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This chapter is covered by the Auditors' Report.

C10 Intangible Assets

Capitalized development expenses Goodwill Intellectual property rights (IPR), trade marks and other intangible assets
2008 For internal use IPR, trademarks and similar rights Patents and acquired R&D Total
To be marketed Acquired costs Internal costs Total
Accumulated acquisition costs
Opening balance 12,478 1,640 1,096 15,214 22,826 10,372 19,758 30,130
Acquisitions
/capitalization 		1,107 181 121 1,409 – 20 – 20
Balances regarding divested/
acquired businesses 		– – – – 30 –172 – –172
Sales/disposals –8,067 – – –8,067 –60 –1,212 1) –31 –1,243
Reclassification2) – – – – –912 –209 – –209
Translation difference – – – – 2,993 630 723 1,353
Closing balance 5,518 1,821 1,217 8,556 24,877 9,429 20,450 29,879
Accumulated amortization
Opening balance –7,911 –1,562 –1,042 –10,515 – –2,072 –4,086 –6,158
Amortization –1,726 – – –1,726 – –674 –2,606 –3,280
Sales/disposals 8,067 – – 8,067 – 496 8 504
Translation difference – – – – – –175 –169 –344
Closing balance –1,570 –1,562 –1,042 –4,174 – –2,425 –6,853 –9,278
Accumulated impairment losses
Opening balance –974 –38 –26 –1,038 – – –14 –14
Impairment losses –534 3) –17 –11 –562 – – – –
Closing balance –1,508 –55 –37 –1,600 – – –14 –14
Net carrying value 2,440 204 138 2,782 24,877 7,004 13,583 20,587
1) Divestment of data centers in the UK.
2) Reclassification of deferred tax assets, goodwill and intangible assets due to finalized purchase price allocation. For more information, see Note C26, “Business Combinations”.
3) Part of the restructuring program.

The goodwill is allocated to the business segments Networks (SEK 15.3 billion), Professional Services (SEK 2.8 billion) and Multimedia (SEK 6.8 billion).

The recoverable amounts for cash-generating units are established as the present value of expected future cash flows. Estimation of future cash flows includes assumptions mainly for the following key financial parameters:

  • sales growth,
  • development of operating income (based on operating margin or cost of goods sold and operating expenses relative to sales),
  • development of working capital and capital expenditure requirements.

The assumptions, approved by group management and each business segment’s management, regarding revenue growth are based on industry sources and projections made within the Company for the development 2008-2013 for key industry parameters:

  • the number of global mobile subscriptions is estimated to grow from 3.9 billion by the end of 2008 to approximately 6.5 billion
  • fixed and mobile broadband subscriptions from 0.6 billion to approximately 3 billion
  • mobile traffic volume as well as fixed Internet traffic and fixed IPTV traffic is estimated to increase approximately 10 times

The demand for multimedia solutions is driven by the opportunities for new types of service offerings enabled by IP technology and high-speed broadband.

The demand for professional services is also driven by an increasing business and technology complexity. Therefore, operators review their business models and look for vendor partners that can take on a broader responsibility, including outsourcing of network operations.

The assumptions are also based upon information gathered in the Company’s long-term strategy process, including assessments of new technology, the Company’s competitive position and new types of business and customers, driven by the continued integration of telecom, data and media industries.

The impairment testing is based on specific estimates for the first five years and with a reduction of nominal annual growth rate to an average GDP growth of 3 percent per year thereafter. The impairment test for goodwill did not result in any impairment.

A number of sensitivity tests have been made, for example applying lower levels of revenue and operating income. Also when applying these estimates no goodwill impairment is indicated.

As per year end 2008, the market capitalization of the Company well exceeded the value of net assets of the Company.

An after-tax discount rate of 12 percent has been applied for the discounting of projected after-tax cash flows.

The application of one rate is made due to that differences in risks between the cash generating units have been considered in the estimated cash flows.

In Note C1, “Significant Accounting Policies” and Note C2, “Critical Accounting Estimates and Judgments”, further disclosures are given regarding goodwill impairment testing.

Capitalized development expenses Goodwill Intellectual property rights (IPR), trade marks and other intangible assets
2007 For internal use IPR, trademarks and similar rights Patents and acquired R&D Total
To be marketed Acquired costs Internal costs Total
Accumulated acquisition costs
Opening balance 12,388 1,602 1,070 15,060 6,824 5,317 13,479 18,796
Acquisitions
/capitalization 		989 38 26 1,053 – 178 63 241
Balances regarding divested/
acquired businesses 		– – – – 16,917 5,132 1) 6,495 1) 11,627
Sales/disposals –899 – – –899 –1 –57 –1 –58
Translation difference – – – – –914 –198 –278 –476
Closing balance 12,478 1,640 1,096 15,214 22,826 10,372 19,758 30,130
Accumulated amortization
Opening balance –6,439 –1,562 –1,042 –9,043 – –1,180 –1,953 –3,133
Amortization –2,371 – – –2,371 – –913 –2,149 –3,062
Sales/disposals 899 – – 899 – 41 – 41
Translation difference – – – – – –20 16 –4
Closing balance –7,911 –1,562 –1,042 –10,515 – –2,072 –4,086 –6,158
Accumulated impairment losses
Opening balance –958 –38 –26 –1,022 – – –14 –14
Impairment losses –16 – – –16 – – – –
Closing balance –974 –38 –37 –1,038 – – –14 –14
Net carrying value 3,593 40 28 3,661 22,826 8,300 15,658 23,958
1) During 2007, Ericsson acquired Redback, Tandberg and LHS. The acquisitions consist of IPR, SEK 6.4 billion, trademarks and customer relationships, SEK 4.8 billion and goodwill, SEK 16 billion. The amortization period related to the intellectual property rights, trademarks and other intangible assets from Redback, Tandberg and LHS is between five and ten years.