ERICY Earnings:
Ericsson Interim Report nine months ended September 30, 1998
Ericsson reports increased net sales and a continuing good development of income during the first nine months of 1998. The financial crisis in certain markets and the related general economic uncertainty made itself increasingly manifest, which emphasizes the need for reinforced rationalization efforts. Market successes for Mobile Systems continue.
Net sales SEK 125,396 m + 11 percent
Income before taxes SEK 12,097 m + 17 percent
Income per share SEK 4.25 + 18 percent
During the nine-month period under review, consolidated net sales rose 11 percent compared to the corresponding period last year, and amounted to SEK 125,396 m.
Income before taxes, amounting to SEK 12,097 m, was up 17 percent compared to the same period in 1997. Ericsson profitability was strengthened through improved margins as a result of continued success with mobile systems. Foreign exchange earnings of SEK 400 m contributed to income. Income per share amounted to SEK 4.25 (3.60).
China, as the biggest single Ericsson market, grew even more dominant, followed by the United States, the United Kingdom, Brazil and Italy. Sales in Asia rose 9 percent. Excepting China, sales in Asia declined 29 percent, however. Latin America saw sales increase by 29 percent, and Europe (excluding Sweden) grew 15 percent, while sales in North America declined 7 percent.
Selling expenses rose during the year, mainly due to business process reengineering and marketing programs in the Mobile Phones and Terminals business area. As a percentage of sales, however, selling expenses dropped from 13.8 percent during the first quarter to 13.2 percent for the first nine months of the year. The trend is expected to continue during the fourth quarter.
Disregarding the acquisition of the bulk of Ericsson minority holdings in its Brazilian subsidiary, the third-quarter cash flow was positive. Positive cash flow for the whole year is expected, with the exception of investments in American and Brazilian subsidiaries' minority holdings, as well as the acquisition of the U.S.-based computer firm, Advanced Computer Communications Inc. (ACC).
The equity ratio was 38.6 percent (38.4 percent).
The number of employees at the end of the period was 104,001, an increase of 3,227 since December, 1997 (1,419 of which due to the consolidation of MET in France).
Consolidated investments in property, plant and equipment were SEK 5,048 m (4,559). During the period, Ericsson made a bid for the out-standing shares in its listed Brazilian subsidiary, Ericsson S.A., bringing Ericsson participation to 97.5 percent. The agreed acquisition of ACC will be implemented during the fourth quarter.
Business areas
Mobile Systems continued to show strong growth, with sales increasing by 19 percent. Important contracts were signed in Argentina, Brazil, Italy, Mexico and Spain, and several new solutions to wireless Internet and data communications were introduced during the period. The number of mobile subscriptions to digital networks is growing rapidly. Several network operators introduced advantageous rates to encourage usage, resulting in a rise in minutes usage on mobile networks. Strong global support for a third generation standard for mobile telephony, based on WCDMA technology, marks a major success for Ericsson. The business area is reporting a very strong operating income.
Net sales of Infocom Systems increased by 2 percent. However, weak development in certain Asian and Latin American markets, as well as for the Italian network construction company, Cosir, contributed to hampering the rate of sales increase. The divestment of Cosir has not been made due to weakening market conditions. Previously reported delivery problems for the new AXE switching systems were essentially remedied, but nonetheless affected sales for the business area during the third quarter.
Earnings of the business area are still unsatisfactory. The lower growth rate in sales, combined with adjustments for reduced demand at Cosir and delays in the restructuring program in the Public Networks business unit, mean that the objective of achieving acceptable earnings will not be reached until during next year.
Mobile Telephones and Terminals showed an increase of 11 percent in sales and a strong operating income. The business area shows continued strong volume growth, with an increase of more than 50 percent. Total Ericsson market share was well defended. Nevertheless, price pressure has continued and is expected to result in a 25-30 percent price reduction in Ericsson's product portfolio on an annual basis. Customer interest in prepaid services caused a rise in demand for entry-level mobile phones. Price competition in this segment is particularly severe, which influenced sales during the period. This trend was particularly evident in Europe. The U.S. market has seen a positive development. Ericsson has during the period launched a number of new models.
Other operations (including energy systems, components, cable and defense electronics) reported an overall sales increase of 12 percent for the period under review.
Stockholm, October 22, 1998
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