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Ericsson reported a significant year-over-year decline in revenue in India in 2Q10 due to new security regulations imposed by the Indian government that delayed deals and impacted all vendors. While 3G auctions were completed, they did not immediately translate to new infrastructure contracts as expected. However, Ericsson obtained additional security clearances in late 2Q10 and July that should improve its prospects for winning business from Indian operators going forward.

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© 2010 Technology Business Research, Inc. TBR T ECH N O LO G Y B U SIN ESS RESEARCH , IN C. Telefon AB LM Ericsson SECOND CALENDAR QUARTER 2010 NETWORK BUSINESS QUARTERLYSM TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE) 4.40 Second Fiscal Quarter 2010 Ended June 30, 2010 Publish Date: August 30, 2010 Author: Christopher Antlitz (chris.antlitz@tbri.com), Research Analyst Content Editor: John Byrne, NBQ Director 11 Merrill Drive Hampton, NH 03842 603.929.1166 www.tbri.com 11 Merrill Drive Hampton, NH 03842 603.929.1166 www.tbri.com
© 2010 Technology Business Research, Inc. TBR 2 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Table of Contents Company Data Models Financial Strategy Graphs 25 Go-to-Market Resource Graphs 28 Income Statement 29 Balance Sheet 31 Operating Segment Revenue Model 33 Global Services Revenue Model 34 Geographic Model 35 Operating Expense Model 36 Headcount Model 37 Projection Model 38 Acquisitions Alliances 39 Recent Product Announcements 40 Customer Deals 41 Management 46 Company Analysis Executive Summary 3 Strategy Overview 7 Corporate SWOT Analysis 12 Financial Model Strategy 14 Alliance Acquisition Strategies 17 Go-to-Market Product Strategies 18 Geographic Analysis 20 Resource Management Strategy 21 Future Outlook 22 Appendix 24
© 2010 Technology Business Research, Inc. TBR 3 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com 1 1 1 Nortel’s wireless assets continue to prove invaluable to Ericsson • Ericsson reported sales declines in all regions except North America, which increased 128% year-to-year and 37% sequentially in 2Q10. LTE equipment volumes began to ramp up and demand for mobile broadband increased in what is now Ericsson’s largest market. • Even CDMA showed strength, indicating that Nortel’s LTE and CDMA assets are successfully being monetized by Ericsson, and that Nortel’s customer relationships are helping the company generate business in the challenging economic climate. Global Services growth stalled in 2Q10 due to network rollout challenges • While Managed Services gained momentum, the Global Services division reported flat growth in 2Q10, as network rollout sales dropped 12% from a year ago. • The general slowdown in turnkey deployments was exacerbated by component shortages and bottlenecks in the supply chain. Ericsson still managed to turn a profit from network rollout, a feat that had eluded the company since the recession began. Ericsson’s tie-up with Endesa signals a broad market for managed services • Ericsson’s four-year managed services contract with Endesa, an electric utility in Spain, demonstrates that Ericsson can leverage its services expertise to cater to non-operator customers. • Under the deal, Ericsson assumes responsibility for Endesa’s corporate network, which services nearly 24 million customers across Spain. The deal highlights Ericsson’s intention to broaden its managed services portfolio well beyond communication service providers. Ericsson continued to gain Managed Services momentum in 2Q10, expanding its reach into the utility segment Executive Summary
Ericsson – Calendar 2Q10 Report © 2010 Technology Business Research, Inc. TBR TBR NETWORK BUSINESS QUARTERLYSM 4 TBR Position: Executive Summary Although Ericsson revenue declined due to sluggish operator spending, component shortages and India red tape, backlog is strong for 2H10 Ericsson could return to growth as early as 4Q10, as India equipment sales ramp up and backlog commitments are filled. • Ongoing component shortages and supply chain issues created a backlog of SEK 3 billion to 4 billion in 2Q10. Importantly, these sales were not lost – an indication that operators are willing to stick with Ericsson and not turn to rivals for faster delivery. • The requirement to obtain security clearances in India slowed equipment sales dramatically for all vendors, causing Ericsson’s sales in the country to plunge 63% year-to-year and 41% sequentially. Ericsson’s Corporate Strategies • Leverage LTE to maintain dominant position in wireless deployments. • Expand Ericsson’s addressable market by catering telecom product and service offerings to enterprise customers in a variety of industries beyond traditional service providers. • Play integral role in the modernization of legacy base stations, particularly in Europe. • Operator spending on mobile broadband equipment is strong, but is only partially offsetting declines in 2G voice equipment. • Professional Services continues to grow, up 5.4% year-to-year (9% at constant currency) in 2Q10, while Managed Services growth accelerated to 23%. • Geographic performance was mixed, as the pace of economic recovery varies significantly by region and by country. ERICSSON PROFITABILITY AND GROWTH 0 10,000 20,000 30,000 40,000 50,000 60,000 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. In SEK Millions -20% -15% -10% -5% 0% 5% 10% 15% 20% Total Revenue Gross Profit Operating Profit Year-to-Year Revenue Growth SOURCE: TBR AND ERICSSON
© 2010 Technology Business Research, Inc. TBR 5 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Resource Management Financial Performance Go-to-Market Strategy Executive Summary Executive Summary Strong demand for Managed Services prevented a decline in the Global Services division’s revenue Segment Key Changes Drivers 2Q10 Revenue Growth Y/Y Keep on the Radar Networks • Network sales were negatively impacted by component shortages and supply chain bottlenecks. While supply concerns started to ease in July, Ericsson and its rivals will continue to experience parts delays through at least 2010 while manufacturers ramp up production. SEK 25.5 billion ($3.4 billion) –11.5% • Ericsson estimates there are 1.5 million GSM base stations that will require replacement in coming years; the majority of replacements will take place in Europe, where Ericsson is the largest incumbent supplier. Global Services • Strong demand for Managed Services offset declines in network rollout, SI and consulting. • Excluding Managed Services revenue, Professional Services would have declined 3% year-to-year. SEK 20.1 billion ($2.7 billion) 0.3% • Ericsson’s managed services deal with Spanish electric utility Endesa shows that there are vast, largely untapped opportunities to sell services to customers beyond traditional network operators. Multimedia • A dearth of investment in revenue management solutions in MEA and India are the primary drag on sales in the Multimedia division. SEK 2.4 billion ($320 million) –27.3% • Investments in TV solutions such as 3-D content delivery will help Ericsson capitalize on growing consumer preferences for receiving and viewing video content.
© 2010 Technology Business Research, Inc. TBR 6 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson outperformed its peers in terms of equipment market share, and continues to invest aggressively in RD to maintain its advantage Executive Summary Key ■ Represents an area where Ericsson is currently challenged versus peers ■ Represents an area where Ericsson is outperforming its peers ■ Represents an area where Ericsson is neither significantly outperforming nor underperforming its peers FINANCIAL METRICS TBR Score Company Figure Average in Class Standard Deviation/2 Revenue Growth Year‐to‐Year 4.22 ‐8.0% 0.4% 10.8% Revenue/Employee 4.11 309,094 $ 383,966 $ 84,460 $ Gross Margin 4.97 37.0% 37.1% 5.2% SGA as % of Sales 5.89 14.9% 16.8% 2.2% RD as % of Sales 3.72 16.2% 13.3% 2.2% Operating Margin 5.06 6.3% 6.0% 4.4% Days Cash Outstanding 4.91 126.81 131.53 50.06 Total Asset Turns 3.58 0.70 0.91 0.15 Current Ratio 5.46 2.00 1.87 0.27 Debt/Assets 4.87 0.49 0.48 0.07 Return on Assets 3.88 1.8% 4.8% 2.7% Return on Equity 4.02 3.4% 11.0% 7.7% TOTAL AVERAGE TBR SCORE GO‐TO‐MARKET SERVICES METRICS TBR Score Company Figure Average in Class Standard Deviation/2 Network/Comm. Equipment Market Share 6.08 21.0% 16.1% 4.6% Mobile Phones 3.44 3.3% 14.8% 7.4% Days Sales Outstanding 2.33 130.17 78.98 19.19 TOTAL AVERAGE TBR SCORE RESOURCE MANAGEMENT METRICS TBR Score Company Figure Average in Class Standard Deviation/2 Inventory Turns/Year 2.83 4.52 9.40 2.24 Fixed Asset Turns/Year 6.58 20.06 14.33 3.63 TOTAL AVERAGE TBR SCORE 4.56 3.95 4.70 2Q09 3Q09 4Q09 1Q10 2Q10 Financial Model Strategy: 5.06 5.01 5.06 4.77 4.56 Go‐to‐Market Services Strategies: 3.89 3.91 4.24 3.80 3.95 Resource Management Strategy: 4.88 4.78 6.41 4.89 4.70 TOTAL AVERAGE TBR SCORE: 4.61 4.57 5.24 4.49 4.40 CALENDAR QUARTER RESULTS TBR SCORING SUMMARY:
© 2010 Technology Business Research, Inc. TBR 7 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com As Chinese operators wind down 3G deployments, Ericsson is successfully capturing follow-on managed services engagements Key Company Objectives TBR Assessment Overall • Capture market share in key emerging markets, including China and India (4Q09) • Leverage investment in Silicon Valley assets to establish credentials within Multimedia unit • Utilize Sprint deal to establish leadership stake in U.S. network outsourcing market ; In July, Ericsson added a significant managed services deal with China Mobile, for field maintenance covering 22,000 cell sites in Hebei province. : Multimedia unit revenue plummeted in 2Q10, due largely to poor revenue management sales. TV-related revenue continues to grow, albeit from a small base.  Ericsson’s managed services deal with Canadian operator Mobilicity is just getting underway, though anecdotal reports indicate possible funding issues. In the U.S., NSN scored the most recent success, landing a significant managed services deal with LightSquared. Financial • Maintain revenue growth despite competitive threats from Chinese vendors • Embark on continuous cost-control program to ensure margins can be maintained • Return Sony Ericsson to profitability (4Q09) : Ericsson continues to struggle to regain revenue, due to a combination of slow overall volume and relentless competition from Huawei, ZTE and others. ; Despite revenue decline, Ericsson is reaping the benefits of the aggressive cost-cutting initiatives of the last two years. ; Despite a 20% year-to-year decrease in handset shipments, Sony Ericsson posted a thin operating profit in 2Q10. Strategy Overview Key: ; Working: Short-term impact expected on bottom / top line : Not working: No major impact or differentiation expected  Too soon to tell
© 2010 Technology Business Research, Inc. TBR 8 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson maintained its significant leadership position in managed services and is now neck-and-neck with Alcatel-Lucent in North America Key Company Objectives TBR Assessment Go-to- Market • Maintain role as largest provider of telecom infrastructure services (3Q09) • Become a dominant North American supplier (3Q09) • Build a strong position in full service broadband leveraging its IPTV, IP networking and optical assets • Utilize Nortel assets to pursue CDMA “long-tail” and CDMA-LTE migration opportunities ; Ericsson’s roster of customers under managed services deals has grown to over 750 million in 100+ countries, making Ericsson the largest managed services vendor by far among network equipment providers. ; TBR estimates that Ericsson’s 2009 North American revenue, pro forma for Nortel, would have essentially matched Alcatel-Lucent with revenue of $3.8 billion.  Ericsson is reporting some success in IPTV, but the overall market is not meeting growth expectations. ; Ericsson is successfully leveraging its CDMA assets to penetrate Tier 1 or Tier 2 U.S. operators. RD Delivery Strategy • Leverage ST-Ericsson to grow share in embedded module marketplace • Extend reach into enterprise segment through channel program • Utilize Sony Ericsson to access opportunities in the handset market  Embedded modules represent a major growth opportunity as the M2M market grows, but ST-Ericsson faces significant competition from low-cost vendors.  Ericsson launched a channel program for microwave last year, but has not yet reported strong success. : Sony Ericsson has significantly reduced operating losses, but there are few synergies between Sony Ericsson and Ericsson’s key equipment, services and multimedia initiatives. Strategy Overview Key: ; Working: Short-term impact expected on bottom / top line : Not working: No major impact or differentiation expected  Too soon to tell
© 2010 Technology Business Research, Inc. TBR 9 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson joined many equipment vendors in reporting significant year-to-year revenue declines in India TBR Assessment of Ericsson Strategy: Neutral Security issues with the Indian government hampered infrastructure deals in 2Q10, while the completion of 3G auctions in India have not yet translated to significant deployment contracts • In India, Ericsson experienced its worst quarter of the last several years in 2Q10, as sales fell to SEK 1.4 billion, a year-to-year decline of 62.9%. Services revenue stayed flat due to the long-term nature of the contracts, but new infrastructure deals were delayed and many existing contracts encountered regulatory hurdles. • The Indian 3G spectrum auction, which concluded in May, did not lead to new network infrastructure investments as the industry had anticipated. Indian operators are expected to hand out equipment supply contracts in the third quarter, and Ericsson is likely to compete aggressively against the likes of Alcatel-Lucent, Nokia Siemens, Huawei and ZTE. • Government regulations and security clearance issues detrimentally impacted 2Q10 results for Ericsson and other vendors. India’s stricter regulations appear designed to keep Chinese vendors ZTE and Huawei from providing equipment to Indian operators; however, the strict guidelines also required other foreign vendors, including Ericsson, to submit to security inspections and make their network design and source code available to the government. The regulations set a potentially troublesome precedent, but may help Ericsson in the short term if they render the Chinese vendors unable to win significant 3G tenders. Huawei and ZTE were excluded from a May RFP by BSNL, in which Ericsson bid alongside traditional competitors Alcatel-Lucent and NSN. • Ericsson made progress on the security front toward the end of 2Q10, with clearance granted to do business with one of the 15 Indian operators and additional approvals secured in July. This will likely result in improved revenue prospects from India in 3Q10. However, the Indian government has not yet decided on a concrete clearance process and there is no timeframe for an agreement which could dampen prospects for all vendors until a resolution is reached. Strategy Overview
© 2010 Technology Business Research, Inc. TBR 10 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson secures its largest managed services deal in China TBR Assessment of Ericsson Strategy: Positive Ericsson is now the sole managed services provider for China Mobile Hebei, a provincial company of China’s largest operator, China Mobile • Ericsson’s revenue from Chinese operations plunged 36% year-to-year due to the completion of 3G network rollouts and upgrades, but a key managed services contract was won from China Mobile Hebei. The three-year field maintenance agreement with the China Mobile subsidiary will have Ericsson maintaining 22,000 GSM and TD-SCDMA base stations in the Hebei province. This represents Ericsson’s largest managed services contract in China, and provides it a strong reference account for other Chinese operators, as well as for China Mobile operations in other provinces. The deal is likely to increase in value as more base stations are added in Hebei. China Mobile Hebei is the largest mobile operator in the province, with 35 million subscribers. • Chinese operators have yet to embrace outsourcing network management due to difficulties in cutting headcount, but with Ericsson’s industry-leading managed services capabilities, this deal should allow Ericsson to showcase the cost savings and reliability of the practice. TBR believes Ericsson will win business from additional China Mobile provincial companies, as well as other reluctant Chinese operators. • Ericsson and competitors Alcatel-Lucent and NSN have secured billion-dollar equipment deals with China’s largest operators, but only Ericsson has thus far been able to make inroads in the managed services sector. Alcatel-Lucent has struggled in managed services of late, as it focuses on application enablement and saw managed services revenue decrease year-to-year in 2Q10. For its part, NSN has recently found success landing managed services offerings in Russia, Australia and South Africa, but has yet to break into the Chinese managed services market. • Ericsson is still generating more managed services revenue (up 23% year-to-year) than its competitors, but TBR believes NSN is likely eyeing the Chinese market very closely and is prepared to price-to-win in order to gain a managed services foothold in the world’s most populous country. Strategy Overview
© 2010 Technology Business Research, Inc. TBR 11 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson will leverage its industry-leading position in services to drive future growth Corporate SWOT Analysis Opportunities • Tailor managed services offerings to verticals outside of telco • Leverage Nortel assets to expand market position in CDMA and CDMA-LTE migrations (1Q10) • Utilize weak economy to sell opex-improving professional services engagements • Grow IPTV revenue stream with “Connected Home” concept (3Q09) • Embrace thought leadership in sustainability with “Low Carbon Cities” message (3Q09) Weaknesses • Limited traction with Multimedia division (1Q10) • Minimal presence in enterprise market may hamper Ericsson’s long-term plans (4Q09) • Weak demand for legacy wireless and fixed technologies dampening revenue growth • Network outsourcing business requires long path to deal profitability Internal External Strengths • Strong systems integration capabilities, including 10,000 SI-focused employees (4Q09) • Ability to make a compelling network upgrade business case (1Q09) • Strong track record of acquisitions to fill product and services gaps • Ericsson Global Services is the market leader, particularly in managed deals Threats • Component shortages are dampening equipment sales • Slowing 3G deployments will challenge growth in the Chinese market • Ericsson Global Services’ competitors, particularly Nokia Siemens, aggressively pursuing network outsourcing deals • NSN’s focus on regaining market share likely to threaten Ericsson growth and profitability
© 2010 Technology Business Research, Inc. TBR 12 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com The Endesa contract shows that Ericsson’s addressable market for managed services goes far beyond traditional network operators Corporate SWOT Analysis Opportunity: Tailor managed services offerings to verticals outside of telco Ericsson’s growing managed services business branches out with Endesa contract • In July, Ericsson won a four-year managed services contract from Endesa, the largest utility company in Spain, to provide services for its entire corporate telecommunications network. This deal represents a significant break from the typical Ericsson managed services contract, which has historically been between Ericsson and a telecommunications company. • The main players in the network infrastructure supply market have each developed a secondary niche to complement their equipment vending activities, and Ericsson has arguably had the most success with its managed services. While the equipment market has been stagnant, Ericsson has been able to partially make up for the lack of activity with a growing number of services deals from telecom operators. • The Endesa contract extends Ericsson’s managed services business model to non- telecommunications companies, greatly expanding its addressable market. Although Ericsson first signed on to provide managed services for a non-telecom in 2006 with automatic meter-reading firm Acea, the Endesa deal is far larger in scope, with Ericsson taking over daily operations of Endesa’s telecom network in Spain on a companywide scale. TBR believes this deal gives Ericsson a prime opportunity to showcase the strategic advantages and cost-saving abilities of outsourcing corporate communications to network vendors. • Ericsson is taking a similar approach in the TV broadcasting industry. Last November, Ericsson won a 10-year managed services contract from Swedish network TV4 Group to transmit TV channels to service providers.
© 2010 Technology Business Research, Inc. TBR 13 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Backlogs are building as network vendors struggle to source critical components Corporate SWOT Analysis Threat: Component shortages are hurting equipment sales With a double- dip recession looming, TBR believes component manufacturers may be slow in ramping up production to satisfy demand • The abrupt shift toward economic recovery (particularly in the U.S. and Asia), mixed with strong demand for technology products, has caught many manufacturers off guard, resulting in spot shortages of commodity electronic components. • Manufacturers of these components, which go into a variety of products ranging from smartphones to base stations, are struggling to keep up with demand, hurt doubly as inventory levels have been abnormally low. Still, many manufacturers are reluctant to ramp up production to pre-recession levels as the threat of a double dip could cause demand to plunge again. • Decreased production stems from reluctance on the part of Asian manufacturers such as Hynix, Toshiba and Murata to rehire after laying off large portions of their workforces during the global recession. Additionally, some companies who made these components closed down completely within the last two years, further concentrating the supplier base. • While Ericsson and the other network vendors struggle to maintain adequate inventory levels, consumer electronics manufacturers have had little trouble securing parts for their products. Component makers are giving priority to orders by companies making high- growth products, such as smartphones, over the languishing network gear suppliers. • The recent increase in demand for these components may be short-lived, as there is talk of a double dip in the near future. As such, manufacturers may remain skittish, which means the shortage could last into early 2011, a projection that most vendors agree on. • As a result, Ericsson and some rivals have had to delay delivery of network equipment as lead times are pushed out. This has created sizable backlogs; in 2Q10 alone, Ericsson estimates SEK 3-4 billion of contracted work has been delayed due to the shortages. However, once these supply chain bottlenecks are resolved, TBR believes Ericsson and rivals will see a bump in equipment sales as vendors scramble to fill outstanding orders.
© 2010 Technology Business Research, Inc. TBR 14 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Financial Model Strategy Gross and operating margin both improved from a year ago, indicating that management’s restructuring efforts are bearing fruit Revenue • Total revenue fell 8% (–15% at constant currency) year-to-year, negatively impacted by component shortages, which trimmed SEK 3–4 billion off the top line. Expenses • RD comprised 16.2% of total revenue, unchanged from 2Q09, but declined 8.3% year- to-year on efficiencies from the recently completed restructuring program. • SGA declined 3.8% year-to-year but increased 60 basis points to 14.9% of total revenue, due to increased spending on LTE initiatives. Margins • Reported gross margin increased 140 basis points year-to-year, to 37%, on favorable product mix. • Operating margin increased 400 basis points year-to-year to 6.3% and operating income increased 150% to SEK 3 billion ($400 million), largely due to improving results in Song-Ericsson and ST-Ericsson. • Excluding Ericsson’s share in the JVs, operating margin increased 50 basis points to 6.9%, but operating income fell 1%. ERICSSON ADJUSTED OPERATING MARGIN BY SEGMENT -20% -15% -10% -5% 0% 5% 10% 15% 2Q09 3Q09 4Q09 1Q10 2Q10 Networks Global Services Multimedia SOURCE: TBR AND ERICSSON TBR ERICSSON PRODUCT SERVICE REVENUE 20,080 2,420 28,795 24,504 24,704 31,844 25,472 18,578 23,137 18,098 20,019 3,328 3,351 3,352 2,310 10,000 16,000 22,000 28,000 34,000 40,000 46,000 52,000 58,000 2Q09 3Q09 4Q09 1Q10 2Q10 In SEK Millions -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% Networks Global Services Multimedia Year-to-Year Revenue Growth SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 15 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Services comprised 42% of total revenue in 2Q10, led by managed services, which registered strong growth of 23% year-to-year Revenue Performance Segment Revenue Drivers Financial Model Strategy 2Q10 Total Revenue: SEK 48 billion ($6.4 billion) Networks SEK 25.5 billion ($3.4 billion) • Networks revenue declined 11.5% year-to- year, as component shortages prevented Ericsson from meeting resurgent demand for infrastructure in some regions. • TBR believes Networks revenue will tick up in 2H10 as Ericsson ramps up 3G deployments in India and fills its backlog. Global Services SEK 20.1 billion ($2.7 billion) • Managed Services grew 23% year-to-year, and Ericsson is expanding its reach to non- telecoms, greatly increasing the addressable market for its services. • Strong growth in Managed Services offset declines in network rollout, which took on fewer turnkey projects. Multimedia SEK 2.4 billion ($320 million) • Multimedia sales were hampered by lower demand in the key emerging markets of Africa, India and the Middle East. • Weak multimedia sales in Africa, India and the Middle East resulted in a year-to-year revenue decline of 27.3%. ERICSSON 2Q10 SEGMENT REVENUE GROWTH 52,142 3,323 761 700 908 47,972 46,000 46,500 47,000 47,500 48,000 48,500 49,000 49,500 50,000 50,500 51,000 51,500 52,000 52,500 2Q09 Revenue Networks Professional Services Network Rollout Multimedia 2Q10 Revenue In SEK Millions SOURCE: TBR AND ERICSSON TBR ERICSSON REVENUE COMPOSITION 0% 15% 30% 45% 60% 2Q09 3Q09 4Q09 1Q10 2Q10 Networks Global Services Multimedia SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 16 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Excluding the integration impact from Nortel’s assets, Ericsson’s cost-management initiatives were widely successful Financial Model Strategy Expense Performance Expense Segments Strategies 2Q10 Total OPEX: SEK 45.6 billion ($6 billion) Cost of Revenue SEK 30.2 billion ($4 billion) • Cost of revenue declined 12.4% year- to-year, reflecting the effect of cost- reduction initiatives and improved product mix, which is increasingly being skewed toward higher-margin services. SGA SEK 7.2 billion ($948 million) • The cost-reduction program did not fully effect SGA, which was impacted by the integration of Nortel’s CDMA assets and an increase in LTE trials. • SGA as a percentage of revenue should trend lower as the Nortel integration winds down in 3Q10. RD SEK 7.8 billion ($1 billion) • RD expenses will increase as a percentage of revenue as Ericsson feels the impact of the acquisition of Nortel’s share of the LG-Nortel joint venture. ERICSSON OPEX AS A PERCENTAGE OF REVENUE 0% 10% 20% 30% 40% 50% 60% 70% 2Q09 3Q09 4Q09 1Q10 2Q10 Cost of Sales SGA Research Development SOURCE: TBR AND ERICSSON TBR ERICSSON OPERATING EXPENSES 5,279 7,158 7,751 30,235 39,335 28,527 30,455 34,531 7,443 7,008 7,323 7,526 9,306 8,218 8,451 0 10,000 20,000 30,000 40,000 50,000 60,000 2Q09 3Q09 4Q09 1Q10 2Q10 In SEK Millions Cost of Sales SGA Research Development SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 17 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com LG-Ericsson USA brings another voice and data player to North America Alliance Acquisition Strategies TBR Assessment: The LG-Ericsson joint venture brings Ericsson back into the enterprise segment it exited two years ago LG-Ericsson USA will target the North American SMB market with its hybrid TDM products • LG-Ericsson, the joint venture formed when Ericsson bought Nortel’s share of LG-Nortel, has officially launched a joint venture of its own, teaming with Accton Technology, a voice and data networking solutions provider from Taiwan, to form LG-Ericsson USA. LG-Ericsson USA started as the Business Solution Group of SMC Networks, but that division was spun off by Accton in November 2009 to form Edgecore Networks. In January, LG-Nortel purchased a 60% stake in Edgecore. The subsequent transition from LG-Nortel to LG-Ericsson led to the delayed launch of LG-Ericsson USA in August. • LG-Ericsson USA offers end-to-end voice and data solutions including IP and hybrid phone systems, managed and unmanaged switches, and Wi-Fi access points. Aimed at North American SMB with 10 to 1,200 users, LG-Ericsson sees the combined voice and data solutions growing into advanced unified communications systems; however, the company will face the challenge being seen in the UC market in which SMBs are reluctant to make the significant investment required to build a robust UC solution. • On the upside, because the SMB market remains under-penetrated, LG-Ericsson USA has the opportunity to win first-time adopters without having to pry customers away from the technology of established UC providers Cisco and Avaya. LG-Ericsson USA will, however, face competition from companies such as ShoreTel and Mitel, smaller companies who, like LG- Ericsson USA, provide hybrid time division multiplexing solutions. • LG-Ericsson USA has the name recognition and uncommon ability to provide both full data and telephony products in order to win SMB customers. The company maintains distribution relationships with Ingram Micro, Tech Data and others that were carried over from Edgecore, as well as over 3,000 North American data networking value-added resellers. • The buyout of Nortel’s stake in LG-Nortel was completed in June. Ericsson reports that 2009 revenue for LG-Nortel was between $600 million and $650 million.
© 2010 Technology Business Research, Inc. TBR 18 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson enhanced its TV offerings, as it continues to gear up for future opportunities in TV apps and 3-D Networks • 3G deployments and/or expansions such as Ericsson’s 2Q10 contracts with Indonesian operator Indosat and Bahrain’s Batelco are increasingly being positioned for an eventual migration to LTE. With LTE trials multiplying globally, vendors and operators are ensuring that the migration to LTE will be relatively simple and primarily software-based. Ericsson’s RBS 6000 has been used extensively in such recent projects due to its flexibility to support multiple radio-frequency technologies, including GSM, WCDMA, HSPA and LTE, as well as for its energy efficiency. • While telecom companies wait for the LTE ecosystem to develop, many are enhancing their 3G networks with additional backhaul and/or software upgrades to HSPA+ to take advantage of faster pre-4G theoretical speeds. Ericsson and its rivals are competing aggressively at the deployment level for these contracts, knowing that successful HSPA+ upgrades could mean future contracts for LTE equipment, as well as long- term managed services deals. Multimedia • Ericsson enhanced its TV offerings in 2Q10 with the addition of OpenStream Catalog Gateway and a 3-D content delivery solution. Introduced in May, the Gateway matches consumer interests with content available on demand from an operator’s VoD library, with the intent of boosting usage and revenue generation from advanced TV services. • In April, Ericsson became an early entrant to the nascent 3-D market, which the vendor believes will exceed $60 billion in five years. The solution establishes a platform for operators to provide 3-D content through their existing infrastructure to end-users’ homes. TBR believes that while the ecosystem for 3-D is currently small, Ericsson’s early entrance into the technology will give the company an advantage in attracting business from early adopter service providers. Go-to-Market Product Strategies
© 2010 Technology Business Research, Inc. TBR 19 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Go-to-Market Product Strategies Sony-Ericsson and ST-Ericsson continue to show moderate improvement, but losses continue to drag on Ericsson’s bottom line Global Services • Services comprised 42% of Ericsson’s total revenue in 2Q10, up 350 basis points from a year ago. Managed services comprised 28.1% of the Services total, up 520 basis points year-to-year. • Ericsson secured three major managed services contracts in 2Q10, with Telefónica in Brazil, BH Telecom in Bosnia Herzegovina and Mobilicity in Canada. • Ericsson’s services division emerged largely unscathed from the security clearance process in India, which helped the vendor generate cash flow in the country while the equipment side of the business was stagnant. Sony Ericsson ST-Ericsson • ASP jumped 31% year-to-year and 19% sequentially to €160 (or $204), reflecting Sony Ericsson’s foray into smartphones. While units shipped declined from 13.8 million in 2Q09 to 11 million in 2Q10, market share was stable, at roughly 4% globally. • The shift toward high-end smartphones propelled revenue 4% year-to-year and 25% sequentially, and brought positive operating income before accounting for restructuring charges. • Overall, with the JV’s restructuring program set to finish by the end of 2010, the streamlined company is better prepared to handle the challenging marketplace. However, Sony Ericsson must focus in the longer term on delivering differentiated products to uproot consumers from popular devices such as the iPhone and BlackBerry. • Sales at ST-Ericsson fell 18.3%, but adjusted operating loss narrowed from €165 million to €118 million, as restructuring efforts trimmed opex. • Savings from both restructuring programs will overlap and amplify starting in 3Q10, which will accelerate improvement in the PL statement.
© 2010 Technology Business Research, Inc. TBR 20 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Excluding North America, Ericsson experienced sales declines in every region on a year-to-year basis Geo Key Deals Drivers 2Q10 Revenue YTY Growth Keep on the Radar North America • Ericsson secured two small operator deals in the U.S. – one with Wisconsin-based Cross Wireless and the other with e-learning services provider Edgenics. • In Canada, Ericsson won a managed services deal with Mobilicity to manage the operator’s 3G network for five years. SEK 13.5 billion ($1.8 billion) 128.5% • Ericsson’s new TV offerings could appeal to operators in the region pushing advanced services to boost ARPU. EMEA • While demand for services in Europe remains strong, equipment deal flow remained light, especially in Eastern Europe as a result of the sovereign debt crisis. SEK 20.2 billion ($2.7 billion) –16.9% • Ericsson estimates that most of the 1.5 million GSM base stations in need of modernization are in Europe, which will stimulate equipment sales across the continent. APAC • Chinese sales fell as 3G rollouts neared completion, while India revenue plunged due to security clearance obstacles. SEK 10.0 billion ($1.3 billion) –41.6% • With security clearance in hand, Ericsson is ready to begin bidding on equipment contracts in India. CALA • Operator capex spend in Latin America remains dampened, as poor access to funding and adverse currency swings hinder investment. SEK 4.4 billion ($576 million) –12.1% • Ericsson is seeing a strong threat from NSN, which will open its first Latin American NOC in October. Geographic Analysis
© 2010 Technology Business Research, Inc. TBR 21 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson’s headcount is growing steadily as the vendor adds employees from managed services contracts SOURCE: DELL AND TBR. Ericsson’s Worldwide Operations Investments/RD Focus • Ericsson invested in its TV portfolio, as exemplified by the recent introduction of the OpenStream Catalog Gateway and 3-D content delivery solution. While the market for these offerings is currently small, Ericsson hopes its early entry into TV apps and 3-D will help win business, especially in developed economies. Personnel Changes • In June, Ase Lindskog, former head of Corporate Public and Media Relations, was appointed head of Investor and Analyst Relations. He was replaced by Ola Rembe. • Ericsson’s headcount is rising steadily as the vendor assumes employees from operators signing up for managed services. • Total headcount increased 1% sequentially to 87,413. In June, Ericsson and Vodafone opened a joint innovation center in Madrid, Spain to focus on building 2G and 3G RAN. The plant Ericsson purchased in Estonia from Elcoteq in June 2009 started mass production of 4G equipment for Europe, the United States and Africa in 2Q10. Resource Management Strategy ERICSSON EMPLOYEE HEADCOUNT BY GEOGRAPHIC REGION 11,222 13,450 13,857 48,972 49,757 49,349 15,303 15,803 16,244 17,196 18,057 7,858 5,721 6,055 6,134 6,150 11,199 5,284 49,803 48,803 0 15,000 30,000 45,000 60,000 75,000 90,000 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Employees North America EMEA APAC CALA TBR SOURCE: TBR AND ERICSSON
© 2010 Technology Business Research, Inc. TBR 22 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson maintains a strong position in wireless equipment and should see its share from LTE grow steadily over the next few quarters TBR Outlook: Neutral Industry • TBR continues to anticipate restrained capital investment by wireless carriers, even as they maneuver to bring LTE to market in a timely manner. Vendors will continue to be squeezed as they seek to maintain market share, but in Ericsson’s case, measurable revenue from LTE should be evident in 2H10 results. • Ericsson is successfully seizing opportunities in managed services, ensuring that its dominance in equipment will be maintained, as the industry increasingly looks to vendors to provide opex and capex savings through outsourcing its out-tasking engagements. Competitors • NSN’s Motorola buy will dramatically improve its competitive position, but Ericsson remains a formidable rival in terms of large infrastructure deals, especially in developed regions. In North America, the deal will improve NSN’s position significantly, but Ericsson and Alcatel- Lucent continue to be the clear frontrunners in the market. • As evidenced by Ericsson’s inclusion by ATT as one of two providers for GPON, Ericsson continues to make headway outside of wireless, though competitors such as Alcatel-Lucent compete aggressively with Ericsson in markets for IP, transport and application enablement solutions. Company Strategy • In the U.S. market, Ericsson is in the midst of LTE buildout for MetroPCS and is in the early stages of rolling out Verizon Wireless’ LTE network. The company is also successfully leveraging Nortel customer relationships and assets to sign new small operator deals, though NSN is emerging as a formidable competitor in the small operator space. • In its most important non-North American markets, Ericsson is looking to establish long-term managed services deals with the major operators, which, given the fragmented nature of Chinese operators, will proceed on a province-by-province basis. In India, there will be significant activity in 2H10, as all the major equipment vendors vie for lucrative 3G deals following the completion of Indian spectrum auctions in 2H10. Future Outlook
© 2010 Technology Business Research, Inc. TBR 23 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson is likely to see improved revenue performance in 3Q10 and is well-positioned to return to revenue growth by year-end Future Outlook TBR Outlook: Neutral Financial Go-to-Market • Ericsson will continue to rely on managed services engagements to offset declining revenue from equipment sales and a struggling multimedia unit. • In order to generate revenue in the still-struggling European markets, Ericsson will push the “modernization” message, encouraging operators to upgrade aging equipment as table stakes to handle the rapid increase in data throughput now being seen. Resource Management • Ericsson completed its 18-month cost reduction program by the end of 2Q10. The company expects to generate annualized savings of SKr 15 billion to SKr 16 billion beginning in 2H10. The company incurred an equal amount restructuring charges related to the cost-reduction program, of which approximately 40% were incurred in cost of sales and 60% were related to RD, sales or administrative costs. • TBR believes Ericsson is likely to experience another quarter of year-to-year revenue decline in 3Q10, though the pace of decline is likely to be slow compared to the past three quarters. While component shortages are likely to continue to dampen sales, Ericsson should see marked sequential improvement in 2Q10 NBQ VENDOR POSITION AND PROJECTION: ERICSSON 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 -10% -8% -6% -4% -2% 0% 2% Quarterly Revenue Growth Year-to-year NBQ Corporate Score Trailing 12-Month Average Growth = 0.4% SOURCE: TBR AND ERICSSON TBR 2Q10 3Q10 Est. 1Q10 India and an increase in LTE deployment activity, which should help close the revenue gap. TBR believes Ericsson will be well-positioned to return to year-to-year revenue growth in 4Q10.
© 2010 Technology Business Research, Inc. TBR 24 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com TBR Coverage and Overview This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is copyright protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce: 11 Merrill Drive, Hampton, NH 03842, P: 603.929.1166, F: 603.926.9801, Web: www.tbri.com Network Business Quarterly In addition to analyst inquiry time, custom projects and industry benchmarking, TBR’s NBQ quarterly reports provide an in-depth view of the major telecom, networking and Internet portal companies: Accenture Google Motorola T-Mobile Alcatel-Lucent HP Nokia Verizon Yahoo ZTE ATT Huawei NSN Cisco IBM Samsung Ericsson Microsoft Sprint About Technology Business Research • Unique focus on Company-Centric Research from a Combined Business, Financial and Technical Perspective • Key advisor to high-tech firms, users of high-tech and financial markets • Often quoted in major business and industry news sources • Founded in 1996 NBQ provides coverage of the leading equipment vendors and service providers in the network, telecom and mobility value chains as well as the leading U.S. mobile operators and telco and media initiatives of Internet portals. The service also includes quarterly benchmark reports, analyst access and custom consulting Software Business Quarterly Computer Business Quarterly Professional Services Business Quarterly TBR SBQ covers key segments such as ERP systems, CRM, SCM, SRM and BI applications, middleware, storage, database, management tools, security software, and client and server operating systems. Covers key segments of the hardware industry, such as PCs, servers, storage, microprocessors, imaging and printing, displays and handheld devices. Covers IT services such as strategy and management consulting, systems integration and outsourcing Coverage includes companies such as Oracle, SAP, Microsoft and Hewlett-Packard Software. Coverage of 17+ vendors includes Dell, Apple, IBM and Hewlett-Packard. Coverage includes companies such as Accenture, IGS and Deloitte Consulting.
© 2010 Technology Business Research, Inc. TBR 25 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix - Financial Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Financial Strategy Graphs GROSS MARGIN 33.8% 32.6% 37.0% 36.8% 34.4% 20% 25% 30% 35% 40% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR YEAR-TO-YEAR REVENUE GROWTH -5.6% -9.0% -8.0% -13.0% 7.4% -20% -15% -10% -5% 0% 5% 10% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR ANNUAL REVENUE PER EMPLOYEE $355.4 $369.5 $309.1 $346.2 $374.9 $150 $200 $250 $300 $350 $400 $450 2Q09 3Q09 4Q09 1Q10 2Q10 In $ Thousands ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR OPERATING MARGIN 2.3% 3.1% 6.3% 4.4% 2.5% 0% 1% 2% 3% 4% 5% 6% 7% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 26 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix - Financial Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Financial Strategy Graphs SGA AS A PERCENTAGE OF REVENUE 14.3% 12.6% 15.5% 14.9% 11.4% 0.0% 5.0% 10.0% 15.0% 20.0% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR RD AS A PERCENTAGE OF REVENUE 16.2% 16.0% 16.2% 16.7% 17.7% 0.0% 5.0% 10.0% 15.0% 20.0% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR RETURN ON EQUITY 7.0% 2.9% 3.4% 2.5% 5.4% 0% 3% 6% 9% 12% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR RETURN ON ASSETS 2.7% 1.3% 1.8% 1.5% 3.6% -5% -3% -1% 1% 3% 5% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 27 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Financial Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Financial Strategy Graphs DAYS CASH OUTSTANDING 118.37 155.32 154.65 130.35 126.81 0 25 50 75 100 125 150 175 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Days ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR DEBT/ASSET RATIO 0.48 0.47 0.48 0.49 0.49 0.30 0.35 0.40 0.45 0.50 0.55 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ Average SOURCE: TBR AND ERICSSON TBR CURRENT RATIO 2.13 2.17 2.30 2.16 2.00 0.00 0.50 1.00 1.50 2.00 2.50 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ Average SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 28 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Go-to-Market Resource Management Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Go-to-Market and Resource Management Graphs FIXED ASSET TURNS 20.06 20.58 18.92 19.07 24.47 0 5 10 15 20 25 30 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Turns ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR DAYS SALES OUTSTANDING 130.17 119.74 121.00 125.08 102.46 40 60 80 100 120 140 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Days ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR TOTAL ASSET TURNS 0.70 0.74 0.68 0.67 0.87 0.00 0.20 0.40 0.60 0.80 1.00 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Turns ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR INVENTORY TURNS 6.36 4.87 4.37 4.62 4.52 0.00 2.00 4.00 6.00 8.00 10.00 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Turns ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 29 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Income Statement ERICSSON Consolidated Income Statement (In Thousands Swedish Kronor (SEK) Except per Share Data) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. Revenue 52,142,000 46,433,000 58,333,000 45,112,000 47,972,000 45,500,000 Cost of Sales 34,531,000 30,455,000 39,335,000 28,527,000 30,235,000 29,500,000 Gross Profit 17,611,000 15,978,000 18,998,000 16,585,000 17,737,000 16,000,000 Research and Development 8,451,000 8,218,000 9,306,000 7,526,000 7,751,000 8,000,000 Selling and General Admininistrative 7,443,000 5,279,000 7,323,000 7,008,000 7,158,000 5,500,000 Other Operating Revenue and Costs 1,640,000 222,000 878,000 302,000 500,000 250,000 Share in Earnings of Joint Ventures (2,144,000) (1,559,000) (1,461,000) (372,000) (308,000) (250,000) Operating Income 1,213,000 1,144,000 1,786,000 1,981,000 3,020,000 2,500,000 Financial Income 4,000 296,000 314,000 278,000 470,000 300,000 Financial Expenses (79,000) (294,000) (719,000) (438,000) (596,000) (300,000) Income before Taxes 1,138,000 1,146,000 1,381,000 1,821,000 2,894,000 2,500,000 Provision for (Benefit from) Income Taxes 341,000 374,000 656,000 547,000 867,000 500,000 Net Income 797,000 772,000 725,000 1,274,000 2,027,000 2,000,000 PERCENTAGE OF REVENUE Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 66.2% 65.6% 67.4% 63.2% 63.0% 64.8% Gross Margin 33.8% 34.4% 32.6% 36.8% 37.0% 35.2% Research and Development 16.2% 17.7% 16.0% 16.7% 16.2% 17.6% Selling and General Admninistrative 14.3% 11.4% 12.6% 15.5% 14.9% 12.1% Share in Earnings of Joint Ventures -4.1% -3.4% -2.5% -0.8% -0.6% -0.5% Operating Margin 2.3% 2.5% 3.1% 4.4% 6.3% 5.5% Financial Income 0.0% 0.6% 0.5% 0.6% 1.0% 0.7% Financial Expenses -0.2% -0.6% -1.2% -1.0% -1.2% -0.7% Income before Taxes 2.2% 2.5% 2.4% 4.0% 6.0% 5.5% Provision for (Benefit from) Income Taxes 0.7% 0.8% 1.1% 1.2% 1.8% 1.1% Net Margin 1.5% 1.7% 1.2% 2.8% 4.2% 4.4% YEAR-TO-YEAR GROWTH Revenue 7.4% -5.6% -13.0% -9.0% -8.0% -2.0% Cost of Sales 10.7% -3.6% -11.7% -10.7% -12.4% -3.1% Gross Profit 1.6% -9.3% -15.6% -5.8% 0.7% 0.1% Research and Development -5.4% 4.6% 13.1% 6.3% -8.3% -2.7% Selling and General Admninistrative 18.7% -16.3% -11.7% 2.1% -3.8% 4.2% Share in Earnings of Joint Ventures -3558.1% -1090.1% -14.3% 83.4% 85.6% 84.0% Operating Income -58.0% -68.7% -71.2% 11.6% 149.0% 118.5% Financial Income -99.2% -73.1% -73.6% -77.9% 11650.0% 1.4% Financial Expenses 84.5% 52.4% 18.5% 4.2% -654.4% -2.0% Income before Taxes -60.5% -72.3% -78.8% -29.4% 154.3% 118.2% Provision for (Benefit from) Income Taxes -59.2% -68.9% -73.2% -26.6% 154.3% 33.7% Net Income -61.0% -73.7% -82.2% -30.5% 154.3% 159.1% SOURCE: TBR AND ERICSSON * Restated according to IFRS and IAS regulations TBR
© 2010 Technology Business Research, Inc. TBR 30 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Income Statement ERICSSON Consolidated Income Statement (In $ Thousands Except per Share Data) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. Revenue 6,595,963 $ 6,379,894 $ 8,329,952 $ 6,354,927 $ 6,351,013 $ 6,023,745 $ Cost of Sales 4,368,172 4,184,517 5,617,038 4,018,598 4,002,812 3,905,505 Gross Profit 2,227,792 2,195,377 2,712,914 2,336,329 2,348,201 2,118,240 Research and Development 1,069,052 1,129,153 1,328,897 1,060,188 1,026,155 1,059,120 Selling and General Admininistrative 941,540 725,335 1,045,724 987,217 947,648 728,145 Other Operating Revenue and Costs 207,460 30,503 125,378 42,543 66,195 33,098 Share in Earnings of Joint Ventures -271,216 -214,207 -208,631 -52,404 -40,776 -33,098 Operating Income 153,445 157,186 255,041 279,063 399,818 330,975 Financial Income 506 40,670 44,839 39,162 62,223 39,717 Financial Expenses -9,994 -40,396 -102,673 -61,701 -78,904 -39,717 Income before Taxes 143,957 157,460 197,207 256,524 383,137 330,975 Provision for (Benefit from) Income Taxes 43,137 51,388 93,677 77,056 114,782 66,195 Net Income 100,821 106,073 103,530 179,468 268,355 264,780 PERCENTAGE OF REVENUE Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 66.2% 65.6% 67.4% 63.2% 63.0% 64.8% Gross Margin 33.8% 34.4% 32.6% 36.8% 37.0% 35.2% Research and Development 16.2% 17.7% 16.0% 16.7% 16.2% 17.6% Selling and General Admninistrative 14.3% 11.4% 12.6% 15.5% 14.9% 12.1% Share in Earnings of Joint Ventures -4.1% -3.4% -2.5% -0.8% -0.6% -0.5% Operating Margin 2.3% 2.5% 3.1% 4.4% 6.3% 5.5% Financial Income 0.0% 0.6% 0.5% 0.6% 1.0% 0.7% Financial Expenses -0.2% -0.6% -1.2% -1.0% -1.2% -0.7% Income before Taxes 2.2% 2.5% 2.4% 4.0% 6.0% 5.5% Provision for (Benefit from) Income Taxes 0.7% 0.8% 1.1% 1.2% 1.8% 1.1% Net Margin 1.5% 1.7% 1.2% 2.8% 4.2% 4.4% YEAR-TO-YEAR GROWTH Revenue 7.4% -5.6% -13.0% -9.0% -8.0% -2.0% Cost of Sales 10.7% -3.6% -11.7% -10.7% -12.4% -3.1% Gross Profit 1.6% -9.3% -15.6% -5.8% 0.7% 0.1% Research and Development -5.4% 4.6% 13.1% 6.3% -8.3% -2.7% Selling and General Admninistrative 18.7% -16.3% -11.7% 2.1% -3.8% 4.2% Share in Earnings of Joint Ventures -3558.1% -1090.1% -14.3% 83.4% 85.6% 84.0% Operating Income -58.0% -68.7% -71.2% 11.6% 149.0% 118.5% Financial Income -99.2% -73.1% -73.6% -77.9% 11650.0% 1.4% Financial Expenses 84.5% 52.4% 18.5% 4.2% -654.4% -2.0% Income before Taxes -60.5% -72.3% -78.8% -29.4% 154.3% 118.2% Provision for (Benefit from) Income Taxes -59.2% -68.9% -73.2% -26.6% 154.3% 33.7% Net Income -61.0% -73.7% -82.2% -30.5% 154.3% 159.1% SOURCE: TBR AND ERICSSON * Restated according to IFRS and IAS regulations TBR
© 2010 Technology Business Research, Inc. TBR 31 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Balance Sheet ERICSSON Consolidated Balance Sheet (In Thousands Swedish Kronor (SEK)) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 ASSETS Cash and Equivalents 75,519,000 79,789,000 76,724,000 77,855,000 67,590,000 Inventories, Net 29,036,000 26,774,000 22,718,000 24,126,000 29,397,000 Accounts Receivable - Trade 69,374,000 62,425,000 66,410,000 62,695,000 69,385,000 Short-term Customer Financing 2,161,000 1,875,000 1,444,000 1,885,000 2,132,000 Other Receivables 16,744,000 17,286,000 15,146,000 15,853,000 17,429,000 Total Current Assets 192,834,000 188,149,000 182,442,000 182,414,000 185,933,000 Tangible Assets (P,PE) 10,161,000 9,468,000 9,606,000 9,319,000 9,810,000 Intangible Assets 44,618,000 40,719,000 48,193,000 46,934,000 49,510,000 Equity in Associated Companies 14,661,000 12,279,000 11,578,000 11,286,000 11,596,000 Other Investments 306,000 291,000 256,000 240,000 266,000 Long-term Customer Financing 987,000 854,000 830,000 979,000 969,000 Deferred Tax Assets 13,676,000 13,946,000 14,327,000 14,710,000 16,053,000 Other Long-term Receivables 4,071,000 2,567,000 2,577,000 1,948,000 2,692,000 Total Non-current Assets 88,480,000 80,124,000 87,367,000 85,416,000 90,896,000 Total Assets 281,314,000 268,273,000 269,809,000 267,830,000 276,829,000 LIABILITIES AND EQUITY Interest-bearing Liabilities 3,573,000 3,152,000 2,124,000 2,017,000 3,797,000 Accounts Payable 19,722,000 16,887,000 18,864,000 17,806,000 20,266,000 Other Current Liabilities 66,180,000 61,759,000 64,499,000 64,230,000 69,113,000 Total Current Liabilities 89,475,000 81,798,000 85,487,000 84,053,000 93,176,000 Pensions Provisions 8,525,000 8,606,000 8,994,000 8,061,000 8,498,000 Long-term Liabilities 40,370,000 38,440,000 34,301,000 34,263,000 34,731,000 Total Liabilities 138,370,000 128,844,000 128,782,000 126,377,000 136,405,000 Minority Interest in Equity of Consolidated Subsidiaries 1,286,000 1,051,000 1,157,000 1,163,000 2,115,000 Total Stockholders' Equity 141,658,000 138,378,000 139,870,000 140,290,000 138,309,000 Total Liabilities and Equity 281,314,000 268,273,000 269,809,000 267,830,000 276,829,000 FINANCIAL RATIOS Days Sales Outstanding 119.74 121.00 102.46 125.08 130.17 Turns on Inventory 4.62 4.37 6.36 4.87 4.52 Fixed Asset Turnover (Tangible Assets) 20.58 18.92 24.47 19.07 20.06 Days Inventory Outstanding 78.93 83.61 57.41 74.92 80.77 Days Cash Outstanding 130.35 154.65 118.37 155.32 126.81 Total Asset Turnover 0.74 0.68 0.87 0.67 0.70 Debt/Asset Ratio 0.49 0.48 0.48 0.47 0.49 Current Ratio 2.16 2.30 2.13 2.17 2.00 Return on Assets 3.6% 2.7% 1.5% 1.3% 1.8% Return on Equity 7.0% 5.4% 2.9% 2.5% 3.4% Annualized Revenue per Employee (SEK) 2,809,623 2,728,459 2,587,536 2,457,634 2,334,727 Annualized Revenue per Employee ($US) 355,417 $ 374,890 $ 369,500 $ 346,207 $ 309,094 $ SEK to $ Conversion Rate 0.127 0.137 0.143 0.14087 0.13239 Employee Count 77,248 82,526 82,493 86,537 87,413 SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 32 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Balance Sheet ERICSSON Consolidated Balance Sheet (In $ Thousands) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 ASSETS Cash and Equivalents 9,553,154 $ 10,963,009 $ 10,956,187 $ 10,967,434 $ 8,948,240 $ Inventories, Net 3,673,054 3,678,748 3,244,130 3,398,630 3,891,869 Accounts Receivable - Trade 8,775,811 8,577,195 9,483,348 8,831,845 9,185,880 Short-term Customer Financing 273,367 257,625 206,203 265,540 282,255 Other Receivables 2,118,116 2,375,096 2,162,849 2,233,212 2,307,425 Total Current Assets 24,393,501 25,851,673 26,052,718 25,696,660 24,615,670 Tangible Assets (P,PE) 1,285,367 1,300,903 1,371,737 1,312,768 1,298,746 Intangible Assets 5,644,177 5,594,791 6,881,960 6,611,593 6,554,629 Equity in Associated Companies 1,854,617 1,687,135 1,653,338 1,589,859 1,535,194 Other Investments 38,709 39,983 36,557 33,809 35,216 Long-term Customer Financing 124,856 117,340 118,524 137,912 128,286 Deferred Tax Assets 1,730,014 1,916,180 2,045,896 2,072,198 2,125,257 Other Long-term Receivables 514,982 352,706 367,996 274,415 356,394 Total Non-current Assets 11,192,720 11,009,038 12,476,008 12,032,552 12,033,721 Total Assets 35,586,221 36,860,710 38,528,725 37,729,212 36,649,391 LIABILITIES AND EQUITY Interest-bearing Liabilities 451,985 433,085 303,307 284,135 502,685 Accounts Payable 2,494,833 2,320,274 2,693,779 2,508,331 2,683,016 Other Current Liabilities 8,371,770 8,485,687 9,210,457 9,048,080 9,149,870 Total Current Liabilities 11,318,588 11,239,045 12,207,544 11,840,546 12,335,571 Pensions Provisions 1,078,413 1,182,464 1,284,343 1,135,553 1,125,050 Long-term Liabilities 5,106,805 5,281,656 4,898,183 4,826,629 4,598,037 Total Liabilities 17,503,805 17,703,166 18,390,070 17,802,728 18,058,658 Minority Interest in Equity of Consolidated Subsidiaries 162,679 144,407 165,220 163,832 280,005 Total Stockholders' Equity 17,919,737 19,013,137 19,973,436 19,762,652 18,310,729 Total Liabilities and Equity 35,586,221 36,860,710 38,528,725 37,729,212 36,649,391 FINANCIAL RATIOS Days Sales Outstanding 119.74 121.00 102.46 125.08 130.17 Turns on Inventory 4.62 4.37 6.36 4.87 4.52 Fixed Asset Turnover (Tangible Assets) 20.58 18.92 24.47 19.07 20.06 Days Inventory Outstanding 78.93 83.61 57.41 74.92 80.77 Days Cash Outstanding 130.35 154.65 118.37 155.32 126.81 Total Asset Turnover 0.74 0.68 0.87 0.67 0.70 Debt/Asset Ratio 0.49 0.48 0.48 0.47 0.49 Current Ratio 2.16 2.30 2.13 2.17 2.00 Return on Assets 3.6% 2.7% 1.5% 1.3% 1.8% Return on Equity 7.0% 5.4% 2.9% 2.5% 3.4% Annualized Revenue per Employee ($US) 355,417 $ 374,890 $ 369,500 $ 346,207 $ 309,094 $ Employee Count 77,248 82,526 82,493 86,537 87,413 SOURCE: TBR AND ERICSSON TBR
© 2010 Technology Business Research, Inc. TBR 33 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Revenue Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. IN SEK MILLIONS Reported Revenue 52,142 46,433 58,333 45,112 47,972 45,500 Networks 28,795 24,504 31,844 24,704 25,472 24,000 Global Services 20,019 18,578 23,137 18,098 20,080 19,300 Professional Services 14,077 12,780 16,466 13,251 14,838 14,000 Managed Services 4,587 3,570 5,098 4,888 5,642 4,500 Network Rollout 5,942 5,798 6,671 4,847 5,242 5,300 Multimedia 3,328 3,351 3,352 2,310 2,420 2,200 PERCENTAGE OF REVENUE Reported Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Networks 55.2% 52.8% 54.6% 54.8% 53.1% 52.7% Global Services 38.4% 40.0% 39.7% 40.1% 41.9% 42.4% Professional Services 27.0% 27.5% 28.2% 29.4% 30.9% 30.8% Managed Services 8.8% 7.7% 8.7% 10.8% 11.8% 9.9% Network Rollout 11.4% 12.5% 11.4% 10.7% 10.9% 11.6% Multimedia 6.4% 7.2% 5.7% 5.1% 5.0% 4.8% YEAR-TO-YEAR GROWTH Reported Revenue NA NA NA -9.0% -8.0% -2.0% Networks NA NA NA -14.3% -11.5% -2.1% Global Services NA NA NA 3.5% 0.3% 3.9% Professional Services NA NA NA 3.5% 5.4% 9.5% Managed Services NA NA NA 17.0% 23.0% 26.1% Network Rollout NA NA NA 3.4% -11.8% -8.6% Multimedia NA NA NA -28.7% -27.3% -34.3% ADJUSTED OPERATING INCOME Networks 1,265 1,138 2,128 1,540 2,507 1,100 Global Services 2,249 1,426 1,076 1,325 1,377 1,500 Professional Services 2,265 1,628 1,347 1,419 1,331 1,700 Network Rollout (16) (202) (271) (94) 46 (200) Multimedia 18 330 263 (335) (479) 200 Unallocated (323) (168) (287) (158) (128) (200) Total Adjusted Operating Income 3,209 2,726 3,180 2,372 3,277 2,600 ADJUSTED OPERATING MARGIN Networks 4.4% 4.6% 6.7% 6.2% 9.8% 4.6% Global Services 11.2% 7.7% 4.7% 7.3% 6.9% 7.8% Professional Services 16.1% 12.7% 8.2% 10.7% 9.0% 12.1% Network Rollout -0.3% -3.5% -4.1% -1.9% 0.9% -3.8% Multimedia 0.5% 9.8% 7.8% -14.5% -19.8% 9.1% Total Adjusted Operating Margin 6.2% 5.9% 5.5% 5.3% 6.8% 5.7% SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON'S REVENUE MODEL TBR
© 2010 Technology Business Research, Inc. TBR 34 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Global Services Revenue Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. IN SEK MILLIONS Total Ericsson Global Services 20,019 18,578 23,137 18,098 20,080 19,300 Professional Services 14,077 12,780 16,466 13,251 14,838 14,000 Managed Services 4,587 3,570 5,098 4,888 5,642 4,500 Network Rollout 5,942 5,798 6,671 4,847 5,242 5,300 PERCENTAGE OF GLOBAL SERVICES REVENUE Total Ericsson Global Services 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Professional Services 70.3% 68.8% 71.2% 73.2% 73.9% 72.5% Managed Services 22.9% 19.2% 22.0% 27.0% 28.1% 23.3% Network Rollout 29.7% 31.2% 28.8% 26.8% 26.1% 27.5% YEAR-TO-YEAR GROWTH Total Ericsson Global Services NA NA NA 3.5% 0.3% 3.9% Professional Services NA NA NA 3.5% 5.4% 9.5% Managed Services NA NA NA 17.0% 23.0% 26.1% Network Rollout NA NA NA 3.4% -11.8% -8.6% SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON GLOBAL SERVICES REVENUE MODEL TBR
© 2010 Technology Business Research, Inc. TBR 35 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Geographic Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 IN SEK MILLIONS North America 5,915 4,144 9,681 9,920 13,515 Latin America 4,949 5,199 6,011 4,140 4,350 Northern Europe Central Asia 2,975 2,821 3,590 2,402 2,774 Western Central Europe 5,609 5,720 6,300 5,468 4,571 Mediterranean 7,012 5,394 7,235 5,285 5,831 Middle East 4,900 4,688 5,172 4,123 3,931 Sub Saharan Africa 3,758 3,321 3,930 2,525 3,056 India 3,768 4,327 3,517 2,405 1,399 China North East Asia 7,398 5,831 7,591 5,170 4,771 South East Asia Oceania 5,858 4,987 5,305 3,673 3,773 Total Revenue 52,142 46,433 58,333 45,112 47,972 IN USD MILLION North America 748 569 1,382 1,397 1,789 Latin America 626 714 858 583 576 Northern Europe Central Asia 376 388 513 338 367 Western Central Europe 710 786 900 770 605 Mediterranean 887 741 1,033 744 772 Middle East 620 644 739 581 520 Sub Saharan Africa 475 456 561 356 405 India 477 595 502 339 185 China North East Asia 936 801 1,084 728 632 South East Asia Oceania 741 685 758 517 499 Total Revenue 6,596 6,380 8,330 6,355 6,351 PERCENTAGE OF REVENUE North America 11.3% 8.9% 16.6% 22.0% 28.2% Latin America 9.5% 11.2% 10.3% 9.2% 9.1% Northern Europe Central Asia 5.7% 6.1% 6.2% 5.3% 5.8% Western Central Europe 10.8% 12.3% 10.8% 12.1% 9.5% Mediterranean 13.4% 11.6% 12.4% 11.7% 12.2% Middle East 9.4% 10.1% 8.9% 9.1% 8.2% Sub Saharan Africa 7.2% 7.2% 6.7% 5.6% 6.4% India 7.2% 9.3% 6.0% 5.3% 2.9% China North East Asia 14.2% 12.6% 13.0% 11.5% 9.9% South East Asia Oceania 11.2% 10.7% 9.1% 8.1% 7.9% YEAR-TO-YEAR GROWTH North America NA NA NA 98.4% 128.5% Latin America NA NA NA -9.9% -12.1% Northern Europe Central Asia NA NA NA -20.8% -6.7% Western Central Europe NA NA NA -3.4% -18.5% Mediterranean NA NA NA -17.9% -16.8% Middle East NA NA NA -0.7% -19.8% Sub Saharan Africa NA NA NA -48.6% -18.7% India NA NA NA -43.1% -62.9% China North East Asia NA NA NA -15.0% -35.5% South East Asia Oceania NA NA NA -32.8% -35.6% Total Revenue NA NA NA -9.0% -8.0% SOURCE: ERICSSON AND TBR ESTIMATES. REVENUE FROM OTHER CATEGORY PRORATED AND INCLUDED IN INDIVIDUAL GEOGRAPHIES ERICSSON'S SALES BY MARKET REGION TBR
© 2010 Technology Business Research, Inc. TBR 36 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – OPEX Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 IN SEK MILLIONS Total Revenue 52,142 46,433 58,333 45,112 47,972 OPERATING EXPENSES BREAKOUT SGA Expense 7,443 5,279 7,323 7,008 7,158 Sales Marketing Expense 4,838 3,431 4,760 4,555 4,653 General and Administrative Expense 2,605 1,848 2,563 2,453 2,505 RD Expense 8,451 8,218 9,306 7,526 7,751 Operating Expenses 15,894 13,497 16,629 14,534 14,909 SALES AND MARKETING EXPENSE BREAKOUT Sales Expense 3,241 2,299 3,189 3,052 3,117 Partner and Channel Spending 774 549 762 729 744 Marketing Spending 822 583 809 774 791 Advertising 206 146 202 194 198 Total Sales and Marketing Expense 4,838 3,431 4,760 4,555 4,653 PERCENTAGE OF REVENUE Total SGA Expense 14.3% 11.4% 12.6% 15.5% 14.9% Sales and Marketing Expense 9.3% 7.4% 8.2% 10.1% 9.7% Sales Expense 6.2% 5.0% 5.5% 6.8% 6.5% Partner and Channel Spending 1.5% 1.2% 1.3% 1.6% 1.6% Marketing Spending 1.6% 1.3% 1.4% 1.7% 1.6% Advertising 0.4% 0.3% 0.3% 0.4% 0.4% General and Administrative 5.0% 4.0% 4.4% 5.4% 5.2% RD Expense 16.2% 17.7% 16.0% 16.7% 16.2% Total Operating Expenses 30.5% 29.1% 28.5% 32.2% 31.1% CORPORATEWIDE HEADCOUNT Total Employees 77,248 82,526 82,493 86,537 87,413 SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON OPERATING EXPENSE MODEL TBR
© 2010 Technology Business Research, Inc. TBR 37 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Headcount Model CALENDAR 2Q09 3Q09 4Q09 1Q10 2Q10 FISCAL 2Q09 3Q09 4Q09 1Q10 2Q10 North America 5,284 11,199 11,222 13,450 13,857 Latin America 7,858 5,721 6,055 6,134 6,150 Northern Europe Central Asia 21,200 22,103 21,993 21,813 21,806 Sweden 18,605 18,311 18,217 18,082 18,070 Western Central Europe 11,822 11,701 11,622 11,418 11,174 Mediterranean 10,061 10,019 9,509 10,884 10,857 Middle East 3,867 3,778 3,744 3,598 3,568 Sub Saharan Africa 1,853 2,202 2,104 2,044 1,944 India 3,614 3,798 4,184 4,726 5,408 China North East Asia 6,409 6,773 6,894 7,400 7,668 South East Asia Oceania 5,280 5,232 5,166 5,070 4,981 Total Headcount 77,248 82,526 82,493 86,537 87,413 PERCENTAGE OF REVENUE North America 6.8% 13.6% 13.6% 15.5% 15.9% Latin America 10.2% 6.9% 7.3% 7.1% 7.0% Northern Europe Central Asia 27.4% 26.8% 26.7% 25.2% 24.9% Sweden 24.1% 22.2% 22.1% 20.9% 20.7% Western Central Europe 15.3% 14.2% 14.1% 13.2% 12.8% Mediterranean 13.0% 12.1% 11.5% 12.6% 12.4% Middle East 5.0% 4.6% 4.5% 4.2% 4.1% Sub Saharan Africa 2.4% 2.7% 2.6% 2.4% 2.2% India 4.7% 4.6% 5.1% 5.5% 6.2% China North East Asia 8.3% 8.2% 8.4% 8.6% 8.8% South East Asia Oceania 6.8% 6.3% 6.3% 5.9% 5.7% Total Headcount 100.0% 100.0% 100.0% 100.0% 100.0% YEAR-TO-YEAR GROWTH North America NA NA NA 146.9% 162.2% Latin America NA NA NA -23.6% -21.7% Northern Europe Central Asia NA NA NA 1.9% 2.9% Sweden NA NA NA -3.9% -2.9% Western Central Europe NA NA NA -1.7% -5.5% Mediterranean NA NA NA 8.7% 7.9% Middle East NA NA NA -8.8% -7.7% Sub Saharan Africa NA NA NA 11.6% 4.9% India NA NA NA 40.0% 49.6% China North East Asia NA NA NA 22.7% 19.6% South East Asia Oceania NA NA NA -2.9% -5.7% Total Headcount NA NA NA 12.5% 13.2% SOURCE: TBR AND ERICSSON ERICSSON'S EMPLOYEES BY MARKET REGION TBR
© 2010 Technology Business Research, Inc. TBR 38 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Future Outlook Graph CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. IN SEK MILLIONS Net Sales 52,142 46,433 58,333 45,112 47,972 45,500 Gross Profit 17,611 15,978 18,998 16,585 17,737 16,000 SGA 7,443 5,279 7,323 7,008 7,158 5,500 RD 8,451 8,218 9,306 7,526 7,751 8,000 Operating Income 1,213 1,144 1,786 1,981 3,020 2,500 Net Income 797 772 725 1,274 2,027 2,000 PERCENTAGE OF REVENUE Gross Margin 33.8% 34.4% 32.6% 36.8% 37.0% 35.2% SGA 14.3% 11.4% 12.6% 15.5% 14.9% 12.1% RD 16.2% 17.7% 16.0% 16.7% 16.2% 17.6% Operating Margin 2.3% 2.5% 3.1% 4.4% 6.3% 5.5% Net Margin 1.5% 1.7% 1.2% 2.8% 4.2% 4.4% YEAR-TO-YEAR GROWTH Net Sales 7.4% -5.6% -13.0% -9.0% -8.0% -2.0% Gross Profit 1.6% -9.3% -15.6% -5.8% 0.7% 0.1% SGA 18.7% -16.3% -11.7% 2.1% -3.8% 4.2% RD -5.4% 4.6% 13.1% 6.3% -8.3% -2.7% Operating Income -58.0% -68.7% -71.2% 11.6% 149.0% 118.5% Net Income -61.0% -73.7% -82.2% -30.5% 154.3% 159.1% SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON FINANCIALS AND TBR QUARTERLY PROJECTION TBR
© 2010 Technology Business Research, Inc. TBR 39 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Acquisitions Company Scope of Acquisition LG-Nortel June 2010 Ericsson paid $242 million for 50% plus one share in LG-Nortel. As controlling stakeholder, Ericsson expands its position in South Korea by acquiring a strong RD and sales channel, as well as an already established player in the Korean LTE market. The joint venture, which was formed in 2005, had 1,300 employees and revenue of $650 million in 2009. SinglePoint February 2010 Ericsson acquired SinglePoint’s strategic operator and aggregation contract assets. The purchase not only improves Ericsson’s premium and standard rate messaging reach, but also takes the company to CSCA Tier 1 aggregator status in the United States. LHS February 2010 Ericsson took 100% ownership in LHS after acquiring the remaining shares from minority shareholders through a squeeze-out process. As sole owner of LHS AG, Ericsson now pairs its prepaid solutions with LHS’ postpaid offerings, providing a fully integrated end-to- end charging and billing solution for mobile and fixed operators. Pride January 2010 Ericsson obtained 1,000 professionals from Pride, adding manpower and expertise to the vendor’s growing services division, particularly in consulting and systems integration. Appendix – Acquisitions and Alliances Vodafone and Ericsson established a joint innovation center in Madrid to focus on developing 2G and 3G RAN. Vodafone June 2010 Ericsson Alliances Company Scope of Partnership
© 2010 Technology Business Research, Inc. TBR 40 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Recent Product Announcements Product Series Configuration OpenStream Catalog Gateway May 2010 • Helps operators promote content in VoD libraries and differentiate TV offerings • The Gateway is part of Ericsson’s on-demand solution that uses the OpenStream Digital Services Platform • Open interface works with third-party recommendation engines and web portals to find content of user interest • Gateway can be combined with the OpenStream Marketing Manager, which sends consumers promotions for content that matches their interests PKB-A Series April 2010 Based on original eight-brick PKB technology, PKB-A offers delivery of 30A or 125W with high efficiency 3-D Content Delivery Solution April 2010 3-D movie theater experience comprised of the Ericsson CExH42 MPEG-4 AVC HD Contribution Encoder, the Ericsson RX8200 Receiver and Ericsson EN8190 HD encoder IPTV Remote February 2010 • Single digital interface for Internet video, TV, PC and mobile phone within the home • Provides single interface for multiple devices without tying up a window on the TV screen Appendix – Recent Product Announcements
© 2010 Technology Business Research, Inc. TBR 41 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Network Customer Deals Company Scope of Deal EMOBILE Japan July 2010 By the end of 2010, EMOBILE will deploy an HSPA Evolution network in Tokyo, Tokai and Osaka using Ericsson equipment. Dual Cell HSPA technology supports download speeds up to 42 Mbps, twice the peak rate of HSPA+. BH Telecom Bosnia Herzegovina July 2010 BH Telecom agreed to pay Ericsson Nikola Tesla, Ericsson’s subsidiary in Croatia, $10.2 million to expand its 2G and 3G networks. Batelco Bahrain June 2010 Batelco will pay Ericsson $38.5 million through 2010 for RBS 6000 equipment. Batelco will use the multi-radio base stations to expand its existing HSPA network and prepare for rolling out LTE at a later date. CableTica Costa Rica June 2010 Ericsson will build, operate and manage a fiber-optic transport network for CableTica in Costa Rica under a five-year contract. Ericsson will construct the optical network using equipment from its MHL 3000 and OMS 1400 portfolios. Telstra Australia May 2010 Telstra is using Ericsson’s MHL 3000 DWDM solution in its Next IP network connecting Melbourne and Sydney to boost its transmission rate from 10 Gbps to 40 Gbps. Indosat Indonesia May 2010 Under a three-year contract, Ericsson will deploy an HSPA Evolution network with peak data rates up to 42 Mbps for Indosat in Indonesia. As part of the agreement, Ericsson will also leverage alternative energy to reduce the network’s energy consumption by nearly 50% as well as provide a range of network design, deployment, training and support services. Ericsson will employ its RBS 6000, MSS Blade Cluster, and MINI-LINK TN for the infrastructure buildout. Upon completion, Indosat’s network will be enabled for a seamless upgrade to LTE. Appendix – Customer Deals
© 2010 Technology Business Research, Inc. TBR 42 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Network Customer Deals Company Scope of Deal Cross Wireless United States April 2010 Cross Wireless (doing business as Sprocket Wireless) will upgrade to a 3G CDMA network using Ericsson’s 10G SmartEdge 600 for the IP wireless backhaul, multicast IPTV traffic and internet service aggregation. Edgenics United States April 2010 Ericsson will supply, deploy, host and manage Edgenics’ new packet core network to better serve its customers in the Southeast United States. The network will reach approximately 3.5 million people in over 750 communities, as well as connect 16 universities through the Intercollegiate Online News Network (ICONN). Bharti Airtel India March 2010 As a part of a $1.3 billion contract, Ericsson will supply Bharti Airtel with energy- efficient 2G/2.5G radio base stations, circuit and packet core, microwave transmission and Intelligent Network to upgrade 15 of Airtel’s 22 telecom circles. In addition to improved voice quality and faster data access, the upgrade will allow for a seamless 3G rollout. China Mobile China Unicom China March 2010 Ericsson signed a 2G/3G frame agreement with both China Mobile and China Unicom for a combined $1.8 billion. Under the agreement, Ericsson will provide China Mobile with a multistandard radio base station (RBS 6000) and mobile soft-switching technology, worth $1 billion of the total contract. Ericsson will also provide China Unicom with HSPA Evolution technology, as well as IP routers, fiber access technologies GPON and 40G WDM, and IMS worth the other $800 million of the total contract. MTN Ghana Ghana March 2010 MTN Ghana and Ericsson successfully trialed UMTS 900 MHz in Africa, better extending mobile broadband coverage to rural areas. In the planned 2Q10 rollout, Ericsson will be responsible for the access, transport and transmission of the 3G UMTS 900 MHz. Appendix – Customer Deals
© 2010 Technology Business Research, Inc. TBR 43 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Network Customer Deals Company Scope of Deal Softbank Mobile Japan February 2010 Ericsson will provide Softbank Mobile RBS6000 HSPA/LTE multistandard base stations and rollout services to upgrade its network with multicarrier HSPA technology. The base stations will help Softbank handle a surge in data traffic caused by the use of smartphones. ATT United States February 2010 Ericsson expanded its key supplier role with ATT by signing a multiyear deal, agreeing to deliver LTE network equipment and design, deploy and optimize ATT’s LTE network. LTE field trials are scheduled for later this year, with commercial deployment scheduled to begin in 2011. Netgear World February 2010 Netgear will integrate Ericsson’s HSPA technology with their 802.11n wireless and Ethernet LAN for their new routers. 3 Scandinavia Denmark, Sweden January 2010 Ericsson will supply Denmark and four major cities in Sweden with the world’s first 84 Mbps HSPA network. The three-year contract includes an HSPA Evolution capacity upgrade of 3 Scandinavia’s existing 3G network, a new WCDMA/HSPA radio access network, IP-based optical and microwave backhaul and additional support services. TeliaSonera Sweden Norway January 2010 Ericsson will supply TeliaSonera with an LTE core and radio network for an undisclosed sum. TeliaSonera plans to bring 4G service to Sweden’s 25 largest municipalities and recreation areas, as well as Norway’s four largest municipalities, including Oslo, in 2010- 2011. Huawei and Nokia Siemens also won parts of the infrastructure deal, with Huawei supplying equipment for Oslo, and Nokia Siemens and Ericsson supplying radio network equipment for the remaining municipalities. In December, Ericsson supplied TeliaSonera with LTE Radio Base Stations, an Evolved Packet core network, a mobile backhaul solution with SmartEdge 1200 routers, an EDA multi-access aggregation switch and an Operation and Management System for the rollout of the operator’s LTE network in Stockholm. Appendix – Customer Deals
© 2010 Technology Business Research, Inc. TBR 44 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Customer Deals Ericsson Application Customer Deals Company Scope of Deal Curitiba Brazil May 2010 Ericsson and Dataprom supplied the Brazilian city of Curitiba with an Electronic Ticketing and Fleet Management System to obtain information and monitor the city’s fleet of public buses. This M2M application uses a 3G network to relay data from the buses to Curitiba’s network management center. Ericsson equipped the city’s buses with mobile broadband modules. Digi International United States March 2010 Anticipating future growth in M2M connections, Ericsson agreed to provide Digi International with HSPA mobile broadband modules. The mobile broadband module will deploy in selected Digi Transport and Digi Connect cellular gateways to allow for rapid global adoption of 3G connectivity in M2M applications. Telekom Austria Austria February 2010 Ericsson will provide Telekom Austria with IPTV middleware, the OpenStream Digital Services Platform and the WatchPoint Content Management System to improve Telekom’s current IPTV platform, eliminate the barriers between the TV set and PCs and introduce a new generation of user interface.
© 2010 Technology Business Research, Inc. TBR 45 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Customer Deals Ericsson Service Customer Deals Company Scope of Deal Endesa Spain July 2010 Ericsson won a four-year managed services contract from Endesa, the largest electric utility operating in Spain. As part of the agreement, Ericsson will assume responsibility for Endesa’s corporate network, which services all of the utility’s 23.5 million customers across Spain. BH Telecom Bosnia Herzegovina April 2010 Ericsson Nikola Tesla, Ericsson’s Croatia-based subsidiary, will manage BH Telecom’s network under a two-year managed services contract worth $10 million. Telefónica Brazil May 2010 Ericsson will operate Telefónica’s network operations center in Sao Paulo under a three-year deal. The managed services contract covers Telefónica’s fixed core, transmission, and ADSL networks as well as spare parts management. About 100 Telefónica staff will transfer to Ericsson to aid in supporting the network. Mobilicity Canada April 2010 Ericsson will manage Mobilicity’s 3G wireless network over the next five years. Financial terms were not disclosed, but the network covers 16 million Canadians and exemplifies Ericsson’s push into North America via Nortel. Crnogorski Telekom (Montenegro Telecom) Croatia March 2010 Croatian Ericsson Nikola Tesla, a subsidiary of Ericsson, has entered a four-year, €11.7 million (or $16.2 million) deal with Crnogorksi Telekom. The deal will make the latest Ericsson solutions and support services available to Crnogorksi Telekom.
© 2010 Technology Business Research, Inc. TBR 46 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Management Ericsson Management Name Position Hans Vestberg CEO and President Jan Frykhammar Executive Vice President, CFO and Head of Group Function Finance Johan Wibergh Executive Vice President and Head of Business Unit Networks Magnus Mandersson Senior Vice President and Head of Business Unit Global Services Rima Qureshi Senior Vice President and Head of Business Unit CDMA Mobile Systems Jan Wäreby Senior Vice President and Head of Business Unit Multimedia Håkan Eriksson Senior Vice President, CTO, Head of Ericsson Silicon Valley and Head of Group Function Technology Portfolio Management Torbjörn Possne Senior Vice President and Head of Group Function Sales and Marketing Carl Olof Blomqvist Senior Vice President, General Counsel and Head of Group Function Legal Affairs Marita Hellberg Senior Vice President, Head of Group Function Human Resources and Organization Henry Sténson Senior Vice President and Head of Group Function Communications Gilles Delfassy President and CEO, ST-Ericsson Mats H Olsson Head of Region Greater China North East Asia Douglas Gilstrap Senior Vice President and Head of Group Function Strategy Cesare Avenia Chief Brand Officer Bert Nordberg President, Sony Ericsson Angel Ruiz Head of Region North America
© 2010 Technology Business Research, Inc. TBR T ECH N O LO G Y B U SIN ESS RESEARCH , IN C. For additional information please contact: John Byrne (john.byrne@tbri.com), NBQ Director James McIlroy (mcilroy@tbri.com), Vice President of Sales

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ericsson210.pdf

  • 1.
    © 2010 TechnologyBusiness Research, Inc. TBR T ECH N O LO G Y B U SIN ESS RESEARCH , IN C. Telefon AB LM Ericsson SECOND CALENDAR QUARTER 2010 NETWORK BUSINESS QUARTERLYSM TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE) 4.40 Second Fiscal Quarter 2010 Ended June 30, 2010 Publish Date: August 30, 2010 Author: Christopher Antlitz (chris.antlitz@tbri.com), Research Analyst Content Editor: John Byrne, NBQ Director 11 Merrill Drive Hampton, NH 03842 603.929.1166 www.tbri.com 11 Merrill Drive Hampton, NH 03842 603.929.1166 www.tbri.com
  • 2.
    © 2010 TechnologyBusiness Research, Inc. TBR 2 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Table of Contents Company Data Models Financial Strategy Graphs 25 Go-to-Market Resource Graphs 28 Income Statement 29 Balance Sheet 31 Operating Segment Revenue Model 33 Global Services Revenue Model 34 Geographic Model 35 Operating Expense Model 36 Headcount Model 37 Projection Model 38 Acquisitions Alliances 39 Recent Product Announcements 40 Customer Deals 41 Management 46 Company Analysis Executive Summary 3 Strategy Overview 7 Corporate SWOT Analysis 12 Financial Model Strategy 14 Alliance Acquisition Strategies 17 Go-to-Market Product Strategies 18 Geographic Analysis 20 Resource Management Strategy 21 Future Outlook 22 Appendix 24
  • 3.
    © 2010 TechnologyBusiness Research, Inc. TBR 3 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com 1 1 1 Nortel’s wireless assets continue to prove invaluable to Ericsson • Ericsson reported sales declines in all regions except North America, which increased 128% year-to-year and 37% sequentially in 2Q10. LTE equipment volumes began to ramp up and demand for mobile broadband increased in what is now Ericsson’s largest market. • Even CDMA showed strength, indicating that Nortel’s LTE and CDMA assets are successfully being monetized by Ericsson, and that Nortel’s customer relationships are helping the company generate business in the challenging economic climate. Global Services growth stalled in 2Q10 due to network rollout challenges • While Managed Services gained momentum, the Global Services division reported flat growth in 2Q10, as network rollout sales dropped 12% from a year ago. • The general slowdown in turnkey deployments was exacerbated by component shortages and bottlenecks in the supply chain. Ericsson still managed to turn a profit from network rollout, a feat that had eluded the company since the recession began. Ericsson’s tie-up with Endesa signals a broad market for managed services • Ericsson’s four-year managed services contract with Endesa, an electric utility in Spain, demonstrates that Ericsson can leverage its services expertise to cater to non-operator customers. • Under the deal, Ericsson assumes responsibility for Endesa’s corporate network, which services nearly 24 million customers across Spain. The deal highlights Ericsson’s intention to broaden its managed services portfolio well beyond communication service providers. Ericsson continued to gain Managed Services momentum in 2Q10, expanding its reach into the utility segment Executive Summary
  • 4.
    Ericsson – Calendar2Q10 Report © 2010 Technology Business Research, Inc. TBR TBR NETWORK BUSINESS QUARTERLYSM 4 TBR Position: Executive Summary Although Ericsson revenue declined due to sluggish operator spending, component shortages and India red tape, backlog is strong for 2H10 Ericsson could return to growth as early as 4Q10, as India equipment sales ramp up and backlog commitments are filled. • Ongoing component shortages and supply chain issues created a backlog of SEK 3 billion to 4 billion in 2Q10. Importantly, these sales were not lost – an indication that operators are willing to stick with Ericsson and not turn to rivals for faster delivery. • The requirement to obtain security clearances in India slowed equipment sales dramatically for all vendors, causing Ericsson’s sales in the country to plunge 63% year-to-year and 41% sequentially. Ericsson’s Corporate Strategies • Leverage LTE to maintain dominant position in wireless deployments. • Expand Ericsson’s addressable market by catering telecom product and service offerings to enterprise customers in a variety of industries beyond traditional service providers. • Play integral role in the modernization of legacy base stations, particularly in Europe. • Operator spending on mobile broadband equipment is strong, but is only partially offsetting declines in 2G voice equipment. • Professional Services continues to grow, up 5.4% year-to-year (9% at constant currency) in 2Q10, while Managed Services growth accelerated to 23%. • Geographic performance was mixed, as the pace of economic recovery varies significantly by region and by country. ERICSSON PROFITABILITY AND GROWTH 0 10,000 20,000 30,000 40,000 50,000 60,000 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. In SEK Millions -20% -15% -10% -5% 0% 5% 10% 15% 20% Total Revenue Gross Profit Operating Profit Year-to-Year Revenue Growth SOURCE: TBR AND ERICSSON
  • 5.
    © 2010 TechnologyBusiness Research, Inc. TBR 5 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Resource Management Financial Performance Go-to-Market Strategy Executive Summary Executive Summary Strong demand for Managed Services prevented a decline in the Global Services division’s revenue Segment Key Changes Drivers 2Q10 Revenue Growth Y/Y Keep on the Radar Networks • Network sales were negatively impacted by component shortages and supply chain bottlenecks. While supply concerns started to ease in July, Ericsson and its rivals will continue to experience parts delays through at least 2010 while manufacturers ramp up production. SEK 25.5 billion ($3.4 billion) –11.5% • Ericsson estimates there are 1.5 million GSM base stations that will require replacement in coming years; the majority of replacements will take place in Europe, where Ericsson is the largest incumbent supplier. Global Services • Strong demand for Managed Services offset declines in network rollout, SI and consulting. • Excluding Managed Services revenue, Professional Services would have declined 3% year-to-year. SEK 20.1 billion ($2.7 billion) 0.3% • Ericsson’s managed services deal with Spanish electric utility Endesa shows that there are vast, largely untapped opportunities to sell services to customers beyond traditional network operators. Multimedia • A dearth of investment in revenue management solutions in MEA and India are the primary drag on sales in the Multimedia division. SEK 2.4 billion ($320 million) –27.3% • Investments in TV solutions such as 3-D content delivery will help Ericsson capitalize on growing consumer preferences for receiving and viewing video content.
  • 6.
    © 2010 TechnologyBusiness Research, Inc. TBR 6 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson outperformed its peers in terms of equipment market share, and continues to invest aggressively in RD to maintain its advantage Executive Summary Key ■ Represents an area where Ericsson is currently challenged versus peers ■ Represents an area where Ericsson is outperforming its peers ■ Represents an area where Ericsson is neither significantly outperforming nor underperforming its peers FINANCIAL METRICS TBR Score Company Figure Average in Class Standard Deviation/2 Revenue Growth Year‐to‐Year 4.22 ‐8.0% 0.4% 10.8% Revenue/Employee 4.11 309,094 $ 383,966 $ 84,460 $ Gross Margin 4.97 37.0% 37.1% 5.2% SGA as % of Sales 5.89 14.9% 16.8% 2.2% RD as % of Sales 3.72 16.2% 13.3% 2.2% Operating Margin 5.06 6.3% 6.0% 4.4% Days Cash Outstanding 4.91 126.81 131.53 50.06 Total Asset Turns 3.58 0.70 0.91 0.15 Current Ratio 5.46 2.00 1.87 0.27 Debt/Assets 4.87 0.49 0.48 0.07 Return on Assets 3.88 1.8% 4.8% 2.7% Return on Equity 4.02 3.4% 11.0% 7.7% TOTAL AVERAGE TBR SCORE GO‐TO‐MARKET SERVICES METRICS TBR Score Company Figure Average in Class Standard Deviation/2 Network/Comm. Equipment Market Share 6.08 21.0% 16.1% 4.6% Mobile Phones 3.44 3.3% 14.8% 7.4% Days Sales Outstanding 2.33 130.17 78.98 19.19 TOTAL AVERAGE TBR SCORE RESOURCE MANAGEMENT METRICS TBR Score Company Figure Average in Class Standard Deviation/2 Inventory Turns/Year 2.83 4.52 9.40 2.24 Fixed Asset Turns/Year 6.58 20.06 14.33 3.63 TOTAL AVERAGE TBR SCORE 4.56 3.95 4.70 2Q09 3Q09 4Q09 1Q10 2Q10 Financial Model Strategy: 5.06 5.01 5.06 4.77 4.56 Go‐to‐Market Services Strategies: 3.89 3.91 4.24 3.80 3.95 Resource Management Strategy: 4.88 4.78 6.41 4.89 4.70 TOTAL AVERAGE TBR SCORE: 4.61 4.57 5.24 4.49 4.40 CALENDAR QUARTER RESULTS TBR SCORING SUMMARY:
  • 7.
    © 2010 TechnologyBusiness Research, Inc. TBR 7 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com As Chinese operators wind down 3G deployments, Ericsson is successfully capturing follow-on managed services engagements Key Company Objectives TBR Assessment Overall • Capture market share in key emerging markets, including China and India (4Q09) • Leverage investment in Silicon Valley assets to establish credentials within Multimedia unit • Utilize Sprint deal to establish leadership stake in U.S. network outsourcing market ; In July, Ericsson added a significant managed services deal with China Mobile, for field maintenance covering 22,000 cell sites in Hebei province. : Multimedia unit revenue plummeted in 2Q10, due largely to poor revenue management sales. TV-related revenue continues to grow, albeit from a small base.  Ericsson’s managed services deal with Canadian operator Mobilicity is just getting underway, though anecdotal reports indicate possible funding issues. In the U.S., NSN scored the most recent success, landing a significant managed services deal with LightSquared. Financial • Maintain revenue growth despite competitive threats from Chinese vendors • Embark on continuous cost-control program to ensure margins can be maintained • Return Sony Ericsson to profitability (4Q09) : Ericsson continues to struggle to regain revenue, due to a combination of slow overall volume and relentless competition from Huawei, ZTE and others. ; Despite revenue decline, Ericsson is reaping the benefits of the aggressive cost-cutting initiatives of the last two years. ; Despite a 20% year-to-year decrease in handset shipments, Sony Ericsson posted a thin operating profit in 2Q10. Strategy Overview Key: ; Working: Short-term impact expected on bottom / top line : Not working: No major impact or differentiation expected  Too soon to tell
  • 8.
    © 2010 TechnologyBusiness Research, Inc. TBR 8 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson maintained its significant leadership position in managed services and is now neck-and-neck with Alcatel-Lucent in North America Key Company Objectives TBR Assessment Go-to- Market • Maintain role as largest provider of telecom infrastructure services (3Q09) • Become a dominant North American supplier (3Q09) • Build a strong position in full service broadband leveraging its IPTV, IP networking and optical assets • Utilize Nortel assets to pursue CDMA “long-tail” and CDMA-LTE migration opportunities ; Ericsson’s roster of customers under managed services deals has grown to over 750 million in 100+ countries, making Ericsson the largest managed services vendor by far among network equipment providers. ; TBR estimates that Ericsson’s 2009 North American revenue, pro forma for Nortel, would have essentially matched Alcatel-Lucent with revenue of $3.8 billion.  Ericsson is reporting some success in IPTV, but the overall market is not meeting growth expectations. ; Ericsson is successfully leveraging its CDMA assets to penetrate Tier 1 or Tier 2 U.S. operators. RD Delivery Strategy • Leverage ST-Ericsson to grow share in embedded module marketplace • Extend reach into enterprise segment through channel program • Utilize Sony Ericsson to access opportunities in the handset market  Embedded modules represent a major growth opportunity as the M2M market grows, but ST-Ericsson faces significant competition from low-cost vendors.  Ericsson launched a channel program for microwave last year, but has not yet reported strong success. : Sony Ericsson has significantly reduced operating losses, but there are few synergies between Sony Ericsson and Ericsson’s key equipment, services and multimedia initiatives. Strategy Overview Key: ; Working: Short-term impact expected on bottom / top line : Not working: No major impact or differentiation expected  Too soon to tell
  • 9.
    © 2010 TechnologyBusiness Research, Inc. TBR 9 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson joined many equipment vendors in reporting significant year-to-year revenue declines in India TBR Assessment of Ericsson Strategy: Neutral Security issues with the Indian government hampered infrastructure deals in 2Q10, while the completion of 3G auctions in India have not yet translated to significant deployment contracts • In India, Ericsson experienced its worst quarter of the last several years in 2Q10, as sales fell to SEK 1.4 billion, a year-to-year decline of 62.9%. Services revenue stayed flat due to the long-term nature of the contracts, but new infrastructure deals were delayed and many existing contracts encountered regulatory hurdles. • The Indian 3G spectrum auction, which concluded in May, did not lead to new network infrastructure investments as the industry had anticipated. Indian operators are expected to hand out equipment supply contracts in the third quarter, and Ericsson is likely to compete aggressively against the likes of Alcatel-Lucent, Nokia Siemens, Huawei and ZTE. • Government regulations and security clearance issues detrimentally impacted 2Q10 results for Ericsson and other vendors. India’s stricter regulations appear designed to keep Chinese vendors ZTE and Huawei from providing equipment to Indian operators; however, the strict guidelines also required other foreign vendors, including Ericsson, to submit to security inspections and make their network design and source code available to the government. The regulations set a potentially troublesome precedent, but may help Ericsson in the short term if they render the Chinese vendors unable to win significant 3G tenders. Huawei and ZTE were excluded from a May RFP by BSNL, in which Ericsson bid alongside traditional competitors Alcatel-Lucent and NSN. • Ericsson made progress on the security front toward the end of 2Q10, with clearance granted to do business with one of the 15 Indian operators and additional approvals secured in July. This will likely result in improved revenue prospects from India in 3Q10. However, the Indian government has not yet decided on a concrete clearance process and there is no timeframe for an agreement which could dampen prospects for all vendors until a resolution is reached. Strategy Overview
  • 10.
    © 2010 TechnologyBusiness Research, Inc. TBR 10 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson secures its largest managed services deal in China TBR Assessment of Ericsson Strategy: Positive Ericsson is now the sole managed services provider for China Mobile Hebei, a provincial company of China’s largest operator, China Mobile • Ericsson’s revenue from Chinese operations plunged 36% year-to-year due to the completion of 3G network rollouts and upgrades, but a key managed services contract was won from China Mobile Hebei. The three-year field maintenance agreement with the China Mobile subsidiary will have Ericsson maintaining 22,000 GSM and TD-SCDMA base stations in the Hebei province. This represents Ericsson’s largest managed services contract in China, and provides it a strong reference account for other Chinese operators, as well as for China Mobile operations in other provinces. The deal is likely to increase in value as more base stations are added in Hebei. China Mobile Hebei is the largest mobile operator in the province, with 35 million subscribers. • Chinese operators have yet to embrace outsourcing network management due to difficulties in cutting headcount, but with Ericsson’s industry-leading managed services capabilities, this deal should allow Ericsson to showcase the cost savings and reliability of the practice. TBR believes Ericsson will win business from additional China Mobile provincial companies, as well as other reluctant Chinese operators. • Ericsson and competitors Alcatel-Lucent and NSN have secured billion-dollar equipment deals with China’s largest operators, but only Ericsson has thus far been able to make inroads in the managed services sector. Alcatel-Lucent has struggled in managed services of late, as it focuses on application enablement and saw managed services revenue decrease year-to-year in 2Q10. For its part, NSN has recently found success landing managed services offerings in Russia, Australia and South Africa, but has yet to break into the Chinese managed services market. • Ericsson is still generating more managed services revenue (up 23% year-to-year) than its competitors, but TBR believes NSN is likely eyeing the Chinese market very closely and is prepared to price-to-win in order to gain a managed services foothold in the world’s most populous country. Strategy Overview
  • 11.
    © 2010 TechnologyBusiness Research, Inc. TBR 11 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson will leverage its industry-leading position in services to drive future growth Corporate SWOT Analysis Opportunities • Tailor managed services offerings to verticals outside of telco • Leverage Nortel assets to expand market position in CDMA and CDMA-LTE migrations (1Q10) • Utilize weak economy to sell opex-improving professional services engagements • Grow IPTV revenue stream with “Connected Home” concept (3Q09) • Embrace thought leadership in sustainability with “Low Carbon Cities” message (3Q09) Weaknesses • Limited traction with Multimedia division (1Q10) • Minimal presence in enterprise market may hamper Ericsson’s long-term plans (4Q09) • Weak demand for legacy wireless and fixed technologies dampening revenue growth • Network outsourcing business requires long path to deal profitability Internal External Strengths • Strong systems integration capabilities, including 10,000 SI-focused employees (4Q09) • Ability to make a compelling network upgrade business case (1Q09) • Strong track record of acquisitions to fill product and services gaps • Ericsson Global Services is the market leader, particularly in managed deals Threats • Component shortages are dampening equipment sales • Slowing 3G deployments will challenge growth in the Chinese market • Ericsson Global Services’ competitors, particularly Nokia Siemens, aggressively pursuing network outsourcing deals • NSN’s focus on regaining market share likely to threaten Ericsson growth and profitability
  • 12.
    © 2010 TechnologyBusiness Research, Inc. TBR 12 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com The Endesa contract shows that Ericsson’s addressable market for managed services goes far beyond traditional network operators Corporate SWOT Analysis Opportunity: Tailor managed services offerings to verticals outside of telco Ericsson’s growing managed services business branches out with Endesa contract • In July, Ericsson won a four-year managed services contract from Endesa, the largest utility company in Spain, to provide services for its entire corporate telecommunications network. This deal represents a significant break from the typical Ericsson managed services contract, which has historically been between Ericsson and a telecommunications company. • The main players in the network infrastructure supply market have each developed a secondary niche to complement their equipment vending activities, and Ericsson has arguably had the most success with its managed services. While the equipment market has been stagnant, Ericsson has been able to partially make up for the lack of activity with a growing number of services deals from telecom operators. • The Endesa contract extends Ericsson’s managed services business model to non- telecommunications companies, greatly expanding its addressable market. Although Ericsson first signed on to provide managed services for a non-telecom in 2006 with automatic meter-reading firm Acea, the Endesa deal is far larger in scope, with Ericsson taking over daily operations of Endesa’s telecom network in Spain on a companywide scale. TBR believes this deal gives Ericsson a prime opportunity to showcase the strategic advantages and cost-saving abilities of outsourcing corporate communications to network vendors. • Ericsson is taking a similar approach in the TV broadcasting industry. Last November, Ericsson won a 10-year managed services contract from Swedish network TV4 Group to transmit TV channels to service providers.
  • 13.
    © 2010 TechnologyBusiness Research, Inc. TBR 13 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Backlogs are building as network vendors struggle to source critical components Corporate SWOT Analysis Threat: Component shortages are hurting equipment sales With a double- dip recession looming, TBR believes component manufacturers may be slow in ramping up production to satisfy demand • The abrupt shift toward economic recovery (particularly in the U.S. and Asia), mixed with strong demand for technology products, has caught many manufacturers off guard, resulting in spot shortages of commodity electronic components. • Manufacturers of these components, which go into a variety of products ranging from smartphones to base stations, are struggling to keep up with demand, hurt doubly as inventory levels have been abnormally low. Still, many manufacturers are reluctant to ramp up production to pre-recession levels as the threat of a double dip could cause demand to plunge again. • Decreased production stems from reluctance on the part of Asian manufacturers such as Hynix, Toshiba and Murata to rehire after laying off large portions of their workforces during the global recession. Additionally, some companies who made these components closed down completely within the last two years, further concentrating the supplier base. • While Ericsson and the other network vendors struggle to maintain adequate inventory levels, consumer electronics manufacturers have had little trouble securing parts for their products. Component makers are giving priority to orders by companies making high- growth products, such as smartphones, over the languishing network gear suppliers. • The recent increase in demand for these components may be short-lived, as there is talk of a double dip in the near future. As such, manufacturers may remain skittish, which means the shortage could last into early 2011, a projection that most vendors agree on. • As a result, Ericsson and some rivals have had to delay delivery of network equipment as lead times are pushed out. This has created sizable backlogs; in 2Q10 alone, Ericsson estimates SEK 3-4 billion of contracted work has been delayed due to the shortages. However, once these supply chain bottlenecks are resolved, TBR believes Ericsson and rivals will see a bump in equipment sales as vendors scramble to fill outstanding orders.
  • 14.
    © 2010 TechnologyBusiness Research, Inc. TBR 14 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Financial Model Strategy Gross and operating margin both improved from a year ago, indicating that management’s restructuring efforts are bearing fruit Revenue • Total revenue fell 8% (–15% at constant currency) year-to-year, negatively impacted by component shortages, which trimmed SEK 3–4 billion off the top line. Expenses • RD comprised 16.2% of total revenue, unchanged from 2Q09, but declined 8.3% year- to-year on efficiencies from the recently completed restructuring program. • SGA declined 3.8% year-to-year but increased 60 basis points to 14.9% of total revenue, due to increased spending on LTE initiatives. Margins • Reported gross margin increased 140 basis points year-to-year, to 37%, on favorable product mix. • Operating margin increased 400 basis points year-to-year to 6.3% and operating income increased 150% to SEK 3 billion ($400 million), largely due to improving results in Song-Ericsson and ST-Ericsson. • Excluding Ericsson’s share in the JVs, operating margin increased 50 basis points to 6.9%, but operating income fell 1%. ERICSSON ADJUSTED OPERATING MARGIN BY SEGMENT -20% -15% -10% -5% 0% 5% 10% 15% 2Q09 3Q09 4Q09 1Q10 2Q10 Networks Global Services Multimedia SOURCE: TBR AND ERICSSON TBR ERICSSON PRODUCT SERVICE REVENUE 20,080 2,420 28,795 24,504 24,704 31,844 25,472 18,578 23,137 18,098 20,019 3,328 3,351 3,352 2,310 10,000 16,000 22,000 28,000 34,000 40,000 46,000 52,000 58,000 2Q09 3Q09 4Q09 1Q10 2Q10 In SEK Millions -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% Networks Global Services Multimedia Year-to-Year Revenue Growth SOURCE: TBR AND ERICSSON TBR
  • 15.
    © 2010 TechnologyBusiness Research, Inc. TBR 15 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Services comprised 42% of total revenue in 2Q10, led by managed services, which registered strong growth of 23% year-to-year Revenue Performance Segment Revenue Drivers Financial Model Strategy 2Q10 Total Revenue: SEK 48 billion ($6.4 billion) Networks SEK 25.5 billion ($3.4 billion) • Networks revenue declined 11.5% year-to- year, as component shortages prevented Ericsson from meeting resurgent demand for infrastructure in some regions. • TBR believes Networks revenue will tick up in 2H10 as Ericsson ramps up 3G deployments in India and fills its backlog. Global Services SEK 20.1 billion ($2.7 billion) • Managed Services grew 23% year-to-year, and Ericsson is expanding its reach to non- telecoms, greatly increasing the addressable market for its services. • Strong growth in Managed Services offset declines in network rollout, which took on fewer turnkey projects. Multimedia SEK 2.4 billion ($320 million) • Multimedia sales were hampered by lower demand in the key emerging markets of Africa, India and the Middle East. • Weak multimedia sales in Africa, India and the Middle East resulted in a year-to-year revenue decline of 27.3%. ERICSSON 2Q10 SEGMENT REVENUE GROWTH 52,142 3,323 761 700 908 47,972 46,000 46,500 47,000 47,500 48,000 48,500 49,000 49,500 50,000 50,500 51,000 51,500 52,000 52,500 2Q09 Revenue Networks Professional Services Network Rollout Multimedia 2Q10 Revenue In SEK Millions SOURCE: TBR AND ERICSSON TBR ERICSSON REVENUE COMPOSITION 0% 15% 30% 45% 60% 2Q09 3Q09 4Q09 1Q10 2Q10 Networks Global Services Multimedia SOURCE: TBR AND ERICSSON TBR
  • 16.
    © 2010 TechnologyBusiness Research, Inc. TBR 16 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Excluding the integration impact from Nortel’s assets, Ericsson’s cost-management initiatives were widely successful Financial Model Strategy Expense Performance Expense Segments Strategies 2Q10 Total OPEX: SEK 45.6 billion ($6 billion) Cost of Revenue SEK 30.2 billion ($4 billion) • Cost of revenue declined 12.4% year- to-year, reflecting the effect of cost- reduction initiatives and improved product mix, which is increasingly being skewed toward higher-margin services. SGA SEK 7.2 billion ($948 million) • The cost-reduction program did not fully effect SGA, which was impacted by the integration of Nortel’s CDMA assets and an increase in LTE trials. • SGA as a percentage of revenue should trend lower as the Nortel integration winds down in 3Q10. RD SEK 7.8 billion ($1 billion) • RD expenses will increase as a percentage of revenue as Ericsson feels the impact of the acquisition of Nortel’s share of the LG-Nortel joint venture. ERICSSON OPEX AS A PERCENTAGE OF REVENUE 0% 10% 20% 30% 40% 50% 60% 70% 2Q09 3Q09 4Q09 1Q10 2Q10 Cost of Sales SGA Research Development SOURCE: TBR AND ERICSSON TBR ERICSSON OPERATING EXPENSES 5,279 7,158 7,751 30,235 39,335 28,527 30,455 34,531 7,443 7,008 7,323 7,526 9,306 8,218 8,451 0 10,000 20,000 30,000 40,000 50,000 60,000 2Q09 3Q09 4Q09 1Q10 2Q10 In SEK Millions Cost of Sales SGA Research Development SOURCE: TBR AND ERICSSON TBR
  • 17.
    © 2010 TechnologyBusiness Research, Inc. TBR 17 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com LG-Ericsson USA brings another voice and data player to North America Alliance Acquisition Strategies TBR Assessment: The LG-Ericsson joint venture brings Ericsson back into the enterprise segment it exited two years ago LG-Ericsson USA will target the North American SMB market with its hybrid TDM products • LG-Ericsson, the joint venture formed when Ericsson bought Nortel’s share of LG-Nortel, has officially launched a joint venture of its own, teaming with Accton Technology, a voice and data networking solutions provider from Taiwan, to form LG-Ericsson USA. LG-Ericsson USA started as the Business Solution Group of SMC Networks, but that division was spun off by Accton in November 2009 to form Edgecore Networks. In January, LG-Nortel purchased a 60% stake in Edgecore. The subsequent transition from LG-Nortel to LG-Ericsson led to the delayed launch of LG-Ericsson USA in August. • LG-Ericsson USA offers end-to-end voice and data solutions including IP and hybrid phone systems, managed and unmanaged switches, and Wi-Fi access points. Aimed at North American SMB with 10 to 1,200 users, LG-Ericsson sees the combined voice and data solutions growing into advanced unified communications systems; however, the company will face the challenge being seen in the UC market in which SMBs are reluctant to make the significant investment required to build a robust UC solution. • On the upside, because the SMB market remains under-penetrated, LG-Ericsson USA has the opportunity to win first-time adopters without having to pry customers away from the technology of established UC providers Cisco and Avaya. LG-Ericsson USA will, however, face competition from companies such as ShoreTel and Mitel, smaller companies who, like LG- Ericsson USA, provide hybrid time division multiplexing solutions. • LG-Ericsson USA has the name recognition and uncommon ability to provide both full data and telephony products in order to win SMB customers. The company maintains distribution relationships with Ingram Micro, Tech Data and others that were carried over from Edgecore, as well as over 3,000 North American data networking value-added resellers. • The buyout of Nortel’s stake in LG-Nortel was completed in June. Ericsson reports that 2009 revenue for LG-Nortel was between $600 million and $650 million.
  • 18.
    © 2010 TechnologyBusiness Research, Inc. TBR 18 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson enhanced its TV offerings, as it continues to gear up for future opportunities in TV apps and 3-D Networks • 3G deployments and/or expansions such as Ericsson’s 2Q10 contracts with Indonesian operator Indosat and Bahrain’s Batelco are increasingly being positioned for an eventual migration to LTE. With LTE trials multiplying globally, vendors and operators are ensuring that the migration to LTE will be relatively simple and primarily software-based. Ericsson’s RBS 6000 has been used extensively in such recent projects due to its flexibility to support multiple radio-frequency technologies, including GSM, WCDMA, HSPA and LTE, as well as for its energy efficiency. • While telecom companies wait for the LTE ecosystem to develop, many are enhancing their 3G networks with additional backhaul and/or software upgrades to HSPA+ to take advantage of faster pre-4G theoretical speeds. Ericsson and its rivals are competing aggressively at the deployment level for these contracts, knowing that successful HSPA+ upgrades could mean future contracts for LTE equipment, as well as long- term managed services deals. Multimedia • Ericsson enhanced its TV offerings in 2Q10 with the addition of OpenStream Catalog Gateway and a 3-D content delivery solution. Introduced in May, the Gateway matches consumer interests with content available on demand from an operator’s VoD library, with the intent of boosting usage and revenue generation from advanced TV services. • In April, Ericsson became an early entrant to the nascent 3-D market, which the vendor believes will exceed $60 billion in five years. The solution establishes a platform for operators to provide 3-D content through their existing infrastructure to end-users’ homes. TBR believes that while the ecosystem for 3-D is currently small, Ericsson’s early entrance into the technology will give the company an advantage in attracting business from early adopter service providers. Go-to-Market Product Strategies
  • 19.
    © 2010 TechnologyBusiness Research, Inc. TBR 19 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Go-to-Market Product Strategies Sony-Ericsson and ST-Ericsson continue to show moderate improvement, but losses continue to drag on Ericsson’s bottom line Global Services • Services comprised 42% of Ericsson’s total revenue in 2Q10, up 350 basis points from a year ago. Managed services comprised 28.1% of the Services total, up 520 basis points year-to-year. • Ericsson secured three major managed services contracts in 2Q10, with Telefónica in Brazil, BH Telecom in Bosnia Herzegovina and Mobilicity in Canada. • Ericsson’s services division emerged largely unscathed from the security clearance process in India, which helped the vendor generate cash flow in the country while the equipment side of the business was stagnant. Sony Ericsson ST-Ericsson • ASP jumped 31% year-to-year and 19% sequentially to €160 (or $204), reflecting Sony Ericsson’s foray into smartphones. While units shipped declined from 13.8 million in 2Q09 to 11 million in 2Q10, market share was stable, at roughly 4% globally. • The shift toward high-end smartphones propelled revenue 4% year-to-year and 25% sequentially, and brought positive operating income before accounting for restructuring charges. • Overall, with the JV’s restructuring program set to finish by the end of 2010, the streamlined company is better prepared to handle the challenging marketplace. However, Sony Ericsson must focus in the longer term on delivering differentiated products to uproot consumers from popular devices such as the iPhone and BlackBerry. • Sales at ST-Ericsson fell 18.3%, but adjusted operating loss narrowed from €165 million to €118 million, as restructuring efforts trimmed opex. • Savings from both restructuring programs will overlap and amplify starting in 3Q10, which will accelerate improvement in the PL statement.
  • 20.
    © 2010 TechnologyBusiness Research, Inc. TBR 20 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Excluding North America, Ericsson experienced sales declines in every region on a year-to-year basis Geo Key Deals Drivers 2Q10 Revenue YTY Growth Keep on the Radar North America • Ericsson secured two small operator deals in the U.S. – one with Wisconsin-based Cross Wireless and the other with e-learning services provider Edgenics. • In Canada, Ericsson won a managed services deal with Mobilicity to manage the operator’s 3G network for five years. SEK 13.5 billion ($1.8 billion) 128.5% • Ericsson’s new TV offerings could appeal to operators in the region pushing advanced services to boost ARPU. EMEA • While demand for services in Europe remains strong, equipment deal flow remained light, especially in Eastern Europe as a result of the sovereign debt crisis. SEK 20.2 billion ($2.7 billion) –16.9% • Ericsson estimates that most of the 1.5 million GSM base stations in need of modernization are in Europe, which will stimulate equipment sales across the continent. APAC • Chinese sales fell as 3G rollouts neared completion, while India revenue plunged due to security clearance obstacles. SEK 10.0 billion ($1.3 billion) –41.6% • With security clearance in hand, Ericsson is ready to begin bidding on equipment contracts in India. CALA • Operator capex spend in Latin America remains dampened, as poor access to funding and adverse currency swings hinder investment. SEK 4.4 billion ($576 million) –12.1% • Ericsson is seeing a strong threat from NSN, which will open its first Latin American NOC in October. Geographic Analysis
  • 21.
    © 2010 TechnologyBusiness Research, Inc. TBR 21 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson’s headcount is growing steadily as the vendor adds employees from managed services contracts SOURCE: DELL AND TBR. Ericsson’s Worldwide Operations Investments/RD Focus • Ericsson invested in its TV portfolio, as exemplified by the recent introduction of the OpenStream Catalog Gateway and 3-D content delivery solution. While the market for these offerings is currently small, Ericsson hopes its early entry into TV apps and 3-D will help win business, especially in developed economies. Personnel Changes • In June, Ase Lindskog, former head of Corporate Public and Media Relations, was appointed head of Investor and Analyst Relations. He was replaced by Ola Rembe. • Ericsson’s headcount is rising steadily as the vendor assumes employees from operators signing up for managed services. • Total headcount increased 1% sequentially to 87,413. In June, Ericsson and Vodafone opened a joint innovation center in Madrid, Spain to focus on building 2G and 3G RAN. The plant Ericsson purchased in Estonia from Elcoteq in June 2009 started mass production of 4G equipment for Europe, the United States and Africa in 2Q10. Resource Management Strategy ERICSSON EMPLOYEE HEADCOUNT BY GEOGRAPHIC REGION 11,222 13,450 13,857 48,972 49,757 49,349 15,303 15,803 16,244 17,196 18,057 7,858 5,721 6,055 6,134 6,150 11,199 5,284 49,803 48,803 0 15,000 30,000 45,000 60,000 75,000 90,000 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Employees North America EMEA APAC CALA TBR SOURCE: TBR AND ERICSSON
  • 22.
    © 2010 TechnologyBusiness Research, Inc. TBR 22 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson maintains a strong position in wireless equipment and should see its share from LTE grow steadily over the next few quarters TBR Outlook: Neutral Industry • TBR continues to anticipate restrained capital investment by wireless carriers, even as they maneuver to bring LTE to market in a timely manner. Vendors will continue to be squeezed as they seek to maintain market share, but in Ericsson’s case, measurable revenue from LTE should be evident in 2H10 results. • Ericsson is successfully seizing opportunities in managed services, ensuring that its dominance in equipment will be maintained, as the industry increasingly looks to vendors to provide opex and capex savings through outsourcing its out-tasking engagements. Competitors • NSN’s Motorola buy will dramatically improve its competitive position, but Ericsson remains a formidable rival in terms of large infrastructure deals, especially in developed regions. In North America, the deal will improve NSN’s position significantly, but Ericsson and Alcatel- Lucent continue to be the clear frontrunners in the market. • As evidenced by Ericsson’s inclusion by ATT as one of two providers for GPON, Ericsson continues to make headway outside of wireless, though competitors such as Alcatel-Lucent compete aggressively with Ericsson in markets for IP, transport and application enablement solutions. Company Strategy • In the U.S. market, Ericsson is in the midst of LTE buildout for MetroPCS and is in the early stages of rolling out Verizon Wireless’ LTE network. The company is also successfully leveraging Nortel customer relationships and assets to sign new small operator deals, though NSN is emerging as a formidable competitor in the small operator space. • In its most important non-North American markets, Ericsson is looking to establish long-term managed services deals with the major operators, which, given the fragmented nature of Chinese operators, will proceed on a province-by-province basis. In India, there will be significant activity in 2H10, as all the major equipment vendors vie for lucrative 3G deals following the completion of Indian spectrum auctions in 2H10. Future Outlook
  • 23.
    © 2010 TechnologyBusiness Research, Inc. TBR 23 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson is likely to see improved revenue performance in 3Q10 and is well-positioned to return to revenue growth by year-end Future Outlook TBR Outlook: Neutral Financial Go-to-Market • Ericsson will continue to rely on managed services engagements to offset declining revenue from equipment sales and a struggling multimedia unit. • In order to generate revenue in the still-struggling European markets, Ericsson will push the “modernization” message, encouraging operators to upgrade aging equipment as table stakes to handle the rapid increase in data throughput now being seen. Resource Management • Ericsson completed its 18-month cost reduction program by the end of 2Q10. The company expects to generate annualized savings of SKr 15 billion to SKr 16 billion beginning in 2H10. The company incurred an equal amount restructuring charges related to the cost-reduction program, of which approximately 40% were incurred in cost of sales and 60% were related to RD, sales or administrative costs. • TBR believes Ericsson is likely to experience another quarter of year-to-year revenue decline in 3Q10, though the pace of decline is likely to be slow compared to the past three quarters. While component shortages are likely to continue to dampen sales, Ericsson should see marked sequential improvement in 2Q10 NBQ VENDOR POSITION AND PROJECTION: ERICSSON 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 -10% -8% -6% -4% -2% 0% 2% Quarterly Revenue Growth Year-to-year NBQ Corporate Score Trailing 12-Month Average Growth = 0.4% SOURCE: TBR AND ERICSSON TBR 2Q10 3Q10 Est. 1Q10 India and an increase in LTE deployment activity, which should help close the revenue gap. TBR believes Ericsson will be well-positioned to return to year-to-year revenue growth in 4Q10.
  • 24.
    © 2010 TechnologyBusiness Research, Inc. TBR 24 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com TBR Coverage and Overview This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is copyright protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce: 11 Merrill Drive, Hampton, NH 03842, P: 603.929.1166, F: 603.926.9801, Web: www.tbri.com Network Business Quarterly In addition to analyst inquiry time, custom projects and industry benchmarking, TBR’s NBQ quarterly reports provide an in-depth view of the major telecom, networking and Internet portal companies: Accenture Google Motorola T-Mobile Alcatel-Lucent HP Nokia Verizon Yahoo ZTE ATT Huawei NSN Cisco IBM Samsung Ericsson Microsoft Sprint About Technology Business Research • Unique focus on Company-Centric Research from a Combined Business, Financial and Technical Perspective • Key advisor to high-tech firms, users of high-tech and financial markets • Often quoted in major business and industry news sources • Founded in 1996 NBQ provides coverage of the leading equipment vendors and service providers in the network, telecom and mobility value chains as well as the leading U.S. mobile operators and telco and media initiatives of Internet portals. The service also includes quarterly benchmark reports, analyst access and custom consulting Software Business Quarterly Computer Business Quarterly Professional Services Business Quarterly TBR SBQ covers key segments such as ERP systems, CRM, SCM, SRM and BI applications, middleware, storage, database, management tools, security software, and client and server operating systems. Covers key segments of the hardware industry, such as PCs, servers, storage, microprocessors, imaging and printing, displays and handheld devices. Covers IT services such as strategy and management consulting, systems integration and outsourcing Coverage includes companies such as Oracle, SAP, Microsoft and Hewlett-Packard Software. Coverage of 17+ vendors includes Dell, Apple, IBM and Hewlett-Packard. Coverage includes companies such as Accenture, IGS and Deloitte Consulting.
  • 25.
    © 2010 TechnologyBusiness Research, Inc. TBR 25 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix - Financial Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Financial Strategy Graphs GROSS MARGIN 33.8% 32.6% 37.0% 36.8% 34.4% 20% 25% 30% 35% 40% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR YEAR-TO-YEAR REVENUE GROWTH -5.6% -9.0% -8.0% -13.0% 7.4% -20% -15% -10% -5% 0% 5% 10% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR ANNUAL REVENUE PER EMPLOYEE $355.4 $369.5 $309.1 $346.2 $374.9 $150 $200 $250 $300 $350 $400 $450 2Q09 3Q09 4Q09 1Q10 2Q10 In $ Thousands ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR OPERATING MARGIN 2.3% 3.1% 6.3% 4.4% 2.5% 0% 1% 2% 3% 4% 5% 6% 7% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR
  • 26.
    © 2010 TechnologyBusiness Research, Inc. TBR 26 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix - Financial Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Financial Strategy Graphs SGA AS A PERCENTAGE OF REVENUE 14.3% 12.6% 15.5% 14.9% 11.4% 0.0% 5.0% 10.0% 15.0% 20.0% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR RD AS A PERCENTAGE OF REVENUE 16.2% 16.0% 16.2% 16.7% 17.7% 0.0% 5.0% 10.0% 15.0% 20.0% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR RETURN ON EQUITY 7.0% 2.9% 3.4% 2.5% 5.4% 0% 3% 6% 9% 12% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR RETURN ON ASSETS 2.7% 1.3% 1.8% 1.5% 3.6% -5% -3% -1% 1% 3% 5% 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR
  • 27.
    © 2010 TechnologyBusiness Research, Inc. TBR 27 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Financial Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Financial Strategy Graphs DAYS CASH OUTSTANDING 118.37 155.32 154.65 130.35 126.81 0 25 50 75 100 125 150 175 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Days ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR DEBT/ASSET RATIO 0.48 0.47 0.48 0.49 0.49 0.30 0.35 0.40 0.45 0.50 0.55 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ Average SOURCE: TBR AND ERICSSON TBR CURRENT RATIO 2.13 2.17 2.30 2.16 2.00 0.00 0.50 1.00 1.50 2.00 2.50 2Q09 3Q09 4Q09 1Q10 2Q10 ERICSSON NBQ Average SOURCE: TBR AND ERICSSON TBR
  • 28.
    © 2010 TechnologyBusiness Research, Inc. TBR 28 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Go-to-Market Resource Management Graphs *VENDOR PERFORMANCE COMPARED TO PEERS IN TBR’S NETWORK BUSINESS QUARTERLY BENCHMARK. Go-to-Market and Resource Management Graphs FIXED ASSET TURNS 20.06 20.58 18.92 19.07 24.47 0 5 10 15 20 25 30 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Turns ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR DAYS SALES OUTSTANDING 130.17 119.74 121.00 125.08 102.46 40 60 80 100 120 140 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Days ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR TOTAL ASSET TURNS 0.70 0.74 0.68 0.67 0.87 0.00 0.20 0.40 0.60 0.80 1.00 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Turns ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR INVENTORY TURNS 6.36 4.87 4.37 4.62 4.52 0.00 2.00 4.00 6.00 8.00 10.00 2Q09 3Q09 4Q09 1Q10 2Q10 Number of Turns ERICSSON NBQ AVERAGE SOURCE: TBR AND ERICSSON TBR
  • 29.
    © 2010 TechnologyBusiness Research, Inc. TBR 29 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Income Statement ERICSSON Consolidated Income Statement (In Thousands Swedish Kronor (SEK) Except per Share Data) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. Revenue 52,142,000 46,433,000 58,333,000 45,112,000 47,972,000 45,500,000 Cost of Sales 34,531,000 30,455,000 39,335,000 28,527,000 30,235,000 29,500,000 Gross Profit 17,611,000 15,978,000 18,998,000 16,585,000 17,737,000 16,000,000 Research and Development 8,451,000 8,218,000 9,306,000 7,526,000 7,751,000 8,000,000 Selling and General Admininistrative 7,443,000 5,279,000 7,323,000 7,008,000 7,158,000 5,500,000 Other Operating Revenue and Costs 1,640,000 222,000 878,000 302,000 500,000 250,000 Share in Earnings of Joint Ventures (2,144,000) (1,559,000) (1,461,000) (372,000) (308,000) (250,000) Operating Income 1,213,000 1,144,000 1,786,000 1,981,000 3,020,000 2,500,000 Financial Income 4,000 296,000 314,000 278,000 470,000 300,000 Financial Expenses (79,000) (294,000) (719,000) (438,000) (596,000) (300,000) Income before Taxes 1,138,000 1,146,000 1,381,000 1,821,000 2,894,000 2,500,000 Provision for (Benefit from) Income Taxes 341,000 374,000 656,000 547,000 867,000 500,000 Net Income 797,000 772,000 725,000 1,274,000 2,027,000 2,000,000 PERCENTAGE OF REVENUE Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 66.2% 65.6% 67.4% 63.2% 63.0% 64.8% Gross Margin 33.8% 34.4% 32.6% 36.8% 37.0% 35.2% Research and Development 16.2% 17.7% 16.0% 16.7% 16.2% 17.6% Selling and General Admninistrative 14.3% 11.4% 12.6% 15.5% 14.9% 12.1% Share in Earnings of Joint Ventures -4.1% -3.4% -2.5% -0.8% -0.6% -0.5% Operating Margin 2.3% 2.5% 3.1% 4.4% 6.3% 5.5% Financial Income 0.0% 0.6% 0.5% 0.6% 1.0% 0.7% Financial Expenses -0.2% -0.6% -1.2% -1.0% -1.2% -0.7% Income before Taxes 2.2% 2.5% 2.4% 4.0% 6.0% 5.5% Provision for (Benefit from) Income Taxes 0.7% 0.8% 1.1% 1.2% 1.8% 1.1% Net Margin 1.5% 1.7% 1.2% 2.8% 4.2% 4.4% YEAR-TO-YEAR GROWTH Revenue 7.4% -5.6% -13.0% -9.0% -8.0% -2.0% Cost of Sales 10.7% -3.6% -11.7% -10.7% -12.4% -3.1% Gross Profit 1.6% -9.3% -15.6% -5.8% 0.7% 0.1% Research and Development -5.4% 4.6% 13.1% 6.3% -8.3% -2.7% Selling and General Admninistrative 18.7% -16.3% -11.7% 2.1% -3.8% 4.2% Share in Earnings of Joint Ventures -3558.1% -1090.1% -14.3% 83.4% 85.6% 84.0% Operating Income -58.0% -68.7% -71.2% 11.6% 149.0% 118.5% Financial Income -99.2% -73.1% -73.6% -77.9% 11650.0% 1.4% Financial Expenses 84.5% 52.4% 18.5% 4.2% -654.4% -2.0% Income before Taxes -60.5% -72.3% -78.8% -29.4% 154.3% 118.2% Provision for (Benefit from) Income Taxes -59.2% -68.9% -73.2% -26.6% 154.3% 33.7% Net Income -61.0% -73.7% -82.2% -30.5% 154.3% 159.1% SOURCE: TBR AND ERICSSON * Restated according to IFRS and IAS regulations TBR
  • 30.
    © 2010 TechnologyBusiness Research, Inc. TBR 30 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Income Statement ERICSSON Consolidated Income Statement (In $ Thousands Except per Share Data) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. Revenue 6,595,963 $ 6,379,894 $ 8,329,952 $ 6,354,927 $ 6,351,013 $ 6,023,745 $ Cost of Sales 4,368,172 4,184,517 5,617,038 4,018,598 4,002,812 3,905,505 Gross Profit 2,227,792 2,195,377 2,712,914 2,336,329 2,348,201 2,118,240 Research and Development 1,069,052 1,129,153 1,328,897 1,060,188 1,026,155 1,059,120 Selling and General Admininistrative 941,540 725,335 1,045,724 987,217 947,648 728,145 Other Operating Revenue and Costs 207,460 30,503 125,378 42,543 66,195 33,098 Share in Earnings of Joint Ventures -271,216 -214,207 -208,631 -52,404 -40,776 -33,098 Operating Income 153,445 157,186 255,041 279,063 399,818 330,975 Financial Income 506 40,670 44,839 39,162 62,223 39,717 Financial Expenses -9,994 -40,396 -102,673 -61,701 -78,904 -39,717 Income before Taxes 143,957 157,460 197,207 256,524 383,137 330,975 Provision for (Benefit from) Income Taxes 43,137 51,388 93,677 77,056 114,782 66,195 Net Income 100,821 106,073 103,530 179,468 268,355 264,780 PERCENTAGE OF REVENUE Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 66.2% 65.6% 67.4% 63.2% 63.0% 64.8% Gross Margin 33.8% 34.4% 32.6% 36.8% 37.0% 35.2% Research and Development 16.2% 17.7% 16.0% 16.7% 16.2% 17.6% Selling and General Admninistrative 14.3% 11.4% 12.6% 15.5% 14.9% 12.1% Share in Earnings of Joint Ventures -4.1% -3.4% -2.5% -0.8% -0.6% -0.5% Operating Margin 2.3% 2.5% 3.1% 4.4% 6.3% 5.5% Financial Income 0.0% 0.6% 0.5% 0.6% 1.0% 0.7% Financial Expenses -0.2% -0.6% -1.2% -1.0% -1.2% -0.7% Income before Taxes 2.2% 2.5% 2.4% 4.0% 6.0% 5.5% Provision for (Benefit from) Income Taxes 0.7% 0.8% 1.1% 1.2% 1.8% 1.1% Net Margin 1.5% 1.7% 1.2% 2.8% 4.2% 4.4% YEAR-TO-YEAR GROWTH Revenue 7.4% -5.6% -13.0% -9.0% -8.0% -2.0% Cost of Sales 10.7% -3.6% -11.7% -10.7% -12.4% -3.1% Gross Profit 1.6% -9.3% -15.6% -5.8% 0.7% 0.1% Research and Development -5.4% 4.6% 13.1% 6.3% -8.3% -2.7% Selling and General Admninistrative 18.7% -16.3% -11.7% 2.1% -3.8% 4.2% Share in Earnings of Joint Ventures -3558.1% -1090.1% -14.3% 83.4% 85.6% 84.0% Operating Income -58.0% -68.7% -71.2% 11.6% 149.0% 118.5% Financial Income -99.2% -73.1% -73.6% -77.9% 11650.0% 1.4% Financial Expenses 84.5% 52.4% 18.5% 4.2% -654.4% -2.0% Income before Taxes -60.5% -72.3% -78.8% -29.4% 154.3% 118.2% Provision for (Benefit from) Income Taxes -59.2% -68.9% -73.2% -26.6% 154.3% 33.7% Net Income -61.0% -73.7% -82.2% -30.5% 154.3% 159.1% SOURCE: TBR AND ERICSSON * Restated according to IFRS and IAS regulations TBR
  • 31.
    © 2010 TechnologyBusiness Research, Inc. TBR 31 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Balance Sheet ERICSSON Consolidated Balance Sheet (In Thousands Swedish Kronor (SEK)) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 ASSETS Cash and Equivalents 75,519,000 79,789,000 76,724,000 77,855,000 67,590,000 Inventories, Net 29,036,000 26,774,000 22,718,000 24,126,000 29,397,000 Accounts Receivable - Trade 69,374,000 62,425,000 66,410,000 62,695,000 69,385,000 Short-term Customer Financing 2,161,000 1,875,000 1,444,000 1,885,000 2,132,000 Other Receivables 16,744,000 17,286,000 15,146,000 15,853,000 17,429,000 Total Current Assets 192,834,000 188,149,000 182,442,000 182,414,000 185,933,000 Tangible Assets (P,PE) 10,161,000 9,468,000 9,606,000 9,319,000 9,810,000 Intangible Assets 44,618,000 40,719,000 48,193,000 46,934,000 49,510,000 Equity in Associated Companies 14,661,000 12,279,000 11,578,000 11,286,000 11,596,000 Other Investments 306,000 291,000 256,000 240,000 266,000 Long-term Customer Financing 987,000 854,000 830,000 979,000 969,000 Deferred Tax Assets 13,676,000 13,946,000 14,327,000 14,710,000 16,053,000 Other Long-term Receivables 4,071,000 2,567,000 2,577,000 1,948,000 2,692,000 Total Non-current Assets 88,480,000 80,124,000 87,367,000 85,416,000 90,896,000 Total Assets 281,314,000 268,273,000 269,809,000 267,830,000 276,829,000 LIABILITIES AND EQUITY Interest-bearing Liabilities 3,573,000 3,152,000 2,124,000 2,017,000 3,797,000 Accounts Payable 19,722,000 16,887,000 18,864,000 17,806,000 20,266,000 Other Current Liabilities 66,180,000 61,759,000 64,499,000 64,230,000 69,113,000 Total Current Liabilities 89,475,000 81,798,000 85,487,000 84,053,000 93,176,000 Pensions Provisions 8,525,000 8,606,000 8,994,000 8,061,000 8,498,000 Long-term Liabilities 40,370,000 38,440,000 34,301,000 34,263,000 34,731,000 Total Liabilities 138,370,000 128,844,000 128,782,000 126,377,000 136,405,000 Minority Interest in Equity of Consolidated Subsidiaries 1,286,000 1,051,000 1,157,000 1,163,000 2,115,000 Total Stockholders' Equity 141,658,000 138,378,000 139,870,000 140,290,000 138,309,000 Total Liabilities and Equity 281,314,000 268,273,000 269,809,000 267,830,000 276,829,000 FINANCIAL RATIOS Days Sales Outstanding 119.74 121.00 102.46 125.08 130.17 Turns on Inventory 4.62 4.37 6.36 4.87 4.52 Fixed Asset Turnover (Tangible Assets) 20.58 18.92 24.47 19.07 20.06 Days Inventory Outstanding 78.93 83.61 57.41 74.92 80.77 Days Cash Outstanding 130.35 154.65 118.37 155.32 126.81 Total Asset Turnover 0.74 0.68 0.87 0.67 0.70 Debt/Asset Ratio 0.49 0.48 0.48 0.47 0.49 Current Ratio 2.16 2.30 2.13 2.17 2.00 Return on Assets 3.6% 2.7% 1.5% 1.3% 1.8% Return on Equity 7.0% 5.4% 2.9% 2.5% 3.4% Annualized Revenue per Employee (SEK) 2,809,623 2,728,459 2,587,536 2,457,634 2,334,727 Annualized Revenue per Employee ($US) 355,417 $ 374,890 $ 369,500 $ 346,207 $ 309,094 $ SEK to $ Conversion Rate 0.127 0.137 0.143 0.14087 0.13239 Employee Count 77,248 82,526 82,493 86,537 87,413 SOURCE: TBR AND ERICSSON TBR
  • 32.
    © 2010 TechnologyBusiness Research, Inc. TBR 32 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Balance Sheet ERICSSON Consolidated Balance Sheet (In $ Thousands) FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 ASSETS Cash and Equivalents 9,553,154 $ 10,963,009 $ 10,956,187 $ 10,967,434 $ 8,948,240 $ Inventories, Net 3,673,054 3,678,748 3,244,130 3,398,630 3,891,869 Accounts Receivable - Trade 8,775,811 8,577,195 9,483,348 8,831,845 9,185,880 Short-term Customer Financing 273,367 257,625 206,203 265,540 282,255 Other Receivables 2,118,116 2,375,096 2,162,849 2,233,212 2,307,425 Total Current Assets 24,393,501 25,851,673 26,052,718 25,696,660 24,615,670 Tangible Assets (P,PE) 1,285,367 1,300,903 1,371,737 1,312,768 1,298,746 Intangible Assets 5,644,177 5,594,791 6,881,960 6,611,593 6,554,629 Equity in Associated Companies 1,854,617 1,687,135 1,653,338 1,589,859 1,535,194 Other Investments 38,709 39,983 36,557 33,809 35,216 Long-term Customer Financing 124,856 117,340 118,524 137,912 128,286 Deferred Tax Assets 1,730,014 1,916,180 2,045,896 2,072,198 2,125,257 Other Long-term Receivables 514,982 352,706 367,996 274,415 356,394 Total Non-current Assets 11,192,720 11,009,038 12,476,008 12,032,552 12,033,721 Total Assets 35,586,221 36,860,710 38,528,725 37,729,212 36,649,391 LIABILITIES AND EQUITY Interest-bearing Liabilities 451,985 433,085 303,307 284,135 502,685 Accounts Payable 2,494,833 2,320,274 2,693,779 2,508,331 2,683,016 Other Current Liabilities 8,371,770 8,485,687 9,210,457 9,048,080 9,149,870 Total Current Liabilities 11,318,588 11,239,045 12,207,544 11,840,546 12,335,571 Pensions Provisions 1,078,413 1,182,464 1,284,343 1,135,553 1,125,050 Long-term Liabilities 5,106,805 5,281,656 4,898,183 4,826,629 4,598,037 Total Liabilities 17,503,805 17,703,166 18,390,070 17,802,728 18,058,658 Minority Interest in Equity of Consolidated Subsidiaries 162,679 144,407 165,220 163,832 280,005 Total Stockholders' Equity 17,919,737 19,013,137 19,973,436 19,762,652 18,310,729 Total Liabilities and Equity 35,586,221 36,860,710 38,528,725 37,729,212 36,649,391 FINANCIAL RATIOS Days Sales Outstanding 119.74 121.00 102.46 125.08 130.17 Turns on Inventory 4.62 4.37 6.36 4.87 4.52 Fixed Asset Turnover (Tangible Assets) 20.58 18.92 24.47 19.07 20.06 Days Inventory Outstanding 78.93 83.61 57.41 74.92 80.77 Days Cash Outstanding 130.35 154.65 118.37 155.32 126.81 Total Asset Turnover 0.74 0.68 0.87 0.67 0.70 Debt/Asset Ratio 0.49 0.48 0.48 0.47 0.49 Current Ratio 2.16 2.30 2.13 2.17 2.00 Return on Assets 3.6% 2.7% 1.5% 1.3% 1.8% Return on Equity 7.0% 5.4% 2.9% 2.5% 3.4% Annualized Revenue per Employee ($US) 355,417 $ 374,890 $ 369,500 $ 346,207 $ 309,094 $ Employee Count 77,248 82,526 82,493 86,537 87,413 SOURCE: TBR AND ERICSSON TBR
  • 33.
    © 2010 TechnologyBusiness Research, Inc. TBR 33 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Revenue Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. IN SEK MILLIONS Reported Revenue 52,142 46,433 58,333 45,112 47,972 45,500 Networks 28,795 24,504 31,844 24,704 25,472 24,000 Global Services 20,019 18,578 23,137 18,098 20,080 19,300 Professional Services 14,077 12,780 16,466 13,251 14,838 14,000 Managed Services 4,587 3,570 5,098 4,888 5,642 4,500 Network Rollout 5,942 5,798 6,671 4,847 5,242 5,300 Multimedia 3,328 3,351 3,352 2,310 2,420 2,200 PERCENTAGE OF REVENUE Reported Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Networks 55.2% 52.8% 54.6% 54.8% 53.1% 52.7% Global Services 38.4% 40.0% 39.7% 40.1% 41.9% 42.4% Professional Services 27.0% 27.5% 28.2% 29.4% 30.9% 30.8% Managed Services 8.8% 7.7% 8.7% 10.8% 11.8% 9.9% Network Rollout 11.4% 12.5% 11.4% 10.7% 10.9% 11.6% Multimedia 6.4% 7.2% 5.7% 5.1% 5.0% 4.8% YEAR-TO-YEAR GROWTH Reported Revenue NA NA NA -9.0% -8.0% -2.0% Networks NA NA NA -14.3% -11.5% -2.1% Global Services NA NA NA 3.5% 0.3% 3.9% Professional Services NA NA NA 3.5% 5.4% 9.5% Managed Services NA NA NA 17.0% 23.0% 26.1% Network Rollout NA NA NA 3.4% -11.8% -8.6% Multimedia NA NA NA -28.7% -27.3% -34.3% ADJUSTED OPERATING INCOME Networks 1,265 1,138 2,128 1,540 2,507 1,100 Global Services 2,249 1,426 1,076 1,325 1,377 1,500 Professional Services 2,265 1,628 1,347 1,419 1,331 1,700 Network Rollout (16) (202) (271) (94) 46 (200) Multimedia 18 330 263 (335) (479) 200 Unallocated (323) (168) (287) (158) (128) (200) Total Adjusted Operating Income 3,209 2,726 3,180 2,372 3,277 2,600 ADJUSTED OPERATING MARGIN Networks 4.4% 4.6% 6.7% 6.2% 9.8% 4.6% Global Services 11.2% 7.7% 4.7% 7.3% 6.9% 7.8% Professional Services 16.1% 12.7% 8.2% 10.7% 9.0% 12.1% Network Rollout -0.3% -3.5% -4.1% -1.9% 0.9% -3.8% Multimedia 0.5% 9.8% 7.8% -14.5% -19.8% 9.1% Total Adjusted Operating Margin 6.2% 5.9% 5.5% 5.3% 6.8% 5.7% SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON'S REVENUE MODEL TBR
  • 34.
    © 2010 TechnologyBusiness Research, Inc. TBR 34 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Global Services Revenue Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. IN SEK MILLIONS Total Ericsson Global Services 20,019 18,578 23,137 18,098 20,080 19,300 Professional Services 14,077 12,780 16,466 13,251 14,838 14,000 Managed Services 4,587 3,570 5,098 4,888 5,642 4,500 Network Rollout 5,942 5,798 6,671 4,847 5,242 5,300 PERCENTAGE OF GLOBAL SERVICES REVENUE Total Ericsson Global Services 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Professional Services 70.3% 68.8% 71.2% 73.2% 73.9% 72.5% Managed Services 22.9% 19.2% 22.0% 27.0% 28.1% 23.3% Network Rollout 29.7% 31.2% 28.8% 26.8% 26.1% 27.5% YEAR-TO-YEAR GROWTH Total Ericsson Global Services NA NA NA 3.5% 0.3% 3.9% Professional Services NA NA NA 3.5% 5.4% 9.5% Managed Services NA NA NA 17.0% 23.0% 26.1% Network Rollout NA NA NA 3.4% -11.8% -8.6% SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON GLOBAL SERVICES REVENUE MODEL TBR
  • 35.
    © 2010 TechnologyBusiness Research, Inc. TBR 35 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Geographic Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 IN SEK MILLIONS North America 5,915 4,144 9,681 9,920 13,515 Latin America 4,949 5,199 6,011 4,140 4,350 Northern Europe Central Asia 2,975 2,821 3,590 2,402 2,774 Western Central Europe 5,609 5,720 6,300 5,468 4,571 Mediterranean 7,012 5,394 7,235 5,285 5,831 Middle East 4,900 4,688 5,172 4,123 3,931 Sub Saharan Africa 3,758 3,321 3,930 2,525 3,056 India 3,768 4,327 3,517 2,405 1,399 China North East Asia 7,398 5,831 7,591 5,170 4,771 South East Asia Oceania 5,858 4,987 5,305 3,673 3,773 Total Revenue 52,142 46,433 58,333 45,112 47,972 IN USD MILLION North America 748 569 1,382 1,397 1,789 Latin America 626 714 858 583 576 Northern Europe Central Asia 376 388 513 338 367 Western Central Europe 710 786 900 770 605 Mediterranean 887 741 1,033 744 772 Middle East 620 644 739 581 520 Sub Saharan Africa 475 456 561 356 405 India 477 595 502 339 185 China North East Asia 936 801 1,084 728 632 South East Asia Oceania 741 685 758 517 499 Total Revenue 6,596 6,380 8,330 6,355 6,351 PERCENTAGE OF REVENUE North America 11.3% 8.9% 16.6% 22.0% 28.2% Latin America 9.5% 11.2% 10.3% 9.2% 9.1% Northern Europe Central Asia 5.7% 6.1% 6.2% 5.3% 5.8% Western Central Europe 10.8% 12.3% 10.8% 12.1% 9.5% Mediterranean 13.4% 11.6% 12.4% 11.7% 12.2% Middle East 9.4% 10.1% 8.9% 9.1% 8.2% Sub Saharan Africa 7.2% 7.2% 6.7% 5.6% 6.4% India 7.2% 9.3% 6.0% 5.3% 2.9% China North East Asia 14.2% 12.6% 13.0% 11.5% 9.9% South East Asia Oceania 11.2% 10.7% 9.1% 8.1% 7.9% YEAR-TO-YEAR GROWTH North America NA NA NA 98.4% 128.5% Latin America NA NA NA -9.9% -12.1% Northern Europe Central Asia NA NA NA -20.8% -6.7% Western Central Europe NA NA NA -3.4% -18.5% Mediterranean NA NA NA -17.9% -16.8% Middle East NA NA NA -0.7% -19.8% Sub Saharan Africa NA NA NA -48.6% -18.7% India NA NA NA -43.1% -62.9% China North East Asia NA NA NA -15.0% -35.5% South East Asia Oceania NA NA NA -32.8% -35.6% Total Revenue NA NA NA -9.0% -8.0% SOURCE: ERICSSON AND TBR ESTIMATES. REVENUE FROM OTHER CATEGORY PRORATED AND INCLUDED IN INDIVIDUAL GEOGRAPHIES ERICSSON'S SALES BY MARKET REGION TBR
  • 36.
    © 2010 TechnologyBusiness Research, Inc. TBR 36 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – OPEX Model CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 IN SEK MILLIONS Total Revenue 52,142 46,433 58,333 45,112 47,972 OPERATING EXPENSES BREAKOUT SGA Expense 7,443 5,279 7,323 7,008 7,158 Sales Marketing Expense 4,838 3,431 4,760 4,555 4,653 General and Administrative Expense 2,605 1,848 2,563 2,453 2,505 RD Expense 8,451 8,218 9,306 7,526 7,751 Operating Expenses 15,894 13,497 16,629 14,534 14,909 SALES AND MARKETING EXPENSE BREAKOUT Sales Expense 3,241 2,299 3,189 3,052 3,117 Partner and Channel Spending 774 549 762 729 744 Marketing Spending 822 583 809 774 791 Advertising 206 146 202 194 198 Total Sales and Marketing Expense 4,838 3,431 4,760 4,555 4,653 PERCENTAGE OF REVENUE Total SGA Expense 14.3% 11.4% 12.6% 15.5% 14.9% Sales and Marketing Expense 9.3% 7.4% 8.2% 10.1% 9.7% Sales Expense 6.2% 5.0% 5.5% 6.8% 6.5% Partner and Channel Spending 1.5% 1.2% 1.3% 1.6% 1.6% Marketing Spending 1.6% 1.3% 1.4% 1.7% 1.6% Advertising 0.4% 0.3% 0.3% 0.4% 0.4% General and Administrative 5.0% 4.0% 4.4% 5.4% 5.2% RD Expense 16.2% 17.7% 16.0% 16.7% 16.2% Total Operating Expenses 30.5% 29.1% 28.5% 32.2% 31.1% CORPORATEWIDE HEADCOUNT Total Employees 77,248 82,526 82,493 86,537 87,413 SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON OPERATING EXPENSE MODEL TBR
  • 37.
    © 2010 TechnologyBusiness Research, Inc. TBR 37 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Headcount Model CALENDAR 2Q09 3Q09 4Q09 1Q10 2Q10 FISCAL 2Q09 3Q09 4Q09 1Q10 2Q10 North America 5,284 11,199 11,222 13,450 13,857 Latin America 7,858 5,721 6,055 6,134 6,150 Northern Europe Central Asia 21,200 22,103 21,993 21,813 21,806 Sweden 18,605 18,311 18,217 18,082 18,070 Western Central Europe 11,822 11,701 11,622 11,418 11,174 Mediterranean 10,061 10,019 9,509 10,884 10,857 Middle East 3,867 3,778 3,744 3,598 3,568 Sub Saharan Africa 1,853 2,202 2,104 2,044 1,944 India 3,614 3,798 4,184 4,726 5,408 China North East Asia 6,409 6,773 6,894 7,400 7,668 South East Asia Oceania 5,280 5,232 5,166 5,070 4,981 Total Headcount 77,248 82,526 82,493 86,537 87,413 PERCENTAGE OF REVENUE North America 6.8% 13.6% 13.6% 15.5% 15.9% Latin America 10.2% 6.9% 7.3% 7.1% 7.0% Northern Europe Central Asia 27.4% 26.8% 26.7% 25.2% 24.9% Sweden 24.1% 22.2% 22.1% 20.9% 20.7% Western Central Europe 15.3% 14.2% 14.1% 13.2% 12.8% Mediterranean 13.0% 12.1% 11.5% 12.6% 12.4% Middle East 5.0% 4.6% 4.5% 4.2% 4.1% Sub Saharan Africa 2.4% 2.7% 2.6% 2.4% 2.2% India 4.7% 4.6% 5.1% 5.5% 6.2% China North East Asia 8.3% 8.2% 8.4% 8.6% 8.8% South East Asia Oceania 6.8% 6.3% 6.3% 5.9% 5.7% Total Headcount 100.0% 100.0% 100.0% 100.0% 100.0% YEAR-TO-YEAR GROWTH North America NA NA NA 146.9% 162.2% Latin America NA NA NA -23.6% -21.7% Northern Europe Central Asia NA NA NA 1.9% 2.9% Sweden NA NA NA -3.9% -2.9% Western Central Europe NA NA NA -1.7% -5.5% Mediterranean NA NA NA 8.7% 7.9% Middle East NA NA NA -8.8% -7.7% Sub Saharan Africa NA NA NA 11.6% 4.9% India NA NA NA 40.0% 49.6% China North East Asia NA NA NA 22.7% 19.6% South East Asia Oceania NA NA NA -2.9% -5.7% Total Headcount NA NA NA 12.5% 13.2% SOURCE: TBR AND ERICSSON ERICSSON'S EMPLOYEES BY MARKET REGION TBR
  • 38.
    © 2010 TechnologyBusiness Research, Inc. TBR 38 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Future Outlook Graph CALENDAR QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. FISCAL QUARTER 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Est. IN SEK MILLIONS Net Sales 52,142 46,433 58,333 45,112 47,972 45,500 Gross Profit 17,611 15,978 18,998 16,585 17,737 16,000 SGA 7,443 5,279 7,323 7,008 7,158 5,500 RD 8,451 8,218 9,306 7,526 7,751 8,000 Operating Income 1,213 1,144 1,786 1,981 3,020 2,500 Net Income 797 772 725 1,274 2,027 2,000 PERCENTAGE OF REVENUE Gross Margin 33.8% 34.4% 32.6% 36.8% 37.0% 35.2% SGA 14.3% 11.4% 12.6% 15.5% 14.9% 12.1% RD 16.2% 17.7% 16.0% 16.7% 16.2% 17.6% Operating Margin 2.3% 2.5% 3.1% 4.4% 6.3% 5.5% Net Margin 1.5% 1.7% 1.2% 2.8% 4.2% 4.4% YEAR-TO-YEAR GROWTH Net Sales 7.4% -5.6% -13.0% -9.0% -8.0% -2.0% Gross Profit 1.6% -9.3% -15.6% -5.8% 0.7% 0.1% SGA 18.7% -16.3% -11.7% 2.1% -3.8% 4.2% RD -5.4% 4.6% 13.1% 6.3% -8.3% -2.7% Operating Income -58.0% -68.7% -71.2% 11.6% 149.0% 118.5% Net Income -61.0% -73.7% -82.2% -30.5% 154.3% 159.1% SOURCE: TBR ESTIMATES AND ERICSSON ERICSSON FINANCIALS AND TBR QUARTERLY PROJECTION TBR
  • 39.
    © 2010 TechnologyBusiness Research, Inc. TBR 39 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Acquisitions Company Scope of Acquisition LG-Nortel June 2010 Ericsson paid $242 million for 50% plus one share in LG-Nortel. As controlling stakeholder, Ericsson expands its position in South Korea by acquiring a strong RD and sales channel, as well as an already established player in the Korean LTE market. The joint venture, which was formed in 2005, had 1,300 employees and revenue of $650 million in 2009. SinglePoint February 2010 Ericsson acquired SinglePoint’s strategic operator and aggregation contract assets. The purchase not only improves Ericsson’s premium and standard rate messaging reach, but also takes the company to CSCA Tier 1 aggregator status in the United States. LHS February 2010 Ericsson took 100% ownership in LHS after acquiring the remaining shares from minority shareholders through a squeeze-out process. As sole owner of LHS AG, Ericsson now pairs its prepaid solutions with LHS’ postpaid offerings, providing a fully integrated end-to- end charging and billing solution for mobile and fixed operators. Pride January 2010 Ericsson obtained 1,000 professionals from Pride, adding manpower and expertise to the vendor’s growing services division, particularly in consulting and systems integration. Appendix – Acquisitions and Alliances Vodafone and Ericsson established a joint innovation center in Madrid to focus on developing 2G and 3G RAN. Vodafone June 2010 Ericsson Alliances Company Scope of Partnership
  • 40.
    © 2010 TechnologyBusiness Research, Inc. TBR 40 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Recent Product Announcements Product Series Configuration OpenStream Catalog Gateway May 2010 • Helps operators promote content in VoD libraries and differentiate TV offerings • The Gateway is part of Ericsson’s on-demand solution that uses the OpenStream Digital Services Platform • Open interface works with third-party recommendation engines and web portals to find content of user interest • Gateway can be combined with the OpenStream Marketing Manager, which sends consumers promotions for content that matches their interests PKB-A Series April 2010 Based on original eight-brick PKB technology, PKB-A offers delivery of 30A or 125W with high efficiency 3-D Content Delivery Solution April 2010 3-D movie theater experience comprised of the Ericsson CExH42 MPEG-4 AVC HD Contribution Encoder, the Ericsson RX8200 Receiver and Ericsson EN8190 HD encoder IPTV Remote February 2010 • Single digital interface for Internet video, TV, PC and mobile phone within the home • Provides single interface for multiple devices without tying up a window on the TV screen Appendix – Recent Product Announcements
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    © 2010 TechnologyBusiness Research, Inc. TBR 41 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Network Customer Deals Company Scope of Deal EMOBILE Japan July 2010 By the end of 2010, EMOBILE will deploy an HSPA Evolution network in Tokyo, Tokai and Osaka using Ericsson equipment. Dual Cell HSPA technology supports download speeds up to 42 Mbps, twice the peak rate of HSPA+. BH Telecom Bosnia Herzegovina July 2010 BH Telecom agreed to pay Ericsson Nikola Tesla, Ericsson’s subsidiary in Croatia, $10.2 million to expand its 2G and 3G networks. Batelco Bahrain June 2010 Batelco will pay Ericsson $38.5 million through 2010 for RBS 6000 equipment. Batelco will use the multi-radio base stations to expand its existing HSPA network and prepare for rolling out LTE at a later date. CableTica Costa Rica June 2010 Ericsson will build, operate and manage a fiber-optic transport network for CableTica in Costa Rica under a five-year contract. Ericsson will construct the optical network using equipment from its MHL 3000 and OMS 1400 portfolios. Telstra Australia May 2010 Telstra is using Ericsson’s MHL 3000 DWDM solution in its Next IP network connecting Melbourne and Sydney to boost its transmission rate from 10 Gbps to 40 Gbps. Indosat Indonesia May 2010 Under a three-year contract, Ericsson will deploy an HSPA Evolution network with peak data rates up to 42 Mbps for Indosat in Indonesia. As part of the agreement, Ericsson will also leverage alternative energy to reduce the network’s energy consumption by nearly 50% as well as provide a range of network design, deployment, training and support services. Ericsson will employ its RBS 6000, MSS Blade Cluster, and MINI-LINK TN for the infrastructure buildout. Upon completion, Indosat’s network will be enabled for a seamless upgrade to LTE. Appendix – Customer Deals
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    © 2010 TechnologyBusiness Research, Inc. TBR 42 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Network Customer Deals Company Scope of Deal Cross Wireless United States April 2010 Cross Wireless (doing business as Sprocket Wireless) will upgrade to a 3G CDMA network using Ericsson’s 10G SmartEdge 600 for the IP wireless backhaul, multicast IPTV traffic and internet service aggregation. Edgenics United States April 2010 Ericsson will supply, deploy, host and manage Edgenics’ new packet core network to better serve its customers in the Southeast United States. The network will reach approximately 3.5 million people in over 750 communities, as well as connect 16 universities through the Intercollegiate Online News Network (ICONN). Bharti Airtel India March 2010 As a part of a $1.3 billion contract, Ericsson will supply Bharti Airtel with energy- efficient 2G/2.5G radio base stations, circuit and packet core, microwave transmission and Intelligent Network to upgrade 15 of Airtel’s 22 telecom circles. In addition to improved voice quality and faster data access, the upgrade will allow for a seamless 3G rollout. China Mobile China Unicom China March 2010 Ericsson signed a 2G/3G frame agreement with both China Mobile and China Unicom for a combined $1.8 billion. Under the agreement, Ericsson will provide China Mobile with a multistandard radio base station (RBS 6000) and mobile soft-switching technology, worth $1 billion of the total contract. Ericsson will also provide China Unicom with HSPA Evolution technology, as well as IP routers, fiber access technologies GPON and 40G WDM, and IMS worth the other $800 million of the total contract. MTN Ghana Ghana March 2010 MTN Ghana and Ericsson successfully trialed UMTS 900 MHz in Africa, better extending mobile broadband coverage to rural areas. In the planned 2Q10 rollout, Ericsson will be responsible for the access, transport and transmission of the 3G UMTS 900 MHz. Appendix – Customer Deals
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    © 2010 TechnologyBusiness Research, Inc. TBR 43 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Ericsson Network Customer Deals Company Scope of Deal Softbank Mobile Japan February 2010 Ericsson will provide Softbank Mobile RBS6000 HSPA/LTE multistandard base stations and rollout services to upgrade its network with multicarrier HSPA technology. The base stations will help Softbank handle a surge in data traffic caused by the use of smartphones. ATT United States February 2010 Ericsson expanded its key supplier role with ATT by signing a multiyear deal, agreeing to deliver LTE network equipment and design, deploy and optimize ATT’s LTE network. LTE field trials are scheduled for later this year, with commercial deployment scheduled to begin in 2011. Netgear World February 2010 Netgear will integrate Ericsson’s HSPA technology with their 802.11n wireless and Ethernet LAN for their new routers. 3 Scandinavia Denmark, Sweden January 2010 Ericsson will supply Denmark and four major cities in Sweden with the world’s first 84 Mbps HSPA network. The three-year contract includes an HSPA Evolution capacity upgrade of 3 Scandinavia’s existing 3G network, a new WCDMA/HSPA radio access network, IP-based optical and microwave backhaul and additional support services. TeliaSonera Sweden Norway January 2010 Ericsson will supply TeliaSonera with an LTE core and radio network for an undisclosed sum. TeliaSonera plans to bring 4G service to Sweden’s 25 largest municipalities and recreation areas, as well as Norway’s four largest municipalities, including Oslo, in 2010- 2011. Huawei and Nokia Siemens also won parts of the infrastructure deal, with Huawei supplying equipment for Oslo, and Nokia Siemens and Ericsson supplying radio network equipment for the remaining municipalities. In December, Ericsson supplied TeliaSonera with LTE Radio Base Stations, an Evolved Packet core network, a mobile backhaul solution with SmartEdge 1200 routers, an EDA multi-access aggregation switch and an Operation and Management System for the rollout of the operator’s LTE network in Stockholm. Appendix – Customer Deals
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    © 2010 TechnologyBusiness Research, Inc. TBR 44 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Customer Deals Ericsson Application Customer Deals Company Scope of Deal Curitiba Brazil May 2010 Ericsson and Dataprom supplied the Brazilian city of Curitiba with an Electronic Ticketing and Fleet Management System to obtain information and monitor the city’s fleet of public buses. This M2M application uses a 3G network to relay data from the buses to Curitiba’s network management center. Ericsson equipped the city’s buses with mobile broadband modules. Digi International United States March 2010 Anticipating future growth in M2M connections, Ericsson agreed to provide Digi International with HSPA mobile broadband modules. The mobile broadband module will deploy in selected Digi Transport and Digi Connect cellular gateways to allow for rapid global adoption of 3G connectivity in M2M applications. Telekom Austria Austria February 2010 Ericsson will provide Telekom Austria with IPTV middleware, the OpenStream Digital Services Platform and the WatchPoint Content Management System to improve Telekom’s current IPTV platform, eliminate the barriers between the TV set and PCs and introduce a new generation of user interface.
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    © 2010 TechnologyBusiness Research, Inc. TBR 45 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Customer Deals Ericsson Service Customer Deals Company Scope of Deal Endesa Spain July 2010 Ericsson won a four-year managed services contract from Endesa, the largest electric utility operating in Spain. As part of the agreement, Ericsson will assume responsibility for Endesa’s corporate network, which services all of the utility’s 23.5 million customers across Spain. BH Telecom Bosnia Herzegovina April 2010 Ericsson Nikola Tesla, Ericsson’s Croatia-based subsidiary, will manage BH Telecom’s network under a two-year managed services contract worth $10 million. Telefónica Brazil May 2010 Ericsson will operate Telefónica’s network operations center in Sao Paulo under a three-year deal. The managed services contract covers Telefónica’s fixed core, transmission, and ADSL networks as well as spare parts management. About 100 Telefónica staff will transfer to Ericsson to aid in supporting the network. Mobilicity Canada April 2010 Ericsson will manage Mobilicity’s 3G wireless network over the next five years. Financial terms were not disclosed, but the network covers 16 million Canadians and exemplifies Ericsson’s push into North America via Nortel. Crnogorski Telekom (Montenegro Telecom) Croatia March 2010 Croatian Ericsson Nikola Tesla, a subsidiary of Ericsson, has entered a four-year, €11.7 million (or $16.2 million) deal with Crnogorksi Telekom. The deal will make the latest Ericsson solutions and support services available to Crnogorksi Telekom.
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    © 2010 TechnologyBusiness Research, Inc. TBR 46 TBR NETWORK BUSINESS QUARTERLYSM Ericsson – Calendar 2Q10 Report www.tbri.com Appendix – Management Ericsson Management Name Position Hans Vestberg CEO and President Jan Frykhammar Executive Vice President, CFO and Head of Group Function Finance Johan Wibergh Executive Vice President and Head of Business Unit Networks Magnus Mandersson Senior Vice President and Head of Business Unit Global Services Rima Qureshi Senior Vice President and Head of Business Unit CDMA Mobile Systems Jan Wäreby Senior Vice President and Head of Business Unit Multimedia Håkan Eriksson Senior Vice President, CTO, Head of Ericsson Silicon Valley and Head of Group Function Technology Portfolio Management Torbjörn Possne Senior Vice President and Head of Group Function Sales and Marketing Carl Olof Blomqvist Senior Vice President, General Counsel and Head of Group Function Legal Affairs Marita Hellberg Senior Vice President, Head of Group Function Human Resources and Organization Henry Sténson Senior Vice President and Head of Group Function Communications Gilles Delfassy President and CEO, ST-Ericsson Mats H Olsson Head of Region Greater China North East Asia Douglas Gilstrap Senior Vice President and Head of Group Function Strategy Cesare Avenia Chief Brand Officer Bert Nordberg President, Sony Ericsson Angel Ruiz Head of Region North America
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    © 2010 TechnologyBusiness Research, Inc. TBR T ECH N O LO G Y B U SIN ESS RESEARCH , IN C. For additional information please contact: John Byrne (john.byrne@tbri.com), NBQ Director James McIlroy (mcilroy@tbri.com), Vice President of Sales