FIRST QUARTER REPORT 2013 - Ericsson.comfirst QUARTER 2013 April 24, 2013 This presentation contains...

first QUARTER 2013

April 24, 2013

Helena norrman Senior Vice President Communications

first QUARTER 2013

April 24, 2013

This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to certain risks and uncertainties that could negatively affect our business. Please read our earnings reports and our most recent annual report for a better understanding of these risks and uncertainties.

HANS VESTBERg JAN FRYKHAMMAR

President and CEO

CFO and Executive Vice President

© Telefonaktiebolaget LM Ericsson 2013 | FIRST QUARTER REPORT 2013 | April 24, 2013 | Page 5

key developments

› Industry trends

– Networked Society coming to life

– Data and video growth drives demand for mobile broadband and OSS & BSS

– SDN, Cloud, M2M

› Vendor selection processes for 4G/LTE in Russia and China initiated

› Fundamentals for longer term positive development in the industry remain attractive


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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12009 2010 2011 2012 2013

NET SALES

Net sales Q113 Y/Y Q/Q

SEK 52.0 b +2%

-22%

Organic and FX adjusted

Q113/Q112

+7%

› Sales +2% YoY – Organic FX-adjusted sales +7% YoY – Further strengthening of the SEK impacting sales especially

in JPY and USD – High project activity primarily in Europe and North America – CDMA continued to decline – North East Asia had a challenging quarter

› Sales -22% QoQ – Organic FX-adjusted sales -19% QoQ – High project activity in North America and South East Asia – Lower sales in North East Asia

SEK b


Profitability

Net income

Q113 Y/Y Q/Q

SEK 1.2 b -86%

- 1EPS, diluted, excl. amortizations, write-downs of acquired intangible assets and restructuring. Q112 excludes a gain from the divestment of Sony Ericsson of SEK 7.7 b.

› Underlying profitability improved YoY – Operating margin including JV, excluding restructuring

charges for reduction of operations in Sweden, 6.7%

› Net income SEK 1.2 (8.8) b. – Sony Ericsson gain Q112 SEK 7.7 b. – Restructuring charges SEK 1.8 (0.6) b., of which

reduction of operations in Sweden SEK 1.4 b. – No result from ST-Ericsson included in Ericsson’s result,

SEK 0.0 (-1.4) b. – Negative currency effect

› EPS diluted, SEK 0.37 (2.76)

› EPS Non-IFRS1, SEK 0.99 (0.77) Net income

EPS, diluted

Net income excl. ST-Ericsson charge

Net income incl. divestment of Sony Ericsson

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

-8

-6

-4

-2

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10

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

2009 2010 2011 2012 2013

SEK SEK b


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0%

5%

10%

15%

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25%

30%


2009 2010 2011 2012 2013

0123456789

10

North America North E Asia S East Asia Oceania

Q112 Q412 Q113

Networks

Operating margin

Q113 +6% Q112 +6% Q412 +8%

SEK b

SEK b

› Organic FX-adjusted sales, 7% YoY – High mobile broadband deployment levels in the US and

Indonesia – Continued decline in CDMA -42% to SEK 1.3 b.

› Sales -20% QoQ – Continued structural decline of GSM sales in China – Declining sales in Japan – mainly currency effect – High business activity in North America

› Operating income, SEK 1.6 (1.6) b. – Significant restructuring charges of SEK 1.3 (0.1) b. – Lower underlying operating expenses – Gradually decreasing negative effects from network

modernization projects in Europe

› Operating margin flat YoY at 6%

Net sales

Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges

Sales Q113 Y/Y Q/Q

SEK 28.1 b +3%

-20%

Networks sales

Networks Operating margin


Networks

› Good momentum for the SSR routing platform – 51 contracts signed since launch, of which 12 in Q1

› LTE Radio Access deployments drive demand for HSPA, packet core, and VoLTE

– >100 Evolved Packet Core (EPC) contracts won

› Higher adoption rate for software features

› Continued focus on profitability

Operating margin

Q113 +6% Q112 +6% Q412 +8%

SEK b

SEK b

Net sales


Sales Q113 Y/Y Q/Q

SEK 28.1 b +3%

-20%

Networks sales

Networks Operating margin

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0%

5%

10%

15%

20%

25%

30%


2009 2010 2011 2012 2013

0123456789

10

North America North E Asia S East Asia Oceania

Q112 Q412 Q113


0%

5%

10%

15%

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25%

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North America Latin America Mediterranean

Q112 Q412 Q113

Global services

› Sales up 4%, organic and FX adjusted, up 9% YoY

› Professional Services sales, -2% YoY – Negatively impacted by FX – IS/IT related business getting traction – Continued underlying good momentum

› Managed Services sales, 3% YoY – 21 (9) contracts signed in Q1 – Multi-country contract in Sub Saharan Africa – Major contracts in India and Russia

› Network rollout sales, 19% YoY – Network rollout activity high in Europe and North America

› Sales -24% QoQ – Lower activity in North East Asia and Latin America

Global Services Operating margin Q113 +3% Q112 +6% Q412 +6%

Sales Q113 Y/Y Q/Q

SEK 21.5 b +4%

-24%


SEK b

Net sales SEK b

Network Rollout sales

Managed Services sales

Professional Services sales excl. Managed Services sales

Professional Services Operating margin

Global Services Operating margin


Global services

› Operating income, SEK 0.7 (1.3) b. – Increased losses in Network Rollout SEK -1.1 (-0.6) b.

› European network modernization projects › Additional project costs due to delayed LTE rollouts

in Latin America – Restructuring charges from ongoing service delivery

strategy execution SEK 0.4 (0.5) b.

› Operating Margin 3% (6%) – Professional Services operating margin 13% (13%)

› Stable development YoY – Network Rollout operating margin -16% (-11%)

Global Services Operating margin Q113 +3% Q112 +6% Q412 +6%

Sales Q113 Y/Y Q/Q

SEK 21.5 b +4%

-24%


SEK b

Net sales SEK b

Network Rollout sales

Managed Services sales

Professional Services sales excl. Managed Services sales

Professional Services Operating margin

Global Services Operating margin

0%

5%

10%

15%

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25%

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North America Latin America Mediterranean

Q112 Q412 Q113


-20%

-10%

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10%

20%

30%

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2009 2010 2011 2012 2013

0.0

0.2

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0.8

1.0

North America Latin America India

Q112 Q412 Q113

Support solutions

› Sales, organic and FX adjusted, -3% YoY – IPX divested Q312 – Media Management sales declined partly due to

technology shift in compression portfolio

› Sales -33% QoQ

› Operating Margin -1% (-1%) – Negatively impacted by lower sales volumes and

restructuring charges – Positive contributions from effciency improvements and

portfolio streamlining

› Strengthening portfolio – Intention to acquire Microsoft’s TV solution business

Mediaroom Operating margin

Q113 -1% Q112 -1% Q412 +8%

Sales Q113 Y/Y Q/Q

SEK 2.4 b -19% -33%

SEK b

SEK b


Net sales

Support Solutions sales

Support Solutions Operating margin


Q1 Regional sales

Latin America › Negative impact from delays in LTE

rollouts caused by license issues

› Partly offset by growth in OSS and BSS

North East Asia › Lower business activity mainly due

to lower sales in South Korea, continued structural decline in GSM in China and FX effects in Japan

South East Asia and Oceania › Sales continued on a high level

› Simultaneous mobile broadband deployments in Indonesia, Australia and Thailand

Mediterranean › Network modernization projects and

high project activity in France and Northwest Africa

› Macroeconomic development remained weak in parts of region

Middle East › Initial LTE deployments ongoing

› Good Professional Services, OSS and BSS demand

› Political unrest prevails

Sub-Saharan Africa › Momentum for Managed Services,

a multi-country contract signed

› Mobile broadband charging developed well

India › Operator spending remains cautious

› Continued momentum for Managed Services, a major contract signed

Q113 Y/Y Q/Q

SEK 15.8 b +23%

-7%

Q113 Y/Y Q/Q

SEK 4.4 b -9%

-33%

Q113 Y/Y Q/Q

SEK 2.3 b 0%

-24%

Q113 Y/Y Q/Q

SEK 4.3 b +1%

-20%

Q113 Y/Y Q/Q

SEK 5.3 b +14% -25%

Q113 Y/Y Q/Q

SEK 3.2 b 0%

-38%

Q113 Y/Y Q/Q

SEK 2.1 b -3%

-40%

Q113 Y/Y Q/Q

SEK 1.6 b +13%

0%

Q113 Y/Y Q/Q

SEK 6.1 b -34% -41%

Q113 Y/Y Q/Q

SEK 4.1 b +22%

-9%

North America › Continued high activity levels with

peaking volumes in one of the large coverage projects

› CDMA sales continued to decline

Other › Licensing revenues continued to

show stable development

› IPX divested end of Q3 2012

Q113 Y/Y Q/Q

SEK 2.9 b +2% -3%

Northern Europe and Central Asia › LTE vendor selection process in

Russia initiated, likely leading to initial deployments towards the latter part of 2013 or early 2014

Western and Central Europe › Execution of network modernization

projects continued

› Several new Managed Services contracts signed

JAN FRYKHAMMAR CFO and Executive Vice President


26%

28%

30%

32%

34%

36%

38%

40%

42%


P/L comments

Gross margin

Business mix – coverage/capacity

Modernization projects in Europe

Service share

Drivers


Business mix key to gross margin dynamics

› Gross Margin declined YoY to 32.0% from 33.3% – Lower Network Rollout margin – Higher restructuring charges – Partly offset by gradually declining effects from European

network modernization projects

› Business mix – With present visibility of customer demand and current

global economic development, we continue to believe that the underlying business mix will start to gradually shift towards more capacity projects during the second half of 2013

– Negative impact from network modernization projects in Europe will continue to gradually decline during 2013


3%

6%

13%

25%

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100%

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02468

1012141618


P/L comments

› Restructuring charges SEK 1.8 (0.6) b. – SEK 1.4 b. related to reduction of operations in Sweden – Continued move of service delivery local resources to Global Centers

› Operating expenses SEK 14.5 (14.2) b. – Excluding acquistions, divestments and restructuring charges down -

6%

› Negative impact from currency effects

› Operating income including JV, SEK 2.1 (9.1) b. – Underlying operating margin, excl. restructuring charges related to

reduction of operations in Sweden, was 6.7% – Sony Ericsson gain Q112 SEK 7.7 b. – New hedge accounting – separate briefing May 2

› Financial net, SEK -0.4 (0.0) b. – Negative currency revaluation effects – devaluation in Venezuela – Increased interest expenses on pension plans

R&D

SG&A

SEK b

SEK b

Operating margin excl JVs

Operating income excl JVs EBITA margin excl JVs



St-ericsson q1 › Strategic way forward for ST-Ericsson decided

on March 18, 2013 – ST-Ericsson will be split between parent companies

› Ericsson to take design development and sales of LTE multi-mode thin modem business products

› ST-Microelectronics to take existing ST-Ericsson products and business, other than the multi-mode thin modems

› Remaining parts of ST-Ericsson will be closed down – Formal transfer to parents is expected during Q313 – From completion of integration of the thin modem business the

operation will be reported as a standalone business segment. › Current best estimate for Q413 is loss of approximately SEK

0.5 b., primarily related to R&D expenses

› No result from ST-Ericsson included in Ericsson’s result, SEK 0.0 (-1.4) b.

– Provision made in Q412 of SEK 3.3 b. to cover for costs related to implementation of strategic option

– Ericsson net liability SEK 2.8 b. – in line with plan

› Focus on continued execution and engagement with customer development teams during transition


117

133

109

88101 99

106

91104

111101

86

108

7581 82

7487 89 91

7888 84 82

73 76

59 61 62 6270 68 67 62 64 63 59 57 55

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12010 2011 2012 2013

› Inventory increased to SEK 29.8 (28.8) b. – High business and project activity – ITO from 73 to 76 days

› Payable Days declined from 57 to 55 days – Following high volumes in Q412

› Provisions increased SEK 0.9 b. – Due to restructuring of operations in Sweden

› Trade receivables increased QoQ to SEK 65.1 (63.7) b. – High business and project activity – DSO increased from 86 to 108 days

› Customer financing decreased slightly to SEK 5.0 b. from 5.3 b.

Balance sheet comments

Days

DSO

Inventory days

Payables days

DSO target <90 days

Inventory days target <65 days

Payable days target >60 days


76.7 +1.6

-4.2 -0.3-1.5 +0.0 -0.2

72.1

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65

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Gross Cash 1212A Net Incomereconciled to cash

Change NetOperating Assets

Restructuring Investing Activities Financing activities FX on cash Gross Cash 1303A

Change in gross cash SEK -4.6 b

Change in gross cash Q113

Change in net cash -6.3 b SEK (from 38.5 to 32.2 b SEK)2

1 Excluding Short term investments 2 Net cash is affected by -1.8 b. SEK caused by change in accounting regulation (related to pension)

Investing1 -1.5 b

Financing +0.0 b

FX on cash -0.2 b

Operating Cash Flow -3.0 b


Focus going forward

Strategy execution – profitable growth

Cost and efficiency

Technology and services leadership


Q&A

first QUARTER 2013

April 24, 2013

This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to certain risks and uncertainties that could negatively affect our business. Please read our earnings reports and our most recent annual report for a better understanding of these risks and uncertainties.

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