Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

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

the Securities Exchange Act of 1934

April 26, 2010

 

 

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

 

 

Torshamnsgatan 23, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨             No  x

 

 

 

Announcement of LM Ericsson Telephone Company, dated April 26, 2010 regarding “Ericsson first quarter results.”


Table of Contents

LOGO

FIRST QUARTER REPORT

April 23, 2010

ERICSSON FIRST QUARTER RESULTS

CEO COMMENTS

“Group sales in the quarter declined -9% year-over-year with lower sales in Networks but with an increase in Global Services,” says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC).

“Sales for comparable units, adjusted for currency exchange rate effects and hedging declined year-over-year -16%. Voice related sales, such as 2G, continued to decline in the quarter but were partly offset by increased 3G sales. Sales were also impacted by tight industry component supply conditions.

Gross margin improved, positively affected by business mix and continued efficiency gains. Cash flow improved year-over-year. The work to regain profitability in our joint ventures is on track and Sony Ericsson shows improved results year-over-year.

The market conditions we saw in the second half of 2009 prevailed also in this quarter with mixed operator investment behavior across regions and markets. Operators in a number of developing markets were still cautious with their investments which impacted Networks’ sales while Professional Services sales were good also this quarter.

During the quarter, the mobile data traffic increase continued, mainly in North America and Western Europe, driven by increased consumer usage of smartphones and other devices. We forecast that mobile data traffic will double annually over the next five years. In markets with strong data traffic uptake, we increasingly discuss with operators how to manage the higher data volumes and how to maintain a good consumer user experience. The 16 managed services contracts signed during the quarter reflect increased operator focus on network quality and efficiency.

We also continued to strengthen our position in North America with the important 4G/LTE agreement with AT&T. With a clear roadmap for CDMA, customers show confidence in our broadened offering. The acquired CDMA business developed favorably during the quarter,” concludes Hans Vestberg.

 

SEK b.

   First quarter     Fourth quarter  
   2010     2009     Change     2009     Change  

Net sales

   45.1      49.6      -9   58.3      -23

Gross margin

   39   36   —        35   —     

EBITA margin excl JVs1)

   13   12   —        15   —     

Operating income excl JVs

   4.5      4.7      -4   7.5      -39

Operating margin excl JVs

   10   10   —        13   —     

Ericsson’s share in earnings in JVs

   -0.3      -2.2      —        -0.4      —     

Income after financial items

   4.1      3.3      23   6.7      -38

Net income

   1.3      1.8      -30   0.7      76

EPS diluted, SEK

   0.39      0.54      —        0.10      —     

Adjusted cash flow2)

   3.0      -1.7      —        13.6      —     

Cash flow from operations

   2.3      -2.9      —        12.5      —     

Restructuring charges excl JVs

   2.2      0.7      —        4.2     

All numbers, excl. EPS, Net income and Cash flow from operations, excl. restructuring charges.

 

1)

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

2)

Cash flow from operations excl. restructuring cash outlays that have been provided for. Cash outlays in the quarter were SEK 0.7 (1.2) b. For the fourth quarter, cash outlays amounted to SEK 1.1 b.

 

  1


Table of Contents

FINANCIAL HIGHLIGHTS

Income statement and cash flow

Sales in the quarter were down -9% year-over-year and -23% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, declined -16% year-over-year. The net impact of currency exchange rate effects and hedging was limited. During the quarter, operators in a number of developing markets were still cautious with investments which impacted sales, primarily in Networks. This was partly offset by continued good services sales.

Gross margin, excluding restructuring, improved year-over-year to 39% (36%) due to efficiency gains and product mix. Sequentially, the gross margin improved from 35% for the same reasons.

Operating expenses were reduced to SEK 13.1 (13.6) b., excluding restructuring charges. This includes operating expenses from the acquired CDMA business. The year-over-year decline is primarily a result of ongoing cost reduction activities. Other operating income and expenses were SEK 0.3 (0.3) b. in the quarter.

Operating income, excluding joint ventures and restructuring charges, amounted to SEK 4.5 (4.7) b., including positive contribution from the acquired CDMA business. Operating margin was stable at 10% (10%) in the quarter, despite lower year-over-year sales, but declined sequentially as a result of seasonally lower sales.

Ericsson’s share in earnings of joint ventures, before tax, amounted to SEK -0.3 (-2.2) b. excluding restructuring charges, compared to SEK -0.4 b. in the fourth quarter. Sequentially, Sony Ericsson improved sales and margins significantly due to efficiency programs and new products, while ST-Ericsson’s loss increased mainly due to lower sales and seasonality. Restructuring charges in joint ventures were SEK 0.1 b in the quarter.

Financial net was SEK -0.2 (0.8) b., mainly due to low interest rates and negative currency revaluation effects on financial assets and liabilities.

Net income amounted to SEK 1.3 (1.8) b. and earnings per share were SEK 0.39 (0.54).

Adjusted cash flow improved to SEK 3.0 (-1.7) b. in the quarter, down sequentially from SEK 13.6 b. However, cash flow from operations improved year-over-year due to focus on capital efficiency. Cash flow in the quarter was negatively affected by an employer contribution to pension trusts of SEK 0.9 (1.5) b.

Balance sheet and other performance indicators

 

SEK b.

   Mar 31
2010
    Dec 31
2009
    Sep 30
2009
    Jun 30
2009
    Mar 31
2009
 

Net cash

   38.5      36.1      33.9      27.9      22.9   

Interest-bearing liabilities and post-employment benefits

   39.3      40.7      45.9      47.6      41.2   

Trade receivables

   62.7      66.4      62.4      69.4      75.2   

Days sales outstanding

   117      106      118      121      124   

Inventory

   24.1      22.7      26.8      29.0      30.7   

Of which regional inventory

   14.0      12.9      15.9      17.7      18.9   

Inventory days

   75      68      77      78      83   

Payable days

   59      57      57      59      65   

Customer financing, net

   2.9      2.3      2.7      3.1      2.8   

Return on capital employed

   5   4   4   5   7

Equity ratio

   53   52   52   51   52

 

Ericsson First Quarter Report 2010   2


Table of Contents

Trade receivables decreased by SEK 3.7 b in the quarter to SEK 62.7 (66.4) b., impacted by seasonally lower sales, days sales outstanding (DSO) increased sequentially from 106 to 117 days.

Inventory increased by SEK 1.4 b. in the quarter to SEK 24.1 (22.7) b. due to seasonal build-up. The year-over-year reduction is partly due to lower sales and product mix shift. Turnover improved year-over-year to 75 days due to improved project execution.

The net cash position increased by SEK 2.4 b. in the quarter to SEK 38.5 (36.1) b. Cash, cash equivalents and short-term investments amounted to SEK 77.9 (76.7) b.

During the quarter, approximately SEK 1.6 b. of provisions were utilized, of which SEK 0.7 b. related to restructuring. Additions of SEK 1.8 b. were made, of which SEK 0.7 b. related to restructuring. Reversals of SEK 0.5 b. were made.

Cost reductions

The ongoing cost reduction program, initiated in first quarter 2009, will be completed by the second quarter 2010 and the total annual savings of the entire program are estimated to SEK 15-16 b. from the second half of 2010.

In the first quarter, restructuring charges, excluding joint ventures, amounted to SEK 2.2 b. At the end of the quarter, cash outlays of SEK 4.2 b. remain to be made. Total restructuring charges for the program are estimated to SEK 15 b. of which approximately SEK 1.5 b remains. Cash outlays related to this program will be made also after the finalizing of the program in the second quarter 2010.

 

Restructuring charges, SEK b.

   2009
Full year
   2010
Q1

Cost of sales

   -4.2    -0.8

Research and development expenses

   -6.1    -0.3

Selling and administrative expenses

   -1.0    -1.1

Total

   -11.3    -2.2

SEGMENT RESULTS

 

      First quarter     Fourth quarter  

SEK b.

   2010     2009     Change     2009     Change  

Networks sales

   24.7      28.8      -14   31.8      -22

EBITA margin1)

   16   14   —        19   —     

Operating margin

   12   12   —        17   —     

Global Services sales

   18.1      17.5      3   23.1      -22

Of which Professional Services

   13.3      12.8      4   16.5      -20

Of which managed services

   4.9      4.2      17   5.1      -4

Of which Network Rollout

   4.8      4.7      3   6.7      -27

EBITA margin1)

   12   10   —        10   —     

Of which Professional Services

   16   16   —        14   —     

Operating margin

   11   10   —        9   —     

Of which Professional Services

   15   15   —        13   —     

Multimedia sales

   2.3      3.2      -29   3.4      -31

EBITA margin1)

   -5   8   —        17   —     

Operating margin

   -13   2   —        10   —     

Total sales

   45.1      49.6      -9   58.3      -23

All numbers exclude restructuring charges

 

1)

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

 

Ericsson First Quarter Report 2010   3


Table of Contents

Change in segment reporting

As of January 1, 2010, Ericsson reports the following business segments: Networks, Global Services, Multimedia, Sony Ericsson and ST-Ericsson. The only change compared to last year is that Network Rollout services is now included in Global Services and excluded from Networks. All other segments are reported as before. With this change the external reporting is aligned with the new internal reporting structure.

Networks

Networks’ sales in the quarter declined by -14% year-over-year, positively impacted by CDMA sales. However, tight industry component supply conditions affected sales in the quarter. This was more than offset by the acquired CDMA operations.

Voice related sales, such as 2G access and core continued to decline. Increased mobile broadband (3G) sales, including radio, mobile backhaul and packet core, partly offset this impact. In a number of developing markets the conditions we saw in the second half of 2009 prevailed also in this quarter, especially in Sub-Saharan Africa and South East Asia, and negatively impacted sales.

The integration of acquired CDMA assets progresses well.

EBITA margin in the quarter increased year-over-year to 16% (14%) despite lower sales, positively impacted by continued efficiency gains, product mix as well as a higher proportion of software.

Technology milestones in the quarter include; the world’s first live 2.5 Gbps microwave radio connection, world record of 84 Mbps HSPA. Ericsson maintains its number one position in wireless infrastructure and is now larger than its two nearest competitors combined.

Global Services

Global Services sales grew 3% year-over-year and declined -22% sequentially. Professional Services sales increased 4% year-over-year and in local currencies growth amounted to 12% year-over-year. Managed Services sales in the quarter increased by 17% year-over-year. Network Rollout sales increased 3% year-over-year.

There is a continued good demand for services targeting the operational efficiency of operators, such as managed services, systems integration and consulting. Services related to 2G voice sales developed unfavorably.

EBITA margin for Global Services improved year-over-year to 12% (10%) and was up from 10% sequentially due to continued efficiency gains and improved project management in network rollout.

EBITA margin for Professional Services amounted to 16% (16%) in the quarter and was up from 14% sequentially. The margin was however somewhat negatively impacted by large managed services deals in transformation phase.

During the quarter 16 managed services contracts were signed of which approximately half were extensions or expansions of existing customer agreements.

Ericsson now provides support for networks that serve more than two billion subscribers worldwide. The total number of subscribers in managed networks is now 410 million, of which 50% are in high-growth markets. The number of services employees amounts to over 40,000 globally.

Multimedia

Multimedia sales in the quarter decreased by -29% year-over-year and -31% sequentially, due to continued slower sales of revenue management solutions in regions Sub-Saharan Africa, Middle East and South East Asia and Oceania. Sales in multimedia brokering (IPX) were also somewhat slower.

The TV business continued to show good development with strong demand for compression technology and IPTV solutions.

EBITA margin declined to -5% (8%) year-over-year as a result of the lower volumes.

 

Ericsson First Quarter Report 2010   4


Table of Contents

Sony Ericsson

 

     First quarter     Fourth quarter  

EUR m.

   2010     2009     Change     2009     Change  

Number of units shipped (m.)

   10.5      14.5      -28   14.6      -28

Average selling price (EUR)

   134      120      12   120      12

Net sales

   1,405      1,736      -19   1,750      -20

Gross margin

   31   8   —        23   —     

Operating margin

   1   -21   —        -10   —     

Income before taxes

   18      -370      —        -190      —     

Income before taxes, excl restructuring charges

   21      -358      —        -40      —     

Net income

   21      -293      —        -167      —     

Units shipped in the quarter were 10.5 million, a decrease of -28% year-over-year. Sales in the quarter were EUR 1,405 million, a decrease of -19% year-over-year.

Average selling price in the quarter increased by 12% due to good sell through of existing models and new flagship phones starting to ship at the end of the quarter and a positive currency effect.

Gross margin improved both sequentially and year-over-year, reflecting a more favorable product mix and the benefit of cost of sales improvements in the past year, as well as the resolution of certain royalty matters during the quarter.

Income before taxes for the quarter, excluding restructuring charges, was a profit of EUR 21 (-358) million, illustrating the positive impact of the cost reduction program. As of March 31, 2010, Sony Ericsson had a net cash position of EUR 563 million.

During the first quarter 2010 Sony Ericsson obtained additional external funding of EUR 150 million. The funding is guaranteed by the parent companies on a 50/50 basis.

Ericsson’s share in Sony Ericsson’s income before tax was SEK 0.1 (-1.0) b. in the quarter.

ST-Ericsson

 

      2010    2009

USD m.

   Q1    Q1 Pro Forma    Feb-Mar    Q4

Net sales

   606    562    391    740

Adjusted operating income 1)

   -114    -149    -78    -50

Operating income before taxes

   -164    -179    -98    -139

Net income

   -154    NA    -89    -125

 

1)

Operating income adjusted for amortization of acquired intangibles and restructuring charges

Net sales in the quarter showed a -18% decrease sequentially, due to the impact of the ongoing portfolio transition, to seasonal effects as well as the number of days in the quarter.

The sequential change in operating loss mostly reflects lower sales, the effect of an unfavorable product mix and the lower contribution from European funding programs which positively impacted the previous quarters.

Inventory declined due to continued control of the supply chain.

Net cash was USD 120 million at the end of the quarter with a sequential decline of USD 109 million mainly due to the operating loss and cash outflows related to restructuring.

The restructuring runs according to plan.

ST-Ericsson is reported in US GAAP. Ericsson’s share in ST-Ericsson’s income before tax, adjusted to IFRS, was SEK -0.5 b. in the quarter, including restructuring charges of SEK -0.1 b. Ericsson Mobile Platforms incurred a loss of SEK -0.5 b. in January 2009, which was included in the result in segment ST-Ericsson. The reported result in the segment in the first quarter 2009 was therefore SEK -0.7 b.

 

Ericsson First Quarter Report 2010   5


Table of Contents

REGIONAL OVERVIEW

 

     First quarter     Fourth quarter  

Sales, SEK b.

   2010    2009    Change     2009    Change  

North America

   9.5    4.8    99   9.4    1

Latin America

   4.0    4.4    -9   5.9    -32

Northern Europe and Central Asia

   2.3    2.9    -20   3.5    -34

Western and Central Europe

   5.2    5.4    -3   6.1    -15

Mediterranean

   5.1    6.1    -17   7.1    -28

Middle East

   3.9    4.0    0   5.0    -22

Sub-Saharan Africa

   2.4    4.7    -48   3.8    -37

India

   2.3    4.0    -43   3.4    -33

China and North East Asia

   5.0    5.8    -15   7.4    -33

South East Asia and Oceania

   3.5    5.2    -32   5.2    -32

Other

   1.9    2.3    -19   1.5    30

Total

   45.1    49.6    -9   58.3    -23

Change in regional reporting

As of January 1, 2010, the geographical reporting is changed. Instead of five geographical areas, ten regions are reported which mirrors the new internal geographical organization.

North America sales increased 99% year-over-year and 1% sequentially. The integration of acquired CDMA assets progresses well. The very strong data traffic increase continues in North America due to mobile broadband adoption. Smartphones and laptops with embedded modules and dongle type devices are important drivers. Ericsson’s position in North America was further strengthened in the first quarter with the 4G/LTE award from AT&T.

Latin America sales decreased by -9% year-over-year and by -32% sequentially. With data traffic uptake operators are looking into mobile broadband investments, including required backhaul capacity. New 3G licenses are planned to be auctioned in the region later this year (Brazil, Costa Rica and Mexico). There is continued good development in services, especially managed services. The tragic earthquakes in Chile and Haiti highlighted the importance for us to be able to support our customers in responding to emergencies.

Northern Europe and Central Asia sales decreased by -20% year-over-year and by -34% sequentially. The decrease is mainly related to sales of mobile network infrastructure while services sales are stable. Northern Europe saw good demand for mobile broadband as well as modernization of fixed networks. Central Asia still saw low investment levels.

Western and Central Europe sales decreased -3% year-over-year and -15% sequentially. Development in the region showed large variations, where Western Europe and especially UK developed favorably and Germany showed stable development, while parts of Central Europe were still slow. 4G/LTE and network modernization is high on operators agendas, services remain strong and represent half of the sales in the quarter.

Mediterranean sales decreased -17% year-over-year and -28% sequentially. The demand for increased mobile broadband capacity continues, but operator investments in Spain and Greece remain low. Operators focus on operational efficiency leads to continued good demand for managed services and consulting. The year-over-year sales were negatively impacted by the reduced scope by a managed services agreement in Italy but improved sequentially.

Middle East sales were flat year-over-year and down -22% sequentially, with mixed development across the region. Services sales were strong in the quarter, especially in Saudi Arabia. Sales of mobile network infrastructure declined although we saw a strong quarter in Turkey and in some of the Gulf countries.

Sub-Saharan Africa sales decreased by -48% year-over-year and -37% sequentially. The region continued to be impacted by the global economic climate which is reflected in decreased operator investments. The region is predominately a market where 2G rollouts are in operators’ focus. However, 3G is picking up from low levels. Furthermore, the interest for managed services is increasing among operators. Operator consolidation is also taking place in the region, which temporarily reduced investments.

 

Ericsson First Quarter Report 2010   6


Table of Contents

India sales decreased -43% year-over-year and -33% sequentially due to cautious operator investments pending 3G auctions. The decline in business volumes mainly affected mobile networks infrastructure sales while recurring services business maintained its good development. During the quarter, Ericsson secured a USD 1.3 b. agreement with Bharti to expand and upgrade Airtel’s network in 15 of India’s 22 telecom circles. Subscription growth continues, driven by tariff competition among operators.

China and North East Asia sales decreased -15% year-over-year and by -33% sequentially. However, the comparison year-over-year is tough due to the large 3G rollouts in China in the first quarter 2009. Mainland China operators’ focus is still on achieving a successful 3G introduction, with subscriber take up and high network quality. In Japan, the high mobile data growth continues.

South East Asia and Oceania sales decreased -32% both year-over-year and sequentially. The year-over-year comparison is tough due to significant deals and major network expansions in the first quarter 2009. Operators in many markets, such as Bangladesh, Indonesia and the Philippines, continued to be cautious with investments. There is continued uncertainty over timing of 3G licenses in Bangladesh and Thailand. In markets where 3G has been deployed we see continued growth in mobile broadband usage. In Vietnam, major 3G rollouts are taking place.

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

MARKET DEVELOPMENT

Growth rates are based on Ericsson and market estimates

Operator investment activities continued to vary between regions and countries. Operators in a number of developing markets were still cautious with investments. In markets with strong data traffic uptake, network quality and efficiencies are high on operators’ agendas.

While the global mobile infrastructure market declined by more than 10% in 2009, measured in USD, we believe that the fundamentals for longer-term positive development for the industry remain solid. Ericsson is well positioned to drive and benefit from this development.

Global mobile data traffic has surpassed voice traffic. In addition, 3G/WCDMA traffic has surpassed GSM traffic. Ericsson’s findings show that mobile data traffic globally grew 280% during the last two years and is forecast to double annually over the next five years. The data traffic growth is contributing to operator revenue growth as more and more consumers use data traffic generating devices, such as smartphones and laptops.

The growth in mobile and fixed internet traffic is mainly driven by video, 24/7 connectivity, and IPTV.

With operators’ focus on increased network quality and efficiency, the ability to deal with high data volumes while maintaining telecom grade service levels is key. This also drives demand for services targeting the operational efficiency of operators, such as managed services and consulting.

As a consequence of the strong growth in mobile data traffic, there are signs of operator price plans for mobile data starting to move beyond bundles and flat rates to variable or tiered pricing, where high-speed and volume users pay more.

Mobile subscriptions grew by 184 million in the quarter to a total of 4.8 billion, returning to higher growth levels. Global mobile penetration is now 70%. China and India alone accounted for 44% of net additions with 28 and 53 million respectively.

The global number of new WCDMA subscriptions grew by 39 million in the quarter to a total of 490 million, of which 225 million are estimated to be HSPA. In the fourth quarter 2009, fixed broadband connections grew to 457 million, adding 19 million subscribers.

Voice traffic is still the main revenue source for operators even though data represents an increasing share. For many large operators, mobile data revenues constitute 25% of total service revenues or more. In addition to capacity enhancements, operators face the challenge of converting to all-IP broadband networks. This will include increased deployments of broadband access, routing and transmission equipment along with next-generation service delivery and revenue management systems.

There is continued good growth in professional services, fueled by operators’ desire to reduce operating expenses and improve efficiency in network operation and maintenance. The move toward all-IP and increased network complexity will create further demand for systems integration and consulting.

 

Ericsson First Quarter Report 2010   7


Table of Contents

PARENT COMPANY INFORMATION

Net sales for the first quarter amounted to SEK 0.0 (0.2) b. and income after financial items was SEK -0.6 (1.4) b. A write-down of intangible assets in the amount of SEK 0.9 b. was made during the first quarter.

Major changes in the Parent Company’s financial position for the first quarter include; decreased current and non-current receivables from subsidiaries of SEK 7.9 b.; increased cash, cash equivalents and short-term investments of SEK 3.0 b. and decreased current and non-current liabilities to subsidiaries of SEK 5.3 b.

At the end of the quarter cash, cash equivalents and short-term investments amounted to SEK 65.4 (62.4) b.

Guarantees to Sony Ericsson Mobile Communications AB are reported as contingent liabilities and amounted to SEK 1.5 (0.8) b.

In accordance with the conditions of the long-term variable remuneration program (LTV) for Ericsson employees, 1,276,203 shares from treasury stock were sold or distributed to employees during the first quarter. The holding of treasury stock at March 31, 2010, was 77,702,330 Class B shares.

ANNUAL GENERAL MEETING OF SHAREHOLDERS

The Annual General Meeting (AGM) decided, as previously announced and in accordance with the proposal by the Board of Directors, on a dividend payment of SEK 2.00 per share for 2009 and with April 16, 2010, as the date of record for the dividend. The total dividend payment amounts to SEK 6.4 (6.0) b.

In accordance with the Board of Directors’ proposals, the AGM resolved the completion of LTV 2009 (Long Term Variable compensation). The AGM also resolved the implementation of LTV 2010, including transfer of shares. In addition, the AGM resolved the transfer of treasury stock for previously decided LTV programs. For more details, see www.ericsson.com/investors

 

Ericsson First Quarter Report 2010   8


Table of Contents

OTHER INFORMATION

Acquisition of Nortel’s GSM business completed

On March 31, 2010, Ericsson completed the acquisition of Nortel’s North American GSM business. On November 25, 2009, Ericsson announced it had entered into an agreement for these assets. More than 350 employees from Nortel will be integrated into the Ericsson Group over the coming months. The acquired operations are expected to be accretive to Ericsson’s earnings within a year after closing.

All shares in LHS acquired

On February 23, 2010, Ericsson announced that it had acquired all shares in LHS. The remaining minority shareholders in LHS AG have sold their shares in a squeeze out process. A delisting of LHS from the Deutsche Börse, Frankfurt am Main, was finalized during the quarter.

Acquisition of Pride Spa completed

In the quarter, Ericsson completed the acquisition of Pride Spa in Italy, a consulting and systems integration company. The intention to acquire Pride Spa was announced on January 12, 2010.

Changes in Ericsson’s executive leadership team

On February 8, 2010, Ericsson announced that Mats H Olsson, head of China and North East Asia, and Angel Ruiz, head of North America, have been appointed members of the executive leadership team.

In parallel, it was announced a reorganization from 23 market units to ten regions. Effective July 1, 2010, Marita Hellberg, current head of corporate HR, takes on HR in region China and North East Asia. A new head of HR will be announced separately.

Key events after end of the quarter

On April 21, 2010, Ericsson announced it had entered into share purchase agreement to acquire Nortel’s majority shareholding (50%+1 share) in LG-Nortel, the joint venture of LG Electronics and Nortel Networks. The acquisition will significantly expand Ericsson’s footprint in the Korean market and provide Ericsson with a well established sales channel and strong R&D capability in the country. The purchase price is USD 242 m. on a cash and debt free basis. The new name of the joint venture will be LG-Ericsson. The transaction is subject to customary regulatory approvals.

On April 20, 2010, Ericsson announced it had signed a memorandum of understanding to establish a strategic cooperation with Chinese Datang Telecom Technology & Industry Holdings Co Ltd to jointly developed advanced TDD solutions. As part of the memorandum of understanding Ericsson will start integrating Datang’s current TD-SCDMA radio access network equipment into its own 3G mobile communications offering.

 

Ericsson First Quarter Report 2010   9


Table of Contents

Assessment of risk environment

Ericsson’s operational and financial risk factors and uncertainties are described under “Risk factors Assessment of risk environment” in our Annual Report 2009.

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

results and capital needs of our two major joint ventures, Sony Ericsson and ST-Ericsson, which both are negatively affected to a larger extent than our three other segments by the current economic slowdown;

 

 

effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. intensified price competition;

 

 

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

 

 

political unrest or instability in certain markets;

 

 

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

 

 

effects on production and sales from restrictions in transport facilities as a result of the Iceland volcanic activities.

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

Please refer further to Ericsson’s Annual Report 2009, where we describe our risks and uncertainties along with our strategies and tactics to mitigate the risk exposures or limit unfavorable outcomes.

Stockholm, April 23, 2010

Hans Vestberg, President and CEO

Telefonaktiebolaget LM Ericsson (publ)

Date for next report: July 23, 2010

 

Ericsson First Quarter Report 2010   10


Table of Contents

AUDITORS’ REVIEW REPORT

We have reviewed this report for the period January 1 to March 31, 2010, for Telefonaktiebolaget LM Ericsson (publ). The board of directors and the CEO are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

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

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

Stockholm, April 23, 2010

PricewaterhouseCoopers AB

Peter Clemedtson

Authorized Public Accountant

EDITOR’S NOTE

To read the complete report with tables, please go to: www.ericsson.com/investors/financial_reports/2010/3 month10-en.pdf

Ericsson invites media, investors and analysts to a press conference at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00 (CET), April 23.

An analysts, investors and media conference call will begin at 14.00 (CET).

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

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

 

Ericsson First Quarter Report 2010   11


Table of Contents

FOR FURTHER INFORMATION, PLEASE CONTACT

Henry Sténson, Senior Vice President, Communications

Phone: +46 10 719 4044

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

 

Investors

 

Susanne Andersson,

Investor Relations

Phone: +46 10 719 4631

E-mail: investor.relations@ericsson.com

 

Media

 

Åse Lindskog, Vice President,

Head of Public and Media Relations

Phone: +46 10 719 9725, +46 730 244 872

E-mail: media.relations@ericsson.com

Andreas Hedemyr,

Investor Relations

Phone: +46 10 714 3748

E-mail: investor.relations@ericsson.com

 

Ola Rembe,

Public and Media Relations

Phone: +46 10 719 9727, +46 730 244 873

E-mail: media.relations@ericsson.com

 

Telefonaktiebolaget LM Ericsson (publ)

Org. number: 556016-0680

Torshamnsgatan 23

SE-164 83 Stockholm

Phone: +46 10 719 0000

www.ericsson.com

Disclosure Pursuant to the Swedish Securities Markets Act

Ericsson discloses the information provided herein pursuant to the Securities Markets Act. The information was submitted for publication at 07.30 CET, on April 23, 2010.

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

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

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

 

Ericsson First Quarter Report 2010   12


Table of Contents

FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION

 

     Page

Financial statements

  

Consolidated income statement and statement of comprehensive income

   14

Consolidated balance sheet

   15

Consolidated statement of cash flows

   16

Consolidated statement of changes in equity

   17

Consolidated income statement - isolated quarters

   18

Consolidated statement of cash flows - isolated quarters

   19

Parent Company income statement

   20

Statement on Comprehensive Income

   20

Parent Company balance sheet

   20
     Page

Additional information

  

Accounting policies

   21

Accounting policies (cont.)

   22

Net sales by segment by quarter

   23

Operating income by segment by quarter

   24

Operating margin by segment by quarter

   24

EBITA by segment by quarter

   25

EBITA margin by segment by quarter

   25

Net sales by region by quarter

   26

Net sales by region by quarter (cont.)

   27

External net sales by region by segment

   28

Top 5 countries in sales

   28

Provisions

   29

Number of employees

   29

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

   29

Other information

   30

Ericsson planning assumptions for year 2010

   30

Consolidated operating income, excluding restructuring charges

   31

Restructuring charges by function

   31

Restructuring charges by segment

   31

Operating income by segment, excluding restructuring charges

   32

Operating margin by segment, excluding restructuring charges

   32

EBITA by segment, excluding restructuring charges

   32

EBITA margin by segment, excluding restructuring charges

   32

 

Ericsson First Quarter Report 2010   13


Table of Contents

Consolidated Income Statement

 

      Jan - Mar     Change     Jan -  Dec
2009
 

SEK million

   2010     2009      

Net sales

   45,112      49,569      -9   206,477   

Cost of sales

   -28,527      -31,957      -11   -136,278   
                        

Gross income

   16,585      17,612      -6   70,199   

Gross margin (%)

   36.8   35.5     34.0

Research and development expenses

   -7,526      -7,080      6   -33,055   

Selling and administrative expenses

   -7,008      -6,863      2   -26,908   
                        

Operating expenses

   -14,534      -13,943      4   -59,963   

Other operating income and expenses

   302      342      -12   3,082   
                        

Operating income before shares in earnings of JV and associated companies

   2,353      4,011      -41   13,318   

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

   5.2   8.1     6.5

Shares in earnings of JV and associated companies

   -372      -2,236        -7,400   
                        

Operating income

   1,981      1,775      12   5,918   

Financial income

   278      1,260        1,874   

Financial expenses

   -438      -457        -1,549   
                        

Income after financial items

   1,821      2,578      -29   6,243   

Taxes

   -547      -745        -2,116   
                        

Net income

   1,274      1,833      -30   4,127   
                        

Net income attributable to:

        

- Stockholders of the Parent Company

   1,264      1,717        3,672   

- Minority interests

   10      116        455   
Other information         

Average number of shares, basic (million)

   3,195      3,187        3,190   

Earnings per share, basic (SEK)1)

   0.40      0.54        1.15   

Earnings per share, diluted (SEK)1)

   0.39      0.54        1.14   
Statement of Comprehensive Income   
      Jan - Mar           Jan - Dec
2009
 

SEK million

   2010     2009          

Net income

   1,274      1,833        4,127   

Other comprehensive income

        

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

   -286      -1,184        -605   

Revaluation of other investments in shares and participations

        

Fair value remeasurement

   —        -1        -2   

Cash flow hedges

        

Gains/losses arising during the period

   196      -2,586        672   

Reclassification adjustments for gains /losses included in profit or loss

   -290      4,402        3,850   

Adjustments for amounts transferred to initial carrying amount of hedged items

   —        -1,261        -1,029   

Changes in cumulative translation adjustments

   -615      3,460        -1,361   

Tax on items relating to components of OCI

   11      -156        -1,040   
                    

Total other comprehensive income

   -984      2,674        485   
                    

Total comprehensive income

   290      4,507        4,612   
                    

Total comprehensive income attributable to:

        

- Stockholders of the Parent Company

   259      4,326        4,211   

- Minority interests

   31      181        401   

 

1)

Based on Net income attributable to stockholders of the Parent Company

 

Ericsson First Quarter Report 2010   14


Table of Contents

Consolidated Balance Sheet

 

SEK million

   Mar 31
2010
   Dec 31
2009
ASSETS      
Non-current assets      
Intangible assets      

Capitalized development expenses

   2,189    2,079

Goodwill

   27,638    27,375

Intellectual property rights, brands and other intangible assets

   17,107    18,739
Property, plant and equipment    9,319    9,606
Financial assets      

Equity in JV and associated companies

   11,286    11,578

Other investments in shares and participations

   240    256

Customer financing, non-current

   979    830

Other financial assets, non-current

   1,948    2,577

Deferred tax assets

   14,710    14,327
         
   85,416    87,367

Current assets

     

Inventories

   24,126    22,718

Trade receivables

   62,695    66,410

Customer financing, current

   1,885    1,444

Other current receivables

   15,853    15,146

Short-term investments

   56,816    53,926

Cash and cash equivalents

   21,039    22,798
         
   182,414    182,442

Total assets

   267,830    269,809
         

EQUITY AND LIABILITIES

     

Equity

     

Stockholders’ equity

   140,290    139,870

Minority interests in equity of subsidiaries

   1,163    1,157
         
   141,453    141,027

Non-current liabilities

     

Post-employment benefits

   8,061    8,533

Provisions, non-current

   499    461

Deferred tax liabilities

   2,307    2,270

Borrowings, non-current

   29,257    29,996

Other non-current liabilities

   2,200    2,035
         
   42,324    43,295

Current liabilities

     

Provisions, current

   11,566    11,970

Borrowings, current

   2,017    2,124

Trade payables

   17,806    18,864

Other current liabilities

   52,664    52,529
         
   84,053    85,487

Total equity and liabilities

   267,830    269,809
         

Of which interest-bearing liabilities and post-employment benefits

   39,335    40,653

Net cash

   38,520    36,071

Assets pledged as collateral

   558    550

Contingent liabilities

   884    1,245

 

Ericsson First Quarter Report 2010   15


Table of Contents

Consolidated Statement of Cash Flows

 

     Jan - Mar    Jan - Dec

SEK million

   2010    2009    2009

Operating activities

        

Net income

   1,274    1,833    4,127

Adjustments to reconcile net income to cash

        

Taxes

   -166    -628    -1,011

Earnings/dividends in JV and associated companies

   313    1,764    6,083

Depreciation, amortization and impairment losses

   3,133    1,852    12,124

Other

   -435    -623    -340
            

Net income affecting cash

   4,119    4,198    20,983

Changes in operating net assets

        

Inventories

   -1,465    -2,362    5,207

Customer financing, current and non-current

   -598    -1    598

Trade receivables

   3,954    1,810    7,668

Trade payables

   -955    -1,360    -3,522

Provisions and post-employment benefits

   -1,058    -3,265    -2,950

Other operating assets and liabilities, net

   -1,703    -1,878    -3,508
            
   -1,825    -7,056    3,493

Cash flow from operating activities

   2 294    -2,858    24 476

Investing activities

        

Investments in property, plant and equipment

   - 659    -1,018    -4 006

Sales of property, plant and equipment

   47    25    534

Acquisitions/divestments of subsidiaries and other operations, net

   -1 080    -9,491    -18,082

Product development

   - 278    -209    -1,443

Other investing activities

   1 859    -1,417    2,606

Short-term investments

   -3 844    -424    -17,071
            

Cash flow from investing activities

   -3,955    -12,534    -37,462

Cash flow before financing activities

   -1,661    -15,392    -12,986

Financing activities

        

Dividends paid

   —      —      -6,318

Other financing activities

   -56    1,874    4,617
            

Cash flow from financing activities

   -56    1,874    -1,701

Effect of exchange rate changes on cash

   -42    53    -328

Net change in cash

   -1,759    -13,465    -15,015

Cash and cash equivalents, beginning of period

   22,798    37,813    37,813

Cash and cash equivalents, end of period

   21,039    24,348    22,798
              

 

Ericsson First Quarter Report 2010   16


Table of Contents

Consolidated Statement of Changes in Equity

 

SEK million

   Jan - Mar
2010
   Jan - Mar
2009
   Jan - Dec
2009

Opening balance

   141,027    142,084    142,084

Total comprehensive income

   290    4,507    4,612

Stock issue

   —      —      135

Sale / Repurchase of own shares

   3    22    -60

Stock purchase and stock option plans

   158    210    658

Dividends paid

   —      —      -6,318

Business combinations

   -25    —      -84
              

Closing balance

   141,453    146,823    141,027
              

 

Ericsson First Quarter Report 2010   17


Table of Contents

Consolidated Income Statement – Isolated Quarters

 

     2010     2009  

SEK million

   Q1     Q4     Q3     Q2     Q1  

Net sales

   45,112      58,333      46,433      52,142      49,569   

Cost of sales

   -28,527      -39,335      -30,455      -34,531      -31,957   
                              

Gross income

   16,585      18,998      15,978      17,611      17,612   

Gross margin (%)

   36.8   32.6   34.4   33.8   35.5

Research and development expenses

   -7,526      -9,306      -8,218      -8,451      -7,080   

Selling and administrative expenses

   -7,008      -7,323      -5,279      -7,443      -6,863   
                              

Operating expenses

   -14,534      -16,629      -13,497      -15,894      -13,943   

Other operating income and expenses

   302      878      222      1,640      342   
                              

Operating income before shares in earnings of JV and associated companies

   2,353      3,247      2,703      3,357      4,011   

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

   5.2   5.6   5.8   6.4   8.1

Shares in earnings of JV and associated companies

   -372      -1,461      -1,559      -2,144      -2,236   
                              

Operating income

   1,981      1,786      1,144      1,213      1,775   

Financial income

   278      314      296      4      1,260   

Financial expenses

   -438      -719      -294      -79      -457   
                              

Income after financial items

   1,821      1,381      1,146      1,138      2,578   

Taxes

   -547      -656      -374      -341      -745   
                              

Net income

   1,274      725      772      797      1,833   
                              

Net income attributable to:

          

- Stockholders of the Parent Company

   1,264      314      810      831      1,717   

- Minority interests

   10      411      -38      -34      116   
Other information           

Average number of shares, basic (million)

   3,195      3,194      3,190      3,188      3,187   

Earnings per share, basic (SEK)1)

   0.40      0.10      0.25      0.26      0.54   

Earnings per share, diluted (SEK)1)

   0.39      0.10      0.25      0.26      0.54   
                              

 

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

 

Ericsson First Quarter Report 2010   18


Table of Contents

Consolidated Statement of Cash Flows – Isolated Quarters

 

     2010    2009

SEK million

   Q1    Q4    Q3    Q2    Q1

Operating activities

              

Net income

   1,274    725    772    797    1,833

Adjustments to reconcile net income to cash

              

Taxes

   -166    1,394    -1,137    -640    -628

Earnings/dividends in JV and associated companies

   313    1,282    1,319    1,718    1,764

Depreciation, amortization and impairment losses

   3,133    3,892    3,268    3,112    1,852

Other

   -435    -52    978    -643    -623
                      

Net income affecting cash

   4,119    7,241    5,200    4,344    4,198

Changes in operating net assets

              

Inventories

   -1,465    5,303    660    1,606    -2,362

Customer financing, current and non-current

   -598    472    394    -267    -1

Trade receivables

   3,954    -2,814    3,655    5,017    1,810

Trade payables

   -955    1,797    -2,096    -1,863    -1,360

Provisions and post-employment benefits

   -1,058    -157    -1,060    1,532    -3,265

Other operating assets and liabilities, net

   -1,703    684    -1,076    -1,238    -1,878
                      
   -1,825    5,285    477    4,787    -7,056

Cash flow from operating activities

   2,294    12,526    5,677    9,131    -2,858

Investing activities

              

Investments in property, plant and equipment

   -659    -1,109    -690    -1,189    -1,018

Sales of property, plant and equipment

   47    296    99    114    25

Acquisitions/divestments of subsidiaries and other operations, net

   -1,080    -8,822    -750    981    -9,491

Product development

   -278    -662    -245    -327    -209

Other investing activities

   1,859    -89    3,226    886    -1,417

Short-term investments

   -3,844    678    -17,847    522    -424
                      

Cash flow from investing activities

   -3,955    -9,708    -16,207    987    -12,534

Cash flow before financing activities

   -1,661    2,818    -10,530    10,118    -15,392

Financing activities

              

Dividends paid

   —      -342    -20    -5,956    —  

Other financing activities

   -56    -5,804    535    8,012    1,874
                      

Cash flow from financing activities

   -56    -6,146    515    2,056    1,874

Effect of exchange rate changes on cash

   -42    441    -1,263    441    53

Net change in cash

   -1,759    -2,887    -11,278    12,615    -13,465

Cash and cash equivalents, beginning of period

   22,798    25,685    36,963    24,348    37,813

Cash and cash equivalents, end of period

   21,039    22,798    25,685    36,963    24,348
                        

 

Ericsson First Quarter Report 2010   19


Table of Contents

Parent Company Income Statement

 

     Jan - Mar    Jan - Dec

SEK million

   2010    2009    2009

Net sales

   10    238    300

Cost of sales

   -7    22    -21
              

Gross income

   3    260    279

Operating expenses

   -1,316    -713    -3,137

Other operating income and expenses

   612    745    2,977
              

Operating income

   -701    292    119

Financial net

   71    1,127    7,962
              

Income after financial items

   -630    1,419    8,081

Transfers to (-) / from untaxed reserves

   —      —      902

Taxes

   200    -370    -804
              

Net income

   -430    1,049    8,179
              

Statement of Comprehensive Income

 

        
     Jan - Mar    Jan - Dec

SEK million

   2010    2009    2009

Net income

   -430    1,049    8,179

Cash flow hedges

        

Gains/losses arising during the period

   —      612    612

Adjustments for amounts transferred to initial carrying amount of hegded items

   —      -1,385    -1,385

Tax on items reported directly in or transferred from equity

   —      204    204
            

Other comprehensive income

   —      -569    -569
            

Total comprehensive income

   -430    480    7,610
              

 

Parent Company Balance Sheet

 

        

SEK million

        Mar 31
2010
   Dec 31
2009

ASSETS

        

Fixed assets

        

Intangible assets

      1,217    2,219

Tangible assets

      506    527

Financial assets

      97,336    101,344
            
      99,059    104,090

Current assets

        

Inventories

      61    61

Receivables

      19,924    23,704

Short-term investments

      56,816    53,926

Cash and cash equivalents

      8,612    8,477
            
      85,413    86,168

Total assets

      184,472    190,258
            

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

        

Equity

        

Restricted equity

      47,859    47,859

Non-restricted equity

      41,528    41,953
            
      89,387    89,812

Untaxed reserves

      915    915

Provisions

      1,056    1,069

Non-current liabilities

      54,287    57,011

Current liabilities

      38,827    41,451

Total stockholders’ equity, provisions and liabilities

      184,472    190,258
            

Assets pledged as collateral

      558    550

Contingent liabilities

      14,547    13,072
            

 

Ericsson First Quarter Report 2010   20


Table of Contents

Accounting Policies

The Group

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2009, and should be read in conjunction with that annual report.

As from January 1, 2010, the Company has applied the following new or amended IFRS:

 

 

IFRS 3 Business Combinations (revised)

The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, an expansion of the definition of a business and a business combination, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquis ition- related costs should be expensed as incurred.

 

 

IAS 27 Consolidated and separate financial statements (revised)

The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains or losses. The standard also specifies the ac- counting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in income statement.

The following new or amended standards and interpretations have also been adopted:

 

 

IFRIC17, Distributions of Non-Cash Assets to Owners (Issued November 27, 2008)

 

 

IFRS 2, amendment, Group Cash-settled Share-based Payment Transactions (issued June 18, 2009)

 

 

Improvements to IFRSs (Issued April 16, 2009)

None of the new or amended standards and interpretations has had any significant impact on the financial result or position of the Company. There is no difference between IFRS effective as per March 31, 2010 and IFRS as endorsed by the EU. However, the impact on business combination accounting due to the revised IFRS 3 Business Combinations is dependent on type and size of any future arrangement involving business combination.

 

Ericsson First Quarter Report 2010   21


Table of Contents

Accounting Policies (cont.)

Changes in external reporting

Change in segments

As of January 1, 2010, Ericsson reports the following segments: Networks, Global Services, Multimedia, Sony Ericsson and ST- Ericsson. The only change compared to previous years is that Network Rollout is now included in Global Services instead of Networks. All other segments are unchanged. With this change the external reporting is aligned with the new internal reporting structure.

Segments as of January 1, 2010:

Networks

Global Services

Of which Professional Services

Of which Managed Services

Of which Network Rollout

Multimedia

Sony Ericsson

ST-Ericsson

Change in geographical break down

As of January 1, 2010, the geographical reporting structure is changed. Instead of five geographical areas, ten regions are reported, mirroring the new internal geographical organization. A part called “Other” is also be reported, consisting of business not reported in the geographical structure, e.g. embedded modules, cables, power modules as well as intellectual property rights and licenses.

Regions as of January 1, 2010:

North America

Latin America

North Europe and Central Asia

Western and Central Europe

Mediterranean

Middle East

Sub-Saharan Africa

India

China and Northeast Asia

South East Asia and Oceania

Other

In 2008 and 2009 Ericsson reported top 15 countries. As of January 1, 2010, top five countries are reported.

EBITA replaces EBITDA

As of January 1, 2010, EBITA and EBITA margin for segments are reported. This is also reported for Network Rollout and Profes- sional Services in Global Services. For the Managed Services sales figures are reported. EBITA is defined as Earnings Before Interest, Tax, Amortizations and write-downs of acquired intangibles. EBITA margin is defined as Earnings Before Interest, Taxes, Amortizations and write-downs of acquired intangibles, as a percentage of Net Sales. Previous years, Ericsson has reported EBITDA. The shift to EBITA is done to better reflect the underlying business.

Numbers have been restated for 2009 accordingly.

 

Ericsson First Quarter Report 2010   22


Table of Contents

Net Sales by Segment by Quarter

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

 

     2010     2009  

Isolated quarters, SEK million

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   24,704      31,844      24,504      28,795      28,842   

Global Services1)

   18,098      23,137      18,578      20,019      17,486   

Of which Professional services

   13,251      16,466      12,780      14,077      12,799   

Of which Managed services

   4,888      5,098      3,570      4,587      4,178   

Of which Network rollout

   4,847      6,671      5,798      5,942      4,687   

Multimedia

   2,310      3,352      3,351      3,328      3,241   
                          

Total

   45,112      58,333      46,433      52,142      49,569   
                          
     2010     2009  

Sequential change, percent

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   -22   30   -15   0   -25

Global Services1)

   -22   25   -7   14   -26

Of which Professional services

   -20   29   -9   10   -21

Of which Managed services

   -4   43   -22   10   -2

Of which Network rollout

   -27   15   -2   27   -38

Multimedia

   -31   0   1   3   -17
                          

Total

   -23   26   -11   5   -26
                          
     2010     2009  

Year over year change, percent

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   -14   -17   -13   1   13

Global Services1)

   3   -3   13   27   20

Of which Professional services

   4   2   9   28   28

Of which Managed services

   17   19   -1   37   37

Of which Network rollout

   3   -12   24   24   4

Multimedia

   -29   -14   -4   23   25
                          

Total

   -9   -13   -6   7   12
                          
     2010     2009  

Year to date, SEK million

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks1)

   24,704      113,985      82,141      57,637      28,842   

Global Services1)

   18,098      79,220      56,083      37,505      17,486   

Of which Professional services

   13,251      56,122      39,656      26,876      12,799   

Of which Managed services

   4,888      17,433      12,335      8,765      4,178   

Of which Network rollout

   4,847      23,098      16,427      10,629      4,687   

Multimedia

   2,310      13,272      9,920      6,569      3,241   
                          

Total

   45,112      206,477      148,144      101,711      49,569   
                          
     2010     2009  

Year to date, year over year change, percent

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks1)

   -14   -5   0   7   13

Global Services1)

   3   12   20   24   20

Of which Professional services

   4   15   21   28   28

Of which Managed services

   17   22   24   37   37

Of which Network rollout

   3   7   18   14   4

Multimedia

   -29   5   13   24   25
                          

Total

   -9   -1   4   10   12
                          

 

1)

For 2009 Networks and Global Services are restated in accordance with the change in segments.

 

Ericsson First Quarter Report 2010   23


Table of Contents

Operating Income by Segment by Quarter

 

     2010     2009  

Isolated quarters, SEK million

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   1,540      2,128      1,138      1,265      3,067   

Global Services1)

   1,325      1,076      1,426      2,249      1,520   

Of which Professional Services

   1,419      1,347      1,628      2,265      1,749   

Of which Network rollout

   -94      -271      -202      -16      -229   

Multimedia

   -335      263      330      18      44   

Unallocated 2)

   -158      -287      -168      -323      -77   
                          

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

   2,372      3,180      2,726      3,209      4,554   

Sony Ericsson

   76      -1,044      -1,036      -1,543      -2,070   

ST-Ericsson 3)

   -467      -351      -546      -453      -709   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -391      -1395      -1,582      -1,996      -2,779   
                          

Total

   1,981      1785      1,144      1,213      1,775   
                              
     2010     2009  

Year to date, SEK million

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks1)

   1,540      7,598      5,470      4,332      3,067   

Global Services1)

   1,325      6,271      5,195      3,769      1,520   

Of which Professional Services

   1,419      6,990      5,643      4,015      1,749   

Of which Network rollout

   -94      -719      -448      -246      -229   

Multimedia

   -335      655      392      62      44   

Unallocated 2)

   -158      -855      -568      -400      -77   
                          

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

   2,372      13,669      10,489      7,763      4,554   

Sony Ericsson

   76      -5,693      -4,649      -3,613      -2,070   

ST-Ericsson 3)

   -467      -2,059      -1,708      -1,162      -709   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -391      -7,752      -6,357      -4,775      -2,779   
                          

Total

   1,981      5,917      4,132      2,988      1,775   
                              

 

Operating Margin by Segment by Quarter

 

          
     2010     2009  

As percentage of net sales, isolated quarters

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   6   7   5   4   11

Global Services1)

   7   5   8   11   9

Of which Professional Services

   11   8   13   16   14

Of which Network rollout

   -2   -4   -3   0   -5

Multimedia

   -15   8   10   1   1
                          

Subtotal excluding Sony Ericsson and ST-Ericsson

   5   5   6   6   9
                          
     2010     2009  

As percentage of net sales, Year to date

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks1)

   6   7   7   8   11

Global Services1)

   7   8   9   10   9

Of which Professional Services

   11   12   14   15   14

Of which Network rollout

   -2   -3   -3   -2   -5

Multimedia

   -15   5   4   1   1
                          

Subtotal excluding Sony Ericsson and ST-Ericsson

   5   7   7   8   9
                          

 

1)

For 2009 Networks and Global Services are restated in accordance with the change in segments.

2)

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

3)

First quarter 2009 includes a loss of SEK 0.5 b for January for Ericsson Mobile Platforms operations which as from February 1, 2009, are reported in ST-Ericsson. Second quarter 2009 includes a capital gain of SEK 0.1 b related to Ericsson Mobile Platforms. Fourth quarter 2009 includes a gain of SEK 0.1 b related to Ericsson Mobile Platforms.

 

Ericsson First Quarter Report 2010   24


Table of Contents

EBITA by Segment by Quarter

 

     2010     2009  

Isolated quarters, SEK million

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   3,052      4,268      3,064      3,071      3,604   

Global Services1)

   1,770      1,259      1,671      2,334      1,606   

Of which Professional Services

   1,764      1,503      1,863      2,339      1,825   

Of which Network rollout

   6      -244      -192      -5      -219   

Multimedia

   -123      514      468      226      249   

Unallocated 2)

   -158      -284      -162      -327      -73   
                          

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

   4,541      5,757      5,041      5,304      5,386   

Sony Ericsson

   76      -1,044      -1,036      -1,543      -2,070   

ST-Ericsson 3)

   -467      -351      -546      -453      -709   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -391      -1,395      -1,582      -1,996      -2,779   
                          

Total

   4,150      4,362      3,459      3,308      2,607   
                          
     2010     2009  

Year to date, SEK million

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks1)

   3,052      14,007      9,739      6,675      3,604   

Global Services1)

   1,770      6,870      5,611      3,940      1,606   

Of which Professional Services

   1,764      7,531      6,028      4,165      1,825   

Of which Network rollout

   6      -661      -417      -225      -219   

Multimedia

   -123      1,457      943      475      249   

Unallocated 2)

   -158      -846      -562      -400      -73   
                          

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

   4,541      21,488      15,731      10,690      5,386   

Sony Ericsson

   76      -5,693      -4,649      -3,613      -2,070   

ST-Ericsson 3)

   -467      -2,059      -1,708      -1,162      -709   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -391      -7,752      -6,357      -4,775      -2,779   
                          

Total

   4,150      13,736      9,374      5,915      2,607   
                              

 

EBITA Margin by Segment by Quarter

 

          
     2010     2009  

As percentage of net sales, isolated quarters

   Q1     Q4     Q3     Q2     Q1  

Networks1)

   12   13   13   11   13

Global Services1)

   10   5   9   12   9

Of which Professional Services

   13   9   15   17   14

Of which Network rollout

   0   -4   -3   0   -5

Multimedia

   -5   15   14   7   8
                          

Subtotal excluding Sony Ericsson and ST-Ericsson

   10   10   11   10   11
                          
     2010     2009  

As percentage of net sales, Year to date

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks1)

   12   12   12   12   13

Global Services1)

   10   9   10   11   9

Of which Professional Services

   13   13   15   16   14

Of which Network rollout

   0   -3   -3   -2   -5

Multimedia

   -5   11   10   7   8
                          

Subtotal excluding Sony Ericsson and ST-Ericsson

   10   10   11   11   11
                              

 

1)

For 2009 Networks and Global Services are restated in accordance with the change in segments.

2)

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

3)

First quarter 2009 includes a loss of SEK 0.5 b for January for Ericsson Mobile Platforms operations which as from February 1, 2009, are reported in ST-Ericsson. Second quarter 2009 includes a capital gain of SEK 0.1 b related to Ericsson Mobile Platforms. Fourth quarter 2009 includes a gain of SEK 0.1 b related to Ericsson Mobile Platforms.

 

Ericsson First Quarter Report 2010   25


Table of Contents

Net Sales by Region by Quarter

 

     2010     2009  

Isolated quarters, SEK million

   Q1     Q4     Q3     Q2     Q1  

North America

   9,498      9,436      3,980      5,734      4,762   

Latin America

   3,964      5,859      4,993      4,797      4,376   

Northern Europe & Central Asia1) 2)

   2,300      3,499      2,709      2,884      2,889   

Western & Central Europe2)

   5,235      6,141      5,494      5,437      5,387   

Mediterranean2)

   5,060      7,052      5,181      6,797      6,131   

Middle East

   3,948      5,041      4,503      4,750      3,956   

Sub Saharan Africa

   2,418      3,831      3,190      3,643      4,677   

India

   2,303      3,428      4,156      3,653      4,025   

China & North East Asia

   4,950      7,399      5,600      7,171      5,790   

South East Asia & Oceania

   3,517      5,171      4,790      5,679      5,209   

Other1) 2)

   1,919      1,476      1,837      1,597      2,367   
                              

Total

   45,112      58,333      46,433      52,142      49,569   
                              

1)        Of which Sweden

   1,047      732      1,076      1,091      1,197   

2)        Of which EU

   11,065      13,081      11,033      12,595      12,604   
                              
     2010     2009  

Sequential change, percent

   Q1     Q4     Q3     Q2     Q1  

North America

   1   137   -31   20   3

Latin America

   -32   17   4   10   -44

Northern Europe & Central Asia1) 2)

   -34   29   -6   0   -44

Western & Central Europe2)

   -15   12   1   1   -21

Mediterranean 2)

   -28   36   -24   11   -37

Middle East

   -22   12   -5   20   -26

Sub Saharan Africa

   -37   20   -12   -22   -4

India

   -33   -18   14   -9   -13

China & North East Asia

   -33   32   -22   24   -32

South East Asia & Oceania

   -32   8   -16   9   -20

Other1) 2)

   30   -20   15   -33   -17
                              

Total

   -23   26   -11   5   -26
                              

1)        Of which Sweden

   43   -32   -1   -9   -50

2)        Of which EU

   -15   19   -12   0   -31
                              
     2010     2009  

Year-over-year change, percent

   Q1     Q4     Q3     Q2     Q1  

North America

   99   104   -2   46   63

Latin America

   -9   -25   -18   -2   7

Northern Europe & Central Asia1) 2)

   -20   -32   -23   -9   -5

Western & Central Europe2)

   -3   -10   9   14   11

Mediterranean2)

   -17   -28   -23   3   -4

Middle East

   0   -6   10   12   -5

Sub Saharan Africa

   -48   -21   -17   5   47

India

   -43   -26   7   -5   42

China & North East Asia

   -15   -14   50   38   27

South East Asia & Oceania

   -32   -20   -13   15   29

Other1) 2)

   -19   -48   -33   -53   -42
                              

Total

   -9   -13   -6   7   12
                              

1)        Of which Sweden

   -13   -69   -51   -53   -40

2)       Of which EU

   -12   -29   -16   -6   -1
                              

 

Ericsson First Quarter Report 2010   26


Table of Contents

Net Sales by Region by Quarter (cont.)

 

     2010     2009  

Year to date, SEK million

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

North America

   9,498      23,912      14,476      10,496      4,762   

Latin America

   3,964      20,025      14,166      9,173      4,376   

Northern Europe & Central Asia1 ) 2)

   2,300      11,981      8,482      5,773      2,889   

Western & Central Europe2 )

   5,235      22,459      16,318      10,824      5,387   

Mediterranean2)

   5,060      25,161      18,109      12,928      6,131   

Middle East

   3,948      18,250      13,209      8,706      3,956   

Sub Saharan Africa

   2,418      15,341      11,510      8,320      4,677   

India

   2,303      15,262      11,834      7,678      4,025   

China & North East Asia

   4,950      25,960      18,561      12,961      5,790   

South East Asia & Oceania

   3,517      20,849      15,678      10,888      5,209   

Other1) 2)

   1,919      7,277      5,801      3,964      2,367   
                          

Total

   45,112      206,477      148,144      101,711      49,569   
                          

1)        Of which Sweden

   1,047      4,096      3,364      2,288      1,197   

2)        Of which EU

   11,065      49,313      36,232      25,199      12,604   
                          
     2010     2009  

Year to date, year-over-year change, percent

   Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

North America

   99   54   33   53   63

Latin America

   -9   -13   -6   2   7

Northern Europe & Central Asia1 ) 2)

   -20   -19   -13   -7   -5

Western & Central Europe2 )

   -3   4   11   13   11

Mediterranean2)

   -17   -15   -8   -1   -4

Middle East

   0   2   6   4   -5

Sub Saharan Africa

   -48   0   10   25   47

India

   -43   0   12   15   42

China & North East Asia

   -15   18   37   33   27

South East Asia & Oceania

   -32   -1   8   21   29

Other1) 2)

   -19   -45   -44   -47   -42
                          

Total

   -9   -1   4   10   12
                          

1)        Of which Sweden

   -13   -54   -48   -47   -40

2)        Of which EU

   -12   -14   -8   -4   -1
                              

 

Ericsson First Quarter Report 2010   27


Table of Contents

External Net Sales by Region by Segment

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

 

Isolated quarter, SEK million

Q1 2010

   Networks     Global
Services
    Multimedia     Total  

North America

   5,946      3,306      246      9,498   

Latin America

   2,254      1,475      235      3,964   

Northern Europe & Central Asia

   1,163      964      173      2,300   

Western & Central Europe

   2,275      2,727      233      5,235   

Mediterranean

   2,429      2,368      263      5,060   

Middle East

   1,994      1,704      250      3,948   

Sub Saharan Africa

   919      1,266      233      2,418   

India

   1,416      677      210      2,303   

China & North East Asia

   3,086      1,747      117      4,950   

South East Asia & Oceania

   1,628      1,784      105      3,517   

Other

   1,594      80      245      1,919   
                        

Total

   24,704      18,098      2,310      45,112   
                        

Share of Total

   55   40   5   100
                    

Top 5 Countries in Sales

 

Country

   Jan - Mar
2010
    Jan - Mar
2009
 

United States

   19   9

China

   7   7

India

   5   8

United Kingdom

   5   3

Italy

   4   5
            

 

Ericsson First Quarter Report 2010   28


Table of Contents

Provisions

 

     2010    2009

Isolated quarters, SEK million

   Q1    Q4    Q3    Q2    Q1

Opening balance

   12,431    12,386    13,957    12,592    14,350

Additions

   1,777    3,591    2,169    3,710    1,672

Utilization/Cash out

   -1,565    -2,612    -3,083    -1,982    -3,052

Of which restructuring

   -677    -1,075    -1,241    -753    -1,179

Reversal of excess amounts

   -498    -1193    -121    -146    -287

Reclassification, translation difference and other

   -81    259    -536    -217    -91
                      

Closing balance

   12,064    12,431    12,386    13,957    12,592
                      
     2010    2009

Year to date, SEK million

   Jan-Mar    Jan-Dec    Jan-Sep    Jan-Jun    Jan-Mar

Opening balance

   12,431    14,350    14,350    14,350    14,350

Additions

   1,777    11,142    7,551    5,382    1,672

Utilization/Cash out

   -1,565    -10,729    -8,117    -5,034    -3,052

Of which restructuring

   -677    -4,248    -3,173    -1,932    -1,179

Reversal of excess amounts

   -498    -1747    -554    -433    -287

Reclassification, translation difference and other

   -81    -585    -844    -308    -91
                      

Closing balance

   12,064    12,431    12,386    13,957    12,592
                        

 

Number of Employees

              
     2010    2009

End of period

   Mar 31    Dec 31    Sep 30    Jun 30    Mar 31

North America

   13,450    11,222    11,199    5,284    5,447

Latin America

   6,134    6,055    5,721    7,858    8,031

Northern Europe & Central Asia1 )

   21,813    21,993    22,103    21,200    21,410

Western & Central Europe

   11,418    11,622    11,701    11,822    11,615

Mediterranean

   10,884    9,509    10,019    10,061    10,013

Middle East

   3,598    3,744    3,778    3,867    3,945

Sub Saharan Africa

   2,044    2,104    2,202    1,853    1,832

India

   4,726    4,184    3,798    3,614    3,375

China & North East Asia

   7,400    6,894    6,773    6,409    6,029

South East Asia & Oceania

   5,070    5,166    5,232    5,280    5,223
                        

Total

   86,537    82,493    82,526    77,248    76,920
                        

1)        Of which Sweden

   18,082    18,217    18,311    18,605    18,812

 

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

     2010    2009

SEK million

   Q1    Q4    Q3    Q2    Q1

Additions

              

Property, plant and equipment

   659    1,110    690    1,189    1,018

Capitalized development expenses

   278    662    245    327    209

IPR, brands and other intangible assets

   622    5,941    438    50    7
                      

Total

   1,559    7,713    1,373    1,566    1,234
                        

Depreciation, amortization and impairment losses

              

Property, plant and equipment

   796    1,065    776    844    817

Capitalized development expenses

   168    251    177    173    202

IPR, brands and other intangible assets1)

   2,169    2,575    2,315    2,095    833
                      

Total

   3,133    3,891    3,268    3,112    1,852
                        

1)        Of which restructuring costs

   945    1,471    1,509    1,275    —  

 

Ericsson First Quarter Report 2010   29


Table of Contents

Other Information

 

     Jan - Mar     Jan - Dec  
     2010     2009     2009  
Number of shares and earnings per share       

Number of shares, end of period (million)

   3,273      3,246      3,273   

of which class A-shares (million)

   262      262      262   

of which class B-shares (million)

   3,011      2,984      3,011   

Number of treasury shares, end of period (million)

   78      59      79   

Number of shares outstanding, basic, end of period (million)

   3,196      3,187      3,194   

Numbers of shares outstanding, diluted, end of period (million)

   3,219      3,207      3,216   

Average number of treasury shares (million)

   78      60      75   

Average number of shares outstanding, basic (million)

   3,195      3,187      3,190   

Average number of shares outstanding, diluted (million)1)

   3,219      3,206      3,212   

Earnings per share, basic (SEK)

   0.40      0.54      1.15   

Earnings per share, diluted (SEK)1)

   0.39      0.54      1.14   
                  

1)        Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

           

Ratios

      

Days sales outstanding

   117      124      106   

Inventory turnover days

   75      83      68   

Payable days

   59      65      57   

Equity ratio (%)

   52.8   52.0   52.3

Return on equity (%)

   3.6   4.8   2.6

Return on capital employed (%)

   5.0   6.6   4.3

Capital turnover (times)

   1.0      1.1      1.1   

Payment readiness, end of period

   90,260      73,353      88,960   

Payment readiness, as percentage of sales

   50.0   37.0   43.1
                  

Exchange rates used in the consolidation

      

SEK/EUR  - average rate

   10.00      11.01      10.63   

        - closing rate

   9.72      10.97      10.30   

SEK/USD - average rate

   7.22      8.34      7.63   

        - closing rate

   7.21      8.23      7.18   
                  
Other       

Export sales from Sweden

   20,709      22,316      94,829   
                  

Ericsson Planning Assumptions for Year 2010

Research and development expenses

We estimate R&D expenses for the full year 2010 to be at around SEK 28-30 b. The estimate includes amortizations/write-downs of intangible assets related to major acquisitions previously made and excludes restructuring charges. However, currency effects may cause this to change.

Capital expenditures

Excluding acquisitions, the capital expenditures in relation to sales are not expected to be significantly different in 2010, remaining at roughly two percent of sales.

Utilization of provisions

The expected utilization of provisions for year 2010 is stated in the Annual Report 2009.

 

Ericsson First Quarter Report 2010   30


Table of Contents

Consolidated Operating Income excl. Restructuring Charges

 

     2010     2009  

SEK million

   Q1     Q4     Q3     Q2     Q1  

Net sales

   45,112      58,333      46,433      52,142      49,569   

Cost of sales

   -27,727      -37,675      -29,623      -33,215      -31,585   
                              

Gross income

   17,385      20,658      16,810      18,927      17,984   

Gross margin (%)

   38.5   35.4   36.2   36.3   36.3

Research and development expenses

   -7,265      -7,029      -6,418      -6,761      -6,802   

Selling and administrative expenses

   -5,881      -7,014      -5,164      -6,886      -6,809   
                              

Operating expenses

   -13,146      -14,043      -11,582      -13,647      -13,611   

Other operating income and expenses

   302      878      222      1,640      342   
                              

Operating income before share in earnings of JV and associated companies

   4,541      7,493      5,450      6,920      4,715   

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

   10.1   12.8   11.7   13.3   9.5

Share in earnings of JV and associated companies

   -260      -431      -1,480      -1,997      -2,170   
                              

Operating income

   4,281      7,062      3,970      4,923      2,545   

Earnings per share, basic (SEK) excl. JV’s and ass. comp

   0.96      1.37      1.21      1.53      1.19   

Earnings per share, diluted (SEK)1) excl. JV’s and ass. comp

   0.96      1.36      1.20      1.52      1.19   
                              

1)        Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

           

 

Restructuring Charges by Function

 

  

     2010     2009  

SEK million

   Q1     Q4     Q3     Q2     Q1  

Cost of sales

   -800      -1,660      -832      -1,317      -371   

Research and development expenses

   -261      -2,277      -1,800      -1,690      -278   

Selling and administrative expenses

   -1,127      -308      -115      -558      -53   
                              

Subtotal Ericsson excluding Sony Ericsson and ST-Ericsson

   -2,188      -4,245      -2,747      -3,565      -702   

Share in Sony Ericsson charges

   -15      -797      -9      -5      -66   

Share in ST-Ericsson charges

   -97      -233      -70      -140      -2   
                              

Subtotal Sony Ericsson and ST-Ericsson

   -112      -1,030      -79      -145      -68   
                              

Total

   -2,300      -5,275      -2,826      -3,710      -770   
                              

 

Restructuring Charges by Segment

 

  

     2010     2009  

SEK million

   Q1     Q4     Q3     Q2     Q1  

Networks

   -1,450      -3,166      -2,407      -2,283      -502   

Global Services

   -680      -951      -311      -982      -190   

Of which Professional Services

   -588      -850      -252      -767      -175   

Of which Network rollout

   -92      -101      -59      -215      -15   

Multimedia

   -45      -70      -28      -277      -10   

Unallocated

   -13      -58      -1      -23      —     
                          

Subtotal Ericsson excluding Sony Ericsson and ST-Ericsson

   -2,188      -4,245      -2,747      -3,565      -702   

Sony Ericsson

   -15      -797      -9      -5      -66   

ST-Ericsson

   -97      -233      -70      -140      -2   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -112      -1,030      -79      -145      -68   
                          

Total

   -2,300      -5,275      -2,826      -3,710      -770   
                              

 

Ericsson First Quarter Report 2010   31


Table of Contents

Operating Income by Segment excl. Restructuring Charges

 

      2010
Q1
    2009  

Isolated quarters, SEK million

     Q4     Q3     Q2     Q1  

Networks1)

   2,990      5,294      3,545      3,548      3,569   

Global Services1)

   2,005      2,027      1,737      3,231      1,710   

Of which Professional Services

   2,007      2,197      1,880      3,032      1,924   

Of which Network rollout

   -2      -170      -143      199      -214   

Multimedia

   -290      333      358      295      54   

Unallocated 2)

   -145      -229      -167      -300      -77   
                          

Subtotal Ericsson excluding Sony Ericsson and ST- Ericsson

   4,560      7,425      5,473      6,774      5,256   

Sony Ericsson

   91      -247      -1,027      -1,538      -2,004   

ST-Ericsson 3)

   -370      -118      -476      -313      -707   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -279      -365      -1,503      -1,851      -2,711   
                          

Total

   4,281      7,060      3,970      4,923      2,545   
                              

Operating Margin by Segment excl. Restructuring Charges

 

  

     2010
Q1
    2009  

As percentage of net sales, isolated quarters

     Q4     Q3     Q2     Q1  
Networks1)    12   17   14   12   12
Global Services1)    11   9   9   16   10

Of which Professional Services

   15   13   15   22   15

Of which Network rollout

   0   -3   -2   3   -5

Multimedia

   -13   10   11   9   2
                          

Subtotal excluding Sony Ericsson and ST- Ericsson

   10   13   12   13   11
                              
EBITA by Segment excl. Restructuring Charges   
     2010
Q1
    2009  

Isolated quarters, SEK million

     Q4     Q3     Q2     Q1  

Networks1)

   3,869      5,963      3,962      4,079      4,106   

Global Services1)

   2,176      2,210      1,982      3,316      1,796   

Of which Professional Services

   2,150      2,353      2,115      3,106      2,000   

Of which Network rollout

   26      -143      -133      210      -204   

Multimedia

   -116      584      496      503      259   

Unallocated2)

   -145      -226      -161      -304      -73   
                          

Subtotal Ericsson excluding Sony Ericsson and ST-Ericsson

   5,784      8,531      6,279      7,594      6,088   

Sony Ericsson

   91      -247      -1,027      -1,538      -2,004   

ST-Ericsson 3)

   -370      -118      -476      -313      -707   
                          

Subtotal Sony Ericsson and ST-Ericsson

   -279      -365      -1,503      -1,851      -2,711   
                          

Total

   5,505      8,166      4,776      5,743      3,377   
                              
EBITA Margin by Segment excl. Restructuring Charges   
     2010
Q1
    2009  

As percentage of net sales, isolated quarters

     Q4     Q3     Q2     Q1  

Networks1)

   16   19   16   14   14

Global Services1)

   12   10   11   17   10

Of which Professional Services

   16   14   17   22   16

Of which Network rollout

   1   -2   -2   4   -4

Multimedia

   -5   17   15   15   8
                          

Subtotal excluding Sony Ericsson and ST- Ericsson

   13   15   14   15   12
                              

 

1)

For 2009 Networks and Global Services are restated in accordance with the change in segments.

2)

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

3)

First quarter 2009 includes a loss of SEK 0.5 b for January for Ericsson Mobile Platforms operations which as from February 1, 2009, are reported in ST-Ericsson. Second quarter 2009 includes a capital gain of SEK 0.1 b related to Ericsson Mobile Platforms. Fourth quarter 2009 includes a gain of SEK 0.1 b related to Ericsson Mobile Platforms.

 

Ericsson First Quarter Report 2010   32


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)
By:   /S/    CARL OLOF BLOMQVIST        
  Carl Olof Blomqvist
  Senior Vice President and
  General Counsel
By:   /S/    HENRY STÉNSON        
  Henry Sténson
  Senior Vice President
  Corporate Communications

Date: April 26, 2010