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ISIN: US2948216088 · WKN: 765913 · Symbol: RQC
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OPERATIONAL RESULTS
In the third quarter, orders and sales were affected primarily by
the drop in Latin America and by lower systems sales and reduced phone
volumes. Even with these reductions, our sales performance in Mobile
Systems is still the strongest in the industry.
Adjusted income before taxes, excluding non-operational items, was
SEK -5.8 b. This decrease reflects lower income in Systems, largely
related to Multi-Service Networks, and reduced income in Other
Operations related to lower sales of Microelectronics.
CEO COMMENTS
"With 17% sales growth so far this year we have once again
outpaced all competitors in GSM systems and at the same time
demonstrated fast progress in adapting our organization and costs to
the difficult market conditions," says Kurt Hellstrom, President and
CEO of Ericsson.
"Cash flow was positive for the second consecutive quarter with
improvements in inventories. We have a strong cash position and expect
continued cash flow improvement."
"The Efficiency Program is ahead of schedule with SEK 2.5 b. in
savings this quarter and estimated savings of SEK 7 b. for the full
year. With this momentum, our objective is to achieve over 5%
operating margin for the full year 2002, as we continuously adjust our
capacity and discontinue lower priority products and activities."
"We are regaining strength in mobile phones and have launched
several new phones including five GPRS models. The T39 is a bestseller
and we have received strong interest in the T68 with color screen,
which we have just started shipping. The restructuring of our mobile
phone business is nearly completed. The Sony Ericsson Mobile
Communications joint venture was launched as scheduled on October 1."
"We are also very positive about the technology licensing business
retained by Ericsson. We will continue to invest in this area to
become a leading supplier of core technology to mobile phone
manufacturers."
"Despite the effects of the current slowdown on our recent
financial results, the underlying demand drivers of our business
remain strong. With the top position in GSM and 3G we have clearly
extended our lead in mobile systems even further."
"The substantial cost savings of our Efficiency Program were
overshadowed by excess capacity costs and pricing pressure. The
rapidly dropping sales volumes in Latin America during the third
quarter emphasize the difficulty in forecasting under such changing
conditions."
"In these challenging times, our customers rely more than ever on
our ability to deliver better solutions faster. With our dedicated
people, strong cash position, premier customer base and technological
lead, I am confident that we will deliver on our customers`
expectations better than any competitor."
OPERATIONAL REVIEW
Systems
With the benefits of the Efficiency Program we maintained a 1%
operating margin in Systems. Although this margin is not satisfactory,
it has held up well compared to our peers.
Orders and sales declined sharply in Latin America. Sales in
China, Middle East and Africa remained strong.
Mobile Systems
We continued our leadership in Mobile Systems, with GSM sales up
17% year to date, despite a 6% decline in the third quarter. Total
Mobile Systems sales decreased 8%, but are still up 3% year-to-date in
a market that is expected to be flat this year.
In the third quarter, orders were down 23%. The main decrease was
in TDMA and PDC, but GSM orders also declined. The impact from 3G
orders was lower than in the previous two quarters, as most agreements
for the first phase of network deployments have already been booked.
Our leadership in 3G remains unquestioned with an estimated 40% market
share in terms of projected UMTS sales.
Multi-Service Networks
During the first six months of the year, Multi-Service Networks
sales increased 23% due to very strong demand in Latin America. In the
third quarter, however, sales decreased 21%, abruptly reversing the
trend in this region.
As a consequence of the lower sales and margins, the product
portfolio is under review, with home communication products already
discontinued and the ADSL and broadband access strategies being
revisited.
Sales of our ENGINE solution in general continued to develop
favorably with seven new agreements in the quarter. ENGINE is our
solution for operators to convert existing circuit-switched networks
into packet-switched multi-service networks or build entirely new
networks.
Mobile Phones
Sales were sequentially flat with unit volumes decreasing from 7.7
to 7.2 million which was partially offset by higher average selling
prices. This resulted in somewhat improved financial performance
compared to last quarter.
With the formation of the Sony Ericsson Mobile Communications
joint venture the restructuring of our mobile phone business is nearly
complete. The new company began operations as planned on October 1
with the transfer of 2,700 employees from Ericsson and the launch of a
new mobile phone brand. Fifty percent of the results from the joint
company will be reported as part of "Share in earnings of associated
companies" starting in the fourth quarter.
The mobile phones activities retained by Ericsson, which include
the licensing businesses for mobile technology platforms and Bluetooth
as well as our manufacturing in China, will be further optimized.
These activities will be reported as part of Other Operations starting
in the fourth quarter.
Other Operations
Adjusted operating income for Other Operations declined primarily
due to lower sales and volumes for Microelectronics, but also lower
results from Cables and Defense. Microelectronics has high fixed
costs. Income is therefore very volume sensitive to the general
downturn in demand from Ericsson as well as third parties for
components for mobile phones and systems.
Efficiency Program
Our Efficiency Program has gained full momentum and implementation
is ahead of schedule for the SEK 20 b. in yearly savings from 2002.
This year, the program will provide around SEK 7 b. in savings,
compared with the SEK 5.5 b. previously planned.
During the third quarter, we reached the following milestones in
the Efficiency Program:
-- The number of employees was reduced by 5,500, bringing the
total reduction so far this year to 6,800 of the 10,000
planned for the Efficiency Program.
-- A new streamlined organization was created with fewer market
units, concentrated R&D and supply units, fewer management
layers and a Chief Operating Officer function.
In addition to the Efficiency Program, other measures such as
outsourcing and divestitures have reduced the workforce further. In
total, the number of employees has been reduced from 107,200 in March
to 92,900 by the end of September 2001. With the transfer of 2,700
employees to Sony Ericsson Mobile Communications and other reductions
during October, our total headcount is today below 90,000.
The total number of consultants and temporary workers has been
reduced by 7,700 during the last six months.
FINANCIAL REVIEW
Income
Gross margin declined in the quarter due to excess capacity costs,
price pressure and the sharp sales and volume decline in Multi-Service
Networks and Microelectronics. Operating margin declined from -7% in
the second quarter to -10% in the third quarter, as reductions in
operating expenses only partially offset the lower gross margin.
Effects of foreign currency exchange rates, compared to the rates one
year ago, were SEK 0.5 b., with SEK -0.7 b. in Phones.
Restructuring reserves of SEK 3.2 b. were utilized, of which
approximately SEK 2.5 b. had a negative cash flow impact. With the SEK
2.5 b. savings benefit from the Efficiency Program, the cash flow
impact of restructuring actions was neutral.
Financial net and minority interests improved somewhat in the
quarter, mainly related to favorable foreign currency effects. Taxes
are calculated at the expected annual average rate of 30%.
Earnings per share (EPS) diluted were SEK -0.50 in the quarter and
SEK -2.25 (2.37) year to date.
EPS diluted according to US GAAP year-to-date was SEK -2.45
(2.29). Positive effects of capitalization of software development
costs were lower than last year, due to reduced R&D costs, more
conservative capitalization, additional write downs from product
portfolio reviews and continued depreciation on previously capitalized
items. A negative effect of around SEK -0.25 related to timing
differences of restructuring charges impacted the third quarter, as
the recognition of some charges in the second quarter under Swedish
GAAP were postponed to the third quarter according to US GAAP.
Cash flow
Cash flow before financing activities was positive in the third
quarter by SEK 1.2 b. Receivables were reduced by SEK 5 b. mainly due
to lower sales. Inventory was reduced by SEK 2.4 b. through better
turnover. Payments from Flextronics for components were SEK 4 b. as
planned. As previously mentioned the Efficiency Program was cash flow
neutral. Cash flow contribution from divestitures of real estate was
SEK 0.6 b., with further divestitures planned for the fourth quarter.
Balance sheet and financing
The equity ratio was stable at 32%, even with the net loss in the
quarter, due to lower levels of assets (i.e. reduced receivables and
inventory).
The Payment Readiness (cash plus temporary investments and
long-term committed credit facilities less short-term interest-bearing
liabilities) was improved, without changing the equity ratio. This was
accomplished through a positive operating cash flow and by
establishing an additional USD 600 m. in long-term committed credit
facilities which now amount to USD 1.6 b.
To further strengthen payment readiness, borrowing under our Euro
Medium Term Note Program (EMTN) and long-term bank loans were
increased by SEK 3.7 b. during the quarter. As a result, our payment
readiness is now 20% of sales, compared to our normal target level of
7-10%. We believe that this is favorable in the prevailing uncertain
environment. To enlarge access to long-term liquidity, a EUR 400 m.
loan agreement was signed with the European Investment Bank on October
8.
With the positive cash flow, net debt (including pensions and
similar commitments) decreased from SEK 33.3 b. to SEK 31.0 b. The
refinancing of short-term debt continued during the third quarter and
the maturity profile of the interest-bearing liabilities has now been
substantially extended. Under the current financial market conditions,
we strive to decrease the refinancing risk and free up capacity in our
short-term borrowing programs.
Customer financing
Our customer financing exposure decreased by approximately SEK 1
b. in the quarter to SEK 21.9 b., with repayments and credits sold
outpacing additional lending. Brazil and the U.S. are still the
markets with the largest exposures.
MARKET VIEW
Our global forecast of 25-35% mobile subscriber growth this year
remains, with 920- 950 million subscribers by year-end. We expect
about as many new subscribers will be added in 2002 as in 2001. Our
long-term forecast remains unchanged with 1.6 b. mobile subscribers
anticipated by year-end 2005.
The number of mobile phones sold-through (units purchased by end
users) this year will be around 400 million, which is the low end of
our previous estimates. In 2002, we expect some growth in unit volume
with a larger proportion of replacement phones, driven by new phones
with GPRS, Bluetooth, color screens and multimedia messaging
capabilities.
As we indicated in early September when we updated our outlook for
this year, the slowdown for telecommunications systems accelerated
during the third quarter. We now anticipate that the difficult market
conditions will persist well into next year, particularly in Latin
America. Operators are prioritizing profitability and cash flow over
subscriber growth by lowering mobile phone subsidies and postponing
network expansion.
We believe that growth in the mobile systems market this year will
be more or less flat. In September we estimated flat to modest market
growth for 2002. We now estimate the range to be flat to down 10%.
Our market view is based on discussions with our customers. Our
assumptions are a market downturn lasting well into next year,
significant net subscriber additions with continued increasing usage
per subscriber, gradual build up of GPRS traffic over the next 12 to
18 months, and increased deployment of 3G systems during 2002.
OUTLOOK
In our second quarter report we refrained from giving specific
guidance for the third quarter and the full year.
For the fourth quarter, we expect net sales of approximately SEK
55b. excluding the parts of the mobile phones operations that were
transferred to Sony Ericsson Mobile Communications. Mobile systems
sales are expected to decrease 10% compared with the fourth quarter
last year.
We will benefit from the Efficiency Program savings, but with
continued price pressure, under-utilization of capacity and increased
provisions for customer financing risks in Latin America, we
anticipate a pre-tax loss somewhat smaller than in the third quarter
2001. This estimate includes fifty percent of the results from Sony
Ericsson Mobile Communications but excludes non-operational items.
For 2002, we expect sales at least in line with the market
development of flat to down 10%. However, we plan to achieve an
operating margin greater than 5% for the full year, even with sales
declining as much as 10%. This target includes fifty percent of the
results from Sony Ericsson Mobile Communications but excludes
non-operational items.
Our operational planning is cautious and based on the lower end of
our sales estimate. We will identify and implement any necessary cost
reductions on an ongoing basis in pace with our sales development.
Parent company information
The parent company business mainly consists of corporate
management and holding company functions as well as activities
performed on a commission basis by Ericsson Treasury Services AB and
Ericsson Credit AB regarding internal banking and customer credit
management.
Net sales for the quarter were SEK 4.1 b. and income before taxes
was SEK 10.2 b. Major changes in the company`s financial position
were:
-- Increased investments in subsidiaries, SEK 26 b.
-- Increased short- and long-term loans to subsidiaries, SEK 18
b.
These investments and loans were financed primarily through
increased internal borrowing of SEK 18 b. and increased long-term
external borrowing of SEK 27 b. At September 30, cash and short-term
cash investments amounted to SEK 27 b. (26 b.).
Accounting principles
This interim report has been prepared in accordance with the
Swedish Financial Accounting Standards Council`s recommendation RR 20,
Interim reports. The same accounting principles have been used as in
our latest annual report. The following optional recommendations are
not yet implemented: RR 1:00, RR 15, RR 16, RR 17 and RR 19. For US
GAAP purposes, FAS 133 "Accounting for derivative instruments and
hedging activities" is adopted from January 1, 2001.
Stockholm, October 26, 2001
Kurt Hellstrom
President and CEO
(Unaudited)
Uncertainties in the Future
"Safe Harbor" Statement under the U.S. Private Securities
Litigation Reform Act of 1995: Some statements in this interim report
are forward looking and actual results may differ materially from
those stated. In addition to the factors discussed, among other
factors that
Change 0103 0106 0109
Systems 13% 11% 3%
of which Mobile Systems 9% 9% 3%
Multi-Service Networks 37% 23% 6%
Phones -52% -46% -45%
Other operations -22% -20% -24%
Less: Intersegment sales -33% -22% -25%
Total -5% -4% -9%
2000
----------------------------------------------------------------------
Isolated quarters Q1 Q2 Q3 Q4
----------------------------------------------------------------------
Systems 38,910 46,433 48,097 61,307
of which Mobile Systems 32,481 37,858 38,722 49,022
Multi-Service Networks 6,429 8,575 9,375 12,285
Phones 14,794 13,351 14,328 13,806
Other operations 9,297 8,504 8,087 10,039
Less: Intersegment sales -3,916 -3,255 -3,170 -3,043
Total 59,085 65,033 67,342 82,109
2001
----------------------------------------------------------------------
Q1 Q2 Q3
----------------------------------------------------------------------
Isolated quarters
Systems 44,127 50,716 42,955
of which Mobile Systems 35,336 41,020 35,567
Multi-Service Networks 8,791 9,696 7,388
Phones 7,170 8,147 8,250
Other operations 7,249 6,913 5,509
Less: Intersegment sales -2,614 -2,996 -2,125
Total 55,932 62,780 54,589
Change Q1 Q2 Q3
----------------------------------------------------------------------
Systems 13% 9% -11%
of which Mobile Systems 9% 8% -8%
Multi-Service Networks 37% 13% -21%
Phones -52% -39% -42%
Other operations -22% -19% -32%
Less: Intersegment sales -33% -8% -33%
Total -5% -3% -19%
ADJUSTED OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER
(SEK m.)
2000 RESTATED FOR COMPARABILITY
2000
----------------------------------------------------------------------
Year to date 0003 0006 0009 0012
----------------------------------------------------------------------
Systems 5,641 15,280 23,392 32,641
Phones 569 -1,544 -5,517 -15,613
Other operations 578 1,058 1,550 1,579
Unallocated(a) -413 -1,260 -1,171 -1,858
Total 6,375 13,534 18,254 16,749
Items affecting
comparability:
- Non-operational
capital gains/losses,
net - 4,738 6,164 5,933
- Capital gain Juniper
Networks - - - 15,383
- Pension refund - 1,100 1,100 1,100
- Restructuring costs - - - -8,000
2000
As percentage of Net Sales 0003 0006 0009 0012
Systems 14% 18% 18% 17%
Phones 4% -5% -13% -28%
Other operations 6% 6% 6% 4%
Total 11% 11% 10% 6%
2000
Isolated quarters Q1 Q2 Q3 Q4
Systems 5,641 9,639 8,112 9,249
Phones 569 -2,113 -3,973 -10,096
Other operations 578 480 492 29
Unallocated* -413 -847 89 -687
Total 6,375 7,159 4,720 -1,505
Items affecting
comparability:
- Non-operational
capital gains/losses,
net - 4,738 1,426 -231
- Capital gain Juniper
Networks - - - 15,383
- Pension refund - 1,100 - -
- Restructuring costs - - - -8,000
2000
As percentage of Net Sales Q1 Q2 Q3 Q4
Systems 14% 21% 17% 15%
Phones 4% -16% -28% -73%
Other operations 6% 6% 6% 0%
Total 11% 11% 7% -2%
2001
Year to date 0103 0106 0109
Systems 1,808 2,382 2,620
Phones -5,722 -10,350 -14,559
Other operations -118 25 -817
Unallocated* -331 -642 -1,069
Total -4,363 -8,585 -13,825
Items affecting
comparability:
- Non-operational
capital gains/losses,
net 42 3 168
- Capital gain Juniper
Networks 5,453 5,453 5,453
- Pension refund - - -
- Restructuring costs - -15,000 -15,000
2001
As percentage of Net Sales 0103 0106 0109
Systems 4% 3% 2%
Phones -80% -68% -62%
Other operations -2% 0% -4%
Total -8% -7% -8%
2001
Isolated quarters Q1 Q2 Q3
Systems 1,808 574 238
Phones -5,722 -4,628 -4,209
Other operations -118 143 -842
Unallocated* -331 -311 -427
Total -4,363 -4,222 -5,240
Items affecting
comparability:
- Non-operational
capital gains/losses,
net 42 -39 165
- Capital gain Juniper
Networks 5,453 - -
- Pension refund - - -
- Restructuring costs - -15,000 -
2001
As percentage of Net Sales Q1 Q2 Q3
Systems 4% 1% 1%
Phones -80% -57% -51%
Other operations -2% 2% -15%
Total -8% -7% -10%
(a) "Unallocated" consists mainly of costs for corporate staffs,
certain goodwill amortization and non-operational gains and
losses
ORDERS BOOKED BY MARKET AREA BY QUARTER
(SEK m.)
2000
----------------------------------------------------------------------
Year to date 0003 0006 0009 0012
----------------------------------------------------------------------
Western Europe(a) 25,048 50,870 71,807 105,684
Central- and Eastern Europe,
Middle East & Africa 17,388 24,503 32,104 40,972
North America 9,148 19,082 27,326 37,977
Latin America 9,695 19,312 33,053 44,959
Asia Pacific 18,195 30,428 48,576 62,752
Total 79,474 144,195 212,866 292,344
(a) Of which Sweden 2,924 6,010 7,983 9,876
(a) Of which EU 23,261 47,523 67,194 99,951
2001
----------------------------------------------------------------------
Year to date 0103 0106 0109
----------------------------------------------------------------------
Western Europe(a) 29,042 47,697 60,895
Central- and Eastern Europe,
Middle East & Africa 11,273 17,606 29,548
North America 7,320 13,183 19,954
Latin America 12,638 22,723 26,989
Asia Pacific 15,226 35,456 44,161
Total 75,499 136,665 181,547
(a) Of which Sweden 1,998 5,135 6,294
(a) Of which EU 27,565 45,356 57,855
2001
----------------------------------------------------------------------
Change 0103 0106 0109
----------------------------------------------------------------------
Western Europe(a) 16% -6% -15%
Central- and Eastern
Europe, Middle East & Africa -35% -28% -8%
North America -20% -31% -27%
Latin America 30% 18% -18%
Asia Pacific -16% 17% -9%
Total -5% -5% -15%
(a) Of which Sweden -32% -15% -21%
(a) Of which EU 19% -5% -14%
2000
----------------------------------------------------------------------
Isolated quarters Q1 Q2 Q3 Q4
----------------------------------------------------------------------
Western Europe(a) 25,048 25,822 20,937 33,877
Central- and Eastern
Europe, Middle East & Africa 17,388 7,115 7,601 8,868
North America 9,148 9,934 8,244 10,651
Latin America 9,695 9,617 13,741 11,906
Asia Pacific 18,195 12,233 18,148 14,176
Total 79,474 64,721 68,671 79,478
(a) Of which Sweden 2,924 3,086 1,972 1,893
(a) Of which EU 23,261 24,262 19,671 32,757
2001
----------------------------------------------------------------------
Isolated quarters Q1 Q2 Q3
----------------------------------------------------------------------
Western Europe(a) 29,042 18,655 13,198
Central- and Eastern
Europe, Middle East & Africa 11,273 6,333 11,942
North America 7,320 5,863 6,771
Latin America 12,638 10,085 4,266
Asia Pacific 15,226 20,230 8,705
Total 75,499 61,166 44,882
(a) Of which Sweden 1,998 3,137 1,159
(a) Of which EU 27,565 17,791 12,499
In the third quarter, orders and sales were affected primarily by
the drop in Latin America and by lower systems sales and reduced phone
volumes. Even with these reductions, our sales performance in Mobile
Systems is still the strongest in the industry.
Adjusted income before taxes, excluding non-operational items, was
SEK -5.8 b. This decrease reflects lower income in Systems, largely
related to Multi-Service Networks, and reduced income in Other
Operations related to lower sales of Microelectronics.
CEO COMMENTS
"With 17% sales growth so far this year we have once again
outpaced all competitors in GSM systems and at the same time
demonstrated fast progress in adapting our organization and costs to
the difficult market conditions," says Kurt Hellstrom, President and
CEO of Ericsson.
"Cash flow was positive for the second consecutive quarter with
improvements in inventories. We have a strong cash position and expect
continued cash flow improvement."
"The Efficiency Program is ahead of schedule with SEK 2.5 b. in
savings this quarter and estimated savings of SEK 7 b. for the full
year. With this momentum, our objective is to achieve over 5%
operating margin for the full year 2002, as we continuously adjust our
capacity and discontinue lower priority products and activities."
"We are regaining strength in mobile phones and have launched
several new phones including five GPRS models. The T39 is a bestseller
and we have received strong interest in the T68 with color screen,
which we have just started shipping. The restructuring of our mobile
phone business is nearly completed. The Sony Ericsson Mobile
Communications joint venture was launched as scheduled on October 1."
"We are also very positive about the technology licensing business
retained by Ericsson. We will continue to invest in this area to
become a leading supplier of core technology to mobile phone
manufacturers."
"Despite the effects of the current slowdown on our recent
financial results, the underlying demand drivers of our business
remain strong. With the top position in GSM and 3G we have clearly
extended our lead in mobile systems even further."
"The substantial cost savings of our Efficiency Program were
overshadowed by excess capacity costs and pricing pressure. The
rapidly dropping sales volumes in Latin America during the third
quarter emphasize the difficulty in forecasting under such changing
conditions."
"In these challenging times, our customers rely more than ever on
our ability to deliver better solutions faster. With our dedicated
people, strong cash position, premier customer base and technological
lead, I am confident that we will deliver on our customers`
expectations better than any competitor."
OPERATIONAL REVIEW
Systems
With the benefits of the Efficiency Program we maintained a 1%
operating margin in Systems. Although this margin is not satisfactory,
it has held up well compared to our peers.
Orders and sales declined sharply in Latin America. Sales in
China, Middle East and Africa remained strong.
Mobile Systems
We continued our leadership in Mobile Systems, with GSM sales up
17% year to date, despite a 6% decline in the third quarter. Total
Mobile Systems sales decreased 8%, but are still up 3% year-to-date in
a market that is expected to be flat this year.
In the third quarter, orders were down 23%. The main decrease was
in TDMA and PDC, but GSM orders also declined. The impact from 3G
orders was lower than in the previous two quarters, as most agreements
for the first phase of network deployments have already been booked.
Our leadership in 3G remains unquestioned with an estimated 40% market
share in terms of projected UMTS sales.
Multi-Service Networks
During the first six months of the year, Multi-Service Networks
sales increased 23% due to very strong demand in Latin America. In the
third quarter, however, sales decreased 21%, abruptly reversing the
trend in this region.
As a consequence of the lower sales and margins, the product
portfolio is under review, with home communication products already
discontinued and the ADSL and broadband access strategies being
revisited.
Sales of our ENGINE solution in general continued to develop
favorably with seven new agreements in the quarter. ENGINE is our
solution for operators to convert existing circuit-switched networks
into packet-switched multi-service networks or build entirely new
networks.
Mobile Phones
Sales were sequentially flat with unit volumes decreasing from 7.7
to 7.2 million which was partially offset by higher average selling
prices. This resulted in somewhat improved financial performance
compared to last quarter.
With the formation of the Sony Ericsson Mobile Communications
joint venture the restructuring of our mobile phone business is nearly
complete. The new company began operations as planned on October 1
with the transfer of 2,700 employees from Ericsson and the launch of a
new mobile phone brand. Fifty percent of the results from the joint
company will be reported as part of "Share in earnings of associated
companies" starting in the fourth quarter.
The mobile phones activities retained by Ericsson, which include
the licensing businesses for mobile technology platforms and Bluetooth
as well as our manufacturing in China, will be further optimized.
These activities will be reported as part of Other Operations starting
in the fourth quarter.
Other Operations
Adjusted operating income for Other Operations declined primarily
due to lower sales and volumes for Microelectronics, but also lower
results from Cables and Defense. Microelectronics has high fixed
costs. Income is therefore very volume sensitive to the general
downturn in demand from Ericsson as well as third parties for
components for mobile phones and systems.
Efficiency Program
Our Efficiency Program has gained full momentum and implementation
is ahead of schedule for the SEK 20 b. in yearly savings from 2002.
This year, the program will provide around SEK 7 b. in savings,
compared with the SEK 5.5 b. previously planned.
During the third quarter, we reached the following milestones in
the Efficiency Program:
-- The number of employees was reduced by 5,500, bringing the
total reduction so far this year to 6,800 of the 10,000
planned for the Efficiency Program.
-- A new streamlined organization was created with fewer market
units, concentrated R&D and supply units, fewer management
layers and a Chief Operating Officer function.
In addition to the Efficiency Program, other measures such as
outsourcing and divestitures have reduced the workforce further. In
total, the number of employees has been reduced from 107,200 in March
to 92,900 by the end of September 2001. With the transfer of 2,700
employees to Sony Ericsson Mobile Communications and other reductions
during October, our total headcount is today below 90,000.
The total number of consultants and temporary workers has been
reduced by 7,700 during the last six months.
FINANCIAL REVIEW
Income
Gross margin declined in the quarter due to excess capacity costs,
price pressure and the sharp sales and volume decline in Multi-Service
Networks and Microelectronics. Operating margin declined from -7% in
the second quarter to -10% in the third quarter, as reductions in
operating expenses only partially offset the lower gross margin.
Effects of foreign currency exchange rates, compared to the rates one
year ago, were SEK 0.5 b., with SEK -0.7 b. in Phones.
Restructuring reserves of SEK 3.2 b. were utilized, of which
approximately SEK 2.5 b. had a negative cash flow impact. With the SEK
2.5 b. savings benefit from the Efficiency Program, the cash flow
impact of restructuring actions was neutral.
Financial net and minority interests improved somewhat in the
quarter, mainly related to favorable foreign currency effects. Taxes
are calculated at the expected annual average rate of 30%.
Earnings per share (EPS) diluted were SEK -0.50 in the quarter and
SEK -2.25 (2.37) year to date.
EPS diluted according to US GAAP year-to-date was SEK -2.45
(2.29). Positive effects of capitalization of software development
costs were lower than last year, due to reduced R&D costs, more
conservative capitalization, additional write downs from product
portfolio reviews and continued depreciation on previously capitalized
items. A negative effect of around SEK -0.25 related to timing
differences of restructuring charges impacted the third quarter, as
the recognition of some charges in the second quarter under Swedish
GAAP were postponed to the third quarter according to US GAAP.
Cash flow
Cash flow before financing activities was positive in the third
quarter by SEK 1.2 b. Receivables were reduced by SEK 5 b. mainly due
to lower sales. Inventory was reduced by SEK 2.4 b. through better
turnover. Payments from Flextronics for components were SEK 4 b. as
planned. As previously mentioned the Efficiency Program was cash flow
neutral. Cash flow contribution from divestitures of real estate was
SEK 0.6 b., with further divestitures planned for the fourth quarter.
Balance sheet and financing
The equity ratio was stable at 32%, even with the net loss in the
quarter, due to lower levels of assets (i.e. reduced receivables and
inventory).
The Payment Readiness (cash plus temporary investments and
long-term committed credit facilities less short-term interest-bearing
liabilities) was improved, without changing the equity ratio. This was
accomplished through a positive operating cash flow and by
establishing an additional USD 600 m. in long-term committed credit
facilities which now amount to USD 1.6 b.
To further strengthen payment readiness, borrowing under our Euro
Medium Term Note Program (EMTN) and long-term bank loans were
increased by SEK 3.7 b. during the quarter. As a result, our payment
readiness is now 20% of sales, compared to our normal target level of
7-10%. We believe that this is favorable in the prevailing uncertain
environment. To enlarge access to long-term liquidity, a EUR 400 m.
loan agreement was signed with the European Investment Bank on October
8.
With the positive cash flow, net debt (including pensions and
similar commitments) decreased from SEK 33.3 b. to SEK 31.0 b. The
refinancing of short-term debt continued during the third quarter and
the maturity profile of the interest-bearing liabilities has now been
substantially extended. Under the current financial market conditions,
we strive to decrease the refinancing risk and free up capacity in our
short-term borrowing programs.
Customer financing
Our customer financing exposure decreased by approximately SEK 1
b. in the quarter to SEK 21.9 b., with repayments and credits sold
outpacing additional lending. Brazil and the U.S. are still the
markets with the largest exposures.
MARKET VIEW
Our global forecast of 25-35% mobile subscriber growth this year
remains, with 920- 950 million subscribers by year-end. We expect
about as many new subscribers will be added in 2002 as in 2001. Our
long-term forecast remains unchanged with 1.6 b. mobile subscribers
anticipated by year-end 2005.
The number of mobile phones sold-through (units purchased by end
users) this year will be around 400 million, which is the low end of
our previous estimates. In 2002, we expect some growth in unit volume
with a larger proportion of replacement phones, driven by new phones
with GPRS, Bluetooth, color screens and multimedia messaging
capabilities.
As we indicated in early September when we updated our outlook for
this year, the slowdown for telecommunications systems accelerated
during the third quarter. We now anticipate that the difficult market
conditions will persist well into next year, particularly in Latin
America. Operators are prioritizing profitability and cash flow over
subscriber growth by lowering mobile phone subsidies and postponing
network expansion.
We believe that growth in the mobile systems market this year will
be more or less flat. In September we estimated flat to modest market
growth for 2002. We now estimate the range to be flat to down 10%.
Our market view is based on discussions with our customers. Our
assumptions are a market downturn lasting well into next year,
significant net subscriber additions with continued increasing usage
per subscriber, gradual build up of GPRS traffic over the next 12 to
18 months, and increased deployment of 3G systems during 2002.
OUTLOOK
In our second quarter report we refrained from giving specific
guidance for the third quarter and the full year.
For the fourth quarter, we expect net sales of approximately SEK
55b. excluding the parts of the mobile phones operations that were
transferred to Sony Ericsson Mobile Communications. Mobile systems
sales are expected to decrease 10% compared with the fourth quarter
last year.
We will benefit from the Efficiency Program savings, but with
continued price pressure, under-utilization of capacity and increased
provisions for customer financing risks in Latin America, we
anticipate a pre-tax loss somewhat smaller than in the third quarter
2001. This estimate includes fifty percent of the results from Sony
Ericsson Mobile Communications but excludes non-operational items.
For 2002, we expect sales at least in line with the market
development of flat to down 10%. However, we plan to achieve an
operating margin greater than 5% for the full year, even with sales
declining as much as 10%. This target includes fifty percent of the
results from Sony Ericsson Mobile Communications but excludes
non-operational items.
Our operational planning is cautious and based on the lower end of
our sales estimate. We will identify and implement any necessary cost
reductions on an ongoing basis in pace with our sales development.
Parent company information
The parent company business mainly consists of corporate
management and holding company functions as well as activities
performed on a commission basis by Ericsson Treasury Services AB and
Ericsson Credit AB regarding internal banking and customer credit
management.
Net sales for the quarter were SEK 4.1 b. and income before taxes
was SEK 10.2 b. Major changes in the company`s financial position
were:
-- Increased investments in subsidiaries, SEK 26 b.
-- Increased short- and long-term loans to subsidiaries, SEK 18
b.
These investments and loans were financed primarily through
increased internal borrowing of SEK 18 b. and increased long-term
external borrowing of SEK 27 b. At September 30, cash and short-term
cash investments amounted to SEK 27 b. (26 b.).
Accounting principles
This interim report has been prepared in accordance with the
Swedish Financial Accounting Standards Council`s recommendation RR 20,
Interim reports. The same accounting principles have been used as in
our latest annual report. The following optional recommendations are
not yet implemented: RR 1:00, RR 15, RR 16, RR 17 and RR 19. For US
GAAP purposes, FAS 133 "Accounting for derivative instruments and
hedging activities" is adopted from January 1, 2001.
Stockholm, October 26, 2001
Kurt Hellstrom
President and CEO
(Unaudited)
Uncertainties in the Future
"Safe Harbor" Statement under the U.S. Private Securities
Litigation Reform Act of 1995: Some statements in this interim report
are forward looking and actual results may differ materially from
those stated. In addition to the factors discussed, among other
factors that
Change 0103 0106 0109
Systems 13% 11% 3%
of which Mobile Systems 9% 9% 3%
Multi-Service Networks 37% 23% 6%
Phones -52% -46% -45%
Other operations -22% -20% -24%
Less: Intersegment sales -33% -22% -25%
Total -5% -4% -9%
2000
----------------------------------------------------------------------
Isolated quarters Q1 Q2 Q3 Q4
----------------------------------------------------------------------
Systems 38,910 46,433 48,097 61,307
of which Mobile Systems 32,481 37,858 38,722 49,022
Multi-Service Networks 6,429 8,575 9,375 12,285
Phones 14,794 13,351 14,328 13,806
Other operations 9,297 8,504 8,087 10,039
Less: Intersegment sales -3,916 -3,255 -3,170 -3,043
Total 59,085 65,033 67,342 82,109
2001
----------------------------------------------------------------------
Q1 Q2 Q3
----------------------------------------------------------------------
Isolated quarters
Systems 44,127 50,716 42,955
of which Mobile Systems 35,336 41,020 35,567
Multi-Service Networks 8,791 9,696 7,388
Phones 7,170 8,147 8,250
Other operations 7,249 6,913 5,509
Less: Intersegment sales -2,614 -2,996 -2,125
Total 55,932 62,780 54,589
Change Q1 Q2 Q3
----------------------------------------------------------------------
Systems 13% 9% -11%
of which Mobile Systems 9% 8% -8%
Multi-Service Networks 37% 13% -21%
Phones -52% -39% -42%
Other operations -22% -19% -32%
Less: Intersegment sales -33% -8% -33%
Total -5% -3% -19%
ADJUSTED OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER
(SEK m.)
2000 RESTATED FOR COMPARABILITY
2000
----------------------------------------------------------------------
Year to date 0003 0006 0009 0012
----------------------------------------------------------------------
Systems 5,641 15,280 23,392 32,641
Phones 569 -1,544 -5,517 -15,613
Other operations 578 1,058 1,550 1,579
Unallocated(a) -413 -1,260 -1,171 -1,858
Total 6,375 13,534 18,254 16,749
Items affecting
comparability:
- Non-operational
capital gains/losses,
net - 4,738 6,164 5,933
- Capital gain Juniper
Networks - - - 15,383
- Pension refund - 1,100 1,100 1,100
- Restructuring costs - - - -8,000
2000
As percentage of Net Sales 0003 0006 0009 0012
Systems 14% 18% 18% 17%
Phones 4% -5% -13% -28%
Other operations 6% 6% 6% 4%
Total 11% 11% 10% 6%
2000
Isolated quarters Q1 Q2 Q3 Q4
Systems 5,641 9,639 8,112 9,249
Phones 569 -2,113 -3,973 -10,096
Other operations 578 480 492 29
Unallocated* -413 -847 89 -687
Total 6,375 7,159 4,720 -1,505
Items affecting
comparability:
- Non-operational
capital gains/losses,
net - 4,738 1,426 -231
- Capital gain Juniper
Networks - - - 15,383
- Pension refund - 1,100 - -
- Restructuring costs - - - -8,000
2000
As percentage of Net Sales Q1 Q2 Q3 Q4
Systems 14% 21% 17% 15%
Phones 4% -16% -28% -73%
Other operations 6% 6% 6% 0%
Total 11% 11% 7% -2%
2001
Year to date 0103 0106 0109
Systems 1,808 2,382 2,620
Phones -5,722 -10,350 -14,559
Other operations -118 25 -817
Unallocated* -331 -642 -1,069
Total -4,363 -8,585 -13,825
Items affecting
comparability:
- Non-operational
capital gains/losses,
net 42 3 168
- Capital gain Juniper
Networks 5,453 5,453 5,453
- Pension refund - - -
- Restructuring costs - -15,000 -15,000
2001
As percentage of Net Sales 0103 0106 0109
Systems 4% 3% 2%
Phones -80% -68% -62%
Other operations -2% 0% -4%
Total -8% -7% -8%
2001
Isolated quarters Q1 Q2 Q3
Systems 1,808 574 238
Phones -5,722 -4,628 -4,209
Other operations -118 143 -842
Unallocated* -331 -311 -427
Total -4,363 -4,222 -5,240
Items affecting
comparability:
- Non-operational
capital gains/losses,
net 42 -39 165
- Capital gain Juniper
Networks 5,453 - -
- Pension refund - - -
- Restructuring costs - -15,000 -
2001
As percentage of Net Sales Q1 Q2 Q3
Systems 4% 1% 1%
Phones -80% -57% -51%
Other operations -2% 2% -15%
Total -8% -7% -10%
(a) "Unallocated" consists mainly of costs for corporate staffs,
certain goodwill amortization and non-operational gains and
losses
ORDERS BOOKED BY MARKET AREA BY QUARTER
(SEK m.)
2000
----------------------------------------------------------------------
Year to date 0003 0006 0009 0012
----------------------------------------------------------------------
Western Europe(a) 25,048 50,870 71,807 105,684
Central- and Eastern Europe,
Middle East & Africa 17,388 24,503 32,104 40,972
North America 9,148 19,082 27,326 37,977
Latin America 9,695 19,312 33,053 44,959
Asia Pacific 18,195 30,428 48,576 62,752
Total 79,474 144,195 212,866 292,344
(a) Of which Sweden 2,924 6,010 7,983 9,876
(a) Of which EU 23,261 47,523 67,194 99,951
2001
----------------------------------------------------------------------
Year to date 0103 0106 0109
----------------------------------------------------------------------
Western Europe(a) 29,042 47,697 60,895
Central- and Eastern Europe,
Middle East & Africa 11,273 17,606 29,548
North America 7,320 13,183 19,954
Latin America 12,638 22,723 26,989
Asia Pacific 15,226 35,456 44,161
Total 75,499 136,665 181,547
(a) Of which Sweden 1,998 5,135 6,294
(a) Of which EU 27,565 45,356 57,855
2001
----------------------------------------------------------------------
Change 0103 0106 0109
----------------------------------------------------------------------
Western Europe(a) 16% -6% -15%
Central- and Eastern
Europe, Middle East & Africa -35% -28% -8%
North America -20% -31% -27%
Latin America 30% 18% -18%
Asia Pacific -16% 17% -9%
Total -5% -5% -15%
(a) Of which Sweden -32% -15% -21%
(a) Of which EU 19% -5% -14%
2000
----------------------------------------------------------------------
Isolated quarters Q1 Q2 Q3 Q4
----------------------------------------------------------------------
Western Europe(a) 25,048 25,822 20,937 33,877
Central- and Eastern
Europe, Middle East & Africa 17,388 7,115 7,601 8,868
North America 9,148 9,934 8,244 10,651
Latin America 9,695 9,617 13,741 11,906
Asia Pacific 18,195 12,233 18,148 14,176
Total 79,474 64,721 68,671 79,478
(a) Of which Sweden 2,924 3,086 1,972 1,893
(a) Of which EU 23,261 24,262 19,671 32,757
2001
----------------------------------------------------------------------
Isolated quarters Q1 Q2 Q3
----------------------------------------------------------------------
Western Europe(a) 29,042 18,655 13,198
Central- and Eastern
Europe, Middle East & Africa 11,273 6,333 11,942
North America 7,320 5,863 6,771
Latin America 12,638 10,085 4,266
Asia Pacific 15,226 20,230 8,705
Total 75,499 61,166 44,882
(a) Of which Sweden 1,998 3,137 1,159
(a) Of which EU 27,565 17,791 12,499
Ericsson records 4 billion kronor (dlrs 374 million) third quarter net loss
THURSDAY, OCTOBER 25, 2001 6:49 PM
- AP WorldStream
STOCKHOLM, Sweden, Oct 25, 2001 (AP WorldStream via COMTEX) -- LM Ericsson, a leading wireless
equipment maker, on Thursday recorded a third-quarter net loss of 4 billion kronor (dlrs 374 million) as sales
fell 19 percent amid a continuing market slowdown.
The loss compared with a net income of 4.4 billion kronor in the same period last year. Sales for the three
month period ending Sept. 30 were 54.6 billion kronor (dlrs 5.1 billion), down from 67.3 billion kronor at the
same time last year.
The troubled Stockholm-based company also said Chairman Lars Ramqvist will not seek re-election at next
year`s annual general meeting. He would be replaced with Electrolux chief executive Michael Treschow,
pending shareholder approval.
Ericsson had planned to release its results on Friday morning but unveiled them early after some of the
figures were leaked to the media. Ericsson said it was investigating the leak.
The company also said it had a third-quarter loss of 0.71 kronor (0.06 cents) per share, compared with 0.49
kronor per share in the same period last year.
It said sales in its key network equipment division were down 11 percent year-on-year to 43 billion kronor
(dlrs 4 billion). The systems unit made a slight operating profit, with a margin of 1 percent, but the company
warned that market conditions would remain difficult.
Ericsson had warned in late September that it saw conditions in its key systems market deteriorating but had
not provided any detailed guidance.
Ericsson also reported phone sales of 8.3 billion kronor (dlrs 777 million), down 42 percent from the
year-earlier period and said it now expects 400 million mobile phones to be sold worldwide this year, at the
low end of its previous estimates of 400 million to 440 million.
Its net loss for the full nine month period was 17.8 billion kronor (dlrs 1.6 billion), compared with a net profit
of 18.8 billion kronor in the previous year. Year-to-date sales fell 9 percent to 173.3 billion kronor (dlrs 16.2
billion) from 191.5 billion kronor last year.
Ericsson, which has been especially hard hit in its cell phone division, has spun off most of its phone
operations into a joint venture with Japan`s Sony Corp. that started operations on Oct. 1.
The company, which has operations in 140 countries, cited success in its restructuring program, saying 6,800
of the 10,000 planned job cuts had been carried out.
It said its work force - at 107,000 in March - is now below 90,000 and it was ahead of schedule to save 20
billion kronor (dlrs 1.8 billion) a year starting in 2002.
THURSDAY, OCTOBER 25, 2001 6:49 PM
- AP WorldStream
STOCKHOLM, Sweden, Oct 25, 2001 (AP WorldStream via COMTEX) -- LM Ericsson, a leading wireless
equipment maker, on Thursday recorded a third-quarter net loss of 4 billion kronor (dlrs 374 million) as sales
fell 19 percent amid a continuing market slowdown.
The loss compared with a net income of 4.4 billion kronor in the same period last year. Sales for the three
month period ending Sept. 30 were 54.6 billion kronor (dlrs 5.1 billion), down from 67.3 billion kronor at the
same time last year.
The troubled Stockholm-based company also said Chairman Lars Ramqvist will not seek re-election at next
year`s annual general meeting. He would be replaced with Electrolux chief executive Michael Treschow,
pending shareholder approval.
Ericsson had planned to release its results on Friday morning but unveiled them early after some of the
figures were leaked to the media. Ericsson said it was investigating the leak.
The company also said it had a third-quarter loss of 0.71 kronor (0.06 cents) per share, compared with 0.49
kronor per share in the same period last year.
It said sales in its key network equipment division were down 11 percent year-on-year to 43 billion kronor
(dlrs 4 billion). The systems unit made a slight operating profit, with a margin of 1 percent, but the company
warned that market conditions would remain difficult.
Ericsson had warned in late September that it saw conditions in its key systems market deteriorating but had
not provided any detailed guidance.
Ericsson also reported phone sales of 8.3 billion kronor (dlrs 777 million), down 42 percent from the
year-earlier period and said it now expects 400 million mobile phones to be sold worldwide this year, at the
low end of its previous estimates of 400 million to 440 million.
Its net loss for the full nine month period was 17.8 billion kronor (dlrs 1.6 billion), compared with a net profit
of 18.8 billion kronor in the previous year. Year-to-date sales fell 9 percent to 173.3 billion kronor (dlrs 16.2
billion) from 191.5 billion kronor last year.
Ericsson, which has been especially hard hit in its cell phone division, has spun off most of its phone
operations into a joint venture with Japan`s Sony Corp. that started operations on Oct. 1.
The company, which has operations in 140 countries, cited success in its restructuring program, saying 6,800
of the 10,000 planned job cuts had been carried out.
It said its work force - at 107,000 in March - is now below 90,000 and it was ahead of schedule to save 20
billion kronor (dlrs 1.8 billion) a year starting in 2002.
Dann kann man ja wohl den Artikel von gestern...
Ericsson: Höherer Verlust als erwartet?
Ericsson soll morgen einen Verlust von 520 Mio. Dollar (5,5 Mrd. SEK) für das abgelaufene Quartal melden, behauptet die Nachrichtenagentur Reuters unter Berufung auf Industriekreise. Der weltweit größte Hersteller von Mobiltelefon-Netzwerken wird morgen vor Börseneröffnung in Europa seine Quartalsergebnisse bekannt geben. Analysten rechnen mit einem Ergebnis von minus 4,53 Mrd. SEK.
...zu den Akten legen.
MfG
depputy
Ericsson: Höherer Verlust als erwartet?
Ericsson soll morgen einen Verlust von 520 Mio. Dollar (5,5 Mrd. SEK) für das abgelaufene Quartal melden, behauptet die Nachrichtenagentur Reuters unter Berufung auf Industriekreise. Der weltweit größte Hersteller von Mobiltelefon-Netzwerken wird morgen vor Börseneröffnung in Europa seine Quartalsergebnisse bekannt geben. Analysten rechnen mit einem Ergebnis von minus 4,53 Mrd. SEK.
...zu den Akten legen.
MfG
depputy
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