Ericsson reports positive cash flow and extends market share in mobile systems

Ericsson reports positive cash flow and extends market share in mobile systems · Earlier than expected savings through rapid implementation of Efficiency Program · Leadership in 2G and 3G mobile systems extended, GSM sales up 17% year to date · Adjusted income before taxes declined to SEK -5.8 b.; Latin America sales dropped sharply, as indicated in early September · Momentum for sustainable profitability: target over 5% operating margin full year 2002 Third quarter Nine months SEK b. 2001 2000 Chang 2001 2000 Chang e e Orders 44.9 68.7 -35% 181.5 212.9 -15% - Systems 35.3 49.7 -29% 148.6 153.2 -3% - Phones 7.4 14.1 -47% 22.2 42.1 -47% - Other operations 4.1 7.7 -46% 17.9 27.7 -35% Sales 54.6 67.3 -19% 173.3 191.5 -9% - Systems 43.0 48.1 -11% 137.8 133.4 3% - Phones 8.3 14.3 -42% 23.6 42.5 -45% - Other operations 5.5 8.1 -32% 19.7 25.9 -24% Adjusted Operating -5.2 4.7 -13.8 18.3 Income 1) - Systems 0.2 8.1 2.6 23.4 - Phones -4.2 -4.0 -14.6 -5.5 - Other operations -0.8 0.5 -0.8 1.6 - Unallocated -0.4 0.1 -1.0 -1.2 Adjusted Operating -10% 7% -8% 10% Margin 1) - Systems 1% 17% 2% 18% - Phones -51% -28% -62% -13% - Other operations -15% 6% -4% 6% Adjusted Income Before -5.8 4.1 -16.0 16.8 Taxes 1) Net Income -4.0 4.4 -17.8 18.8 Earnings per share, -0.50 0.55 -2.25 2.37 diluted (SEK) Earnings per share, diluted per U.S. GAAP (SEK) -0.71 0.49 -2.45 2.29 Cash flow before 1.2 -6.2 -12.3 -5.2 financing activities Number of employees 92,94 103,3 9 94 1) Adjusted for: - Capital gain, - - 5.5 - Juniper - Non-operational 0.2 1.4 0.2 6.2 capital gains - Pension refund - - - 1.1 - Restructuring - - -15.0 - charges OPERATIONAL RESULTS In the third quarter, orders and sales were affected primarily by the drop in Latin America and by lower systems sales and reduced phone volumes. Even with these reductions, our sales performance in Mobile Systems is still the strongest in the industry. Adjusted income before taxes, excluding non-operational items, was SEK - 5.8 b. This decrease reflects lower income in Systems, largely related to Multi-Service Networks, and reduced income in Other Operations related to lower sales of Microelectronics. CEO COMMENTS "With 17% sales growth so far this year we have once again outpaced all competitors in GSM systems and at the same time demonstrated fast progress in adapting our organization and costs to the difficult market conditions," says Kurt Hellström, President and CEO of Ericsson. "Cash flow was positive for the second consecutive quarter with improvements in inventories. We have a strong cash position and expect continued cash flow improvement." "The Efficiency Program is ahead of schedule with SEK 2.5 b. in savings this quarter and estimated savings of SEK 7 b. for the full year. With this momentum, our objective is to achieve over 5% operating margin for the full year 2002, as we continuously adjust our capacity and discontinue lower priority products and activities." "We are regaining strength in mobile phones and have launched several new phones including five GPRS models. The T39 is a bestseller and we have received strong interest in the T68 with color screen, which we have just started shipping. The restructuring of our mobile phone business is nearly completed. The Sony Ericsson Mobile Communications joint venture was launched as scheduled on October 1." "We are also very positive about the technology licensing business retained by Ericsson. We will continue to invest in this area to become a leading supplier of core technology to mobile phone manufacturers." "Despite the effects of the current slowdown on our recent financial results, the underlying demand drivers of our business remain strong. With the top position in GSM and 3G we have clearly extended our lead in mobile systems even further." "The substantial cost savings of our Efficiency Program were overshadowed by excess capacity costs and pricing pressure. The rapidly dropping sales volumes in Latin America during the third quarter emphasize the difficulty in forecasting under such changing conditions." "In these challenging times, our customers rely more than ever on our ability to deliver better solutions faster. With our dedicated people, strong cash position, premier customer base and technological lead, I am confident that we will deliver on our customers' expectations better than any competitor." OPERATIONAL REVIEW Systems With the benefits of the Efficiency Program we maintained a 1% operating margin in Systems. Although this margin is not satisfactory, it has held up well compared to our peers. Orders and sales declined sharply in Latin America. Sales in China, Middle East and Africa remained strong. Mobile Systems We continued our leadership in Mobile Systems, with GSM sales up 17% year to date, despite a 6% decline in the third quarter. Total Mobile Systems sales decreased 8%, but are still up 3% year-to-date in a market that is expected to be flat this year. In the third quarter, orders were down 23%. The main decrease was in TDMA and PDC, but GSM orders also declined. The impact from 3G orders was lower than in the previous two quarters, as most agreements for the first phase of network deployments have already been booked. Our leadership in 3G remains unquestioned with an estimated 40% market share in terms of projected UMTS sales. Multi-Service Networks During the first six months of the year, Multi-Service Networks sales increased 23% due to very strong demand in Latin America. In the third quarter, however, sales decreased 21%, abruptly reversing the trend in this region. As a consequence of the lower sales and margins, the product portfolio is under review, with home communication products already discontinued and the ADSL and broadband access strategies being revisited. Sales of our ENGINE solution in general continued to develop favorably with seven new agreements in the quarter. ENGINE is our solution for operators to convert existing circuit-switched networks into packet- switched multi-service networks or build entirely new networks. Mobile Phones Sales were sequentially flat with unit volumes decreasing from 7.7 to 7.2 million which was partially offset by higher average selling prices. This resulted in somewhat improved financial performance compared to last quarter. With the formation of the Sony Ericsson Mobile Communications joint venture the restructuring of our mobile phone business is nearly complete. The new company began operations as planned on October 1 with the transfer of 2,700 employees from Ericsson and the launch of a new mobile phone brand. Fifty percent of the results from the joint company will be reported as part of "Share in earnings of associated companies" starting in the fourth quarter. The mobile phones activities retained by Ericsson, which include the licensing businesses for mobile technology platforms and Bluetooth as well as our manufacturing in China, will be further optimized. These activities will be reported as part of Other Operations starting in the fourth quarter. Other Operations Adjusted operating income for Other Operations declined primarily due to lower sales and volumes for Microelectronics, but also lower results from Cables and Defense. Microelectronics has high fixed costs. Income is therefore very volume sensitive to the general downturn in demand from Ericsson as well as third parties for components for mobile phones and systems. Efficiency Program Our Efficiency Program has gained full momentum and implementation is ahead of schedule for the SEK 20 b. in yearly savings from 2002. This year, the program will provide around SEK 7 b. in savings, compared with the SEK 5.5 b. previously planned. During the third quarter, we reached the following milestones in the Efficiency Program: · The number of employees was reduced by 5,500, bringing the total reduction so far this year to 6,800 of the 10,000 planned for the Efficiency Program. · A new streamlined organization was created with fewer market units, concentrated R&D and supply units, fewer management layers and a Chief Operating Officer function. In addition to the Efficiency Program, other measures such as outsourcing and divestitures have reduced the workforce further. In total, the number of employees has been reduced from 107,200 in March to 92,900 by the end of September 2001. With the transfer of 2,700 employees to Sony Ericsson Mobile Communications and other reductions during October, our total headcount is today below 90,000. The total number of consultants and temporary workers has been reduced by 7,700 during the last six months. FINANCIAL REVIEW INCOME Gross margin declined in the quarter due to excess capacity costs, price pressure and the sharp sales and volume decline in Multi-Service Networks and Microelectronics. Operating margin declined from -7% in the second quarter to -10% in the third quarter, as reductions in operating expenses only partially offset the lower gross margin. Effects of foreign currency exchange rates, compared to the rates one year ago, were SEK 0.5 b., with SEK -0.7 b. in Phones. Restructuring reserves of SEK 3.2 b. were utilized, of which approximately SEK 2.5 b. had a negative cash flow impact. With the SEK 2.5 b. savings benefit from the Efficiency Program, the cash flow impact of restructuring actions was neutral. Financial net and minority interests improved somewhat in the quarter, mainly related to favorable foreign currency effects. Taxes are calculated at the expected annual average rate of 30%. Earnings per share (EPS) diluted were SEK -0.50 in the quarter and SEK - 2.25 (2.37) year to date. EPS diluted according to US GAAP year-to-date was SEK -2.45 (2.29). Positive effects of capitalization of software development costs were lower than last year, due to reduced R&D costs, more conservative capitalization, additional write downs from product portfolio reviews and continued depreciation on previously capitalized items. A negative effect of around SEK -0.25 related to timing differences of restructuring charges impacted the third quarter, as the recognition of some charges in the second quarter under Swedish GAAP were postponed to the third quarter according to US GAAP. CASH FLOW Cash flow before financing activities was positive in the third quarter by SEK 1.2 b. Receivables were reduced by SEK 5 b. mainly due to lower sales. Inventory was reduced by SEK 2.4 b. through better turnover. Payments from Flextronics for components were SEK 4 b. as planned. As previously mentioned the Efficiency Program was cash flow neutral. Cash flow contribution from divestitures of real estate was SEK 0.6 b., with further divestitures planned for the fourth quarter. BALANCE SHEET AND FINANCING The equity ratio was stable at 32%, even with the net loss in the quarter, due to lower levels of assets (i.e. reduced receivables and inventory). The Payment Readiness (cash plus temporary investments and long-term committed credit facilities less short-term interest-bearing liabilities) was improved, without changing the equity ratio. This was accomplished through a positive operating cash flow and by establishing an additional USD 600 m. in long-term committed credit facilities which now amount to USD 1.6 b.. To further strengthen payment readiness, borrowing under our Euro Medium Term Note Program (EMTN) and long-term bank loans were increased by SEK 3.7 b. during the quarter. As a result, our payment readiness is now 20% of sales, compared to our normal target level of 7-10%. We believe that this is favorable in the prevailing uncertain environment. To enlarge access to long-term liquidity, a EUR 400 m. loan agreement was signed with the European Investment Bank on October 8. With the positive cash flow, net debt (including pensions and similar commitments) decreased from SEK 33.3 b. to SEK 31.0 b. The refinancing of short-term debt continued during the third quarter and the maturity profile of the interest-bearing liabilities has now been substantially extended. Under the current financial market conditions, we strive to decrease the refinancing risk and free up capacity in our short-term borrowing programs. CUSTOMER FINANCING Our customer financing exposure decreased by approximately SEK 1 b. in the quarter to SEK 21.9 b., with repayments and credits sold outpacing additional lending. Brazil and the U.S. are still the markets with the largest exposures. MARKET VIEW Our global forecast of 25-35% mobile subscriber growth this year remains, with 920- 950 million subscribers by year-end. We expect about as many new subscribers will be added in 2002 as in 2001. Our long-term forecast remains unchanged with 1.6 b. mobile subscribers anticipated by year-end 2005. The number of mobile phones sold-through (units purchased by end users) this year will be around 400 million, which is the low end of our previous estimates. In 2002, we expect some growth in unit volume with a larger proportion of replacement phones, driven by new phones with GPRS, Bluetooth, color screens and multimedia messaging capabilities. As we indicated in early September when we updated our outlook for this year, the slowdown for telecommunications systems accelerated during the third quarter. We now anticipate that the difficult market conditions will persist well into next year, particularly in Latin America. Operators are prioritizing profitability and cash flow over subscriber growth by lowering mobile phone subsidies and postponing network expansion. We believe that growth in the mobile systems market this year will be more or less flat. In September we estimated flat to modest market growth for 2002. We now estimate the range to be flat to down 10%. Our market view is based on discussions with our customers. Our assumptions are a market downturn lasting well into next year, significant net subscriber additions with continued increasing usage per subscriber, gradual build up of GPRS traffic over the next 12 to 18 months, and increased deployment of 3G systems during 2002. OUTLOOK In our second quarter report we refrained from giving specific guidance for the third quarter and the full year. For the fourth quarter, we expect net sales of approximately SEK 55b. excluding the parts of the mobile phones operations that were transferred to Sony Ericsson Mobile Communications. Mobile systems sales are expected to decrease 10% compared with the fourth quarter last year. We will benefit from the Efficiency Program savings, but with continued price pressure, under-utilization of capacity and increased provisions for customer financing risks in Latin America, we anticipate a pre-tax loss somewhat smaller than in the third quarter 2001. This estimate includes fifty percent of the results from Sony Ericsson Mobile Communications but excludes non-operational items. For 2002, we expect sales at least in line with the market development of flat to down 10%. However, we plan to achieve an operating margin greater than 5% for the full year, even with sales declining as much as 10%. This target includes fifty percent of the results from Sony Ericsson Mobile Communications but excludes non-operational items. Our operational planning is cautious and based on the lower end of our sales estimate. We will identify and implement any necessary cost reductions on an ongoing basis in pace with our sales development. Parent company information The parent company business mainly consists of corporate management and holding company functions as well as activities performed on a commission basis by Ericsson Treasury Services AB and Ericsson Credit AB regarding internal banking and customer credit management. Net sales for the quarter were SEK 4.1 b. and income before taxes was SEK 10.2 b. Major changes in the company's financial position were: · Increased investments in subsidiaries, SEK 26 b. · Increased short- and long-term loans to subsidiaries, SEK 18 b. These investments and loans were financed primarily through increased internal borrowing of SEK 18 b. and increased long-term external borrowing of SEK 27 b. At September 30, cash and short-term cash investments amounted to SEK 27 b. (26 b.). Accounting principles This interim report has been prepared in accordance with the Swedish Financial Accounting Standards Council's recommendation RR 20, Interim reports. The same accounting principles have been used as in our latest annual report. The following optional recommendations are not yet implemented: RR 1:00, RR 15, RR 16, RR 17 and RR 19. For US GAAP purposes, FAS 133 "Accounting for derivative instruments and hedging activities" is adopted from January 1, 2001. Stockholm, October 26, 2001 Kurt Hellström President and CEO (Unaudited) Uncertainties in the Future "Safe Harbor" Statement under the U.S. Private Securities Litigation Reform Act of 1995: Some statements in this interim report are forward looking and actual results may differ materially from those stated. In addition to the factors discussed, among other factors that may affect results are product demand, the effect of economic conditions, exchange-rate and interest-rate movements, capital- and credit market developments, the ability to successfully restructure existing business, the timing of customer orders and manufacturing lead times, the changes in customer order and payment patterns, insufficient, excess or obsolete inventory, and the impact of competing products and their 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. Results for interim periods are not necessarily indicative of results for the full fiscal year or any future periods Date for next report: January 25, 2002 A glossary of all technical terms is available at: http://www.ericsson.com/about and in the annual report. FOR FURTHER INFORMATION PLEASE CONTACT Corporate Communications: Roland Klein, Senior Vice President, Corporate Communications Phone: +44 20 7451 5660, +44 7776 162 997 E-mail: roland.klein@clo.ericsson.se Investors: Gary Pinkham, Vice President, Investor Relations Phone: +1 212 685 4030 E-mail: investorrelations@ericsson.com Lars Jacobsson, Vice President, Financial Reporting and Analysis Phone: +46 8 719 9489, +46 70 519 9489 E-mail: lars.jacobsson@lme.ericsson.se Maria Bernström, Director, Investor Relations Phone: +46 8 719 5340, +46 70 533 4750 E-mail: maria.bernstrom@lme.ericsson.se Lotta Lundin, Manager, Investor Relations Phone: +44 0 20 745 15664, +44 7887 628 707 E-mail: lotta.lundin@clo.ericsson.se Glenn Sapadin, Manager, Investor Relations Phone: +1 212 685 4030 E-mail: investorrelations@ericsson.com Media: Pia Gideon, Vice President, External Relations Phone: +46 8 719 2864, +46 70 519 2864 E-mail: pia.gideon@lme.ericsson.se Mads Madsen, Director, Media Relations Phone: +46 8 719 0626, +46 70 666 2903 E-mail: mads.madsen@lme.ericsson.se Åse Lindskog, Director, Media Relations Phone: +46 719 9725, +46 730 244 872 E-mail: ase.lindskog@lme.ericsson.se ERICSSON CONSOLIDATED July-Sep Jan-Sep Jan-Dec** INCOME STATEMENT SEK million 2001 2000 Change 2001 2000 Chang 2000 e Net sales 54,589 67,342 -19% 173,301 191,460 -9% 273,569 Cost of sales -40,070 -43,313 -7% - 122,907 -117,279 5% -172,892 Restructuring 0 0 -5 000 0 -7 500 costs Gross margin 14,519 24,029 -40% 45,394 74,181 -39% 93,177 Gross margin as 26.6% 35.7% 26.2% 38.7% 34.1% percentage of net sales Research and -10,555 -9,830 7% -33,564 -28,463 18% -41,421 development and other technical expenses Selling -6,513 -7,657 -15% -22,308 -23,366 -5% -34,706 expenses Administrative -2,845 -2,728 4% -9,634 -9,057 6% -13,311 expenses Restructuring 0 0 -10 000 0 - 500 costs Operating -19,913 -20,215 -1% -75,506 -60,886 24% -89,938 expenses Operating expenses 36.5% 30.0% 43.6% 31.8% 32.9% as percentage of net sales Other operating 273 2 252 6,960 12,066 27,652 revenues Share in earnings of 46 80 - 52 157 274 associated companies Operating -5,075 6,146 -183% -23,204 25,518 -191% 31,165 income *) Operating margin as -9.3% 9.1% -13.4% 13.3% 11.4% percentage of net sales Financial 782 956 -18% 2,259 2,209 2% 2,929 income Financial -1,041 -1,434 -27% -3,630 -3,135 16% -4,449 expenses Income after -5,334 5,668 -194% -24,575 24,592 -200% 29,645 financial items Minority interest in - 323 - 190 70% - 803 - 493 63% - 953 income before taxes Income before -5,657 5,478 -203% -25,378 24,099 -205% 28,692 taxes Taxes 1,698 -1,110 -253% 7,614 -5,331 -243% -7,674 Net income -3,959 4,368 -191% 17,764 - 18,768 - 195% 21,018 Earnings per share, -0.50 0.55 -2.25 2.38 2.67 basic (SEK) Earnings per share, -0.50 0.55 -2.25 2.37 2.65 diluted (SEK) *) Of which items affecting comparability Non- 1,426 168 6,164 5,933 operational capital 165 gains/losses, net Capital 0 0 5,453 0 15,383 gain, Juniper 0 0 0 1,100 1,100 Pension refund 0 -15,000 0 -8,000 Restructuring costs 0 165 1,426 -9,379 7,264 14,416 Total Adjusted -5,240 4,720 -13,825 18,254 16,749 operating income Adjusted -9.6% 7.0% -8.0% 9.5% 6.1% operating margin Adjusted -5,822 4,052 -15,999 16,835 14,276 income before taxes **) Proforma restated ERICSSON CONSOLIDATED BALANCE SHEET Sep 30 June 30 Dec 31 Sep 30 SEK million 2001 2001 2000 2000 Fixed assets Intangible 13,203 13,644 12,833 12,568 assets Tangible assets 23,012 24,383 22,378 23,814 Financial assets Equity in associated 2,625 2,635 2,790 2,869 companies Other 3,139 3,049 2,484 2,490 investments Long-term customer 5,889 3,233 6,364 7,588 financing Other long- 13,911 7,429 3,657 3,440 term receivables Total fixed 61,779 54,373 50,506 52,769 assets Current assets Inventories 28,248 31,975 43,933 48,361 Receivables Accounts receivable - 63,697 71,927 76,240 68,794 trade and short-term customer financing Other 45,008 53,510 44,029 44,831 receivables Short-term cash investments, 39,969 36,235 35,606 23,753 cash and bank Total current 176,922 193,647 199,808 185,739 assets Total assets 238,701 248,020 250,314 238,508 Stockholders' 72,387 76,626 91,686 89,926 equity Minority interest in equity of 3,437 3,481 2,764 2,433 consolidated subsidiaries Provisions 34,749 35,116 27,650 26,770 Long-term 51,541 47,462 22,294 22,512 liabilities Current 76,587 85,335 105,920 96,867 liabilities Total stockholders' equity, 238,701 248,020 250,314 238,508 provisions and liabilities Of which interest-bearing 70,940 69,581 46,563 41,444 provisions and liabilities Assets pledged as 267 132 435 - collateral Contingent 12,796 15,810 11,184 - liabilities ERICSSON CONSOLIDATED STATEMENT OF CASH FLOWS July-Sep Jan-Sep Jan-Dec SEK million 2001 2000 2001 2000 2000 Net income and adjustments -5,385 4,216 -16,534 15,445 23,684 to reconcile net income to cash Changes in operating 8,655 -10,381 1,536 -26,208 -34,532 assets, net Cash flow from operating 3,270 -6,165 -14,998 -10,763 -10,848 activities Acquisitions/sales of 85 1 661 8 585 11 189 22 643 other investments, net Other investing -2,189 -1,710 -5,855 -5,601 -5,399 activities Cash flow from investing -2,104 - 49 2,730 5,588 17,244 activities Cash flow before 1,166 -6,214 -12,268 -5,175 6,396 financing activities Dividends paid - 267 - 4 -4,365 -4,070 -4,179 Other financing 3,171 1,952 20,859 3,646 3,943 activities Cash flow from financing 2,904 1,948 16,494 - 424 - 236 activities Effect of exchange rate - 336 376 137 344 438 changes on cash Net change in 3,734 -3,890 4,363 -5,255 6,598 cash Cash and cash equivalents, 36,235 27,643 35,606 29,008 29,008 beginning of period Cash and cash equivalents, 39,969 23,753 39,969 23,753 35,606 end of period CHANGES IN STOCKHOLDERS' EQUITY Jan-Sep Jan-June Jan-Dec Jan-Sep 2001 2001 2000 2000 Opening balance 91,686 91,686 69,176 69,176 Stock issue 155 155 - - Conversion of debentures 10 9 1,915 1,902 Repurchase of own stock -156 -156 -386 -386 Dividends paid -4,007 -4,063 -3,919 -3,919 Gains on sale of own options and - - 2,018 2,010 convertible debentures Changes in cumulative translation 2,117 2,452 1,975 2,476 adjustments Net income -17,764 -13,805 21,018 18,771 Other changes 346 348 -111 -104 Closing balance 72,387 76,626 91,686 89,926 ERICSSON OTHER INFORMATION Jan-Sep Jan-June Jan-Sep SEK million 2001 2001 2000 Number of shares and earnings per share Number of shares outstanding, 8,065 8,065 7,910 basic, end of period (million) Number of shares outstanding, 8,149 8,153 7,999 diluted, end of period (million) Number of treasury shares, end of 157 157 2 period (million) Average number of shares, basic 7,909 7,909 7,869 (million) Average number of shares, diluted 7,909** 7,909** 7,993 (million) Earnings per share, basic (SEK) -2.25 -1.75 2.38 Earnings per share, diluted (SEK)* -2.25 -1.75 2.37 Earnings per share, diluted, per -2.45 -1.74 2.29 U.S. GAAP (SEK) Ratios Equity ratio, percent 31.8 32.3 38.7 Capital turnover (times) 1,6 1.6 2.0 Accounts receivable turnover 3.4 3.3 3.9 (times) Inventory turnover (times) 4.5 4.4 4.2 Return on equity, percent -28.9 -32.8 31.5 Return on capital employed, -19.4 -22.9 29.1 percent Other Research and development and other technical expenses (including costs related to 34,284 23,454 29,403 customer orders) - As percentage of Net Sales 19.8 19.7 15.4 Additions to tangible fixed assets 7,699 6,062 8,480 - Of which in Sweden 2,702 2,162 3,635 Total depreciation on tangible and 5,771 3,593 5,841 intangible assets - Of which goodwill 741 483 459 Orders booked 181,547 136,665 212,866 Export from Sweden 90,250 63,673 114,357 Net debt 30,032 33,347 20,124 * Calculation of earnings per share, diluted Net income 18,768 Interest on convertible Not Not applicable 153 debentures, net after tax applicable Adjusted net income See below ** See below ** 18,921 Average number of shares, diluted 7,993 (million) Earnings per share, diluted (SEK) 2.37 ** Potential ordinary shares are not dilutive when their conversion to ordinary shares would increase earnings per share. Three-year summary 2000 1999 1998 Net sales 273,569 215,403 184,438 Operating income 31,165 17,590 19,273 Earnings per share, fully diluted 2.65 1.54 1.67 (SEK) Return on equity, percent 26.1 18.3 22.5 Return on capital employed, 26.5 19.0 24.9 percent Equity ratio, percent 37.7 35.2 38.9 Number of employees 105,129 103,290 103,667 ORDERS BOOKED BY SEGMENT BY QUARTER (SEK m.) 2000 PROFORMA RESTATED 2000 2001 Year to date 0003 0006 0009 0012 0103 0106 0109 Systems 57,944 103,50 153,21 213,164 62,583 113,286 148,561 3 9 of which 48,471 85,757 125,73 175,609 52,625 94,841 125,430 Mobile Systems 8 9,473 17,746 27,481 37,555 9,958 18,445 23,131 Multi-Service Networks Phones 14,562 27,988 42,113 56,937 7,178 14,813 22,234 Other operations 11,266 19,991 27,665 35,751 8,239 13,764 17,902 Less: -4,298 -7,287 -10,131 -13,508 -2,501 -5,198 -7,150 Intersegment sales Total 79,474 144,195 212,866 292,344 75,499 136,665 181,547 Change 0103 0106 0109 Systems 8% 9% -3% of which 9% 11% 0% Mobile Systems 5% 4% -16% Multi-Service Networks Phones -51% -47% -47% Other operations -27% -31% -35% Less: -42% -29% -29% Intersegment sales Total -5% -5% -15% 2000 2001 Isolated quarters Q1 Q2 Q3 Q4 Q1 Q2 Q3 Systems 57,944 45,559 49,716 59,945 62,583 50,703 35,275 of which 48,471 37,286 39,981 49,871 52,625 42,216 30,589 Mobile Systems 9,473 8,273 9,735 10,074 9,958 8,487 4,686 Multi-Service Networks Phones 14,562 13,426 14,125 14,824 7,178 7,635 7,421 Other operations 11,266 8,725 7,674 8,086 8,239 5,525 4,138 Less: -4,298 -2,989 -2,844 -3,377 -2,501 -2,697 -1,952 Intersegment sales Total 79,474 64,72 68,671 79,478 75,499 61,166 44,882 1 Change Q1 Q2 Q3 Systems 8% 11% -29% of which 9% 13% -23% Mobile Systems 5% 3% -52% Multi-Service Networks Phones -51% -43% -47% Other operations -27% -37% -46% Less: -42% -10% -31% Intersegment sales Total -5% -5% -35% NET SALES BY SEGMENT BY QUARTER (SEK m.) 2000 PROFORMA RESTATED 2000 2001 Year to date 0003 0006 0009 0012 0103 0106 0109 Systems 38,910 85,343 133,440 194,747 44,127 94,843 137,798 of which 32,481 70,339 109,061 158,083 35,336 76,356 111,923 Mobile Systems 6,429 15,004 24,379 36,664 8,791 18,487 25,875 Multi-Service Networks Phones 14,794 28,145 42,473 56,279 7,170 15,317 23,567 Other operations 9,297 17,801 25,888 35,927 7,249 14,162 19,671 Less: -3,916 -7,171 -10,341 -13,384 -2,614 -5,610 -7,735 Intersegment sales Total 59,085 124,118 191,460 273,569 55,932 118,712 173,301 Change 0103 0106 0109 Systems 13% 11% 3% of which 9% 9% 3% Mobile Systems 37% 23% 6% Multi-Service Networks Phones -52% -46% -45% Other operations -22% -20% -24% Less: -33% -22% -25% Intersegment sales Total -5% -4% -9% 2000 2001 Isolated Q1 Q2 Q3 Q4 Q1 Q2 Q3 quarters Systems 38,910 46,433 48,097 61,307 44,127 50,716 42,955 of which 32,481 37,858 38,722 49,022 35,336 41,020 35,567 Mobile Systems 6,429 8,575 9,375 12,285 8,791 9,696 7,388 Multi-Service Networks Phones 14,794 13,351 14,328 13,806 7,170 8,147 8,250 Other operations 9,297 8,504 8,087 10,039 7,249 6,913 5,509 Less: -3,916 -3,255 -3,170 -3,043 -2,614 -2,996 -2,125 Intersegment sales Total 59,085 65,033 67,342 82,109 55,932 62,780 54,589 Change Q1 Q2 Q3 Systems 13% 9% -11% of which 9% 8% -8% Mobile Systems 37% 13% -21% Multi-Service Networks Phones -52% -39% -42% Other operations -22% -19% -32% Less: -33% -8% -33% Intersegment sales Total -5% -3% -19% ADJUSTED OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER (SEK m.) 2000 RESTATED FOR COMPARABILITY 2000 2001 Year to date 0003 0006 0009 0012 0103 0106 0109 Systems 5,641 15,280 23,392 32,641 1,808 2,382 2,620 Phones 569 -1,544 -5,517 -15,613 -5,72-10,350 -14,559 2 Other operations 578 1,058 1,550 1,579 -118 25 -817 Unallocated* -413 -1,260 -1,171 -1,858 -331 -642 -1,069 Total 6,375 13,534 18,254 16,749 -4,363 -8,585 -13,825 Items affecting comparability: - Non-operational 4,738 6,164 5,933 42 3 168 capital - gains/losses, net - Capital gain 15,383 5,453 5,453 5,453 Juniper Networks - - - - Pension refund 1,100 1,100 1,100 - - - - - Restructuring -8,000 - -15,000 costs - - - - 15,000 2000 2001 As percentage of Net 0003 0006 0009 0012 0103 0106 0109 Sales Systems 14% 18% 18% 17% 4% 3% 2% Phones 4% -5% -13% -28% -80% -68% -62% Other operations 6% 6% 6% 4% -2% 0% -4% Total 11% 11% 10% 6% -8% -7% -8% 2000 2001 Isolated quarters Q1 Q2 Q3 Q4 Q1 Q2 Q3 Systems 5,641 9,639 8,112 9,249 1,808 574 238 Phones 569 -2,113 -3,973 -10,096 -5,722 -4,628 -4,209 Other operations 578 480 492 29 -118 143 -842 Unallocated* -413 -847 89 -687 -331 -311 -427 Total 6,375 7,159 4,720 - - - -5,240 1,505 4,363 4,222 Items affecting comparability: - Non-operational 4,738 1,426 -231 42 -39 165 capital - gains/losses, net - Capital gain 15,383 5,453 Juniper Networks - - - - - - Pension refund 1,100 - - - - - - - Restructuring - - costs - - - 8,000 - 15,000 - 2000 2001 As percentage of Net Q1 Q2 Q3 Q4 Q1 Q2 Q3 Sales Systems 14% 21% 17% 15% 4% 1% 1% Phones 4% -16% -28% -73% -80% -57% -51% Other operations 6% 6% 6% 0% -2% 2% -15% Total 11% 11% 7% -2% -8% -7% -10% * "Unallocated" consists mainly of costs for corporate staffs, certain goodwill amortization and non-operational gains and losses ORDERS BOOKED BY MARKET AREA BY QUARTER (SEK m.) 2000 2001 Year to date 0003 0006 0009 0012 0103 0106 0109 Western Europe* 25,048 50,870 71,807 105,684 29,042 47,697 60,895 Central- and Eastern 17,388 24,503 32,104 40,972 11,273 17,606 29,548 Europe, Middle East & Africa North America 9,148 19,082 27,326 37,977 7,320 13,183 19,954 Latin America 9,695 19,312 33,053 44,959 12,638 22,723 26,989 Asia Pacific 18,195 30,428 48,576 62,752 15,226 35,456 44,161 Total 79,474 144,195 212,866 292,344 75,499 136,665 181,547 * Of which Sweden 2,924 6,010 7,983 9,876 1,998 5,135 6,294 * Of which EU 23,261 47,523 67,194 99,951 27,565 45,356 57,855 Change 0103 0106 0109 Western Europe* 16% -6% -15% Central- and Eastern Europe, -35% -28% -8% Middle East & Africa North America -20% -31% -27% Latin America 30% 18% -18% Asia Pacific -16% 17% -9% Total -5% -5% -15% * Of which Sweden -32% -15% -21% * Of which EU 19% -5% -14% 2000 2001 Isolated quarters Q1 Q2 Q3 Q4 Q1 Q2 Q3 Western Europe* 25,048 25,822 20,937 33,877 29,042 18,655 13,198 Central- and Eastern 17,388 7,115 7,601 8,868 11,273 6,333 11,942 Europe, Middle East & Africa North America 9,148 9,934 8,244 10,651 7,320 5,863 6,771 Latin America 9,695 9,617 13,741 11,906 12,638 10,085 4,266 Asia Pacific 18,195 12,233 18,148 14,176 15,226 20,230 8,705 Total 79,474 64,721 68,671 79,478 75,499 61,166 44,882 * Of which Sweden 2,924 3,086 1,972 1,893 1,998 3,137 1,159 * Of which EU 23,261 24,262 19,671 32,757 27,565 17,791 12,499 Change Q1 Q2 Q3 Western Europe* 16% -28% -37% Central- and Eastern Europe, -35% -11% 57% Middle East & Africa North America -20% -41% -18% Latin America 30% 5% -69% Asia Pacific -16% 65% -52% Total -5% -5% -35% * Of which Sweden -32% 2% -41% * Of which EU 19% -27% -36% NET SALES BY MARKET AREA BY QUARTER (SEK m.) 2000 2001 Year to date 0003 0006 0009 0012 0103 0106 0109 Western Europe* 23,578 47,011 70,090 100,234 18,024 37,154 53,568 Central- and Eastern 7,323 16,799 25,850 37,701 8,187 17,315 25,555 Europe, Middle East & Africa North America 8,549 19,263 27,704 35,193 7,186 14,961 23,131 Latin America 7,781 17,334 28,953 44,118 8,467 18,482 24,836 Asia Pacific 11,854 23,711 38,863 56,323 14,068 30,800 46,211 Total 59,085 124,118 191,460 273,569 55,932 118,712 173,301 * Of which Sweden 2,380 4,371 6,704 8,732 1,628 3,518 5,022 * Of which EU 22,052 44,031 65,754 94,293 17,046 35,020 50,650 Change 0103 0106 0109 Western Europe* -24% -21% -24% Central- and Eastern 12% 3% -1% Europe, Middle East & Africa North America -16% -22% -17% Latin America 9% 7% -14% Asia Pacific 19% 30% 19% Total -5% -4% -9% * Of which Sweden -32% -20% -25% * Of which EU -23% -20% -23% 2000 2001 Isolated quarters Q1 Q2 Q3 Q4 Q1 Q2 Q3 Western Europe* 23,578 23,433 23,079 30,144 18,024 19,130 16,414 Central- and Eastern 7,323 9,476 9,051 11,851 8,187 9,128 8,240 Europe, Middle East & Africa North America 8,549 10,714 8,441 7,489 7,186 7,775 8,170 Latin America 7,781 9,553 11,619 15,165 8,467 10,015 6,354 Asia Pacific 11,854 11,857 15,152 17,460 14,068 16,732 15,411 Total 59,085 65,033 67,342 82,109 55,932 62,780 54,589 * Of which Sweden 2,380 1,991 2,333 2,028 1,628 1,890 1,504 * Of which EU 22,052 21,980 21,723 28,539 17,046 17,974 15,630 Change Q1 Q2 Q3 Western Europe* -24% -18% -29% Central- and Eastern 12% -4% -9% Europe, Middle East & Africa North America -16% -27% -3% Latin America 9% 5% -45% Asia Pacific 19% 41% 2% Total -5% -3% -19% * Of which Sweden -32% -5% -36% * Of which EU -23% -18% -28% EXTERNAL ORDERS BOOKED BY MARKET AREA AND SEGMENT (SEK m.) Share Year to date 2001 Systems Phone Other Total of s Total Western Europe 44,528 7,506 8,861 60,895 34% Central- and Eastern 26,845 1,842 861 29,548 16% Europe, Middle East & Africa North America 15,025 5,123 - 194 19,954 11% Latin America 23,840 2,257 892 26,989 15% Asia Pacific 37,994 4,834 1,333 44,161 24% Total 148,232 21,562 11,753 181,547 100% Share of Total 82% 12% 6% 100% Change compared to last Systems Phone Other Total year (%) s Western Europe 6% -54% -35% -15% Central- and Eastern -1% -64% N/A -8% Europe, Middle East & Africa North America -9% -42% -110% -27% Latin America -14% -43% -32% -18% Asia Pacific -2% -40% -22% -9% Total -3% -49% -36% -15% EXTERNAL NET SALES BY MARKET AREA AND SEGMENT (SEK m.) Share Year to date 2001 Systems Phones Other Total of Total Western Europe 37,804 7,465 8,299 53,568 31% Central- and Eastern Europe, 22,395 2,017 1,143 25,555 15% Middle East & Africa North America 16,073 6,147 911 23,131 13% Latin America 21,514 2,428 894 24,836 14% Asia Pacific 39,650 5,017 1,544 46,211 27% Total 137,436 23,074 12,791 173,301 100% Share of Total 79% 13% 8% 100% Change compared to last year Systems Phones Other Total (%) Western Europe -8% -58% -24% -24% Central- and Eastern Europe, 15% -60% -11% -1% Middle East & Africa North America -14% -19% -34% -17% Latin America -9% -34% -43% -14% Asia Pacific 35% -37% 9% 19% Total 4% -45% -23% -9% TOP 10 MARKETS IN ORDERS AND SALES Year to date 2001 Top 10 Markets Orders Top 10 Markets Sales Share of Share of Total Orders Total Sales China 12% China 13% United 10% United States 12% States Mexico 6% United Kingdom 6% Italy 6% Brazil 5% Brazil 5% Italy 5% Spain 5% Mexico 5% Germany 5% Japan 4% United 5% Spain 4% Kingdom Japan 4% Turkey 3% Sweden 3% Sweden 3% NUMBER OF EMPLOYEES BY SEGMENT BY QUARTER 2000 2001 0003 0006 0009 0012 0103 0106 0109 Systems 64,836 66,207 68,571 71,102 75,081 76,636 71,392 Phones 17,290 17,710 18,137 16,840 14,461 7,837 6,439 Other 19,167 16,324 15,602 16,059 16,453 14,005 13,774 operations Unallocated 1,030 1,076 1,084 1,128 1,264 1,343 1,344 Total 102,323 101,317 103,394 105,129 107,259 99,821 92,949 Change 0103 0106 0109 Systems 16% 16% 4% Phones -16% -56% -65% Other -14% -14% -12% operations Unallocated 23% 25% 24% Total 5% -1% -10% ERI CSS ON PRO FOR MA RES TAT ED CON SOL IDA TED INC OME STA TEM ENT Ref lec tin g mob ile pho nes bus ine ss tra nsf err ed to Son y Eri css on Mob ile Com mun ica tio ns rep ort ed in acc 2001 2000 2001 2000 ord anc e wit h the equ ity met hod SEK Jan-Mar Jan- Jan-Sep Jan-Dec Q1 Q2 Q3 Q4 mil June lio n Net 49,760 105,295 152,299 221,586 49,760 55,535 47,004 69,147 sal es Cos -29,341 -64,746 -95,475 -120,617 -29,341 -35,405 -30,729 -37,823 t of sal es Res 0 -2,600 -2,600 0 0 -2,600 0 0 tru ctu rin g cos ts Gro 20,419 37,949 54,224 100,969 20,419 17,530 16,275 31,324 ss mar gin Gro 41.0% 36.0% 35.6% 45.6% 41.0% 31.6% 34.6% 45.3% ss mar gin as per cen tag e of net sal es Res -9,507 -20,968 -30,717 -34,949 -9,507 -11,461 -9,749 -11,227 ear ch and dev elo pme nt and oth er tec hni cal exp ens es Sel -7,249 -13,503 -19,049 -26,072 -7,249 -6,254 -5,546 -8,319 lin g exp ens es Adm -2,804 -5,731 -8,225 -12,004 -2,804 -2,927 -2,494 -3,901 ini str ati ve exp ens es Res 0 -8 500 -8 500 0 0 -8 500 0 0 tru ctu rin g cos ts Operating -19,560 -48,702 -66,491 -73,025 -19,560 -29,142 -17,789 -23,447 expenses Ope 39.3% 46.3% 43.7% 33.0% 39.3% 52.5% 37.8% 33.9% rat ing exp ens es as per cen tag e of net sal es Oth 5,858 10,486 10,862 35,132 5,858 4,628 376 23,496 er ope rat ing rev enu es Sha -5,585 -13,962 -17,899 -23,911 -5,585 -8,377 -3,937 -17,726 re in ear nin gs of ass oci ate d com pan ies Res 0 -3,900 -3,900 -8,000 0 -3,900 0 -8,000 tru ctu rin g cos ts, pho nes Ope 1,132 -18,129 -23,204 31,165 1,132 -19,261 -5,075 5,647 rat ing inc ome *) Ope 2.3% -17.2% -15.2% 14.1% 2.3% -34.7% -10.8% 8.2% rat ing mar gin as per cen tag e of net sal es Fin 1,041 1,477 2,259 2,929 1,041 436 782 720 anc ial inc ome Fin -1,372 -2,589 -3,630 -4,449 -1,372 -1,217 -1,041 -1,314 anc ial exp ens es Inc 801 -19,241 -24,575 29,645 801 -20,042 -5,334 5,053 ome aft er fin anc ial ite ms Min - 195 - 480 - 803 - 953 - 195 - 285 - 323 - 460 ori ty int ere st in inc ome bef ore tax es Income before 606 -19,721 -25,378 28,692 606 -20,327 -5,657 4,593 taxes Tax - 182 5,916 7,614 -7,674 - 182 6,098 1,698 -2,343 es Net 424 -13,805 -17,764 21,018 424 -14,229 -3,959 2,250 inc ome *) Of whi ch ite ms aff ect ing com par abi lit y Non- 42 3 168 5,933 42 -39 165 -231 ope rat ion al cap ita l gai ns/ los ses , net Cap 5,453 5,453 5,453 15,383 5,453 - - 15,383 ita l gai n, Jun ipe r Pen - - - 1,100 - - - - sio n ref und Res - -15,000 -15,000 -8,000 - -15,000 - -8,000 tru ctu rin g cos ts Tot 5,495 -9 544 -9,379 14,416 5,495 -15,039 165 7,152 al Adj -4,363 -8,585 -13,825 16,749 -4,363 -4,222 -5,240 -1,505 ust ed ope rat ing inc ome Adj -8.8% -8.2% -9.1% 7.6% -8.8% -7.6% -11.1% -2.2% ust ed ope rat ing mar gin Adj -4,889 -10,177 -15,999 14,276 -4,889 -5,288 -5,822 -2,559 ust ed inc ome bef ore tax es