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ERICY
21
+0
delayed 20 mins - disclaimer
Thursday October 22, 7:57 am Eastern Time
Company Press Release
Ericsson Interim Report Nine Months Ended September 30, 1998
STOCKHOLM, Sweden--(BUSINESS WIRE)--Oct. 22, 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
Sven-Christer Nilsson
(This report is unaudited)
CHIEF EXECUTIVE OFFICER'S COMMENTS
Income before taxes at Ericsson rose 17 percent to SEK 12,097 m
during the first nine months of this year. Gross margins also showed
further improvement during the period. The growth in income and
improved margins were primarily due to favorable developments in the
Mobile Systems business area.
In the shorter perspective, concern about the global economy and
stock market turbulence continued during the period. On the whole, we
have benefited from the broad geographical spread of our operations,
which reduces exposure to the problems afflicting individual national
economies. Notwithstanding, economic developments have caused reduced
sales compared to historic growth rates. Lower global demand is
expected in the near term. For our part, this highlights the
importance of continuing ongoing rationalization efforts. Our new
organization creates important synergies that will be fully leveraged.
Lower global demand is cause for additional cost reductions.
Economic uncertainty in Asia has continued. The situation in the
Russian economy has worsened, and increasing uncertainty regarding
certain Latin American economies also became apparent during the
period.
At Ericsson, we have concluded that overall development in Asia
continued to yield growth for our operations. We are still
experiencing strong growth in China. Other economies in Asia that
demonstrate good growth with positive impact on our sales include
Singapore, Taiwan and India.
The serious state of the Russian economy has had very marginal
influence on Ericsson's results. Sales in Russia represent only about
1 percent of total sales.
During the period, Ericsson purchased the majority of outstanding
shares in our listed Brazilian subsidiary. The purchase reflects our
positive assessment of the Brazilian telecommunications market. With
more than 100 years of presence in Brazil, Ericsson enjoys a strong
position in fixed and mobile telephony. Continued success in the
Brazilian market, particularly in the third quarter, means that
Ericsson's market share of mobile systems now exceeds 50 percent.
In early October, Ericsson announced a new strategic direction
and a new organization that will secure growth as well as a leading
role in the new telecoms world taking shape in coming years. This new
direction is the result of a comprehensive review of Ericsson
technology, strategy and organization that was launched last spring.
Implementation is now underway across the world.
In terms of strategy, Ericsson aims at occupying a leading
position in the growing market for wireless communications and
Internet-based technologies. The strategy will fundamentally affect
Ericsson as well as the entire industry.
The new strategy also means that Ericsson capitalizes on its
strengths telecommunications know-how including highly accessible and
reliable networks, coupled with world- leading skills in wireless
communications. Third-generation mobile systems based on WCDMA
technology, in which Ericsson enjoys a leading position, will play a
key role in the development of the new telecoms world.
Earlier this year, Ericsson became the first company to launch
the new packet-linked GPRS (General Packet Radio Service) technology,
which improves GSM network capacity to handle data services. Another
new development is EDGE, which further speeds up data transmissions,
giving network operators today the opportunity to offer services with
third-generation characteristics.
GPRS, EDGE and WCDMA all represent potential avenues for further
joint development of existing D-AMPS and GSM networks toward
third-generation mobile services.
The coming years will be dominated by convergence between data
and telecommunications, and where demands for mobility will
characterize development.
At a press conference on October 12, we announced that our goal
is to long term exceed market growth. Ericsson will achieve this
objective by capturing strong positions in the new growth markets
within our customer segments. Such new- growth markets include
wireless data and voice communications within all three customer
segments: network operators and service providers, enterprises, and
consumers. The strategy allows us to defend our world- leading
position in mobile telephony, while simultaneously establishing the
same position in the emerging market for mobile data communications.
Our position in data communications will be secured by our own
development efforts and by acquisition of small and medium-sized
companies with complementary cutting-edge technologies. In the third
quarter, one such strategic acquisition was negotiated regarding
California-based ACC, one of the leading suppliers of remote-access
products. This acquisition gives Ericsson additional strategic
competence in the Internet protocol sphere.
Our strategic intent is supported by continued forceful
investments in research and development. Our R&D resources will focus
on the growth segments emphasized in the strategy.
The Mobile Systems business area has experienced strong growth in
sales as well as income. During the third quarter, considerable sales
successes were achieved, especially in Argentina, Brazil, Italy,
Mexico and Spain.
China remains the largest market for Mobile Systems, followed by
the United States and the United Kingdom. During the period, Telecom
Italia Mobile, Europe's biggest mobile operator, ordered a WCDMA test
system. In addition, Ericsson recently announced a three-year
agreement with Wind, the third largest Italian mobile operator.
Ericsson will be the main supplier of both fixed-line and mobile
networks to Wind. The agreement comprises turnkey solutions for
dual-band GSM 900/1800 networks, as well as fixed networks both based
on AXE architecture. Ericsson will also provide an IN (Intelligent
Network) solution, enabling Wind to offer customers with coordinated
fixed and mobile services, such as the use of a common mailbox for
voice mail.
Ericsson has also signed contracts with Retevision Movil, Spain's
third-ranking mobile operator, involving the major part of the
nationwide GSM 1800 network. As a result of this contract, Ericsson is
now a provider to all three GSM operators in the Spanish market, and
has strengthened its position as leading supplier.
Ericsson has received word that the United States Patent and
Trademark Office has validated a total of 36 new and amended claims in
one of Ericsson's key patents on 'soft handoff', an Ericsson invention
that is essential to the practice of U.S. wireless telecommunications
standard IS- 95.
Over the past three months the U.S. Patent Office has allowed
three such Ericsson patents. The successful reissue of these three
patents confirms that Ericsson is the true inventor of the 'soft
handoff' and 'macrodiversity' concepts that are fundamental to IS-95.
The Infocom Systems business area vigorously continues its
restructuring. This work will be pursued and reinforced in the new
organization, creating conditions for increased and sustainable
efficiency.
In the third quarter, Ericsson won a strategic contract in China
against tough competition from other datacom suppliers. The contract
covers delivery of the ATM system AXD 301, which will provide the
basis for one of the largest ATM-based networks in China to date.
The market for the Mobile Phones and Terminals business area is
characterized by shorter product cycles, to which we are adapting.
Toward the end of the period, several new models of mobile phones were
launched. In September, Ericsson introduced a mobile phone that offers
international travelers the opportunity to communicate using one and
the same phone in more than 120 countries in Europe, Africa, Asia
Pacific and America. This new mobile phone, I 888 World, featuring a
dual-band GSM 900/1900 frequency function, is indeed truly global.
Thanks to an infrared modem built into the I 888 World, travelers
can communicate effortlessly with their stationary or portable PCs or
hand-held devices. The function facilitates checking e-mail, surfing
the Internet, or logging into a company network without having to
carry cables, or to search for a suitable telephone outlet.
In September, Ericsson also introduced model S 868, a new mobile
phone with advanced dual-band functions. Because the S 868 is
compatible with both GSM 900 and GSM 1800 networks, it facilitates
international usage while reducing the incidence of lost connections.
The business area also reports rising selling expenses, due to
increased market activities as well as the implementation of a global
business support system, which will increase efficiency, and should be
viewed as an investment for the future.
The new organization, based on customer segments, will be fully
implemented by year end, and will replace the present division into
business areas. A proforma account of the new segments will be
presented in conjunction with the 1998 Report.
CONSOLIDATED INCOME STATEMENT
(unaudited)
July-Sep July-Sep Changes Jan-Sep Jan-Sep Changes
SEK millions 1998 1997 in % 1998 1997 in %
----------------------------------------------------------------------------------------------------------
Net sales 43,146 40,407 7 125,396 112,617 11
Cost of sales -24,301 -23,832 2 -71,173 -65,789 8
Gross margin 18,845 16,575 14 54,223 46,828 16
Research and
development and
other technical
expenses -6,803 -5,798 17 -19,645 -17,196 14
Selling expenses -5,422 -4,720 15 -16,508 -13,867 19
Administrative
expenses -2,114 -1,645 29 -5,882 -5,193 13
Other operating
revenues(a) 129 186 -31 507 671 -24
Share in earnings of
associated companies 45 71 -37 108 339 -68
Operating income 4,680 4,669 0 12,803 11,582 11
Financial income 688 394 75 1,794 1,210 48
Financial expenses -676 -331 104 -1,670 -1,263 32
Income after
financial items 4,692 4,732 -1 12,927 11,529 12
Minority interest in
income before taxes -166 -502 -67 -830 -1,204 -31
Income before taxes 4,526 4,230 7 12,097 10,325 17
Taxes -1,416 -1,317 8 -3,801 -3,264 16
Net income 3,110 2,913 7 8,296 7,061 17
------------------------------------------------------------------------------------------------
(a) Including capital
gains/losses net 6 - 15 92 - 36
------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
Sep 30 Dec 31 Sep 30
SEK millions 1998 1997 1997
---------------------------------------------------------------------------------------------------------
Intangible assets 4,039 748 780
Tangible assets 20,033 19,225 18,126
Equity in associated
companies and
other investments 3,757 4,077 4,234
Long-term customer financing 4,038 2,000 2,161
Other fixed assets 3,333 3,365 4,003
Total fixed assets 35,200 29,415 29,304
Inventories 27,475 23,614 25,054
Accounts receivable - trade 49,033 46,151 41,173
Other receivables 21,412 19,133 15,584
Cash, bank and short-term
cash investments 21,494 29,127 20,431
Total current assets 119,414 118,025 102,242
Total assets 154,614 147,440 131,546
Stockholders' equity 57,593 52,624 46,471
Minority interest in equity 2,075 4,395 4,067
Convertible debentures 6,180 6,034 855
Interest bearing
provisions and
liabilities 20,364 17,112 19,092
Non-interest bearing
provisions and liabilities 68,402 67,275 61,061
Total stockholders' equity,
provisions and liabilities 154,614 147,440 131,546
---------------------------------------------------------------------------------------------------------
TREND OF OPERATIONS IN BRIEF
Jan-Sep Jan-Sep Changes
SEK millions 1998 1997 in %
--------------------------------------------------------------------------------------------------------------------
Net sales 125,396 112,617 11
Income before taxes 12,097 10,325 17
Net income 8,296 7,061 17
Average number of
shares outstanding, million 1,997 1,971 1
Income per share, SEK 4.25 3.60 18
Equity ratio (percent) 38.6 38.4
Additions to tangible
fixed assets 5,048 4,559 11
Depreciation 4,067 3,872 5
Number of employees,
end of period 104,001 99,113 5
SALES BY BUSINESS AREA
July-Sep July-Sep Changes Jan-Sep Jan-Sep Changes
SEK millions 1998 1997 in % 1998 1997 in %
----------------------------------------------------------------------
Mobile Systems 19,958 17,200 16 56,084 47,300 19
Infocom Systems 10,951 11,218 -2 33,291 32,688 2
Mobile Phones and Terminals 10,822 11,000 -2 32,701 29,387 11
Other operations 4,557 3,862 18 13,149 11,741 12
Less: Intersegment sales -3,142 -2,873 9 -9,829 -8,499 16
------ ------ - ------ ------ --
Total 43,146 40,407 7 125,396 112,617 11
----------------------------------------------------------------------
SALES BY GEOGRAPHIC AREA
July-Sep July-Sep Changes Jan-Sep Jan-Sep Changes
SEK millions 1998 1997 in % 1998 1997 in %
----------------------------------------------------------------------
Sweden 2,100 2,002 5 6,539 6,246 5
Europe (excl. Sweden) 18,062 16,402 10 51,326 44,666 15
USA and Canada 4,308 4,619 -7 12,382 13,329 -7
Latin America 5,039 5,488 -8 17,387 13,478 29
Africa 795 540 47 2,387 1,724 38
The Middle East 2,366 1,256 88 4,890 3,314 48
Asia 9,600 8,422 14 27,151 24,965 9
Oceania 876 1,678 -48 3,334 4,895 -32
--- ----- --- ----- ----- ---
Total(a) 43,146 40,407 7 125,396 112,617 11
----------------------------------------------------------------------
(a) Of which EU 17,152 15,409 11 48,552 43,490 12
Closing exchange rate SEK/USD = 7.8605
--------------------------------------------------------------------------------
Contact:
Ericsson
Per Bengtsson, Vice President, Investor Relations
Phone: +212 685-4030
E-mail: per.bengtsson@ericsson.com
or
Lars A. Stalberg, Senior Vice President, Corporate
Relations
Phone: +46 8 719 3162 or +46 70 555 6066
E-mail: lars.stalberg@lme.ericsson.se
or
Johan Fant, Senior Vice President
Corporate Financial Control
Phone: +46 8 719 3707 or +46 70 540 4011
E-mail: johan.fant@lme.ericsson.se
or
Pia Gideon, Manager, External Relations
Phone: +46 8 719 2864 or +46 70 519 2864
E-mail: pia.gideon@lme.ericsson.se
or
Karin Almqvist Liwendahl, Director, Investor Relations
Phone: +46 8 719 5340 or +46 70 590 5340
E-mail: karin.almqvist.liwendahl@lme.ericsson.se
--------------------------------------------------------------------------------
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