Ericsson reports third quarter results 2015

THIRD QUARTER HIGHLIGHTS

• Reported sales increased by 3% YoY. Sales, adjusted for comparable units and currency, decreased by -9% due to lower sales in Networks. This was partly offset by sales growth in Professional Services.
• The mobile broadband business in North America remained stable QoQ, but at a lower level compared to the same period last year.
• Reported sales in Networks declined sequentially impacted by a slowdown of the 4G deployments in Mainland China.
• Gross margin declined YoY to 33.9% (35.2%). Excluding restructuring charges, gross margin decreased to 34.5% (35.5%) due to a higher share of Global Services sales.
• The global cost and efficiency program is progressing according to plan, contributing to lower cost level YoY.
• Operating margin, excluding restructuring charges, improved YoY to 10% (7%). Network Rollout, within Global Services, reached a break-even result.
• Cash flow from operating activities was SEK 1.6 (-1.4) b.

Comments from Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC)

Reported sales increased by 3% YoY. Sales, adjusted for comparable units and currency, decreased by -9%, due to lower sales in Networks. This was partly offset by continued solid sales growth in Professional Services. Profitability improved YoY, with lower operating expenses as a significant contributor.

Business

Sales growth remained strong in India as well as in South East Asia and Oceania compared to the same period last year, while sales declined in North East Asia as well as in Northern Europe and Central Asia.

The mobile broadband business in North America remained stable QoQ, but at a lower level compared to the same period last year.

In the quarter, there was a slowdown of the 4G deployments in Mainland China. We also saw a somewhat slower pace of mobile broadband investments in markets such as Russia, Brazil and parts of the Middle East which had a weak macro development.

Professional Services sales increased by 15% YoY, with double-digit growth in eight out of ten regions, driven by strong performance across the portfolio.

Profitability

Operating income, excluding restructuring charges, increased by 46% YoY with improvements in all segments. The main contributors to the profit improvement were lower operating expenses and a break-even result in Network Rollout. The negative effect of revaluation and realization of currency hedge contracts was lower than a year ago.

Global Services operating margin increased to 9% as an effect of the improved Network Rollout profitability and a solid result in Professional Services. Segment Networks profitability remained stable in the quarter, with an operating margin of 10%, despite lower sales.

Cost and efficiency program

The global cost and efficiency program, with the target to achieve annual net savings of SEK 9 b. during 2017, is progressing according to plan. Since the announcement in November last year, a number of activities have been implemented globally, contributing to lower cost levels.

Cash flow

After a weak first quarter our cash flow from operating activities has now been positive for the last two quarters despite major payouts related to the ongoing cost and efficiency program. Cash flow year to date has been negatively impacted by increased working capital. This was driven by a business mix with a high share of coverage projects in Mainland China and emerging markets.

Targeted growth areas

Our strategic growth initiatives build on a combination of excelling in our core business and establishing leadership in targeted growth areas. We see continued good progress in these areas which had a sales growth of more than 10% YoY.

In targeted growth area TV & Media we made two important customer announcements in North America, confirming our strong position in the fast-growing TV & Media market. In addition, Ericsson signed an agreement to acquire the Nasdaq-listed company Envivio, a global leader in software-based video encoding.

There is an increased customer interest in future network architecture for 5G, virtualization, efficient video delivery and internet of things (IoT). With our ongoing strategic initiatives, we are well positioned to create value for our customers and shareholders in a transforming market.

NOTES TO EDITORS

You find the complete report with tables in the attached PDF or by following this link www.ericsson.com/res/investors/docs/q-reports/2015/09month15-en.pdf or on www.ericsson.com/investors

Ericsson invites media, investors and analysts to a briefing at the Ericsson Studio, Grönlandsgången 4, Stockholm, at 09.00 (CET), October 23, 2015.
A conference call for analysts, investors and media will begin at 14.00 (CET).

Live webcast of the briefing and conference call details, as well as supporting slides, will be available at www.ericsson.com/press and www.ericsson.com/investors

FOR FURTHER INFORMATION, PLEASE CONTACT

Helena Norrman, Senior Vice President, Marketing and Communications
Phone: +46 10 719 34 72
E-mail: media.relations@ericsson.com

Investors

Peter Nyquist, Head of Investor Relations
Phone: +46 10 714 64 49
E-mail: peter.nyquist@ericsson.com

Åsa Konnbjer, Director, Investor Relations
Phone: +46 10 713 39 28
E-mail: asa.konnbjer@ericsson.com

Stefan Jelvin, Director, Investor Relations
Phone: +46 10 714 20 39
E-mail: stefan.jelvin@ericsson.com

Rikard Tunedal, Director, Investor Relations
Phone: +46 10 714 54 00
E-mail: rikard.tunedal@ericsson.com

Media

Ola Rembe, Vice President, Head of External Communications
Phone: +46 10 719 97 27
E-mail: media.relations@ericsson.com

Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com

Ericsson discloses the information provided herein pursuant to the Securities Markets Act. The information was submitted for publication at 07.35 CET, on October 23, 2015.