Year-end report Axis AB (publ) May - December 2000

Axis is one of the global leaders in network connectivity and a pioneer in the field of local mobile networks. In an emerging market of intelligent networks with an increasingly greater need to connect various electronic devices, Axis has achieved an attractive strategic position through a well implemented technology and marketing investment program. It is clear that the Internet is a driving force for growth, particularly for digital network cameras. Axis' vision is to increase the value of the network for users by enabling access to everything, from anywhere, any time. On June 27, 2000, Axis was listed on the OM Stockholm Exchange's O-list. The objective for the exchange listing was to provide Axis with the financial strength required for continued expansion both geographically and into new product areas and for acquisitions of companies and/or technology. The new share issue implemented in conjunction with the exchange listing generated SEK 446 M. Thisincrease in equity gives Axis significantly greater freedom for developing basic technology and implementing product offerings. During the year 2000, Axis established the Mobile Internet division, took a clear position as a supplier of total solutions for local mobile networks and also generated the first earnings in this business area. Significant events during the year New products and solutions During the period from May to December 2000, Axis invested SEK 67 M in the development of the new product area Mobile Internet. The Group's total costs for research and development amounted to SEK 133 M. These investments are part of Axis' fourth and thus far most extensive renewal and development phase, which began in 1998. Development work is being conducted in accordance with the company's basic vision for network connectivity for all types of devices and communication regardless of the underlying network structure or protocol. When the fourth phase is completed during 2001, Axis will have implemented major investments in development that include a new technical platform based on Linux, integration of unlicensed radio technology and the implementation of total solutions for local mobile networks. In December 2000, Axis demonstrated its infrastructure for mobile access networks in San Jose, Hong Kong and Stockholm. In addition, a large number of new products were launched, including AXIS 2120, which is a new network camera with built-in motion detection and high image sensitivity. Strategic partnerships As a result of Axis' aggressive investments, a number of strategic partnerships were formed. The partnership with Canon, for example, was strengthened during the period with the result that Axis became one of Canon's largest global suppliers of network solutions. In November, the Camera division began a partnership with Sonyfor joint development of a video server. Successful efforts were also conducted during the period to secure additional strong distribution channels for Axis with the objective of strengthening the company's European presence. Structural changes Several structural changes were implemented during the period to promote stronger sales growth, increase profitability and generate positive cash flow. These include integrating CD and hard-disk servers from the former Storage division in the Document division. Two new customer-focused units were also created in this division, one with focus on core operations relating to printing and storage solutions and one targeting the OEM market, thus better leveraging Axis' strong position as a supplier of network solutions to a number of leading printer and copier manufacturers. These changes will result in reduced costs and more efficient utilization of marketing resources and sales channels. Axis is also increasing opportunities for growth by moving away from a product-oriented organization toward a greater market orientation. New Board member In conjunction with the Annual General Meeting on August 30, 2000, Dr. Östen Mäkitalo was elected as a member of the Board of Directors, thus further confirming Axis' ambitions in the areas of wireless communications and mobile Internet. Rationalization program within Netch Technologies Growth in Netch Technologies AB (Netch) was negatively affected by a weakening in the market for Internet-related services combined with new investments in the area of mobile services. This resulted in an operating loss of SEK 57 M during the period. To strengthen the company's capital base, a new share issue totaling SEK 57.6 M was implemented per February 2001. Axis subscribed for SEK 36.6 M, resulting in an ownership share of 59 percent. In parallel with thenew issue, a number of measures were taken with the objective of achieving profitability in 2001. The personnel have been reduced by approximately 50 percent, and Netch's office in Helsingborg is being closed. In addition, operations are being streamlined to focus on two core business areas: e-commerce and mobile solutions. Costs amounting to SEK 30 M for these rationalization measures will be charged against the income for Netch during the first quarter of 2001. Changed fiscal year At the Annual General Meeting on August 30, 2000, a decision was taken to change the fiscal year from the split year from May to April to a calendar year. The shortened fiscal year 2000 thus corresponds to eight months from May to December. Sales Sales during the eight-month period amounted to SEK 494 M, an increase of 3 percent, compared with the corresponding period during the precedingyear. For the final two-month period from November to December 2000, a growth in sales was reported of 23 percent, compared with the year-earlier period. The results of Axis' third renewal phase, meaning the product areas that were started from 1995 to 1997 are becoming increasingly evident. Of total sales during the eight-month period, more than half (55 percent) derived from these product areas, and sales of Camera products nearly tripled (+184 percent). Exchange-rate effects had a positive effect of SEK 32 M on sales. The millennium shift had a general and significant impact on the entire IT industry. For Axis, this resulted in market changes in the more mature product segments within the Document and Storage business areas. A generally weaker market for these products replaced the unusually strong demand that prevailed during 1999. In addition, sharply declining hard disk prices reduced the competitiveness of Axis' CD-server products. The OEM market, however, was an exception with stable growth and a 33-percent sales increase during the period. Operating loss The Group's operating loss during the eight-month period amounted to SEK 165 M, of which R&D costs amounted to SEK 133 M. During the final two months of the fiscal year, profitability was achieved in Axis' operations relating to ThinServer products, which include the Document, Storage, Camera and Technology business areas. Structural measures in this area create conditions for continued improvements in profitability. Exchange-rate effects had a positive effect of SEK 6 M on operating results. The loss for the fiscal year includes costs for investments in technical and business development in both established product areas and the new product area Mobile Internet of SEK 67 M, as well as the loss for Netch of SEK 57 M. Cash flow and financial position Cash flow from ongoing operations was negative in an amount of SEK 114 M for the eight-month period. Net investments amounted to SEK 38 M, in addition to investments charged directly within the Mobile Internet business area in the amount of SEK 67 M. Axis had at its disposal SEK 281 M on December 31, 2000, consisting of cash funds totaling SEK 196 M and unutilized credit guarantees of SEK 85 M. The company is thus financially strong as it enters fiscal year 2001. Changes in liquid funds during the fiscal year are shown in the table below. Equity After the new issue of 12,500,000 shares in conjunction with the exchange listing, the total number of Axis shares amounted to 68,900,000 on December 31, 2000. After full subscription of outstanding warrants, the total number of shares is 70,942,500. The new issue, which was priced at SEK 38, yielded SEK 446 M after all costs for the share issue. The Group's equity/assets ratio was 62.5 percent in December 31, 2000. Investments Axis invested an additional SEK 20 M in the US company nBandCommunications Inc., which develops advanced circuitry for wireless infrastructure. Axis' ownership share amounts to 11 percent. Parent Company The Parent Company's operations are primarily focused on Group administration. The Parent Company has no employees. Sales amounted to SEK 2 M. The operating loss amounted to SEK 141 M before tax. Prospects for 2001 After an intensive development phase during the year 2000, the pace of development will be normalized during 2001, and Axis will enter a phase with a focus on profitability during the year. The market for wireless local networks will be significant, according to several international industry analysts. However, it is difficult at present to specify when and at what pace the market will expand. Axis' position entering the year 2001 has continued strong potential in the Camera product area. Opportunities for profitability are increasing in the core operations relating to printing and storage solutions and in the OEM segment through the creation of two customer-focused units. The long-term financial goals, as established in conjunction with the exchange listing, remain unchanged. Events after the closing date In January 2001, Axis signed an agreement with Canon's sales company in Japan for three different Bluetooth(TM) products, including the AXIS 9010 access point and a print server. The initial order value is about SEK 4 M, making it the first volume order in Axis' new business area. The first deliveries are expected to take place in April 2001. Dividend The Board ofDirectors proposes that the company should pay no dividend for the fiscal year 2000. Annual General Meeting The Annual General Meeting will be held on May 23, 2001. Lund, February 12, 2001 Board of Directors BLUETOOTH is a registered trademark owned by Telefon AB LM Ericsson and licensed to Axis Communications. The accounting principles are unchanged, compared with the preceding year, with the exception of reporting of income tax for which recommendation 9 of the Swedish Financial Accounting Standards Council was applied. Figures for the preceding year were adjusted accordingly. Forthcoming reporting dates Three-month report April 20, 2001 Six-month report August 20, 2001 Nine-month report October 18, 2001 The full interim report including tables is available to download from the enclosed link. Year-end report May - December 2000 Axis AB • Scheelevägen 34 SE-223 63 Lund • Sweden www.axis.com