ericsson ceo slides, q3 2011 · numbers 2011 include restructuring charges, numbers 2008-2010...

20 october

2011

Helena norrmanSENIOR VICE PRESIDENT COMMUNICATIONS

THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD NEGATIVELY AFFECT OUR BUSINESS. PLEASE READ OUR EARNINGS REPORTS AND OUR MOST RECENT ANNUAL REPORT FOR A BETTER UNDERSTANDING OF THESE RISKS AND UNCERTAINTIES.

HANS VESTBERGPRESIDENT AND CEO

JAN FRYKHAMMARCFO AND EXECUTIVE VICE PRESIDENT

© Telefonaktiebolaget LM Ericsson 2011 | THIRD QUARTER REPORT 2011 | October 20, 2011

Mobile broadband the market driverClose to 900 million mobile broadband subscriptions, +60% YoYSmartphones, new devices, tiered pricingSolid industry fundamentals

Outsourcing high on operators’ agendasOperator focus on outsourcing of operations to reduce opex

IPR’s in focusIndustry built on shared technologiesFRAND the driving principleEricsson largest portfolio in industry – 27,000 patents

Effects of economic environment uncertainWith economic uncertainties in parts of the world, we cannot exclude somewhat more cautious short-term operator spending


NET SALES

› Sales +17% YoY• Organic, FX adjusted +24%

› Continued strong demand for mobile broadband

• Networks +25% YoY

› Strong services development• Global Services +7% YoY

Comparable units and adj for net FX/hedge

Y/Y +24%

Net sales

Q311Y/YQ/Q

SEK 55.5 b+17%

+1%

SEK b

0

10

20

30

40

50

60

70

80

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32007 2008 2009 2010 2011


profitability

› Net income +6% YoY• Positive impact from higher volumes

› Net income +18% QoQ• Positive impact from improved

operating margin

• Less restructuring

› EPS, diluted +4% YoY

• SEK 1.18 (1.14)

› Non-IFRS EPS +1% YoY• SEK 1.44 (1.42)

Net income

EPS, diluted

Net income

3Q11Y/YQ/Q

SEK 3.8 b+6%

+18%

SEKSEK b

0.0

0.5

1.0

1.5

2.0

2.5

0

2

4

6

8

10

12

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2007 2008 2009 2010 2011


3Q

joint ventures

SEK b Ericsson share in JV earnings SEK -0.6 (0.0) bSony Ericsson SEK 0.1 (0.3) b

ST-Ericsson SEK -0.7 (-0.3) bAll numbers except 2011 excludes restructuring charges

ST-EricssonSales up +7% QoQ

Revenues from new products continued to grow - offsetting the continuous decline in sale of legacy products

Financial performance continues to be challenging

New product portfolio represented >50% of Q3 sales

Sony EricssonSales up +33% QoQ

Average selling price up +8% YoY

Android-based smartphones represented >80% of Q3 sales

Sales EUR m

Sales USD m

0500

1,0001,5002,0002,5003,0003,5004,000

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008 2009 2010 2011

0

200

400

600

800

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2009 2010 2011

-25-20-15-10

-505

1015202530

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2007 2008 2009 2010 2011


networks

› Continued high sales in mobile broadband • Incl. packet core, IP routers and microwave based

backhaul

• All effects from earthquake in Japan on supply chain have been eliminated - normal lead times

› +25% YoY• Negatively impacted by strong SEK

• Positively impacted by increased CDMA sales in North America

› -3% QoQ• Negatively impacted by decreased CDMA sales in North

America

› EBITA margin decreased to 16% (21%) YoY and was flat sequentially

› Can’t exclude somewhat more cautious short- term operator spending

• With economic uncertainties in parts of the world, we cannot exclude somewhat more cautious short-term operator spending

Numbers 2011 include restructuring charges, numbers 2007-2010 exclude restructuring charges

EBITA margin

3Q11 16%

3Q10 21%

2Q11 16%

Networks EBITA

Networks sales

Sales

3Q11Y/YQ/Q

SEK 32.5 b+25%

-3%

SEK b

0

10

20

30

40

50

0%

5%

10%

15%

20%

25%

30%

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008 2009 2010 2011


global

services

Numbers 2011 include restructuring charges, numbers 2007-2010 exclude restructuring charges Second quarter 2009 adjusted for divestment of TEMS

› Professional Services sales +13% YoY in local currencies

• Managed Services +8% YoY currency adjusted

• 14 new managed services contracts of which 6 expansions or extensions

• 4 significant systems integrations contracts in OSS/BSS, Service Delivery Platform and data center projects

› Network Rollout sales +7% YoY, +3% QoQ• Driven by continued high volumes of network

modernization

› EBITA margin increased +3%-points QoQ• Positively impacted by increased volumes and improved

Network Rollout margins

• Still loss in Network Rollout network modernization and finalization of 3G rollouts in India,

• Impact from restructuring charges 1%-point in the quarter

› 53,000 services professionals

Global Services EBITA margin

3Q11 9%3Q10 12%2Q11 6%

Network Rollout

Managed Services

Professional Services excl. Managed Services

Global Services EBITA

Professional Services EBITA

Global Services sales

3Q11Y/YQ/Q

SEK 20.4 b+7%+7%

SEK b

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

4

8

12

16

20

24

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32008 2009 2010 2011


multimedia

Numbers 2011 include restructuring charges, numbers 2008-2010 exclude restructuring charges and adjusted for divestment of mobile platforms and PBX business in 2008. Fourth quarter 2008 excl. capital gain of SEK 0.8 b for divestment of Symbian shares.

› Back to profit

› Revenue management developed favorably YoY

› TV solutions improved QoQ• Several IPTV contract wins in the quarter

› EBITA margin improved to +11% (0%) YoY

• Increased volumes and efficiency program resulted in lower operating expenses

Multimedia EBITA

Multimedia sales

Sales

3Q11Y/YQ/Q

SEK 2.6 b+11%

+8%

SEK b

EBITA margin

3Q11 11%

3Q10 0%

2Q11 -4%

-20%

-10%

0%

10%

20%

30%

0

1

2

3

4

5

6

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2009 2010 2011


Regional

sales

Latin America

• Growth across all segments • Broadband coverage expansions

North America

• Slower networks business after period of high operator investments

• CDMA declined QoQ• Good services and OSS/BSS development

Northern Europe & Central Asia

• Slower infrastructure and rollout sales sequentially, mainly Russia

Western and Central Europe

• Increased network modernization and managed services sales

• Momentum for managed services and network sharing

China and North East Asia

• Growth across all segments• Capacity investments in Japan• First phase of TD-LTE trials with China

Mobile finalized• 2G expansions in China• LTE deployment with several operators

in Korea

South East Asia and Oceania

• Telstra LTE project in deployment

Mediterranean

• Network modernization projects across the region

• Spain and Greece impacted by macro instability

Middle East

• Positive mobile broadband and managed services sales development

• Easy Y/Y comparison due to supply constraints in 2010

• Political unrest

Sub-SaharanAfrica

• Sales increase driven by 3G coverage rollouts and multimedia

India

• Slower 3G investments• First TD-LTE deal in India won

3Q11Y/YQ/Q

SEK 12.1b-6%-2%

3Q11Y/YQ/Q

SEK 6.0 b+64%+22%

3Q11Y/YQ/Q

SEK 3.5 b+49%-23%

3Q11Y/YQ/Q

SEK 4.6 b+7%+6%

3Q11Y/YQ/Q

SEK 5.2 b+4%-6%

3Q11Y/YQ/Q

SEK 3.7 b+34%

+3%

3Q11Y/YQ/Q

SEK 2.5 b+40%+14%

3Q11Y/YQ/Q

SEK 2.3 b+7%

-19%

3Q11Y/YQ/Q

SEK 9.7 b+39%

+7%

3Q11Y/YQ/Q

SEK 3.7 b-3%

+23%

JAN FRYKHAMMARCFO AND EXECUTIVE VICE PRESIDENT


Profitability 3q

› Gross margin 35.0% (39.0%)• Down sequentially from 37.8%

• Higher proportion of coverage projects

• Accelerating network modernization projects in Europe

• Increased share of services business

• Network modernization projects in Europe, with their lower margins, will continue to accelerate in the fourth quarter. Average project duration 18- 24 months


25%

30%

35%

40%

45%

50%



business mix shift

Gross margin 37.8%2Q 2011

Gross margin 35.0%3Q 2011

Accelerating network modernization in Europe

Higher proportion coverage projects- Less capacity- More LTE coverage- HSPA coverage

Higher share services sales

Business Mix

Initial phase (coverage)› Break-in and green field› Open bidding› More HW and roll-out services› Higher capital tied up› Lower margins

Expansion phase› Upgrade, capacity increase and

expansion of installed base› Shorter order cycle and projects› More SW and integration services› Lower capital tied up› Higher margins


Profitability 3q

› Operating expenses SEK 13.5 (13.0) b

• R&D +8% YoY due to higher planned investments in radio such as TD-LTE and IP as well as the acquired LG-Ericsson operations

• SG&A flat YoY at SEK 5.7 (5.7) b

• SG&A is typically lower in the third quarter

• SG&A/sales down -2% points YoY to 10%

› Operating margin excl JVs 11.3% (13.0%)

• Flat sequentially excl. restructuring in 2Q 2011

R&D SG&A

SEK b


EBITA margin excl JVs

Operating margin excl JVsOperating income excl JVs

SEK b

02468

1012141618


6%

13%

25%

50%

100%

0

2

4

6

8

10

12



Balance sheet ratios› Trade receivables increased QoQ to SEK 65.6 (60.2) b

› DSO 106, up 7 days QoQ, negative impact from weaker SEK and higher share of projects

› Inventory increased also this quarter, SEK 38.6 (35.1) b. Good progress in normalizing supply chain, however, remaining effects from mitigating activities taken in conjunction to the events in Japan. Also impacted by weaker SEK and higher share of projects

Days

DSO Inventory days Payables days

DSO target <90 days

Inventory days target <65 days

Payable days target >60 days

106

124 121 118106

117

133

109

88101 99

106

68

83 78 7768

7581 82

7487 89 91

5565

59 57 57 59 61 62 6270 68 67

0

20

40

60

80

100

120

140

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32009 2010 2011


Change in gross cash q3 2011

Gross cash is defined as cash, cash equivalents and short term investments. Cash, as presented in the balance sheet, includes cash, cash equivalents and short term investments of a maturity less than three months. Due to different treatment of cash in the above table and relating foreign currency impact, the investing cash flow amount in the above table differs from that in other presentations of cash flows.

Operating Cash Flow

1.6 b

Investing

(excl short term investments) -3.5 b

Financing

-0.3 b

FX on cash

0.3 b

Change in net cash SEK -7.2 b (from 42.6 to 35.4 b)

Adjusted cash flow 2.4 b78.76.9 -4,5 -0.7

-3,5 -0.3 0.3

76.9

40

50

60

70

80

90

Gross Cash 1106A Net Incomereconciled to cash

Change NetOperating Assets

Restructuring Investing Activities Financing activities FX on cash Gross Cash 1109A

Change in gross cash SEK -1.8 b

SEK


Long Term Ambition

GROW FASTER THAN THE MARKET

BEST IN CLASS MARGINS

STRONG CASH CONVERSION

GROWTH IN JV EARNINGS

Executive Performance Stock Plan

The board of Directors will consider the impact of larger acquisitions, divestitures, the creation of joint ventures and any other significant capital event on the three targets on a case by case basis

› Net sales growth in SEK • 4-10% CAGR 2010-2013

› Operating income growth, including JVs and restructuring • 5-15% CAGR 2010-2013

› Base year 2010, excl restructuring

› Cash conversion • Above 70%, annually


Growth leversContinue to invest in areas of portfolio momentum

Mobile broadband

Managed Services

OSS/BSS

Market share gainPerformance year-to-date reaffirms strengthened

global market share

Acquisitions & PartneringTelcordia

Proactively managing uncertaintiesTechnology shift coincides with macro economic

uncertainties

Important to stay close to customers

Carefully monitor leading indicators

Contingency plans in place

20 october

2011

ericsson ceo slides, q3 2011 · numbers 2011 include restructuring charges, numbers 2008-2010...

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