ERICY earnings report-from website(in total)
Interim Report - Three months ended March 31, 1998
Date: Apr 29, 1998
Interim Report - Three months ended March 31, 1998
Consolidated net sales rose in the first quarter of 1998 by 25 percent compared
with the corresponding period a year earlier and amounted to SEK 38,356 m. Net
sales of comparable units rose 24 percent. Orders booked increased by 18
percent to SEK 46,173 m.
Income before taxes increased 31 percent to SEK 2,637 m. compared with the
year-earlier period. Income includes positive currency effects of SEK 400 m.
Income per share was SEK 1.87 (1.40).
Net sales
SEK
38,356
m.
+ 25 percent
Income before taxes
SEK
2,637
m.
+ 31 percent
Income per share
SEK
1.87
+ 34 percent
Most market regions showed strong growth. During the period, China surpassed the
U.S. as Ericsson's largest market. After these two markets, the ranking is United
Kingdom, Brazil, Italy, and Sweden.
As in the first quarter of 1997, Ericsson's cash flow before financial operations was
negative, related among other factors to increased undertakings for customer financing
and Ericsson's seasonal variation in volume. Cash flow for the full year is expected to be
positive.
Further provisions have been made in anticipation of increased risks related to changes
in markets, technologies and customer financing.
The equity ratio was 39.9 percent (38.5).
As of March 31, 1998, Ericsson had 102,466 employees, an increase of1,700 since
December 1997 (of which MET France accounted for 1,350 persons).
Ericsson's investments in property, plant and equipment amounted to SEK 1,572 m.
(1,216), of which SEK 797 m. (589) pertained to capital expenditures in Sweden.
BUSINESS AREAS
Mobile Systems continued to show strong growth. Net sales of the business area rose
24 percent and by 23 percent for comparable units. Subscriber growth, particularly for
digital systems, is very rapid worldwide. The decision within the European
standardization organization ETSI to base the third generation standard for mobile
telephony on WCDMA technology represents a major success for Ericsson. The
business area posted a very strong operating income. Continued efficiency
enhancement more than offsets the effects of price pressure in the market.
Net sales in Infocom Systems rose 14 percent. New products were introduced and well
received in the market. The new ATM switch, AXD 301, is an important building block in
ATM networks for multi-services. The switch can handle all the broadband services
which currently are expected to become available, including IP routing, high-speed data
transfer and other corporate services.
The new AXE with open system architecture is a powerful platform for operators of
public networks and mobile networks, which facilitates a large number of fully integrated
services.
Earnings of the business area as a whole are still unsatisfactory, due to price pressure
in the business area's major product areas, and continuing substantial technical
development programs. The effects of the ongoing restructuring of operations have not
yet had full impact on earnings. Compared with 1997, operating income improved. As a
result of the restructuring, the business area is expected to report positive earnings for
the full year 1998.
Mobile Phones and Terminals reported an increase in net sales of 45 percent. The
business area posted a strong operating income. The business area's market share is
estimated to have increased during the period. Ericsson is the leading supplier to the
digital mobile phone market segment.
Net sales for Other operations (among others power, components, cable and defense
electronics) increased 10 percent.
Stockholm, April 29, 1998
Sven-Christer Nilsson
(This report is unaudited.)
CHIEF EXECUTIVE OFFICER'S COMMENTS
Ericsson continues to show strong growth in orders booked and net sales, as well as in
operating income. The result is in line with our expectations. As previously, net sales
and earnings have been affected by our seasonal variations. Orders and sales
continued to develop well in April.
The European market as a whole showed favorable development. The United Kingdom
and the Netherlands were individual markets with strong growth. We have also seen
very significant growth in China, which has more than compensated for weaker sales in
certain other Asian markets. The Asian market as a whole is still hard to evaluate, but
the countries that were hardest hit by financial problems still account for only a small
portion of Ericsson's sales.
North and South America combined showed substantial increases in sales of both
terminals and systems. Recently, interest in digital mobile telephone systems in the
United States has increased markedly.
The last B-band licenses for mobile telephony in Brazil have now been awarded. To
date, all the new operators have chosen the American TDMA-based IS-136 standard.
This is important for the future growth of mobile services in Latin America where
operators in all key countries, as in North America, have already chosen this standard
for digital mobile telephony. Ericsson is the largest supplier of systems based on this
standard.
In the United States, the TDMA-based IS-136 and GSM standards combined are the
fastest growing in terms of numbers of subscribers connected to the systems.
The trend in the market generally is characterized by the very strong growth in mobile
telephony throughout the world. Ericsson has revised its forecast of growth in the
number of global subscribers between now and the year 2003. Our most recent forecast
indicates that the number of users of mobile phones is expected to increase from
today's slightly more than 200 million to more than 830 million by the end of the year
2003.
The forecast indicates that nearly 60 percent of the population of Japan will be using
mobile phones. The comparable figure for North America is slightly higher than 50
percent and the forecast for Europe is that just under 50 percent of the population will be
subscribers. Ericsson estimates that penetration of the global market will amount to
nearly 15 percent in the year 2003.
We also anticipate comparable rapid growth in the number of Internet users. This factor,
combined with the forecast covering users of mobile phones, is creating exceptional
prospects and a solid potential for Ericsson's future growth.
We intend to defend and strengthen our positions in these markets. Ericsson's
prospects were further strengthened as a result of the decision to base the third
generation of mobile telephony on the WCDMA standard. Ericsson played a leading
role in the work on the new standard within ETSI, the European standardization
organization. We have worked with CDMA technology for more than ten years and have
already delivered working test systems for WCDMA in Japan. WCDMA will be used
primarily for multimedia applications on the Internet.
There is continuing strong emphasis on the marketing organization within Ericsson's
Mobile Phones and Terminals business area. Sales have developed very favorably and
our market share has increased. Our position as the leading supplier of digital mobile
phones has strengthened. Globally, recognition of our brand, Ericsson, is developing
very positively.
The Infocom Systems business area is continuing the program to improve its
profitability. The restructuring is proceeding according to plan and outsourcing activities
are continuing. The number of employees in the business area was reduced by 1,500
during the quarter. We are focusing sharply on our objective, which is to have the
business area show a positive result for the full year 1998.
Comprehensive and focused research and development programs will continue to be
critical for Ericsson's success. In addition, we will ensure the speed and flexibility of our
operations through partnering agreements and investments in other companies that can
offer effective combinations of knowledge in the fields of data communications and
telecommunications.
I see especially favorable opportunities to develop our advanced know-how in the area
of mobility to provide competitive products to our customers. We have already made
substantial progress with our range of systems and products that are well-suited for the
convergence of telecommunications, data communications and the media industries
that is a dominant trend in the market. Our position in the new telecom world has been
strengthened through agreements with a number of new operators of fixed-wire
networks as well as through deliveries of equipment to upgrade such networks.
During the first quarter, we strengthened our cooperation with Bay Networks Inc. and
General DataComm (GDC) through agreements covering cooperation pertaining to
standards for higher speeds on, and easier access to, the Internet. We also introduced
our AXD 301 ATM exchange, a highly flexible high-performance exchange for use by
Internet operators.
Ericsson's new AXE platform with open system architecture offers substantially reduced
physical dimensions, 50 percent less energy consumption, fewer types of boards, and
40 percent fewer boards in the processor. A number of other products representing
further enhancements of the AXE platform for use in Internet applications were also
introduced during the first quarter and were well received in the market.
As regards our opportunities to become more effective in dealing with an increasingly
severe competition, I want to note in particular the substantial investments being made
within Ericsson to modernize and coordinate business processes and IS/IT support.
Over the long term, we see substantial improvements in lead times and productivity as a
result of these investments.
This is my first quarterly report since assuming my new position on March 30 this year. I
have devoted the past few weeks to contacts with customers and employees throughout
the world. My picture of Ericsson has thereby been quickly supplemented and
strengthened in important respects. I am convinced that Ericsson will play a leading role
in the new telecoms world. The rapid developments in our industry will not permit us to
rest on our laurels for a moment. But there is no doubt that Ericsson is well equipped for
the future.
FOR FURTHER INFORMATION, PLEASE CONTACT
Lars A. St†lberg, Senior Vice President, Corporate Relations
Tel. +46 8 719 3162 or +46 70 555 6066
Johan Fant, Senior Vice President, Corporate Financial Control
Tel. +46 8 719 3707 or +46 70 540 4011
Karin Almqvist Liwendahl, Director, Investor Relations
Tel. +46 8 719 5340 or +46 70 590 5340
Per Bengtsson, Vice President, Investor Relations, Ericsson Inc.
Tel. +1 212 685 4030 or +1 201 757 3527
CONSOLIDATED INCOME STATEMENT (unaudited)
Jan-March Jan-March Jan-Dec
SEK millions 1998 1997 1997
--------------------------------------------------------------------
Net sales 38,356 30,705 167,740
Cost of sales -22,458 -17,976 -97,868
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Gross margin 15,898 12,729 69,872
Research and development and
other technical expenses -5,937 -5,146 -24,242
Selling expenses -5,306 -3,817 -20,464
Administrative expenses -2,016 -1,658 -7,755
Other operating revenues 177 291 866
Share in earnings of associated
companies 53 78 480
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Operating income 2,869 2,477 18,757
Financial income 567 439 2,413
Financial expenses -498 -572 -2,365
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Income after financial items 2,938 2,344 18,805
Minority interest in income before
taxes -301 -324 -1,587
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Income before taxes *) 2,637 2,020 17,218
Taxes -831 -660 -5,277
--------------------------------------------------------------------
Net income *) 1,806 1,360 11,941
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*) Including capital gains/losses net -20 9 -147
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CONSOLIDATED BALANCE SHEET
March 31 Dec 31 March 31
SEK millions 1998 1997 1997
--------------------------------------------------------------------
Tangible assets 19,528 19,225 18,033
Equity in associated companies and
other investments 3,927 4,077 3,693
Long-term customer financing 4,485 2,000 3,147
Other fixed assets 4,738 4,113 4,444
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Total fixed assets 32,678 29,415 29,317
Inventories 25,036 23,614 22,284
Accounts receivable - trade 46,536 46,151 37,602
Other receivables 19,145 19,133 12,639
Cash, bank and short-term cash
investments 24,065 29,127 19,662
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Total current assets 114,782 118,025 92,187
Total assets 147,460 147,440 121,504
--------------------------------------------------------------------
Stockholders' equity 54,387 52,624 43,023
Minority interest in equity 4,472 4,395 3,786
Convertible debentures 6,025 6,034 1,701
Interest bearing provisions and
liabilities 19,265 17,112 20,820
Non-interest bearing provisions and
liabilities 63,311 67,275 52,174
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Total stockholders' equity,
provisions and liabilities 147,460 147,440 121,504
--------------------------------------------------------------------
TREND OF OPERATIONS IN BRIEF
Jan-March Jan-March Changes
SEK millions 1998 1997 in %
--------------------------------------------------------------------
Net sales 38,356 30,705 25
Income before taxes 2,637 2,020 31
Net income 1,806 1,360 33
Average number of shares outstanding,
million 998 986 1
Income per share, SEK 1.87 1.40 34
Equity ratio (percent) 39.9 38.5
Additions to tangible fixed assets 1,776 1,216 46
Depreciation 1,341 1,120 20
Number of employees, end of period 102,466 94,236 9
--------------------------------------------------------------------
SALES BY BUSINESS AREA
Jan-March Jan-March Jan-Dec
SEK millions 1998 1997 1997
--------------------------------------------------------------------
Mobile Systems 16,000 12,900 71,700
Infocom Systems 10,616 9,279 49,204
Mobile Phones and Terminals 11,045 7,624 42,292
Other operations 3,927 3,574 16,433
Less: Intersegment sales -3,232 -2,672 -11,889
--------------------------------------------------------------------
Total 38,356 30,705 167,740
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SALES BY GEOGRAPHIC AREA
Jan-March Jan-March Jan-Dec
SEK millions 1998 1997 1997
--------------------------------------------------------------------
Sweden 2,058 1,946 9,320
Europe (excl. Sweden) 15,695 12,704 66,386
USA and Canada 4,331 3,672 18,973
Latin America 5,577 3,069 21,267
Africa 626 539 2,570
The Middle East 1,086 831 5,068
Asia 7,676 6,572 37,613
Oceania 1,307 1,372 6,543
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Total*) 38,356 30,705 167,740
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*) Of which EU 14,767 12,786 64,244
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Closing exchange rate SEK/USD = 7.9788
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