Interim Report - Nine months ended September 30, 2000

Interim Report Nine months ended September 30, 2000 October 20, 2000 Mobile systems sales up 44 percent and ahead of market growth Income before tax improved by more than 200 percent * Ericsson increases sales and orders by 35 percent, fuelled by continued strong growth in 2G mobile systems * Continued leadership in 3G: Ericsson named as supplier by 15 of 20 operators. Ericsson gears up for fast roll-out * New lead position in wireline multi-service equipment: 35 percent market share - ENGINE now selected by 28 operators * Consumer Products reports losses. Aggressive "Back to Profit" program on track to restore profits * Outlook for 2000: Sales growth around 25 percent, operating margin between 6-7 percent including losses in Consumer Products.*) *) This outlook is excluding all non-operational items but including operational capital gains. Operational capital gains of the same magnitude as in the third quarter are expected for the fourth quarter. SEK b. Third quarter Nine months 2000 1999 Change 2000 1999 Change Orders 68.7 58.1 18% 212.9 157.8 35% Sales 67.3 49.3 37% 191.5 141.6 35% Income before 5.5 3.6 50% 24.1 7.9 205% tax (IBT) IBT adjusted 4.1 3.6 11% 16.8 8.2 105% **) EPS (SEK) 0.55 0.33 67% 2.37 0.77 208% EPS adjusted 0.37 0.33 12% 1.50 0.75 100% (SEK) **) EPS US GAAP 0.49 0.40 23% 2.29 0.96 139% (SEK) Cash flow -6.2 6.7 -5.2 -12.0 before financing activities **) excl. non-operational capital gains and the second quarter pension refund SUMMARY Ericsson reports income before taxes of SEK 24.1b. for the nine months period, an increase of more than 200 percent. Adjusted for non-operational items, income before tax more than doubled to SEK 16.8 (8.2)b. In the third quarter, income before tax was SEK 5.5b., an improvement of 50 percent compared with the third quarter 1999. Adjusted income before tax was SEK 4.1 (3.6)b., which is in line with Ericsson's outlook for the quarter. Both the third quarters 1999 and 2000 include operational capital gains of SEK 0.4b. Network Operators increased sales by 34 percent. The Consumer Product segment showed sales up 43 percent. Overall, Ericsson increased sales in the first nine months by 35 percent to SEK 191.5b., and by 37 percent to SEK 67.3b. in the third quarter. Orders also increased by 35 percent year- to-date, driven by the growth in demand for Ericsson's mobile infrastructure and mobile phones. "Once again we have proven our ability to lead the market and generate strong results in mobile systems, where we report a stronger than the market sales increase of 44 percent. We improved the operating margin in the Network Operator segment from 11 to 18 percent. In our Consumer Products segment, we are now aggressively implementing our action plan to restore profits", said Kurt Hellström, President of Ericsson. The "Back to Profit" program, announced for the Consumer Product segment in July, is expected to reduce the cost base by almost SEK 10b. per year by 2002. Year-to-date the segment reports a loss of SEK 5.9b. Ericsson today announced it will transfer mobile phone production from Sweden and USA to low-cost units in Asia, Latin America and Eastern Europe. Due to severe effects of component shortages from a key supplier, an expected increased price competition in the fourth quarter and restructuring charges, Ericsson expects a loss in Consumer Products for the full year of around SEK 16b. (details see page 7). Ericsson has achieved strong growth in all market areas. Hellström said: "Ericsson expanded its strong position in 3G, which lays the ground for a continued positive development. Based on the success in 2G, Ericsson is now ramping up capacity to meet strong demand for 3G deliveries. In only three years, Ericsson expects the production volume of 3G equipment to reach the level, which was reached in 10 years for 2G equipment." The largest market, North America, was again the fastest growing with a 57 percent sales increase, followed by Latin America with 53 percent sales growth. In China, orders were up 82 percent. Ericsson adjusts its outlook for the full year 2000 and now expects a sales growth of around 25 percent, and an operating margin of 6-7 percent. Operating cash flow for 2000 will be negative. Ericsson however confirms that the long-term financial targets remain unchanged: Ericsson intends to grow faster than the market. This means growing sales by more than 20 percent annually, a return on capital employed of 20-25 percent, a positive cash flow before acquisitions, and an operating margin of at least 10 percent. ORDERS AND SALES For the nine months period, Ericsson increased orders by 35 percent. Main driver were mobile systems, with an increase of 45 percent, which is faster than the market. For the Network Operators segment in total, orders increased by 37 percent. The large number of 3G supply agreements will start to generate bookable orders over the next quarters, and are only marginally reflected in the segment growth for the period. Sales increased by 35 percent in the nine months period, with sales up in mobile systems of 44 percent. Sales of mobile phones were up 43 percent. For the market areas, strong sales performance was experienced in North America (+57 percent) and Latin America (+53 percent). The other three market areas increased by at least 25 percent. In the third quarter, Ericsson increased sales by 37 percent, with a 47 percent increase for Consumer Products and 37 percent for Network Operators. Within Network Operators, mobile systems grew by more than 40 percent. Total orders were up 18 percent against a comparatively high basis in last year's third quarter. Network Operators increased orders by 21 percent. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/10/20/20001020BIT00010/bit0001.doc The full report http://www.bit.se/bitonline/2000/10/20/20001020BIT00010/bit0002.pdf The full report