| CEO COMMENTS
“We report yet another quarter of robust performance,” says
Carl-Henric Svanberg, President and CEO of Ericsson. “Our employees’
impressive drive for operational excellence and responsiveness to customer
needs continues to yield positive results. Technology leadership, long
customer relationships and deep consumer understanding are key factors
behind our leading position.
The activity level in emerging markets is accelerating, which means more
people have access to communication services. In parallel, operators seek
new ways of working to meet the global trends of increased tariff competition
and convergence of technologies and services. We continue to focus on
supporting our customers in reducing the total cost of network ownership
and developing new business models. Our competitive technology and services
offering is a distinct advantage in this environment.
The services area develops strongly and operators show growing interest
in our offering, particularly in outsourcing of network operations, and
the synergies we are able to leverage throughout the value chain. Hosting
and content services are also in high demand as operators continue to
develop their business to meet consumer needs,” concludes Carl-Henric
Svanberg.
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FINANCIAL HIGHLIGHTS
2004 numbers restated in accordance to IFRS, please
see www.ericsson.com/investors/doc/ifrs_statement.pdf. IAS 39 implemented
as of January 1, 2005, related to financial instruments.
Income and cash flow
| |
Second quarter |
First quarter |
Six-month period |
| SEK b. |
2005 |
2004 |
Change |
2005 |
Change |
2005 |
2004 |
Change |
| Net sales |
38.4 |
32.6 |
18% |
31.5 |
22% |
69.9 |
60.7 |
15% |
| Gross margin |
45.9% |
47.8% |
- |
48.5% |
- |
47.1% |
46.4% |
- |
| Operating income |
8.3 |
7.3 |
14.5% |
6.6 |
26% |
14.9 |
11.2 |
33% |
| Operating margin |
21.6% |
22.2% |
- |
21.0% |
- |
21.3% |
18.4% |
- |
| Income after financial items |
8.5 |
7.3 |
- |
6.7 |
- |
15.2 |
11.1 |
- |
| Net income 1) |
5.8 |
5.0 |
- |
4.6 |
- |
10.5 |
7.6 |
- |
| Earnings per share 1) |
0.37 |
0.31 |
- |
0.29 |
- |
0.66 |
0.48 |
- |
| Cash flow before financial investing activities |
5.4 |
4.3 |
- |
-6.5 |
- |
-1.1 |
7.2 |
- |
| Cash flow before financial investing activities excl. pension trust funding |
5.4 |
4.3 |
- |
1.8 |
- |
7.2 |
7.2 |
- |
1)
Attributable to stockholders of the parent company, excluding minority interest.
Sales were up 18% year-over-year and showed a sequential increase of 22%.
The ongoing network rollout in the North American market is well under way
and invoicing included equipment worth close to two billion Swedish crowns
originally planned for the third quarter.
Currency exchange effects negatively affected sales in the quarter
by 2%, compared to currency exchange rates one year ago. In constant currencies,
sales for the quarter grew by 20%. For the six-month period, currency exchange
effects impacted sales negatively by 3%.
Gross margin was 45.9% in the quarter. The software content was somewhat
lower in the quarter, and the services proportion grew compared to the previous
quarter. The operating margin was 21.6%, a slight increase compared to the
previous quarter.
Net effects of currency exchange differences on operating income compared
to the rates one year ago were SEK -1.2 b. in the quarter.
Financial net amounted to SEK 0.2 b. for the quarter.
Cash flow before financial investing activities was SEK 5.4 b. in the second
quarter. As previously reported, cash flow in the first quarter of 2005
was negatively affected by SEK 8.3 b. by the transfer of cash and cash equivalents
into a Swedish pension trust.
Balance sheet, cash flow and other performance indicators
| |
Six months |
Three months |
Full year |
| SEK b. |
2005 |
2005 |
2004 |
| Net cash |
42.4 |
43.1 |
42.9 |
| Interest bearing provisions and liabilities |
29.8 |
28.4 |
33.6 |
| Days sales outstanding |
90 |
97 |
75 |
| Inventory turnover |
4.4 |
4.0 |
5.7 |
| Net customer financing |
4.4 |
4.2 |
3.6 |
| Equity ratio |
46.5% |
46.5% |
43.8% |
The financial position is strong. Net cash decreased by SEK 0.7 b. in
the quarter to SEK 42.4 (43.1) b., mainly as a consequence of the dividend
payment of SEK 4.0 b.
Days sales outstanding were 90 days, an improvement by seven days compared
to the first quarter. Inventories, including work in progress, were slightly
up in the quarter by SEK 1.3 b. to SEK 19.3 (18.0) b., due to currency
exchange effects. Excluding currency exchange effects, inventories, including
work in progress, were flat in the quarter.
Net change of deferred tax assets amounted to SEK 0.3 b. in the second
quarter. The balance decreased from SEK 20.8 b. at year-end to SEK 18.9
b.
Cash outlays with regards to restructuring amounted to SEK 0.4 b. for
the quarter. Approximately SEK 2.3 b. of restructuring charges remains
to be paid out during 2005 and beyond.
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MARKET
AND BUSINESS HIGHLIGHTS
There is continued growth in the GSM market where emerging markets show
particularly good development in both network coverage and capacity.
Tariff competition is intensifying in Western Europe. This stimulates both
traffic growth and the evolution of new business models and services. In
parallel, richer services and more complex technology has made total cost
of network ownership, including operating expenses, an obvious priority
for operators.
As a consequence, operator focus on the services area is increasing. In
this environment, our services offering is a key ingredient in assisting
operators to lower costs and offer rich content services. An important step
in helping our customers meet consumer demands is the recently announced
Napster agreement, which will enable operators to offer branded music download
services efficiently.
The WCDMA rollout continues, and Cingular Wireless’ rapid buildout
plan in the US is driving the industry forward. When complete, Cingular’s
buildout will have contributed to doubling the installed WCDMA base outside
of Japan. More attractive handsets with more competitive prices also contribute
to the fast WCDMA network expansions.
Our successful HSDPA offering is proving to be a crucial part of operator
considerations in timing WCDMA deployments. With HSDPA, operators will be
able to offer their customers even richer services including music and film
downloads, TV, and enterprise applications. Triple play, which brings together
telephony, Internet and broadcast media, continues to be a focus for both
mobile and fixed operators.
In parallel, operators are considering fixed/mobile convergence also as
a way of reducing operating expenses. A key element in this development
is the deployment of all-IP softswitch-based networks. Ericsson announced
several strategic wins during the quarter in this area, of which BT’s
21st Century all-IP network was the most noteworthy.
Regional overview
Western Europe sales grew 7% year-over-year. Also this quarter, Italy and
Spain showed strong development, and the region as a whole continues to
benefit from ongoing 3G deployments and GSM capacity enhancements.
Central Europe, Middle East and Africa sales grew 27% year-over-year and
was the largest region. The development was solid across the markets with
particularly good development in Nigeria and Turkey. There is a continued
strong GSM development as well as an increased focus on 3G.
Asia Pacific sales were up by 8% year-over-year. China and India showed
particularly strong development. While operators are evaluating different
3G technologies and performing large-scale trials with WCDMA, they continue
to invest in GSM capacity enhancements to accommodate the strong subscriber
growth.
North American sales are recovering. Growth year-over-year of 31% indicates
a market rebound following operator consolidation. The ongoing network rollout
in the North American market is well under way and invoicing included equipment
worth close to two billion Swedish crowns originally planned for the third
quarter.
Latin America shows continued positive development, and sales grew by 28%
year-over-year through strong GSM sales. Argentina and Brazil, in particular,
contributed to the year-over-year growth.
Subscriber growth
During the quarter, four new WCDMA networks were commercially launched,
bringing the total to 65. We are a supplier to 38 of these networks. The
number of subscriptions grew from 21 million to more than 28 million during
the quarter and WCDMA is now by far the fastest growing 3G technology. The
number of CDMA2000 1xEV-DO subscriptions grew by two million and has reached
14 million.
We continue to see a steady increase in both subscribers and usage, which
further contributes to the solid long-term industry growth. Net subscriber
additions were more than 100 million in the quarter. At the end of the quarter,
worldwide subscription penetration is 30%, with more than 1.9 billion total
subscriptions, of which almost 1.5 billion are GSM.
Top of page OUTLOOK
All estimates are measured in USD and refer to market
growth compared to previous year.
The traffic growth in the world’s mobile networks is expected to
continue as a result of both new services and new subscribers. For 2005
we now believe that the global mobile systems market, measured in USD,
will show moderate growth compared to 2004.
We previously estimated the global mobile systems market, measured in
USD, to show slight growth compared to 2004.
We maintain our view that the addressable market for professional services
is expected to continue to show good growth.
With our technology leadership and global presence we are well positioned
to take advantage of these market opportunities.
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SEGMENT RESULTS
2004 numbers restated in accordance to IFRS, please
see www.ericsson.com/investors/doc/ifrs_statement.pdf. IAS 39 implemented
as of January 1, 2005, related to financial instruments.
Systems
| |
Second quarter |
First quarter |
Six-month period |
| SEK b. |
2005 |
2004 |
Change |
2005 |
Change |
2005 |
2004 |
Change |
| Net sales |
36.1 |
30.4 |
19% |
29.0 |
25% |
65.1 |
56.5 |
15% |
| Mobile networks |
28.8 |
24.3 |
19% |
23.5 |
23% |
52.2 |
45.4 |
15% |
| Fixed networks |
1.1 |
1.1 |
0% |
1.0 |
8% |
2.2 |
2.0 |
8% |
Professional
services |
6.2 |
5.0 |
25% |
4.5 |
38% |
10.7 |
9.1 |
18% |
| Operating income |
8.2 |
5.9 |
|
6.2 |
|
14.4 |
9.4 |
|
| Operating margin |
23% |
20% |
- |
21% |
- |
22% |
17% |
- |
Sales in Mobile Networks grew by 19% year-over-year. In constant currencies,
sales grew 21% year-over-year and 18% for the six-month period.
In the evolution from GSM to WCDMA most customers are deploying networks
that combine GSM and WCDMA. The growth in the GSM/WCDMA track was approximately
22% in the quarter. Of radio access sales, 54% was WCDMA/EDGE related.
The strong subscriber growth continues and supports the growth in Mobile
Networks sales.
Sales within Professional Services have developed favorably during the
quarter and grew approximately 25% year-over-year. In constant currencies
the growth was 27% year-over-year. Supporting the strong growth the number
of employees in services grew by 1,500 in the quarter.
Other Operations
| |
Second quarter |
First quarter |
Six-month period |
| SEK b. |
2005 |
2004 |
Change |
2005 |
Change |
2005 |
2004 |
Change |
| Net sales |
2.7 |
2.8 |
-5% |
2.7 |
-2% |
5.4 |
5.3 |
2% |
| Operating income |
-0.1 |
0.6 |
- |
0.0 |
- |
0.0 |
0.6 |
- |
| Operating margin |
-4% |
20% |
- |
2% |
- |
-1% |
11% |
- |
Other Operations show a sequential sales decline of 2%. This includes
17% growth in Ericsson Mobile Platforms. Operating income of SEK -0.1
b. is affected by ongoing restructuring in Ericsson Power Modules and
increased R&D investments in Enterprise and public safety.
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SONY ERICSSON MOBILE COMMUNICATIONS
For information on transactions with Sony Ericsson
Mobile Communications please see Financial statements and additional information.
Sony Ericsson Mobile Communications (Sony Ericsson) reported units shipped
up 14% year-over-year and 26% sequentially. Sales increased by 7% year-over-year.
Ericsson’s share in Sony Ericsson’s income before tax was
SEK 0.4 b. for the quarter, compared to SEK 0.5 b. in the same period
previous year.
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PARENT COMPANY INFORMATION
Net sales for the six months period amounted to SEK 0.7 (0.9) b. and income
after financial items was SEK 5.3 (4.5) b.
Major changes in the Parent Company’s financial position for the
six months period include increased short- and long-term receivables from
subsidiaries of SEK 6.6 b. and decreased other current receivables of
SEK 4.8 b. Current and long-term liabilities to subsidiaries decreased
by SEK 7.3 b. and other current liabilities increased by SEK 2.4 b. At
the end of the quarter, cash and short-term cash investments amounted
to SEK 67.2 (71.7) b.
In accordance with the conditions of the Stock Purchase Plans and Option
Plans for Ericsson employees, 5,294,648 shares from treasury stock were
sold or distributed to employees during the second quarter. The holding
of treasury stock at June 30, 2005 was 292,992,667 Class B shares.
Stockholm, July 21, 2005
Carl-Henric Svanberg
President and CEO
Date for next report: October 21, 2005
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AUDITORS’ REPORT
We have reviewed the report for the second quarter ended June 30, 2005,
for Telefonaktiebolaget LM Ericsson (publ.). We conducted our review in
accordance with the recommendation issued by FAR. A review is limited primarily
to enquiries of company personnel and analytical procedures applied to financial
data and thus provides less assurance than an audit. We have not performed
an audit and, accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to
believe that the interim report does not comply with the requirements for
interim reports in the Annual Accounts Act and IAS 34.
Stockholm, July 21, 2005
Bo Hjalmarsson
Authorized Public Accountant
PricewaterhouseCoopers AB
|
Peter Clemedtson
Authorized Public Accountant
PricewaterhouseCoopers AB
|
Thomas Thiel
Authorized Public Accountant |
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EDITORS’ NOTE
To read the full report, please go to: http://www.ericsson.com/investors/financial_reports/2005/6month05-en.pdf
Ericsson invites the media, investors and analysts to a press conference
at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00 (CET),
July 21.
A analyst and media conference call will begin at 15.00 (CET).
Live audio webcast of the press conference and conference call as well
as supporting slides will be available at www.ericsson.com/press
and www.ericsson.com/investors.
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FOR FURTHER INFORMATION PLEASE CONTACT
Henry Sténson, Senior Vice President, Communications
Phone: +46 8 719 40 44;
E-mail: investor.relations@ericsson.com
or press.relations@ericsson.com
Investors
Gary Pinkham, Vice President, Investor Relations
Phone: +46 8 719 0000;
E-mail: investor.relations@ericsson.com
Susanne Andersson, Investor Relations,
Phone: +46 8 719 4631
E-mail: investor.relations@ericsson.com
Glenn Sapadin, Investor Relations
Phone: +1 212 843 8435;
E-mail: investor.relations@ericsson.com
Media
Pia Gideon, Vice President, Market and External Communications
Phone: +46 8 719 2864, +46 70 519 8903;
E-mail: press.relations@ericsson.com
Åse Lindskog, Head of Media Relations
Phone: +46 8 719 9725, +46 730 244 872;
E-mail: press.relations@ericsson.com
Ola Rembe, Director, Media Relations
Phone: +46 8 719 9727, +46 730 244 873;
E-mail: press.relations@ericsson.com
Telefonbolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 8 7190000
www.ericsson.com
Safe Harbor Statement of Ericsson under the Private Securities Litigation
Reform Act of 1995;
All statements made or incorporated by reference in this release, other
than statements or characterizations of historical facts, are forward-looking
statements. These forward-looking statements are based on our current
expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Forward-looking statements
can often be identified by words such as "anticipates", "expects",
"intends", "plans", "predicts", "believes",
"seeks", "estimates", "may", "will",
"should", "would", "potential", "continue",
and variations or negatives of these words, and include, among others,
statements regarding: (i) strategies, outlook and growth prospects; (ii)
positioning to deliver future plans and to realize potential for future
growth; (iii) liquidity and capital resources and expenditure, and our
credit ratings; (iv) growth in demand for our products and services; (v)
our joint venture activities; (vi) economic outlook and industry trends;
(vii) developments of our markets; (viii) the impact of regulatory initiatives;
(ix) research and development expenditures; (x) the strength of our competitors;
(xi) future cost savings; and (xii) plans to launch new products and services.
In addition, any statements that refer to expectations, projections or
other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. These forward-looking
statements speak only as of the date hereof and are based upon the information
available to us at this time. Such information is subject to change, and
we will not necessarily inform you of such changes. These statements are
not guarantees of future performance and are subject to risks, uncertainties
and assumptions that are difficult to predict. Therefore, our actual results
could differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. Important factors that may
cause such a difference for Ericsson include, but are not limited to:
(i) material adverse changes in the markets in which we operate or in
global economic conditions; (ii) increased product and price competition;
(iii) further reductions in capital expenditure by network operators;
(iv) the cost of technological innovation and increased expenditure to
improve quality of service; (v) significant changes in market share for
our principal products and services; (vi) foreign exchange rate fluctuations;
and (vii) the successful implementation of our business and operational
initiatives.
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