July 24, 2009, 07:29 (CET)
Sales SEK 52.1 (48.5) b, up 11% in comparable units, down 3% currency adjusted
Operating income 1) before JVs SEK 6.9 (4.7) b, incl capital gains of SEK 0.8 (0.2) b
Operating margin 1) before JVs 11.7% (9.3%), excl capital gains
Share in earnings from JVs SEK -2.1 (0.1) b
Income after financial items1) SEK 4.8 (4.7) b
Restructuring charges of SEK 3.6 (1.8) b, excl JV
Net income SEK 0.8 (2.0) b
Earnings per share SEK 0.26 (0.60)
Cash flow 2) SEK 9.9 (8.7) b

1) Excluding restructuring charges
2) Excluding cash outlays for restructuring of SEK 0.8 (0.2) b

CEO COMMENTS

"There are different trends in the current market environment. The effects of the global economic climate on the mobile infrastructure market are now more notable, especially in markets with currencies under pressure and tougher credit environment," said Carl-Henric Svanberg, President and CEO of Ericsson (NASDAQ:ERIC). "At the same time the consumer demand for new services and broadband capabilities are quickly accelerating and rollout of new technologies is ongoing in the world's leading economies. There is also an increasing demand for professional services from operators across the world.

Network sales were down year-over-year currency adjusted, reflecting the present market environment. The continued strong acceleration of mobile data traffic is leading to high growth in sales of WCDMA and transmission as well as upgrades of IP networks. Meanwhile, GSM buildouts, primarily ongoing in emerging markets, have slowed and offset sales growth in other areas.

Services in total now represent 38% of sales, driven by strong Professional Services growth. Our leading position was confirmed by our first managed services contract in Africa with Zain and the network services contract with Sprint in the US. In the present economic climate, where operators focus on efficiency and cost reductions, Ericsson is benefiting from its sizeable services operation with both scale and global presence.

Our early decision to reduce costs is giving results and margins improved across all segments. Our target to reduce costs by SEK 10 b. from the second half of 2010 remains, and significant restructuring charges were made in the quarter. We continue to focus on our capital structure and have added long-term loans on
favorable conditions. Our net cash position was further strengthened by a strong cash flow in the quarter," concluded Carl-Henric Svanberg.

FINANCIAL HIGHLIGHTS

Income statement and cash flow

Second quarter First quarter Six months
SEK b. 2009 2008 Change 2009 Change 2009 2008 Change
Net sales 52.1 48.5 7% 49.6 5% 101.7 92.7 10%
Net sales for
comparable units 52.1 47.1 11% 49.6 5% 101.7 89.6 14%
Gross margin 36.3% 37.0% - 36.3% - 36.3% 37.8% -
EBITDA margin
excl JVs 16.8% 14.8% - 13.2% - 15.1% 13.8% -
Operating income
excl JVs 6.9 4.7 49% 4.7 47% 11.6 8.0 45%
Operating margin
excl JVs 13.3% 9.6% - 9.5% - 11.4% 8.7% -
Income after
financial items 4.8 4.7 3% 3.3 45% 8.2 9.2 -11%
Net income 0.8 2.0 -61% 1.8 -57% 2.6 4.7 -44%
EPS diluted, SEK 0.26 0.59 -56% 0.54 -52% 0.79 1.42 -44%
Adjusted
cash flow 1) 9.9 8.7 - -1.7 - 8.3 11.6 -
Cash flow
from operations 9.1 8.5 - -2.9 - 6.3 13.3 -
All numbers, excl. EPS, Net income and Cash flow from operations excl. restructuring charges.
1) Cash flow from operations excl. restructuring cash outlays and in Q1 2008 a dividend from Sony Ericsson of SEK 2.2 b.

Sales in the quarter increased 11% year-over-year for comparable units, i.e. excluding Ericsson Mobile Platforms and PBX operations, but decreased 3% when adjusted for currency exchange rate effects and hedging.

In the quarter, gross margin, excluding restructuring charges, decreased year-over-year to 36.3% (37.0%), but was flat sequentially. Services sales have grown from 33% to 38% of total sales year-over-year. The margin decline is attributable to this mix shift and the transfer of Ericsson Mobile Platforms to ST-Ericsson.

Operating expenses amounted to SEK 13.6 (14.0) b. in the quarter, excluding restructuring charges. The year-over-year improvement is primarily a result of ongoing cost reduction activities, despite negative impact from currency exchange rate effects. Operating expenses as a percentage of sales declined to 26% (29%).

Operating income, excluding joint ventures, restructuring charges and capital gains of SEK 0.8 (0.2) b., amounted to SEK 6.1 (4.5) b. in the quarter resulting in an improved operating margin of 11.7% (9.3%). All three segments showed a positive margin development during the quarter. A weaker SEK affected income positively but was partly offset by a currency hedging loss.

Ericsson's share in earnings from joint ventures in the quarter amounted to
SEK -2.1 (0.1) b., including restructuring costs.

Financial net was SEK -0.1 (0.0) b. in the quarter, mainly resulting from negative effects of revaluation of financial assets and a lower interest net.

Net income amounted to SEK 0.8 (2.0) b. in the quarter and was negatively impacted by the losses in Sony Ericsson and ST-Ericsson.

Adjusted cash flow amounted to SEK 9.9 (8.7) b., excluding cash outlays for restructuring of SEK 0.8 (0.2) b. The improvement in cash flow was mainly due to strong collections and improved working capital efficiency. Year-to-date cash conversion rate was 73%.

Trade receivables decreased sequentially due to strong collections. Despite this, days sales outstanding (DSO) remained high at 121 (124) days due to increased business activity and high invoicing in the later part of the quarter. There are also some effects from operators optimizing their cash situation in the tougher credit environment.

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