6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

July 19, 2018

Commission File Number

000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F  ☒ Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

 

 

 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENTS ON FORM F-3 (NO. 333-223954) AND ON FORM S-8 (Nos. 333-196453, 333-161683 AND 333-161684) OF TELEFONAKTIEBOLAGET LM ERICSSON (PUBL.) AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED WITH OR FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)
By:   /s/     XAVIER DEDULLEN
  Xavier Dedullen
  Senior Vice President, Chief Legal Officer
By:   /s/     CARL MELLANDER
  Carl Mellander
  Senior Vice President, Chief Financial Officer

Date: July 19, 2018


LOGO

Second quarter report 2018

Stockholm, July 18, 2018

 

Second quarter highlights
   Sales as reported decreased by -1% YoY. Segment Networks showed a sales growth of 2% YoY in reported sales, with strong sales growth in North America.
   Gross margin was 34.8% (29.1%)
   Operating expenses were SEK 17.2 (15.4) b. Cost reductions in SG&A were offset by increased investments in R&D, higher provision for variable compensation and an increase in provision for overdue trade receivables.
   Operating income was SEK 0.2 (-0.5) b.
   Cash flow from operating activities was SEK 1.4 (0.0) b.

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2018     2017     change     2018     change     2018     2017  

Net sales

     49.8       50.3       -1     43.4       15     93.2       98.1  

Gross margin

     34.8     29.1     —         34.2     —         34.5     22.6

Operating income (loss)

     0.2       -0.5       —         -0.3       —         -0.1       -11.8  

Operating margin

     0.3     -1.1     —         -0.7     —         -0.2     -12.0

Net income (loss)

     -1.8       -0.5       —         -0.7       —         -2.5       -10.5  

EPS diluted, SEK

     -0.58       -0.14       —         -0.25       —         -0.83       -3.22  

Cash flow from operating activities

     1.4       0.0       —         1.6       -8     3.0       -1.5  

 

1      Ericsson  |  Second Quarter Report 2018


CEO comments

 

“We continue to execute on our focused business strategy and are tracking well towards our 2020 target.

Customers turn to new technology in order to manage growing demand for data with sustained quality and without increasing costs. This, together with fixed wireless access, represent the first business cases for 5G. We will continue to invest in securing leadership in 5G. This includes further investments in R&D, to solidify our complete 5G portfolio, and investments in field trials. We also intend to selectively capture new business opportunities, through our 5G-ready 4G portfolio, to extend our footprint as operators prepare for 5G. We provide solutions for all frequency bands for 5G, which strengthens our global competitiveness.

We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G. Digital Services is tracking towards a turnaround. However, while losses decreased both YoY and QoQ, we still have a lot of work to do. The top priority is to turn around performance in the segment, but we are in parallel accelerating investments to make the portfolio 5G ready and cloud native. Managed Services had a positive operating income. We have also on-boarded several new contracts in the quarter.

In segment Emerging Business and Other, we invest in strategic future growth areas such as Internet of Things (IoT). We see increasing momentum with several important customer wins with our connectivity platform in the quarter. However, sales

are still low. Our media business generated a loss of SEK -0.4 b. in the quarter. We expect to close the announced divestment of Media Solutions, recently renamed MediaKind, by the end of the third quarter.

The SEK 10 b. cost reduction program, launched in Q2 2017, has been successfully completed. We reduced the total workforce by more than 2,000 in the quarter and by 20,500 in total as part of the program. These are tough but necessary actions to ensure competitiveness. Run-rate savings to date amount to more than SEK 10 b., and the effect is gradually becoming visible in the earnings, mainly through lower service delivery costs and common costs. Even though the cost reduction program is completed, our estimate for restructuring charges of SEK 5-7 b. for the full year remains, as we will continue our efficiency activities throughout the year.

Our cash position remains strong. Our work to further strengthen the balance sheet continues.

We see strengthened momentum for 5G in the quarter and it is clear that our 5G-ready portfolio is attractive and competitive in the market. We have gradually improved the cost position and will continue to have a strict cost focus in order to further increase competitiveness and efficiency.”

Börje Ekholm

President and CEO

 

 

Planning assumptions going forward

Market related

 

  The Radio Access Network (RAN) equipment market is estimated to decline by -2% for full-year 2018 with 2% CAGR for 2017-2022. In 2018, the Chinese market is expected to decline due to reduced LTE investments, while there is positive momentum in North America.

Currency exposure

 

  Rule of thumb: A weakening by 10% of USD to SEK would have a negative impact of approximately -5% on net sales and approximately -1 percentage point on operating margin (based on 2017 full-year currency exposure). For historical rates, see www.ericsson.com/en/investors

Ericsson related, 2018

 

  Sales: Seasonality (5-year average sales) is -2% between Q2 and Q3 and 23% between Q3 and Q4.

 

  The current annual revenue baseline of the IPR licensing contract portfolio is approximately SEK 7 b.
  Restructuring charges for full-year 2018 are estimated to be SEK 5-7 b.

 

  Actual and estimated net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs:

 

    Q2
2018
    Q3
2018
    Q3
2017
    FY
2017
    FY
2018
    FY
2019
 

SEK b.

  Actual     Estimate     Actual     Actual     Estimate     Estimate  

Cost of sales

    -0.2       -0.2       -0.9       -2.6       -1    

R&D expenses

    -0.3       -0.3       -0.6       -0.3       -1    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impact

    -0.5       -0.5       -1.5       -2.9       -2       -1 to -2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  The divestment of Media Solutions is expected to be closed by the end of Q3 2018 with estimated additional expenses of SEK -0.3 b. in Q3, related to the divestment. Results after the divestment will be reported as share of earnings according to the equity method. Ericsson’s holding will be 49% of the shares. Media Solutions sales were SEK 3.2 b. in 2017.
 

 

2      Ericsson  |  Second Quarter Report 2018    CEO comments


Financial highlights

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2018     2017     change     2018     change     2018     2017  

Net sales

     49.8       50.3       -1     43.4       15     93.2       98.1  

Gross income

     17.3       14.6       18     14.9       17     32.2       22.1  

Gross margin (%)

     34.8     29.1     —         34.2     —         34.5     22.6

Research and development expenses

     -9.8       -8.4       17     -9.1       8     -18.9       -17.4  

Selling and administrative expenses

     -7.1       -6.8       3     -6.2       15     -13.2       -15.0  

Impairment losses on trade receivables

     -0.4       -0.2       57     0.0       —         -0.4       -1.9  

Other operating income and expenses

     0.0       0.2       -95     0.1       -87     0.1       0.4  

Operating income (loss)

     0.2       -0.5       —         -0.3       —         -0.1       -11.8  

Operating margin (%)

     0.3     -1.1     —         -0.7     —         -0.2     -12.0

Financial net

     -0.8       0.1       —         -0.5       50     -1.4       -0.4  

Taxes

     -1.2       0.0       —         0.1       —         -1.0       1.7  

Net income (loss)

     -1.8       -0.5       —         -0.7       —         -2.5       -10.5  

Restructuring charges

     -1.9       -1.5       24     -1.2       60     -3.1       -3.3  

 

Net sales

Sales as reported decreased by -1 %YoY. Sales as reported in Networks increased by 2% YoY, driven by strong sales growth in North America. Digital Services sales declined by -11% YoY, mainly due to continued decline in legacy product sales and lower telecom core sales in North East Asia. Managed Services sales declined by -2% YoY, mainly as a result of customer contract reviews. Sales in Emerging Business and Other increased by 2% YoY, mainly driven by growth in iconectiv and IoT partly offset by lower sales in the media solutions business.

Sequential sales increased by 15%.

IPR licensing revenues

IPR licensing revenues declined to SEK 1.8 (2.0) b. YoY and decreased sequentially from SEK 1.9 b.

Gross margin

Gross margin improved to 34.8% (29.1%). Key drivers of the improvement were cost reductions, ramp-up of Ericsson Radio System (ERS) product platform, market mix and good progress in addressing non-strategic contracts in Managed Services. Completion in 2017 of the amortization of software release development expenses had a positive effect on gross margin YoY.

Sequentially, gross margin increased to 34.8% from 34.2%.

Operating expenses

Operating expenses increased to SEK 17.2 (15.4) b.

R&D expenses were SEK 9.8 (8.4) b. The net effect of higher amortized than capitalized R&D expenses was SEK -0.3 (0.1) b.

SG&A increased YoY due to higher restructuring charges. Cost reductions of SEK 0.7 b. YoY were offset by costs related to revaluation of customer financing of SEK -0.2 b. and higher provision for variable compensation.

 

 

3      Ericsson  |  Second Quarter Report 2018    Financial highlights


Each quarter, 25% of the anticipated full year variable compensation is provisioned for. In Q2 2017, SG&A were positively impacted as provisions were reversed following the weak company results.

Impairment losses on trade receivables increased to SEK -0.4 (-0.2) b. Impairment testing is made continuously using a methodology where country and customer risks are assessed.

Operating expenses increased sequentially following increased investments in Networks R&D, impacted by seasonality and currency effects. Operating expenses increased by approximately SEK -0.3 b. QoQ, due to currency effects.

Other operating income and expenses

Other operating income and expenses, which comprises several minor items, were SEK 0.0 (0.2) b. Other operating income and expenses in Q1 2018 were SEK 0.1 b.

Consequences of technology and portfolio shifts

Due to technology and portfolio shifts, the company is reducing the capitalization of development expenses for product platforms and software releases as well as the deferral of hardware costs. As a consequence, higher amortization than capitalization of development expenses and higher recognition than deferral of hardware costs had a negative impact on operating income YoY. The amounts related to capitalized software releases were fully amortized in 2017.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs

 

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of sales

     -0.2        -0.4        -0.3  

R&D expenses

     -0.3        0.1        -0.4  
  

 

 

    

 

 

    

 

 

 

Total impact

     -0.5        -0.3        -0.7  
  

 

 

    

 

 

    

 

 

 

Restructuring charges

Restructuring charges were SEK -1.9 (-1.5) b. Restructuring charges in Q1 2018 were SEK -1.2 b.

Operating income and margin

Operating income increased to SEK 0.2 (-0.5) b. YoY.

Operating income improved sequentially to SEK 0.2 b. from -0.3 b. .

Financial net

Financial net was SEK -0.8 (0.1) b. mainly due to negative revaluation and realization effects of foreign exchange forecast hedging at SEK -0.3 (0.3) b. and negative return on assets. The financial net declined sequentially from SEK -0.5 b. In Q1 2018 the revaluation and realization effects of foreign exchange forecast hedging was SEK -0.1 b.

Taxes

Taxes amounted to SEK -1.2 (0.0) b. in the quarter and were impacted by SEK -0.7 b. as a result of revaluation of deferred tax assets due to a change in Swedish corporate tax rate. Certain profits realized in foreign jurisdictions and adjustments for taxes related to prior periods also impacted taxes negatively.

Net income (loss) and EPS

The losses in net income and the negative EPS diluted increased both YoY and QoQ, following increased taxes and negative financial net, partly offset by improved operating income.

Employees

The number of employees on June 30, 2018, was 95,260 – a net reduction of 2,321 employees in the quarter and of 13,867 employees compared with June 30, 2017. The decrease is mainly a result of activities under the cost reduction program.

Focused strategy execution

The following four measures are indicators of the progress of strategy execution.

 

Area    Activity    Status Q2 2018
Networks    Transition to new Ericsson Radio System    84% (2017: 61%) YTD accumulated (ERS radio unit deliveries out of total radio unit deliveries)
Digital Services    - Growth in sales of new product portfolio - Addressing critical customer contracts   

- Net sales 12 months rolling -14%

- Out of 45 contracts identified, in total 16 have been addressed (8 in Q218 isolated)

Managed Services    Addressing low- performing customer contracts    Out of a total of 42 contracts identified, 33 (2 in Q218 isolated) have been addressed to result in an annualized profit improvement of SEK 0.8 b. (Q1 2018: SEK 0.7 b.)

Changes in segment reporting

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solutions (BSS) were moved between the segments Managed Services and Digital Services, with a sales increase in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b. (positive for Managed Services, negative for Digital Services). Historical data have been restated to reflect the organizational change.

 

 

4      Ericsson  |  Second Quarter Report 2018    Financial highlights


Market area sales

 

     Second quarter 2018      Change  

SEK b.

   Networks      Digital
Services
     Managed
Services
     Emerging
Business
and Other
     Total      YoY     QoQ  

South East Asia, Oceania and India

     5.0        1.1        0.9        0.0        7.0        -3     9

North East Asia

     3.6        0.8        0.4        0.0        4.8        -19     41

North America

     11.4        2.1        0.8        0.0        14.3        11     27

Europe and Latin America

     7.8        2.9        3.4        0.1        14.2        0     9

Middle East and Africa

     3.0        1.6        1.0        0.0        5.6        -2     -2

Other 1)

     1.7        0.3        0.0        1.9        3.9        -7     12
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     32.4        8.8        6.5        2.1        49.8        -1     15
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

1)  Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other

 

South East Asia, Oceania and India

Sales declined YoY. Large 4G deployments are ongoing, however timing of orders impacted Networks sales negatively YoY. Digital Services sales declined slightly YoY, due to timing of project milestones. Managed Services sales increased, partly driven by a newly signed contract.

North East Asia

Sales declined YoY due to lower Networks sales in Mainland China as a consequence of reduced LTE investments. Digital Services sales declined YoY, due to a telecom core contract delay. Sales in Japan recovered after finalization of spectrum allocations.

North America

Sales increased YoY, primarily in Networks, driven by investments in 5G readiness across all major customers. Digital Services sales declined slightly YoY, due to timing of project milestones.

Europe and Latin America

Sales were stable YoY. Continued sales growth in parts of Europe and Latin America was offset by a decline in certain markets. In addition, Managed Services sales declined YoY as a consequence of addressing non-strategic contracts.

Middle East and Africa

Sales declined slightly YoY. Networks sales were negatively impacted by monetary restrictions in a few markets in the Middle East. The decline was partly offset by growth in Digital Services.

Other

Sales declined YoY, mainly in Media Solutions. IPR licensing revenues amounted to SEK 1.8 (2.0) b.

 

 

5      Ericsson  |  Second Quarter Report 2018    Market area sales


Segment results

Networks

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2018     2017     change     2018     change     2018     2017  

Net sales

     32.4       31.7       2     28.6       13     61.0       63.3  

Of which products

     22.3       21.3       5     19.5       15     41.8       43.1  

Of which IPR licensing revenues

     1.5       1.7       -11     1.5       -2     3.0       3.4  

Of which services

     10.1       10.4       -3     9.1       10     19.2       20.2  

Gross income

     12.6       10.9       15     11.1       13     23.7       20.9  

Gross margin

     38.8     34.4     —         38.9     —         38.8     33.0

Operating income

     3.5       3.4       4     3.4       5     6.9       6.1  

Operating margin

     10.9     10.8     —         11.8     —         11.3     9.7

Restructuring charges

     -0.7       -0.8       -8     -0.5       56     -1.2       -2.2  

 

Net sales

Sales as reported increased by 2% YoY. The increase is mainly due to strong growth in North America, driven by investments in 5G readiness. This was partly offset by lower sales in South East Asia, Oceania and India and in the Middle East and North East Asia.

Sales increased by 13% QoQ.

Gross margin

Gross margin increased to 38.8% (34.4%) YoY.

Gross margin was flat QoQ at 38.8%. Higher recognition than deferral of hardware costs impacted gross margin negatively by SEK -0.1 b. QoQ.

Operating margin

Operating margin was flat YoY at 10.9% (10.8%). Restructuring charges were SEK -0.7 (-0.8) b.

Operating margin declined QoQ to 10.9% from 11.8%. The change in net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs was SEK 0.2 b. QoQ.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs  

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of Sales

     -0.2        -0.1        -0.3  

R&D expenses

     0.2        0.1        0.1  
  

 

 

    

 

 

    

 

 

 

Total impact

     0.0        0.0        -0.2  
  

 

 

    

 

 

    

 

 

 

Strategy execution

As presented at the 2017 Capital Markets Day, the target for Networks is to improve the operating margin to 15%-17% by 2020. Three important activities for profitability improvements are to

- invest in R&D to safeguard a leading portfolio

- fully transition the radio unit deliveries to Ericsson Radio System (ERS) for increased competitiveness

- continue to make savings in service delivery and common costs.

The ERS, which was introduced to the market in 2015, has proven to be competitive as well as creating a strong market position. For the first half of 2018, ERS accounted for 84% of total radio unit deliveries. The plan is to have fully transitioned the radio unit deliveries to ERS by the end of 2018.

In the quarter, a divestment of a Spanish fiber service operations, with approximately 600 service engineers, was completed.

 

 

6      Ericsson  |  Second Quarter Report 2018    Segment results  |  Networks


Digital Services

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6 months
2018
    6 months
2017
 

Net sales

     8.8       9.9       -11     7.3       22     16.1       18.0  

Of which products

     4.5       5.4       -17     3.9       13     8.4       9.7  

Of which IPR licensing revenues

     0.3       0.4       -11     0.3       -2     0.7       0.7  

Of which services

     4.4       4.5       -4     3.3       32     7.7       8.3  

Gross income

     3.5       3.3       5     2.9       20     6.4       1.0  

Gross margin

     39.1     33.2     —         39.8     —         39.5     5.4

Operating income (loss)

     -2.4       -2.2       6     -2.6       -9     -5.0       -11.2  

Operating margin

     -26.9     -22.6     —         -35.9     —         -30.9     -62.4

Restructuring charges

     -0.9       -0.5       94     -0.6       52     -1.5       -0.7  

 

Net sales

Sales as reported declined by -11% YoY. Legacy product sales continued to decline in the quarter. New product sales declined YoY, mainly due to lower telecom core sales in North East Asia as a consequence of a contract delay. The demand for our 5G-ready and cloud-native products remains strong with several signed contracts in the quarter.

Sales increased by 22% QoQ driven by software and services, following a seasonally weaker Q1, and by increased sales in large transformation projects.

Gross margin

Gross margin improved to 39.1% (33.2%). Reduced amortization of software release development expenses had a positive impact of SEK 0.3 b. on gross income YoY.

Gross margin declined QoQ to 39.1% from 39.8%.

Operating income (loss)

Operating income (loss) decreased YoY to SEK -2.4 (-2.2) b. Operating expenses decreased despite an impact from higher amortized than capitalized development expenses of SEK -0.4 (0.1) b. and impairment losses on trade receivables of SEK -0.2 (0.0) b. Total restructuring charges of SEK -0.9 (-0.5) b. had a negative impact on operating income YoY.

Operating income (loss) improved QoQ to SEK -2.4 b. from -2.6 b.

Net impact from amortization and capitalization of development expenses

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of Sales

     0.0        -0.3        0.0  

R&D expenses

     -0.4        0.1        -0.4  
  

 

 

    

 

 

    

 

 

 

Total impact

     -0.4        -0.2        -0.4  
  

 

 

    

 

 

    

 

 

 

Strategy execution

As presented at the Capital Markets Day 2017, the target is to turn around Digital Services into low single-digit operating margin by 2020. Cost reduction activities were intensified in the quarter across the areas of service delivery, selling and administrative expenses and R&D. These activities will continue, aiming for simplicity and efficiency. While new ways of working are improving R&D efficiency, at the same time investments continue in a portfolio of 5G-ready and cloud-native products in order to defend current market position and prepare Digital Services for future growth.

A key activity for the turnaround is to manage and complete 34 identified critical multi-year customer contracts and to either exit or complete 11 identified non-strategic contracts. The plan is to complete or exit approximately 50% of the 45 contracts in 2018. 16 contracts have been addressed at the end of Q2 2018.

The ongoing digitalization drives opportunities for operators to reduce costs and be more agile by; automating operations, digitally serving and engaging with customers and building programmable core networks. Consequently, operators increasingly invest in the areas where Digital Services provide solutions. Rolling 12 months, however, sales of the new portfolio declined by -14%, mainly due to lower telecom core sales as a consequence of a contract delay in North East Asia. It is not unusual that such sales vary between quarters.

 

 

7      Ericsson  |  Second Quarter Report 2018    Segment results  |  Digital Services


Managed Services

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6 months
2018
    6 months
2017
 

Net sales

     6.5       6.7       -2     5.9       11     12.4       13.0  

Gross income (loss)

     0.8       0.0       —         0.5       65     1.3       -0.5  

Gross margin

     12.4     0.3     —         8.3     —         10.5     -4.0

Operating income (loss)

     0.3       -0.3       216     0.1       199     0.4       -2.1  

Operating margin

     4.6     -3.9     —         1.7     —         3.2     -16.1

Restructuring charges

     -0.1       -0.1       7     -0.1       141     -0.2       -0.2  

 

Net sales

Sales as reported decreased by -2% YoY, mainly as a result of contract reviews. Sales in Managed Services IT showed good growth.

Sales as reported increased by 11% QoQ.

Gross margin

Gross margin increased to 12.4% (0.3%) YoY, and sequentially from 8.3%, supported by results of efficiency measures and by reviewed and addressed contracts. In the quarter, positive adjustments of SEK 0.1 b. were made, related to reversal of earlier provisions.

Operating income

Operating income increased to SEK 0.3 (-0.3) b. YoY, due to higher gross margin. Restructuring charges were SEK -0.1 (-0.1) b.

Sequentially, operating income increased due to higher gross margin and higher net sales.

Strategy execution

As part of the focused business strategy, Managed Services has its full attention on turning the business around through addressing low-performing operations and non-strategic contracts as well as improving efficiency in the service delivery process. Investments continue in machine intelligence, automation and analytics in order to further enhance user experience, improve efficiency and better manage the increasingly complex networks of tomorrow.

As presented at the 2017 Capital Markets Day, the ambition for Managed Services is to improve the operating margin to 4%-6% in 2020. In order to focus the business and improve profitability, 42 managed services contracts (out of >300) have been identified for exit, renegotiation or transformation. At the end of Q2 2018, 33 of the 42 contracts have been addressed resulting in an annualized profit improvement of approximately SEK 0.8 b., already fully impacting gross margin.

 

 

8      Ericsson  |  Second Quarter Report 2018    Segment results  |  Managed Services


Emerging Business and Other (includes Emerging Business, Media Solutions, Red Bee Media and iconectiv)

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6 months
2018
    6 months
2017
 

Net sales

     2.1       2.0       2     1.7       24     3.7       3.8  

Gross income

     0.5       0.4       17     0.3       44     0.8       0.8  

Gross margin

     24.4     21.3     —         21.1     —         22.9     20.1

Operating income (loss)

     -1.3       -1.5       -11     -1.2       11     -2.5       -4.6  

Operating margin

     -63.5     -73.0     —         -71.2     —         -66.9     -121.9

Restructuring charges

     -0.1       -0.1       -2     -0.1       107     -0.2       -0.2  

 

Net sales

Sales as reported increased by 2% YoY. S. Sales and deliveries started, in the quarter, on a multi-year number portability contract in United States. This contract was awarded to iconectiv in 2015. Sales in Emerging Business continued to grow, driven by IoT.

Sales in the media business (Media Solutions and Red Bee Media) were SEK 1.3 (1.5) b. Media Solutions sales declined YoY, mainly due to lower sales in the discontinued portfolio. Red Bee Media sales declined slightly, mainly due to scope changes in contracts.

Sales increased by 24% QoQ, mainly due to growth in iconectiv, Media Solutions and Red Bee Media.

Gross margin

Gross margin increased YoY to 24.4% (21.3%).

Gross margin increased QoQ to 24.4% from 21.1%.

Operating income (loss)

Operating income improved YoY to SEK -1.3 (-1.5) b. Emerging Business operating income declined YoY, driven by increased investments in line with the strategy.

Results in Media Solutions improved YoY, driven by operational efficiencies, partly offset by costs related to the planned transaction for Media Solutions in Q3 2018.

Operating income declined QoQ to SEK -1.3 from -1.2 b.

Net impact from amortization and capitalization of development expenses

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of Sales

     0.0        0.0        0.0  

R&D expenses

     -0.1        -0.1        -0.1  
  

 

 

    

 

 

    

 

 

 

Total impact

     -0.1        -0.1        -0.1  
  

 

 

    

 

 

    

 

 

 

Strategy execution

As outlined at the Capital Markets Day in 2017, the target for segment Emerging Business and Other, including iconectiv, is a break-even result by 2020.

Selective investments will continue in Emerging Business to build a position and grow sales in new areas. Main investments are on IoT, UDN (Unified Delivery Network) and Emodo (mobile advertising and data monetization platform) business. Parts of the portfolio are still in an early phase, with focus on generating sales and scale the business, and do not yet cover the required investments, hence resulting in a negative bottom-line. The acquisition of Vidscale, a subcontractor to the Ericsson UDN business, was completed in the quarter and will lower the operational cost for the business.

For the media solutions business, Ericsson is partnering with One Equity Partners (OEP) and retaining a 49% ownership stake. This allows Ericsson to capture the upside of the business while at the same time taking an active part in the expected consolidation of the industry. Activities are accelerated to complete the transaction as planned during Q3 2018. Additional expenses related to the divestment of the media solutions business is estimated to be SEK -0.3 b. in Q3.

For Red Bee Media, the target is to achieve a sustainable profitable business, by continuing to develop and manage the business as an independent and focused media services entity within Ericsson. Operations and services propositions will be further developed, in line with the Red Bee Media tactical and transformational strategic execution plans.

 

 

9      Ericsson  |  Second Quarter Report 2018    Segment results  |  Emerging Business and Other


Cash flow

 

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Net income reconciled to cash

     -0.3        -0.1        -1.0  

Changes in operating net assets

     1.7        0.1        2.6  

Cash flow from operating activities

     1.4        0.0        1.6  

Cash flow from investing activities

     1.6        -2.0        -1.8  

Cash flow from financing activities

     -3.7        -8.9        -0.1  

Effect of exchange rate changes on cash

     1.0        -0.6        1.1  

Net change in cash and cash equivalents

     0.4        -11.5        0.8  

 

Operating activities

Cash flow from operating activities was SEK 1.4 (0.0) b., driven by SEK 1.7 b. of positive change in net operating assets. Trade receivables were reduced, mainly due to good collection. Sales of trade receivables continued to trend downwards and were reduced both QoQ and YoY. Trade payables increased, mainly due to seasonal inventory build-up. Cash outlays related to restructuring charges were SEK -0.8 (-1.1) b. in the quarter.

Investing activities

Cash flow from investing activities excluding interest-bearing securities was SEK -2.1 (-1.3) b. M&A activities were SEK -0.4 (0.0) b., related to an acquisition in Emerging Business. Cash flow from investments in property, plant and equipment was SEK -1.0 (-1.0) b. and capitalized development expenses were SEK -0.3 (-0.3) b. Cash flow from interest-bearing securities was SEK 3.7 (-0.7) b. Together, the above items generated a positive cash flow from investing activities of SEK 1.6 (-2.0) b.

Financing activities

Cash flow from financing activities was negative at SEK -3.7 (-8.9) b. Dividends of SEK 3.3 (3.3) b. were paid out. Net change in cash and cash equivalents was SEK 0.4 (-11.5) b.

 

 

10      Ericsson  |  Second Quarter Report 2018    Cash flow


Financial position

 

SEK b.

   Jun 30
2018
     Jun 30
2017
     Mar 31
2018
 

+ Cash and cash equivalents

     37.0        21.4        36.7  

+ Interest-bearing securities, current

     8.3        10.8        5.5  

+ Interest-bearing securities, non-current

     21.5        22.1        27.1  

Gross cash

     66.9        54.3        69.3  

– Borrowings, current

     2.6        3.2        2.6  

– Borrowings, non-current

     31.1        27.1        31.1  

Net cash

     33.1        24.0        35.6  

Equity

     93.6        119.9        93.5  

Total assets

     265.3        275.2        260.7  

 

Post-employments benefits increased in the quarter, to SEK 27.3 b. from SEK 25.6 b., due to decreased interest rates in Sweden and normal service and interest costs partly offset by return on pension assets and higher interest rates in the UK.

The Swedish defined benefit obligation (DBO) has been calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the DBO would have been approximately SEK 8.5 b. lower as of June 30, 2018.

The average maturity of long-term borrowings as of June 30, 2018, was 3.9 years, a decrease from 4.5 years 12 months earlier.

A credit facility agreement of EUR 250 million was signed with the European Investment Bank (EIB) in the quarter but has not yet been disbursed. The credit facility will mature five years after disbursement.

Debt maturity profile, Parent Company

SEK b.

 

LOGO

 

 

11      Ericsson  |  Second Quarter Report 2018    Financial position


Other information

 

Ericsson’s Nomination Committee appointed

On April 26, 2018, Ericsson announced that the Nomination Committee for the Annual General Meeting 2019 had been appointed in accordance with the Instruction for the Nomination Committee, resolved by the Annual General Meeting 2012. The Nomination Committee consists of: Johan Forssell, Investor AB; Bengt Kjell, AB Industrivärden and Svenska Handelsbankens Pensionsstiftelse; Christer Gardell, Cevian Capital Partners Limited; Anders Oscarsson, AMF Försäkring och Fonder and Ronnie Leten, the Chairman of the Board of Directors. Johan Forssell is the Chairman of the Nomination Committee.

Ericsson signs credit facility agreement with the European Investment Bank

On May 31, 2018, Ericsson announced that it has signed a credit facility of EUR 250 million with the European Investment Bank (EIB). The funding will support research and development activities for 5G and is in line with Ericsson’s focused business strategy. The credit facility will mature five years after disbursement.

POST-CLOSING EVENTS

Ericsson to divest its field services business in Sweden to Transtema Group

On July 11, 2018, Ericsson announced that it has signed an agreement with the Swedish company Transtema Group AB to divest Ericsson Local Services AB (LSS), a subsidiary of Ericsson supplying field service operations and maintenance of fixed and mobile networks in Sweden. This divestment is in line with Ericsson’s business strategy. The transaction is expected to close in the third quarter of 2018 and is subject to customary closing conditions, including regulatory approvals.

DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012 (ITRA)

During the second quarter of 2018, Ericsson made sales of communications infrastructure related products and services in Iran to Mobile Communication Company of Iran and MTNIrancell, which generated gross revenues (reported as net sales) of approximately SEK 7 million. Ericsson does not normally allocate quarterly net profit (reported as net income) on a country-by-country or activity-by-activity basis, other than as set forth in Ericsson’s consolidated financial statements prepared in accordance with IFRS as issued by the IASB. However, Ericsson has estimated that its operating income (income before taxes and financial net) from such sales, after internal cost allocation, during the second quarter of 2018 would be substantially lower than such gross revenues. Ericsson continuously monitors the international developments as they relate to Iran and its government. While it is under the current circumstances very difficult to comment on possible future engagements, Ericsson always strives to honor its engagements with existing customers in compliance with applicable export controls, sanctions and other laws, rules and regulations

 

 

12      Ericsson  |  Second Quarter Report 2018    Other information


Risk factors

 

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2017. Risk factors and uncertainties in focus short term for the Parent Company and the Ericsson Group include, but are not limited to:

 

  Potential negative effects on operators’ willingness to invest in network development due to uncertainty in the financial markets and a weak economic business environment, or reduced consumer telecom spending, or increased pressure on Ericsson to provide financing, or delayed auctions of spectrum

 

  Intense competition from existing competitors as well as new entrants, including IT companies entering the telecommunications market, which could have a material adverse effect on the results

 

  Uncertainty regarding the financial stability of suppliers, for example due to lack of financing

 

  Effects on gross margins and/or working capital of the business mix in the Networks segment between capacity sales and new coverage build-outs

 

  Effects on gross margins of the business mix including new network build-outs and new managed services or digital transformation deals with initial transition costs

 

  Effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. with postponed investments and intensified price competition as a consequence

 

  New and ongoing partnerships which may not be successful and expose us to future costs

 

  Changes in foreign exchange rates, in particular USD

 

  Political unrest and uncertainty in certain markets, as well as escalating trade disputes and sanctions
  Effects on production and sales from restrictions with respect to timely and adequate supply of materials, components and production capacity and other vital services on competitive terms

 

  No guarantees that strategy execution, specific restructuring or cost-savings initiatives, profitability restoring efforts and/or organizational changes will be sufficient, successful or executed in time to deliver any improvements in earnings

 

  Cybersecurity incidents, which may have a material negative impact

 

  Rapidly changing technologies and the ways these are brought to the market, which could be disruptive to the business

 

  Ericsson is subject to risks associated with the development and implementation of new solutions or technologies under existing customer contracts. The company may not be successful or incur delays in developing or implementing such solutions or technologies, which could result in damage claims and loss of customers which may have an adverse impact on liquidity and results of operations.

Ericsson stringently monitors the compliance with all relevant trade regulations and trade embargoes applicable to dealings with customers operating in countries where there are trade restrictions or trade restrictions are discussed. Ericsson operates globally in accordance with Group policies and directives for business ethics and conduct and has a dedicated anti-corruption program. However, in some of the countries where the company operates, corruption risks can be high and compliance failure could have a material adverse impact on our business, financial condition and brand.

This report has not been reviewed by Telefonaktiebolaget LM Ericsson’s auditors.

Date for next report: October 18, 2018

 

 

13      Ericsson  |  Second Quarter Report 2018    Risk factors


Editor’s note

 

For further information, please contact:

Carl Mellander Senior Vice President, Chief Financial Officer Phone: +46 10 713 89 70

E-mail: investor.relations@ericsson.com or media.relations@ericsson.com

Helena Norrman, Senior Vice President, Chief Marketing and Communications Officer

Phone: +46 10 719 34 72

E-mail: investor.relations@ericsson.com or media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson

Org. number: 556016-0680

Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com

Investors
Peter Nyquist, Vice President,
Head of Investor Relations
Phone:    +46 10 714 64 99, +46 70 575 29 06
E-mail:    peter.nyquist@ericsson.com
Stefan Jelvin, Director,
Investor Relations
Phone:    +46 10 714 20 39, +46 70 986 02 27
E-mail:    stefan.jelvin@ericsson.com
Åsa Konnbjer, Director,
Investor Relations
Phone:    +46 10 713 39 28, +46 73 082 59 28
E-mail:    asa.konnbjer@ericsson.com
Rikard Tunedal, Director,
Investor Relations
Phone:    +46 10 714 54 00, +46 761 005 400
E-mail:    rikard.tunedal@ericsson.com
Media
Ola Rembe, Vice President,
Head of External Communications
Phone:    +46 10 719 97 27, +46 73 024 48 73
E-mail:    media.relations@ericsson.com
Corporate Communications
Phone:    +46 10 719 69 92
E-mail:    media.relations@ericsson.com
 

 

14      Ericsson  |  Second Quarter Report 2018    Editor’s note


Forward-looking statements

 

This report includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, including, in particular the following:

 

  Our goals, strategies, planning assumptions and operational or financial performance expectations

 

  Industry trends, future characteristics and development of the markets in which we operate

 

  Our future liquidity, capital resources, capital expenditures, cost savings and profitability

 

  The expected demand for our existing and new products and services as well as plans to launch new products and services including research and development expenditures

 

  The ability to deliver on future plans and to realize potential for future growth

 

  The expected operational or financial performance of strategic cooperation activities and joint ventures

 

  The time until acquired entities and businesses will be integrated and accretive to income

 

  Technology and industry trends including the regulatory and standardization environment in which we operate, competition and our customer structure.

The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,” “might,” “continue,” or, in each case, their negative or variations, and similar words or expressions are used to identify forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

We caution investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond our control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2017.

These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.

 

 

15      Ericsson  |  Second Quarter Report 2018    Forward-looking statements


Financial statements and

other information

 

Contents

  

Financial statements

  
Consolidated income statement      17  
Statement of comprehensive income (loss)      17  
Consolidated balance sheet      18  
Consolidated statement of cash flows      19  
Consolidated statement of changes in equity      20  
Consolidated income statement – isolated quarters      20  
Consolidated statement of cash flows – isolated quarters      21  

Additional information

  
Accounting policies      22  
Segment reporting      24  
Net sales by segment by quarter      25  
Gross income (loss) and gross margin by segment by quarter      26  
Operating income (loss) and operating margin by segment by quarter      27  
Net sales by market area by quarter      28  
Top 5 countries in sales      29  
Net sales by market area by segment      29  
IPR licensing revenues by segment by quarter      30  
Provisions      30  
Information on investments      31  
Other information      32  
Number of employees      32  

Items excluding restructuring charges

  
Restructuring charges by function      33  
Restructuring charges by segment      33  
Gross income (loss) and gross margin excluding restructuring charges by segment      34  
Operating income (loss) and operating margin excluding restructuring charges by segment      35  
 

 

 

16      Ericsson  |   Second Quarter Report 2018

  

 

Financial statements and other information


Financial statements

Consolidated income statement

 

     Apr-Jun     Jan-Jun  

SEK million

   2018     2017     Change     2018     2017     Change  

Net sales

     49,808       50,281       -1     93,219       98,084       -5

Cost of sales

     -32,475       -35,652       -9     -61,028       -75,954       -20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     17,333       14,629       18     32,191       22,130       45

Gross margin (%)

     34.8     29.1       34.5     22.6  

Research and development expenses

     -9,783       -8,364       17     -18,856       -17,430       8

Selling and administrative expenses

     -7,053       -6,818       3     -13,209       -15,041       -12

Impairment losses on trade receivables 1)

     -369       -235       57     -397       -1,875       -79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -17,205       -15,417       12     -32,462       -34,346       -5

Other operating income and expenses

     11       239         95       380    

Shares in earnings of JV and associated companies

     26       12         29       23    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     165       -537       -131     -147       -11,813       -99

Financial income

     275       -27         203       -109    

Financial expenses

     -1,085       83         -1,554       -267    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -645       -481       34     -1,498       -12,189       -88

Taxes

     -1,157       24         -1,029       1,706    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     -1,802       -457       294     -2,527       -10,483       -76
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

            

Stockholders of the Parent Company

     -1,885       -471         -2,722       -10,539    

Non-controlling interests

     83       14         195       56    

Other information

            

Average number of shares, basic (million)

     3,290       3,275         3,288       3,273    

Earnings (loss) per share, basic (SEK) 2)

     -0.58       -0.14         -0.83       -3.22    

Earnings (loss) per share, diluted (SEK) 3)

     -0.58       -0.14         -0.83       -3.22    

 

1)  Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.
2)  Based on net income (loss) attributable to stockholders of the Parent Company.
3)  Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Statement of comprehensive income (loss)

 

     Apr-Jun      Jan-Jun  

SEK million

   2018      2017      2018      2017  

Net income (loss)

     -1,802        -457        -2,527        -10,483  

Other comprehensive income (loss)

           

Items that will not be reclassified to profit or loss

           

Remeasurements of defined benefits pension plans incl. asset ceiling

     123        574        -726        972  

Revaluation of borrowings due to change in credit risk

     8        —          66        —    

Tax on items that will not be reclassified to profit or loss

     -186        -160        -53        -329  

Items that may be reclassified to profit or loss

           

Available-for-sale financial assets

           

Gains/losses arising during the period

     —          41        —          73  

Reclassification adjustments on gains/losses included in profit or loss

     —          2        —          5  

Revaluation of other investments in shares and participations

           

Fair value remeasurement

     —          —          —          2  

Changes in cumulative translation adjustments

     1,742        -2,773        3,041        -2,795  

Share of other comprehensive income on JV and associated companies

     9        -9        20        1  

Tax on items that may be reclassified to profit or loss

     —          -9        —          -18  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     1,696        -2,334        2,348        -2,089  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

     -106        -2,791        -179        -12,572  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss) attributable to:

           

Stockholders of the Parent Company

     -216        -2,766        -416        -12,612  

Non-controlling interest

     110        -25        237        40  

 

17      Ericsson  |  Second Quarter Report 2018    Financial statements


Consolidated balance sheet

 

SEK million

   Jun 30
2018
     Mar 31
2018
     Dec 31
2017
 

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     5,458        4,229        4,593  

Goodwill

     30,145        28,777        27,815  

Intellectual property rights, brands and other intangible assets

     3,883        3,853        4,148  

Property, plant and equipment

     12,894        12,912        12,857  

Financial assets

        

Equity in JV and associated companies

     658        630        624  

Other investments in shares and participations

     1,587        1,302        1,279  

Customer finance, non-current

     1,367        1,845        2,178  

Interest-bearing securities, non-current

     21,501        27,104        25,105  

Other financial assets, non-current

     6,805        5,192        5,897  

Deferred tax assets

     23,573        23,822        21,963  
  

 

 

    

 

 

    

 

 

 
     107,871        109,666        106,459  

Current assets

        

Inventories

     30,050        29,009        25,547  

Contract assets

     12,460        11,712        13,120  

Trade receivables

     41,580        42,455        48,105  

Customer finance, current

     1,664        1,709        1,753  

Other current receivables

     26,344        23,980        22,301  

Interest-bearing securities, current

     8,304        5,453        6,713  

Cash and cash equivalents

     37,049        36,697        35,884  
  

 

 

    

 

 

    

 

 

 
     157,451        151,015        153,423  
  

 

 

    

 

 

    

 

 

 

Total assets

     265,322        260,681        259,882  
  

 

 

    

 

 

    

 

 

 

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

     92,689        92,703        96,935  

Non-controlling interest in equity of subsidiaries

     871        763        636  
  

 

 

    

 

 

    

 

 

 
     93,560        93,466        97,571  

Non-current liabilities

        

Post-employment benefits

     27,306        25,646        25,009  

Provisions, non-current

     2,819        2,597        3,596  

Deferred tax liabilities

     1,332        1,325        901  

Borrowings, non-current

     31,131        31,134        30,500  

Other non-current liabilities

     4,549        2,792        2,776  
  

 

 

    

 

 

    

 

 

 
     67,137        63,494        62,782  

Current liabilities

        

Provisions, current

     6,715        6,435        6,283  

Borrowings, current

     2,642        2,554        2,545  

Contract liabilities

     30,959        30,391        29,076  

Trade payables

     28,563        26,453        26,320  

Other current liabilities

     35,746        37,888        35,305  
  

 

 

    

 

 

    

 

 

 
     104,625        103,721        99,529  
  

 

 

    

 

 

    

 

 

 

Total equity and liabilities

     265,322        260,681        259,882  
  

 

 

    

 

 

    

 

 

 

Of which interest-bearing liabilities

     33,773        33,688        33,045  

Assets pledged as collateral

     5,702        5,148        5,215  

Contingent liabilities

     1,363        1,412        1,561  

 

18      Ericsson  |  Second Quarter Report 2018    Financial statements


Consolidated statement of cash flows

 

     Apr-Jun      Jan-Jun     Jan-Dec  

SEK million

   2018      2017      2018      2017     2017  

Operating activities

             

Net income (loss)

     -1,802        -457        -2,527        -10,483       -32,433  

Adjustments to reconcile net income to cash

             

Taxes

     -1,071        -1,826        -3,386        -5,938       -9,064  

Earnings/dividends in JV and associated companies

     -19        -8        -15        -15       56  

Depreciation, amortization and impairment losses

     2,065        2,197        3,956        7,628       27,892  

Other

     568        -48        708        479       440  
  

 

 

    

 

 

    

 

 

    

 

 

   

Net income reconciled to cash

     -259        -142        -1,264        -8,329       -13,109  

Changes in operating net assets

             

Inventories

     -1,910        -1,492        -4,723        -4,698       4,719  

Customer finance, current and non-current

     547        1,140        947        306       798  

Trade receivables and contract assets

     1,661        184        8,977        3,002       1,379  

Trade payables

     1,252        19        654        382       1,886  

Provisions and post-employment benefits

     478        315        -369        4,951       4,755  

Contract liabilities

     -233        -573        524        4,234       5,024  

Other operating assets and liabilities, net

     -94        550        -1,731        -1,388       4,149  
  

 

 

    

 

 

    

 

 

    

 

 

   
     1,701        143        4,279        6,789       22,710  

Cash flow from operating activities

     1,442        1        3,015        -1,540       9,601  

Investing activities

             

Investments in property, plant and equipment

     -951        -1,018        -1,807        -2,033       -3,877  

Sales of property, plant and equipment

     52        37        175        106       1,016  

Acquisitions/divestments of subsidiaries and other operations, net

     -431        9        -880        12       276  

Product development

     -325        -315        -579        -1,180       -1,444  

Other investing activities

     -398        -42        -237        68       -463  

Interest-bearing securities

     3,656        -676        3,122        -12,562       -11,578  
  

 

 

    

 

 

    

 

 

    

 

 

   

Cash flow from investing activities

     1,603        -2,005        -206        -15,589       -16,070  

Cash flow before financing activities

     3,045        -2,004        2,809        -17,129       -6,469  

Financing activities

             

Dividends paid

     -3,289        -3,274        -3,289        -3,278       -3,424  

Other financing activities

     -383        -5,636        -477        5,266       8,902  
  

 

 

    

 

 

    

 

 

    

 

 

   

Cash flow from financing activities

     -3,672        -8,910        -3,766        1,988       5,478  

Effect of exchange rate changes on cash

     980        -594        2,123        -379       -91  
  

 

 

    

 

 

    

 

 

    

 

 

   

Net change in cash and cash equivalents

     353        -11,508        1,166        -15,520       -1,082  
  

 

 

    

 

 

    

 

 

    

 

 

   

Cash and cash equivalents, beginning of period

     36,697        32,954        35,884        36,966       36,966  
  

 

 

    

 

 

    

 

 

    

 

 

   

Cash and cash equivalents, end of period

     37,050        21,446        37,050        21,446       35,884  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

19      Ericsson  |  Second Quarter Report 2018    Financial statements


Consolidated statement

of changes in equity

 

     Jan-Jun     Jan-Dec  

SEK million

   2018      2017     2017  

Opening balance 1)

     97,571        135,257       135,257  

Opening balance adjustment due to IFRS 9

     -983        —         —    
  

 

 

    

 

 

   

Adjusted opening balance

     96,588        135,257       135,257  

Total comprehensive income (loss)

     -179        -12,572       -35,232  

Sale/repurchase of own shares

     49        34       -5  

Stock issue (net)

     —          15       15  

Long-term variable compensation plans

     391        431       885  

Dividends paid

     -3,289        -3,278       -3,424  

Transactions with non-controlling interests

     —          —         75  
  

 

 

    

 

 

   

Closing balance

     93,560        119,887       97,571  
  

 

 

    

 

 

   

 

1)  The opening balance adjustment for IFRS 15 on initial application date (January 1, 2016) was SEK -4,353 million. Opening balances of 2017 and 2018 have been restated for IFRS 15.

Consolidated income statement

- isolated quarters

 

    2018     2017  

Isolated quarters, SEK million

  Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

    49,808       43,411       57,881       49,413       50,281       47,803  

Cost of sales

    -32,475       -28,553       -45,365       -36,132       -35,652       -40,302  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

    17,333       14,858       12,516       13,281       14,629       7,501  

Gross margin (%)

    34.8     34.2     21.6     26.9     29.1     15.7

Research and development expenses

    -9,783       -9,073       -9,938       -10,519       -8,364       -9,066  

Selling and administrative expenses

    -7,053       -6,156       -8,245       -5,741       -6,818       -8,223  

Impairment losses on trade receivables 1)

    -369       -28       -680       -1,094       -235       -1,640  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    -17,205       -15,257       -18,863       -17,354       -15,417       -18,929  

Other operating income and expenses

    11       84      
-12,926
 
2)
 
    415       239       141  

Shares in earnings of JV and associated companies

    26       3       -5       6       12       11  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    165       -312       -19,278       -3,652       -537       -11,276  

Financial income

    275       -72       -124       -139       -27       -82  

Financial expenses

    -1,085       -469       -394       -182       83       -350  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

    -645       -853       -19,796       -3,973       -481       -11,708  

Taxes

    -1,157       128       1,303       516       24       1,682  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    -1,802       -725       -18,493       -3,457       -457       -10,026  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

           

Stockholders of the Parent Company

    -1,885       -837       -18,476       -3,561       -471       -10,068  

Non-controlling interests

    83       112       -17       104       14       42  

Other information

           

Average number of shares, basic (million)

    3,290       3,286       3,283       3,279       3,275       3,272  

Earnings (loss) per share, basic (SEK) 3)

    -0.58       -0.25       -5.63       -1.09       -0.14       -3.08  

Earnings (loss) per share, diluted (SEK) 4)

    -0.58       -0.25       -5.63       -1.09       -0.14       -3.08  

 

1)  Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.
2)  Includes write-down of goodwill of SEK -13.0 billion.
3)  Based on net income (loss) attributable to stockholders of the Parent Company.
4)  Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

 

20      Ericsson  |  Second Quarter Report 2018    Financial statements


Consolidated statement

of cash flows - isolated quarters

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Operating activities

                 

Net income (loss)

     -1,802        -725        -18,493        -3,457        -457        -10,026  

Adjustments to reconcile net income to cash

                 

Taxes

     -1,071        -2,315        -1,803        -1,323        -1,826        -4,112  

Earnings/dividends in JV and associated companies

     -19        4        -2        73        -8        -7  

Depreciation, amortization and impairment losses

     2,065        1,891        16,118        4,146        2,197        5,431  

Other

     568        140        179        -218        -48        527  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -259        -1,005        -4,001        -779        -142        -8,187  

Changes in operating net assets

                 

Inventories

     -1,910        -2,813        8,356        1,061        -1,492        -3,206  

Customer finance, current and non-current

     547        400        36        456        1,140        -834  

Trade receivables and contract assets

     1,661        7,316        -2,246        623        184        2,818  

Trade payables

     1,252        -598        2,565        -1,061        19        363  

Provisions and post-employment benefits

     478        -847        412        -608        315        4,636  

Contract liabilities

     -233        757        2,700        -1,910        -573        4,807  

Other operating assets and liabilities, net

     -94        -1,637        3,337        2,200        550        -1,938  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,701        2,578        15,160        761        143        6,646  

Cash flow from operating activities

     1,442        1,573        11,159        -18        1        -1,541  

Investing activities

                 

Investments in property, plant and equipment

     -951        -856        -1,105        -739        -1,018        -1,015  

Sales of property, plant and equipment

     52        123        898        12        37        69  

Acquisitions/divestments of subsidiaries and other operations, net

     -431        -449        -107        371        9        3  

Product development

     -325        -254        -138        -126        -315        -865  

Other investing activities

     -398        161        -573        42        -42        110  

Interest-bearing securities

     3,656        -534        -2,772        3,756        -676        -11,886  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     1,603        -1,809        -3,797        3,316        -2,005        -13,584  

Cash flow before financing activities

     3,045        -236        7,362        3,298        -2,004        -15,125  

Financing activities

                 

Dividends paid

     -3,289        —          -1        -145        -3,274        -4  

Other financing activities

     -383        -94        2,073        1,563        -5,636        10,902  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -3,672        -94        2,072        1,418        -8,910        10,898  

Effect of exchange rate changes on cash

     980        1,143        240        48        -594        215  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     353        813        9,674        4,764        -11,508        -4,012  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     36,697        35,884        26,210        21,446        32,954        36,966  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     37,050        36,697        35,884        26,210        21,446        32,954  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21      Ericsson  |  Second Quarter Report 2018    Financial statements


Additional information

Accounting policies

The group

 

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31,2017 and should be read in conjunction with that annual report, with exception for the accounting policies described below.

New standards as from January 1, 2018

Two new IFRS standards are effective as from January 1, 2018, IFRS 9 “Financial instruments” and IFRS 15 “Revenue from Customer Contracts”.

Presentation in the financial statements

For IFRS 15 the Company has adopted the full retrospective method for transition, which mean that prior year comparatives have been restated and equity has been adjusted at the initial application date (January 1, 2016). The Company has applied IFRS 9 retrospectively on the required effective date, January 1, 2018. The 2018 opening balances have been adjusted, but the previous periods have not been restated.

Based on the new requirements under IFRS 15, contract assets and contract liabilities have been added as new lines in the consolidated balance sheet and statement of cash flow. Previously, contract assets were reported as trade receivables and contract liabilities were reported as deferred revenue and as advances from customers within other current liabilities. Due to IFRS 9, impairment losses on trade receivables are reported on a separate line in the consolidated income statement. Previously, these losses have been reported as Selling and administrative expenses. In the statement of comprehensive income, a new line has been added for revaluation of borrowings due to changes in credit risk. A new line has been added to the consolidated statement of equity showing the adjustment to the opening balance.

The prior periods financial statements and key ratios presented in this quarterly report have been restated to reflect adoption of these new standards.

Accounting policy – IFRS 9 “Financial instruments”

Financial assets

The Company classifies its financial assets in the following categories: at amortized cost, at fair value through other comprehensive income (FVOCI), and at fair value through profit or loss (FVTPL). The classification depends on the characteristics of the asset and the business model in which it is held.

Financial assets at amortized cost

Financial assets are classified as amortized cost if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is to hold financial assets in order to collect contractual cash flows. These assets are subsequently measured at amortized cost using the effective interest method, minus impairment allowances.

Financial assets at fair value through other comprehensive income (FVOCI)

Assets are classified as FVOCI if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. These assets are subsequently measured at fair value with changes in fair value recognized in other comprehensive income (OCI), except for effective interest, impairment gains and losses and foreign exchange gains and losses recognized in the income statement. Upon derecognition, the cumulative gain or loss in OCI is reclassified to the income statement.

Financial assets at fair value through profit or loss (FVTPL)

All financial assets that are not classified as either amortized cost or FVOCI are classified as FVTPL. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the near term. Derivatives are classified as held for trading, unless they are designated as hedging instruments for the purpose of hedge accounting. Assets held for trading are classified as current assets. Debt instruments classified as FVTPL, but not held for trading, are classified on the balance sheet based on their maturity date (i.e. those with a maturity longer than one year are classified as non-current). Investments in shares and participations are classified as FVTPL and classified as non-current financial assets.

Gains or losses arising from changes in the fair values of the “Financial assets at fair value through profit or loss” category (excluding derivatives and customer financing) are presented in the income statement within Financial income in the period in which they arise. Gains and losses on derivatives are presented in the income statement either as Cost of sales, Other operating income, Financial income or Financial expense, depending on the intent with the transaction. Gains and losses on customer financing are presented in the income statement as Selling expenses.

Impairment in relation to financial assets

At each balance sheet date, financial assets classified as either amortized cost or FVOCI and contract assets are assessed for impairment based on Expected Credit Losses (ECL). Allowances for trade receivables and contract assets are always equal to lifetime ECL. The loss is recognized in the income statement. When there is no reasonable expectation of collection, the asset is written off.

Borrowings

Borrowings by the Parent Company are designated FVTPL because they are managed and evaluated on a fair value basis. Changes in fair value are recognized in the income statement, except for changes in fair value due to change in credit risk which are recognized in Other comprehensive income.

 

 

22      Ericsson  |  Second Quarter Report 2018    Additional information


Summary of changes to classification of financial assets and financial liabilities

 

Type of asset

  

IAS 39 classification

  

IFRS 9 classification

  

Reason for IFRS 9 classification

Cash equivalents, interest-bearing securities, and derivatives (held for trading)    FVTPL    FVTPL    Held for trading portfolios are classified as FVTPL (no change).
Cash equivalents (not held for trading)    Loans and receivables    Amortized cost    These assets are held to collect contractual cash flows.
Interest-bearing securities (not held for trading)    Available-for-sale    FVTPL    These assets are not held for trading but are managed and evaluated on a fair value basis.
Trade receivables    Loans and receivables    FVOCI    Trade receivables are managed in a business model whose objective is achieved through both collection of contractual cash flows and selling of assets.
Customer financing    Loans and receivables    FVTPL    Customer finance assets are managed in a business model with the objective to realize cash flows through the sale of assets.
Investments in shares and participations (equity instruments)    Available-for-sale    FVTPL    This is an accounting policy choice under IFRS 9.
Borrowings by parent company    Amortized cost    Designated FVTPL    These borrowings are managed and evaluated on a fair value basis.

 

Fair value hedging and fair value hedge accounting

Fair value hedge accounting is no longer applied as of January 1, 2018.

Financial guarantees

Financial guarantee contracts are initially recognized at fair value (i.e., usually the fee received). Subsequently, these contracts are measured at the higher of:

– The expected credit losses.

– The recognized contractual fee less cumulative amortization when amortized over the guarantee period, using the straight-line-method.

Accounting policy – IFRS 15 “Revenue from Contracts with Customers”

IFRS 15, “Revenue from Contracts with Customers” establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer.

The following paragraphs describes the types of contracts, when performance obligations are satisfied, and the timing of revenue recognition. They also describe the normal payment terms associated with such contracts and the resulting impact on the balance sheet over the duration of the contracts. The vast majority of Ericsson’s business is for the sale of standard products and services.

Standard products and services

Products and services are classified as standard solutions if they do not require significant installation and integration services to be delivered. Installation and integration services are generally completed within a short period of time, from the delivery of the related products. These products and services are viewed as separate distinct performance obligations. This type of customer contract is usually signed as a frame agreement and the customer issues individual purchase orders to commit to purchases of products and services over the duration of the agreement.

Revenue for standard products shall be recognized when control over the equipment is transferred to the customer at a point in time. This assessment shall be viewed from a customer’s perspective considering indicators such as transfer of titles and risks, customer acceptance, physical possession, and billing rights. For hardware sales, transfer of control is usually deemed to occur when the equipment arrives at the customer site and for software sales, when the licenses are made available to the customer. Contractual terms may vary, therefore judgment will be applied when assessing the indicators of transfer of control. Revenue for installation and integration services is recognized upon completion of the service.

Transaction prices under these contracts are mostly billed upon delivery of the hardware or software, and completion of installation services, although a proportion may be billed upon formal acceptance of the related installation services. This will result in a contract asset for the proportion of the transaction price that is not yet billed.

Revenue for recurring services such as customer support and managed services is recognized as the services are delivered, generally pro-rata over time. Transaction prices under these contracts are billed over time, often on a quarterly basis. Contract liabilities or receivables may arise depending on whether the quarterly billing is in advance or in arrears.

Contract for standard products and services applies to business in all segments.

Customized solution

Some products and services are sold together as part of a customized solution to the customer. This type of contract requires significant installation and integration services to be delivered within the solution, normally over a period of more than 1 year. These products and services are viewed together as a combined performance obligation. This type of contract is usually sold as a firm contract in which the scope of the solution and obligations of both parties are clearly defined for the duration of the contract.

 

 

 

23      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Revenue for the combined performance obligation shall be recognized over time if progress of completion can be reliably measured and enforceable right to payment exists over the duration of the contract. The progress of completion is estimated by reference to the output delivered such as achievement of contract milestones and customer acceptance. This method is considered appropriate as it reflects the nature of the customized solution and how integration service is delivered in these projects. Formal acceptance term is considered a key indicator of transfer of control for a customized solution and shall therefore be obtained prior to recognizing revenue. If the criteria above are not met, then all revenue shall be recognized upon the completion of the customized solution, when final acceptance is provided by the customer.

Transaction price under these contracts are represented by progress payments or billing milestones as defined in the contracts. In most cases, revenue recognized is limited to the progress payments or unconditional billing milestones over the duration of the contract, therefore no contract asset or contract liability arises on these contracts. In some contracts, revenue may be recognized in advance of billing milestones if enforceable payment rights exist at all times over the contract duration. This will result in a contract asset balance until billing milestones are reached.

Contract for customized solution applies to the Business Support Systems (BSS) business within the segment Digital Services and the Media Solutions business within the segment Emerging Business and Other.

Intellectual Property Rights (IPR)

This type of contract relates to the patent and licensing business. The Company has assessed that the nature of its IPR contracts is such that they provide customers a license with the right to access Ericsson intellectual properties over time, therefore revenue shall be recognized over the duration of the contract. Royalty revenue based on sales or usage is recognized when the sales and usage occurs.

The transaction price on these contracts is usually structured as a royalty fee based on sales or usage over the period, measured on a quarterly basis. This results in a receivable balance if the billing is performed the following quarter after measurement. Some contracts include lump sum amounts, payable either up front at commencement or on an annual basis. This results in a contract liability balance if payment is in advance of revenue, as revenue is recognized over time.

As described in Note C3 “Segment Information” of the Annual Report 2017, revenue from IPR licensing contracts are allocated to the segments Networks and Digital Services.

 

 

Impact of IFRS 9 and IFRS 15 on balance sheet items

 

     As reported at
31.12 2017
     IFRS 15
restatement
     Restated
balance at
31.12.2017
     IFRS 9
adjustment
     Adjusted
balance at
1.1.2018
 

ASSETS

              

Non-current assets

              

Deferred tax assets

     21,228        735        21,963        288        22,251  

Current assets

              

Inventories

     24,960        587        25,547        —          25,547  

Contract assets

     —          13,120        13,120        —          13,120  

Trade receivables

     63,210        –15,105        48,105        –1,240        46,865  

EQUITY AND LIABILITIES

              

Equity

              

Stockholder’s equity

     99,540        –2,605        96,935        –983        95,952  

Non-current liabilities

              

Borrowings, non-current

     30,500        —          30,500        31        30,531  

Current liabilities

              

Provisions

     6,350        –67        6,283        —          6,283  

Contract liabilities

     —          29,076        29,076        —          29,076  

Other current liabilities

     62,370        –27,065        35,305        —          35,305  

Segment reporting

Changes applied in Q1 2018

As of Q1 2018, sales related to 3PP routing business are reported in Networks (earlier Digital Services). Comparative periods have been restated to reflect this change. In Q1 2018, these sales were SEK 151 (160) million.

Changes applied in Q2 2018

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solution (BSS) was moved between segments Managed Services and Digital Services, with increased sales in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b (positive for Managed Services, negative for Digital Services). Historical data has been restated to reflect the organizational change.

 

 

 

24      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Net sales by segment by quarter             
     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     32,393       28,602       37,077       31,871       31,699       31,638  

Of which Products

     22,319       19,473       25,404       21,734       21,281       21,858  

Of which Services

     10,074       9,129       11,673       10,137       10,418       9,780  

Digital Services

     8,833       7,262       11,820       8,930       9,901       8,101  

Of which Products

     4,467       3,947       6,452       4,859       5,370       4,327  

Of which Services

     4,366       3,315       5,368       4,071       4,531       3,774  

Managed Services

     6,528       5,896       6,898       6,618       6,673       6,283  

Emerging Business and Other

     2,054       1,651       2,086       1,994       2,008       1,781  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     49,808       43,411       57,881       49,413       50,281       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13     -23     16     1     0     —    

Of which Products

     15     -23     17     2     -3     —    

Of which Services

     10     -22     15     -3     7     —    

Digital Services

     22     -39     32     -10     22     —    

Of which Products

     13     -39     33     -10     24     —    

Of which Services

     32     -38     32     -10     20     —    

Managed Services

     11     -15     4     -1     6     —    

Emerging Business and Other

     24     -21     5     -1     13     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     15     -25     17     -2     5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     2     -10     —         —         —         —    

Of which Products

     5     -11     —         —         —         —    

Of which Services

     -3     -7     —         —         —         —    

Digital Services

     -11     -10     —         —         —         —    

Of which Products

     -17     -9     —         —         —         —    

Of which Services

     -4     -12     —         —         —         —    

Managed Services

     -2     -6     —         —         —         —    

Emerging Business and Other

     2     -7     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -1     -9     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     60,995       28,602       132,285       95,208       63,337       31,638  

Of which Products

     41,792       19,473       90,277       64,873       43,139       21,858  

Of which Services

     19,203       9,129       42,008       30,335       20,198       9,780  

Digital Services

     16,095       7,262       38,752       26,932       18,002       8,101  

Of which Products

     8,414       3,947       21,008       14,556       9,697       4,327  

Of which Services

     7,681       3,315       17,744       12,376       8,305       3,774  

Managed Services

     12,424       5,896       26,472       19,574       12,956       6,283  

Emerging Business and Other

     3,705       1,651       7,869       5,783       3,789       1,781  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     93,219       43,411       205,378       147,497       98,084       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Year over year change, percent

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     -4     -10     -6     —         —         —    

Of which Products

     -3     -11     -4     —         —         —    

Of which Services

     -5     -7     -8     —         —         —    

Digital Services

     -11     -10     -9     —         —         —    

Of which Products

     -13     -9     -10     —         —         —    

Of which Services

     -8     -12     -8     —         —         —    

Managed Services

     -4     -6     -8     —         —         —    

Emerging Business and Other

     -2     -7     -9     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -5     -9     -7     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

25      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Gross income (loss) and gross margin by segment by quarter

 

 

 
Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     12,565       11,127       11,849       10,654       10,894       10,031  

Digital Services

     3,458       2,892       1,114       2,620       3,289       -2,324  

Managed Services

     809       491       -691       -360       19       -542  

Emerging Business and Other

     501       348       245       367       427       336  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     17,333       14,858       12,517       13,281       14,629       7,501  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters,    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     38.8     38.9     32.0     33.4     34.4     31.7

Digital Services

     39.1     39.8     9.4     29.3     33.2     -28.7

Managed Services

     12.4     8.3     -10.0     -5.4     0.3     -8.6

Emerging Business and Other

     24.4     21.1     11.7     18.4     21.3     18.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     34.8     34.2     21.6     26.9     29.1     15.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     23,692       11,127       43,428       31,579       20,925       10,031  

Digital Services

     6,350       2,892       4,699       3,585       965       -2,324  

Managed Services

     1,300       491       -1,574       -883       -523       -542  

Emerging Business and Other

     849       348       1,375       1,130       763       336  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     32,191       14,858       47,928       35,411       22,130       7,501  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

As percentage of net sales

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     38.8     38.9     32.8     33.2     33.0     31.7

Digital Services

     39.5     39.8     12.1     13.3     5.4     -28.7

Managed Services

     10.5     8.3     -5.9     -4.5     -4.0     -8.6

Emerging Business and Other

     22.9     21.1     17.5     19.5     20.1     18.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     34.5     34.2     23.3     24.0     22.6     15.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

26      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Operating income (loss) and operating margin by segment by quarter    
Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     3,544       3,371       1,945       2,375       3,424       2,711  

Digital Services

     -2,374       -2,607       -12,271       -3,770       -2,237       -9,004  

Managed Services

     299       100       -1,275       -727       -258       -1,829  

Emerging Business and Other

     -1,304       -1,176       -7,677       -1,530       -1,466       -3,154  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     165       -312       -19,278       -3,652       -537       -11,276  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters,    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     10.9     11.8     5.2     7.5     10.8     8.6

Digital Services

     -26.9     -35.9     -103.8     -42.2     -22.6     -111.1

Managed Services

     4.6     1.7     -18.5     -11.0     -3.9     -29.1

Emerging Business and Other

     -63.5     -71.2     -368.0     -76.7     -73.0     -177.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     0.3     -0.7     -33.3     -7.4     -1.1     -23.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     6,915       3,371       10,455       8,510       6,135       2,711  

Digital Services

     -4,981       -2,607       -27,282       -15,011       -11,241       -9,004  

Managed Services

     399       100       -4,089       -2,814       -2,087       -1,829  

Emerging Business and Other

     -2,480       -1,176       -13,827       -6,150       -4,620       -3,154  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -147       -312       -34,743       -15,465       -11,813       -11,276  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date    2018     2017  

As percentage of net sales

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     11.3     11.8     7.9     8.9     9.7     8.6

Digital Services

     -30.9     -35.9     -70.4     -55.7     -62.4     -111.1

Managed Services

     3.2     1.7     -15.4     -14.4     -16.1     -29.1

Emerging Business and Other

     -66.9     -71.2     -175.7     -106.3     -121.9     -177.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -0.2     -0.7     -16.9     -10.5     -12.0     -23.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

27      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Net sales by market area by quarter

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     6,981       6,379       7,844       7,858       7,234       8,410  

North East Asia

     4,764       3,385       6,465       5,653       5,901       5,564  

North America

     14,337       11,317       14,685       12,319       12,970       12,027  

Europe and Latin America 1) 2)

     14,174       13,061       16,939       13,430       14,231       12,201  

Middle East and Africa

     5,626       5,765       7,581       6,297       5,731       5,356  

Other 1) 2)

     3,926       3,504       4,367       3,856       4,214       4,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     49,808       43,411       57,881       49,413       50,281       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     596       915       872       660       785       1,017  

2) Of which in EU

     8,619       8,522       10,822       8,635       8,687       8,328  
     2018     2017  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     9     -19     0     9     -14     —    

North East Asia

     41     -48     14     -4     6     —    

North America

     27     -23     19     -5     8     —    

Europe and Latin America 1) 2)

     9     -23     26     -6     17     —    

Middle East and Africa

     -2     -24     20     10     7     —    

Other 1) 2)

     12     -20     13     -8     -1     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     15     -25     17     -2     5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -35     5     32     -16     -23     —    

2) Of which in EU

     1     -21     25     -1     4     —    
     2018     2017  

Year-over-year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     -3     -24     —         —         —         —    

North East Asia

     -19     -39     —         —         —         —    

North America

     11     -6     —         —         —         —    

Europe and Latin America 1) 2)

     0     7     —         —         —         —    

Middle East and Africa

     -2     8     —         —         —         —    

Other 1) 2)

     -7     -17     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -1     -9     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -24     -10     —         —         —         —    

2) Of which in EU

     -1     2     —         —         —         —    
     2018     2017  

Year to date, SEK million

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

South East Asia, Oceania and India

     13,360       6,379       31,346       23,502       15,644       8,410  

North East Asia

     8,149       3,385       23,583       17,118       11,465       5,564  

North America

     25,654       11,317       52,001       37,316       24,997       12,027  

Europe and Latin America 1) 2)

     27,235       13,061       56,801       39,862       26,432       12,201  

Middle East and Africa

     11,391       5,765       24,965       17,384       11,087       5,356  

Other 1) 2)

     7,430       3,504       16,682       12,315       8,459       4,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     93,219       43,411       205,378       147,497       98,084       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     1,511       915       3,334       2,462       1,802       1,017  

2) Of which in EU

     17,141       8,522       36,472       25,650       17,015       8,328  
Year to date, year-over-year change,    2018     2017  

percent

   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

South East Asia, Oceania and India

     -15     -24     0     —         —         —    

North East Asia

     -29     -39     -13     —         —         —    

North America

     3     -6     1     —         —         —    

Europe and Latin America 1) 2)

     3     7     -9     —         —         —    

Middle East and Africa

     3     8     -9     —         —         —    

Other 1) 2)

     -12     -17     -18     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -5     -9     -7     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -16     -10     -1     —         —         —    

2) Of which in EU

     1     2     -6     —         —         —    

 

 

28      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Top 5 countries in sales             
Country    Q2     Jan-Jun  

Percentage of Net sales

   2018     2017     2018     2017  

United States

     30     28     29     27

China

     6     9     5     8

India

     5     4     5     5

Australia

     3     4     3     4

Japan

     3     2     3     3

 

Net sales by market area by segment                    
     Q2 2018     Jan-Jun 2018  

SEK million

   Networks     Digital
Services
    Managed
Services
    Emerging
Business
and
Other
    Total     Networks     Digital
Services
    Managed
Services
    Emerging
Business
and
Other
    Total  

South East Asia, Oceania and

 

                 

India

     4,987       1,077       915       2       6,981       9,406       2,304       1,640       10       13,360  

North East Asia

     3,596       792       368       8       4,764       5,839       1,524       754       32       8,149  

North America

     11,358       2,136       822       21       14,337       20,706       3,482       1,417       49       25,654  

Europe and Latin America

     7,753       2,908       3,434       79       14,174       15,203       5,207       6,678       147       27,235  

Middle East and Africa

     3,034       1,594       990       8       5,626       6,529       2,915       1,935       12       11,391  

Other

     1,665       326       -1       1,936       3,926       3,312       663       —         3,455       7,430  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     32,393       8,833       6,528       2,054       49,808       60,995       16,095       12,424       3,705       93,219  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of total

     65     18     13     4     100     66     17     13     4     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q2 2018  

Sequential change, percent

   Networks     Digital
Services
    Managed
Services
    Emerging
Business
and
Other
    Total  

South East Asia, Oceania and

          

India

     13     -12     26     -75     9

North East Asia

     60     8     -5     -67     41

North America

     22     59     38     -25     27

Europe and Latin America

     4     26     6     16     9

Middle East and Africa

     -13     21     5     100     -2

Other

     1     -3     —         27     12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     13     22     11     24     15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q2 2018     Jan-Jun 2018  

Year over year change, percent

   Networks     Digital
Services
    Managed
Services
    Emerging
Business
and
Other
    Total     Networks     Digital
Services
    Managed
Services
    Emerging
Business
and
Other
    Total  

South East Asia, Oceania and

                    

India

     -5     -12     18     -33     -3     -19     -5     6     233     -15

North East Asia

     -5     -52     -17     700     -19     -28     -39     -11     967     -29

North America

     15     -2     -8     -19     11     8     -11     -19     -4     3

Europe and Latin America

     1     -1     -3     84     0     8     -5     -2     116     3

Middle East and Africa

     -5     5     -3     —         -2     5     2     -4     —         3

Other

     -12     -14     —         0     -7     -18     -13     —         -6     -12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2     -11     -2     2     -1     -4     -11     -4     -2     -5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

29      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


IPR licensing revenues by segment by quarter

 

Isolated quarters,    2018      2017  

SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     1,486        1,522        1,731        1,640        1,670        1,724  

Digital Services

     326        334        380        360        366        379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,812        1,856        2,111        2,000        2,036        2,103  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

   Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun      Jan-Mar  

Networks

     3,008        1,522        6,765        5,034        3,394        1,724  

Digital Services

     660        334        1,485        1,105        745        379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3,668        1,856        8,250        6,139        4,139        2,103  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Provisions

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Opening balance

     9,030        9,879        9,514        10,357        10,514        6,320  

Additions

     1,974        1,315        2,769        1,942        1,403        6,365  

Utilization/Cash out

     -1,486        -2,216        -2,186        -2,626        -1,324        -2,085  

Of which restructuring

     -832        -1,424        -1,204        -1,461        -1,075        -1,586  

Reversal of excess amounts

     -191        -117        -199        -32        -65        -66  

Reclassification, translation difference and other

     207        169        -19        -127        -171        -20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Closing balance

     9,534        9,030        9,879        9,514        10,357        10,514  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Of which restructuring

     4,029        3,524        4,043        3,458        4,003        4,059  
     2018      2017  

Year to date, SEK million

   Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun      Jan-Mar  

Opening balance

     9,879        9,879        6,320        6,320        6,320        6,320  

Additions

     3,289        1,315        12,479        9,710        7,768        6,365  

Utilization/Cash out

     -3,702        -2,216        -8,221        -6,035        -3,409        -2,085  

Of which restructuring

     -2,256        -1,424        -5,326        -4,122        -2,661        -1,586  

Reversal of excess amounts

     -308        -117        -362        -163        -131        -66  

Reclassification, translation difference and other

     376        169        -337        -318        -191        -20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Closing balance

     9,534        9,030        9,879        9,514        10,357        10,514  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Of which restructuring

     4,029        3,524        4,043        3,458        4,003        4,059  

 

 

30      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Information on investments

Investments in assets subject to depreciation, amortization, impairment and write-downs

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Additions

                 

Property, plant and equipment

     951        856        1,105        739        1,018        1,015  

Capitalized development expenses

     325        254        138        126        315        865  

Goodwill, IPR, brands and other intangible assets

     124        421        315        1        19        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,400        1,531        1,558        866        1,352        1,881  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation, amortization and impairment losses

                 

Property, plant and equipment

     1,080        928        1,284        2,894        1,061        1,075  

Capitalized development expenses

     635        616        881        874        690        2,481  

Goodwill, IPR, brands and other intangible assets

     350        347        13,953        378        446        1,875  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,065        1,891        16,118        4,146        2,197        5,431  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

   Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun      Jan-Mar  

Additions

                 

Property, plant and equipment

     1,807        856        3,877        2,772        2,033        1,015  

Capitalized development expenses

     579        254        1,444        1,306        1,180        865  

Goodwill, IPR, brands and other intangible assets

     545        421        336        21        20        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,931        1,531        5,657        4,099        3,233        1,881  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation, amortization and impairment losses

                 

Property, plant and equipment

     2,008        928        6,314        5,030        2,136        1,075  

Capitalized development expenses

     1,251        616        4,926        4,045        3,171        2,481  

Goodwill, IPR, brands and other intangible assets

     697        347        16,652        2,699        2,321        1,875  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3,956        1,891        27,892        11,774        7,628        5,431  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

31      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Other information

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2018      2017      2018      2017      2017  

Number of shares and earnings per share

              

Number of shares, end of period (million)

     3,334        3,334        3,334        3,334        3,334  

Of which class A-shares (million)

     262        262        262        262        262  

Of which class B-shares (million)

     3,072        3,072        3,072        3,072        3,072  

Number of treasury shares, end of period (million)

     43        58        43        58        50  

Number of shares outstanding, basic, end of period (million)

     3,291        3,276        3,291        3,276        3,284  

Numbers of shares outstanding, diluted, end of period (million)

     3,323        3,319        3,323        3,319        3,324  

Average number of treasury shares (million)

     44        58        46        59        56  

Average number of shares outstanding, basic (million)

     3,290        3,275        3,288        3,273        3,277  

Average number of shares outstanding, diluted (million) 1)

     3,322        3,318        3,321        3,316        3,317  

Earnings (loss) per share, basic (SEK)

     –0.58        –0.14        –0.83        –3.22        –9.94  

Earnings (loss) per share, diluted (SEK) 1)

     –0.58        –0.14        –0.83        –3.22        –9.94  

Ratios

              

Days sales outstanding

     —          —          99        109        96  

Inventory turnover days

     83        90        83        81        66  

Payable days

     77        66        82        61        60  

Exchange rates used in the consolidation

              

SEK/EUR– closing rate

     —          —          10.44        9.65        9.83  

SEK/USD– closing rate

     —          —          8.97        8.46        8.20  

Other

              

Market area inventory, end of period

     19,739        20,830        19,739        20,830        14,480  

Export sales from Sweden

     24,978        21,780        45,657        43,229        87,463  

 

1)  Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Number of employees

 

     2018      2017  

End of period

   Jun 30      Mar 31      Dec 31      Sep 30      Jun 30      Mar 31  

South East Asia, Oceania and India

     23,516        23,623        24,495        26,396        26,748        27,221  

North East Asia

     12,303        12,321        12,456        12,945        12,972        12,962  

North America

     9,510        9,798        10,009        10,665        11,073        11,253  

Europe and Latin America 1)

     45,743        47,528        49,231        50,832        53,173        54,194  

Middle East and Africa

     4,188        4,311        4,544        5,014        5,161        5,268  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     95,260        97,581        100,735        105,852        109,127        110,898  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1) Of which in Sweden

     13,431        13,763        13,864        14,195        14,483        14,712  

 

 

32      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Items excluding restructuring charges

Restructuring charges by function

 

       2018        2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Cost of sales

     -937        -743        -2,038        -817        -927        -1,460  

Research and development expenses

     -502        -326        147        -1,896        -344        -214  

Selling and administrative expenses

     -441        -103        -534        -106        -243        -69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,880        -1,172        -2,425        -2,819        -1,514        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

   Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun      Jan-Mar  

Cost of sales

     -1,680        -743        -5,242        -3,204        -2,387        -1,460  

Research and development expenses

     -828        -326        -2,307        -2,454        -558        -214  

Selling and administrative expenses

     -544        -103        -952        -418        -312        -69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -3,052        -1,172        -8,501        -6,076        -3,257        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restructuring charges by segment

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     -749        -479        -1,260        -1,409        -816        -1,343  

of which cost of sales

     -469        -415        -1,052        -430        -512        -1,153  

of which operating expenses

     -280        -64        -208        -979        -304        -190  

Digital Services

     -882        -581        -686        -1,103        -454        -270  

of which cost of sales

     -303        -226        -609        -241        -242        -195  

of which operating expenses

     -579        -355        -77        -862        -212        -75  

Managed Services

     -123        -51        -376        -99        -115        -85  

of which cost of sales

     -103        -48        -326        -94        -113        -83  

of which operating expenses

     -20        -3        -50        -5        -2        -2  

Emerging Business and Other

     -126        -61        -103        -208        -129        -45  

of which cost of sales

     -62        -54        -51        -52        -60        -29  

of which operating expenses

     -64        -7        -52        -156        -69        -16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,880        -1,172        -2,425        -2,819        -1,514        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

   Jan-Jun      Jan-Mar      Jan-Dec      Jan-Sep      Jan-Jun      Jan-Mar  

Networks

     -1,228        -479        -4,828        -3,568        -2,159        -1,343  

of which cost of sales

     -884        -415        -3,147        -2,095        -1,665        -1,153  

of which operating expenses

     -344        -64        -1,681        -1,473        -494        -190  

Digital Services

     -1,463        -581        -2,513        -1,827        -724        -270  

of which cost of sales

     -529        -226        -1,287        -678        -437        -195  

of which operating expenses

     -934        -355        -1,226        -1,149        -287        -75  

Managed Services

     -174        -51        -675        -299        -200        -85  

of which cost of sales

     -151        -48        -616        -290        -196        -83  

of which operating expenses

     -23        -3        -59        -9        -4        -2  

Emerging Business and Other

     -187        -61        -485        -382        -174        -45  

of which cost of sales

     -116        -54        -192        -141        -89        -29  

of which operating expenses

     -71        -7        -293        -241        -85        -16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -3,052        -1,172        -8,501        -6,076        -3,257        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

33      Ericsson  |  Second Quarter Report 2018    Items excluding restructuring charges


Gross income (loss) and gross margin excluding restructuring charges by segment

 

Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13,034       11,542       12,901       11,084       11,406       11,184  

Digital Services

     3,761       3,118       1,724       2,860       3,531       -2,129  

Managed Services

     912       539       -365       -266       132       -459  

Emerging Business and Other

     563       402       295       420       488       364  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     18,270       15,601       14,555       14,098       15,557       8,960  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Isolated quarters,

As percentage of net sales

   2018     2017  
   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     40.2     40.4     34.8     34.8     36.0     35.3

Digital Services

     42.6     42.9     14.6     32.0     35.7     -26.3

Managed Services

     14.0     9.1     -5.3     -4.0     2.0     -7.3

Emerging Business and Other

     27.4     24.3     14.1     21.1     24.3     20.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     36.7     35.9     25.1     28.5     30.9     18.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year to date,

SEK million

   2018     2017  
   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     24,576       11,542       46,575       33,674       22,590       11,184  

Digital Services

     6,879       3,118       5,986       4,262       1,402       -2,129  

Managed Services

     1,451       539       -958       -593       -327       -459  

Emerging Business and Other

     965       402       1,567       1,272       852       364  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     33,871       15,601       53,170       38,615       24,517       8,960  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year to date,

As percentage of net sales

   2018     2017  
   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     40.3     40.4     35.2     35.4     35.7     35.3

Digital Services

     42.7     42.9     15.4     15.8     7.8     -26.3

Managed Services

     11.7     9.1     -3.6     -3.0     -2.5     -7.3

Emerging Business and Other

     26.0     24.3     19.9     22.0     22.5     20.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     36.3     35.9     25.9     26.2     25.0     18.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34      Ericsson  |  Second Quarter Report 2018    Items excluding restructuring charges


Operating income (loss) and operating margin excluding restructuring charges by segment

 

Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     4,293       3,850       3,205       3,784       4,240       4,054  

Digital Services

     -1,492       -2,026       -11,585       -2,668       -1,783       -8,734  

Managed Services

     422       151       -898       -628       -143       -1,744  

Emerging Business and Other

     -1,178       -1,115       -7,575       -1,321       -1,337       -3,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2,045       860       -16,853       -833       977       -9,533  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Isolated quarters,

As percentage of net sales

   2018     2017  
   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13.3     13.5     8.6     11.9     13.4     12.8

Digital Services

     -16.9     -27.9     -98.0     -29.9     -18.0     -107.8

Managed Services

     6.5     2.6     -13.0     -9.5     -2.1     -27.8

Emerging Business and Other

     -57.4     -67.5     -363.1     -66.2     -66.6     -174.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4.1     2.0     -29.1     -1.7     1.9     -19.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year to date,

SEK million

   2018     2017  
   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     8,143       3,850       15,283       12,078       8,294       4,054  

Digital Services

     -3,518       -2,026       -24,770       -13,185       -10,517       -8,734  

Managed Services

     573       151       -3,413       -2,515       -1,887       -1,744  

Emerging Business and Other

     -2,293       -1,115       -13,342       -5,767       -4,446       -3,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2,905       860       -26,242       -9,389       -8,556       -9,533  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year to date,

As percentage of net sales

   2018     2017  
   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     13.4     13.5     11.6     12.7     13.1     12.8

Digital Services

     -21.9     -27.9     -63.9     -49.0     -58.4     -107.8

Managed Services

     4.6     2.6     -12.9     -12.8     -14.6     -27.8

Emerging Business and Other

     -61.9     -67.5     -169.6     -99.7     -117.3     -174.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3.1     2.0     -12.8     -6.4     -8.7     -19.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35      Ericsson  |  Second Quarter Report 2018    Items excluding restructuring charges