Subject:
Ericsson reports sharply increased net sales and strongly improved
Date:
Wed, 29 Apr 1998 13:49:31 +0000
operating income in the first quarter of 1998
Content-Length: 17992
Ericsson reports sharply increased net sales and strongly improved
operating income in the first quarter of 1998
ERICSSON 1998-04-29
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
--------------------------------------------------------------------
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
--------------------------------------------------------------------
Operating income 2,869 2,477 18,757
Financial income 567 439 2,413
Financial expenses -498 -572 -2,365
--------------------------------------------------------------------
Income after financial items 2,938 2,344 18,805
Minority interest in income before
taxes -301 -324 -1,587
--------------------------------------------------------------------
Income before taxes *) 2,637 2,020 17,218
Taxes -831 -660 -5,277
--------------------------------------------------------------------
Net income *) 1,806 1,360 11,941
--------------------------------------------------------------------
*) 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
--------------------------------------------------------------------
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
--------------------------------------------------------------------
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
--------------------------------------------------------------------
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
--------------------------------------------------------------------
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
--------------------------------------------------------------------
Total*) 38,356 30,705 167,740
--------------------------------------------------------------------
*) Of which EU 14,767 12,786 64,244
--------------------------------------------------------------------
Closing exchange rate SEK/USD = 7.9788
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