Ericsson charts new course; sets strategic direction and growth targets

Ericsson charts new course; sets strategic direction and growth targets Ericsson today outlined its strategies which, by seeking to capitalize on the growing demand for wireless communications and Internet-based technology will position Ericsson for leadership in the next century. The company also announced aggressive growth targets for its business segments. "Ericsson is charting an entirely new course in the communications industry," says Sven-Christer Nilsson, the company's president and chief executive officer. "We are combining our industry-leading position in wireless communications with a strong commitment to IP technologies to aggressively move our business forward. Based on this new direction, we intend to grow faster than the overall industry - i.e. by well over 20 per cent a year." Ericsson's plans grew out of a strategic business review that Sven-Christer Nilsson initiated six months ago when he became CEO. That review also resulted in a new, market-focused organization which the company announced on September 30. Ericsson's new strategic direction is driven in part by the convergence of the telecommunications and datacommunications industries. IP technology, which is widely used in the datacom world, is increasingly being employed in telecom networks. At the same time, the datacom industry is beginning to adopt the standards of robustness and high availability that have long characterized telecom or "carrier-class" networks. Strategic Direction "The convergence of these two industries along with other industry trends is having a profound impact on our customers," Sven-Christer Nilsson says. "What is perhaps less widely appreciated, however, is the impact on the marketplace of a third convergence factor - mobility. Wireless access is an increasingly powerful force that will infuse all areas of communications. In the future, the wireless world will go well beyond Ericsson's current mobile networks and will include everything from wireless LAN's (Local Area Networks) in homes and offices to wireless Internet access. Many of these applications will also be based on IP-technologies and will require carrier-class networking know-how, Ericsson's core competence. "The real winners will be the companies that can integrate all three dimensions in their products and services and Ericsson is in a unique position to do so. We are already the leader in wireless communications, and have deep experience building carrier-class networks. Ericsson is now strengthening the third element - IP technology - which will allow us to play a true leadership role in the communications industry of the future. No other company is as well positioned," Sven-Christer Nilsson says. Ericsson is building out its product portfolio to integrate as many of these capabilities as possible. IP router technology, for example, is now being implemented in the company's next generation wireless systems. Cellular technology is being exported to local area networks. And intelligent network services have migrated to mobile systems. "Bluetooth and Symbian are two other examples of ground-breaking ventures we've initiated in this area", says Sven-Christer Nilsson. "In the future, you will see much of this creative integration coming out of Ericsson." Business Plans Based on this strategic direction, Ericsson recently reorganized its business into three customer segments: operators and service providers, enterprises and consumers. The company has developed specific long term growth strategies for each segment, focusing in particular on high growth areas within the segment. The operator and service provider market, for example, is growing at a 15 % annual rate but has high-growth areas in wireless voice (20 %), wireless data (approx. 80 %) and wireline data (approx. 25 %). Given its sizeable base, the wireless voice market shows particular promise. The number of wireless subscribers has grown to 200 million in just 15 years. Going forward, however, that base will increase to 800 million in one-third of the time - just five years. Total minutes of usage on wireless networks will increase almost nine-fold in the same period - from 300 billion minutes today to 2,600 billion minutes in 2003. This will be driven by falling airtime charges, the rise of prepaid calling plans and the growth of the emerging wireless data market. Ericsson, according to Sven-Christer Nilsson, will maintain its number one position in wireless voice and to establish a similar position in wireless data. Ericsson expects to maintain a top three position in wireline voice and establish a top three position in the carrier-class, real-time IP segment of wireline data. Ericsson is now introducing wireless Internet, for example GPRS and EDGE in GSM and D-AMPS. Ericsson has also now set the standards for the third generation mobile communication with WCDMA - the true candidate for a world standard- both for Europe, Japan and the US. It is supported by over 85 % of the digital mobile operators. The Wideband CDMA will provide 100 times higher data rates than today's GSM and D-AMPS networks. Ericsson's strategy in this latter segment is to leverage off its carrier- class capabilities and to emphasize a systems approach. "We will continue developing our internal competence in datacom and to pursue a selective acquisition policy to add needed technology or channel access. We describe our acquisition strategy as a "string of pearls" approach. It focuses on small to mid-sized firms that are leading innovators. We think this is a much smarter strategy than pursuing a "mega-merger," which would be prohibitively expensive and dilutive of earnings. The aim is to complement with certain technology, not necessarily to buy market shares," says Sven- Christer Nilsson. Ericsson is targeting an overall annual growth rate of at least 20 % in the network operator and service provider segment. The enterprise market is growing by just seven per cent a year but has significant growth opportunities in wireless voice and data. Ericsson plans to achieve overall growth in this segment of more than 10 - 15% long term by developing Professional Services, maintain a top five position in wireline voice, establishing a top three position in wireline data solutions and a top two position in the office segment of wireless voice. The consumer products market is growing 14% a year, a level Ericsson intends to outperform, partly by putting emphasis on wireless data, which will grow at an annual approx. 30 % rate. Some industry analysts have suggested that the wireless data area will produce volumes greater than the PC market within the next few years. Ericsson intends to improve its position in wireless voice to one of the top two and is seeking a top two position in wireless data. Ericsson is targeting an overall annual growth rate of at least 20 % in the consumer segment. "These are ambitious growth levels, but we are committed to achieving them", Sven-Christer Nilsson says. "Our new organization will be of enormous benefit in helping us do so. The new model provides for a stronger customer interface, faster and more entreprenuerial product development and supply, more transparent reporting procedures and stronger strategic direction setting. With this model in place, we are poised not only for growth but for more profitable growth in the years ahead." Ericsson is a full communications supplier for network operators and service providers, enterprises and consumers. With more than 100,000 employees in 140 countries, Ericsson is world leading in both mobile and fixed communications solutions. Uncertainties in the Future. "Safe Harbour" Statement under the U.S. Private Securities. Some statements in the press release are forward looking and actual results may differ materially from those stated. In addition to the factors discussed, among the other factors that may affect results are product demand, the effect of economic conditions, exchange-rate and interest-rate movements, the impact of competitive products and pricing, product development, commercialization and technological difficulties, political risks in the countries in which the Company has operations or sales, supply constraints, and the result of customer financing efforts. FOR FURTHER INFORMATION, PLEASE CONTACT Lars A Stålberg, Senior Vice President, Corporate Relations, Phone: +46 8 719 31 62 or +46 70 555 6066 E-mail: lars.stalberg@lme.ericsson.se Pia Gideon, Pia Gideon, Manager External Relations Phone: +46 8 719 2864 or +46 70 519 2864 E-mail: pia.gideon@lme.ericsson.se