Annual Report 2001 Business Review - Ericsson · 2016. 10. 25. · 2 Annual Report 2001 Business...

What’shappening with 3G?

How did you reducecost to cope withlower revenues?

How do you turn your expertise andknow-how into good business?

How have yournew generationphones beenreceived by themarket?

How did you make Ericssonmore efficient?

Annua l Repo r t 2001 Business Review

Financia l h ighl ights 2001

0

20,000

40,000

60,000

80,000

100,000

Number of employees

2000 2001

Total

Sweden

2000 2001

Orders booked

Sales0

50

100

150

200

250

Sales and orders booked, SEK b.

Sales by market area, SEK b. and percent

25.2�(12%)

56.4�(27%)

32.1�(15%)

97.1�(46%)

Europe, Middle �East and Africa

Asia Pacific

Latin America

North America

�

Sales by segment,SEK b. and percent

23.1�(11%)

33.4�(16%)

154.3�(73%)

Mobile systems

Multi-service networks

Other operations

� �

TOTAL CONSOLIDATED RESULTS – PRO FORMA**(SEK billion) 2001 2000 Change

Orders booked 201.8 239.1 –16%Net Sales 210.8 221.6 –5%Adjusted operating margin –9% 8%Adjusted income before tax –21.1 14.3Net income –21.3 21.0Earnings per share, fully diluted (SEK) –2.69 2.65Dividend per share (SEK) 0 0.50Cash flow before financing activities 4.2 6.4Return on capital employed (ROCE) –16% 27%Equity ratio 29% 38%Number of employees 85,200 105,100 –19%

SEGMENT RESULTS – PRO FORMA**(SEK billion) 2001 2000 Change

Orders bookedSystems 182.8 213.2 –14%Other operations 28.5 39.5 –28%Less inter-segment orders –9.5 –13.6

Total 201.8 239.1 –16%

SalesSystems 187.8 194.7 –4%Other operations 33.4 40.2 –17%Less inter-segment sales –10.4 –13.3

Total 210.8 221.6 –5%

Adjusted operating income*Systems 2.9 32.6Phones –14.6 –16.2Other operations –4.4 2.2Unallocated –1.7 –1.9

Total –17.9 16.7

* Adjusted for items affecting comparability– Capital gain Juniper Networks 5.5 15.4– Non-operational capital gains 0.3 5.9– Pension refund – 1.1– Restructuring costs –15.0 –8.0

SALES BY MARKET AREA – PRO FORMA**(SEK billion) 2001 2000 Change

Europe, Middle East and Africa 97.1 108.4 –10%North America 25.2 25.3 0%Latin America 32.1 38.0 –16%Asia Pacific 56.4 49.9 13%

Total 210.8 221.6 –5%

**Pro forma format: Sony Ericsson Mobile Communications are accounted for underthe equity method and included in “Earnings from Joint Ventures and AssociatedCompanies.” The results of the phone activities retained by Ericsson are included in“Other operations.”

We are the world’s leading supplier oftelecommunications equipment and services.We lead the research and development of newtechnology. We bring our industry together to agree on standards. And we make, integrate and manage state-of-the-art networks.

We are helping to create the most powerfulcommunications companies in the world. By doing so, we deliver long-term value for ourshareholders. This business review shows ourprogress in 2001. It demonstrates what our people have achieved, and outlines our vision for the future of communications.

Contents

A letter from CEO Kurt Hellström p2

Market overview p6Technology overview p10

Getting into shape p13Strengthening our lead in wireless p14Making 3G a must-have p18Building tomorrow’s networks today p22New products, new partner p24Turning ideas into profit p28Capitalizing on our expertise p31Our people and our culture p34

Board of Directors and Corporate Management p36Share information p38Glossary p40

This report contains “forward looking statements”, please see “Uncertainties in the future” on page 41

Annual Report 2001 Bus iness Rev i ew 1

2 Annual Report 2001 Bus iness Rev i ew

A l e t t e r f r o m C E O K u r t H e l l s t r ö m

It was certainly a very tough year for the telecommunicationsindustry. More than 500,000 jobs were lost, and all companieswere affected significantly. In these conditions, we achieved net sales of SEK 210.8 b., representing a 5 percent decrease from2000. Our adjusted operating income was SEK -17.9 b., excludingrestructuring provisions of SEK 15 b.

Naturally, I am not pleased with these figures, but a lot of progress was achieved in 2001, and much was done to buildfoundations for our return to growth. Of key importance wasthe control we exerted over every aspect of our business. We tookour fate in our own hands, turning negative cash flow of SEK 18b. to positive of SEK 4.2 b. at year-end. We achieved thisthrough significant improvements in working capital, with a far-reaching Efficiency Program driving us back toward profit.

Rapid improvements transformed the company

In recent years the telecommunications market experienced very strong growth. Our approach during this time was led bythe need to meet the increasing levels of demand, and we grewthe scale of our operations. The Ericsson share performance in2000 demonstrated the benefits of this approach.

Anticipating shifts in market conditions in late 2000 andthroughout 2001, we changed the shape of our business –rapidly. We quickly identified and implemented a range ofmeasures to transform Ericsson into a more efficient, integratedand responsive organization. These changes were coordinated

through the Efficiency Program. This was launched in March2001, and at year-end it had delivered:• Total savings of SEK 7 b.• Operating expenses 20 percent lower in the fourth quarter

2001 than the fourth quarter 2000, excluding risk provisionsfor negative developments in some Latin American markets

• Positive cash flow. Such extensive effects were the result of a set of actions. These included:• Reduction of market regions from five to three • Reduction of market units from 100 to 35• Workforce reduced to 85,200 employees, from 107,300 in March• Reduction in the number of consultants employed

by more than 8,000.In addition, we streamlined the organization, removing

one layer of management and appointing a chief operatingofficer with a priority to achieve ongoing operational efficiency,rationalization of our product portfolio and a continuedcommitment to long-term organizational improvement. Thesecommitments will continue under his close direction.

One example of improvement is the way we now manage the supply chain process, from receiving an order to invoicing.Our actions have reduced costs and risk, and increased customersatisfaction. They have also enabled us to be paid in less time,with invoices in the fourth quarter paid in 88 days on average,compared to 102 days in the third quarter.

2001 was the most challenging year I have experienced in my 18 years in this industry. We experienced a very tough market. However, Ericsson demonstrated impressive inner strength, acting with speed, vigor and long-term vision. We took decisive action in mobile phones; and we both set and met far-reaching efficiency targets; we turnednegative cash flow to positive and we strengthened our leadership in mobile systems. Our people have impressed me greatly with their commitment, dedication and theirdetermination to get Ericsson back to profit.


“Our Efficiency Program was on track at year-end. Achieving its SEK 20 b. in annual cost savings target, it is driving us back toward profit.”Kurt Hellström, President and CEO, Ericsson

We continued to find new ways of combining our drive for efficiency with benefits for our customers. This is why wecreated dedicated Global Customer Units in 2001. These unitsare ensuring that we can support global customers in the mosteffective and efficient way as they extend their activities intomany markets.

Decisive approach to difficult decisions

The reduction in the workforce was a significant action. We acted decisively in this regard to ensure the long-termprofitability of Ericsson. We are led in these matters by our key objective of achieving an operating margin of more than 5 percent in 2002. We do not rule out further right-sizing – we must be the right shape and scale to deliver solutions for our customers and return for our shareholders.

Systems deliver a break-even result in demanding year

In wireless communications, approximately 40 percent of allmobile calls pass across Ericsson systems – at least twice thenumber of any other systems provider. In 2001, we were thelargest supplier of 2G systems, and we led the development androll-out of 2.5G and 3G systems. In wireline, our AXE productextended its position as the most widely installed digitalswitching system. Meanwhile, our ENGINE family of solutionsenabled us to take the lead in the exciting migration market.

Orders and sales declined gradually during the year. Totalorders in Systems were down 14 percent with Mobile Systemsdown 11 percent and Multi-service Networks down 30 percent.Excluding the increased risk provisions for Latin America, our Systems margin was 2.4 (16.7) percent, reflecting continuedincrease in R&D (research and development) investments for 3G, unfavorable product mix, with sharp declines in TDMAand PDC systems and lower margins due to lower volumes,price pressure and excess capacity. We are tuned in to achievesignificant success with new orders in 2002, to ensure that wemeet our operational and financial targets.

Leadership from 2G to 3G

In operational terms, 2001 was a year of real progress for us in3G. We started to ship systems to more than 30 operators. Wewere also named as a supplier in 60 percent of the 3G/UMTS

agreements announced, which we believe will represent at least a 40 percent global market share in terms of value. We havefurther strengthened our position with important contract winsin the US for both 3G and for the evolution to 3G via GSM.Contracts for EDGE systems were also signed with importantUS operators.

This lead in 3G was supported by success with GPRS, with30 of our customers launching commercial services. We signed78 commercial GPRS agreements out of an industry total of 162 announced contracts. We also signed our first global contractfor the initial deployment of MMS (Multimedia MessagingServices) in nine countries. The availability of attractive MMSservices with color pictures, animation and sounds will be animportant driver of GPRS traffic.

Further developments in the 2G and 2.5G markets look setto benefit Ericsson significantly. We saw a decline in orders in TDMA and PDC 2G standards, but this was largely becauseoperators were preparing to migrate to next-generation networks,in many cases via GSM. This has created new opportunities for us in GSM and GPRS. In CDMA2000, we took action toreduce our costs, but this did not stop us from achieving anumber of solid achievements, including involvement in thelaunch of the first end-to-end CDMA2000 system.

Once again, we outperformed the competition in our GSMbusiness. GSM sales for the full year rose 9 percent, despite a 7 percent decline in the fourth quarter.

Challenges and opportunities in Multi-service Networks

Orders and sales declined significantly in this area as demand for traditional wireline equipment continued to deteriorate.Spending on next-generation packet-switching equipment offsetsome of these effects, and demand for our ENGINE solutiondeveloped favorably toward the end of the year.

Approximately two-thirds of our Multi-service Networks’business is derived from Latin America and Western Europe.Our circuit-switching business has been particularly affected bya downturn in the demand in these regions.

Our efforts to improve profitability in this business were notsufficient to offset the substantial drop in sales. We are nowpursuing alternative solutions to enable Multi-service Networksto achieve profitability, including further restructuring.



Sony Ericsson launched successfully

The Sony Ericsson Mobile Communications joint venture is anexciting and highly promising development. The new companyhas taken responsibility for product development, industrialdesign, distribution, sales, marketing and customer services formobile consumer products. It got off to a good start following itsoperational launch in October, with solid integration ofoperations from the two partners. It employed 4,000 people atyear-end 2001.

Sales of 6.8 million phones were achieved in its three monthsof business. This was a lower-than-expected unit volume, whichcreated a loss of SEK 1.4 b. However, the company achieved ahigher average sales price per product than expected, with totalsales of SEK 9.7 b. We expect volume sales to increasesignificantly throughout 2002, and this – together with favorableprice levels – will enable the company to reach profit. Indeed, asthe market for mobile multimedia products develops, the businessopportunity for the joint venture will increase significantly.

Re-positioning in handset market

We retained two important business operations which werepreviously a part of our consumer products division, and launchednew businesses dedicated to these activities in 2001. EricssonTechnology Licensing is working to turn our patents into licenserevenue, with a particular focus on Bluetooth. Ericsson MobilePlatforms is developing the technology required inside mobilecommunication products, supplying its platforms to SonyEricsson and several other manufacturers and service providers.In this way, we are – as one of the first players in our industry –capitalizing on a development that is very similar to what hashappened within the PC industry.

Together with Sony Ericsson, our two businesses will enableEricsson to capitalize on the opportunities created by this fast-changing market. The structure of the handset market isshifting from a few complete suppliers to a chain of specializedcompanies. We have quickly positioned ourselves to reachconsumers and serve operators through our joint venture, toprovide platforms for other manufacturers and equipmentproviders, and to benefit from the market for Bluetooth enabledproducts.

Focus on profitability

Our key objective for 2002 is profitability. Our target is anoperating margin of over 5 percent for the full year 2002, with a positive cash flow.

Our margin will be achieved by fulfilling two keycommitments. First, we will work to anticipate and respond to our customers’ opportunities and needs, and providecommunications solutions faster and better than any competitor.Second, we will support these activities with a rigorous approachto ongoing efficiency improvements across the entire company.

This will deliver value to our shareholders, our customers andour employees, and it will build a strong foundation for long-term growth and profitability for Ericsson.

Kurt Hellström, President and CEO, Ericsson

Ericsson is the leader in 3G systemsOur market share calculated in terms of contract value

40%

20-25%

15-20%

10%

<5%5%

<5%

Siemens

Nokia

Ericsson

Lucent

Nortel

Alcatel

Motorola

Ericsson is the leader in 2G systemsOur market share calculated in terms of contract value

36%

15%

11%

10%

5%8%

4%11%

Motorola

Nokia

Ericsson

Siemens

Nortel

Alcatel

Other

Lucent



After several years of strong growth, the telecommunications marketexperienced a downturn in 2001. Operators and suppliers had to react to fast-changing conditions. There were casualties, but – for those who remain – the market offers the promise of growth.

The wireless sector experienced challenging conditions, but the effects of the downturn were particularly pronouncedin the wireline and Internet markets. Many operators wereadversely affected by the burden of large capital investmentsrequired to gain mobile licenses and purchase and implementnew technologies. The tragic events of September 11 servedto further depress the market on a global basis. Conditionsforced operators and suppliers to make significant changes.

Restructuring took place throughout the industry.Cooperation increased as companies searched for ways to share large investments and partner to create greater valuefor customers and shareholders. In many cases, assets thatwere not part of core business were sold, and core assetsbecame more valuable. We expect such responses to continuein the telecommunications industry well into 2002. We alsoexpect to see ongoing international consolidation amongstoperators, with the largest companies continuing to acquireto grow capacity and develop economies of scale.

Throughout the year, operators searched for effectiveways to limit investments in new equipment.Implementation strategies were re-worked to create seamlessmigration between existing technology and new technology.

Despite the challenges faced by operators and suppliers,the fundamental needs of communication and mobilityremain. People continue to look for new and improvedways to communicate with one another while on-the-move.This demand is a positive driving force that will createopportunities for strong growth for the best operators and

suppliers. The following sections examine subscriber andcustomer demand, and other key market developments andissues affecting Ericsson and the entire market.

Wireless communications

Good growth continued in this area, with the total numberof mobile subscribers – and the traffic generated bysubscribers – increasing significantly. There were between50-60 million new subscribers every quarter in 2001. Thisgrowth meant there were about 950 million subscribersworldwide at the end of 2001. By the end of the first quarterin 2002 the world may have 1 billion wireless subscribers –an enormous achievement for the industry.

China experienced very strong growth and overtook theUS to become the country with the most mobile subscribers.Generally, traffic per subscriber continued to grow, with the US seeing the most significant increases.

We expect about 200 million new subscribers to be addedin 2002, a solid growth rate of 20-25 percent. Our long-termforecast remains unchanged – 1.6 billion mobile subscribersby the end of 2005.

Wireless systems

The slowdown in the telecommunications equipmentmarket continued during the fourth quarter. This resulted ina more or less flat mobile systems market for the full year.We expect these conditions to persist well into 2002 with amuch weaker first half. We maintain our forecast; the global


M a r k e t o v e r v i e w


Our internal newspaper, Contact, reflects how Ericsson has reacted to the downturn in the telecommunications industry. It also allows employees to follow the market developments.


Services

9291

Telecom developments 1991-2001 (US$ Billions)

93 94 95 96 97 98 99 00 01

TotalEquipment

600

400

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800

1000

1200

1400

1600

market for mobile systems will be flat-to-down 10 percentin 2002. However, the US market may show modestgrowth as operators upgrade to GSM/GPRS, 3G/EDGEand CDMA2000.

Wireless multimedia

Industry observers have voiced doubts about thepotential value of mobile data. However, the outlook is positive on many fronts. For example, tremendousgrowth in the use of SMS (Short Message Services)continues. In January 2000, 4 billion messages were sent;at the end of 2001, more than 30 billion messages werebeing sent per month. Use of mobile data in Japancontinues to rise and there are now 50 million users there.

In other parts of the world, GPRS arrived. Close to 75 commercial networks were in operation by the end of 2001, and handsets were available from all majorsuppliers. In other parts of the world (notably Korea andthe US), we saw the introduction of the CDMA2000 1Xstandard for mobile packet data services. However, manyoperators were struggling to get the business models formobile data services right; the creation and launch ofeasy-to-use and relevant services for end-users also proveda major challenge. Operators are now beginning to makeprogress in both areas, and we will see significant growthin the use of GPRS and CDMA2000 in 2002.

In 3G, several technologies made headway. NTTDoCoMo in Japan started its 3G commercial servicesbased on the WCDMA standard, and several Europeanoperators started pre-commercial coverage and voicetests. Most operators are planning for a commerciallaunch in 2002, with volumes of subscribers expected in 2003.

In North America, we saw major TDMA operators,such as AT&T Wireless, Cingular and Rogers Cantelselecting GSM/GPRS and EDGE as their path to 3G.Meanwhile, CDMA2000 operators planned to start testsof higher bit-rate standards for 3G, like CDMA2000 1Xdata only.

Applications and services

There is much discussion in the industry about whichwireless services and applications will prove mostvaluable. Of course, the answer may not be the same ineach country, nor in each market segment. Specificapplications for business users and different types ofconsumers will be very important. However, genericapplications such as voice, messaging and images arelikely to prove attractive to all users. Both messaging andimage applications are now supported by a new enablingstandard – MMS (Multimedia Messaging Services) – and this will help drive early demand for GPRS and 3G.



With 3G, it will be possible for operators to provide many applications and services that require high bandwidth. The streaming of music and video are some examples. We must also remember that 3G provides operators with much higher capacity for generic voice and messaging, and this will enable them to meet the expected increase in demand for basictelecommunications services.

Wireline

Wireline had a tough year. Demand declined and somenew operators have not survived. Conventional voiceservices with circuit connections continued to grow, but much less than in previous years. The growth waspartly attributable to positive demand in one market –China – as well as a general increase in demand forsecond- and third-line connections.

In other wireline areas, optical backbone networkshave been built out in many places, creating excesscapacity. For suppliers, this market started to declineconsiderably in 2001. However, metro and broadbandaccess networks, such as those using xDSL and cabletechnologies, kept growing. Installations of xDSLincreased at a particularly rapid rate. Now that the hype

about the Internet has decreased, operators are makingmore realistic business cases – we believe this is a positivedevelopment.

Multimedia and multi-service

The wireline area is undergoing an evolution fromcircuit-based networks to packet-based multimedianetworks. This shift will generate major changes in the fixed network market in coming years. Thesedevelopments are moving in line with changes in thewireless market, and in digital technology markets in general. For many years we have talked about the convergence of telephony, data, video and media; this is now taking place across wireless and wirelinetelecommunications. We are heading toward a global,integrated and seamless multimedia and multi-servicenetwork, serving both business and private consumersanywhere and anytime.

Convergence is good news for the market and forEricsson. However, there are many issues to be addressedbefore this vision becomes reality. Ericsson will continueto play a fundamental role in addressing the mostimportant issues, and in shaping this converged world.

Mobile

0099

Worldwide Subscriptions Forecast (millions)

01 02 03 04 05 06

Fixed Broadband (Cable, xDSL, LMDS, Fiber)Fixed (POTS/ISDN)

300

600

900

1200

1500

1800



Ericsson is the telecommunications industry’s technology leader. We lead the standardization process. We lead the development, testingand commercial launch of new products and solutions. The year 2001gave us an additional challenge: to respond to difficult market conditionswithout losing our position as the pre-eminent innovator.

The development of 2.5G and 3G systems has required a massive R&D effort. In 2001 we devoted more than two-thirds of our R&D expenditures to 2.5G and 3G. Ourinvestments have created a completely new generation ofproducts and solutions. More than 30 operators haveinstalled our WCDMA commercial equipment and are now running pre-commercial tests.

In March, we introduced an Efficiency Program to bringour investments in line with the prevailing business climate. Our actions reduced our R&D cost run-rate from SEK 46.2 b. to SEK 40 b. Efficiency measuresincluded a 50 percent reduction in external consultants, and a significant reduction in employees, particularly inadministrative functions. Offices were consolidated, several non-core projects discontinued, and R&D centers’responsibilities were clarified.

WCDMA

We drive the creation of new industry standards. This putsus in a strong position to be first-to-market with solutions.3GPP (3G partnership project) standard release 99 was thestandard used for the WCDMA products and solutionslaunched to operators in 2001. Having started commercialradio base station production in March, we achieved theworld’s first successful 3GPP release 99 voice call in the fieldin April – in Vodafone’s network.

In 2001, successful tests were also carried out for bothvoice and data calls between Ericsson prototype phones and other suppliers’ phones using Ericsson WCDMAinfrastructure equipment. The tests verified the excellentvoice and data functionality of our 3G systems andequipment.

In 2001, a new release of 3GPP – Release 4 – wasapproved. This version enables further evolution of MobileInternet services.

Also, the enhanced WCDMA standard for data rates of 8 Mbps was approved by the ITU. The specifications will beincluded in 3GPP Release 5. Handset users will be able totransfer 8 Mbps of data, which will speed up the downloadof files. Our WCDMA research will continue to createinnovations.

EDGE

To meet demand in this important market, we developedand launched a new generation, high-capacity macro basestation for GSM/GPRS/EDGE, the RBS 2206. The basestation’s software is able to deliver a wide range ofapplications, from extreme coverage to extreme capacity. It requires the same space as the previous version but hastwice its capacity.

The RBS 2206 was delivered to a range of customers,including US operators who are migrating from TDMA, via GSM/GPRS/EDGE, toward WCDMA.

CDMA2000

The ITU also approved the evolved CDMA2000 standard,allowing up to 2.4 Mbps data rate. During 2001, we haveintroduced a packet core network in our offering, giving us a strong total solution for the introduction of CDMA2000.

Common platforms

By developing common platforms for use across ourportfolio of products and solutions, we have created costefficiencies for us and for our customers. Commonplatforms are less expensive to manufacture and implement,less expensive to maintain, and are produced ready toaccommodate future technology upgrades.

In 2001 we started to ship our new CPP (Cello PacketPlatform) to the market. CPP is a packet switchingmachine, capable of handling ATM as well as IP.


Te c h n o l o g y o v e r v i e w

This provides the base for the development of our 3Gproducts, in particular the radio network controller and themedia gateway.

Miniaturization of AXE

AXE is the most deployed switch in the world and sits at the heart of our wireless and wireline systems. More than500 million subscribers are connected via AXE equipment.In 2001 we achieved a major breakthrough with the launch of AXE 810, which is three times smaller than itspredecessor, consumes 75 percent less power and providesthree times as much capacity. It is very fast to install andtherefor able to generate revenue for an operator within one month of leaving our factory.

MMS

Ericsson was the founder and driver of MMS standardizationand first-to-market with MMS handsets. In 2001, we createdan end-to-end MMS solution, from core network systems to gateway and server products, applications, and handsetssuch as the T68.

ENGINE

ENGINE’s scalability and adherence to emerging standardswas enhanced in 2001. It is now possible to fully migratelarge telephone networks to a multi-service packet networkin a multivendor environment. One particular innovationhas helped enable this – the multi-service media gateway,AXD 301.

In addition, Ericsson’s multi-service IP backbonesolutions have been enhanced with full IP VPN (virtualprivate network) support. With VPN, operators can offersolutions to enterprizes and other operators who wish tooutsource IP transport.

IPv6

IPv6 is the next-generation Internet Protocol. It will be ableto accommodate the enormous increase in demand forunique IP addresses created by growth in use of the Internetand Mobile Internet. IPv6 will enable a unique IP addressfor each device, e.g. PDA, phone, gaming console, etc.

We are at the forefront in IPv6 research and developmentand are implementing the most feature-rich support, such as security, quality of service (QoS) and multicast, which isneeded for emerging services, such as conversationalmultimedia and distributed interactive gaming.

Looking forward

Our actions in 2001 illustrate how Ericsson is able to balancethe dual demands of envisioning the future fortelecommunications technology and turning our thinkingand knowledge into profitable products and solutions. We will maintain this balance throughout 2002, and workto ensure that we lead the development and roll-out ofstandards, systems, products and solutions.


AXE 810. This new digital switching platform demonstrates the benefits of our approach to product improvement. It is threetimes smaller than its predecessor and consumes 75 percent lesspower. It uses fewer parts and is shipped as one complete unit,simplifying production, distribution and maintenance. It alsoprovides three times more capacity than the previous model.

Te c h n o l o g y o v e r v i e w


“For me, the Efficiency Program has made things clear. Now I can see how we are going to get from here to a 3G world.”Thomas, radio technology researcher, Ericsson

G e t t i n g i n t o s h a p e

The telecommunications sector experienced a downturn in themarket. Ericsson reacted swiftly and strenghtened cost control,focus and operational efficiency. We coordinated our actionsthrough a major Efficiency Program designed to reshape thecompany. The program was required to deliver efficiencies enabling yearly savings of SEK 20 b., andto establish solid foundations for more effective and leanoperations throughout 2002 and beyond.

The program focused the company on profitability. Productswere prioritized. Key activities were consolidated to achieve more efficient design centers, reducing the number of offices andfactories required. The company’s management structure wassimplified by removing the divisional layer and consolidating our business units. Global customer units were also introduced,enabling us to enhance the services and support we provide tocustomers operating across many geographical markets.

By oursourcing, divestments, attrition and lay-offs, thenumber of employees within the company has been reduced bymore than 20,000, and the number of consultants employed bymore than 8,000. At year-end 2001, our workforce numbered85,200 people.

By the end of the year, the program met its financial target –an enormous achievement in the current economic climate.Many of the efficiencies will have greatest impact in 2002. Thesemeasures have also changed the way we work. We have more

focus, drive for profitability, and cost control; prerequisites thathave lead us to set as an objective an operating margin of over 5percent for 2002.

We are now building on the valuable lessons and experiencesgained while implementing the program. New and far-reaching improvements will significantly reduce our operatingexpenses. Ways of reducing our inventory levels are being devised and implemented. We are working actively to chaseaccounts receivable with greater effectiveness. And we arecreating a range of new measures to increase our gross salesmargin throughout our business. Clear targets and respons-ibilities have been defined and communicated internally for allfour of these areas.

These actions are helping to strengthen our core activities.They enable us to ramp up 3G production when required. They help us to develop even smarter, higher-value products and services, and to turn our technology leadership into moreprofitable business over the long-term.

The pages that follow explain what this strategy means inpractise. It looks at the way we have conducted and controlledour business in 2001, and how we are positioned to move forward in 2002. In a tough, fast-changing market, Ericsson is getting into the right shape to create greater value forshareholders, customers and employees.

Market conditions and new technology are driving rapid and far-reachingchange in the communications industry. We are acting to transform Ericssoninto a more agile, integrated and profitable company.


S t r e n g t h e n i n g o u r l e a d i n w i r e l e s sS t r e n g t h e n i n g o u r l e a d i n w i r e l e s s

Our leadership position is demonstrated in three clear ways.First, we lead the R&D of new technologies and systems.Second, we win a greater share of the market for mobile systemsequipment and services than any other supplier. Third, we growthe overall market for our products by bringing our competitorstogether to reach agreements on open standards.

As a result, more subscribers are connected to networkssupplied by Ericsson than to networks supplied by our threeclosest competitors combined. Our market share, expressed asnumbers of subscribers in networks supplied by us, is more than 40 percent for GSM. We have now extended our position in the market, gaining 56 percent of all announced 3G networksupply agreements.

Even with our current leadership position, 2001 was achallenging year. Operators, suffering the consequences of high3G license costs and difficult economic conditions, chose to use existing capacity in their networks rather than invest in new 2G infrastructure, thereby reducing demand for equipment from Ericsson and other suppliers. As a result, there was excesscapacity in our high-volume 2G production facilities and in our implementation organization.

Rapid reactions to the market

We rapidly brought our capacity more in line with the lower levelof demand and made our operations leaner and more flexible.The actions we took included a concentration on core products,

more focused marketing activities, and the use of fewer externalconsultants. These measures were assisted by improved supplychain efficiencies introduced in 2000, which had a major impacton our manufacturing and delivery costs throughout 2001. We setstrong targets for cost reduction in the mobile systems unit and bythe end of 2001 we were on track to achieve them.

Innovative Ericsson products helped operators to improvetheir network performance without having to invest in a majorupgrade program. For example, our GSM Capacity Boostertechnology enabled some operators to double the capacity oftheir network in key areas.

The evolution from 2G to 3G

Strengthening relationships and growing our share of the 2Gmarket were particularly important in 2001, as many customersare moving to higher-value 3G services. Our strong track recordin 2G helped us to secure the majority market share of GPRSand 3G systems contracts, despite strong competition.

In North America, a number of large operators decided to useGSM as their path to 3G, rather than the established TDMAand CDMA standards. This was good news for Ericsson. Oureconomy of scale and experience in North America positioned us to take maximum advantage of this important market. This was underlined when US operator Cingular named Ericssonas a major supplier for upgrading and expanding its wirelessnetwork to our 3G-solution EDGE.

Highl ights 2001: GSM GPRS 3G

> 40 percent of all mobile phone callspass through Ericsson equipment.

> All of the top ten mobile operators useEricsson equipment.

> 30 GPRS networks containing Ericssonequipment were launched.

> Ericsson achieved a 55 percent share of the total number of GPRS networkslaunched.

> The total number of GPRS contractsheld by Ericsson at the end of 2001 was 46.

> 38 commercial agreements for 3Gequipment named Ericsson as a supplier.

> Ericsson’s share of the total number of 3G commercial agreements to date is 56 percent.

> More than 30 operators worldwidereceived 3G systems.

From the radio base stations that transport calls, to the servers that track and manage subscribers, we make the hardware and software required for a person to communicate whilst on-the-move. In 2001, we continued todominate this market, and strengthened our position as the world’s leadingsupplier of mobile systems.



“Last year we talked a lot about 3G. This year we’re actually making it real.”Kidane, shift manager, 3G radio base station production

2001 was a significant year for our GPRS operations, with ourequipment used in 26 of the 47 GPRS networks commerciallylaunched. GPRS is both an enhancement to existing GSMservices and a bridge to next-generation 3G services.

GPRS enables operators to migrate end-users to premiumservices without the need for major network construction.However, its charge-for-data business model represents afundamental change in the way services are managed and billedby operators, with end-users paying for the type and amount ofdata they send and receive rather than the time they are connected.The knowledge and experience we have gained through leadingthe telecommunications industry’s move into GPRS services is invaluable. As 3G will use very similar business models, GPRSis helping to make the commercial platform for 3G networksrobust, efficient and effective.

3G becomes a reality

The roll-out of 3G infrastructure in 2001 was on time, accordingto our schedule, and deliveries started in the summer. Here,timing was key. We needed to develop the capability and capacityto produce large volumes of equipment once orders arrived, butwithout incurring heavy costs for unused production facilities.This fine balance was achieved in all our mobile systems supply

activities. We also narrowed the time between receiving andpaying for components and raw materials, and delivering andinvoicing completed systems. Reducing the ‘time-to-customer’ in this way improved our cash flow and reduced our risk.

The introduction of these production improvements was welltimed, as the volume roll-out of 3G equipment to operators startedin the fourth quarter of 2001. Our radio base stations wereapproved by Japanese operator NTT DoCoMo in November; byyear-end they had been shipped and installed in the Tokyo area. Intotal, we started to ship 3G infrastructure to 30 operators in 2001,and the first commercial launch of a full or predominantly Ericssonsystem is planned by Vodafone/Japan Telecom for July 1, 2002.

We believe the growth of 3G is now dependent on thecommercial availability of – and public demand for – services.For this reason, we are developing the applications and servicenetwork that will enable operators to provide their subscriberswith truly compelling reasons to move to 3G. Devoting resourcesto this area will help grow the market for our infrastructure andour handsets, and create demand for our applications.

At year-end, we were well placed to further extend our leadingposition in the mobile systems industry, and we expect to leadthe supply of 3G equipment to operators as the new generationrolls out in full.

2G1G

The evolution of mobile systems

2.5G 3G

GSM

TDMA/CDPD

CDMA ONE

PDC/PDC-P

ANALOGGPRS

CDMA2000 1X

EDGE

CDMA2000 1XEV

WDCMA

Operators are migrating to new and improved technologies usingdifferent paths. Ericsson understands each key technology in each standard. That means our customers can evolve to meet future demand in the most cost-efficient and cost-effective way.


S t r e n g t h e n i n g o u r l e a d i n w i r e l e s s

GPRS Network

GPRS provides end-

to-end IP connectivity

Enhanced data rates – faster than GSM

A fast-to

-market s

ervice

An

upgr

ade

to G

SM,

not a

repl

acem

ent

Demand for Ericsson applications, services

and tools

GP

RS supports a

wide variety of data and

multim

edia services Alw

ays

on, n

o m

ore

dial

ing

and

wai

ting

Simple and easy to

use

Fast and powerful for all

mobile communication needs

Instant e-mail and multimedia messaging

Potential for real time

information, such as

news or sports results

User only pays for

what they use

Ericsson is theonly company tooffer a complete,

end-to-endsolution

Opportunity to provide services, such as business planning


S t r e n g t h e n i n g o u r l e a d i n w i r e l e s s

GPRS is an enhancement to GSM. It enables end-users to receive andsend much larger amounts of data. End-users simply pay for the amountof data sent and received, rather than the time they are connected. This2.5G mobile data and voice service is delivering a wide range of benefitsfor operators, end-users and Ericsson, and is preparing the way for themove to 3G services.

The 3G service network is where the information required to provide specific services to end-users is located. It is acollection of software-based gateways, servers and applications.The gateways and servers adapt and control the end-users’connections, taking them from the telecommunications networkto the services held and managed on application servers. Bydeveloping these technologies and integrating them into oneseamless network, Ericsson is enabling people to access highlypersonalized and position-based mobile services – includingadvanced personal communication, M-commerce, informationbrowsing and multimedia entertainment – from their 3Ghandsets.

These developments will make handsets of enormous andincreasing importance to users. They will also give operators the potential to increase the value of their services, and in turn,will grow the market for Ericsson’s entire portfolio of 3Ginfrastructure, products and services.

Open standards grow the market

We believe the service network should be based on a set of open standards, rather than proprietary standards created bydifferent operators and suppliers. An open standard is like a shared language – it means all end-users can access services and communicate regardless of what type of access device theyuse, whether it be a PC, a phone or a PDA. It also means

developers can create applications that will connect to and workacross every operator’s network, thereby establishing a muchlarger potential market. With greater potential returns, moredevelopers will be encouraged to create the applications andservices necessary to attract end-users. Those applications andservices will, in turn, attract and retain larger numbers of users,growing the total 3G market for operators and for Ericsson.

In 2001, we used experience gained over many years of driving new wireless standards, such as GSM, Bluetooth and 3G,to bring key 3G businesses together to cooperate. One initiative

M a k i n g 3 G a m u s t - h a v e

The promise of ‘better technology’ will not inspire people to buy a 3G handset.But access to a new world of entertainment, information, transaction andcommunication services will. Through our own applications centers, our collaboration with more than a thousand developers and our portfolio of innovative solutions, Ericsson is transforming 3G from theory to reality.


Key activit ies and achievements in 2001

> Launch of Ericsson Mobility World, 26 centers worldwide helping operators, developers, content providers and enterprizes collaborate on innovative applications and services.

> Launch of Mobile Games Interoperability Forum, with Ericsson, Motorola, Nokia and Siemens working together to enable game developers to produce and deploy mobile games that can work across all servers, networks and devices.

> Launch of Wireless Village interoperability group, with Ericsson, Motorola, and Nokia working together to defineand promote a set of universal specifications for mobile instant messaging and position-based services.

> Support and endorsement of M-Services Initiative, withEricsson and others working to create an effective,open-software standard for Mobile Internet applications under the leadership of the GSM Association.

> Ericsson, Nokia and Motorola support the latest Wireless Application Protocol standard, WAP 2.0, including Multimedia Messaging Services (MMS).

> Creation of partnerships with more than 100 Mobile Internet application developers worldwide.


“People sometimes find the idea of the Mobile Internet really confusing. But when they experience it in action, they want to use it – immediately!”Virginia, technical presenter, Ericsson Mobile Internet Studio

was Ericsson Mobility World, a group of 26 regionaldevelopment and test centers where operators, developers,content providers and enterprizes can discuss issues and inspire one another to create innovative services andapplications. Throughout the year, we also continued to bring our competitors together wherever and whenever we believed collective agreement would allow the overall market opportunity to grow.

Mobile Internet solutions implemented

While cooperation is important, it is also vital that we createefficient and flexible 3G service network solutions for ourcustomers. In 2001, we succeeded in developing and launching a robust solutions framework which enables them to run the many applications required to provide Mobile Internetservices to end-users, and bill them for their usage. Manyoperators employed the solution framework in their GPRSnetwork, and will evolve it to deliver 3G services over time.

In 2001, we also created specific Mobile Internet solutionsacross areas as diverse as messaging, entertainment, mobilecommerce, personalization and portals, charging and mediation,customer and subscriber management and position-basedservices. Our customers, select which services they wish to offerend-users, and we work to create a package of solutions to makethat happen. This approach makes it easy for operators toconcentrate on their core activities – developing and launchingnew services to attract end-users and increase traffic – while wetake responsibility for delivering the services.

Ultimately, it is end-users who will determine the timing and size of the market for every business involved in 3G.We believe the opportunities are enormous, and the roll-out of3G will impact positively on those companies working mostactively to create excellent new services. In helping to lead thedevelopment of applications and the service network, we areensuring that our customers and Ericsson thrive in the new era of mobile communications.

The 0-1-2-3 model

no manual needed personalized homepage max 2 seconds wait never more than 3 stepsaway

Mobile Internet services must be user-friendly. This is why our new GPRS phones follow the 0-1-2-3 principle – you reach what youneed in just three moves.

0 1 2 3



Kim

Receive request for delivery of 20 pallets

Check position of nearest available vehicle

Email details and offer

Receive acceptance

Confirm booking

Send out details to factory

Send out new route to driver

Receive confirmation

Forward order to accounts department

Maria

Check latest sales offers

Locate department store

Find best route to department store

Pay parking meter

Send pictures of jumper to boyfriend

Receive message with choice from boyfriend

Check balance

Pay items

John

Call girlfriend

Book flight

Pay train ticket to airport

Pay drink vending machine

Get latest business news

Buy shares

Check e-mail on arrival

Find flower shop

Pay for flowers

Find streetInfo browsing

M-commerce

Informationdistribution

Personalcommunication



The Mobile Internet has arrived. The four types of key services above are available now from a number of operators. Many more operators willintroduce such services in 2002. Ericsson is developing the applicationsrequired to make these services work for the end-user. By doing so, we are helping our customers to turn GPRS and 3G into strong, revenue-generating business.

Conventional circuit-switched systems cannot accommodate the growing size and diversity of traffic. To thrive in this new erain fixed telecommunications, operators must move to a packet-switched system that is capable of carrying a wide range of dataand voice traffic in more efficient ways. This packet-switchednetwork must be compatible with a range of access devices –including PCs, laptops, servers and fixed-line telephones – and be able to carry traffic from wireless devices.

Our answer to operator needs is ENGINE. This solutionbrings together Ericsson technologies, network integrationcompetence and customer services in one package. ENGINEis designed to meet the operator’s most urgent upgraderequirements and to develop over time into a full multi-servicenetwork.

We now have 70 operator contracts for ENGINE, whichrepresents a 40 percent share of all migration contracts awarded.Our customers include a number of the world’s largest fixednetwork operators.

Despite the growth in new forms of traffic, 2001 was adifficult year for the fixed network market in general. Customersrecognized the logic of developing their networks, but difficultmarkets and high debts required many to focus on voice telephony– an established and immediate source of revenue.

These conditions limited sales but underlined the value ofENGINE’s step-by-step approach to migration. ENGINE worksalongside existing network infrastructure, increasing in scale asand when operators can afford the investments required to grow

their network capabilities. This enabled those customers able to invest some resources in network development to do so, while minimizing their risk.

Our success with ENGINE is supported by the strength of our position in the digital switching market. With more than 500 million AXE lines installed, we have the world’s largestcustomer base in digital switching. Switching equipment worksat the heart of a network, and our AXE products positionEricsson as a vital supplier to many operators.

Despite a difficult and challenging year, our fixed networkbusiness is set to thrive. Traffic is increasing, and demand willgrow further when mobile network operators start to pass theirdata-heavy 3G traffic across fixed multi-service networks. As a result, we expect total market sales for all suppliers in this area to double between now and 2005. Our long-term customerrelationships and the scale, flexibility and technology leadership of our ENGINE and AXE solutions, will enable us to significantlyincrease the value of our share of this growing market.

B u i l d i n g t o m o r r o w ’s n e t w o r k s t o d a y

2001 h ighl ights

> 35 new ENGINE contracts won.

> 70 ENGINE contracts held in total; represents a multi-service migration solutions market share of 40 percent.

> BT in the UK has cut-over a total of 70 switches to ENGINE.

> Customer relationship milestones included:BT – eBusiness quality award Telefónica do Brasil – quality certificatePoland Intertelcom fair – gold medal for best telecommunications solution (ENGINE).

Wireline networks are undergoing a profound shift. Voice telephony remainsfundamentally important, but data traffic is growing substantially as a resultof new activities such as Internet browsing and Mobile Internet messaging.Operators must evolve their networks to benefit from this development –Ericsson’s ENGINE is the world leading solution to this customer need.



“The move to multi-service networks is an enormous step. It’s great to be working so closely with operators when they’re going through such incredible changes.” Johan, head of business unit Multi-service Networks

N e w p r o d u c t s , n e w p a r t n e r

Launched as an operational business on October 1, 2001, SonyEricsson Mobile Communications is a 50-50 owned venture. The company’s activities are focused on product development,industrial design, distribution, sales, marketing and customerservices for mobile consumer products. Its results will bereported both separately and through Ericsson and Sony, as ashare of earnings of joint ventures and associated companies.

Sony Ericsson is built on the unique strengths of its parents.Ericsson leads the R&D of mobile communications technology,owns the most valuable operator customer base for mobile systemsand is at the forefront of the telecommunications industry’sevolution to 3G. Sony has unrivaled multimedia and consumerdesign, marketing and retail distribution skills. Its brand name is recognized by consumers worldwide.

Moving to a replacement-led market

The launch of the new venture takes place at a time of profoundand rapid change in mobile communications. From 2002, weexpect the handset market to be led by replacement purchases – a development driven by the arrival of new services. We forecastthat by 2005 there will be six replacement purchases for everynew subscription.

The handset manufacturers most likely to succeed in thismarket are those who are able to give consumers access to thelatest and largest range of services through the best designed andeasiest to use handsets. With GPRS in place and 3G imminent,games, music, images, M-commerce, and advanced messaging,

data and location-based services will transform the way peopleuse their handsets. Integrated image and entertainmentfunctionality will be particularly strong drivers of sales in 2002.

The introduction of new ways of using handsets is creatingopportunities for the best prepared manufacturers to gain market share. For this reason, Sony Ericsson’s first priority was to focus on product development. By year-end 2001 thecompany had made excellent progress in the development of a range of innovative multimedia products and a powerful new brand.

With an increasing cross-over between the functionality ofmultimedia handsets and other personal, multimedia devices, we also expect to see significant change in handset retailing from2002. We believe Sony’s experience with consumer electronicsand Ericsson’s with operator and service provider distribution,will ensure that new products reach consumers through the mosteffective channels.

Platforms provided by Ericsson

The technology inside many Sony Ericsson handsets will beprovided by our wholly owned subsidiary, Ericsson MobilePlatforms. This supply agreement will create significant incomefor Ericsson and exceptional value for Sony Ericsson. The jointventure can concentrate on its core activities, whilst we continueto supply Ericsson-engineered equipment across every part of a network – a unique offer, highly valued by many of our mobilesystems customers.

“To be the world leader in mobile multimedia products within five years”. Just 12 months ago this declaration would have seemed unduly optimistic –but after a year of transformation, including the launch of Sony EricssonMobile Communications, our ambition is now substantiated and on course.



“This place has the energy and atmosphere of an entrepreneurial start-up, but with the power and experience of Sony and Ericsson behind us.”Lena, assistant to Katsumi Ihara, President of Sony Ericsson (left), pictured with Miho, assistant to Jan Wäreby,Corporate Executive Vice President of Sony Ericsson

Tec

hnol

ogy

lead

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ipEri

csso

n

Consum

er design

expertise

So

ny

Strong in Japan and Asia

Unique end-to-endcapability

Existing PDA and notebook business

Unique multimedia content

Excellent multimedia products

Established retail

distribution

Consum

er marketing

knowledge

Mobile systems

expertise

World-class R&D

Stro

ng in Europe,

Asia and US

Opera

tor d

istrib

ution

channel

Sm

art p

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tech

nolo

gy



Our belief in the joint venture: We believe Sony Ericsson will be the world’s leading supplier of mobile multimedia products within five years. This will be achieved despite a highly competitive and fast-changing market. The unique strengths of Ericsson and Sony have laid a solid foundation for this future success.

Solid foundations in place

It was vital that solid foundations were laid for the long-termsuccess of Sony Ericsson, and prior to the formation of the joint venture our Consumer Products division concentrated on reducing its losses and building the basis for a healthy new business. We took decisive actions to achieve this.Theorganization was right-sized, the product portfolio wasstreamlined, R&D was focused on high-value Mobile Internetproducts, entry-level products were OMD’d and a low-costmanufacturing strategy – including outsourcing – wasimplemented successfully.

These measures have reduced the number of employees from approximately 17,000 at the end of year 2000 to less than5,000 a year later, and reduced expenses by half.

In 2001, GPRS services were introduced for the first time, and this created an opportunity to regain market share lost in previous years. Our improved operations meant we were able to be first to market with a number of innovative products, suchas the R520 – the world’s first commercially available GPRS/Bluetooth handset – and the T68m, the first GSM mobilehandset with a full color screen. In total, we launched five differentGPRS phones during the year.

Early sales indications in the fourth quarter showed verystrong demand for our products. It is important that the newEricsson models – along with Sony’s handsets – prove popularwith customers, as they will form a significant source of revenuefor Sony Ericsson.

Sony Ericsson – designed for the new market

We believe that the changing shape of the handset market willlead to just two or three suppliers dominating this global market. Ericsson is determined to be one of the businesses takingthe greatest share of the market for 3G multimedia terminals – our joint venture with Sony is the best possible way for us toachieve this.

Our expectations of Sony Ericsson are high. We believe thejoint venture will be profitable from 2002 and the industry’s most successful global supplier within five years. It will have toachieve this in a highly competitive market. However, 2001 sawsubstantial progress, and we believe an excellent foundation has been laid for future success.

New product launches in 2001

T65 T66 T68T39



T60

T39 Small phone, thrilling functionality; Bluetooth-enabled, exceptional standby, GPRS. T60 TDMA/CDMA phone; with WAP, voicecontrol and navigation joystick. T65 Simplicity itself; GPRS with one button. T66 Smallest Ericsson phone ever, with enhancedmessaging and international capability. T68 World’s first GSM/GPRS mobile phone with true color display.

Tu r n i n g i d e a s i n t o p r o f i t

Patents and other intellectual property rights (IPR) help us toprotect our proprietary technology from unauthorized use, butEricsson also views its existing and future patents as an importantand growing source of revenue. We continue to trade patentswith key competitors and partners, as this enables us to developproducts containing best-in-class technology without having to pay expensive royalties. However, we are now giving priorityto licensing IPRs that will return profit to our company.

Patent activities take place throughout Ericsson, with morethan 200 experts working within our business units.Approximately 1,000 new patent applications are filed each yearand Ericsson has more than 10,000 granted patents worldwide.This makes us one of the strongest patent holders in thetelecommunications industry.

Concentration on product-related licensing

We have also now established two product-related licensingbusinesses – Ericsson Mobile Platforms and EricssonTechnology Licensing. These organizations are developing and marketing specific components and solutions based onpatented Ericsson technology.

Ericsson Mobile Platforms offers complete 2.5G and 3G technology platforms to manufacturers of mobile phones and other mobile devices. The platforms consist of completehardware and software solutions, including componentspecifications, printed circuit board layout and software. We also offer support and customization services. The technologyis based on Ericsson’s global standardization leadership and our exceptional IPR portfolio for 2.5G and 3G mobile phone systems.

Creating wireless products built on Ericsson mobile platformsis the fastest way for manufacturers to launch competitive

products without making large and unpredictable investments in R&D. The manufacturers are able to concentrate their timeand resources on product differentiators, such as applications,industrial design, distribution and branding. In exchange, we receive a license fee, and a royalty for each platform produced.

We expect the total market for licensed platform solutions to grow from approximately 100 million to more than 300 million units by 2005. Already the key supplier to SonyEricsson, we are now developing revenue-generating licenseagreements with other companies. An agreement has been signedwith LG Electronics for 3G handset platforms.

Ericsson Technology Licensing is currently focused on theshort-range wireless technology Bluetooth. The company createslicense agreements with semiconductor and original electronicequipment manufacturers, enabling them to use our solutions in their products in return for fees and royalties. Some of our key customers for Bluetooth in 2001 were Intel, Philips, ST Microelectronics and Samsung.

Bluetooth capability is now incorporated into products suchas laptops, PCs, printers, PDAs, video cameras, adaptors and, of course, mobile handsets – a potential market of approximately800 million devices by 2005, according to Cahner Instat Group.

Greater protection, greater profitability

Despite our new IPR strategy, we will continue to promote openstandards and share our technology wherever it will grow theoverall market for our products. However, we will also pursueany company who seeks to profit from our technology leadershipwithout providing appropriate compensation. This highly activeapproach will greatly increase our value, as more and moreadvanced telecommunications technologies are required to meetthe demands of operators and end-users.

In 2001 we did more than ever before to protect and capitalize on ourtechnology leadership, using patents, licenses and solutions to help generatethe greatest possible return from our investment in R&D.



“ It takes so much work to create new technology. It’s good to know that our best ideas are protected.” Lillemor, 3G production, Ericsson

Er icsson Patent Port fo l io

> Ericsson holds valuable patentportfolios in 2G, 2.5G and 3G standards.

> We hold more than 50 granted patentsand many more pending patentapplications essential to any supplier’s provision of WCDMA services, makingours the strongest WCDMA patentportfolio in the industry.

> We hold essential patents in other 3Gstandards, such as CDMA2000 and EDGE –we also hold essential patents for manyother standards such as WLAN, ATM, WAP

and Bluetooth.

> We have submitted at least 50 percentmore proposals related to WCDMA

standardization than any other supplier.

> We have 10,000 granted patentsworldwide.

> We filed more than 1,000 patents in 2001.


“The trust placed in us is remarkable. We’re vital to the future of our customers, and that is a big motivation.”Marisa, consultant, Ericsson Global Services, pictured with Juan, consultant, Ericsson Global Services

C a p i t a l i z i n g o n o u r e x p e r t i s e

Our business unit Ericsson Global Services has 20,000 employeesand is organized into four key business lines – network roll-out,customer services, competence development, and telecommanagement and professional services.

Global Services’ leadership position in the telecommunicationsindustry has been established through Ericsson’s firm, long-term commitment to develop internal expertise into high-valueservices for operators. In 2001, Ericsson was the only companyoffering world-class competence across every majortelecommunications standard, both fixed and mobile. We werealso the only services business with the ability to build, operateand manage any network, or to integrate any networktechnology, regardless of the equipment currently in place.

Revenue and relationships return value

Our success in this area returns value to Ericsson in two keyways: first, Global Services is a profitable business unit whichpromises to create strong, ongoing growth. Second, GlobalServices supports and extends our customer relationships by staying in constant touch with operators. Our learning fromthese conversations enables every business unit within Ericsson to develop new solutions that will meet operators’ future needs.

In 2001, an unpredictable telecom market was a considerablechallenge for Global Services. Market conditions and high 3G license costs restricted operators’ activities, and our networkconstruction operations recorded lower growth as a result.Despite this, our network roll-out operations recorded salestwice as large as our two closest competitors combined.

With limited funds for new network construction, manyoperators sought efficiencies and opportunities within theirexisting 2G systems. This created a 50 percent increase indemand for the other key Global Service practices – customerservices, competence development, and telecom managementand professional services. This has grown the scale of our businesssignificantly. For example, our customer support business grew to embrace more than 450 networks worldwide in 2001.

Demand for GPRS expertise

The launch of GPRS also helped drive demand for our expertise.Although GPRS is essentially a technical enhancement of GSM,it requires profound changes in the way operators deliver servicesand make money. Customers employed our telecommunicationsmanagement experts to help design, develop, integrate and introduce new services and new methods for billing andmanaging subscribers. Our professional services experts providedadditional value, advizing operators on customer segmentation,business models, introduction projects and a range of other high-value commercial activities.

We believe operators’ evolution to 2.5G and 3G standardswill increase demand for our wide-ranging integration expertise. GPRS and 3G technologies – including applications,enablers and multivendor configurations – must work withinexisting mobile and fixed network infrastructure, and all newinfrastructure must be fully integrated. Compatibility betweentechnologies enables end-users to move between different systems according to their needs. For example, a 3G handset user

Developing, building and managing the telecommunications network wereonce core activities for all operators. Now, an increasing number are usingexternal experts to manage their network, whilst they focus on their customersand their business performance. In 2001, Ericsson’s Global Services wasentrusted with building or enhancing more networks than any other company.


will be able to send an MMS message to the user of a GSMhandset or talk to a user on a fixed phone, and vice versa. Ourability to manage all systems, components and requirementsacross all standards will prove particularly valuable to operators as they upgrade their networks with 2.5G and 3G systems.

Ericsson is well positioned to meet the challenges of 3G. Our investment in leading R&D across systems, applications and handsets has enabled us to assemble the most complete and advanced set of 3G services available.

The industry’s evolution to 3G is also increasing the numberof operators seeking to outsource their existing networkoperations. Global Services started the year operating 20 entirefixed or mobile telecommunications networks, and added a

further six customers by year-end. Contracts were also signedwith three operators for the entire management of 3Gnetwork operations. As a complementary offering, we also signed our first agreement for environmental take-back services,which gives us full responsibility for recycling outdated infrastructure equipment.

Increasing our value through training

Competence development continued to be a significant activityin 2001. We sold 269,000 training days to the external marketand provided 260,000 training days for the development ofEricsson employees. This area of business is profitable in its ownright, enables our customers to enhance their operations, andhelps Ericsson to anticipate and meet future market needs beforeother suppliers.

Training and competence development also help us toincrease the value of our services. Our 30,000 partners and sub-contractors allow us to take full responsibility for the physicalconstruction and implementation of network equipment, while our employees focus on evolving an evermore valuable set of business, technology and systems skills and expertise.

The growth in scale and value of our Global Services businessunderlines an important development within Ericsson. Today,our core activities are not just the research, development andmanufacturing of telecommunications hardware and software,but also the provision of services to a customer base that isinvesting heavily in the acquisition of knowledge, skills andexpertise. Global Services is driving this development forward.

Global Serv ices in 2001

> Approximately 20 percent of Ericsson’s total infrastructure sales were produced by Global Services.

> Global Services’ business lines in order of volume:

Network Roll-outCustomer ServicesTelecommunications Management & Professional Services Competence Development.

> Global Services’ business lines in order of growth:

Telecommunications Management & Professional ServicesCustomer ServicesCompetence DevelopmentNetwork Roll-out.



Com

pete

nce

deve

lopm

ent

Out

sour

cing

Man

aged

ser

vice

s

Bus

ines

s p

lann

ing

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new

net

wo

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ork hardw

are

supp

ort

Netw

ork software

support

Operator staff technical

training and education

Operat

or sta

ff busin

ess

train

ing a

nd educa

tion

Network evolution

Service availability

monitoring and management

Busin

ess

plann

ing

for e

xist

ing

netw

ork

Technical p

lanning

for existin

g network

Technical planning

for new network

Day-to-day network

management

Network construction

Network migrationNetwork integration

Multivendor and cross-

technology integration

International p

artnership



Global Services is a key part of Ericsson. It turns our expertise intoservices for operators. Our four business lines shown here, enableoperators to develop, enhance and outsource their network activities, and concentrate on their core business. Ericsson Global Services is the world’s leading telecommunications services business.

O u r p e o p l e a n d o u r c u l t u r e

Why is global coverage so important to Ericsson? Very largeoperators are acquiring competitors and moving into new territories in search of economies of scale and commercialopportunities. Our largest customers expect us to help themgrow their business in this way. This trend toward globalizationwill continue, although it slowed in 2001 as operators sought to reduce their debts.

We have positioned our business to help our largest customers compete in this environment. We have an establishedpresence in 140 countries. Each office has developed exceptionallocal knowledge, relationships and expertise in their localmarkets – this provides invaluable support for internationaloperators as they move into these markets.

Of course, local operators remain a significant part of ourcustomer base, and they benefit from our world-class people,products, processes and our economies of scale. They also gainfrom the learning we develop in other markets, and we share and circulate best practises and valuable experiences amongst our customers.

Why sustainability is important

Ericsson continues to believe that an active approach tosustainability creates the best foundation for future business.Ericsson’s commitment to sustainable development has notchanged as a result of the current tough economic conditions.We are in an excellent position to make major contributions –internally and globally – through our work with these issues. Our contribution to information and communications is key to helping the world use resources more efficiently, and is enabling sustainable development to take place worldwide. In 2001, a number of organizations recognized our work, and named Ericsson as a world leader in sustainable actions.

Developing our expertise

We believe knowledge development enhances our scale and reach.In 2001 alone we spent SEK 3 b. on training. This is a majorinvestment that increases our collective expertise, enabling us todevelop better products, to offer premium services to customersand to work more efficiently.

In 2001, we also continued our commitment to thedevelopment of excellence amongst our managers. ‘LeadershipCore Curriculum’ is now a common program for all newEricsson managers throughout the world, and our increasinginvestment in training days for managers is creating efficienciesand a strong culture.

Ericsson University to raise competence levels

In March 2001 we established the Ericsson University – a majornew learning and training initiative to support our strategic focus on knowledge. This has concentrated our many trainingoperations within one body, creating a clear and coordinatedportfolio of learning and skills programs. The university will create cost savings, raise competence levels thoughout thebusiness and inspire a continued commitment to personaldevelopment and performance amongst all employees.

To support our increasing emphasis on performance, we havealso identified 16,000 key contributors worldwide. We are nowensuring that we retain these high performers through a range of programs and rewards, including a new performancemanagement process and stock options. As an incentive to all our employees, Ericsson has also decided to introduce a StockPurchase Plan, were participating employees, within certainlimits, will be offered one free Ericsson share for each share theypurchase during a two-year period, starting 2002.

By constantly improving the ways in which we work, learnand contribute to the world, we are helping Ericsson to extend its position as a leader of the telecommunications industry.

Our customers require a business partner able to provide the highest levels of telecommunications expertise, global coverage and local experience.Ericsson is also expected to have clear commitments to both profitability and sustainability. We are continuously improving our shape, our approachand our performance to meet these needs and expectations.


Susta inabi l i ty mi lestones in 2001

> Ericsson rated ‘The sustainability leader in the communications technologyindustry’ in Dow Jones Sustainability World Index, and leader in the technologymarket sector in the Dow Jones STOXX

Sustainability Index.

> New Code of Conduct launcheddefining the rights and conditions ofpeople involved in all aspects of ourbusiness.

> We became a founding member of the Global eSustainability Initiative, which aims to promote sustainable business practises and applications.

> Ericsson received the first-ever worldwide ISO 14001 certification grantedby BSI for our Environmental Management System, confirming our commitment to combining excellent business practises with environmental leadership.

> Ericsson Response, our initiative to support communications in disaster areas, was active in Algeria, Kenya, Pakistan, Peru, India, and El Salvador.

> The United Nations formally accepted and implemented an end-to-end GSM mobile communications system, developed by Ericsson Response.

For more information, visit:http://www.ericsson.com/sustainability/http://www.ericsson.com/ericssonresponse/


“People come here with an incredible desire to learn. They know that developing expert knowledge and skills is the way forward.”Joe, WCDMA training consultant, Ericsson Training Center

B o a r d o f D i r e c t o r s a n d C o r p o r a t e M a n a g e m e n t

Board of directors

Ericsson’s Articles of Association stipulate that theBoard of Directors shall consist of not less than five and not more than twelve Directors, with notmore than six deputy Directors, elected each year by the shareholders at the annual general meeting. The term of office for a Director is one year, but a Director may serve any number of consecutiveterms. In addition, under Swedish law, employeeshave the right to appoint three Directors (and theirdeputies). The Directors and deputy Directors and the year in which they were appointed Director (as of December 31, 2001) are as below:

1 Lars Ramqvist (born1938)Director 1990. Chairman of the Finance Committeeof the Board. Former CEO of Ericsson. Doctor of Philosophy. Honorary Doctor of Technology.Honorary Doctor of Philosophy. Chairman of theBoards of Skandia and Volvo. Member of theBoards of AstraZeneca and SCA. Member of theRoyal Swedish Academy of Sciences, the RoyalSwedish Academy of Engineering Sciences and the European Round Table of Industrialists. Shares held: LME B 30,206 Convertible debentures: 145,347*

2 Clas Reuterskiöld (born 1939)Director 1994. Chairman of the Audit Committee of the Board. Former President and CEO ofIndustrivärden. Member of the Boards ofIndustrivärden, Sandvik, Skandia and SSAB.Shares held: LME B 50,000

4 Jan Hedlund (born 1946)Director 1994. Employee representative andMember of the Audit Committee of the Board.Convertible debentures: 75,520*

5 Göran Engström (born 1948)Director 1994. Employee representative andMember of the Finance Committee of the Board. Shares held: LME B 4,774 Convertible debentures: 99,120*Employee options**

6 Marcus Wallenberg (born 1956)Deputy Chairman 1996. Deputy Chairman andmember of the Finance Committee of the Board.President of Investor. Deputy Chairman of Saab.Member of the Boards of AstraZeneca, Investor,Scania, Stora Enso and the Foundation of Knut and Alice Wallenberg.Shares held: LME B 352,000

7 Per Lindh (born 1957)Director 1995 (Deputy 1994). Employeerepresentative.

8 Christer Binning (born 1946)Deputy 1994. Employee representative. Shares held: LME B 180Convertible debentures: 145,347*

Corporate Management

3 Kurt HellströmPresident and CEO. Member of theBoard of Atlas Copco.Shares held: LME B 22,692 Convertible debentures: 145,347* Employee options**

Sten FornellExecutive Vice President and Chief Financial Officer Shares held: LME B 176,000Employee options**

Per-Arne SandströmExecutive Vice President and ChiefOperating OfficerShares held: LME B 2,904Convertible debentures: 145,347*Employee options**

Carl Olof BlomqvistSenior Vice President and General Counsel Legal AffairsEmployee options**

Björn BoströmSenior Vice President Supply andInformation TechnologyShares held: LME B 2,228Convertible debentures: 145,347*Employee options**

Roland KleinSenior Vice PresidentCommunicationsShares held: LME B 2,000 Employee options**

Torbjörn NilssonSenior Vice President Marketing andStrategic Business DevelopmentShares held: LME B 23,031Convertible debentures: 145,347*Employee options**

1 2 3 4 5 6 7 8


9 Peter Sutherland (born 1946)Director 1996. Member of the Audit Committee ofthe Board. Honorary Doctor. Chairman of the Boardsof Goldman Sachs International and BP. Member of the Boards of Investor, Royal Bank of ScotlandGroup and the Foundation of the World EconomicForum.

10 Sverker Martin-Löf (born 1943)Director 1993 (Deputy 1991). Member of theRemuneration Committee of the Board. Presidentand CEO of SCA. Member of the Boards ofSkanska, the Confederation of Swedish Enterpriseand the Swedish Forest Industries Ass. Shares held: LME B 8,000

11 Eckhard Pfeiffer (born 1942)Director 2000. Former President and CEO ofCompaq Computer Corp. Chairman of the Board ofIntershop Communications. Member of the Boardsof General Motors, Hughes Electronics, IFCOSystems, Syntek Capital and Biogen. Member ofthe Business Council and the Advisory Board ofDeutsche Bank.Shares held: LME B 15,200

12 Niall FitzGerald KBE (born 1945)Director 2000. Chairman and CEO of Unilever plc.Member of the Board of Merck & Co. Inc.Shares held: LME B 796

13 Monica Bergström (born 1961)Deputy 1998. Employee representative. Convertible debentures: 75,520*

14 Åke Svenmarck (born 1942)Deputy 2000. Employee representative.

15 Göran Lindahl (born 1945)Director 1999. Chairman of the RemunerationCommittee of the Board. D.Sc. hc, PhD. hc. FormerPresident and CEO of ABB Ltd. Chairman designateof Anglo American plc. Member of the Boards ofDuPont, Sony Corporation and Ratos. Member ofthe Salomon Smith Barney International AdvisoryBoard. Shares held: LME A 100,000 and B 50,000

16 Tom Hedelius (born 1939)Director 1991. Deputy Chairman and member of the Finance Committee of the Board. FormerChairman of Handelsbanken, now honoraryChairman. Honorary Doctor of Economics.Chairman of the Boards of Bergman & Beving,Svenska Le Carbone and the Foundation of AndersSandrew. Deputy Chairman of Industrivärden,Addtech and Lagercrantz Group. Member of theBoards of Volvo and SCA. Shares held: LME B 72,616

Apart from Lars Ramqvist, no Director has held any position in the management of Ericsson. No Director has any other principal business activity than the principal directorships listed above and no Director has been elected on accountof any arrangement or understanding with majorshareholder, customer, supplier or other.

Britt ReigoSenior Vice President People and CultureShares held: LME B 12,000Convertible debentures: 145,347*Employee options**

Jan UddenfeldtSenior Vice President TechnologyShares held: LME B 2,756Employee options**

Market Areas

Ragnar BäckExecutive Vice President and Head of Market Area Asia Pacific Shares held: LME B 1,000Convertible debentures: 145,347*Employee options**

Mats DahlinExecutive Vice President and Head of Market Area Europe, Middle East and AfricaShares held: LME B 8,000Employee options**

Gerhard WeiseExecutive Vice President and Head of Market Area AmericasShares held: LME B 27,496Convertible debentures: 145,347*Employee options**

* Convertible debentures1997/2003 with a conversion rate of SEK 59. ** For further information on theoption plans for year 1999, 2000 and 2001, see “Employee Ownership”under “Share Information”.

9 10 11 12 13 14 15 16


B o a r d o f D i r e c t o r s a n d C o r p o r a t e M a n a g e m e n t

S h a r e i n f o r m a t i o n

Stock exchange trading

Ericsson’s Series A and Series B shares are traded on theStockholm stock exchange, Stockholmsbörsen. The Ericssonticker was changed by Stockholmsbörsen on September 10, 2001from LME A and LME B to ERIC A and ERIC B. The Series Bshares are also traded on the exchanges in Düsseldorf, Frankfurt,Hamburg, London and Paris, and on the “Swiss Exchange” inSwitzerland. Ericsson shares are also traded in the United Statesin the form of American Depository Receipts (ADR) onNASDAQ, under the symbol ERICY. Each ADR represents one Series B share.

Ericsson shares have been traded in Euros in Frankfurt and Paris since January 1, 1999. More than 36 billion shares weretraded in 2001. Of this number, about 59 (44) percent weretraded on Stockholmsbörsen, 13.5 (31) percent on NASDAQand 26.5 (24) percent on the London Stock Exchange. Trading on other exchanges amounted to about 1 percent of the total,unchanged from the previous year.

Share price trend

The total market value of the Ericsson share dropped 46 percentin 2001 to SEK 460 billion. Stockholmsbörsen’s OMX indexdecreased by nearly 20 percent during the year. The NASDAQcomposite index decreased by 21 percent and the NASDAQtelecom index decreased by 49 percent in the same period. TheEricsson share decreased by 53 percent on NASDAQ. Thedifference to the development on Stockholmsbörsen is mainlyattributed to currency changes SEK/USD.

Shareholders

In all, about 85 (90) percent of Ericsson’s shares are owned bySwedish and international institutions. At the end of 2001, about52 (44.7) percent of the shares were held in Sweden. 25.4 (28.9)percent of the share were held in the US, 4.7 (5.2) percent in theUK, 4.5 (5.0) percent in Luxembourg, 3.3 (2.5) percent inSwitzerland, 3.0 (4.1) percent in Germany and about 7.1 (9.6)percent in other countries.

Employee ownership

A convertible debenture loan amounting to SEK 6 b. was issuedin 1997 with preferential rights to Ericsson’s employees.Employees who joined Ericsson after October 10, 1997, weregiven an opportunity to purchase convertible debentures issuedby AB Aulis, an Ericsson company.

No officer or Director of the Board owns more than onepercent of the company’s shares. Options have not been grantedto Directors of the Board. The number of options granted toeach officer is classified company information.

Around 2,000 key employees and senior executives weregranted 1.4 million seven-year call-options based on earnings in1999. The size of the allotments was based on our earnings pershare and the individual’s salary and bonus categories.

At an Extraordinary General Meeting in November 1999, it was decided to implement a stock option plan also for year2000. In accordance with this resolution 50.4 million employeeoptions (adjusted for split 4:1) were issued to approximately8,000 employees.


At the 2001 Annual General Meeting it was decided to implement a Global Stock Incentive Program comprising a Stock Option Plan and a Stock Purchase Plan. The entireGlobal Stock Incentive Program requires 155 million new issued shares. This requires a stock issue of 50.4 million shares if all options are exercised.• Under the Stock Option Plan about 15,000 key contributors

will obtain employee options. The options will be granted during the period 2001 and 2002. One hundredtwenty million Ericsson B-shares will be allocated to the Stock Option Plan, including a hedge for social security cashoutflow. During 2001, 47,5 million seven-year employeeoptions were granted.

• Most employees will be invited to participate in the StockPurchase Plan. Participating employees will, during a two-year period, be able to save up to 7.5 percent of the gross salary,not exceeding the equivalent of SEK 50,000 annually, for the purchase of Ericsson B-shares. If the purchased shares areretained by the employee for three years and employment

at Ericsson continues during that time, the employee will be given a corresponding number of shares free of charge.Thirty-five million Ericsson B-shares will be allocated to theStock Purchase Plan, including a hedge for social security cash outflow. The Stock Purchase Plan will be implementedduring 2002.

Share capital

As of December 31, 2001, Ericsson’s share capital amounted toSEK 8,065,504,007 (7,910,335,612) represented by 8,065,504,007shares. The par value of each share is SEK 1.00. As of December31, 2001, the shares were divided into 656,218,640 Series A shares,each carrying one vote, and 7,409,285,367 Series B shares, eachcarrying one-thousandth of a vote.

On April 30, 155,000,000 new Series C shares were issued andlater re-purchased by the Parent company. These shares were laterconverted into 155,000,000 Series B Shares.

During the period January 1 to January 22, 2002, no additionalconversions were made.


S h a r e i n f o r m a t i o n

Share trend Stockholmsbörsen

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250

1997 1998 1999 2000 2001

B-share (SEK)

OMX index

Stockholm

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London

NASDAQ


G l o s s a r y

2GFirst digital generation of mobile systems

2.5GEnhanced mobile system with packet datacapability, allowing an always on connection

3GBroadband radio technology for mobilesystems

3GPP3G Partnership Project – organization workingto develop common standards for 3G

ATMAsynchronous transfer mode – highly flexibletechnology for voice, data and videotransmission

AXEComputer-controlled digital switchingtechnology for large public telephoneswitches

BluetoothRadio technology for short-range device-to-device communications

CDMA, CDMA2000Digital transmission technology for wireless communications, such as between a mobile phone and a base station

CPPCello packet platform – scalable and flexiblesoftware platform for fixed and mobilecomputer infrastructure

EDGEUpgrade for GSM and TDMA systems to 3G data transmission rates

ENGINEEricsson packet-based switching solution for fixed-line networks

Global ServicesEricsson technology and services businessoffering complete telecommunicationsconsultancy

GPRSGeneral packet radio services – high speedwireless technology using packet data system

GSMWorld’s most widely used digital wirelesstechnology

IPInternet Protocol – network address standard,used to send data from one network toanother on the Internet

IPRIntellectual property rights

Information browsingUsing a mobile device to search for publishedinformation

Information distributionEnd-user service where information (general or personalized) can be distributed to a mobile device

ITUThe International Telecommunications Union –a body of the United Nations, responsible fortelecommunications issues

PCPersonal computer

PDAPersonal digital assistant

PDCPersonal Digital Cellular – Japaneese secondgeneration digital mobile telephony standard

M-commerceMobile commerce – secure and personalcommercial transactions carried out through a mobile device, including mobile banking,stock trading and mobile shopping,stimulated (if the user allows) by mobileadvertising

MMSMultimedia Messaging Services – messagecontaining either formatted text, graphics,data, animations, images, audio clips, voicetransmissions and/or video sequences

Mobile networkWireless network for mobile communications,comprising radio base stations, servers andsoftware

Mobile systemsTelecoms network serving mobile/wirelessusers

Service networkAny combination of products, solutions andapplications in the service layer that offersfeatures, and enables end-user services

SMSShort message service – text messages

TDMAWireless digital technology for mobilecommunications

UMTSThird generation digital mobile telephonystandard chosen by European operators.Based on WCDMA technology

WAPUnlicensed protocol for wirelesscommunications

WCDMAWideband (high capacity) digital wirelesscommunications technology

WLANShort range wireless network, usually within a single building

xDSLAchronym used for various technologies for broadband communications in ordinarytelephone networks, for example ADSL

Ericsson Annual Report 2001This document is the Ericsson Annual Report 2001 – Business Review. Together with the Ericsson Annual Report 2001 – Financial Statements it forms the Ericsson Annual Report 2001. If not accompanied by this document, Financial Statements can be ordered from Ericsson Corporate Communications. tel +46 8 719 0000.

Uncertainties in the FutureThis report includes “forward-looking information” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21Eof the US Securities Exchange Act of 1934, as amended, and includes assumptions about future market conditions, operations and results. Thesestatements appear in a number of places and include statements regarding (i) strategies, outlook and growth prospects, (ii) positioning to deliver futureplans and to realize potential for future growth, (iii) liquidity and capital resources and expenditure, (iv) growth in demand, particularly for mobile and fixed telecommunications infrastructure and terminals, (v) economic outlook, (vi) regulation and deregulation of the telecommunications market,(vii) qualitative and quantitative disclosures about market risk, (viii) competition among vendors, (ix) restructuring plans, (x) sales volumes, (xi) researchand development expenditures and (xii) trend information. Although Ericsson believes that the expectations reflected in such forward-lookingstatements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results may differ materially from those set out in the forward-looking statements as a result of:• general economic conditions in markets we operate in and our ability to adapt to rapid changes up or down in market conditions; • political, economic and regulatory developments in markets where we operate, including allegations of health risks from electromagnetic fields

and increasing cost of licenses to use radio frequencies;• management’s ability to develop and execute a successful strategy, including partnerships, acquisitions, divestitures and to manage growth/decline

and to execute cost-reduction efforts;• financial risks, including foreign exchange rate changes, interest rate changes, credit risks regarding business counterparts and risks of confiscation

of assets in foreign countries and risks of insufficient liquidity to execute payments;• the impact of changes in product demand, pricing and competition, including erosion of sales prices, increased competition from existing or new

competitors or new technology and the risk that new products and services may fail to be accepted at the rates or levels we anticipate; • customer structure, where number of customers may be reduced due to consolidations in the industry, and, where the remaining customers

become larger, the negative business consequences of a loss of or significant decline in business with such a customer increases;• cost overruns on significant multi-year fixed price contracts and extended payment terms;• product development risks, including our ability to adopt new technologies, including the Internet, and to develop commercially viable products,

our ability to acquire licenses to necessary technology, our ability to protect our intellectual property rights through patents and trademarks and to defend them against infringement, and results of patent litigation;

• supply constraints, including component- or production capacity shortages, suppliers’ abilities to deliver products in time with good quality, and risks related to concentration of purchases from a single vendor or own or outsourced production in a single facility;

• ability to recruit and retain highly qualified management and other employees.

Project management Ericsson Corporate Communications Design and production SAS Design, London Content team Leonard Rau, Tim RichPhotography Stefan Almers, Enda Bowe, Alexander FarnsworthProduction coordinator Aralia, StockholmReprographics Scarena, Stockholm Printing Christer Persson Tryckeri AB, Köping, Sweden

EN/LZT 108 5524 R1A © Telefonaktiebolaget LM Ericsson 2002

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What are Ericsson’sgreatest strengths?

When will Ericssonand the market return to growth?

What did youget for all the R&D money you spent?

How does yourtechnology leadershipgenerate value?

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