scalable portfolio means that we can always offer the right solutions for the customer, based on market and position, helping our customers to create new revenue streams.

•

Delivering cost-efficiency: we ensure that the solutions we offer reduce our customers’ operating expenses.

ASSETS

Throughout our business, we leverage Ericsson’s key competitive advantages:

•

Technology leadership: we always strive to lead, innovate and set the agenda for the industry. We drive the creation of interoperable ecosystems. We have 30,000 granted patents and with over 90 license agreements we are a net receiver of royalties. We provide superior-performance networks through a unique combination of hardware and software design.

•

Services leadership: we have 56,000 services professionals worldwide operating from our ten regional service centers and four global service centers, using the same processes, methods and tools. Combining global scale advantages with local presence is what makes us unique.

•

Global presence and scale: we have established relationships with every major operator in the world and we are present in more than 180 countries.

Building coverage—transforming networks

Extensive mobile network coverage forms the building blocks of operator business. We start by helping customers to build out coverage. When that is in place, we offer additional services and solutions that enable expansions and enhancements of the network.

This means that once operators have built a base of subscribers, they can differentiate their services, based both on quality and innovation, to retain competitive positions as markets develop.

Replicating success in services

We scale our business by replicating successes globally. This entails working closely with customers to develop new solutions. Once a successful case is proven we can roll out the same practice all over the world.

Local competence, with intimate knowledge of the business environment, works hand-in-hand with global expertise, sharing common processes, methods and tools. This ensures quality and efficiency.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

GROWTH LEVERS

We have identified three key levers for growth where we believe we have strong assets to meet market demand:

•

Portfolio momentum: focusing on the areas where we have the most growth potential. These are mobile broadband, managed services and OSS and BSS. We expect the majority of growth to come from portfolio momentum.

•

Market share gain: building presence in markets that are investing more and where we see technology shifts.

•

Mergers, acquisitions and partnering: filling portfolio gaps and entering new growth areas, such as connected devices.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

OPERATOR PORTFOLIO

Our offering is divided into seven solution areas, each of which involves one or more of our businesses. Many of our contracts involve several solution areas. For example, services often form an important part of network projects.

MOBILE BROADBAND

Increasing user demands

Mobile broadband now accounts for approximately 15% of all mobile subscriptions. Mobile data traffic is expected to have more than doubled in 2011, mainly due to new smartphone launches and the uptake of apps. PC and tablet users generate even more data traffic, and total mobile data traffic is estimated to grow tenfold by end of 2016, mainly driven by video.

Operators need to put certain pre-requisites in place to ensure they can capitalize on mobile broadband. These include enhancing network quality, by increasing speed and capacity, and providing service differentiation.

3G/WCDMA and 4G/LTE

We expect 3G/WCDMA to be the predominant mobile broadband technology for many years to come. During the year, we demonstrated a new HSPA world speed record in a commercial network, at 168Mbps downlink. Operators will be able to take a stepped approach towards this from 42Mbps, currently the fastest service offered over commercial networks.

The next technology is LTE, which is in its initial phase. LTE covers only a few percent of the world’s population today. In five years’ time, it is expected that LTE will have roughly 35% population coverage.

The RBS 6000 family

The multi-standard radio base station RBS 6000 supports GSM/EDGE, WCDMA/HSPA, LTE and CDMA in a single unit. It offers cost-effective deployment and a future-proof evolution in capacity and functionality.

The RBS 6000 family now accounts for close to 100% of our radio base station deliveries. A typical deployment project, comprising mainly hardware, is followed by an upgrade and expansion phase, which involves mostly software and services. During 2011 we launched the Antenna Integrated Radio (AIR), as part of the RBS 6000 family. This product significantly reduces integration and installation time as well as energy consumption.

MULTI-STANDARD RBS 6000

GSM, WCDMA, LTE, CDMA

>1,000% more capacity

>20% better radio performance

80% lower energy consumption per subscriber

100% better MTBF*

75% less space needed

Compared to previous generations.

* Mean Time Between Failures

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Smart Services Routers

Network performance is the key operator differentiator when it comes to user experience. In 2011, we launched the SSR 8000 family, a series of Smart Services Routers. They support delivery of services across fixed and mobile networks and enable faster introduction of new user services. For operators, the SSR 8000 family provides a simple, smart and scalable solution. For users, it means access to advanced services, with telecom-grade quality from any device anywhere.

Heterogeneous networks (HetNets)

By 2016, densely populated urban areas representing less than 1% of the Earth’s total land area are expected to generate around 60% of total mobile traffic. In order to increase network capacity in these areas, we will build HetNets. Powerful macro radio base stations are complemented by smaller radio base stations (pico and micro) which provide extra capacity for areas where demand is particularly high.

LOGO

MANAGED SERVICES

Telecom operators look to reduce costs and manage complexity. Therefore, they review their business models and look for partners that can take on a broader responsibility. In managed services agreements, Ericsson handles complex issues such as convergence, quality and capacity management, while freeing up operators’ resources to focus more on strategy, marketing and customer care. We can also help operators to scale quickly and cost-effectively.

We manage networks with a total of more than 900 million subscribers, of which 500 million are in network operation contracts. Winning this business has involved insourcing employees from operators around the world. This provides us with a unique insight into the operator mindset.

The networks we manage are typically complex multi-vendor, multi-technology environments, and over 50% of the equipment involved is non-Ericsson. Managed services contracts normally span five to seven years and often involve operational and process consulting.

We provide efficiency by drawing on our global scale. Our four global service centers all house global network operation centers (GNOCs) for remote delivery of network management. These are based in Romania, India, Mexico and China. As an example, more than 20 European operator networks are run from the GNOC in Romania.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Shared networks and shared capacity

To drive structural efficiencies in the networks, there is an increasing demand for business models that support shared networks and capacity between two or more operators. Managed services play a decisive role in this evolution.

Adjacent sectors

We also address sectors with similar requirements to telecom operators where we can reuse our assets and expertise. We constantly look to expand operational synergies by increasing the scope of our managed services business in each country where we operate.

OPERATIONS AND BUSINESS SUPPORT SYSTEMS

Service differentiation

In order to monetize the increasing amount of data traffic in their networks, operators are beginning to adopt new business models with tiered pricing plans. This involves finding more ways to meet user needs than one-size-fits-all monthly subscriptions. Operators introduce ‘buckets’ of data—a fixed quantity that a user can utilize over a certain amount of time—or different speeds and quality guarantees. These new business models often require operators to evolve their OSS and BSS solutions.

Operators also seek to manage increasing network complexity, while retaining efficiency and simplicity in operational processes, by consolidating their systems. These OSS and BSS transformation projects are large undertakings which involve consulting and systems integration alongside the provision of our software solutions.

Control and monitoring

Ericsson’s operations support systems (OSS) include solutions for monitoring network performance and the delivery of services for best user experience. OSS tools are also used in the planning, building and optimization of networks.

During 2011, Ericsson announced the acquisition of Telcordia, a provider of software and services for OSS and BSS. This allows us to enhance our capabilities to handle multi-vendor systems.

Provisioning and charging

Our business support systems (BSS) include solutions for revenue management and customer care. With our convergent real-time charging solution the user gets one invoice for all services. Over 1.4 billion subscribers are charged and billed through Ericsson’s systems.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

With our solutions, operators can more efficiently capture and secure revenue streams. Users benefit too, gaining the ability to start using a new service or device immediately after signing up, as well as greater control over their spending.

LOGO

COMMUNICATION SERVICES

Communication services are the services people use to interact with each other, such as voice and video calls as well as text and multimedia messaging. These operator-based services are provided globally and are based on industry standards, ensuring interoperability.

Users expect their communication services to provide a seamless, instantaneous experience across all devices and all subscriptions. This shift requires operators to provide new functionality and richer offerings.

Enhancing user experience

Voice still accounts for, on average, 65% of operator revenue. Operators now exploit opportunities to enhance user experience while reducing costs for voice communication. Our IP Multimedia Subsystem (IMS) makes this possible. Services controlled by IMS are voice (including HD voice), video calls, the Rich Communication Suite (RCS) and messaging.

HD voice

HD voice significantly improves quality of voice communication with more natural sound and improved intelligibility. It is expected to play a key role in ensuring that voice continues to provide revenue streams for operators of both fixed and mobile networks.

Voice over LTE

Currently in its trial stage, Voice over LTE (VoLTE) will enable operators to offer voice services over their all-IP LTE networks. It also brings with it new services such as HD video and richer multimedia services.

FIXED BROADBAND AND CONVERGENCE

Strong growth in data traffic drives a need for higher capacity solutions, based on IP and Ethernet technologies.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Operators compete by evolving their networks to provide fast internet speeds, reliable high-definition IPTV and video on demand. We enable this by providing end-to-end broadband access solutions via high-speed fiber (such as GPON) and copper (xDSL).

Convergence and transformation

To reduce cost and enable service bundling, fixed traffic can be provided over a multiservice network converging telephony, internet and TV. Our converged networks are IP-based, providing lower-cost and higher-performance services.

TELEVISION AND MEDIA MANAGEMENT

TV is going digital and interactive

In the converging media landscape, broadcast and broadband are coming together. The number of IPTV subscriptions worldwide is now more than 50 million. China, France and the US have particularly high IPTV subscription numbers today. We believe that the uneven spread of IPTV subscriptions in different regions is going to continue.

The worldwide digital TV market is growing rapidly. With a broad suite of open standards-based products, we offer high-quality solutions for digital TV, HDTV, video on demand, IPTV, mobile TV, connected home and content management.

High-performance solutions

High-performance video means large amounts of traffic in the networks. This can be handled with our media distribution solution for video delivery over IP, combining a content distribution network with our TV portfolio.

Our IPTV network infrastructure offers a verified end-to-end solution from video headend to broadband access, optimized for multi-stream HD-IPTV and on-demand video services. The solution also offers support for video to mobile handsets over HSPA and LTE networks.

Ericsson’s multiscreen TV solution combines the full features of IPTV, mobile TV and web TV with a common user interface. It fully integrates fixed line and wireless media for the first time.

Business consulting, systems integration and implementation ensure a smooth launch of new TV infrastructure and services.

CONSUMER AND BUSINESS APPLICATIONS

In today’s environment, basic services come under pressure from competition. To secure differentiation and profitability, we help operators to enhance revenues and subscriber retention. Our solutions include messaging, service exposure, connectivity to social media, location-based services, media, brokering, internet commerce and enterprise applications.

Interaction and collaboration

Our Business Communication Suite (BCS) is a software-as-a-service, targeting the enterprise market. It enables the sharing of voice, data and messaging in a collaborative environment.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Ericsson Money Services offers end-to-end mobile financial services. It enables people to store, transfer and withdraw money, as well as making payments, via their mobile handsets.

Our multimedia brokering solution facilitates payment and distribution of content. We act as the interface between enterprises and multiple mobile operators with consumer data and services such as SMS.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

2011 HIGHLIGHTS

JANUARY-MARCH

•

World speed record on a commercial HSPA network is set, at 168Mbps downlink and 24Mbps in the uplink.

•

Ericsson is selected by Telefónica O2 UK to perform network modernization in the North of the UK.

•

du in the UAE signs a five-year managed services contract with Ericsson to deliver application development and maintenance for its IT application landscape.

•

Ericsson, Verizon Wireless and Samsung demonstrate Voice over LTE (VoLTE), a global, interoperable voice solution for LTE mobile broadband networks.

•

The new Antenna Integrated Radio (AIR) product is launched. It cuts operational costs substantially and ensures a smooth introduction of new technologies and frequency bands.

•

Ericsson announces a new generation IP networking portfolio. The first product is the Smart Services Router (SSR 8000) family for fixed and mobile broadband.

•

Akamai and Ericsson announce a strategic alliance, focused on bringing to market mobile cloud acceleration solutions.

APRIL-JUNE

•

Ericsson announces the acquisition of Telenor Connexion’s M2M technology platform, a solution which will drive the market for M2M (machine-to-machine).

•

Ericsson signs a multi-year agreement with Rogers, Canada to deliver an end-to-end LTE network.

•

Clearwire in the US selects Ericsson for managed services: network engineering, operations and maintenance for core, transmission and access networks.

•

Ericsson’s first contract in the gaming industry is awarded by Mindark. The IMS solution enables live, high-quality voice communication between players while gaming.

•

Ericsson announces the acquisition of Telcordia, a global provider of OSS/BSS software and services.

•

LG U+, the first LTE service provider in Korea, places a contract with Ericsson to build an ultra-high speed LTE network.

JULY-SEPTEMBER

•

Bharti Airtel signs a five-year managed services agreement with Ericsson to manage and optimize its mobile networks in Africa, as well as a separate two-year network coverage and upgrade contract.

•

A consortium of technology companies, of which Ericsson is a part, wins the bid for all of Nortel’s approximately 6,000 remaining patents and patent applications.

•

SoftBank Mobile in Japan chooses Ericsson as sole supplier for next-generation packet core network (EPC) based on IP.

•

Slovak Telekom, part of the Deutsche Telekom Group signs a five-year fixed line managed-services contract with Ericsson for field maintenance and network operations.

•

MobiFone in Vietnam signs a contract with Ericsson for mobile video optimization, enabling high-quality video.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

•

Ericsson announces a contract with Taiwan’s Chunghwa Telecom to deploy and integrate a new IPTV platform that will deliver multi-screen interactive multimedia services.

•

Ericsson announces further investment in competence in the global service center in India, providing operators with support and operations of IT services.

•

EastLink, Canada selects Ericsson to build a mobile broadband network for HSPA+.

OCTOBER-DECEMBER

•

Augere awards India’s first 4G/TD-LTE contract to Ericsson. The agreement includes an end-to-end TD-LTE solution, managed services and network operations.

•

Ericsson and Open Mobile sign Latin America’s first 4G/LTE contract in Puerto Rico. The deal also includes managed services.

•

Ericsson and Sony announce that Sony will acquire Ericsson’s 50% stake in Sony Ericsson.

•

Bharti Airtel renews and expands its managed services agreement with Ericsson for its operations in India. Under the five-year agreement, Ericsson will operate, maintain and provide services for 2G and 3G in Bharti Airtel’s multi-vendor network in India.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

FIVE-YEAR SUMMARY

For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.

FIVE-YEAR SUMMARY


SEK million	2011			Change			2010			2009			2008			2007

Income statement items
Net sales		226,921			12	%		203,348			206,477			208,930			187,780
Operating income		17,900			9	%		16,455			5,918			16,252			30,646
Financial net		221			—			–672			325			974			83
Net income		12,569			12	%		11,235			4,127			11,667			22,135

Year-end position
Total assets		280,349			–1	%		281,815			269,809			285,684			245,117
Working capital as defined¹⁾		109,552			4	%		105,488			99,079			99,951			86,327
Capital employed as defined¹⁾		186,307			2	%		182,640			181,680			182,439			168,456
Gross cash as defined¹⁾		80,542			–8	%		87,150			76,724			75,005			57,716
Net cash as defined¹⁾		39,505			–23	%		51,295			36,071			34,651			24,312
Property, plant and equipment		10,788			14	%		9,434			9,606			9,995			9,304
Stockholders’ equity		143,105			–1	%		145,106			139,870			140,823			134,112
Non-controlling interest		2,165			29	%		1,679			1,157			1,261			940
Interest-bearing liabilities and post-employment benefits		41,037			14	%		35,855			40,653			40,354			33,404

Other information
Earnings per share, basic, SEK		3.80			9	%		3.49			1.15			3.54			6.87
Earnings per share, diluted, SEK		3.77			9	%		3.46			1.14			3.52			6.84
Cash dividends per share, SEK		2.50	²⁾		11	%		2.25			2.00			1.85			2.50
Stockholders’ equity per share, SEK		44.57			–2	%		45.34			43.79			44.21			42.17

Number of shares outstanding (in millions)
end of period, basic		*3,211*			—			3,200			3,194			3,185			3,180
average, basic		*3,206*			—			3,197			3,190			3,183			3,178
average, diluted		*3,233*			—			3,226			3,212			3,202			3,193
Additions to property, plant and equipment		4,994			35	%		3,686			4,006			4,133			4,319
Depreciation and write-downs/impairments of property, plant and equipment		3,546			8	%		3,296			3,502			3,105			2,914
Acquisitions/capitalization of intangible assets		2,748			—			7,246			11,413			1,287			29,838
Amortization and write-downs/impairments of intangible assets		5,490			–18	%		6,657			8,621			5,568			5,459
Research and development expenses		32,638			3	%		31,558			33,055			33,584			28,842
as percentage of net sales		*14.4*	%		—			15.5	%		16.0	%		16.1	%		15.4	%

Ratios
Operating margin excluding joint ventures		9.6	%		—			8.7	%		6.5	%		8.0	%		12.5	%
Operating margin		7.9	%		—			8.1	%		2.9	%		7.8	%		16.3	%
EBITA margin as defined¹⁾		9.9	%		—			11.0	%		6.7	%		9.4	%		18.0	%
Cash conversion		40	%		—			112	%		117	%		92	%		66	%
Return on equity as defined¹⁾		8.5	%		—			7.8	%		2.6	%		8.2	%		17.2	%
Return on capital employed as defined¹⁾		11.3	%		—			9.6	%		4.3	%		11.3	%		20.9	%
Equity ratio		51.8	%		—			52.1	%		52.3	%		49.7	%		55.1	%
Capital turnover		1.2			—			1.1			1.1			1.2			1.2
Inventory turnover days		78			—			74			68			68			70
Trade receivables turnover		3.6			—			3.2			2.9			3.1			3.4
Payment readiness, SEK million		86,570			–11	%		96,951			88,960			84,917			64,678
as percentage of net sales		*38.1*	%		—			47.7	%		43.1	%		40.6	%		34.4	%

Statistical data, year-end
Number of employees		104,525			16	%		90,261			82,493			78,740			74,011
of which in Sweden		*17,500*			–2	%		17,848			18,217			20,155			19,781
Export sales from Sweden, SEK million		116,507			16	%		100,070			94,829			109,254			102,486

1)	These financial measures as defined by us may constitute non-IFRS measures. For a reconciliation to the most directly comparable IFRS measures, see pages 242–245.

2)	For 2011, as proposed by the Board of Directors.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

SHARE INFORMATION

STOCK EXCHANGE TRADING

The Ericsson Class A and Class B shares are listed on NASDAQ OMX Stockholm. In the United States, the Class B shares are listed on NASDAQ New York in the form of American Depositary Shares (ADS) evidenced by American Depositary Receipts (ADR) under the symbol ERIC. Each ADS represents one Class B share.

In 2011, approximately 6 (6) billion Ericsson shares were traded, of which about 3.4 billion were traded on NASDAQ OMX Stockholm and about 1.6 billion were traded on NASDAQ New York. Trading volume in Ericsson shares decreased by approximately 2% on NASDAQ OMX Stockholm and decreased by approximately 2% on NASDAQ New York compared to 2010.

(Note: The approximate total volumes include trading on alternative trading venues such as BATS Europe, Burgundy, Chi-X Europe.)

THE ERICSSON SHARE


Share listings
NASDAQ OMX Stockholm
NASDAQ New York

Share data
Total number of shares in issue			3,273,351,735
of which Class A shares			261,755,983
of which Class B shares			3,011,595,752
Ericsson treasury shares, Class B			62,846,503
Quotient value			SEK 5.00
Market capitalization, December 31, 2011			approx. SEK 230 b.
GICs (Global Industry Classification)			45201020

Ticker codes
NASDAQ OMX Stockholm			ERIC A
			ERIC B
NASDAQ New York			ERIC
Bloomberg NASDAQ OMX Stockholm			ERICA SS
			ERICB SS
Bloomberg NASDAQ			ERIC US
Reuters NASDAQ OMX Stockholm			ERICa.ST
			ERICb.ST
Reuters NASDAQ			ERIC.O

ISIN
ERIC A			SE0000108649
ERIC B			SE0000108656
ERIC			US2948216088
CUSIP			294821608

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

CHANGES IN NUMBER OF SHARES AND CAPITAL STOCK 2007–2011


		Number of shares		Share capital
2007	December 31		16,132,258,678		16,132,258,678
2008	June 2, reverse split 1:5		3,226,451,735		16,132,258,678
2008	July 23, new issue (Class C shares, later converted to Class B)		19,900,000		99,500,000
2008	December 31		3,246,351,735		16,231,758,678
2009	June 8, new issue (Class C shares, later converted to Class B)		27,000,000		135,000,000
2009	December 31		3,273,351,735		16,366,758,678
2010	December 31		3,273,351,735		16,366,758,678
2011	December 31		3,273,351,735		16,366,758,678

SHARE PERFORMANCE INDICATORS


	2011		2010		2009		2008		2007¹⁾
Earnings per share, diluted (SEK)²⁾		3.77		3.46		1.14		3.52		6.84
Stockholders’ equity per share, basic, end of period (SEK)³⁾		44.57		45.34		43.79		44.21		42.17
P/E ratio		19		22		57		17		11
Total shareholder return (%)		–7		22		15		–20		–43
Dividend per share (SEK)⁴⁾		2.50		2.25		2.00		1.85		2.50

1)	2007 restated for reverse split 1:5 in 2008.

2)	Calculated on average number of shares outstanding, diluted.

3)	Calculated on number of shares, end of period.

4)	For 2011 as proposed by the Board of Directors.

For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.

SHARE TREND

In 2011, Ericsson’s total market capitalization decreased by about 10% to SEK 230 billion, compared to an increase by 18% reaching SEK 255 billion in 2010. The OMX Stockholm Index on NASDAQ OMX Stockholm decreased by 17% and the NASDAQ composite index decreased by 2%. The S&P 500 Index remained at the same level as in 2010.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

OFFER AND LISTING DETAILS

Principal trading market—NASDAQ OMX Stockholm—share prices

The table below states the high and low share prices for our Class A and Class B shares as reported by NASDAQ OMX Stockholm for the last five years. Trading on the exchange generally continues until 5:30 p.m. (CET) each business day. In addition to trading on the exchange there is also trading off the exchange and on alternative venues during trading hours and also after 5:30 p.m. (CET).

NASDAQ OMX Stockholm publishes a daily Official Price List of Shares which includes the volume of recorded transactions in each listed stock, together with the prices of the highest and lowest recorded trades of the day. The Official Price List of Shares reflects price and volume information for trades completed by the members. The equity securities listed on the NASDAQ OMX Stockholm Official Price List of Shares currently comprise the shares of 259 companies.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Host market NASDAQ New York—ADS prices

The table below states the high and low share prices quoted for our ADSs on NASDAQ New York for the last five years. The NASDAQ New York quotations represent prices between dealers, not including retail mark-ups, markdowns or commissions, and do not necessarily represent actual transactions.

SHARE PRICES ON NASDAQ OMX STOCKHOLM


(SEK)	2011		2010		2009		2008		2007¹⁾
Class A at last day of trading		69.55		74.00		65.00		59.30		76.80
Class A high (May 16, 2011)		93.60		88.40		78.80		83.60		148.50
Class A low (October 4, 2011)		59.05		65.20		55.40		40.60		73.00
Class B at last day of trading		70.40		78.15		65.90		58.80		75.90
Class B high (May 12, 2011)		96.65		90.45		79.60		83.70		149.50
Class B low (October 4, 2011)		61.70		65.90		55.50		40.60		72.65

1)	2007 restated for reverse split 1:5 in 2008.

SHARE PRICES ON NASDAQ NEW YORK


(USD)	2011		2010		2009		2008		2007¹⁾
ADS at last day of trading		10.13		11.53		9.19		7.81		11.68
ADS high (May 10, 2011)		15.44		12.39		10.92		14.00		21.71
ADS low (October 4, 2011)		8.83		9.40		6.60		5.49		11.12

1)	2007 restated for reverse split 1:5 in 2008.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

SHARE PRICES ON NASDAQ OMX STOCKHOLM AND NASDAQ NEW YORK


	NASDAQ OMX Stockholm								NASDAQ New York
	SEK per Class A share				SEK per Class B share				USD per ADS¹⁾
Period	High		Low		High		Low		High		Low
Annual high and low
2007²⁾		148.50		73.00		149.50		72.65		21.71		11.12
2008		83.60		40.60		83.70		40.60		14.00		5.49
2009		78.80		55.40		79.60		55.50		10.92		6.60
2010		88.40		65.20		90.45		65.90		12.39		9.40
2011		93.60		59.05		96.65		61.70		15.44		8.83

Quarterly high and low
2010 First Quarter		78.70		65.20		80.00		65.90		11.33		9.40
2010 Second Quarter		88.40		73.00		90.45		74.15		12.39		9.51
2010 Third Quarter		86.55		69.00		89.35		70.85		12.20		9.62
2010 Fourth Quarter		77.05		66.95		79.95		68.85		11.71		9.96
2011 First Quarter		80.05		70.50		83.00		73.25		13.06		10.99
2011 Second Quarter		93.60		73.00		96.65		75.30		15.44		12.06
2011 Third Quarter		91.80		60.50		93.80		63.15		14.82		9.33
2011 Fourth Quarter		71.50		59.05		72.55		61.70		11.25		8.83

Monthly high and low
August 2011		78.50		60.80		81.40		63.15		12.75		10.08
September 2011		70.10		60.50		73.30		63.65		11.51		9.33
October 2011		69.95		59.05		72.20		61.70		11.25		8.83
November 2011		71.25		62.00		72.55		64.35		10.88		9.16
December 2011		71.50		65.60		71.85		64.75		10.54		9.27
January 2012		72.00		59.25		71.90		58.15		10.53		8.58
February 2012		68.00		62.10		67.90		61.90		10.39		9.14
March 2012		69.80		62.95		69.95		62.70		10.46		9.15

1)	One ADS = 1 Class B share.

2)	2007 restated for reverse split 1:5 in 2008.

SHAREHOLDERS

As of December 31, 2011, the Parent Company had 592,542 shareholders registered at Euroclear Sweden AB (the Central Securities Depository—CSD), of which 1,320 holders had a US address. According to information provided by Citibank, there were 211,822,341 ADSs outstanding as of December 31, 2011, and 4,702 registered holders of such ADSs. A significant number of Ericsson ADSs are held by banks, broker and/or nominees for the accounts of their customer. As of January 12, 2012, the total number of bank, broker and/or nominee accounts holding Ericsson ADSs was 168,430.

According to information known at year-end 2011, approximately 80% of our Class A and Class B shares were owned by institutions, Swedish and international.

Our major shareholders do not have different voting rights than other shareholders holding the same classes of shares.

As far as we know, the Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person(s) separately or jointly.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

THE EXECUTIVE LEADERSHIP TEAM AND BOARD MEMBERS, OWNERSHIP


	Number of Class A shares		Number of Class B shares		Voting rights, percent
The Executive Leadership Team and Board members as a group (32 persons)		750		3,712,484		0.07

For individual holdings, see Corporate Governance Report.

The table shows the total number of shares in the Parent Company owned by the Executive Leadership Team and Board members (including Deputy employee representatives) as a group as of December 31, 2011.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

The following table shows share information, as of December 31, 2011, with respect to our 15 largest shareholders, ranked by voting rights, as well as percentage of voting rights as of December 31, 2011, 2010 and 2009.

LARGEST SHAREHOLDERS, DECEMBER 31, 2011 AND PERCENTAGE OF VOTING RIGHTS, DECEMBER 31, 2011, 2010 AND 2009


Identity of person or group¹⁾	Number of Class A shares		Of total Class A shares, percent		Number of Class B shares		Of total Class B shares, percent		2011 Voting rights, percent		2010 Voting rights, percent		2009 Voting rights, percent
Investor AB		115,018,707		43.94		58,709,995		1.95		21.48		19.33		19.33
AB Industrivärden		80,708,520		30.83		0		0.00		14.34		13.80		13.62
Handelsbankens Pensionsstiftelse		23,648,790		9.03		0		0.00		4.20		3.52		3.52
Swedbank Robur Fonder AB		1,501,376		0.57		141,913,401		4.71		2.79		2.73		3.07
AFA Försäkring AB		11,423,000		4.36		15,779,975		0.52		2.31		0.45		0.47
Blackrock Fund Advisors		26,316		0.01		82,156,094		2.73		1.46		1.44		1.81
Pensionskassan SHB Försäkringsförening		7,798,000		2.98		0		0.00		1.39		2.07		2.25
Skandia Liv		6,327,567		2.42		13,372,958		0.44		1.36		2.98		3.02
AMF Pensionsförsäkring AB		0		0.00		75,600,000		2.51		1.34		1.34		1.30
Norges Bank Investment Management		0		0.00		69,572,027		2.31		1.24		0.89		0.89
OppenheimerFunds, Inc.		0		0.00		67,628,249		2.25		1.20		1.29		1.29
Aberdeen Asset Managers Ltd.		0		0.00		58,953,636		1.96		1.05		1.01		0.71
Dodge & Cox, Inc.		0		0.00		54,067,771		1.80		0.96		1.43		1.05
Handelsbanken Fonder AB		0		0.00		54,063,621		1.80		0.96		1.05		0.94
SEB Investment Management AB		119,860		0.05		48,162,614		1.60		0.88		0.99		0.89
Others		15,183,847		5.80		2,271,615,411		75.43		43.05		45.68		45.84

Total		261,755,983		100.00		3,011,595,752		100.00		100.00		100.00		100.00

1)	Source: Capital Precision.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LETTER FROM LEIF JOHANSSON

Dear shareholders,

Thank you for electing me Chairman of the Board of Ericsson. I have spent my first year here improving my understanding of Ericsson’s competitive advantages.

With my engineering background and passion for the field, I thought I had a reasonably good understanding of how a mobile network operates. Over the past year, I have been fascinated to realize that the architecture of a mobile system is much deeper and more complex than I imagined. This is especially true in areas where mobile systems connect with the internet. Ericsson has managed to strengthen its leading position in this industry which proves the Company’s unique technology leadership.

Ericsson is not only a high-tech, skilled software and engineering company. The Company also has genuine skills in broader communication systems, processes and of course services operations. The Board is pleased that Ericsson emerged from 2011 as a stronger competitor and with its clear vision on how to be part of and where to take the industry, Ericsson is positioned to continue to be its global thought leader.

Close to the customer

Over the past year, the Board of Directors has spent time reviewing Ericsson’s strategy as well as the development of the industry. Key topics have included how telecom operators’ business models are transforming, with new traffic patterns, driven by devices such as smartphones and tablets. Another important topic has been how our organizational structure can secure that Ericsson always stays close to the customer. A key competitive advantage for Ericsson is its ability to really understand and support telecom operators in developing their business models and optimizing their assets.

The economic environment, and its potential impact on Ericsson and its customers, has of course also been a part of our meetings. It is important for the Board of Directors to follow the contingency plans that the management team has prepared to be able to adapt quickly to tougher times when needed. We are confident that such plans are in place and operating where appropriate.

Divestment of Sony Ericsson

In 2011, we took the decision to divest our 50% share in Sony Ericsson to Sony Corporation. The transaction is a logical strategic step that makes it possible for Ericsson to focus on enabling connectivity for all devices.

The Board of Directors continued to monitor the Company’s remuneration principles during the year. We believe that Ericsson has a well-balanced and competitive compensation structure which rewards performance. At the Annual General Meeting 2011 the incentive targets for the Executive Performance Stock Plan were changed. They now relate to top-line growth as well as operating income and cash flow performance. This Performance Plan runs for three years, so it is too early to evaluate it. However, our impression is that the Plan targets are clear, relevant and have the desired effect of focusing everyone on the same key goals for Ericsson.

Strong financial position

An essential part of the Board’s responsibilities is to manage the Company’s financial position. The Company has a strong balance sheet today and we believe it is appropriate to be fairly conservative under the present economic conditions. We want to use cash on hand to further develop the Company, making investments

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

in own product and business development. In addition, we will, as before, consider selective acquisitions. The Company’s dividend policy takes into account last year’s earnings and balance sheet structure, as well as coming years’ business plans and economic development.

I have greatly enjoyed my first year at Ericsson. I have been kindly welcomed and I have liked interacting with everyone at Ericsson. It is never by chance that companies become successful. I am impressed with the professionalism and perseverance I have found among Ericsson people and want to thank all of them for their dedication and hard work.

Leif Johansson

Chairman of the Board

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

BOARD OF DIRECTORS’ REPORT

TARGETS AND PERFORMANCE

The non-IFRS financial measures presented herein are not recognized measures of financial performance under IFRS, but rather are measures reported to facilitate analysis by indicating Ericsson’s underlying performance excluding impact from restructuring. Non-IFRS measures have limitations as analytical tools and should not be viewed in isolation or as substitutes to the IFRS measures. A reconciliation of non-IFRS measures with the most directly comparable IFRS measures can be found on pages 41 and 242–245.

Ericsson’s overall goal is to create shareholder value.

Management uses four metrics to evaluate the Company’s long-term ambitions: sales growth faster than the market, a best-in-class operating margin, growth in joint ventures’ earnings and a strong cash conversion. The Board of Directors has translated these metrics into three performance criteria in the Executive Performance Stock Plan, included in the Company’s Long-Term Variable (LTV) remuneration program. These performance criteria have also been approved by the Annual General Meeting.

Long-term ambitions

Grow faster than the market

Early internal market data indicates that Ericsson increased its market share in mobile network equipment by 6 percentage points to 38% in 2011, reaching twice the market size of the second largest supplier in this market. This includes the technologies GSM/EDGE, WCDMA/HSPA, CDMA and LTE.

LTE technology is in an early build-out phase. Ericsson estimates its market share in LTE at more than 60%. This makes Ericsson the largest supplier of LTE.

With its CDMA offering, Ericsson has a strong position in North America, where the Company increased its market share in 2011.

In telecom services, internal market data indicates that the Company at least kept its market share of more than 10% and is larger than any of its competitors in this fragmented market.

Best-in-class operating margin

The Company’s operating margin before share in JV earnings was 9.6% (12.0%). The 2010 number excludes restructuring charges. In 2010, operating margin was 8.7% before share in JV earnings and including restructuring charges. Based on reported results for 2011, the operating margin remains the highest among the Company’s traditional publicly listed telecom competitors.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

Growth in JV earnings

Joint ventures’ earnings decreased to SEK –3.8 (–0.7) billion. The figure for 2011 includes restructuring charges of SEK 0.6 billion, while 2010 excludes restructuring charges of SEK 0.5 billion. Ericsson’s share in earnings from Sony Ericsson was SEK –1.2 (0.9) billion, including restructuring charges of SEK 0.4 billion in 2011 and excluding restructuring charges of SEK 0.2 billion in 2010. The share in earnings in ST-Ericsson was SEK –2.7 (–1.5) billion, including restructuring charges of SEK 0.1 billion in 2011 and excluding restructuring charges of SEK 0.3 billion in 2010.

Sony Ericsson’s loss related to intense competition, price erosion, restructuring charges and supply chain issues following the earthquake and tsunami in Japan. In October 2011, Ericsson announced the divestment of its 50% share in Sony Ericsson to Sony Corporation.

ST-Ericsson is in a transitional phase, moving from legacy products to new products.

Strong cash conversion

The cash conversion rate was 40% (112%), negatively impacted by higher working capital.

Cash conversion is defined as cash flow from operating activities divided by net income reconciled to cash.

Executive Performance Stock Plan

The Company has a Long-Term Variable (LTV) remuneration program. The program builds on a common platform, but consists of three separate plans, targeting all employees, key contributors and senior managers respectively. The LTV program is designed to encourage long-term value creation in alignment with shareholders’ interests.

The aim of the plan for senior managers is to attract, retain and motivate executives in a competitive market through performance-based share related incentives and to encourage the build-up of significant equity stakes. The performance criteria for senior management, i.e. the Executive Performance Stock Plan, are revised yearly and approved by the Annual General Meeting. Performance criteria for the 2012 Executive Performance Stock Plan will be communicated in the notice to the Annual General Meeting.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

In the 2011 Executive Performance Stock Plan the performance criteria are:

Up to one third of the award will vest if the compound annual growth rate of consolidated net sales is 4–10% from 2010 to 2013.

Up to one third of the award will vest if the compound annual growth rate of consolidated operating income, including earnings in joint ventures and restructuring, is 5–15% from 2010 to 2013. Base year 2010 is calculated excluding restructuring of SEK 6.8 billion.

Up to one third of the award will vest if cash conversion is at or above 70% during each of the years 2011–2013, vesting one ninth of the total award for each year if the target is achieved. The target was not reached in 2011.

The Board of Directors will consider the impact of larger acquisitions, divestments, the creation of joint ventures and any other significant capital event on the three targets on a case-by-case basis. This consideration will be made in the evaluation of the program after it closes.

Working capital targets

Ericsson’s working capital targets are described on pages 45–46. The targets remain for 2012.

LOGO

Other performance indicators

Ericsson believes that satisfied customers and motivated employees are key to success.

Customer satisfaction

Every year, an independent customer satisfaction survey is performed. In 2011 approximately 10,000 representatives of Ericsson customers, in different positions around the world, were polled to assess their satisfaction with Ericsson, compared to its main competitors. Over the past five years, Ericsson has maintained a level of excellence. The goal is to increase this level further.

Employee engagement

In order to measure employee engagement, an annual survey is conducted by an independent company. In 2011, 90% (87%) of all employees across the world responded to the survey.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

In the Employee Engagement Index, Ericsson scored 77, which is 10% higher than the worldwide average. This is a globally-recognized benchmark which is used by more than 190 companies with over 7 million respondents. It incorporates measurements of motivation, satisfaction and commitment.

VISION AND MISSION

Ericsson’s vision and mission are the motivation behind everything the Company does.

Vision

The Company’s vision is to be the prime driver in an all-communicating world. Ericsson envisions a continued evolution, from having connected 6 billion people to connecting 50 billion ‘things’. The Company envisions that anything that can benefit from being connected will be connected, mainly via mobile broadband.

Mission

The Company’s mission is “Innovating to empower people, business and society”.

CORE VALUES

Respect, professionalism and perseverance are the values that are the foundation of the Ericsson culture. They guide all employees in their daily work, how they relate to people and how they do business.

TRENDS AND DRIVERS

The general industry trend in 2011 was the focus on high performance broadband networks. This includes the mobile broadband business case for customers, meeting increased user demands and the strong uptake of mobile devices such as tablets and smartphones.

Prices of smartphones continued to decline and in high growth markets, smartphones at a retail price of less than USD 100 were introduced. Operators started to look into tiered pricing and new business models for mobile broadband, as well as the introduction of cloud-based services. In Europe, operators started to modernize their mobile networks, while it became an increasing interest among operators globally to transform their Operations Support Systems (OSS) and Business Support Systems (BSS).

When forecasting the market and developing internal plans, Ericsson looks at a number of parameters. These include:

•

High-traffic smartphone subscriptions, as percentage of total subscriptions

•

Average data traffic, measured in Mbytes per subscription per month

•

Mobile broadband subscriptions as percentage of total mobile subscriptions.

Out of the installed base of subscriptions worldwide only around 10% use smartphones. With cheaper smartphones being introduced, this number is expected to grow.

Ericsson estimates that overall mobile data traffic more than doubled in 2011. Mobile data traffic is expected to grow tenfold by end of 2016, mainly driven by video.

Traffic per subscriber partly relates to the screen size of the device. On average, a mobile PC user generates about 2 Gbytes of data per month, while a high-traffic smartphone user generates approximately 500 Mbytes per month.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

The coverage of the world’s mobile networks is constantly increasing as more radio base stations are being deployed. GSM/EDGE is the technology that by far has the widest reach, and today covers more than 85% of the world’s population. WCDMA/HSPA covered about 35% of the population in 2010 and now covers more than 45% of the world’s population.

Further build out of WCDMA/HSPA coverage will be driven by the availability of affordable smartphones, the surge in mobile broadband services and faster speeds, as well as regulators’ requirements to connect unconnected people. By end of 2016, the Company estimates that 80% of the world’s population will have WCDMA/HSPA coverage.

The combined 2G and 3G population coverage for CDMA is estimated to be above 50%. CDMA coverage is expected to grow slightly, and most large CDMA operators have announced a migration plan to LTE.

Several major operators have started LTE deployments but in terms of population coverage LTE has a long way to go. In five years’ time, it is expected that LTE will have a population coverage of about 35%. In terms of global operator investments, WCDMA/HSPA is expected to remain the leading mobile access technology for many years.

From a geographical perspective, GSM only lacks coverage in certain rural areas, while there are still large densely populated areas lacking WCDMA/HSPA coverage.

GSM/EDGE, WCDMA/HSPA and LTE are all expected to increase both in terms of population and land coverage. LTE is expected to have an even faster adoption rate than previous technologies.

STRATEGY

By capitalizing on, investing in, developing and combining the Company’s key competitive assets of technology leadership, services leadership and global presence and scale, Ericsson aims to continue to be the prime driver in the evolving telecom industry and a leading player in the ICT industry.

The installed base of radio access is the foundation for Ericsson’s business. From the installed base, the Company believes it can expand the product base to other domains such as IP, core, OSS and BSS. Over the past ten years, the Company has built a significant services business, representing 37% of total revenues in 2011.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

The services strategy starts with the product base and product-near services. By being successful in areas such as managed services (i.e. operators outsourcing network operations to the Company), consulting and systems integration, the Company gets yet another entry point to the market, which is an opportunity to generate more business.

Cost awareness is an everyday component in the Company. Keeping up with competition from low cost countries has required Ericsson to focus on operational efficiency in every part of the business.

Global presence and scale

With business in more than 180 countries, the Company has a strong global presence. Ericsson does business with all major operators. Ericsson’s customers have, to a large extent, multi-country presence. All this, in combination with its leading market position, gives Ericsson important scale advantages.

The Company has secured a mobile network market share of 43% in the world’s 100 largest cities. This is important for future business, since close to 60% of the world’s traffic in mobile networks is estimated to be generated in metro and urban areas by 2016.

Ericsson has established common ways of working across the Company. These include global IT tools, one sales channel across all segments and global knowledge sharing, which creates efficiencies and enable quick responses to customer requests.

LOGO

Technology leadership

Key for success in the telecom industry is the delivery of future-proof, high-quality networks and solutions. The consumer experience is crucial for any operator. In addition, telecom operators want suppliers who can guarantee the entire ecosystem, from applications, solutions and networks to handsets and mobile broadband modules.

To keep its technology leadership, Ericsson invested SEK 32.6 billion, including restructuring charges of SEK 0.6 billion, in R&D in 2011. This compares with SEK 29.9 billion in 2010, excluding restructuring charges of SEK 1.7 billion. The Company took a strategic decision to increase R&D spending in 2011 in order to develop its new family of Smart Services Router (SSR 8000) products, TD-LTE and a CDMA unit for the radio base station RBS 6000.

Ericsson focuses on optimizing networks and making them function well under high traffic loads. Every product and device from any supplier must be optimized for best network performance.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Most of the Company’s R&D investment is in software development. With smarter software, algorithms, processes and designs, Ericsson secures that its networks and solutions have the industry’s best performance.

By investing in R&D, the Company maintains its position as a key contributor in the development of open telecom standards. Ericsson believes it is the strongest holder of essential patents in the wireless industry. Since these standards are developed in industry-wide collaboration to ensure multi-vendor interoperability, patent holders waive their monopolies and commit to licensing their part of the technology to others wanting to use it. The Company complies with fair, reasonable and non-discriminatory licensing (FRAND). This fair return licensing provides incentive to make further investments in R&D, while also allowing for new entrants to commercialize the technology at a reasonable cost. International standards and FRAND licensing are fundamental for the telecom ecosystem and are a prerequisite for the global success of mobile communications.

In R&D as well as in other areas, Ericsson has high cost awareness. Over several years, the Company has developed common software and hardware stacks as well as common components and platforms, all of which reduce cost.

Services leadership

Local services competence and highly skilled project leaders are both prerequisites for success in telecom services. Ericsson has invested approximately USD 1 billion in processes, methods and tools in order to secure common global frameworks and ways of working. Standardization of services, tools harmonization, centralization of deliveries and high competence in the delivery organization are all essential in order to drive quality and profitability.

Employees

Ericsson strives to have the best talent base in the industry. To achieve this, the Company has four objectives:

•

To attract the best talent

Ericsson is strengthening its employer brand, to ensure fast, effective recruitment processes.

•

To have the right talent in the right place

The Company is developing a holistic career and competence model to help employees understand available career paths. Ericsson encourages more rotation to allow employees to take on new challenges.

•

To ensure high performance at all times

Ericsson has clear goals and objectives and conveys an understanding of how each individual can contribute to reach these goals. Managers and employees alike should give and receive feedback.

•

To maintain a strong leadership bench

Ericsson has clear processes in place to identify talent. Today’s managers have a responsibility to cultivate tomorrow’s leaders, and are encouraged to do so.

BUSINESS FOCUS 2011

Portfolio momentum

Meeting demand for mobile broadband

In 2011, there was a high demand for mobile broadband-related equipment including packet core, IP routers and microwave-based backhaul. Ericsson continued its ramp-up of the multi-standard radio base station

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

RBS 6000. At year-end, the RBS 6000 represented close to 100% of all deliveries of GSM/ WCDMA/LTE radio base stations. This is the quickest product introduction ever in the Company’s history. The introduction has been smooth.

LOGO

In March 2011, Japan was hit by the tragic earthquake and tsunami. To mitigate effects on the business, Ericsson took action immediately such as securing component supply from new sources and re-designing products. By the third quarter, all remaining supply chain effects had been eliminated and lead time was back to normal.

Momentum for managed services

Recognizing that quality of service is becoming increasingly important, operators saw the need to differentiate themselves from competition by deploying superior, scalable networks emphasizing better user experience and quality. This also drove demand for services which target the operational efficiency of operators, such as managed services.

Momentum in OSS and BSS

Operators focused on transforming their BSS solutions, including customer segmentation models, and ways to handle data growth and tiered pricing. Many operators started looking into the transformation of their OSS solutions, although few have reached the deployment phase.

Market share gain

Early internal market data indicates that Ericsson gained market share in mobile network equipment by 6 percentage points to 38%, thanks to a combination of winning new customers and growing existing customers.

In Europe, network modernization is under way. Ericsson took a strategic decision to increase its market share in Europe when operators started to look into modernizing their networks, despite initial pressure on Group margins. The mobile networks in Europe are the world’s oldest and the reduced power consumption in modern equipment alone makes it a good business case for operators to replace old equipment with new. When operators in Europe deployed 3G some ten years ago, Ericsson could not afford the customer financing requirements and lost market share in 3G versus 2G. In the European network modernization, Ericsson’s strategy in 2011 has been to win back 3G market share.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Acquisitions, partnerships and divestments

•

Telcordia, announced acquisition for USD 1.15 billion in an all cash consideration, filling portfolio gaps in OSS and BSS

•

Akamai, partnership in mobile cloud accelerator

•

Sony Ericsson, divestment of the 50% share to Sony

•

Telenor Connexion, acquisition of machine-to-machine platform

•

Nortel, acquisition of GDNT in China, of patents in partnership with other companies and acquisition of their Multi-Service Switch (MSS) business.

Monetizing on the patent portfolio

In the networked society, Ericsson envisions that anything that benefits from being connected will be connected. In this scenario, Ericsson foresees new entrants to the connectivity markets, both from device and equipment manufacturers and from other industries. Since Ericsson believes it is the strongest holder of essential patents in the wireless industry, any company that uses connectivity today will likely require a license to Ericsson’s patents.

Ericsson has over 90 license agreements and is a net receiver of royalties. The Company’s portfolio is well-licensed and gives customers good protection.

COMPETITIVE ASSETS

Global presence and scale as assets

Ericsson has customers in more than 180 countries. Of 104,525 employees across the world, 56,000 are services professionals. This makes Ericsson a true global player.

Ericsson’s market share in mobile network equipment makes it twice that of the number two player. This provides scale advantages.

The Company has a mobile network equipment market share of 43% in the world’s 100 largest cities.

More than 1.4 billion consumers are charged and billed through Ericsson’s solutions. In the OSS and BSS market, the Company is aspiring to a leading position.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Technology leadership as an asset

Ericsson has more than 22,000 employees in R&D. Measured in software revenues, Ericsson is the world’s fifth largest software company. The Company has 30,000 granted patents covering all generations of mobile technologies. Ericsson believes it has the industry’s strongest wireless IPR portfolio. In LTE, Ericsson expects to hold approximately 25% of all essential patents. IPR revenues were SEK 6.2 (4.6) billion in 2011.

The Company’s unique combination of software and hardware provides superior performance in live networks. Measurements in live networks show that Ericsson networks have higher performance than its competitors. Ericsson’s software design targets stability and optimized commercial performance in networks. In radio, The Company’s software is run on proprietary hardware while in OSS and BSS the software is largely independent of hardware. In both areas, the strategy is to make the products configurable and flexible to integrate with a common platform strategy.

In 2011, Ericsson introduced its new Smart Services Router (SSR 8000) family. Volume deliveries are expected in 2012. It is the first router ever to be built on a common platform for fixed and mobile applications.

Services leadership as an asset

Ericsson estimates its market share in telecom services at over 10%, making the Company the leader in this highly fragmented market. Of Ericsson’s 56,000 services professionals, some 12,000 are involved in consulting and systems integration. Many employees have been transferred from telecom operators in managed services deals over the recent years and represent an important experience base.

Ericsson provides support to networks that serve more than two billion subscribers 24/7, and has global service centers in China, India, Mexico and Romania. The Company also has ten regional service centers across the world.

In 2011, Ericsson participated in 1,200 major deployment projects, of which 100 were large and complex turnkey projects. The Company was also involved in 1,300 consulting and systems integration projects.

Ericsson has more than 15 years of experience in managed services and manages networks with 900 million subscribers.

BUSINESS MIX DYNAMICS

Ericsson’s gross margin and the amount of capital tied up by projects vary with project type. Typically, there are two types of projects: coverage and capacity/expansions. These are to a high degree related to the mobile networks’ technology cycles, which are long, normally 10 to 20 years. Coverage projects are frequent in the initial phases of a technology cycle whereas capacity/expansion projects typically occur towards the later stages of a cycle.

The initial phase of a technology cycle includes a higher degree of coverage buildouts and more rollout services. In many parts of the world, such as in Europe where networks are now being modernized, the projects are often of a turnkey character and civil works are sometimes part of the commitment. There is more hardware involved resulting in lower gross margin and a larger tie-up of capital in equipment.

When coverage has been built and traffic in the network increases, the operator moves into the capacity/expansion phase. In this phase, capacity is increased, either by expanding a radio base station with software upgrades to higher speeds or by adding more sites. In capacity/expansion projects, the Company sells a larger share of software and integration services, which yields higher gross margins, and ties up less capital.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Ericsson is now in a phase when there is more hardware in the business mix. This is due to the technology cycle where WCDMA/HSPA, i.e. mobile broadband, is being rolled out. To a high degree, operators now deploy the new multi-standard radio base station RBS 6000. This means that a limited amount of hardware installations will be needed when operators upgrade to LTE in the future.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

FINANCIAL RESULTS OF OPERATIONS

ABBREVIATED INCOME STATEMENT WITH RECONCILIATION IFRS—NON-IFRS MEASURES


	IFRS									Restructuring charges						Non-IFRS measures
SEK billion	2011			2010			2009			2011		2010		2009		2011			2010			2009
Net sales		226.9			203.3			206.5									226.9			203.3			206.5
Cost of sales		–147.2			–129.1			–136.3			–1.2		–3.4		–4.2		–146.0			–125.7			–132.1

Gross income		79.7			74.3			70.2			–1.2		–3.4		–4.2		80.9			77.6			74.4
Gross margin %		35.1	%		36.5	%		34.0	%								35.7	%		38.2	%		36.0	%

Operating expenses		–59.3			–58.6			–60.0			–2.0		–3.5		–7.1		–57.3			–55.2			–52.9
Operating expenses as % of sales		26.1	%		28.8	%		29.0	%								25.3	%		27.1	%		25.6	%
Other operating income and expenses		1.3			2.0			3.1			—		—		—		1.3			2.0			3.1

Operating income before share in earnings of JVs and associated companies		21.7			17.6			13.3			–3.2		–6.8		–11.3		24.9			24.4			24.6
Operating margin % before share in earnings of JVs and associated companies		9.6	%		8.7	%		6.5	%								11.0	%		12.0	%		11.9	%

Share in earnings of JVs and associated companies		–3.8			–1.2			–7.4			–0.6		–0.5		–1.3		–3.2			–0.7			–6.1

Operating income		17.9			16.5			5.9			–3.7		–7.3		–12.6		21.6			23.7			18.5
Operating margin %		7.9	%		8.1	%		2.9	%								9.5	%		11.7	%		9.0	%

Financial income and expense, net		0.2			–0.7			0.3
Taxes		–5.6			–4.5			–2.1
Net income		12.6			11.2			4.1
EPS diluted (SEK)		3.77			3.46			1.14

The non-IFRS financial measures presented herein are not recognized measures of financial performance under IFRS, but rather are measures used as supplemental information to the IFRS results. Since there were restructuring costs during 2009 and 2010 with significant impact on reported results and margins, certain income statement line items excluding restructuring charges, are presented as non-IFRS measures to facilitate analysis by indicating Ericsson’s underlying performance. Non-IFRS measures have limitations as analytical tools and should not be viewed in isolation or as substitutes to the IFRS measures, and do not necessarily indicate whether cash flow will be sufficient or available to meet Ericsson’s requirements, and may not be indicative of our historical operating results, nor are such measures meant to be predictive of future results. Non-IFRS measures for 2011 have also been included to facilitate comparison with previous years. For more details on the restructuring activities and corresponding charges, please see Note C5—“Expenses by Nature”.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Sales

2011 was a year with strong sales growth of 12%, driven by strong demand for mobile broadband along with network rollout services. Sales were negatively impacted by the strong SEK. Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 19%.

LOGO

In 2011, the Company executed on its strategy to leverage its strengths in the growth areas mobile broadband, managed services, OSS and BSS. Due to the technology cycle where mobile broadband is being rolled out, the business mix shifted to more coverage projects. Ericsson also implemented its strategy to capture new market share in the network modernization projects in Europe, despite their initial lower margins.

In 2011, seven out of ten regions grew. In the year, there was an impact from slower operator spending after a period of high investments in capacity, especially in North America and Russia, as well as political unrest in certain countries. In the last quarter of the year, the Company also noticed some increased operator cautiousness due to uncertainties such as economic development and continued political unrest in certain countries.

In 2011, the share of software sales declined to 23% (24%) of sales while the portion of hardware increased to 40% (37%). The increase in hardware is a result of demand for mobile broadband products. In the short term, the software share might continue to decrease due to a higher portion of projects with a lot of hardware. Longer term, the software part should increase following more expansions and upgrades of networks.

Services sales amounted to 37% (39%) in 2011.

Seasonality

The Company’s quarterly sales, income and cash flow from operations are seasonal in nature, generally lowest in the first quarter of the year and highest in the fourth quarter. This is mainly a result of the seasonal purchase patterns of network operators.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

MOST RECENT FIVE-YEAR AVERAGE SEASONALITY


	First quarter			Second quarter			Third quarter			Fourth quarter
Sequential change		–21	%		8	%		–4	%		27	%
Share of annual sales		23	%		24	%		23	%		30	%

Financial numbers in this section are reported:

•

for 2011, including restructuring charges

•

for 2010, excluding restructuring charges.

Gross margin

Gross margin declined to 35.1% (38.2%) due to higher share of coverage projects, network modernization projects in Europe and 3G rollouts in India. Gross margin in 2010, including restructuring charges, amounted to 36.5%.

Operating expenses

To secure continued technology leadership, focus is on innovation and R&D. R&D expenses amounted to SEK 32.6 (29.9) billion. Spending on R&D as a percentage of sales was 14.4% (14.7%). In 2010, R&D spend including restructuring charges was SEK 31.6 billion or 15.5% of sales. The increase in absolute number is a result of planned higher investments in radio, such as TD-LTE, IP and the acquired LG-Ericsson operations. In 2012, R&D expenses of SEK 29–31 billion is estimated. The estimate includes amortizations/write-downs of intangible assets related to major acquisitions previously made. However, currency effects may cause this to change.

Selling and administrative expenses represented 11.8% of sales compared to 12.4% in 2010. The amount was SEK 26.7 (25.3) billion. In 2010, the amount including restructuring charges was SEK 27.1 billion, representing 13.3% of sales. In the year, there were positive effects from efficiency work along with the strong SEK.

Operating margin before JVs

Operating margin before share in JV earnings decreased to 9.6% (12.0%). However, in 2010, operating margin before share in JV earnings and including restructuring charges amounted to 8.7%.

Share in earnings of JVs

In 2011, Sony Ericsson reported a loss. The loss reflects intense competition, price erosion, restructuring charges and supply chain issues following the earthquake and tsunami in Japan. Ericsson’s share in Sony Ericsson’s income before tax was SEK –1.2 (0.9) billion. In 2010, Ericsson’s share amounted to SEK 0.7 billion including restructuring charges.

ST-Ericsson reported a loss also in 2011. ST-Ericsson is currently in a shift from legacy to new products. Ericsson’s share in ST-Ericsson’s income before tax, adjusted to IFRS, was SEK –2.7 (–1.5) billion. In 2010, the loss amounted to SEK –1.8 billion including restructuring charges.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Operating income

Operating income was SEK 17.9 (23.7) billion. However, in 2010, operating income including restructuring charges amounted to SEK 16.5 billion.

Financial net

The financial net was SEK 0.2 (–0.7) billion. The difference is mainly attributable to a higher interest net of SEK 0.8 billion compared to 2010.

Taxes

The tax expense for the year was SEK 5.6 (4.5) billion or 30.6% (28.8%) of income after financial items. The tax rate may vary between years depending on business and geographic mix. The tax rate excluding joint ventures and associated companies was 26.4% (25.7%) due to lower tax rates from the loss-making joint ventures.

Net income

Net income increased 12% to SEK 12.6 (11.2) billion driven by higher sales and lower restructuring charges.

Earnings per share, diluted

Earnings per share increased 9% to SEK 3.77 (3.46). The Board of Directors proposes a dividend of SEK 2.50 (2.25). This represents an increase of 11%.

Restructuring charges

Total restructuring charges were SEK 3.2 (6.8) billion, excluding joint ventures. Cash outlays that have been provided for were SEK 3.2 (3.3) billion. At the end of the year, cash outlays of SEK 1.3 billion remain to be made. In 2012, restructuring charges of approximately SEK 4 billion are estimated.

Ericsson’s share in Sony Ericsson’s restructuring charges amounted to SEK 0.4 (0.2) billion. Ericsson’s share in ST-Ericsson’s restructuring charges was SEK 0.1 (0.3) billion.

RESEARCH AND DEVELOPMENT PROGRAM


	2011			2010			2009
Expenses (SEK billion)¹⁾		32.6			29.9			27.0
As percent of Net sales		14.4	%		14.7	%		13.1	%
Employees within R&D as of December 31²⁾		22,400			20,800			18,300
Patents²⁾		30,000			27,000			25,000

1)	Excluding restructuring charges for 2009 and 2010.

2)	The number of employees and patents are approximate.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

FINANCIAL POSITION

CONSOLIDATED BALANCE SHEET (ABBREVIATED)

December 31, SEK billion

2011

2010

2009

ASSETS

Non-current assets, total

81.5

83.4

87.4

of which intangible assets

44.0

46.8

48.2

of which property, plant and equipment

10.8

9.4

9.6

of which financial assets

13.7

14.5

15.3

of which deferred tax assets

13.0

12.7

14.3

Current assets, total

198.8

198.4

182.4

of which inventory

33.1

29.9

22.7

of which trade receivables

64.5

61.1

66.4

of which other receivables/financing

20.7

20.2

16.6

of which short-term investments, cash and cash equivalents

80.5

²⁾

87.2

76.7

Total assets

280.3

281.8

269.8

EQUITY AND LIABILITIES

Equity

145.3

146.8

141.0

Non-current liabilities

38.1

38.3

43.3

of which post-employment benefits

10.0

5.1

8.5

of which borrowings

23.3

27.0

30.0

of which other non-current liabilities

4.8

6.2

4.8

Current liabilities

97.0

96.8

85.5

of which provisions

6.0

9.4

12.0

of which current borrowings

7.8

3.8

2.1

of which trade payables

25.3

25.0

18.9

of which other current liabilities

58.0

58.6

52.5

Total equity and liabilities¹⁾

280.3

281.8

269.8

1)	Of which interest-bearing liabilities and post-employment benefits SEK 41.0 (35.9) billion.

2)	Including loan to ST-Ericsson of SEK 2.8 billion.

Ericsson’s strategy is to maintain a strong balance sheet including a sufficiently large cash position to ensure the financial flexibility to operate freely and to capture business opportunities. This has been particularly important during the past years’ difficult macroeconomic and financial market situation.

By maintaining a strong cash position, the Company can also maintain an active strategy for strategic mergers and acquisitions.

An important focus area is the monitoring of working capital. Major efforts have been made during the year in order to reduce days sales outstanding and inventory turnover days as well as to increase payable days. The target for payable days was met, while the other two targets were not achieved. The efforts to further reduce working capital will continue in 2012 and the working capital targets are the same as previous years.

In 2011, the dividend was SEK 2.25 per share. The Board of Directors will propose to the Annual General Meeting 2012 a dividend of SEK 2.50 per share. This represents a total dividend of approximately SEK 8.2 billion. The proposal reflects year 2011’s earnings and balance sheet structure, as well as coming years’ business plans and expected economic development.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Non-current assets

Intellectual property rights, brands and other intangible assets decreased to SEK 13.1 (16.7) billion due to amortizations.

Customer financing, current and non-current, decreased slightly to SEK 4.2 (4.4) billion.

Current assets

Inventory levels increased during the year by SEK 3.2 billion due to higher sales and increased share of coverage projects. At year end, inventory was SEK 33.1 (29.9) billion. The higher inventory level followed a higher level of work in progress in the regions. The target of inventory turnover days less than 65 days was not reached and improvement efforts will continue in 2012.

Trade receivables: Days sales outstanding reached 91 (88) days at year-end. This reflects a higher portion of coverage projects and higher sales volumes. The Company’s nominal credit losses have historically been low and continued to be so in 2011.

LOGO

Net cash decreased to SEK 39.5 (51.3) billion, mainly due to a negative change in net operating assets, investing and dividend paid to shareholders. Pension liabilities increased due to lower discount rate and this impacted net cash negatively. For a more detailed discussion on changes in cash, see pages 48–49.

Equity

Equity decreased by SEK –1.5 billion to SEK 145.3 (146.8) billion. Net income was SEK 12.6 (11.2) billion and dividends of SEK 7.5 (6.7) billion was paid during the year. The equity ratio was maintained at a healthy level of 52% (52%).

Return on equity increased to 8.5% (7.8%), primarily due to higher sales and lower restructuring charges.

Return on capital employed (ROCE) was 11.3% (9.6%). In 2010, ROCE excluding restructuring charges was 13.6%.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Non-current liabilities

Post-employment benefits related to defined benefit plans increased to SEK 10.0 (5.1) billion. In 2011 there was a decrease in discount rates, and plan assets yielded lower than expected. Consequently, the Company experienced an increase in the net pension liability and the funded ratio (plan assets as percentage of defined benefit obligations) decreased to 77% (89%).

Current liabilities

Provisions declined to SEK 6.0 (9.4) billion. SEK 1.3 (3.2) billion were related to restructuring. The cash outlays of provisions were SEK 6.0 (7.2) billion. The lower amount of provisions is mainly due to lower restructuring. In addition, the business mix with more coverage projects as well as good performance in both hardware and software for new products introduced decreased the need for warranty provisions. There is also an effect of improved project management as well as geographical mix. Provisions will fluctuate over time, depending on business mix, market mix and technology shifts.

Payable days was unchanged at 62 (62) days. The target of payable days of above 60 days was met.

Non-current borrowings decreased to SEK 23.3 (27.0) billion. No major changes were made in the debt maturity profile during 2011. Debt of SEK 3.4 billion is maturing in 2012 and SEK 5.4 billion in 2013. The Company also has unutilized committed credit facilities of USD 2.0 billion available, maturing in 2014.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

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, expenses, result of operations, liquidity, capital expenditures or capital resources.

LOGO

CASH FLOW

CASH FLOW (ABBREVIATED) JANUARY-DECEMBER

SEK billion

2011

2010

2009

Net income

12.6

11.2

4.1

Income reconciled to cash

25.2

23.7

21.0

Changes in operating net assets

–15.2

2.9

3.5

Cash flow from operating activities

10.0

26.6

24.5

Adjusted operating cash flow¹⁾

13.2

29.8

28.7

Cash flow from investing activities

4.5

–12.5

–37.5

of which capital expenditures, sales of PP&E, product development

–6.1

–5.2

–4.9

of which acquisitions/divestments, net

–3.1

–2.8

–18.1

of which short-term investments for cash management purposes and other investing activities

13.8

–4.5

–14.5

Cash flow before financing activities

14.5

14.0

–13.0

Cash flow from financing activities

–6.5

–5.7

–1.7

Cash conversion (Cash flow from operating activities divided by income reconciled to cash)

112

117

Gross cash (Cash, cash equivalents and short-term investments)

80.5

²⁾

87.2

76.7

Net cash (Gross cash less interest-bearing liabilities and post-employment benefits)

39.5

51.3

36.1

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

2)	Including loan to ST-Ericsson of SEK 2.8 billion.

In 2011, gross cash decreased by SEK 6.6 billion to SEK 80.5 (87.2) billion. The net income reconciled to cash of SEK 25.2 billion was offset by a change in net operating assets of SEK –15.2 billion and investing activities of SEK –9.9 billion. Dividends to shareholders amounted to SEK –7.5 (–6.7) billion.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Net cash decreased to SEK 39.5 (51.3) billion.

Cash flow from operating activities

The adjusted operating cash flow was negatively impacted by higher working capital.

During 2011, cash flow was negatively impacted by a significant increase in working capital as a result of higher sales and more projects.

Cash flow from investing activities

Cash outlays for regular investing activities increased to SEK –6.1 (–5.2) billion.

Acquisitions and divestments during the year were net SEK –3.1 (–2.8) billion, with the major items Nortel’s GDNT operation in China and Nortel’s Multi-Service Switch business (MSS). The Nortel patent portfolio was acquired in partnership with other industry players.

LOGO

Cash flow for short-term investments for cash management purposes and other investing activities was net SEK 13.8 (–4.5) billion, mainly attributable to changes between short-term investments and cash and cash equivalents.

Capital expenditures

Annual capital expenditures are normally around two percent of sales and are expected to remain at this level. This corresponds to the needs for keeping and maintaining the current capacity level, including the introduction of new technology and methods. The expenditures are largely related to test equipment in R&D units, network operations centers as well as manufacturing and repair operations.

The Board of Directors reviews the Company’s investment plans and proposals.

The Company has sufficient cash and cash generation capacity to fund expected capital expenditures without external borrowings in 2012.

We believe that the Company’s property, plant and equipment and the facilities the Company occupies are suitable for its present needs in most locations. As of December 31, 2011, no material land, buildings, machinery or equipment were pledged as collateral for outstanding indebtedness.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

CAPITAL EXPENDITURES 2007–2011


SEK billion	2011			2010			2009			2008			2007
Capital expenditures		5.0			3.7			4.0			4.1			4.3
of which in Sweden		*1.7*			1.4			1.3			1.6			1.3
as percent of net sales		2.2	%		1.8	%		1.9	%		2.0	%		2.3	%

Cash flow from financing activities

Cash flow from financing activities was SEK –6.5 billion. Dividends paid were SEK –7.5 (–6.7) billion and other financing activities net amounted to SEK 1.0 billion.

Cash conversion

Cash conversion was 40% (112%), below the target of 70%. Over the years 2008–2010, cash conversion was above target. The cash conversion in 2011 was negatively impacted by higher working capital.

Restricted cash

Cash balances in certain countries with restrictions on transfers of funds to the Parent Company as cash dividends, loans or advances amounted to SEK 13.9 (10.8) billion.

In this context all countries with currency restrictions are included. In most cases the currency is nonconvertible and flow of funds in a foreign currency requires approval by a central bank or similar. Out of the total amount, China, India, Korea, Brazil and Indonesia are the top five countries accounting for SEK 9.6 billion.

LOGO

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

BUSINESS RESULTS—REGIONS

SALES PER REGION AND SEGMENT 2011 AND 2010


	Networks						Global Services						Multimedia
SEK billion	2011			Percent change			2011			Percent change			2011			Percent change			Total 2011			Percent change
North America		28.9			–5	%		18.6			5	%		1.3			7	%		48.8			–1	%
Latin America		11.5			25	%		9.5			23	%		1.0			5	%		22.0			23	%
Northern Europe and Central Asia		9.7			34	%		5.0			17	%		0.5			–20	%		15.2			25	%
Western and Central Europe		7.8			–7	%		10.3			–2	%		1.0			–7	%		19.0			–4	%
Mediterranean		10.7			1	%		11.8			11	%		1.3			–5	%		23.8			5	%
Middle East		7.4			4	%		6.8			4	%		1.2			–13	%		15.5			2	%
Sub-Saharan Africa		5.9			63	%		3.4			–26	%		0.9			–12	%		10.2			11	%
India		6.1			19	%		3.1			13	%		0.5			–25	%		9.8			13	%
China and North East Asia		27.8			63	%		9.9			19	%		0.5			–5	%		38.2			47	%
South East Asia and Oceania		7.6			–3	%		5.6			–14	%		0.7			26	%		13.9			–7	%
Other*		9.1			53	%		–0.2			–132	%		1.7			57	%		10.6			41	%

Total		132.4			17	%		83.9			5	%		10.6			1	%		226.9			12	%
Share of total		58	%					37	%					5	%					100	%

Other includes sales of e.g. mobile broadband modules, cables, power modules as well as licensing and IPR. Mobile broadband modules are sold directly by business unit Networks to PC/netbook manufacturers. A central IPR unit manages sales of licenses to equipment vendors or others who wish to use Ericsson’s patented technology. TV solutions are sold both through other equipment vendors as resellers and directly by business unit Multimedia to cable TV operators.

Regional development

The regions are the Company’s primary sales channels. Ericsson reports ten regions, mirroring the internal geographical organization.

North America

North America is the world’s most developed region in terms of smartphone penetration and mobile data usage. Operators are continuing the implementation of tiered pricing to capitalize on changing user behavior. Half of the net additions of subscriptions in the second half of 2011 came from connected devices or machine to machine communication. Through the year multiple LTE network buildouts have been initiated and launched in both the US and Canada, and Ericsson is a leading supplier to these projects.

The networks business developed slower in the second half of 2011 after a period of high operator investments in network capacity. Operators’ focus on cash flow management and operator consolidation also had a negative impact. This was to a large degree offset by a positive uptake in services and multimedia.

Latin America

There is a push for mobile broadband in Latin America, driven by consumer demand for 3G services. Smartphone penetration is still low, but is expected to grow as these handsets become more affordable.

Operators show an increasing interest in network performance and Ericsson is taking part in OSS/BSS transformation projects in managed services deals, including network sharing arrangements.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Northern Europe and Central Asia

The Nordics are mature and advanced markets with strong 3G coverage and LTE commercially available in all countries. Nordic operators are increasingly shifting their business models towards network sharing and the outsourcing of network operations.

Deployment of 3G networks started later in the eastern part of the region. Here, operators are focusing on providing coverage and quality in the networks. Mobile broadband is growing rapidly in the region. Many consolidation activities, of both operators and networks, are taking place. In the latter half of the year, network sales slowed, especially in Russia, following strong operator investments in network capacity and coverage.

LOGO

Western and Central Europe

Modernization of networks accelerated across the region in 2011. Operator focus is on replacing old 2G/3G equipment with modern, more efficient multi-standard radio base stations. Interest in LTE is limited, with certain countries still to allocate spectrum for this.

Penetration of mobile broadband is high, with some operators’ smartphone shipments representing more than half of their totals. Data revenues are growing and represent over 40% with some operators. There is also high interest in managed services and network sharing.

Mediterranean

This region has seen an impact from weak economies as well as political unrest in Northern Africa. The uptake of mobile broadband is mixed, with the strongest growth in the south west parts of the region. Here, operators are implementing a range of tiered pricing models.

Mobile data usage is high in the Mediterranean area, due to the low availability of fixed broadband. Most operators’ investments are for 3G coverage and in the second half of the year, network modernization projects took off.

Middle East

The Middle East was impacted by political unrest in several countries and by delays in license auctions. As a consequence, some operators have postponed their infrastructure investments and increased their focus on efficiencies.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

The region has lower penetration rates, mobile broadband adoption and mobile data usage than the world average. The crucial driver for increasing these parameters is the affordability of smartphones.

Rollouts of LTE have started in some parts of the region.

Sub-Saharan Africa

Mobile penetration continues to increase rapidly in Africa. Operator focus is still on 2G coverage and capacity buildouts, although some operators are building 3G coverage.

With smartphones in the region set to become cheaper, operators are focusing on creating efficiency in their networks to allow them to capitalize on future uptake.

Inflation and competition are also driving operators’ need for increased efficiency. This leads them to focus on power consumption reductions and managed services solutions. There is also a need for operators to harmonize policy frameworks to increase data take-up.

India

Initial 3G rollouts reached a temporary peak in 2011. The Indian market is fragmented and in the near future a telecom policy reform is expected which might make operator consolidation easier.

Besides the need for affordable smartphones, availability of dual SIM card phones is a key component in driving mobile data uptake. The Indian market is highly competitive, which drives operator interest in managed services and network sharing.

China and North East Asia

China’s operators have focused on building 2G capacity with GPRS/EDGE to meet the increase in mobile data traffic from smartphones. In 2011, large scale trials for TD-LTE took place with China Mobile.

In Korea and Japan, 3G capacity and LTE coverage rollouts are ongoing, driven by high smartphone penetration, mobile broadband adoption and mobile data usage. In Korea, three LTE networks are live, and Ericsson is a supplier to all of them.

South East Asia and Oceania

Parts of this region, such as Australia and Singapore, have high penetration rates, adoption and usage. In these areas, LTE is also starting to emerge. Indonesia is moving towards 3G, however take-up is hampered by the affordability of devices. 3G auctions are yet to take place in some markets. Coverage projects, where old equipment is replaced with new, are underway across most markets, as operators build for data growth and seek operating cost efficiencies. The decline in network sales is due to reduced 2G business in Vietnam. The services business declined due to a concluded managed services contract in Australia.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

BUSINESS RESULTS—SEGMENTS

Networks

Sales

Networks sales increased 17% to SEK 132.4 billion, negatively impacted by a strong SEK in 2011. The increase was an effect of continued high sales in mobile broadband-related equipment including packet core, IP routers and microwave-based backhaul. Demand was especially strong in regions China and North East Asia and North America.

The year was characterized by high volumes of mobile broadband equipment and ramp-up of the multi-standard radio base station RBS 6000. The product introduction of the RBS 6000 has been the quickest and most successful in the Company’s history. At the end of the year, the first RBS 6000 with CDMA functionality was shipped. The RBS 6000 accounts for close to 100% of all deliveries of GSM/WCDMA/LTE radio base stations. In the fourth quarter, shipping of the IP Edge router, the Smart Services Router SSR 8000 family, and the Antenna Integrated Radio unit (AIR) also commenced.

In 2010, Ericsson acquired Nortel’s CDMA business in order to strengthen its position in North America. Ericsson is now established as the leader in this market. CDMA sales increased slightly in 2011. At the end of the year the Company saw the expected decline in CDMA sales and subsequent rapid shift to LTE. The CDMA acquisition has created substantial value for the Company.

In March, the earthquake and tsunami in Japan caused temporary delays in the supply chain, but by the third quarter lead times were back to normal.

Profitability

Operating margin decreased to 13% (15%). The margin was negatively impacted by planned R&D investments to accelerate technology leadership. Operating margin in 2010 was 11% including restructuring charges.

Cost structure

In the Networks segment, cost of sales is quite large and to a large part variable. To reduce variable cost, the Company works with product rationalization and product substitution. R&D is a significant cost item and for this

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

reason it is important to focus on R&D effectiveness and efficiency. It is essential to ensure global platforms and common components across the whole portfolio. To maximize the outcome of R&D investment, the Company also seeks to give R&D sites clear accountability and the same IS/IT environment.

The networks business

Sales to network operators are normally based on multi-year frame agreements after an initial open tender. During the frame agreement, software, equipment, services and spare parts are called off according to price lists.

Prior to the introduction of the multi-standard radio base station RBS 6000, operators could have co-siting, with one supplier for GSM and another for WCDMA. Today, a multi-standard approach means that all technologies are supported by one radio base station. Any supplier has to be equally capable of all technologies. R&D investments and scale are therefore essential for a supplier to stay competitive. The footprint of multi-standard radio access network increases opportunities for additional network business, e.g. backhaul and core networks. Following radio and core footprint is a significant software sales opportunity based on capacity, functionality and new features.

Competitors

In the networks segment, Ericsson competes mainly with telecommunication equipment suppliers such as Alcatel-Lucent, Cisco, Huawei, Juniper, Nokia Siemens Networks, Samsung and ZTE. The Company also competes with local and regional manufacturers and providers of telecommunications equipment.

LOGO

Global Services

Sales

Global Services sales increased 5% to SEK 83.9 (80.1) billion, driven by network rollout, consulting and systems integration.

Professional Services sales were SEK 58.8 billion, up 1% from 2010. Currency adjusted sales of Professional Services increased 7%. The increase is mainly a result of increased sales of consulting and systems integration. Managed Services sales decreased by –1% to SEK 21.0 billion. Currency adjusted sales increased 7%. The growth reflects the 70 (54) signed managed services contracts, of which 32 (26) were extensions or expansions. More than 60% of Professional Services sales were recurring.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Network Rollout sales amounted to SEK 25.1 (21.6) billion, an increase of 16%, driven by high volumes of network modernization.

Profitability

Global Services’ operating margin decreased to 7% (11%). The margin was negatively impacted by a loss in Network Rollout.

Operating margin in 2010 was 8% including restructuring charges.

Operating margin for Professional Services amounted to 13% (15%). Operating margin in 2010 was 11% including restructuring charges.

Operating margin for Network Rollout amounted to –8% (1%), due to high activity levels related to network modernization projects in Europe and 3G rollouts in India. Operating margin in 2010 was 0% including restructuring charges.

Cost structure

In the services segment, almost all cost resides in cost of sales and the majority of the cost is related to employee costs. A few years ago, the cost of sales base was to a higher degree variable. With the increasing share of managed services, the portion of fixed costs has increased, which makes it important to find scale by winning more deals in the same geographical area. Another measure to keep cost down is to establish a one-to-many delivery model. The development of global tools, methods and processes are also crucial in order to secure efficiencies and knowledge sharing.

In managed services, Ericsson often insources employees from the customer. In the transition period, restructuring costs are taken, e.g. for replacement of IS/IT systems and migration of employees into new systems and premises. In the transformation phase, following the transition, synergies are carried through.

The services business

Ericsson’s offering covers all areas within an operator’s operational scope. The Company’s service offering includes consulting, systems integration, managed services, network deployment and integration, education and support services. Ericsson provides services for both mobile and fixed telecom networks as well as for IT and broadcast networks and in some cases for adjacent industries such as the utilities industry. Most often operators turn to Ericsson for support in a certain part of their operations. Contracts for managed services and customer support are typically for five to seven years. Payments with regularity provide a lower rate of working capital. Consulting and systems integration contracts are shorter and paid after fulfillment of contract.

In managed services deals the contracts are normally split into fixed and variables, where the variables are a smaller part. The invoicing is based on fulfillment of certain key performance indicators and projects. When an operator explores the possibility of a managed services deal, the financial strength of the supplier is a prerequisite.

Network rollout includes coverage and modernization projects with a large part of third-party sourcing, making it a lower-margin business.

The Company rolls out its own equipment, but also has high multi-vendor skills in all other parts of the services business.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Competitors

Competition in services includes the traditional telecommunication equipment suppliers. The Company also competes with companies such as Accenture, HP, IBM, Oracle, Tata Consultancy Services and Tech Mahindra. Among the competition is also a large number of smaller but specialized companies operating on a local or regional basis.

LOGO

Multimedia

Sales

Multimedia sales increased 1% to SEK 10.6 (10.5) billion, negatively impacted by political unrest in the Middle East and weak development in India.

Profitability

Operating margin was –5% (–4%). Restructuring charges had no material impact on profitability.

Cost structure

In the multimedia segment, cost of sales is low and the majority is variable, due to the fact that third party hardware is used, on which the Company implements its software. Multimedia is a software business with a high degree of fixed R&D cost for software development.

The OSS and BSS business

The OSS/BSS business is divided into two different sales types:

Transformation sales

Simplification and consolidation of processes, operations, systems and platforms. Key components are software solutions, consulting and systems integration. Typically these projects last for 18–36 months. The software part represents 25–40% of the contract value and the rest is consulting and systems integration.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Product sales

Product sales is mainly expansions and upgrades, e.g. upgrading from Ericsson Charging System version 4 to 5. Key components are software solutions and systems integration. Typically these projects last for 1–12 months. The software part represents 70–90% of the contract value and the rest is systems integration.

Telcordia acquisition

In 2011, Ericsson announced the acquisition of Telcordia, a global leader in the development of software and services for OSS/BSS. The price was USD 1.15 billion in an all cash transaction, on a cash and debt-free basis. The acquisition is expected to be accretive to Ericsson’s earnings per share within twelve months. Telcordia has approximately 2,600 employees. During its last fiscal year, ended January 31, 2011, Telcordia generated revenues of USD 739 million. Telcordia’s revenues will be split between segments Multimedia and Global Services according to portfolio mix. With the acquisition, Ericsson aspires to a leading position in the OSS and BSS market.

Competitors

In the multimedia segment, Ericsson competes in rather fragmented markets with many local players. Competitors vary depending on the solution being offered. In the OSS and BSS market, they include many of the traditional telecommunication equipment suppliers as well as IT suppliers, such as Amdocs, Comverse and Oracle. Competition in the TV business includes Harmonic and Thompson.

LOGO

Sony Ericsson

Sony Ericsson is a 50/50 joint venture between Sony Corporation and Ericsson, established in 2001. Sony Ericsson is accounted for according to the equity method. In October 2011, it was announced that Sony Corporation would acquire Ericsson’s 50% share in Sony Ericsson. As part of the deal, Sony and Ericsson will also enter into a broad IP cross-licensing agreement and create a wireless connectivity initiative to drive connectivity across multiple platforms. The transaction is a logical strategic step that makes it possible for Ericsson to focus on enabling connectivity for all devices.

Sony Ericsson will become a wholly-owned subsidiary of Sony and integrated into Sony’s broad platform of network-connected consumer electronics products. The agreed cash consideration for the transaction is a EUR 1.05 billion cash payment.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Sony Ericsson’s units shipped in 2011 decreased by –20% to 34.4 (43.1) million while the average selling price increased by 4% to EUR 152 (146). Sales decreased by –17% to EUR 5.2 (6.3) billion.

In 2011, Sony Ericsson had a market share of 10% in the smartphone market, measured in units, and 10% measured in value.

Gross margin decreased during the year to 28% (29%) attributed to product and geographic mix. Income before taxes, including restructuring charges, was EUR –0.24 (0.15) billion. Income decreased during the year due to declining gross margin and increased operating expenses. The result includes restructuring charges of EUR 93 million. Ericsson’s share in Sony Ericsson’s income before taxes was SEK –1.2 (0.7) billion.

Sony Ericsson’s primary competitors include Apple, HTC, LG, Motorola, Nokia, RIM and Samsung.

ST-Ericsson

ST-Ericsson is a 50/50 joint venture between STMicroelectronics and Ericsson, established in February, 2009. ST-Ericsson is accounted for according to the equity method.

At the end of 2011, ST-Ericsson was still in a shift from legacy to new products. Though its path to success is challenging, ST-Ericsson is, when entering 2012, continuing to focus on securing the successful execution and delivery of its new products to customers while lowering its break-even point.

The changes in the business environment at a large customer during 2011 reduced demand for legacy products and delayed the ramp-up of new products with that customer. In the light of the business environment at the end of 2011, ST-Ericsson’s CEO is reviewing the company’s strategic plan and financial prospects. Ericsson, together with its partner STMicroelectronics, is firmly committed to supporting ST-Ericsson in the transition to turn-over to sustainable profitability and cash generation. As a result of the strategic review, Ericsson may consider additional actions to solidify and accelerate ST-Ericsson’s path to profitability. In such an event, or in case of a significant worsening of business prospects, the value of ST-Ericsson for Ericsson could decrease to a value significantly lower than the current carrying amount of ST-Ericsson on Ericsson’s books and Ericsson might be required to take an impairment charge.

Sales in 2011 declined –28% to USD 1.7 (2.3) billion. The operating loss for the year, adjusted for restructuring costs, was USD –0.7 (–0.4) billion. ST-Ericsson reports in US-GAAP. Ericsson’s share in ST-Ericsson’s income before taxes, adjusted to IFRS, was SEK –2.7 (–1.8) billion. Adjustments for IFRS compliance mainly consist of capitalization of R&D expenses for hardware development. The Company’s net financial position was USD –798 (–82) million at year-end. At the end of the year, ST-Ericsson had utilized USD 800 million of a short-term credit facility granted on a 50/50 basis by the parent companies.

In December 2011, a new President and CEO of ST-Ericsson was appointed.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

ST-Ericsson’s major competitor is Qualcomm. The market is growing in complexity as several new operating systems for handsets and other devices have been launched, e.g. Google’s Android, Microsoft’s Windows phone and Samsung’s Bada.

LOGO

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

The Company has implemented strong social, environmental and ethical standards supporting risk management and value creation. This commitment generates positive business impacts, which in turn benefit society.

Ericsson’s approach to Sustainability and Corporate Responsibility (CR) is integrated into its core business operations and in its relationship with stakeholders. The Board of Directors considers these aspects in governance decision-making. Group level policies and directives ensure consistency across global operations.

Ericsson publishes an annual Sustainability and Corporate Responsibility Report which provides additional information.

Responsible business practices

Since 2000, Ericsson has actively supported the UN Global Compact, and endorses its ten principles regarding human and labor rights, anti-corruption and environmental protection. The Ericsson Group Management System includes policies and directives that cover responsible business practices, such as the Code of Business Ethics, Code of Conduct (CoC), anti-corruption and environmental management. It is reinforced by training, workshops and monitoring, including a global assessment program run by an external assurance provider where CR criteria represent some 20% of areas assessed.

Supply chain

Suppliers must comply with Ericsson’s CoC. Approximately 170 employees, covering all regions, are trained as supplier CoC auditors. The Company performs regular audits and works with suppliers to ensure measurable and continuous improvements. Findings are followed up to ensure that improvements are made. Training for suppliers is available in 13 languages. To effectively address the issue of conflict minerals, Ericsson participates in the Global e-Sustainability Initiative (GeSI) work on conflict minerals, and takes other active measures in its sourcing and product management processes.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Reducing environmental impact

Energy use for products in operation remains the Company’s most significant environmental impact. Ericsson works proactively with its customers to encourage network and site energy optimization, through innovative products, software, solutions and advisory services. Processes and controls are in place to ensure compliance with relevant product-related environmental, customer and regulatory requirements. The Company works actively to reduce its own environmental impact, with a focus on Design for Environment, which includes product energy efficiency and materials management, as well as facilities management, travel reduction and logistics.

Product take-back and recycling

Ericsson Ecology Management is a program to take responsibility for products at the end of their life and is offered to all customers globally free of charge, not only in markets where legislated.

During 2011, Ericsson worked actively to help build up e-waste capabilities in Africa, through a public private partnership in Ghana. This was done with the Raw Materials Group and the Ghana Environmental Protection Agency and was financed by the Nordic Development Fund. The goal is to establish local recycling capabilities and transform the current informal e-waste recycling yards into a formal business. This will help to reduce negative environmental and health impacts while also alleviating poverty.

Radio waves and health

Ericsson provides public information on radio waves and health, and supports independent research to further increase knowledge in this area. Ericsson has co-sponsored over 90 studies related to electromagnetic fields, radio waves and health since 1996. Independent expert groups and public health authorities, including the World Health Organization, have reviewed the total amount of research and 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.

LOGO

Ericsson is co-sponsoring the Swedish part of the COSMOS study, which is conducted in five countries. The study aims to carry out long term health monitoring of more than 200,000 people to identify if there are any health issues linked to long term mobile phone use. To assure scientific independence there is a firewall in place between the industrial sponsors and the researchers.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Climate change

ICT represents about 2% of global CO₂ emissions, but can potentially offset a significant portion of the remaining 98% from other industries. Ericsson takes active measures to ensure that its own carbon footprint intensity will be continuously reduced. A five year target which aims to reduce the carbon emission intensities by 40% was set in 2008. The target comprises two focus areas: Ericsson’s own activities and the life-cycle impacts of products in operation (see graph).

•

A 6% reduction in direct emission intensity from own activities was achieved during 2011. Despite delivering higher volumes, Ericsson still achieved the target of 70% surface transport by weight. Business travel is roughly the same per employee.

•

A 3% reduction was achieved in indirect emission intensity from products in operation. While the reduction was lower this year compared to last, Ericsson is well on track to meet its five year target.

•

Ericsson has increased 3G/4G energy efficiency by 85% over the last decade, while continuing to meet the bandwidth demands of the networked society, and without increasing energy consumption per subscriber.

Ericsson’s sustainability strategy focuses on the role broadband can play in helping to offset global CO₂ emissions, 70% of which are attributed to cities. Ericsson works on sustainable city solutions and is engaged in global climate policy. Ericsson’s CEO leads the Climate Change Working Group of the Broadband Commission. Ericsson also co-chairs the Policy Group in GeSI, and helped launch its Low Carbon Cities benchmark.

Meeting the UN Millennium Development Goals

Mobile connectivity fuels economic growth, which is vital for billions of people living at the base of the economic pyramid. Ericsson is committed to using its technology and competence to help achieve the Millennium Development Goals (MDGs). Ericsson launched the Technology for Good program in 2011. It focuses on applying the Company’s expertise, global presence and scale to find market-based solutions that empower people, business and society to help shape a more sustainable world.

Connect to Learn

In 2011, Ericsson and its partners, The Earth Institute at Columbia University and Millennium Promise, celebrated one year of progress for Connect To Learn, a global initiative focused on improving quality of and access to secondary education. Some 5,000 students now have access to education in schools throughout Millennium Villages and cities in Africa. An innovative cloud computing solution, PC as a Service, dramatically reduces the cost of access. The initiative has been extended to Latin America.

Ericsson Response™

Ericsson Response is a global Ericsson employee volunteer initiative which rapidly deploys communication solutions and provides telecommunications experts to assist disaster relief operations. Ericsson Response partners with many UN and humanitarian organizations. In 2011, Ericsson Response missions included the ‘One UN’ initiative in Tanzania, in collaboration with the World Food Programme. A partnership with operator SingTel was also announced to provide emergency communications services to support disaster relief efforts in South and Southeast Asia through Ericsson Response.

Reporting according to GRI 3.0

Full key performance data is available at www.ericsson.com and has achieved an A+ rating according to the Global Reporting Initiative (GRI). The performance data has been externally assured, and the application level has been checked by a third party.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

LOGO

CORPORATE GOVERNANCE

In accordance with the Annual Accounts Act (1995:1554 Chapter 6, Section 6 and 8), a separate Corporate Governance Report, including an Internal Control section, has been prepared.

Continued compliance with the Swedish Corporate Governance Code

Ericsson applies the Swedish Corporate Governance Code and is committed to complying with best-practice corporate governance standards on a global level wherever possible. This includes continued compliance with the corporate governance provisions expressed by the Code, without deviations.

An ethical business

Ericsson’s Code of Business Ethics summarizes the Group’s fundamental policies and directives governing its relationships internally, with its stakeholders and with others. It also sets out how the Group works to achieve and maintain its high ethical standards. There have been no amendments or waivers to Ericsson’s Code of Business Ethics for any Director, member of management or other employee.

Board of Directors 2011/2012

The Annual General Meeting on April 13, 2011, elected Leif Johansson new Chairman of the Board, replacing Michael Treschow. Roxanne S. Austin, Sir Peter L. Bonfield, Börje Ekholm, Ulf J. Johansson, Sverker Martin-Löf, Nancy McKinstry, Anders Nyrén, Carl-Henric Svanberg, Hans Vestberg and Michelangelo Volpi were re-elected and Jacob Wallenberg was elected new member of the Board. Pehr Claesson, Jan Hedlund and Karin Åberg were appointed employee representatives with Kristina Davidsson, Karin Lennartsson and Roger Svensson as deputies.

Management

Hans Vestberg is President and CEO of the Group since January 1, 2010. The President and CEO is supported by the Group management, consisting of the Executive Leadership Team (ELT). The ELT, in addition to the President and CEO, consists of heads of Group functions, heads of business units and two of the heads of Ericsson’s regions. Up until December 21, 2011, the Chief Brand Officer was part of ELT.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

A management system is in place to ensure that the business is well-controlled and has the ability to fulfill the objectives of major stakeholders within established risk limits. The system also monitors internal control and compliance with applicable laws, listing requirements and governance codes.

Remuneration

Fees to the members of the Board of Directors and the remuneration to Group management (the Executive Leadership Team, ELT), as well as the 2011 guidelines for remuneration to Group management, are reported in Notes to the Consolidated Financial Statements—Note C28, “Information Regarding Members of the Board of Directors, the Group management and Employees”.

As of December 31, 2011, 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.

The Board of Directors’ proposal for guidelines for remuneration to Group management

The Board of Directors proposes that the current guidelines for remuneration to the Group management (ELT) remain unchanged for the period up to the 2013 Annual General Meeting.

Details of how Ericsson delivers on these guidelines and policy, including information on previously decided long-term variable remuneration that has not yet become due for payment, can be found in Note C28, “Information regarding Members of the Board of Directors, the Group management and Employees”.

RISK MANAGEMENT

Risks are broadly categorized into operational and financial risks. Ericsson’s risk management is based on the following principles, which apply universally across all business activities and risk types:

•

Risk management is an integrated part of the Ericsson Group Management System

•

Each operational unit is accountable for owning and managing its risks according to policies, directives and process tools. Decisions are made or escalated according to defined delegation of authority. Financial risks are coordinated through Group Function Finance.

•

Risks are dealt with during the strategy process, the annual planning and target setting, the continuous monitoring through monthly and quarterly steering group meetings and during operational processes by transaction (customer bid/ contract, acquisition, investment and product development projects). They are subject to various controls such as decision tollgates and approvals.

A central security unit coordinates management of certain risks, such as business interruption, information security and physical security. The Crisis Management Council deals with events of serious nature.

For information on risks that could impact the fulfillment of the targets and form the basis for mitigating activities, see the other sections of the Board of Directors’ Report, Notes C2, “Critical Accounting Estimates and Judgments”, C14, “Trade receivables and customer finance”, C19, “Interest-bearing liabilities”, C20, “Financial risk management and financial instruments” and the chapter Risk Factors.

LEGAL AND TAX PROCEEDINGS

Together with most of the mobile communications industry, Ericsson was sued in two class action lawsuits in the US in which plaintiffs alleged that adverse health effects could be associated with mobile phone usage. The

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

cases were pending in federal court in Pennsylvania and the Superior Court of the District of Columbia. In the Pennsylvania case, the federal district court dismissed the plaintiffs’ claims as preempted by federal law. The Third Circuit Court of Appeals subsequently affirmed this ruling, and in October 2011, the Supreme Court declined to consider the case. The plaintiff has no further right of appeal, and as a result, the Pennsylvania case is officially closed.

In the District of Columbia case, the plaintiff dismissed Ericsson from the case with prejudice in February 2011 shortly after an opinion by the D.C. Court of Appeals made it clear that the plaintiff did not have standing to sue Ericsson under the D.C. consumer protection statute.

In January 2011, a US company SynQor filed a patent infringement lawsuit against Ericsson Inc. alleging that Ericsson infringes five US patents related to bus converters. In February 2011, SynQor filed a motion for preliminary injunction seeking to prevent Ericsson from manufacturing, using, selling, and offering for sale in the US and/or importing into the US certain unregulated and semi-regulated bus converters and any Ericsson products that contain those bus converters. In May 2011, Ericsson and SynQor entered into a confidential settlement agreement that resulted in mutual releases and a dismissal with prejudice of all claims asserted by the parties against each other in the litigation.

In May 2011, Ericsson settled a US patent infringement lawsuit brought by an Australian company, QPSX Developments PTY Ltd. The lawsuit had been pending since April 2007 and involved Asynchronous Transfer Mode (ATM) technology. Ericsson considers this matter closed.

In July 2011, a US company TruePosition sued Ericsson, Qualcomm, Alcatel-Lucent (ALU), the European Telecommunications Standards Institute (ETSI) and the Third Generation Partnership Project (3GPP) for purported federal antitrust violations. The complaint alleges that Ericsson, Qualcomm and ALU illegally conspired to block the adoption of TruePosition’s proprietary technology into the new mobile positioning standards for LTE, while at the same time ensuring that their own technology was included into the new standards. In October 2011, the defendants filed motions to dismiss the case.

The Swedish fiscal authorities disallowed deductions for sales commission payments via external service companies to sales agents in certain countries. 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. The Administrative Court of Appeal in Stockholm affirmed the County Administrative Court’s judgment. The judgment was appealed to the Administrative Supreme Court. In February 2011 the Administrative Supreme Court revoked the County Administrative Court’s judgment and ruled in Ericsson’s favor, thus allowing deductions for sales commission payments.

SOURCING AND SUPPLY

Ericsson’s hardware, accounting for approximately 40% of total sales, largely consists of electronics, such as circuit boards, radio frequency (RF) modules and antennas. For manufacturing, the Company purchases customized and standardized components and services from several global providers as well as from local and regional suppliers. Certain types of components, such as power modules and cables, are produced in-house.

The production of electronic modules and sub-assemblies is mostly outsourced to manufacturing services companies, of which the vast majority is in low-cost countries. Production of radio base stations is largely done in-house and on-demand. This consists of assembling and testing modules and integrating them into units such as complete radio base stations and mobile switching centers. Final assembly and testing are concentrated to a few sites. Ericsson has 17 manufacturing sites in Brazil, China, Estonia, Italy, India and Sweden.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

A number of suppliers design and manufacture highly specialized and customized components. The Company generally attempts to negotiate global supply agreements with its primary suppliers. All Ericsson suppliers are required to comply with the Code of Conduct.

Where possible, Ericsson relies on alternative supply sources and seeks to avoid single source supply situations.

A need to switch to an alternative supplier may require allocation of additional resources to ensure that technical standards and other requirements are met. This process could take some time to complete.

Variations in market prices for raw materials generally have a limited effect on total cost of goods sold.

MATERIAL CONTRACTS

Material contractual obligations are outlined in Note C31 “Contractual obligations”. These are primarily related to operating leases for office and production facilities, purchase contracts for outsourced manufacturing, R&D and IT operations, and the purchase of components for the Company’s own manufacturing.

Ericsson is party to certain agreements, which include provisions that may take effect or be altered or invalidated by a change in control of the Company as a result of a public takeover offer. However, none of the agreements currently in effect would entail any material consequence to Ericsson due to a change in control of the Company.

PARENT COMPANY

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

The Parent Company has 6 (6) branch offices. In total, the Group has 70 (68) branch and representative offices.

Financial information

Income after financial items was SEK 4.4 (7.8) billion. The Parent Company had no sales in 2011 or 2010 to subsidiaries, while 31% (45%) of total purchases of goods and services were from such companies.

Major changes in the Parent Company’s financial position for the year included:

•

Increased current and non-current receivables from subsidiaries of SEK 2.7 billion

•

Decreased other current receivables of SEK 1.7 billion

•

Decreased cash, cash equivalents and short-term investments of SEK 14.5 billion

•

Decreased current and non-current liabilities to subsidiaries of SEK 7.8 billion

•

Increased other current liabilities of SEK 2.4 billion.

At year end, cash, cash equivalents and short-term investments amounted to SEK 56.1 (70.6) billion.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Share information

As per December 31, 2011, the total number of shares in issue was 3,273,351,735, of which 261,755,983 were Class A shares, each carrying one vote, and 3,011,595,752 Class B shares, each carrying one tenth of one vote. The two largest shareholders at year end were Investor and Industrivärden holding 21.48% and 14.34% respectively of the voting rights in the Parent Company.

Both classes of shares have the same rights of participation in the net assets and earnings.

In accordance with the conditions of the Long-Term Variable Remuneration Program (LTV) for Ericsson employees, 10,242,012 treasury shares were sold or distributed to employees in 2011. The quotient value of these shares was SEK 51.2 million, representing less than 1% of capital stock, and compensation received amounted to SEK 122.9 million. The holding of treasury stock at December 31, 2011 was 62,846,503 Class B shares. The quotient value of these shares is SEK 314.2 million, representing 1.9% of capital stock, and the related acquisition cost amounts to SEK 535.0 million.

Proposed disposition of earnings

The Board of Directors proposes that a dividend of SEK 2.50 (2.25) per share be paid to shareholders duly registered on the record date May 8, 2012, and that the Parent 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. Assuming that no treasury shares remain on the record date, the Board of Directors proposes that earnings be distributed as follows:


Amount to be paid to the shareholders	SEK	8,183,379,338
Amount to be retained by the Parent Company	SEK	32,536,021,737

Total non-restricted equity of the Parent Company	SEK	40,719,401,075

As a basis for its dividend proposal, 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 52% (52%) and a net cash amount of SEK 39.5 (51.3) 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 the Board of Directors’ 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 as well as coming years’ business plans and economic development.

POST-CLOSING EVENTS

On January 12, 2012, Ericsson announced the closing of the acquisition of all the shares in Telcordia, a global leader in the development of software and services for OSS/BSS, for USD 1.15 billion in an all cash transaction, on a cash and debt-free basis. Balances to facilitate a Purchase Price Allocation have not yet been

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

established. Approximately 2,600 skilled employees have joined Ericsson. This acquisition consolidates Ericsson’s position as a leading player in the operations support systems and business support systems (OSS/BSS) market with a key position in service fulfillment, assurance, network optimization and real-time charging.

On January 14, 2012, as per the trust’s funding requirements, the Company made an employer contribution payment of SEK 900 million to the Swedish pension trust fund.

On January 20, 2012, Ulf Ewaldsson was appointed Senior Vice President, Chief Technology Officer, Head of Group function Technology and Portfolio Management, effective as of February 1.

In February 2012, Airvana Networks Solutions Inc., a State of Delaware, US corporation (“Airvana”), filed a complaint against Ericsson Inc. and Ericsson AB in the Supreme Court of the State of New York, US, alleging that Ericsson has violated key contract terms and misappropriated Airvana trade secrets and proprietary information. Airvana is seeking damages of USD 330 million and to enjoin Ericsson from developing, deploying or commercializing Ericsson products allegedly based on Airvana’s proprietary technology.

On February 16, 2012, Ericsson announced that the Company, on February 15, 2012, completed the divestment of its 50% stake in Sony Ericsson Mobile Communications AB. The divestment was originally jointly announced by Sony Corporation and Ericsson on October 27, 2011. The deal includes a broad IP cross-licensing agreement. Sony Ericsson is now a wholly-owned subsidiary of Sony. The agreed cash consideration for the transaction is EUR 1.05 billion.

The divestment has resulted in a gain of approximately SEK 7.5 billion, to be recognized in the first quarter of 2012 and reported under Other operating income and expenses.

BOARD ASSURANCE

The Board of Directors and the President declare that the consolidated financial statements have been prepared in accordance with IFRS, as adopted by the EU, and give a fair view of the Group’s financial position and results of operations. The financial statements of the Parent Company have been prepared in accordance with generally accepted accounting principles in Sweden and give a fair view of the Parent Company’s financial position and results of operations.

The Board of Directors’ Report for the Ericsson Group and the Parent Company provides a fair view of the development of the Group’s and the Parent Company’s operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

Stockholm February 24, 2012

Telefonaktiebolaget LM Ericsson (publ)

Org. no. 556016-0680


Sverker Martin-Löf	Leif Johansson	Jacob Wallenberg
Deputy Chairman	Chairman	Deputy Chairman

Roxanne S. Austin	Sir Peter L. Bonfield	Börje Ekholm
Member of the Board	Member of the Board	Member of the Board

Ulf J. Johansson	Nancy McKinstry	Anders Nyrén
Member of the Board	Member of the Board	Member of the Board

Carl-Henric Svanberg	Hans Vestberg	Michelangelo Volpi
Member of the Board	President, CEO and member of the Board	Member of the Board

Pehr Claesson	Jan Hedlund	Karin Åberg
Member of the Board	Member of the Board	Member of the Board

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Telefonaktiebolaget LM Ericsson (publ)

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders equity and cash flows present fairly, in all material respects, the financial position of Telefonaktiebolaget LM Ericsson and its subsidiaries at December 31, 2011 and December 31, 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, which can be found herein, under “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide 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 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 4, 2012


By:		/s/ PricewaterhouseCoopers
Name:		PricewaterhouseCoopers AB

ERICSSON ANNUAL REPORT ON FORM 20-F 2011

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED INCOME STATEMENT

January–December, SEK million

Notes

2011

2010

2009

Net sales

C3, C4

226,921

203,348

206,477

Cost of sales

–147,200

–129,094

–136,278

Gross income

79,721

74,254

70,199

Gross margin (%)

35.1

36.5

34.0

Research and development expenses

–32,638

–31,558

–33,055

Selling and administrative expenses

–26,683

–27,072

–26,908

Operating expenses

–59,321

–58,630

–59,963

Other operating income and expenses

1,278

2,003

3,082

Operating income before shares in earnings of joint ventures and associated companies

21,678

17,627

13,318

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

9.6

8.7

6.5

Share in earnings of joint ventures and associated companies

C12

–3,778

–1,172

–7,400

Operating income

17,900

16,455

5,918

Financial income

2,882

1,047

1,874

Financial expenses

–2,661

–1,719

–1,549

Income after financial items

18,121

15,783

6,243

Taxes

–5,552

–4,548

–2,116

Net income

12,569

11,235

4,127

Net income attributable to:

Stockholders of the Parent Company

12,194

11,146

3,672

Non-controlling interest

375

455

Other information

Average number of shares, basic (million)

3,206

3,197

3,190

Earnings per share attributable to stockholders of the Parent Company, basic (SEK)¹⁾

3.80

3.49

1.15

Earnings per share attributable to stockholders of the Parent Company, diluted (SEK)¹⁾

3.77