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Ericsson reports fourth quarter results


January 25, 2011 - London

"Group sales in the quarter increased 8% year-over-year and 32% sequentially mainly driven by a strong development in mobile broadband" says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC). "Sales in the quarter for comparable units, adjusted for currency and hedging, increased 7% year-over-year. Adjusted cash flow in the quarter was strong at SEK 16.2 (13.6) b. and SEK 29.8 (28.7) b. for the full year.

Sales growth returned during the second half of the year and cash conversion for the full year amounted to 112%. Net income 2010 increased 172% to SEK 11.2 (4.1) b. mainly due to improvements in earnings in Sony Ericsson and less restructuring charges. The Board of Directors proposes a dividend for 2010 of SEK 2.25 (2.00).

Sales in Networks increased 14% year-over-year and 40% sequentially, primarily driven by increased demand for mobile broadband and investments in 2G expansions in China. While the supply of components has normalized during the quarter, we are still not fully meeting the increased demand on certain mobile broadband products.

Global Services sales decreased -1% year-over-year and increased 20% sequentially. The year-over-year decline is a result of lower levels of network rollout following the industry wide component shortage earlier in the year as well as a negative impact from a strong SEK. Managed services grew 5% year-over-year and with 16 contracts signed in the quarter, the positive business momentum remains unchanged. Multimedia sales recovered and grew 3% year-over-year and 50% sequentially with positive development within revenue management.

2010 marks the first year of 4G/LTE and we have established a clear lead in this area. Our strategy to strengthen our position in key markets such as the US and Korea as well as increased footprint in the ongoing network modernization has also been successful during the year. Although network modernization projects, along with the 3G rollouts in India, puts initial pressure on gross margin these projects are important parts of our efforts to strengthen our platform for continued long-term growth and profitability.

In 2010, mobile broadband subscriptions increased 30% to approximately 500 million, still only representing some 10% of total mobile subscriptions. We expect the strong uptake for mobile broadband to continue in 2011, with number of mobile broadband subscriptions expected to double and hit one billion already this year. This will be driven by more smartphone devices, including entry level smartphones as well as tablets. Mobile data traffic is forecasted to almost double annually over the coming years. We are well positioned to support our customers in meeting the changing consumer behavior," concludes Hans Vestberg.

  Fourth
quarter
Third
quarter
Full
year
SEK b. 2010 2009 Change 2010 Change 2010 2009 Change
Net sales 62.8 58.3 8% 47.5 32% 203.3 206.5 -2%
Gross margin 37% 35% - 39% - 38% 36% -
EBITA margin
excl JVs1)
15% 15% - 16% - 14% 14% -
Operating income
excl JVs
8.4 7.5 12% 6.2 36% 24.4 24.6 0%
Operating margin
excl JVs
13% 13% - 13% - 12% 12% -
Ericsson's share in
earnings in JVs
-0.3 -0.4 - 0.0 - -0.7 -6.1 -
Income after
 financial items
7.8 6.7 18% 6.1 29% 23.1 18.8 23%
Net income 4.4 0.7 504% 3.6 23% 11.2 4.1 172%
EPS diluted, SEK 1.34 0.10 - 1.14 - 3.46 1.14 -
Adjusted operating
cash flow2)
16.2 13.6 - 12.7 - 29.8 28.7 -
Cash flow from
operations
15.2 12.5 - 11.8 - 26.6 24.5 -
Restructuring charges
excl JVs
1.7 4.2 - 0.9 - 6.8 11.3 -

All numbers, excl. EPS, Net income and Cash flow from operations, excl. restructuring charges.

1)EBITA - Earnings before interest, tax, amortizations and write-downs of acquired intangibles. 

2)Cash flow from operations excl. restructuring cash outlays that have been provided for. Cash outlays in the fourth quarter
2010 were SEK 1.0 (1.1) b.

FINANCIAL HIGHLIGHTS

Income statement and cash flow

Sales in the quarter amounted to SEK 62.8 (58.3) b., up 8% year-over-year and 32% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 7% year-over-year. The year-over-year net impact of currency exchange rate effects and hedging was negative.

Sales for the full year amounted to SEK 203.3 (206.5) b., down -2% year-over-year. Sales for the full year for comparable units, adjusted for currency exchange rate effects and hedging, decreased -7%. The net impact of currency exchange rate effects and hedging in 2010 was slightly negative.

For the full year hardware sales were 37% (36%) and software sales were 24% (26%) of total sales while services sales accounted for the remaining part 39% (38%).

Gross margin in the quarter, excluding restructuring, increased year-over-year to 37% (35%) and was down from 39% sequentially. Gross margin in the quarter was positively impacted year-over-year by cost reductions and a lower proportion of services sales of 36% (40%). Sequentially, gross margin declined due to business mix with a higher proportion of hardware sales related to increased rollout projects including initial 3G rollouts in India, and network modernization projects.

Full year gross margin, excluding restructuring, increased to 38% (36%), due to business mix with upgrades and expansions and cost reductions.

R&D expenses for the full year amounted to SEK 29.9 (27.0) b. In the planning assumptions for 2010 R&D expenses were estimated to be at around SEK 28-30 b. The increase from 2009 is a result of higher investments in certain R&D areas and the acquired Nortel and LG-Ericsson operations, including amortizations of the acquired intangible assets. Selling and general administrative expenses (SG&A) decreased in relation to sales both in the quarter and for the full year.

Operating expenses for the quarter amounted to SEK 15.2 (14.0) b., excluding restructuring charges. Operating expenses for the full year amounted to SEK 55.2 (52.9) b., excluding restructuring. This is mainly a result of added operating expenses from the acquired Nortel and LG-Ericsson operations.

Other operating income and expenses were SEK 0.6 (0.9) b. in the quarter and SEK 2.0 (3.1) b. for the full year.

Operating income, excluding joint ventures and restructuring charges, amounted to SEK 8.4 (7.5) b. in the quarter. Operating margin was flat at 13% (13%) year-over-year as well as sequentially. Operating income for the full year, excluding joint ventures and restructuring charges, amounted to SEK 24.4 (24.6) b. Operating margin for the full year was flat at 12% (12%).

Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.3 (-0.4) b. excluding restructuring charges, compared to SEK 0.0 b. in the third quarter. Sony Ericsson improved results year-over-year significantly by EUR 1.1 b., excluding restructuring, due to efficiency programs and a new slimmer product portfolio and decreased slightly sequentially. ST-Ericsson's loss increased slightly year-over-year as well as sequentially. Restructuring charges in joint ventures were SEK -0.1 b. in the quarter.

Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.7 (-6.1) b. excluding restructuring charges, for the full year. Restructuring charges in joint ventures were SEK -0.5 b. in 2010.

Financial net amounted to SEK -0.3 (-0.4) b. in the quarter and decreased slightly sequentially. For 2010 financial net was SEK -0.7 (0.3) b. The difference is mainly attributable to a negative impact of around SEK 0.6 b. due to foreign exchange currency revaluation effects and lower interest net of SEK 0.3 b. compared to 2009.

Net income amounted to SEK 4.4 (0.7) b. For the full year net income was SEK 11.2 (4.1) b., up 172%. The improvements, both year-over-year and for the full year, are mainly a result of improved earnings in Sony Ericsson, and less restructuring charges.

Earnings per share were SEK 1.34 (0.10) in the quarter and SEK 3.46 (1.14) for the full year.

Adjusted operating cash flow was SEK 16.2 (13.6) b. in the quarter, up sequentially from SEK 12.7 b.
Cash flow from operations amounted to SEK 15.2 (12.5) b. mainly due to improved results and collections as well as advance payments following higher project activities.

Adjusted operating cash flow was SEK 29.8 (28.7) b. in 2010. Cash flow from operations amounted to SEK 26.6 (24.5) b. The improvement is primarily a result of higher net income.

Balance sheet and other performance indicators

SEK b. Dec 31

2010
Sep 30

2010
June 30

2010
Mar 31

2010
Dec 31

2009
Net cash 51.3 35.7 25.8 38.5 36.1
Interest-bearing liabilities
and post-
employment benefits
35.9 40.4 41.8 39.3 40.7
Trade receivables 61.1 57.8 69.4 62.7 66.4
 Days sales
outstanding
88 109 133 117 106
Inventory 29.9 30.3 29.4 24.1 22.7
 Of which regional
inventory
18.7 19.1 18.3 14.0 12.9
 Inventory days 74 82 81 75 68
Payable days 62 62 61 59 57
Customer financing, net 4.4 3.5 3.1 2.9 2.3
Return on capital
employed
10% 8% 6% 5% 4%
Equity ratio 52% 52% 51% 53% 52%


Trade receivables increased sequentially by SEK 3.3 b. to SEK 61.1 (57.8) b. due to seasonally higher sales, but were positively impacted by improved collections and the strong SEK. Days sales outstanding (DSO) improved from 109 to 88 days.

Inventory decreased slightly sequentially by SEK 0.4 b. to SEK 29.9 (30.3) b. The higher inventory level year-over-year follows a higher level of work in progress in the regions. Inventory turnover days decreased from 82 to 74 days.

Goodwill was flat at SEK 27.2 (27.4) b.

Cash, cash equivalents and short-term investments amounted to SEK 87.2 (76.7) b. The net cash position increased sequentially by SEK 15.6 b. to SEK 51.3 (35.7) b., mainly due to increase in net income affecting cash, as well as good collections.

During the quarter, approximately SEK 2.4 b. of provisions were utilized, of which SEK 1.0 b. related to restructuring. Additions of SEK 1.7 b. were made, of which SEK 0.2 b. related to restructuring. Reversals of SEK 0.6 b. were made. The low amount of additions is mainly due to business mix. Provisions will fluctuate over time depending on business mix, market mix as well as technology shifts.

Total number of employees at year-end amounted to 90,261 (82,493) of which 45,000 services professionals. In 2010, 5,250 individuals joined Ericsson through acquisitions and about 1,300 through managed services contracts. Approximately 5,000 were made redundant and 6,000 recruited. The vast majority of recruitments took place in India, China and Brazil. These new recruitments were primarily made within the areas of R&D and service delivery.

Restructuring cost excluding joint ventures

Total restructuring charges in 2010 were SEK 6.8 (11.3) b. In the quarter, restructuring charges amounted to SEK 1.7 b. At the end of the quarter, cash outlays of SEK 3.2 b. remain to be made. Cash outlays in the fourth quarter were SEK 1.0 (1.1) b. and SEK 3.3 (4.2) b. for the full year.

Cost and capital efficiency remain high on the company agenda and efficiency work will continue also in 2011. This primarily relates to service delivery, product development and administration. From 2011 and onwards the company will comment on results including restructuring charges. For 2011, restructuring charges of approximately SEK 2 b. are estimated.

Restructuring charges, SEK b. 2010 2010 2010 2010 2010 2009
Q4 Q3 Q2 Q1 Full year Full year
Cost of sales -1.2 -0.4 -1.0 -0.8 -3.4 -4.2
Research and
development expenses
-0.3 -0.5 -0.6 -0.3 -1.7 -6.1
Selling and administrative
expenses
-0.2 0.0 -0.4 -1.1 -1.7 -1.0
Total -1.7 -0.9 -2.0 -2.2 -6.8 -11.3

 

SEGMENT RESULTS

  Fourth quarter Third quarter Full year
SEK b. 2010 2009 Change 2010 Change 2010 2009 Change
Networks sales 36.4 31.8 14% 26.1 40% 112.7 114.0 -1%
EBITA margin1) 18% 19% - 21% - 18% 16% -
Operating margin 16% 17% - 17% - 15% 14% -
Global Services sales 22.9 23.1 -1% 19.1 20% 80.1 79.2 1%
 Of which Professional Services 16.7 16.5 1% 13.7 22% 58.5 56.1 4%
     Of which Managed Services 5.4 5.1 5% 5.2 3% 21.1 17.4 21%
 Of which Network Rollout 6.2 6.7 -8% 5.3 15% 21.6 23.1 -7%
EBITA margin1) 13% 10% - 12% - 12% 12% -
 Of which Professional Services 16% 14% - 16% - 16% 17% -
Operating margin 12% 9% - 11% - 11% 11% -
 Of which Professional Services 15% 13% - 16% - 15% 16% -
Multimedia sales 3.5 3.4 3% 2.3 50% 10.5 13.3 -21%
EBITA margin1) 16% 17% - 0% - 3% 14% -
Operating margin 11% 10% - -8% - -4% 8% -
Total sales 62.8 58.3 8% 47.5 32% 203.3 206.5 -2%

All numbers exclude restructuring charges.
1)EBITA - Earnings before interest, tax, amortizations and write-downs of acquired intangibles.

Networks

Networks' sales in the quarter were SEK 36.4 (31.8) b. an increase of 14% year-over-year, positively impacted by the acquired Nortel businesses but negatively impacted by a strong SEK. Sequentially sales increased 40%. Mobile broadband sales, including radio, backhaul and evolved packet core, increased in the quarter, especially driven by markets such as the US and Japan. Voice related sales remained slow. China showed high volumes of 2G sales in the quarter. While the supply of components has normalized during the quarter, we are still not fully meeting increased demand on certain mobile broadband products.

Networks sales for the full year were SEK 112.7 (114.0) b., a decrease of
-1%, positively impacted by the acquired Nortel businesses but negatively impacted by effects from the industry wide component shortage during the year. The cautious operator investments that started to impact in the second half of 2009 continued during the first half 2010.  In the second half of 2010 demand for mobile broadband started to increase.

EBITA margin in the quarter decreased year-over-year to 18% (19%) and from 21% sequentially. Positive volume effects were offset by a shift toward more projects, as well as initial 3G rollouts in India and network modernization.

EBITA margin for the full year increased to 18% (16%), positively impacted by business mix in the first half of the year with a higher proportion network upgrades and expansions and cost reduction activities.

LG-Ericsson performed well in the quarter with sales up sequentially. During the period LG-Ericsson captured a major Cloud Communication Center (CCC) contract with Korea Telecom, to meet the explosive increase in data traffic.

The new multi standard radio base station RBS 6000 was taken into volume production during the year and has been positively received by customers across the world. This is the fastest introduction of a new radio base station in the history of Ericsson.

Demand for mobile broadband related equipment has grown throughout the year and we are still not fully meeting the increased demand on certain mobile broadband products.

Networks that supports differentiation of operators' service offerings are required to meet the end user demand and increase in data traffic coming from smartphones and tablets. This is supported by IP based smart pipes with an integrated radio access and packet core networks. To scale the service offering and eliminate bottlenecks in transmission operators will focus more and more on backhaul.

2010 marks the first year of LTE and Ericsson have established a market leadership delivering its LTE/Evolved Packet Core solutions to 16 networks in eleven countries on three continents.

In the quarter Ericsson was selected for Sprint's "Network Vision program". There was also good momentum for our SmartEdge routers and our backhaul solutions. The strategy to capture additional footprint has been successful during the year and contracts for modernization projects which include networks in Korea, the US and a number of countries in Europe have been signed.

Global Services

Global Services sales in the quarter were SEK 22.9 (23.1) b. a decrease of -1% year-over-year, and an increase of 20% sequentially. The year-over-year decline is primarily a result of currency exchange rate effects. Sales are also impacted by lower network rollout volumes following the industry wide component shortage earlier in the year.

Global Services sales for the full year amounted to SEK 80.1 (79.2) b., up 1% year-over-year. Sales in the segment are positively affected by mobile broadband and managed services demand, while services related to voice developed unfavorably. The proportion of recurring business in Professional Services was slightly above two thirds for the full year.

Professional Services sales were SEK 16.7 (16.5) b. in the quarter, an increase of 1% year-over-year and by 22% sequentially. In local currencies sales increased 5% year-over-year. For the full year Professional Services sales were SEK 58.5 (56.1) b., up 4%. In local currencies sales increased 9% for the full year, in line with previous years' growth pace.

Managed Services sales in the quarter increased by 5% year-over-year to SEK 5.4 (5.1) b. and were up 3% sequentially. The lower year-over-year growth rate in the fourth quarter is primarily a result of the Sprint contract added in the fourth quarter 2009. For the full year, Managed Services sales were SEK 21.1 (17.4) b., up 21%. With 54 new managed services contracts signed in 2010, of which 26 were extensions or expansions of existing customer agreements, the positive business momentum remains unchanged.

Network Rollout sales amounted to SEK 6.2 (6.7) b. in the quarter. This is decline of -8% year-over-year and an increase of 15% sequentially.For the full year Network Rollout sales amounted to SEK 21.6 (23.1) b., a decline of -7%. Sales were negatively impacted by the industry wide component shortage, which has delayed project deployments.

Overall, margin levels have been stable or improved through continuous efforts in service delivery and transformation in managed services contracts. EBITA margin for Global Services in the quarter was up to 13% (10%) year-over-year compared to 12% sequentially. EBITA margin for Global Services for the full year was 12% (12%). EBITA margin for Professional Services increased to 16% (14%) in the quarter and was flat sequentially. EBITA margin for Professional Services amounted to 16% (17%) for the full year.

During the quarter, TDC in Denmark selected Ericsson as exclusive partner to manage their 4G/LTE network. Ericsson was also awarded a managed services contract extension with TeliaSonera International Carrier in 29 countries, adding Russia.  A second managed services contract in China, this time with China Unicom, was also announced. In addition, 3 Italia awarded Ericsson a contract for data center consolidation and modernization of its IT infrastructure.

Ericsson provides support for networks that serve more than two billion subscribers worldwide. The total number of subscribers in networks managed by Ericsson is more than 750 million, of which 450 million in network operation contracts and 300 million in field maintenance.

Multimedia

Multimedia sales in the quarter increased 3% year-over-year and 50% sequentially to SEK 3.5 (3.4) b.  Full year sales decreased -21% to SEK 10.5 (13.3) b. The strong recovery in the last quarter of the year is mainly a result of increased operator investments in revenue management following cautious spending in previous quarters, as well as continued good development for TV solutions. At year-end we had 1.2 b. subscribers in our revenue management systems, an increase of approximately 0.2 b. in 2010.

EBITA margin amounted to 16% (17%) and improved sequentially from 0% as a result of improved sales in revenue management. For the full year EBITA margin was 3% (14%) as a result of the slower development in the segment during the year, especially in revenue management.

 

Sony Ericsson

  Fourth quarter Third quarter Full year
EUR m. 2010 2009 Change 2010 Change 2010 2009 Change
Number of units
shipped (m.)
11.2 14.6 -23% 10.4 8% 43.1 57.1 -25%
Average selling
price (EUR)
136 120 14% 154 -12% 146 119 23%
Net sales 1,528 1,750 -13% 1,603 -5% 6,294 6,788 -7%
Gross margin 30% 23% - 30% - 29% 15% -
Operating margin 3% -10% - 4% - 3% -15% -
Income before taxes 35 -190 - 62 - 147 -1,043 -
Income before taxes,
excl restructuring
charges
39 -40 - 66 - 189 -878 -
Net income 8 -167 - 49 - 90 -836 -

 

Sony Ericsson reported its fourth consecutive quarter of profit. Units shipped during the quarter were 11.2 million, a year-on-year decrease of -23%, consistent with the streamlining of the portfolio to focus on higher-end smartphones. The sequential increase of 8%, related to seasonal factors, was somewhat constrained by lack of new product launches during the quarter. For the full year 43.1 million units were shipped, a decrease by -25%.

Sales in the quarter were EUR 1,528 million, a decrease of -13% year-over-year and -5% sequentially. Full year sales amounted to EUR 6,294 million, down -7% year-over-year.

Income before taxes for the quarter, excluding restructuring charges, was a profit of EUR 39 (-40) million. Income before taxes, excluding restructuring charges, was EUR 189 (-878) million for the full year. The improvement of approximately EUR 1.1 b. was driven by a streamlined product portfolio focused on higher-end smartphones and an improved cost structure.

Sony Ericsson's net cash position at end of year was EUR 375 million. The negative cash flow from operating activities for the quarter was EUR -128 million, mainly due to increases in inventory due to seasonal factors as well as payments related to the transformation program.

Ericsson's share in Sony Ericsson's income before tax was SEK 0.2 (-1.0) b. in the quarter and SEK 0.7 (-5.7) b. for the full year.

ST-Ericsson

  Fourth
quarter
Third
quarter
Full year
USD m. 2010 2009 Change 2010 Change 2010 2009 Change
Net sales 577 740 -22% 565 2% 2,293 2,524 -9%
Adjusted operating
income1)
-119 -50 - -85 - -436 -369 -
Operating income -171 -139 - -129 - -611 -581 -
Net income -177 -125 - -121 - -591 -539 -

1) Operating income adjusted for amortization of acquired intangibles and restructuring charges.

Net sales for the quarter increased 2% sequentially and decreased -22% year-over-year. In the quarter there was a continued strong performance in the new 2G/EDGE platforms in addition to initial HSPA+ modem sales. This offset weakness in TD-SCDMA and the anticipated decrease in the legacy products. Net sales for the full year amounted to USD 2,293 million, down -9% year-over-year.

The operating loss in the quarter increased year over year and sequentially to USD -171 (-139) million. The sequential increased loss was mainly due to higher operating expenses reflecting anticipated seasonality and exchange rate effects as well as price erosion due to ongoing legacy product transition. In the quarter there was a positive effect of USD 13 million from cost savings as the restructuring plan was completed on time.

Inventory decreased by USD -20 million, reaching USD 275 million at the end of the quarter.

Net financial position was USD -82 million in the quarter, compared to USD 39 million at the end of the previous quarter. During the quarter the company sold trade receivables without recourse, of which USD 166 million were outstanding at the end of the quarter. This represents a sequential decrease of USD 13 million.

For the first quarter 2011 the company expects net sales to decline sequentially. This reflects both the accelerating decline of legacy products and the effect of first quarter seasonality.

The near-term outlook is challenging. However, with new products on their way and completion of the transition program ST-Ericsson is on the path to market leadership and sustainable profitable growth.

ST-Ericsson is reported in US GAAP. Ericsson's share in ST-Ericsson's income before tax, adjusted to IFRS, was SEK -0.5 (-0.4) b. in the quarter, including restructuring charges of SEK 0.1 (0.2) b. Ericsson's share in ST-Ericsson's income before tax, adjusted to IFRS, was SEK -1.8 (-1.8) b. for the full year,

REGIONAL OVERVIEW

  Fourth
quarter
Third
quarter
Full year
Sales, SEK b. 2010 2009 Change 2010 Change 2010 2009 Change
North America 14.1 9.4 49% 12.9 9% 49.5 23.9 107%
Latin America 6.1 5.9 3% 3.7 65% 17.9 20.0 -11%
Northern Europe
and Central Asia
4.8 3.5 38% 2.4 104% 12.2 12.0 2%
Western
and Central Europe
5.9 6.1 -4% 4.3 38% 19.9 22.5 -12%
Mediterranean 6.9 7.1 -2% 5.0 38% 22.6 25.2 -10%
Middle East 4.6 5.0 -8% 2.7 70% 15.1 18.2 -17%
Sub-Saharan Africa 2.0 3.8 -47% 1.8 13% 9.2 15.3 -40%
India 2.8 3.4 -17% 2.1 34% 8.6 15.3 -43%
China and
North East Asia
9.5 7.4 28% 6.9 36% 26.0 26.0 0%
South East Asia
and Oceania
3.9 5.2 -24% 3.8 3% 14.9 20.8 -29%
Other 2.2 1.5 43% 1.9 13% 7.4 7.3 4%
Total 62.8 58.3 8% 47.5 32% 203.3 206.5 -2%


North American sales increased 49% year-over-year and 9% sequentially, negatively affected by the strong SEK. In 2010, Ericsson became the largest player in the region, driven by organic growth as well as the acquisition of Nortel assets. Main growth drivers were the managed services agreement with Sprint, data traffic driven network expansions in both CDMA and HSPA networks as well as the initial build out of 4G/LTE networks. Two 4G/LTE networks were commercially launched by the end of 2010. Operators continue to focus on data speeds and network quality in their propositions to attract customers. Sprint announced Ericsson as key partner in their network evolution strategy "Network Vision" program.

Latin America sales increased 3% year-over-year and 65% sequentially. The increase was driven by managed services as well as 2G and 3G expansions. Mobile broadband subscriber uptake is the prime driver for growth. Operators also focus on coverage and quality improvements. The positive trend in managed services continued and there is also a momentum for upgrading of OSS/BSS platforms. Smartphones represent more than 10% of new terminal sales in Latin America and in Brazil the figure is 15%. This will continue to drive uptake of data traffic in the networks. The first 4G/LTE deployments are expected in 2011.

Northern Europe and Central Asia sales increased 38% year-over-year and 104% sequentially. The increase is mainly due to capacity expansions in both 2G and mobile broadband in the Eastern part of the region. Russia was especially strong in the quarter. In Scandinavia, focus is on 4G/LTE deployments. In the quarter, new 4G/LTE contracts with TDC in Denmark and with DNA in Finland were signed. So far three contracts for 4G/LTE rollouts in the region have been signed. 4G/LTE trials are ongoing also in the Eastern part of the region. Operators focus on network modernization as well as continued investments in expansions. Operational efficiency continues to be high on operators' agendas which creates good demand for managed services.

Western and Central Europe sales decreased -4% year-over-year and increased 38% sequentially due to demand for mobile broadband. Global Services sales decreased in the quarter as an effect of lower activities in network rollout. In October, Ericsson begun upgrading Vodafone UK's entire network infrastructure in London allowing for better data speeds and broader coverage. November saw the delivery of the 12,000th consolidated 3G site for Mobile Broadband Network Ltd (MBNL), bringing more coverage and capacity for Three and T-Mobile UK customers. Germany, Switzerland and Benelux have seen continued strong demand for mobile and fixed broadband. In Switzerland, Ericsson is now positioned as supplier for fiber to the home in seven cities and regions. In Germany, almost 600 employees from Vodafone were integrated and are deploying sites for Vodafone's 4G/LTE network. In Poland, Ericsson saw the first country-wide mobile advertising agreement signed.

Mediterranean net sales decreased -2% year-over-year and increased 38% sequentially, negatively impacted by the strong SEK. Mobile broadband related services and products developed favorably in the quarter, while voice declined although there were pockets of growth. Greece and Spain were still weak in the quarter due to overall economic environment and price competition among operators. Italy was strong in the quarter due to continued build-out of 3G for operators to cope with increased data traffic. Network modernization continues across the region. Operational efficiency and network speed are high on operators' agenda which creates good demand for professional services. In managed services, multi vendor support is meeting an increased demand as well as OSS/BSS and revenue management. Sales to new customer segments are becoming a significant part of the region's business.

Middle East sales decreased -8% year-over-year and increased 70% sequentially, driven by demand for 2G as well as mobile broadband. Turkey, Egypt and the Gulf countries developed positively in the quarter, while Saudi Arabia and Pakistan were weak. Professional services developed favorably in the quarter, mainly due to upgrades of systems for revenue management. During the year, a number of 4G/LTE trials have been conducted and full network rollouts will take place in some Gulf countries during 2011.

Sub-Saharan Africa sales decreased by -47% year-over-year, but increased sequentially by 13%. The sequential improvement is due to increased 3G sales and revenue management. This increased demand also impacted sales of systems integration favorably. 2G continued to decline and delayed projects, due to industry-wide component shortage, impacted sales of network rollout. The region has in 2010 been negatively impacted by operator consolidation and the global financial crisis, limiting sources of funding for operators. Africa has started to pull out of the global financial crisis and since mobile penetration is low throughout the continent, market drivers are positive.

India sales decreased -17% year-over-year and increased 34% sequentially. For the full year, sales were negatively impacted by the security clearance in the first half of the year and delayed 3G auctions. From the third quarter, Ericsson has interim security clearance with all operators for all technologies and the permanent procedures are expected first half 2011. 3G rollouts have started and impacted fourth quarter sales positively. There is a momentum for managed services in the region.

China and North East Asia sales increased 28% year-over-year and 36% sequentially. The year-over-year increase is mainly related to strong demand for mobile broadband in Japan and added sales from LG-Ericsson. This impacted also the sequential development along with strong sales for 2G in China. Operator investments in Japan are driven by the strong traffic growth. Managed services also showed good growth in the quarter, mainly as a result of the field maintenance contract with China Mobile. Systems integration showed a slower development. In 2011, 4G/LTE is expected to be rolled out in Japan and Korea. In China, a TD-LTE trial system will be deployed early 2011.

South East Asia and Oceania sales decreased -24% year-over-year and increased 3% sequentially. The decline for 2G was not offset by the 3G sales. The 3G license process in Thailand remains uncertain and in Bangladesh investments are still constrained due to high SIM card tax and lack of a 3G license timeline. In the quarter, new and extended managed services contracts were signed with three operators. A contract for a smart-grid communications network, including systems integration, was announced with the major Australian utility Energy Australia and the first non-telecoms managed services contract has been signed for the region. Consumer and business demand for mobile data services continues to grow across the region and the introduction of low cost smartphones is expected to have a positive impact on data traffic uptake in the region. Across the region there is strong interest for managed services, although sales cycles are long.

Other includes sales of for example embedded modules, cables, power modules as well as licensing and IPR.

MARKET DEVELOPMENT

Growth rates are based on Ericsson and market estimates

During the first three quarters of 2010, the global mobile infrastructure market showed negative growth in mid-single digits in USD terms, due to a weak first half of the year. Operators' focus on efficiency drives interest in exploring business models such as managed operations, network sharing and network transformation. Estimates show that only around 35-40% of addressable operator network operating expenditure is spent externally on professional services today leaving significant continued opportunities, particularly for managed services.

Global mobile penetration is 76% and total mobile subscriptions has reached 5.3 b. India and China accounted for 50% of the estimated 180 million net additions during the fourth quarter, adding around 60 and 30 million respectively. Indonesia and Vietnam were third and fourth countries in terms of net additions.

Global fixed broadband subscriptions grew by 17 million new subscriptions to reach 504 million during the third quarter 2010, mainly boosted by strong growth in DSL in China. China is the largest single market with 24% of subscriptions and accounted for more than 50% of net additions. DSL represents 66% of all fixed broadband subscriptions.

  Unit Full year Fourth
quarter
Ericsson
forecast
    2006 2007 2008 2009 2010 2009 2010 Change 2011
Mobile subscriptions Billion 2.7 3.3 4.0 4.6 ~5.3 4.6 ~5.3 15% ~6.1
Net additions Million 500 620 660 640 700 190 ~180 -9% ~800
Mobile broadband1) Million 55 130 220 360 600 360 ~600 ~65% ~1000
Net additions Million 30 80 86 150 ~240 50 ~75 ~65% ~440

1)Mobile broadband includes handset and mobile PC. Includes HSPA, LTE, CDMA2000 EVDO, TD-SCDMA and WiMax

Ericsson findings, based on measurements in live networks, show that global mobile data traffic more than doubled between third quarter 2009 and third quarter 2010 and mobile data traffic is forecasted to almost double annually over the coming years, driven by 24/7 connectivity and usage of high-performance smartphones, tablets and laptops. The traffic forecast could be significantly changed with traffic shaping and caps. Tiered pricing for mobile broadband is now a reality, as some mobile broadband operators today have evolved beyond flat-rate unlimited data models and introduced segmented price plans, such as volume, time or speed based plans.

In average, a smartphone generates approximately 10 times more traffic compared to a normal feature phone, while a mobile PC user generates 100 times more traffic than a feature phone. There are indications of higher than average per-smartphone traffic in the US networks, however traffic profiles per user do vary considerably between networks and markets.

Mobile broadband is being built-out across the world and WCDMA networks cover more than 35% of the world's population. Almost all of these networks have also launched HSPA. Building wider coverage to reach further into the remaining 65% of the population, the availability of affordable handsets, as well as the surge for mobile internet services, will drive continued strong uptake of HSPA. In the fourth quarter HSPA

GlobeNewswire

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