Ericsson reports second quarter results

7/22/2008, 7:31 AM (Source: GlobeNewswire)
* Sales SEK 48.5 (47.6) b., 7% growth in constant currencies, SEK
92.7 (89.8) b. first six months
* Operating income SEK 4.7 1) (9.3) b., excl. restructuring charges
of SEK 1.8 b., SEK 9.0 (17.4) b. first six months, excl.
restructuring charges of SEK 2.6 b.
* Operating margin 9.7% 1) (19.4%), excl. restructuring charges of
SEK 1.8 b., 9.7% (19.4%) first six months, excl. restructuring
charges of SEK 2.6 b.
* Cash flow SEK 8.5 (4.2) b., SEK 13.3 (8.8) b. first six months
* Net income 2) SEK 1.9 1) (6.4) b., incl. restructuring charges of
SEK 1.8 b., SEK 4.5 (12.2) b. first six months, incl. restructuring
charges of SEK 2.6 b.
* Earnings per share 2) SEK 0.60 1) (2.02) 3), SEK 1.43 (3.85) 3)
first six months

1) Includes a capital gain of SEK 0.2 b. from divestment of
enterprise PBX operations
2) Attributable to stockholders of the Parent Company, excluding
minority interests.
3) A reverse split 1:5 was made in June 2008. Comparable figures
restated accordingly.


"The overall business activity shows stable development," said
Carl-Henric Svanberg, President and CEO of Ericsson (NASDAQ:ERIC).
"With no major changes in the market environment, we still find it
prudent to plan for a flattish mobile infrastructure market in 2008
and our focus on adjusting our cost base remains.

Sales have continued to pick up in the US, Western Europe has
remained slow while we see good development in most high-growth
markets. The continued decline of the USD impacts sales growth and
margins negatively also in this quarter.

Networks showed a sequential margin improvement despite a continued
high proportion of buildouts of new networks in high-growth markets,
including accelerating volumes to India. Professional Services
continues to develop favorably with stable margins and Multimedia
shows good growth with a lower operating loss.

In the wireless market, expansions of GSM, buildouts of HSPA and
early discussions on LTE continue in parallel and these technologies
will coexist for many years. Access to telephony as well as Internet,
with multimedia solutions for e-business, e-health, e-learning,
e-banking etc, are key elements for sustainable development. This is
driving buildouts of mobile communications in high-growth markets as
well as the buildout of broadband in mature markets" said Carl-Henric


Income statement and cash flow

Second quarter quarter Six months
2008 2008 2008
SEK b. 1) 2007 Change 1) Change 1) 2007 Change
Net sales 48.5 47.6 2% 44.2 10% 92.7 89.8 3%
Gross margin 37.0% 43.0% - 38.6% - 37.8% 43.0% -
margin 14.9% 23.9% - 14.7% - 14.8% 23.8% -
income 4.7 9.3 -49% 4.3 10% 9.0 17.4 -48%
margin 9.7% 19.4% - 9.7% - 9.7% 19.4% -
excl Sony Ericsson 9.7% 16.4% - 7.7% - 8.7% 16.0% -
Income after
financial items 4.7 9.3 -49% 4.5 5% 9.2 17.5 -48%
1.9 2.6 4.5
Net income 3) 2) 6.4 -70% 2) -28% 2) 12.2 -63%
0.60 2.02 0.83 1.43 3.85
EPS, SEK 3) 2) 4) -70% 2) 4) -28% 2) 4) -63%
Cash flow
from operating
activities 8.5 4.2 - 4.7 - 13.3 8.8 -
Cash flow excl.
Sony Ericsson
dividend/advances 8.5 1.7 - 2.5 - 11.1 2.7 -

1) Excluding restructuring charges of SEK 1.8 b. in the second
quarter 2008 and SEK 0.8 b. in the first quarter 2008.
2) Including restructuring charges.
3) Attributable to stockholders of the Parent Company, excluding
minority interests
4) A reverse split 1:5 was made in June 2008. Comparable figures are
restated accordingly

Sales growth in constant currencies is estimated to 7%
year-over-year. Sales were up 2% year-over-year including negative
effects from the continued decline in USD. Effects of acquisitions
and divestments equaled out in the quarter.

Gross margin amounted to 37.0% (43.0%) and declined year-over-year,
mainly due to the shift in business mix with a high proportion of new
network buildouts. Sales related to software and IPRs were back to a
more normal level after last quarter's slightly higher level.

Operating expenses amounted to SEK 14.0 (13.1) b. in the quarter. The
increase year-over-year is mainly attributable to acquired companies,
including amortization of intangibles, and increased R&D investments.

Operating income amounted to SEK 4.7 (9.3) b. in the quarter,
including a capital gain of SEK 0.2 b. from the divestment of the
enterprise PBX solutions business. Sony Ericsson's pre-tax profit
contributed SEK 0.0 (1.5) b. to Group operating income in the

Cash flow from operating activities reached SEK 8.5 (4.2) b. The
working capital was flat despite higher sales. Collections have been
strong and days sales outstanding have decreased by 3 days to 107 in
the quarter. Current liabilities increased significantly during the
quarter, some of which are normal fluctuations due to project
activities. The increase was mainly due to increased payables,
accrued expenses and various other current liabilities. As a result,
cash conversion amounted to 193% (35%).

Cash flow from investing activities was SEK -2.0 (-7.9) b. in the
quarter, including a positive impact of SEK 0.6 b. from the
divestment of the enterprise PBX solutions business.

Balance sheet and other performance indicators

Six months Three months Full year
SEK b. 2008 2008 2007
Net cash 27.9 28.3 24.3
provisions and liabilities 29.2 32.0 33.4
Trade receivables 56.7 56.4 60.5
Days sales outstanding 107 110 102
Inventory 26.6 24.5 22.5
Of which work in progress 16.3 13.8 12.5
Inventory turnover 4.7 1) 4.6 1) 5.2
Payable days 56 57 57
Customer financing, net 2.4 2.7 3.4
Return on capital employed 12% 1) 12% 1) 21%
Equity ratio 55% 56% 55%

1) Excluding effects from restructuring.

Deferred tax assets increased in the quarter by SEK 1.2 b. to SEK
12.8 (11.6) b.

During the quarter, approximately SEK 1.3 b. of provisions were
utilized related to warranty and project related commitments,
restructuring activities and other. Additions of SEK 2.7 b. were
made, of which SEK 0.9 b. related to restructuring. Reversals of SEK
0.2 b. were made. Consequently, the net impact on operating income
excluding restructuring charges was negative by SEK 1.6 b.

Cost reductions
As announced in the fourth quarter report 2007, cost reductions of
SEK 4 b. in annual savings are being made. These reductions will have
full effect in 2009. Restructuring charges are estimated to SEK 4 b.
in total and will be recognized as each activity is decided.

During the quarter, restructuring charges of SEK 1.8 b. were
recognized, of which SEK 0.9 b. was added to provisions. The charges
cover product- and supply rationalization, with some consequences for
capitalized development. The charges also covers costs for lay offs
in Western Europe, including Sweden. Year-to-date, restructuring
charges of SEK 2.6 b. have been recognized.

Restructuring charges 2008
Isolated quarters, SEK b. Q2 Q1
Cost of sales -0.6 -0.2
Research and development expenses -1.1 -0.6
Selling and administrative expenses -0.1 -0.0
Total -1.8 -0.8


Sales in Networks were down 1% year-over-year. The continued USD
decline contributed negatively to the sales development. There is a
steady demand for GSM equipment in high-growth markets, especially in
Asia, which drives the growth for network rollout services. The
margins improved slightly sequentially. Still, the proportion of
buildouts of new networks in high-growth markets, including
accelerating volumes in India, remains high and puts pressure on
Networks' margins. Sales related to software and IPRs in the quarter
returned to a more normal level.

The EBITDA margin was 15% (24%).

Second quarter First quarter Six months
2008 2008
SEK b. 2008 1) 2007 Change 1) 2) Change 1) 2007 Change
Networks sales 33.3 33.7 -1% 30.0 11% 63.3 63.0 0%
Of which network
rollout 4.8 4.3 11% 4.5 6% 9.3 8.1 15%
Operating margin 10% 19% - 9% - 9% 18% -
EBITDA margin 15% 24% - 15% - 15% 24% -
sales 11.0 10.3 7% 10.0 10% 21.0 19.8 6%
Of which managed
services 3.4 2.9 17% 3.1 10% 6.5 5.5 19%
Operating margin 14% 15% - 14% - 14% 15% -
EBITDA margin 16% 16% - 16% - 16% 16% -
Multimedia sales 4.2 3.6 16% 4.2 2% 8.4 7.0 20%
Operating margin -1% 0% - -12% - -6% 4% -
EBITDA margin 13%3) 5% - -6% - 4% 7% -
Total sales 48.5 47.6 2% 44.2 10% 92.7 89.8 3%

1) Excluding effects from restructuring.
2) First quarter 2008 is restated for the transfer of the IPX
operations from Professional Services to Multimedia.
3) Affected by SEK 0.2 b. due to changed allocation of capitalized
development expenses.

Redback's international sales show good development while sales in US
are down. Redback technology is being gradually integrated into
Ericsson's product development.

Professional Services
Sales in Professional Services grew by 7% year-over-year. In the
quarter, the IPX operations were transferred to segment Multimedia,
negatively impacting Professional Services sales by 2%-points
year-over-year. Adjusted for this and in constant currencies, sales
growth amounted to 11%. Operating margin was stable sequentially.

Managed services sales increased both year-over-year and
sequentially, despite the reduced scope of the 3 UK contract
announced in the fourth quarter 2007. During the quarter, six new
contracts were signed. The total number of subscribers in managed
operations now amount to 210 million, of which more than 50% are in
high-growth markets.

Sales growth was 16% year-over-year despite the decline in USD.
Effects from divested activities more or less offset the sales
effects of acquired businesses and the transfer of the IPX
operations. Operating income was slightly below break even level. The
income includes the previously announced capital gain of SEK 0.2 b.
from the divestment of the enterprise PBX solutions business.

Tandberg Television and LHS show encouraging development. Multimedia
is still in its build-up phase and sales and results will fluctuate
between quarters.

Sony Ericsson Mobile Communications
For information on transactions with Sony Ericsson Mobile
Communications, please see Financial statements and Additional

Second quarter First quarter Six months
EUR m. 2008 2007 Change 2008 Change 2008 2007 Change
Number of units
shipped (m.) 24.4 24.9 -2% 22.3 9% 46.7 46.7 0%
Average selling
price (EUR) 116 125 -7% 121 -4% 118 129 -9%
Net sales 2,820 3,112 -9% 2,702 4% 5,522 6,037 -9%
Gross margin 23% 30% - 29% - 26% 30% -
Operating margin 0% 10% - 7% - 3% 11% -
Income before
taxes 8 327 -98% 193 -96% 201 689 -71%
Net income 6 220 -97% 133 -95% 139 474 -71%

Units shipped in the quarter reached 24.4 million. Sales for the
quarter were EUR 2,820 m., representing a year-over-year decrease of
9% due to exchange rate fluctuations, continued slowing market growth
in mid-to-high end phones and increased competition. Gross margin
also decreased, reflecting a less favorable product mix, particularly
in Europe, and increased price competition in general. Income before
taxes for the quarter was EUR 8 m. Net income for the quarter was EUR
6 m.

Sony Ericsson is targeting EUR 300 million in cost savings on an
annual basis with full effect expected to appear within a year and
restructuring charges of the same magnitude as annual savings.
Challenging market conditions are expected to prevail for Sony
Ericsson for at least the rest of 2008, and in particular for the
third quarter.

Ericsson's share in Sony Ericsson's income before tax was SEK 0.0
(1.5) b. in the quarter.


Second quarter First quarter Six months
Sales, SEK b. 2008 2007 Change 2008 Change 2008 2007 Change
Western Europe 12.1 12.4 -3% 11.7 4% 23.8 24.9 -5%
Central and
Eastern Europe,
Middle East and
Africa 11.2 11.5 -2% 11.1 1% 22.4 22.5 0%
Asia Pacific 15.8 16.6 -5% 12.9 22% 28.7 28.9 -1%
Latin America 5.0 4.1 21% 4.2 19% 9.1 7.4 23%
North America 4.4 3.0 47% 4.3 2% 8.7 6.1 43%

Sales in Western Europe declined year-over-year. Operators launching
HSPA are experiencing strong traffic growth but most have not yet
exhausted the initial capacity installed during the coverage
buildout. The continued tariff competition drives fixed-to-mobile
broadband migration. The Nordic and Baltic region showed good sales
growth while the rest of Western Europe showed mixed development,
with lower business activity in markets such as the UK and Spain
offsetting the growth in other countries.

Sales in Central and Eastern Europe, Middle East and Africa declined
somewhat year-over-year. The business activity is high with continued
buildout of mobile communications throughout the region. In the
period, however, sales were down in parts of Eastern Europe and
Middle East. The region is characterized by continued roll out of 2G
network coverage in rural areas combined with increasing deployments
of 3G in urban areas. In addition, there is a growing interest in
managed services.

Asia Pacific sales were down 5% year-over-year. Excluding Australia
and Japan, sales were up 6%. Australia was down due to completion of
major network deployments last year. In Japan, the network rollout
continues although sales vary between quarters. The business activity
is generally high in the region with particularly strong growth in
India, where rollout of new networks accelerates. Sales in China
showed stable development and the decline year-over-year reflects a
tough comparison with a strong second quarter 2007.

Latin American sales were up 21% year-over-year with particularly
strong development in Brazil, Mexico and Chile. The region is driven
by continued 2G expansions, 3G rollouts and increased demand for
managed services. In parallel, there is a growing wireline
modernization, including investments in optical and fiber access.

North American sales were up 47% year-over-year as a result of
increased operator spending on triple play and HSPA. Consumers show a
quickly growing interest in fixed and mobile broadband and related
services. The strong growth also reflects the lower sales volumes
previous year.

Growth rates are based on Ericsson and market estimates.

There is continued strong underlying growth in fixed and mobile
broadband subscriptions. There is good momentum for HSPA, with
ongoing rollouts across the world, and the support for LTE has been
further strengthened with Chinese operators committing to the

The industry consolidation among operators and our competitors
continues and the price competition is intense. Large mergers and
network sharing result in short-term effects on operator investments.
During the quarter, the Chinese telecom reform was announced and it
is expected that 3G licenses will be issued once the reform is
implemented. The tariff competition among operators continues to be
strong in many markets, with price plans moving toward bundles and
flat plans.

Mobile subscriptions grew by some 170 million in the quarter to a
total of 3.66 billion. 236 million are WCDMA subscriptions, up by 31
million in the second quarter. There are 220 WCDMA networks in 94
countries, of which 198 networks are upgraded to HSPA.

In the twelve-month period ending March 31, 2008, fixed broadband
connections grew by 21% to more than 352 million.


Unchanged industry fundamentals and consumer behavior support a
positive longer-term outlook. For 2008, we continue to plan for a
flattish development in the mobile infrastructure market while the
professional services market is expected to show good growth.


Net sales for the six-month period amounted to SEK 3.1 (1.7) b. and
income after financial items was SEK 7.0 (8.3) b.

Major changes in the Parent Company's financial position in the
six-month period include decreased current and non-current
receivables from subsidiaries of SEK 10.8 b. and increased cash and
bank and short-term investments of SEK 1.9 b. Notes and bond loans
decreased by SEK 3.3 b. and current and non-current liabilities to
subsidiaries decreased by SEK 3.9 b. During the second quarter, the
dividend payment of SEK 8.0 b. decided by the Annual General Meeting,
was made. As per June 30, 2008, cash and bank and short-term
investments amounted to SEK 47.5 (45.6) b.

Major transactions and balances with related parties for the first
six months include the following with Sony Ericsson Mobile
Communications: revenues of SEK 0.8 (1.2) b.; receivables of SEK 0.5
(0.2) b.; received dividend of SEK 2.2 (2.6) b.

In accordance with the conditions of the Stock Purchase Plans and
Option Plans for Ericsson employees, 1,541,217 shares from treasury
stock, after adjustment for the reverse split, were sold or
distributed to employees during the second quarter. The holding of
treasury stock at June 30, 2008 was 43,398,701 shares of Class B.


New Head of Business Unit Networks
Johan Wibergh has been appointed Senior Vice President and Head of
Business Unit Networks effective July 1, 2008.

Reverse split
Ericsson's Annual General Meeting resolved on a reverse split 1:5 of
the company's shares. The first day of trading in the company's A and
B shares after the reverse split was June 2, 2008. The record date
for the reverse split was June 4, 2008. In the reverse split, five
shares of class A and five shares of class B, respectively, were
consolidated into one share of class A and one share of class B,
respectively. Further, the ratio between the B share and an American
Depositary Share (ADS), traded on NASDAQ, was changed to 1:1.

Divestment of enterprise PBX solutions business
On May 1, 2008, the enterprise PBX solutions business was divested to
Aastra Technologies. Sales in 2007 amounted to approximately SEK 3.0
b. The capital gain was SEK 0.2 b. The deal was announced on February
18, 2008.

Divestment of shares in Symbian
On June 24, 2008, Ericsson announced that it will accept Nokia's cash
offer to acquire Ericsson's shares in Symbian Limited. Ericsson owns
15.6% of the shares. The divestment is expected to be completed in
the second half of 2008. The book value of the shares has been
increased by 0.8 b. to fair value, which is reported directly in
equity. The capital gain is estimated to be approximately EUR 75 m.
and will be recognized through the income statement when the
transaction takes place. Sony Ericsson will also accept Nokia's cash

Assessment of risk environment
Ericsson's operational and financial risk factors and exposures are
described under "Risk factors" in our Annual Report 2007. However,
the increased activities related to the new Multimedia segment may
result in a more volatile quarterly sales pattern. Specific
additional risks for the near term are associated with the
acquisitions made during 2007, as a timely and effective integration
of these is essential to make them accretive as planned.

Risk factors and exposures in focus for the Parent Company and the
Ericsson Group for the forthcoming six-month period include:
unfavorable product mix in the Networks segment with reduced sales of
software, upgrades and extensions and an increased proportion of new
network build-outs and break-in contracts, which may result in lower
gross margins and/or working capital build-up, which in turn puts
pressure on our cash conversion rate; variability in the seasonality
could make it more difficult to forecast future sales; effects of
the ongoing industry consolidation among the Company's customers as
well as between our largest competitors, e.g. intensified price
competition; changes in foreign exchange rates, in particular a
continued weakness or further deterioration of the USD/SEK rate;
increases in interest rates and the potential effect on operators'
willingness to invest in network development; and continued political
unrest or instability in certain markets.

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 2007, where we
describe our risks and uncertainties along with our strategies and
tactics to mitigate the risk exposures or limit unfavorable outcomes.


The Board of Directors and the CEO certify that the financial report
for the first six months gives a fair view of the performance of the
business, position and profit or loss of the Company and the Group,
and describes the principal risks and uncertainties that the Company
and the companies in the Group face.

Stockholm, July 22, 2008

Telefonaktiebolaget LM Ericsson (publ)
Org. Nr. 556016-0680

Sverker Martin-Löf Michael Treschow Marcus Wallenberg
Deputy chairman Chairman Deputy chairman
Roxanne S. Austin Sir Peter L. Bonfield Anders Nyrén
Member of the board Member of the board Member of the board
Börje Ekholm Ulf J. Johansson Nancy McKinstry
Member of the board Member of the board Member of the board
Anna Guldstrand Monica Bergström Jan Hedlund
Member of the board Member of the board Member of the board
Carl-Henric Svanberg
Member of the board and
President and CEO


We have reviewed this report for the period January 1 to June 30,
2008, for Telefonaktiebolaget LM Ericsson (publ). The board of
directors and the CEO are responsible for the preparation and
presentation of this interim financial information in accordance with
IAS 34 and the Annual Accounts Act. Our responsibility is to express
a conclusion on this interim financial information based on our

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. 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 accompanying interim financial information is
not, in all material respects, in accordance with IAS 34 and the
Annual Accounts Act.

Stockholm, July 22, 2008

PricewaterhouseCoopers AB

Bo Hjalmarsson

Peter Clemedtson
Authorized Public
Authorized Public Accountant

Date for next report: October 24, 2008


To read the complete report with tables, please go to:

Ericsson invites media, investors and analysts to a press conference
at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00
(CET), July 22.

An analysts, investors and media conference call will begin at 14.00

Live webcasts of the press conference and conference call as well as
supporting slides will be available at and


Henry Sténson, Senior Vice President, Communications
Phone: +46 8 719 4044
E-mail: or

Gary Pinkham, Vice President,
Investor Relations
Phone: +46 8 719 0000

Susanne Andersson,
Investor Relations
Phone: +46 8 719 4631

Andreas Hedemyr,
Investor Relations
Phone: +46 8 404 37 48

Åse Lindskog, Vice President,
Head of Media Relations
Phone: +46 8 719 9725, +46 730 244 872 E-mail:

Ola Rembe, Vice President,
Phone: +46 8 719 9727, +46 730 244 873

Telefonaktiebolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 8 719 00 00

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 July 22, 2008.

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

All statements made or incorporated by reference in this release,
other than statements or characterizations of historical facts, are
forward-looking statements. These forward-looking statements are
based on our current expectations, estimates and projections about
our industry, management's beliefs and certain assumptions made by
us. Forward-looking statements can often be identified by words such
as "anticipates", "expects", "intends", "plans", "predicts",
"believes", "seeks", "estimates", "may", "will", "should", "would",
"potential", "continue", and variations or negatives of these words,
and include, among others, statements regarding: (i) strategies,
outlook and growth prospects; (ii) positioning to deliver future
plans and to realize potential for future growth; (iii) liquidity and
capital resources and expenditure, and our credit ratings; (iv)
growth in demand for our products and services; (v) our joint venture
activities; (vi) economic outlook and industry trends; (vii)
developments of our markets; (viii) the impact of regulatory
initiatives; (ix) research and development expenditures; (x) the
strength of our competitors; (xi) future cost savings; (xii) plans to
launch new products and services; (xiii) assessments of risks; (xiv)
integration of acquired businesses; (xv) compliance with rules and
regulations and (xvi) infringements of intellectual property rights
of others.
In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking statements.
These forward-looking statements speak only as of the date hereof and
are based upon the information available to us at this time. Such
information is subject to change, and we will not necessarily inform
you of such changes. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions
that are difficult to predict. Therefore, our actual results could
differ materially and adversely from those expressed in any
forward-looking statements as a result of various factors. Important
factors that may cause such a difference for Ericsson include, but
are not limited to: (i) material adverse changes in the markets in
which we operate or in global economic conditions; (ii) increased
product and price competition; (iii) reductions in capital
expenditure by network operators; (iv) the cost of technological
innovation and increased expenditure to improve quality of service;
(v) significant changes in market share for our principal products
and services; (vi) foreign exchange rate or interest rate
fluctuations; and (vii) the successful implementation of our business
and operational initiatives.

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