THIRD QUARTER 2015 - Ericsson · THIRD QUARTER 2015 October 23, 2015 This presentation contains forward-looking statements. Such statements are based on our current expectations and

THIRD QUARTER 2015

October 23, 2015

HElena norrman Senior Vice President Communications

THIRD QUARTER 2015

October 23, 2015

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

President and CEO

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© Telefonaktiebolaget LM Ericsson 2015 | THIRD QUARTER REPORT 2015 | OCTOBER 23, 2015 | Page 5

key developments

Market › Strong focus on 5G and Internet of Things (IoT)

› Video continues to be the main driver of network traffic

› Continued currency movements and weaker macro in parts

of the world impact customer investments

Ericsson › Slowdown of 4G deployments in Mainland China

› North America mobile broadband business remained stable

› Stable operating margin, 10% excl. restructuring

› Good momentum in Global Services, 46% of sales

– Network Rollout reached break-even

– Professional Services sales up 15%

› Company transformation continues

– Good growth in targeted areas

– Strengthened position in TV & Media

– Lower cost – Cost and efficiency program progresses as planned

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8%

14%

6%7% 7%

9%

4%6%

9%

0

2

4

6

8

10

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.

Tu

sen

tal

Operating income and margin

-3%0%

-9%

-1%

9%

1%

13%11%

3%

0

20

40

60

80

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.

Net sales and sales development

Net sales

Sales change, YoY

Operating income

Operating margin

Ericsson q3 2015

› Reported sales up 3% YoY

› Organic FX adjusted sales down 9% YoY

– North America, Japan, Russia and Brazil at lower

levels

– Growth in India and South East Asia

› Organic FX adjusted down 2% QoQ

– Networks sales down 6%

– North America stable, slowdown in Mainland China

– Russia, Brazil and parts of the Middle East

impacted by weak macro development

› Operating income, excluding restructuring

charges, improved to SEK 6.1 (4.2) b.

– Improved in all segments

– Operating margin 10% (7%)

– Lower cost and break-even in Network Rollout

2013

2013

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Regional sales Q3 YoY

SEK 57.6 b.

SEK 59.2 b.

-20%

-5% -5%

-2% 4% 10% 5%

2%

25%

81%

Growth driven by currency – adjusted sales down 9%

-10%

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Regional sales Q3 qoq

SEK 60.7 b.

SEK 59.2 b.

-12%

-9% -12%

-7% -2% -3% -1% 1% 4%

11% 19%

Mainland China and the Middle East slowed down

JAN FRYKHAMMAR CFO and Executive Vice President

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13.5

16.114.7 15.6 15.3

17.815.6

17.7

14.9

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b. Operating expenses

32.0%

37.1% 36.5% 36.4%35.2%

36.6%35.4%

33.2% 33.9%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

Gross margin

THIRD quarter

› Gross margin 33.9% (35.2%)

– Higher share of Services, approx. 3%

– Higher restructuring charges

› Gross margin increased QoQ

– Lower restructuring charges

– Partly offset by higher share of Services

› Operating income improved YoY to SEK 5.1 (3.9) b.

– Operating margin 9% (7%)

– Net FX positive, despite negative hedge effect

– Lower cost

– Break-even in Network Rollout

– Restructuring SEK 1.0 (0.3) b.

› Operating expenses, excluding restructuring,

decreased YoY to SEK 14.3 (15.2) b.

– Global cost and efficiency program

– Cost adjustments following lower volumes

– FX a headwind

2013

2013

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Operating Income YoY

6.7%

8.6%

Margin improvements in all segments

7.2%

10.2%

Q3 2015 Q3 2014

SEK b.

3.9 4.2

6.15.1

0.1

0.6

0.4 0.1

0.8

Q314 Reported Excl restr. Networks ProfessionalServices

Network Rollout Support Solutions Modems + Other Excl restr. Q315 Reported

Global Services

op. margin

excl restr. 10%

Q315

op margin

excl

restr. 12%

Op margin

excl

restr. 1%

Exit Modems

business

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-3%

0%

-9%

-1%

9%

1%

13%11%

3%3%4%

-7%

-1%

3%

-2%

-6% -6%

-9%

0

20

40

60

80

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.

Net sales Sales growth (YoY) Sales growth (adj for FX & Hedge)

Sales growth – FX impact

Currency still a tailwind, but to a lesser extent

Sales YoY change, Q3 2015

Reported Organic and FX adj.

Networks -4% -15%

Global Services 11% -2%

Support Solutions 8% -8%

Group 3% -9%

Changed method for translating FX exposure into

SEK for income statement items.

For details on method and currency rates, see

ericsson.com/thecompany/investors 2013

ericsson.com/thecompany/investors



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90.0

100.0

110.0

120.0

130.0

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2014 2015

7.0

7.5

8.0

8.5

9.0

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2014 2015

› USD strengthened vs SEK from Q4 2014

– USD weakened vs SEK in October compared to Q3

Currency movements

› Brazilian Real and Russian Ruble have decreased

>50% vs USD

– Impacting mobile broadband investments in USD

› Global Services, mainly local business

– Impacting when translated to SEK

USD vs SEK USD vs basket of six currencies

Brazilian Real

Indonesian Rupiah

Indian Rupee

Mexican Peso

Russian Ruble

South African Rand

8.3

128

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53.8

+6.8

-4.1-1.1

-1.8-1.5 -0.0 -0.3 -0.2

51.5

40

45

50

55

60

65

Gross Cash1506A

Net Incomereconciled to

cash

Change NetOperating

Assets

Restructuring CAPEX Acquisitions,divestments &

Other

Other financingactivities

Dividend FX on cash Gross Cash1509A

Change in gross cash SEK -2.2 b

Change in gross cash Q3

Increased working capital driven by high share of coverage projects

SEK b.

Investing1

-3.3 b

Financing

-0.3 b

FX on cash

-0.2 bb

Operating Cash Flow

+1.6 b

1) Excluding Short Term investments

Change in net cash SEK -3.7 b. (from SEK 3.5 to -0.2 b.)

HANS VESTBERg

President and CEO

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10%

17%

10%12%

11%13%

2%

8%10%

0

2

4

6

8

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.

Tu

se

nta

l


-1% -1%

-13%

3%

13%

-2%

8% 8%

-4%

0

10

20

30

40

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b. Net sales and sales development

Networks

› Reported sales down 4% YoY


– Decline in all regions except India and South East Asia

› Organic FX adjusted sales down 6% QoQ

– North America stable, slowdown in Mainland China

– Somewhat slower pace in some countries with weak

macro development

– Sales increased in India

› Operating margin, excluding restructuring, 12% (11%)

– Margin improved despite lower sales

– Double-digit margin in 8 out of 9 latest quarters

– Reduced currency hedge losses

– Lower expenses and restructuring

Operating income

Operating margin

Net sales

Sales change, YoY

Ericsson Radio Systems started to ship in the quarter

First lead customer for Hyper scale cloud (HDS) 8000

2013

2013

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0%

5%

10%

15%

0.0

0.5

1.0

1.5

2.0

2.5

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.Operating income and margin

-10%

0%

10%

20%

30%

0

10

20

30

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.Net sales and sales development


– Organic FX adjusted down 2%, as Network Rollout declined

› Professional Services momentum, sales up 15% YoY

– Double-digit growth in eight out of ten regions

– Strong performance across the portfolio

› Operating income, excluding restructuring, improved

YoY to SEK 2.7 (1.7) b.

– Record earnings

– Operating margin was 10% (7%)

– Network Rollout break-even

– Improved earnings in Professional Services

Global services

Global Services

operating income Professional Services

operating margin Global Services

operating margin

Global Services

sales

Global Services

sales change, YoY

Professional Services

sales change, YoY

75 Managed Services contract YTD (54)

2013

2013

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-5%

37%

0%

-13%

-4%

11%

3%

-8%

0%

-0.5

0.0

0.5

1.0

1.5

2.0

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b.

Tu

se

nta

l


-29%

40%

13%

21%30%

-21%

11% 9% 8%

0

1

2

3

4

5

6

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015

SEK b. Net sales and sales developmentSupport solutions



– Continued good development in OSS & BSS

– TV & Media declined

› Organic FX adjusted sales up 7% QoQ

› Operating income and margin improved YoY

– Driven by sales growth in OSS & BSS

– Lower restructuring charges

Net sales

Sales change, YoY

Operating income

Operating margin

Acquire Envivio – global leader in software-based video encoding

Two key TV&Media customer announcements

2013

2013

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› Slowdown of 4G deployments in Mainland China

› Mobile broadband business in North America

remained stable, but at lower level than last year

› Emerging market impacted by weak macro

development

› Global Services – Strong demand for Professional Services

– Double-digit growth in 8 out of 10 regions

› Network Rollout break-even

› Fast pace in company transformation – Global cost and efficiency program on track

– Contributing to lower cost levels in the quarter

– Full-year 2015 restructuring is expected to be ~SEK 5 b.

– Good traction in targeted growth areas

CLOSING REMARKS

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Ericsson Capital markets day November 10, Kista - Stockholm

http://www.ericsson.com/ericsson/investors/events/2015/capital-markets-day-2015.shtml

Latest update on our business and strategy

http://www.ericsson.com/ericsson/investors/events/2013/ericsson-investor-day.shtml






http://www.ericsson.com/ericsson/investors/events/2015/capital-markets-day-2015.shtml

THIRD QUARTER 2015

October 23, 2015

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.

Documents

THIRD QUARTER 2015 - Ericsson · THIRD QUARTER 2015 October 23, 2015 This presentation contains forward-looking statements. Such statements are based on our current expectations and