6-K
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

July 18, 2017

Commission File Number

000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F  ☒ Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Announcement of LM Ericsson Telephone Company, July 18, 2017 regarding “Ericsson reports second quarter results 2017”.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)
By:  

/s/     NINA MACPHERSON        

  Nina Macpherson
  Senior Vice President & Chief Legal Officer
By:  

/s/    HELENA NORRMAN        

  Helena Norrman
  Senior Vice President
  Corporate Marketing & Communications Officer

Date: July 18, 2017


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LOGO

SECOND QUARTER 2017

Stockholm, July 18, 2017

 

SECOND QUARTER HIGHLIGHTS

  

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   Reported sales decreased by -8% YoY. Sales, adjusted for comparable units and currency, decreased by -13% YoY. The RAN equipment market for 2017 is estimated to show a high single-digit percentage decline compared with previous estimate of -2% to -6%.    2
   Gross margin was 27.9% (32.3%). Gross margin, excluding restructuring charges, was 29.8% (33.2%).    3
   Operating income was SEK -1.2 b. Operating income, excluding restructuring charges was SEK 0.3 b., with a YoY decline in all segments.    4
   Networks operating margin was 7%. Operating margin, excluding restructuring charges, declined to 10% (13%) negatively impacted by continued lower software sales.    6
   IT & Cloud operating income was negatively impacted by less capitalization of development expenses QoQ and YoY.    7
   Planned cost reduction activities will be accelerated, due to current market environment, to achieve an annual run rate reduction of at least SEK 10 b. by mid-2018.    2
   The company sees an increased risk of further market and customer project adjustments with an estimated negative impact on operating income of SEK 3-5 b. for the coming 12 months.    2
   Due to technology and portfolio shifts capitalization of costs will be reduced and is estimated to result in a net negative impact on operating income of SEK -2.9 (1.3) b. in the second half 2017, with no impact on cash.    2
   Cash flow from operating activities was SEK 0.0 (-0.7) b.    9

 

SEK b.

   Q2
2017
    Q2
2016
    YoY
change
    Q1
2017
    QoQ
change
    6 months
2017
    6 months
2016
 

Net sales

     49.9       54.1       -8     46.4       8     96.3       106.3  

Net sales adjusted for items affecting comparability in Q1 2017

     49.9       54.1       -8     47.8       4     97.7       106.3  

Sales growth adj. for comparable units and currency

     —         —         -13     —         9     -15     -4

Gross margin

     27.9     32.3     —         13.9     —         21.2     32.8

Gross margin excluding restructuring charges and adjusted for items affecting comparability in Q1 2017

     29.8     33.2     —         30.5     —         30.1     33.6

Operating income

     -1.2       2.8       -145     -12.3       -90     -13.6       6.2  

Operating income excluding restructuring charges and adjusted for items affecting comparability in Q1 2017

     0.3       3.8       -93     1.1       -74     1.4       7.9  

Operating margin

     -2.5     5.1     —         -26.6     —         -14.1     5.9

Operating margin excluding restructuring charges and adjusted for items affecting comparability in Q1 2017

     0.6     7.0     —         2.3     —         1.4     7.4

Net income

     -1.0       1.6       -164     -10.9       -91     -11.9       3.7  

EPS diluted, SEK

     -0.30       0.48       -163     -3.29       -91     -3.59       1.08  

EPS (non-IFRS), SEK1)

     0.17       0.83       -80     -2.42       -107     -2.25       1.70  

Cash flow from operating activities

     0.0       -0.7       -100     -1.5       -100     -1.5       -3.1  

Net cash, end of period

     24.0       21.0       14     28.3       -15     24.0       21.0  

 

1) EPS diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges.

Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

1      Ericsson  |  Second Quarter Report 2017


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CEO COMMENTS

We are not satisfied with our underlying performance with continued declining sales and increasing losses in the quarter. Execution of our focused business strategy is gaining traction. However, in light of current market conditions, we are accelerating the planned actions to reduce costs.

Sales adjusted for comparable units and currency declined by -13%. Based on the development in the first half of the year, our current view of the Radio Access Network (RAN) equipment market outlook is in line with external estimates of a high single-digit percentage decline for the full year 2017.

Considering the current market environment, the company position, and the more focused business strategy, we continue to assess risk exposure in ongoing contracts. Depending on the outcome, we see an increased risk of further market and customer project adjustments, which would have a negative impact on results, estimated to SEK 3-5 b. for the coming 12 months, of which 30% is estimated to impact cash.

Due to technology and portfolio shifts we will reduce the capitalization of product platform, software release development expenses and hardware costs. Together this is estimated to result in a net negative impact on operating income of SEK -2.9 (1.3) b. in the second half of 2017, with no impact on cash. This is to be compared with SEK -0.3 (1.2) b. of total impact on operating income in the quarter.

One key component in our focused business strategy is to reduce costs and increase efficiency. In light of the current market outlook, we will accelerate our actions to ensure that we can meet our target of doubling the 2016 operating margin beyond 2018. Actions will be taken primarily in service delivery and common costs and do not include R&D. Our plan is to implement cost savings with an annual run rate effect of at least SEK 10 b. by mid-2018, of which approximately half will be related to common costs.

The decline in the Networks result in the quarter was mainly caused by lower software sales, driven by two key factors; unusually strong software sales in the second quarter last year and cautious mobile broadband investment levels. On the positive side, we were ranked number one in radio by a leading global operator.

Performance improvements in Networks will be generated through both the continued ramp-up of Ericsson Radio System (ERS) and cost reductions, mainly in service delivery. The ERS continues to prove its competitiveness and now represents 49% of radio unit deliveries in the quarter. During the quarter, we announced a break-through contract to support Vodafone UK to evolve its 4G network and to provide 5G radio technology. To safeguard a future leading portfolio, we have started to increase R&D investments in Networks with a total increase of SEK 0.2 b. in the quarter. In line with our more focused strategy, we signed an agreement in the quarter to divest the power modules business.

The work to refocus our Managed Services business to improve profitability is well underway. So far, we have identified 42 contracts, with sales of SEK 7 b. in 2016, which we will either exit, renegotiate or transform. To date, we have either exited, renegotiated or transformed nine of these contracts resulting in an annualized profit improvement of approximately SEK 140 million going forward.

IT & Cloud had another challenging quarter with significant losses. The sequential increase in losses is largely explained by lower capitalization of R&D expenses. Gross margin continued to be negatively impacted by large digital transformation projects.

Our IT & Cloud business is of strategic importance as our customers are preparing for 5G and will digitalize their operations and invest in a future network architecture based on software-defined logic. A key driver of performance in the business is the success of our new product portfolio, for which the rolling 12 month sales have grown 7%.

We are taking firm actions to improve performance in IT & Cloud, including stabilizing product roadmaps, addressing underperforming customer projects, improving new project delivery scoping and reducing costs, primarily in service delivery.

The operating income in our Media business improved sequentially as a result of increased sales, improved business mix and reduced costs. We continue the work to explore strategic opportunities for the Media business.

In this report, we have included a table on page 4 to track progress in the execution of our focused business strategy.

In light of current market environment and company performance, we are accelerating actions to reduce costs. Our focused business strategy is designed to take us back to technology and market leadership and improve company performance, also in a tough market. We see initial signs of traction in strategy execution including increased investments in R&D in Networks and ramp up of deliveries of Ericsson Radio System, increasing our competitiveness in the market.

Börje Ekholm

President and CEO

 

 

2      Ericsson  |  Second Quarter Report 2017


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FINANCIAL HIGHLIGHTS

 

SEK b.

   Q2
2017
    Q2
2016
    YoY
change
    Q1
2017
    QoQ
change
    6 months
2017
    6 months
2016
 

Net sales

     49.9       54.1       -8     46.4       8     96.3       106.3  

Of which Networks

     36.8       40.2       -8     34.9       6     71.7       80.2  

Of which IT & Cloud

     10.9       11.5       -5     9.5       14     20.4       21.3  

Of which Other

     2.2       2.4       -6     2.0       13     4.2       4.8  

Gross income

     13.9       17.5       -20     6.4       116     20.4       34.9  

Gross margin (%)

     27.9     32.3     —         13.9     —         21.2     32.8

Research and development expenses

     -8.4       -7.4       13     -9.1       -8     -17.4       -14.9  

Selling and administrative expenses

     -7.1       -7.1       -1     -9.9       -28     -16.9       -13.8  

Other operating income and expenses

     0.2       -0.2       -204     0.1       70     0.4       0.0  

Operating income

     -1.2       2.8       -145     -12.3       -90     -13.6       6.2  

Operating margin

     -2.5     5.1     —         -26.6     —         -14.1     5.9

for Networks

     7     12     —         -2     —         3     13

for IT & Cloud

     -26     -13     —         -94     —         -58     -17

for Other

     -44     -20     —         -143     —         -90     -16

Financial net

     0.1       -0.5       -112     -0.4       -114     -0.4       -1.0  

Taxes

     0.2       -0.7       -126     1.9       -91     2.1       -1.6  

Net income

     -1.0       1.6       -164     -10.9       -91     -11.9       3.7  

Restructuring charges

     -1.5       -1.0       48     -1.7       -13     -3.3       -1.7  

 

 

PLANNING ASSUMPTIONS GOING FORWARD

Market related    

 

  Based on the development in the first half of the year, the company’s current view of the Radio Access Network (RAN) equipment market outlook is in line with external estimates of a high single-digit percentage decline for the full year 2017. This is to be compared with the company’s previous estimate of -2% to -6%.

Ericsson focused strategy related

 

  Addressing low-performing operations in Managed Services and optimizing the offering in Network Rollout are expected to reduce full-year sales by up to SEK 10 b. by 2019.

 

  The plan is to implement cost savings with an annual run rate effect of at least SEK 10 b. by mid-2018, split 50/50 between service delivery and common costs (G&A, IT, real estate etc).
  The company aims to increase R&D efficiency. However, R&D expenses will increase short term, primarily in Networks.

 

  Restructuring charges for 2017 are estimated to be in the higher end of the range SEK 6-8 b.

 

  The company sees an increased risk of further market and customer project adjustments, which would have a negative impact on results, estimated to SEK 3-5 b. for the coming 12 months, of which 30% is estimated to impact cash.

 

  Reduced capitalization of development expenses and hardware costs is expected to result in a net negative impact on operating income of SEK -2.9 (1.3) b. in second half 2017, with no impact on cash.

Other Ericsson related

 

  The earlier communicated rescoped managed services contract in North America will impact sales negatively YoY in Q3 2017.

 

  Industry trends and business mix in mobile broadband in 2016 are expected to prevail in 2017.
 

 

Q1 items affecting comparability:

Net sales: Provisions and adjustments (SEK 1.4 b.)

Gross income: Restructuring charges (SEK 1.5 b.), and provisions and adjustments (SEK 6.7 b.)

Operating income: Restructuring charges (SEK 1.7 b.), asset write-downs (SEK 3.3 b.) and provisions and adjustments (SEK 8.4 b.)

Net sales

Sales as reported decreased by -8% YoY. The mobile broadband market remained weak in the quarter. Networks sales, adjusted for comparable units and currency, declined by -14% YoY, driven mainly by lower sales in market areas Europe & Latin America and Middle East & Africa.

Sales in North America declined YoY mainly due to the earlier communicated rescoped managed services contract effective as from Q4 2016. Sales in North East Asia declined slightly YoY. Sales in Mainland China were negatively impacted by lower Networks sales, partly offset by increased IT & Cloud sales.

Networks sales in Japan and South Korea increased. Sales in market area South East Asia, Oceania and India were stable YoY with growth in Vietnam and Australia while investments in India continued to decline.

As anticipated, sequential sales growth was below normal seasonality, following continued low investments in mobile broadband. Sales increased by 8% QoQ. Sales in Q2 compared with Q1 sales, adjusted for items affecting comparability, increased 4%.

Total sales of Managed Services, as defined in 2016, including Broadcast Services, were SEK 6.3 (7.3) b. The decline mainly refers to the earlier communicated rescoped managed services contract in North America. The definition of Managed Services will be adjusted in 2018, at the latest, to mirror the new organization.

 

 

3      Ericsson  |  Second Quarter Report 2017


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IPR licensing revenues

IPR licensing revenues declined YoY to SEK 2.0 (2.2) b. IPR licensing revenues were flat QoQ.

Gross margin

Gross margin declined to 27.9% (32.3%). Gross margin, excluding restructuring charges, declined to 29.8% (33.2%) with lower gross margin in all segments.

Gross margin increased sequentially to 27.9% from 13.9%. Gross margin adjusted for items affecting comparability in Q1 and excluding restructuring charges in Q2 declined slightly to 29.8% from 30.5%, mainly due to lower gross margin in Networks.

Operating expenses

Operating expenses increased to SEK 15.4 (14.5) b. Operating expenses, excluding restructuring charges, increased to SEK 14.8 (14.0) b. due to increased R&D expenses. R&D expenses, excluding restructuring charges, were SEK 8.0 (7.0) b. mainly due to less capitalized development expenses with a net impact of SEK -0.4 (0.7) b. Selling and administrative expenses, excluding restructuring charges, declined to SEK 6.8 (7.0) b. YoY, despite a negative currency effect.

Operating expenses declined sequentially to SEK 15.4 b. from SEK 18.9 b. Operating expenses, excluding restructuring charges and items affecting comparability in Q1 increased to SEK 14.8 b. from SEK 13.7 b., mainly due to seasonality and lower capitalization of development expenses.

The net effect on operating expenses of capitalized development expenses and related amortizations was SEK 0.2 b. in Q1 and SEK -0.4 b. in Q2.

Other operating income and expenses

Other operating income and expenses improved both YoY and QoQ. Several minor items contributed to the SEK 0.2 b. of other operating income and expenses in Q2 2017. The revaluation and realization effects of currency hedge contracts, impacting other operating income and expenses, were SEK 0.0 (-0.5) b.

As of Q1 2017, the funding of foreign exchange forecast hedging is managed through foreign exchange loans (USD) instead of foreign exchange derivatives. Therefore, as of Q1 2017, revaluation and realization effects of SEK 0.3 b. are included in financial expenses instead of in other operating income and expenses.

Restructuring charges

Restructuring charges were SEK -1.5 (-1.0) b. Restructuring charges were SEK -1.7 b. in Q1 2017. For full-year 2017, the restructuring charges are estimated to be in the higher end of the range SEK 6-8 b.

Operating income

Operating income decreased to SEK -1.2 (2.8) b. Operating income, excluding restructuring charges, declined to SEK 0.3

(3.8) b. due to lower gross margin, lower sales and increased operating expenses.

Operating income improved sequentially from SEK -12.3 b. Operating income, excluding restructuring charges and items affecting comparability in Q1 2017, decreased to SEK 0.3 b. from SEK 1.1 b. due to increased operating expenses.

Changes in treatment of cost going forward

Due to technology and portfolio shifts the company will reduce the capitalization of product platform, software release development expenses and hardware costs. This is estimated to result in a net negative impact on operating income of SEK -2.9 b. in the second half of 2017, with no impact on cash. The total impact on operating income in the quarter amounted to SEK -0.3 (1.2) b.

Financial net

Financial net improved both YoY and QoQ, mainly due to positive revaluation and realization effects of currency hedge contracts of SEK 0.3 b., and positive currency revaluation effects of SEK 0.2 b. The SEK strengthened against the USD between March 31, 2017 (SEK/USD rate 8.93) and June 30, 2017 (SEK/ USD rate 8.46). The hedge balance is in USD.

Taxes

Taxes were positive in the quarter following the negative income.

Net income and EPS

Net income and EPS diluted decreased YoY following the reduced operating income. EPS diluted was SEK -0.30 (0.48) and EPS (non-IFRS) was SEK 0.17 (0.83). Net income and EPS diluted improved QoQ following the improved operating income.

Employees

The number of employees on June 30, 2017 was 109,127 - a reduction of more than 7,000 employees in 12 months.

Focused strategy execution

The company has so far identified three indicators to measure the progress of strategy execution. KPIs for cost reduction will be added later.

 

Area

  

Activity

  

Status Q2 2017

Networks    Transition to new Ericsson Radio System    49% (ERS radio unit deliveries out of total)
IT & Cloud    Growth in sales of new product portfolio    Net sales growth of 7%, rolling 12 months
Managed
Services
   Addressing low-performing contracts    Out of 42 contracts identified, 9 have been renegotiated to result in an annualized future profit improvement of SEK 0.1 b.

In addition, the company announced in the quarter that it has signed an agreement to divest its power modules business.

 

 

4      Ericsson  |  Second Quarter Report 2017


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MARKET AREA SALES

 

     Second quarter 2017      Change  

SEK b.

   Networks      IT &
Cloud
     Other      Total      YoY     QoQ  

South East Asia, Oceania and India

     6.3        1.3        0.1        7.7        0     -3

North East Asia

     4.1        1.7        0.0        5.9        -3     5

North America

     10.0        2.1        0.5        12.5        -7     5

Europe and Latin America

     10.5        3.9        0.9        15.2        -11     20

Middle East and Africa

     4.2        1.8        0.1        6.0        -17     11

Other 1)

     1.8        0.2        0.7        2.7        0     -8
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     36.8        10.9        2.2        49.9        -8     8
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

1)  Market Area “Other” includes licensing revenues, power modules, mobile broadband modules, Ericsson-LG Enterprise and other businesses.

 

South East Asia, Oceania and India

Sales were stable YoY. A negative impact from reduced Networks services sales was offset by mobile broadband growth in Vietnam and increased IT & Cloud sales, driven by the delivery of a core network project in Australia. Sales in India were still impacted by consolidations and tariff competition between operators.

North East Asia

Sales declined slightly YoY. Sales in Mainland China declined due to continued reduced investments by one customer, partly offset by increased IT & Cloud sales. Networks sales in Japan and South Korea increased.

North America

North America sales declined YoY, mainly due to the earlier communicated rescoped managed services contract. IT & Cloud sales declined due to fewer project milestones in the quarter. Mobile broadband infrastructure sales remained at a stable level. All major operators’ 5G trials are ongoing with good momentum.

Europe and Latin America

Sales declined YoY, reflecting capex constraints in Europe where 4G modernizations are largely completed. In addition, sales declined in Mexico and South America. The decline was partially offset by increased mobile broadband investments in Brazil and timing of deployments in Russia. In the quarter, a break-through contract was announced to support Vodafone UK to evolve its 4G network and to provide 5G radio technology.

Middle East and Africa

Sales declined YoY with some, still limited, signs of recovery in the macroeconomic environment. Challenges in capacity business continued, accompanied by decline in services domains.

Other

IPR licensing revenues amounted to SEK 2.0 (2.2) b.

LOGO

 

 

5      Ericsson  |  Second Quarter Report 2017


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SEGMENT RESULTS

NETWORKS

 

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2017     2016     change     2017     change     2017     2016  

Net sales

     36.8       40.2       -8     34.9       6     71.7       80.2  

Of which products

     20.8       23.0       -10     19.4       7     40.2       45.8  

Of which IPR licensing revenues

     1.6       1.7       -9     1.6       -3     3.2       4.8  

Of which services

     16.1       17.2       -7     15.5       4     31.5       34.3  

Net sales adjusted for items affecting comparability in Q1 2017

     36.8       40.2       -8     36.2       2     73.0       80.2  

Sales growth adj. for comparable units and currency

     —         —         -14     —         7     -16     —    

Gross income

     10.4       12.5       -17     8.0       30     18.3       25.5  

Gross income excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     11.0       12.9       -15     11.3       -3     22.2       26.1  

Gross margin

     28     31     —         23     —         26     32

Gross margin excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     30     32     —         31     —         30     33

Operating income

     2.6       4.8       -46     -0.5       —         2.1       10.6  

Operating income excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     3.5       5.3       -33     4.3       -19     7.9       11.5  

Operating margin

     7     12     —         -2     —         3     13

Operating margin excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     10     13     —         12     —         11     14

EBITA margin

     7     12     —         -1     —         3     14

Restructuring charges

     -0.9       -0.5       97     -1.4       —         -2.4       -0.9  

 

Q1 items affecting comparability:

Net sales: Provisions and adjustments (SEK 1.3 b.)

Gross income: Restructuring charges (SEK 1.3 b.), and provisions and adjustments (SEK 2.0 b.)

Operating income: Restructuring charges (SEK 1.4 b.), asset write-downs (SEK 0.1 b.) and provisions and adjustments (SEK 3.3 b.)

Net sales

Sales as reported declined by -8% YoY. Sales adjusted for comparable units and currency decreased by -14% YoY. Investments in mobile broadband in certain markets remained low, impacting mainly product sales. The decline in network services sales YoY is due to lower managed services sales following the earlier communicated rescoped contract in North America.

The mobile broadband market remained weak in the second quarter. The sales decline YoY is primarily driven by market areas Europe and Latin America as well as Middle East and Africa.

Reported sales increased by 6% QoQ. Sales in Q2 compared with Q1 sales, adjusted for items affecting comparability, increased 2%. Sales in market areas North East Asia and South East Asia, Oceania and India declined QoQ with lower sales in Japan and Vietnam – two markets that reported strong sales in Q1 2017.

The Ericsson Radio System (ERS) continued to generate new business. The transition to the new ERS is tracking towards the target of accounting for 100% of total deliveries in 2018, with 49% YTD.

Gross margin

Gross margin declined YoY to 28% (31%) due to lower software sales with slightly lower IPR licensing revenues, increased restructuring charges and lower services margins. Improved hardware margins partly offset the decline. The lower services margins refer to a few managed services contracts with increased losses. These contracts are on the list of contracts that will be either exited, renegotiated, or transformed in order to improve the gross income. Gross margin, excluding restructuring charges, was 30% (32%).

Gross margin increased sequentially to 28% from 23% following provisions, adjustments and large restructuring charges made in Q1. Gross margin, adjusted for items affecting comparability in Q1 and excluding restructuring charges in Q2 declined to 30% from 31%. This was mainly due to lower software sales, partly offset by an improved hardware margin.

Operating income and margin

Operating income and margin decreased YoY, mainly due to lower sales, lower gross margin, increased restructuring charges and increased operating expenses. Improved other operating income and expenses had a positive impact on operating income. The YoY increase in operating expenses refers to increased R&D, mainly related to the already communicated focused business strategy. Selling and administrative expenses were flat YoY. Operating margin excluding restructuring charges was 10% (13%).

Operating income and margin increased sequentially. Operating margin, adjusted for items affecting comparability in Q1, and excluding restructuring charges in Q2, declined to 10% from 12%. The decline is due to seasonally higher operating expenses and lower gross margin. The decline was only partly offset by increased sales.

 

 

6      Ericsson  |  Second Quarter Report 2017


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IT & CLOUD

 

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2017     2016     change     2017     change     2017     2016  

Net sales

     10.9       11.5       -5     9.5       14     20.4       21.3  

Of which products

     5.1       5.3       -4     4.1       23     9.2       10.1  

Of which IPR licensing revenues

     0.2       0.2       -10     0.2       -3     0.4       0.6  

Of which services

     5.8       6.2       -6     5.4       7     11.3       11.3  

Net sales adjusted for items affecting comparability in Q1 2017

     10.9       11.5       -5     9.6       13     20.5       21.3  

Sales growth adj. for comparable units and currency

     —         —         -10     —         16     -8     —    

Gross income

     2.8       4.1       -30     -2.1       —         0.7       7.3  

Gross income excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     3.1       4.2       -26     2.7       13     5.8       7.5  

Gross margin

     26     35     —         -22     —         4     34

Gross margin excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     28     36     —         28     —         28     35

Operating income

     -2.9       -1.5       86     -9.0       -68     -11.9       -3.5  

Operating income excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     -2.4       -1.1       126     -2.2       8     -4.7       -2.9  

Operating margin

     -26     -13     —         -94     —         -58     -17

Operating margin excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     -22     -9     —         -23     —         -23     -13

EBITA margin

     -24     -11     —         -86     —         -53     -14

Restructuring charges

     -0.5       -0.5       —         -0.2       —         -0.7       -0.7  

 

Q1 items affecting comparability:

Net sales: Provisions and adjustments (SEK 0.1 b.)

Gross income: Restructuring charges (SEK 0.2 b.), and provisions and adjustments (SEK 4.5 b.)

Operating income: Restructuring charges (SEK 0.2 b.), asset write-downs (SEK 1.5 b.) and provisions and adjustments (SEK 5.0 b.)

Net sales

Sales as reported declined by -5% YoY. Sales adjusted for comparable units and currency decreased by -10% YoY. Sales of legacy portfolio products, primarily in OSS & BSS, continued to decline and were not offset by growth in the new portfolio. Services sales declined following lower activity in large transformation projects.

Sales increased by 14% QoQ after a seasonally weak Q1. Sales in North East Asia grew 90% QoQ, driven by software licensing sales for telecom core in Mainland China. It is not unusual that such sales vary between quarters.

Gross margin

Gross margin decreased YoY primarily due to lower services and hardware margins. The services margin continues to be negatively impacted by ongoing large transformation projects and by IT managed services projects being in their initial transformation phase.

Gross income and margin increased QoQ. Q1 2017 included SEK -4.8 b. in restructuring charges, provisions and adjustments related to certain customer projects. Gross margin, excluding these items and excluding restructuring charges in Q1 and Q2, was stable QoQ.

Operating income and margin

Operating income decreased YoY mainly due to a lower gross margin. In addition, less capitalization and increased amortization of R&D platform development impacted operating expenses negatively. In Q2 2017, the net amount of capitalized and amortized R&D was SEK -0.2 b, compared with SEK 0.6 b. in Q2 2016 and SEK 0.3 b. in Q1 2017.

Operating income improved QoQ. Q1 2017 included SEK -6.8 b. in restructuring charges, write-down of assets as well as provisions and adjustments related to certain customer projects. Excluding these items, operating income declined to SEK -2.4 b. from SEK -2.2 b. The positive impact from increased sales was more than offset by the negative net effect of capitalized and amortized R&D.

 

 

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OTHER

 

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2017     2016     change     2017     change     2017     2016  

Net sales

     2.2       2.4       -6     2.0       13     4.2       4.8  

Of which IPR licensing revenues

     0.2       0.2       -10     0.2       -3     0.4       0.6  

Sales growth adj. for comparable units and currency

     —         —         -11     —         13     -17     —    

Gross income

     0.7       0.9       -18     0.6       34     1.3       2.0  

Gross income excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     0.8       0.9       -12     0.6       33     1.4       2.0  

Gross margin

     34     39     —         28     —         31     42

Gross margin excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     37     39     —         31     —         34     42

Operating income

     -1.0       -0.5       101     -2.8       -66     -3.8       -0.8  

Operating income excluding restructuring charges and adj for items affecting comparability in Q1 2017

     -0.8       -0.4       105     -1.0       -16     -1.8       -0.7  

Operating margin

     -44     -20     —         -143     —         -90     -16

Operating margin excluding restructuring charges and adj. for items affecting comparability in Q1 2017

     -38     -17     —         -51     —         -44     -15

EBITA margin

     -38     -12     —         -95     —         -65     -8

Restructuring charges

     -0.1       -0.1       —         -0.1       —         -0.2       -0.1  

The former Media segment is renamed to “Other” in the external reporting as per Q2 2017.

 

Q1 items affecting comparability:

Gross income: Restructuring charges (SEK 0.0 b.)

Operating income: Restructuring charges (SEK 0.1 b.) and asset write-downs (SEK 1.7 b.)

Net sales

Sales as reported declined -6% YoY. Sales adjusted for comparable units and currency decreased by -11% YoY. The decline was primarily due to lower sales of legacy products. Sales of next-generation MediaFirst platform started in the quarter, as the product went live in commercial networks. The iconectiv business (number portability solutions) continued to show double-digit growth YoY.

Sales as reported increased by 13% QoQ, driven by growth in Media Solutions following a seasonally weak Q1.

Gross margin

Gross margin declined YoY partly due to increased restructuring charges. Gross margin excluding restructuring charges declined slightly YoY.

Gross margin increased QoQ, driven by a changed sales mix with a larger share of Media Solutions. In addition, efficiency improvements in service delivery contributed to improved gross margins QoQ.

Operating income and margin

Operating income decreased YoY partly due to lower sales and lower gross margin. In addition, lower capitalization and increased amortization of R&D platform development impacted operating expenses negatively. In Q2 2017, the net amount of capitalized and amortized R&D was SEK -0.1 0.1) b.

Operating income improved QoQ. Operating income in Q1 2017 included SEK -1.7 b. in additional asset write-downs related to the new focused business strategy announced March 28.

 

 

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CASH FLOW

 

     Q2     Q2     Q1  

SEK b.

   2017     2016     2017  

Net income reconciled to cash

     -0.8       1.3       -9.2  

Changes in operating net assets

     0.8       -2.0       7.7  

Cash flow from operating activities

     0.0       -0.7       -1.5  

Cash flow from investing activities

     -2.0       1.4       -13.6  

Cash flow from financing activities

     -8.9       -9.3       10.9  

Net change in cash and cash equivalents

     -11.5       -7.0       -4.0  

Cash conversion (%)

     0     -54     n/a  

 

Operating activities

Cash flow from operating activities was SEK 0.0 b. in the quarter. A negative net income reconciled to cash was fully offset by a positive effect from changes in operating net assets. Cash flow from inventory was negative at SEK -1.1 b. in the quarter while customer finance decreased resulting in a cash flow effect of SEK 1.1 b. Trade receivables decreased resulting in a cash flow effect of SEK 0.5 b.

Cash outlays related to restructuring charges were SEK -1.1 (-0.6) b. in the quarter.

 

Investing activities

Cash flow from investing activities was negative at SEK -2.0 b. Investments in property, plant and equipment continued to decline YoY as investments in the Global ICT centers decreased. The cash flow effect from capitalized development expenses was significantly reduced and amounted to SEK -0.3 b. in the quarter.

Financing activities

Cash flow from financing activities was negatively impacted by repayment of one Euro bond of SEK 5.1 b. (EUR 0.5 b.) at maturity date. In addition, dividends of SEK 3.3 (12.1) b. were paid out.

Net cash was SEK 24.0 b. at the end of the quarter.

 

 

     Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun  

Working capital KPIs, number of days

   2017      2017      2016      2016      2016  

Sales outstanding (target: <90)

     114        117        95        122        115  

Inventory (target: <65)

     78        73        69        79        81  

Payable (target: >60)

     60        58        56        56        59  

 

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FINANCIAL POSITION

 

SEK b.

   Jun 30
2017
    Jun 30
2016
    Mar 31
2017
 

+ Cash and cash equivalents

     21.4       28.9       33.0  

+ Interest-bearing securities, current

     10.8       19.8       13.5  

+ Interest-bearing securities, non-current

     22.1       —         19.1  
  

 

 

   

 

 

   

 

 

 

Gross cash

     54.3       48.8       65.6  

– Borrowings, current

     3.2       9.7       9.5  

– Borrowings, non-current

     27.1       18.2       27.8  
  

 

 

   

 

 

   

 

 

 

Net cash

     24.0       21.0       28.3  

Equity

     123.8       136.7       126.8  

Total assets

     274.9       277.4       292.2  

Capital turnover (times)

     1.0       1.1       1.0  

Return on capital employed (%)

     -14.8     6.5     -26.2

Equity ratio (%)

     45.0     49.3     43.4

Return on equity (%)

     -18.1     5.0     -32.8

 

Net cash decreased by SEK -4.3 b. in the quarter, mainly as a result of payment of dividends and investments in property, plant and equipment. The net cash position was SEK 24.0 b.

Post-employment benefits were SEK 23.6 b., compared with SEK 23.8 b. on March 31, 2017.

The average maturity of long-term borrowings as of June 30, 2017, was 4.5 years, the same as 12 months earlier.

Debt maturity profile, Parent Company

 

LOGO

 

 

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PARENT COMPANY

 

Income after financial items was SEK 2.3 (13.2) b. The decrease was mainly due to lower recognized dividends from subsidiaries.

At the end of the quarter, gross cash: cash, cash equivalents, short-term investments and interest-bearing securities non- current, amounted to SEK 41.1 b., compared with SEK 42.9 b. at the end of 2016.

In the quarter, a dividend of SEK 3.3 b. was paid out in the first week of April after decision by the Annual General Meeting on March 29.

In June, the Parent Company repaid bonds of EUR 500 million at maturity date. There has been an increase in intercompany lending of SEK 5.4 b. and intercompany borrowing of SEK 0.3 b. in the second quarter.

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 3,193,142 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock on June 30, 2017, was 58,148,194 Class B shares.

 

 

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OTHER INFORMATION

 

Ericsson’s Nomination Committee appointed

On May 9, 2017, Ericsson announced that the Nomination Committee for the Annual General Meeting (AGM) 2018 had been appointed in accordance with the instruction for the Nomination Committee, resolved by the Annual General Meeting 2012. The Nomination Committee consists of: Petra Hedengran, Investor AB; Johan Held, Afa Försäkring, Leif Johansson, the Chairman of the Board of Directors, Bengt Kjell, AB Industrivärden and Handelsbankens Pensionsstiftelse; and Anders Oscarsson, AMF Försäkring och Fonder. Petra Hedengran is the Chairman of the Nomination Committee.

Ericsson announced change in Executive Team

On May 11, 2017, Ericsson announced that Rima Qureshi had decided to leave Ericsson to pursue another opportunity in the industry. She would leave her role as Senior Vice President and Head of Market Area North America effective May 11, 2017. Niklas Heuveldop has been appointed acting Head of Market Area North America, effective May 11, 2017.

Erik Ekudden named Group CTO for Ericsson

On May 30, 2017, Ericsson announced that Erik Ekudden has been appointed as Group CTO and Head of Technology & Architecture, effective July 1, 2017. Ekudden will lead the company’s technology strategy with a focus on driving the evolution of the network as the platform to secure the success of Ericsson’s service provider customers.

Increase in total number of shares and votes in Telefon-aktiebolaget LM Ericsson

On May 31, 2017, Ericsson announced that the company’s share capital amounts to SEK 16,670,758,678 and the total number of shares is 3,334,151,735; of which 261,755,983 are Class A shares and 3,072,395,752 are Class B shares. The total number of votes is 568,995,558.2, of which Class A shares represent 261,755,983 votes and Class B shares represent 307,239,575.2 votes.

The increase in the number of shares and votes is a result of the company’s recent issue of 3,000,000 Class C shares, shares which have subsequently been repurchased by the company and converted into Class B shares, by virtue of a conversion clause in the articles of association. This is in accordance with the resolution by the Annual General Meeting 2017 to expand the treasury stock as part of the financing of Ericsson’s Long-Term Variable Compensation Program (LTV) 2017. The company held 58,382,336 shares as treasury stock on May 31.

Changes to Ericsson’s Nomination Committee

On June 1, 2017, Ericsson announced that Cevian Funds will be part of the Nomination Committee. The Nomination Committee now consists of: Petra Hedengran, Investor AB (Chairman); Bengt Kjell, AB Industrivärden and Handelsbankens Pensionss-tiftelse; Christer Gardell, Cevian Funds; Anders Oscarsson, AMF Försäkring och Fonder; Johan Held, Afa Försäkring; and Leif Johansson, the Chairman of the Board of Directors.

Patent infringement lawsuit

In 2012 and 2013, Intellectual Ventures (“IV”) filed patent infringement lawsuits in the United States District Court for the District of Delaware accusing a number of Ericsson’s U.S. customers of infringing 16 U.S. patents, seeking an injunction and monetary damages. The first of these cases is set to go to trial in January 2018. IV subsequently filed another wave of lawsuits in the District of Delaware accusing a number of Ericsson’s U.S. customers of infringing 12 U.S. patents, seeking monetary damages. The first of these cases, scheduled to go to trial in July 2017, has been cancelled.

Ericsson to divest its power modules business to Flex

On June 21, 2017, Ericsson announced that it has signed an agreement with multinational technology and Sketch-to-Scale™ solutions provider, Flex, to divest Ericsson Power Modules (EPM). The divestment is in line with Ericsson’s focused business strategy, presented on March 28, to strengthen its core business and portfolio areas (networks, digital services and IoT). The Ericsson Power Modules business, excluding the brand, will on closing be transferred to Flex as part of the agreement. This includes Shanghai Ericsson Electronics Corporation Ltd, a manufacturing site in China, and business assets in Sweden. More than 300 employees and consultants are expected to transfer from Ericsson to Flex Power.

POST-CLOSING EVENTS

The Chairman Leif Johansson informed that he will not make himself available for reelection

On July 5, 2017, Ericsson announced that the Chairman of the Board of Directors, Leif Johansson, has informed that he will not make himself available for reelection at the Annual General Meeting of shareholders in 2018. The Nomination Committee has initiated the search for a replacement.

Changes to Ericsson’s Nomination Committee

On July 14, 2017, Ericsson announced that Johan Forssell, Investor AB, will replace Petra Hedengran, Investor AB, as chairman of Ericssons Nomination Committee.

 

 

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RISK FACTORS

 

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2016.

Risk factors and uncertainties in focus short term for the Parent Company and the Ericsson Group include, but are not limited to:

 

  Potential negative effects on operators’ willingness to invest in network development due to uncertainty in the financial markets and a weak economic business environment, or reduced consumer telecom spending, or increased pressure on us to provide financing, or delayed auctions of spectrums;

 

  Uncertainty regarding the financial stability of suppliers, for example due to lack of financing;

 

  Effects on gross margins and/or working capital of the business mix in the Networks segment between capacity sales and new coverage build-outs;

 

  Effects on gross margins of the business mix in the Networks and IT & Cloud segments including new network build-outs and new managed services or digital transformation deals with initial transition costs;

 

  Effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. with postponed investments and intensified price competition as a consequence;

 

  New and ongoing partnerships which may not be successful and expose us to future costs;

 

  Changes in foreign exchange rates, in particular USD;

 

  Political unrest and uncertainty in certain markets;

 

  Effects on production and sales from restrictions with respect to timely and adequate supply of materials, components and production capacity and other vital services on competitive terms;
  No guarantees that strategy execution, specific restructuring or cost-savings initiatives, profitability restoring efforts and/or organizational changes will be sufficient, successful or executed in time to deliver any improvements in earnings;

 

  Cybersecurity incidents, which may have a material negative impact.

Ericsson stringently monitors the compliance with all relevant trade regulations and trade embargos applicable to dealings with customers operating in countries where there are trade restrictions or trade restrictions are discussed. Ericsson operates globally in accordance with Group policies and directives for business ethics and conduct and has a dedicated anti-corruption program. However, in some of the countries where the company operates, corruption risks can be high and compliance failure could have a material adverse impact on our business, financial condition and brand.

This report has not been reviewed by Telefonaktiebolaget LM Ericsson’s auditors.

Date for next report: October 20, 2017

 

 

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BOARD ASSURANCE

The Board of Directors and the CEO certify that the financial report for the six months gives a fair view of the performance of the business, position and profit or loss of the Company and the Group, and describes the principal risks and uncertainties that the Company and the companies in the Group face.

Stockholm, July 18, 2017

Telefonaktiebolaget LM Ericsson (publ)

Org. Nr. 556016-0680

 

Helena Stjernholm

   Leif Johansson    Jacob Wallenberg

Deputy Chairman

   Chairman    Deputy Chairman

Jon Fredrik Baksaas

   Jan Carlson    Nora Denzel

Member of the Board

   Member of the Board    Member of the Board

 

Eric A. Elzvik

   Kristin Skogen Lund

Member of the Board

   Member of the Board

Kristin S. Rinne

   Sukhinder Singh Cassidy

Member of the Board

   Member of the Board

 

Börje Ekholm

President, CEO and member of the Board

 

Kjell-Åke Soting

   Roger Svensson    Karin Åberg

Member of the Board

   Member of the Board    Member of the Board

 

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EDITOR’S NOTE

 

Ericsson invites media, investors and analysts to conference calls on July 18, 2017; one starting at 09.00 (CET) and the other at 14.00 (CET).

Live audio webcasts of the conference calls as well as supporting slides will be available at:

www. ericsson.com/press and

www. ericsson.com/investors

Replay of the conference calls will be available approximately one hour after each call has ended and will remain available for seven days.

For further information, please contact:

Helena Norrman, Senior Vice President, Chief Marketing and Communications Officer

Phone: +46 10 719 34 72

E-mail: investor.relations@ericsson.com or media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson

Org. number: 556016-0680

Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com

Investors
Peter Nyquist, Vice President,
Head of Investor Relations
Phone:    +46 10 714 64 49, +46 70 575 29 06
E-mail:    peter.nyquist@ericsson.com
Stefan Jelvin, Director,
Investor Relations
Phone:    +46 10 714 20 39, +46 70 986 02 27
E-mail:    stefan.jelvin@ericsson.com
Åsa Konnbjer, Director,
Investor Relations
Phone:    +46 10 713 39 28, +46 73 082 59 28
E-mail:    asa.konnbjer@ericsson.com
  
Rikard Tunedal, Director,
Investor Relations
Phone:    +46 10 714 54 00, +46 761 005 400
E-mail:    rikard.tunedal@ericsson.com
  
Media
Ola Rembe, Vice President,
Head of External Communications
Phone:    +46 10 719 97 27, +46 73 024 48 73
E-mail:    media.relations@ericsson.com
Corporate Communications
Phone:    +46 10 719 69 92
E-mail:    media.relations@ericsson.com
 

 

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SAFE HARBOR STATEMENT

 

All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “would”, “potential”, “continue”, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings and profitability; (xii) plans to launch new products and services; (xiii) assessments of risks; (xiv) integration of acquired businesses; (xv) compliance with rules and regulations and (xvi) infringements of intellectual property rights of others.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, such as those factors described under the risk factor section. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate or interest rate fluctuations; and (vii) the failure to successfully implement our business and operational initiatives

 

 

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FINANCIAL STATEMENTS

AND OTHER INFORMATION

 

Contents   

Financial statements

  

Consolidated income statement

     18  

Statement of comprehensive income

     18  

Consolidated balance sheet

     19  

Consolidated statement of cash flows

     20  

Consolidated statement of changes in equity

     21  

Consolidated income statement – isolated quarters

     21  

Consolidated statement of cash flows – isolated quarters

     22  

Parent Company income statement

     23  

Parent Company statement of comprehensive income

     23  

Parent Company balance sheet

     24  

Additional information

  

Accounting policies

     25  

Net sales by segment by quarter

     26  

Sales growth adjusted for comparable units and currency

     27  

Gross income and gross margin by segment by quarter

     27  

Operating income and operating margin by segment by quarter

     28  

EBITA and EBITA margin by segment by quarter

     28  

Net sales by market area by quarter

     29  

Top 5 countries in sales

     30  

Net sales by market area by segment

     30  

IPR licensing revenues by segment by quarter

     30  

Provisions

     31  

Information on investments

     31  

Other information

     32  

Number of employees

     32  

Items excluding restructuring charges

  

Restructuring charges by function

     33  

Restructuring charges by segment

     33  

Gross income and gross margin excluding restructuring by segment by quarter

     34  

Operating income and operating margin excluding restructuring by segment by quarter

     34  

Alternative performance measures

  

Sales growth adjusted for comparable units and currency

     35  

Items excluding restructuring charges

     36  

EBITA and EBITA margin

     37  

Cash conversion

     37  

Gross cash and net cash, end of period

     37  

Capital employed

     38  

Capital turnover

     38  

Return on capital employed

     38  

Equity ratio

     39  

Return on equity

     39  

Earnings per share (non-IFRS)

     39  

Items excluding restructuring, write-downs, as well as provisions and adjustments related to certain customer projects

     40  
 

 

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FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

 

     Apr-Jun     Jan-Jun  

SEK million

   2017     2016     Change     2017     2016     Change  

Net sales

     49,939       54,108       -8     96,308       106,317       -9

Cost of sales

     -36,006       -36,613       -2     -75,937       -71,432       6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     13,933       17,495       -20     20,371       34,885       -42

Gross margin (%)

     27.9     32.3       21.2     32.8  

Research and development expenses

     -8,365       -7,405       13     -17,433       -14,890       17

Selling and administrative expenses

     -7,052       -7,109       -1     -16,913       -13,829       22
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -15,417       -14,514       6     -34,346       -28,719       20

Other operating income and expenses

     239       -230         380       43    

Shares in earnings of JV and associated companies

     12       12         23       29    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     -1,233       2,763       -145     -13,572       6,238       -318

Financial income

     -22       139         -104       50    

Financial expenses

     83       -666         -267       -1,043    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -1,172       2,236       -152     -13,943       5,245       -366

Taxes

     176       -670         2,092       -1,573    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     -996       1,566       -164     -11,851       3,672       -423
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

            

Stockholders of the Parent Company

     -1,010       1,587         -11,907       3,553    

Non-controlling interests

     14       -21         56       119    

Other information

            

Average number of shares, basic (million)

     3,275       3,261         3,273       3,259    

Earnings per share, basic (SEK) 1)

     -0.31       0.49         -3.64       1.09    

Earnings per share, diluted (SEK) 1)

     -0.30       0.48         -3.59       1.08    
  

 

 

   

 

 

     

 

 

   

 

 

   

 

1)  Based on Net income attributable to stockholders of the Parent Company.

STATEMENT OF COMPREHENSIVE INCOME

 

     Apr-Jun      Jan-Jun  

SEK million

   2017      2016      2017      2016  

Net income

     -996        1,566        -11,851        3,672  

Other comprehensive income

           

Items that will not be reclassified to profit or loss

           

Remeasurements of defined benefits pension plans incl. asset ceiling

     574        -941        972        -4,443  

Tax on items that will not be reclassified to profit or loss

     -160        235        -329        1,188  

Items that may be reclassified to profit or loss

           

Available-for-sale financial assets

           

Gains/losses arising during the period

     41        —          73        —    

Reclassification adjustments on gains/losses included in profit or loss

     2        —          5        —    

Revaluation of other investments in shares and participations

           

Fair value remeasurement

     0        —          2        -4  

Changes in cumulative translation adjustments

     -2,773        1,981        -2,794        848  

Share of other comprehensive income on JV and associated companies

     -9        10        1        -366  

Tax on items that may be reclassified to profit or loss

     -9        —          -18        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     -2,334        1,285        -2,088        -2,777  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

     -3,330        2,851        -13,939        895  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income attributable to:

           

Stockholders of the Parent Company

     -3,305        2,843        -13,979        750  

Non-controlling interest

     -25        8        40        145  

 

18      Ericsson  |  Second Quarter Report 2017


Table of Contents

CONSOLIDATED BALANCE SHEET

 

SEK million

   Jun 30
2017
     Mar 31
2017
     Dec 31
2016
 

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     6,085        6,460        8,076  

Goodwill

     41,364        43,042        43,387  

Intellectual property rights, brands and other intangible assets

     5,234        5,869        7,747  

Property, plant and equipment

     16,276        16,645        16,734  

Financial assets

        

Equity in JV and associated companies

     791        792        775  

Other investments in shares and participations

     1,115        1,112        1,179  

Customer finance, non-current

     2,288        2,728        2,128  

Interest-bearing securities, non-current

     22,122        19,124        7,586  

Other financial assets, non-current

     4,409        4,466        4,442  

Deferred tax assets

     17,463        17,435        15,522  
  

 

 

    

 

 

    

 

 

 
     117,147      117,673      107,576  

Current assets

        

Inventories

     34,194        33,938        30,307  

Trade receivables

     62,493        65,687        68,117  

Customer finance, current

     2,156        2,882        2,625  

Other current receivables

     26,741        25,525        24,431  

Interest-bearing securities, current

     10,754        13,548        13,325  

Cash and cash equivalents

     21,446        32,954        36,966  
  

 

 

    

 

 

    

 

 

 
     157,784      174,534      175,771  
  

 

 

    

 

 

    

 

 

 

Total assets

     274,931        292,207        283,347  
  

 

 

    

 

 

    

 

 

 

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

     123,045        126,105        139,817  

Non-controlling interest in equity of subsidiaries

     710        736        675  
  

 

 

    

 

 

    

 

 

 
     123,755      126,841      140,492  

Non–current liabilities

        

Post-employment benefits

     23,624        23,774        23,723  

Provisions, non-current

     4,794        4,867        946  

Deferred tax liabilities

     1,838        1,888        2,147  

Borrowings, non-current

     27,100        27,823        18,653  

Other non-current liabilities

     2,602        2,699        2,621  
  

 

 

    

 

 

    

 

 

 
     59,958        61,051        48,090  

Current liabilities

        

Provisions, current

     5,618        5,694        5,411  

Borrowings, current

     3,230        9,514        8,033  

Trade payables

     25,025        25,814        25,318  

Other current liabilities

     57,345        63,293        56,003  
  

 

 

    

 

 

    

 

 

 
     91,218      104,315      94,765  
  

 

 

    

 

 

    

 

 

 

Total equity and liabilities

     274,931        292,207        283,347  
  

 

 

    

 

 

    

 

 

 

Of which interest-bearing liabilities

     30,330        37,337        26,686  

Assets pledged as collateral

     5,076        3,064        2,584  

Contingent liabilities

     1,679        1,729        1,186  

 

19      Ericsson  |  Second Quarter Report 2017


Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2017      2016      2017      2016      2016  

Operating activities

              

Net income

     -996        1,566        -11,851        3,672        1,895  

Adjustments to reconcile net income to cash

              

Taxes

     -1,978        -3,410        -6,323        -4,618        -6,200  

Earnings/dividends in JV and associated companies

     -8        73        -15        57        58  

Depreciation, amortization and impairment losses

     2,197        2,104        7,628        4,201        9,119  

Other

     -48        988        479        1,640        3,135  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -833        1,321        -10,082        4,952        8,007  

Changes in operating net assets

              

Inventories

     -1,146        -1,667        -4,731        -5,879        -613  

Customer finance, current and non-current

     1,140        -816        306        -1,067        -950  

Trade receivables

     450        -564        2,847        2,844        5,933  

Trade payables

     41        2,457        667        1,840        2,775  

Provisions and post-employment benefits

     324        218        4,969        204        3,106  

Other operating assets and liabilities, net

     25        -1,662        4,484        -5,979        -4,248  
     834        -2,034        8,542        -8,037        6,003  

Cash flow from operating activities

     1        -713        -1,540        -3,085        14,010  

Investing activities

              

Investments in property, plant and equipment

     -1,018        -1,572        -2,033        -3,046        -6,129  

Sales of property, plant and equipment

     37        50        106        94        482  

Acquisitions/divestments of subsidiaries and other operations, net

     9        -480        12        -588        -622  

Product development

     -315        -1,099        -1,180        -2,307        -4,483  

Other investing activities

     -42        -890        68        -155        -3,004  

Interest-bearing securities

     -676        5,355        -12,562        6,368        5,473  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -2,005        1,364        -15,589        366        -8,283  

Cash flow before financing activities

     -2,004        651        -17,129        -2,719        5,727  

Financing activities

              

Dividends paid

     -3,274        -12,067        -3,278        -12,100        -12,263  

Other financing activities

     -5,636        2,761        5,266        2,855        521  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -8,910        -9,306        1,988        -9,245        -11,742  

Effect of exchange rate changes on cash

     -594        1,652        -379        671        2,757  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     -11,508        -7,003        -15,520        -11,293        -3,258  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     32,954        35,934        36,966        40,224        40,224  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     21,446        28,931        21,446        28,931        36,966  

 

20      Ericsson  |  Second Quarter Report 2017


Table of Contents

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

     Jan-Jun      Jan-Dec  

SEK million

   2017      2016      2016  

Opening balance

     140,492        147,366        147,366  

Total comprehensive income

     -13,939        895        4,514  

Sale/repurchase of own shares

     34        -74        -216  

Stock issue (net)

     15        131        131  

Stock purchase plan

     431        472        957  

Dividends paid

     -3,278        -12,099        -12,263  

Transactions with non-controlling interests

     —          —          3  
  

 

 

    

 

 

    

 

 

 

Closing balance

     123,755        136,691        140,492  
  

 

 

    

 

 

    

 

 

 

CONSOLIDATED INCOME STATEMENT - ISOLATED QUARTERS

 

     2017     2016  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

     49,939       46,369       65,215       51,076       54,108       52,209  

Cost of sales

     -36,006       -39,931       -48,195       -36,616       -36,613       -34,819  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     13,933       6,438       17,020       14,460       17,495       17,390  

Gross margin (%)

     27,9     13.9     26.1     28.3     32.3     33.3

Research and development expenses

     -8,365       -9,068       -8,890       -7,855       -7,405       -7,485  

Selling and administrative expenses

     -7,052       -9,861       -8,799       -6,238       -7,109       -6,720  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -15,417       -18,929       -17,689       -14,093       -14,514       -14,205  

Other operating income and expenses

     239       141       364       -3       -230       273  

Shares in earnings of JV and associated companies

     12       11       25       -23       12       17  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     -1,233       -12,339       -280       341       2,763       3,475  

Financial income

     -22       -82       61       -226       139       -89  

Financial expenses

     83       -350       -744       -371       -666       -377  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -1,172       -12,771       -963       -256       2,236       3,009  

Taxes

     176       1,916       -634       76       -670       -903  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     -996       -10,855       -1,597       -180       1,566       2,106  

Net income attributable to:

            

Stockholders of the Parent Company

     -1,010       -10,897       -1,604       -233       1,587       1,966  

Non-controlling interests

     14       42       7       53       -21       140  

Other information

            

Average number of shares, basic (million)

     3,275       3,272       3,268       3,264       3,261       3,258  

Earnings per share, basic (SEK) 1)

     -0.31       -3.33       -0.49       -0.07       0.49       0.60  

Earnings per share, diluted (SEK) 1)

     -0.30       -3.29       -0.48       -0.07       0.48       0.60  

 

1)  Based on Net income attributable to stockholders of the Parent Company.

 

21      Ericsson  |  Second Quarter Report 2017


Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS - ISOLATED QUARTERS

 

     2017      2016  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Operating activities

                 

Net income

     -996        -10,855        -1,597        -180        1,566        2,106  

Adjustments to reconcile net income to cash

                 

Taxes

     -1,978        -4,345        -300        -1,282        -3,410        -1,208  

Earnings/dividends in JV and associated companies

     -8        -7        -21        22        73        -16  

Depreciation, amortization and impairment losses

     2,197        5,431        2,610        2,308        2,104        2,097  

Other

     -48        527        865        630        988        652  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -833        -9,249        1,557        1,498        1,321        3,631  

Changes in operating net assets

                 

Inventories

     -1,146        -3,585        4,286        980        -1,667        -4,212  

Customer finance, current and non-current

     1,140        -834        -106        223        -816        -251  

Trade receivables

     450        2,397        3,713        -624        -564        3,408  

Trade payables

     41        626        3,306        -2,371        2,457        -617  

Provisions and post-employment benefits

     324        4,645        2,772        130        218        -14  

Other operating assets and liabilities, net

     25        4,459        3,884        -2,153        -1,662        -4,317  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     834        7,708        17,855        -3,815        -2,034        -6,003  

Cash flow from operating activities

     1        -1,541        19,412        -2,317        -713        -2,372  

Investing activities

                 

Investments in property, plant and equipment

     -1,018        -1,015        -1,699        -1,384        -1,572        -1,474  

Sales of property, plant and equipment

     37        69        277        111        50        44  

Acquisitions/divestments of subsidiaries and other operations, net

     9        3        -50        16        -480        -108  

Product development

     -315        -865        -1,291        -885        -1,099        -1,208  

Other investing activities

     -42        110        -2,341        -508        -890        735  

Interest-bearing securities

     -676        -11,886        -1,505        610        5,355        1,013  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -2,005        -13,584        -6,609        -2,040        1,364        -998  

Cash flow before financing activities

     -2,004        -15,125        12,803        -4,357        651        -3,370  

Financing activities

                 

Dividends paid

     -3,274        -4        —          -163        -12,067        -33  

Other financing activities

     -5,636        10,902        -1,039        -1,295        2,761        94  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -8,910        10,898        -1,039        -1,458        -9,306        61  

Effect of exchange rate changes on cash

     -594        215        801        1,285        1,652        -981  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     -11,508        -4,012        12,565        -4,530        -7,003        -4,290  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     32,954        36,966        24,401        28,931        35,934        40,224  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     21,446        32,954        36,966        24,401        28,931        35,934  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22      Ericsson  |  Second Quarter Report 2017


Table of Contents

PARENT COMPANY INCOME STATEMENT

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2017      2016      2017      2016      2016  

Net sales

     —          —          —          —          —    

Cost of sales

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross income

     —          —          —          —          —    

Operating expenses

     -355        -267        -644        -490        -1,185  

Other operating income and expenses

     618        616        1,190        1,190        2,698  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     263        349        546        700        1,513  

Financial net

     2,040        12,496        1,709        12,507        14,039  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income after financial items

     2,303        12,845        2,255        13,207        15,552  

Transfers to (–) / from untaxed reserves

     -120        —          -120        —          -1,100  

Taxes

     22        -89        12        -134        -206  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     2,205        12,756        2,147        13,073        14,246  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2017      2016      2017      2016      2016  

Net income

     2,205        12,756        2,147        13,073        14,246  

Available-for-sale financial assets

              

Gains/losses arising during the period

     41        —          73        —          -7  

Reclassification adjustments on gains/losses included in profit or loss

     2        —          5        —          —    

Revaluation of other investments in shares and participations

              

Fair value remeasurement

     —          —          —          -5        -5  

Tax on items that may be reclassified to profit or loss

     -9        —          -17        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     34        —          61        -5        -12  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

     2,239        12,756        2,208        13,068        14,234  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

23      Ericsson  |  Second Quarter Report 2017


Table of Contents

PARENT COMPANY BALANCE SHEET

 

SEK million

   Jun 30
2017
     Dec 31
2016
 

ASSETS

     

Fixed assets

     

Intangible assets

     434        547  

Tangible assets

     435        396  

Financial assets*

     125,614        111,981  
  

 

 

    

 

 

 
     126,483        112,924  

Current assets

     

Inventories

     1        3  

Receivables

     33,685        38,476  

Short-term investments

     10,414        12,991  

Cash and cash equivalents

     8,598        22,311  
  

 

 

    

 

 

 
     52,698        73,781  
  

 

 

    

 

 

 

Total assets

     179,181        186,705  
  

 

 

    

 

 

 

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

     

Equity

     

Restricted equity

     48,164        48,148  

Non-restricted equity

     43,712        44,753  
  

 

 

    

 

 

 
     91,876        92,901  

Provisions

     656        885  

Non-current liabilities

     58,857        50,428  

Current liabilities

     27,792        42,491  
  

 

 

    

 

 

 

Total stockholders’ equity, provisions and liabilities

     179,181        186,705  
  

 

 

    

 

 

 

* Of which interest-bearing securities, non-current

     22,122        7,586  
  

 

 

    

 

 

 

 

24      Ericsson  |  Second Quarter Report 2017


Table of Contents

ADDITIONAL INFORMATION

ACCOUNTING POLICIES

THE GROUP

 

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2016, and should be read in conjunction with that annual report.

There is no significant difference between IFRS effective as per June 30, 2017 and IFRS as endorsed by the EU.

None of the new or amended standards and interpretations that became effective January 1, 2017, have had a significant impact on the financial result or position of the Company.

 

 

25      Ericsson  |  Second Quarter Report 2017


Table of Contents

NET SALES BY SEGMENT BY QUARTER*

 

     2017     2016  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     36,839       34,860       47,791       37,020       40,245       39,935  

Of which products

     20,786       19,410       27,519       19,249       23,037       22,795  

Of which services

     16,053       15,450       20,272       17,771       17,208       17,140  

IT & Cloud

     10,888       9,545       14,884       11,716       11,500       9,830  

Of which products

     5,065       4,103       6,682       5,479       5,298       4,773  

Of which services

     5,823       5,442       8,202       6,237       6,202       5,057  

Other

     2,212       1,964       2,540       2,340       2,363       2,444  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     49,939       46,369       65,215       51,076       54,108       52,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     6     -27     29     -8     1     —    

Of which products

     7     -29     43     -16     1     —    

Of which services

     4     -24     14     3     0     —    

IT & Cloud

     14     -36     27     2     17     —    

Of which products

     23     -39     22     3     11     —    

Of which services

     7     -34     32     1     23     —    

Other

     13     -23     9     -1     -3     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8     -29     28     -6     4     -29
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     -8     -13     —         —         —         —    

Of which products

     -10     -15     —         —         —         —    

Of which services

     -7     -10     —         —         —         —    

IT & Cloud

     -5     -3     —         —         —         —    

Of which products

     -4     -14     —         —         —         —    

Of which services

     -6     8     —         —         —         —    

Other

     -6     -20     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -8     -11     -11     -14     -11     -2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     71,699       34,860       164,991       117,200       80,180       39,935  

Of which products

     40,196       19,410       92,600       65,081       45,832       22,795  

Of which services

     31,503       15,450       72,391       52,119       34,348       17,140  

IT & Cloud

     20,433       9,545       47,930       33,046       21,330       9,830  

Of which products

     9,168       4,103       22,232       15,550       10,071       4,773  

Of which services

     11,265       5,442       25,698       17,496       11,259       5,057  

Other

     4,176       1,964       9,687       7,147       4,807       2,444  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     96,308       46,369       222,608       157,393       106,317       52,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, year over year change, percent

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     -11     -13     -11     —         —         —    

Of which products

     -12     -15     -12     —         —         —    

Of which services

     -8     -10     -8     —         —         —    

IT & Cloud

     -4     -3     -7     —         —         —    

Of which products

     -9     -14     -16     —         —         —    

Of which services

     0     8     1     —         —         —    

Other

     -13     -20     -7     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -9     -11     -10     -9     -7     -2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Net sales by segment has been restated for each quarter of 2016 and for the full year 2015. Comparisons against isolated quarters in 2015 are not available by segment. As of Q2 2017, the former Media segment was renamed to “Other”.

 

26      Ericsson  |  Second Quarter Report 2017


Table of Contents

SALES GROWTH ADJUSTED FOR COMPARABLE UNITS AND CURRENCY*

 

     2017     2016  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     7     -27     —         —         —         —    

IT & Cloud

     16     -35     —         —         —         —    

Other

     13     -23     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     9     -29     23     -9     6     -28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Isolated quarter, year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     -14     -18     —         —         —         —    

IT & Cloud

     -10     -7     —         —         —         —    

Other

     -11     -22     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -13     -16     -15     -14     -7     -1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, year over year change, percent

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     -16     -18     —         —         —         —    

IT & Cloud

     -8     -7     —         —         —         —    

Other

     -17     -22     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -15     -16     -10     -8     -4     -1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Sales growth adjusted for comparable units and currency has not been restated by segment for 2016.

GROSS INCOME AND GROSS MARGIN BY SEGMENT BY QUARTER

 

     2017     2016  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     10,357       7,980       11,783       9,867       12,522       13,011  

IT & Cloud

     2,828       -2,100       4,676       3,833       4,061       3,281  

Other

     748       558       561       760       912       1,098  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     13,933       6,438       17,020       14,460       17,495       17,390  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Isolated quarters, As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     28     23     25     27     31     33

IT & Cloud

     26     -22     31     33     35     33

Other

     34     28     22     32     39     45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     28     14     26     28     32     33
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     18,337       7,980       47,183       35,400       25,533       13,011  

IT & Cloud

     728       -2,100       15,851       11,175       7,342       3,281  

Other

     1,306       558       3,331       2,770       2,010       1,098  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     20,371       6,438       66,365       49,345       34,885       17,390  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, As percentage of net sales

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     26     23     29     30     32     33

IT & Cloud

     4     -22     33     34     34     33

Other

     31     28     34     39     42     45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     21     14     30     31     33     33
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27      Ericsson  |  Second Quarter Report 2017


Table of Contents

OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER

 

     2017     2016  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     2,603       -538       2,380       2,839       4,789       5,762  

IT & Cloud

     -2,869       -8,997       -1,819       -1,740       -1,546       -1,977  

Other

     -967       -2,804       -841       -758       -480       -310  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -1,233       -12,339       -280       341       2,763       3,475  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Isolated quarters, As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     7     -2     5     8     12     14

IT & Cloud

     -26     -94     -12     -15     -13     -20

Other

     -44     -143     -33     -32     -20     -13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -2     -27     0     1     5     7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     2,065       -538       15,770       13,390       10,551       5,762  

IT & Cloud

     -11,866       -8,997       -7,082       -5,263       -3,523       -1,977  

Other

     -3,771       -2,804       -2,389       -1,548       -790       -310  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -13,572       -12,339       6,299       6,579       6,238       3,475  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date As percentage of net sales

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     3     -2     10     11     13     14

IT & Cloud

     -58     -94     -15     -16     -17     -20

Other

     -90     -143     -25     -22     -16     -13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -14     -27     3     4     6     7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITA AND EBITA MARGIN

BY SEGMENT BY QUARTER

 

     2017     2016  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     2,687       -353       2,586       3,042       4,994       5,970  

IT & Cloud

     -2,640       -8,237       -1,571       -1,443       -1,306       -1,713  

Other

     -835       -1,874       -655       -567       -290       -98  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -788       -10,464       360       1,032       3,398       4,159  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Isolated quarters As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     7     -1     5     8     12     15

IT & Cloud

     -24     -86     -11     -12     -11     -17

Other

     -38     -95     -26     -24     -12     -4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -2     -23     1     2     6     8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     2,334       -353       16,592       14,006       10,964       5,970  

IT & Cloud

     -10,877       -8,237       -6,033       -4,462       -3,019       -1,713  

Other

     -2,709       -1,874       -1,610       -955       -388       -98  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -11,252       -10,464       8,949       8,589       7,557       4,159  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016  

Year to date As a percentage of net sales

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     3     -1     10     12     14     15

IT & Cloud

     -53     -86     -13     -14     -14     -17

Other

     -65     -95     -17     -13     -8     -4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -12     -23     4     5     7     8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28      Ericsson  |  Second Quarter Report 2017


Table of Contents

NET SALES BY MARKET AREA BY QUARTER*

 

     2017     2016  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     7,730       8,009       9,718       7,678       7,730       7,905  

North East Asia

     5,853       5,561       9,623       6,122       6,041       5,579  

North America

     12,457       11,811       14,851       13,178       13,358       13,147  

Europe and Latin America 1) 2)

     15,231       12,707       19,128       15,104       17,082       15,100  

Middle East and Africa

     6,018       5,414       9,129       6,298       7,239       5,699  

Other 1) 2)

     2,650       2,867       2,766       2,696       2,658       4,779  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     49,939       46,369       65,215       51,076       54,108       52,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     701       925       843       690       477       1,113  

2) Of which in EU

     8,840       8,239       11,154       8,507       9,635       9,229  
     2017     2016  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     -3     -18     27     -1     -2     -7

North East Asia

     5     -42     57     1     8     -37

North America

     5     -20     13     -1     2     -21

Europe and Latin America 1) 2)

     20     -34     27     -12     13     -31

Middle East and Africa

     11     -41     45     -13     27     -36

Other 1) 2)

     -8     4     3     1     -44     -44
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8     -29     28     -6     4     -29
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -24     10     22     45     -57     15

2) Of which in EU

     7     -26     31     -12     4     -27
     2017     2016  

Year-over-year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     0     1     14     -9     -3     1

North East Asia

     -3     0     8     -4     -13     -7

North America

     -7     -10     -11     -8     -8     8

Europe and Latin America 1) 2)

     -11     -16     -13     -20     -12     -15

Middle East and Africa

     -17     -5     2     -25     -21     -15

Other 1) 2)

     0     -40     -67     -6     -3     54
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -8     -11     -11     -14     -11     -2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     47     -17     -13     -39     -20     2

2) Of which in EU

     -8     -11     -12     -20     -16     -15
     2017     2016  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

South East Asia, Oceania and India

     15,739       8,009       33,031       23,313       15,635       7,905  

North East Asia

     11,414       5,561       27,365       17,742       11,620       5,579  

North America

     24,268       11,811       54,534       39,683       26,505       13,147  

Europe and Latin America 1) 2)

     27,938       12,707       66,414       47,286       32,182       15,100  

Middle East and Africa

     11,432       5,414       28,365       19,236       12,938       5,699  

Other 1) 2)

     5,517       2,867       12,899       10,133       7,437       4,779  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     96,308       46,369       222,608       157,393       106,317       52,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     1,626       925       3,123       2,280       1,590       1,113  

2) Of which in EU

     17,079       8,239       38,525       27,371       18,864       9,229  
     2017     2016  

Year to date, year-over-year change, percent

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

South East Asia, Oceania and India

     1     1     1     -4     -1     1

North East Asia

     -2     0     -3     -8     -10     -7

North America

     -8     -10     -6     -3     -1     8

Europe and Latin America 1) 2)

     -13     -16     -15     -15     -13     -15

Middle East and Africa

     -12     -5     -15     -21     -18     -15

Other 1) 2)

     -26     -40     -25     16     27     54
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -9     -11     -10     -9     -7     -2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     2     -17     -18     -19     -6     2

2) Of which in EU

     -9     -11     -15     -17     -16     -15

 

* As of Q2 2017, net sales by geographical area has been restated using the new structure of five Market Areas + Other, replacing the previous structure of 10 regions + Other. Broadcast services, reported as Region Other during 2016, is now reported per geographical area. In addition, part of the business related to former Telcordia, reported per geographical area during 2016, has been transferred to Other. All changes have been applied retrospectively to ensure valid comparisons between periods.

 

29      Ericsson  |  Second Quarter Report 2017


Table of Contents

TOP 5 COUNTRIES IN SALES

 

Country    Q2     Jan-Jun  

Percentage of Net sales

   2017     2016     2017     2016  

United States

     26     26     26     26

China

     9     8     8     9

India

     4     5     5     5

Australia

     4     3     4     2

Japan

     3     2     4     3

NET SALES BY MARKET AREA BY SEGMENT

 

     Q2 2017     Jan-Jun 2017  

SEK million

   Networks     IT & Cloud     Other     Total     Networks     IT & Cloud     Other     Total  

South East Asia, Oceania and India

     6,292       1,319       119       7,730       12,945       2,597       197       15,739  

North East Asia

     4,118       1,693       42       5,853       8,743       2,582       89       11,414  

North America

     9,953       2,053       451       12,457       19,182       4,340       746       24,268  

Europe and Latin America

     10,513       3,865       853       15,231       19,099       7,191       1,648       27,938  

Middle East and Africa

     4,171       1,756       91       6,018       7,922       3,309       201       11,432  

Other

     1,792       202       656       2,650       3,808       414       1,295       5,517  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     36,839       10,888       2,212       49,939       71,699       20,433       4,176       96,308  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of total

     74     22     4     100     75     21     4     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q2 2017  

Sequential change, percent

   Networks     IT & Cloud     Other     Total  

South East Asia, Oceania and India

     -5     3     53     -3

North East Asia

     -11     90     -11     5

North America

     8     -10     53     5

Europe and Latin America

     22     16     7     20

Middle East and Africa

     11     13     -17     11

Other

     -11     -5     3     -8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6     14     13     8
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q2 2017     Jan-Jun 2017  

Year over year change, percent

   Networks     IT & Cloud     Other     Total     Networks     IT & Cloud     Other     Total  

South East Asia, Oceania and India

     -2     10     7     0     -1     9     1     1

North East Asia

     -12     25     20     -3     -2     -1     11     -2

North America

     -5     -11     -23     -7     -10     8     -33     -8

Europe and Latin America

     -11     -12     -10     -11     -15     -9     -13     -13

Middle East and Africa

     -19     -13     23     -17     -13     -10     19     -12

Other

     0     -19     7     0     -29     -40     -5     -26
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -8     -5     -6     -8     -11     -4     -13     -9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

IPR LICENSING REVENUES BY SEGMENT BY QUARTER

 

     2017      2016  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     1,562        1,609        1,612        1,610        1,724        3,064  

IT & Cloud

     195        201        202        201        216        383  

Other

     195        201        202        201        216        383  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,952        2,011        2,016        2,012        2,156        3,830  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2017      2016  

Year to date, SEK million,

   Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun      Jan-Mar  

Networks

     3,171        1,609        8,010        6,398        4,788        3,064  

IT & Cloud

     396        201        1,002        800        599        383  

Other

     396        201        1,002        800        599        383  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3,963        2,011        10,014        7,998        5,986        3,830  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

30      Ericsson  |  Second Quarter Report 2017


Table of Contents

PROVISIONS

 

     2017      2016  

Isolated quarters, SEK million

   Q2      Q1      Q4