Form 6-K
Table of Contents

 

 

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, 2013

 

 

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

 

 

Torshamnsgatan 23, 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   x            Form 40-F  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No  x

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM F-3 (NO. 333-180880) OF TELEFONAKTIEBOLAGET LM ERICSSON (PUBL.) AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 

 

 


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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/ NINA MACPHERSON
  Nina Macpherson
  Senior Vice President and
  General Counsel
By:   /s/ HELENA NORRMAN
  Helena Norrman
  Senior Vice President
  Corporate Communications

Date: July 19, 2013


Table of Contents

 

LOGO

ERICSSON

second QUARTER

REPORT 2013


Table of Contents

This report on Form 6-K shall be deemed to be incorporated by reference in the registration statement on Form F-3 (No.333-180880) of Telefonaktiebolaget LM Ericsson (publ.) and to be part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished

Ericsson second quarter report 2013, adjusted for registration statement on form F-3 (No.333-180880)

JULY 18, 2013

SECOND QUARTER HIGHLIGHTS

 

   

Sales were flat YoY at SEK 55.3 b.

 

   

Operating income incl. JV was SEK 2.5 (2.1) b. with an operating margin of 4.5% (3.8%).

 

   

The quarter was negatively impacted by one-time items of SEK -0.9 b. from losses due to divestments and exiting the telecom and power cable operations.

 

   

Net income was SEK 1.5 (1.2) b.

 

   

EPS diluted was SEK 0.45 (0.34). Cash flow from operating activities was SEK 4.3 b.

 

CONTENTS

 

3    Financial highlights
5    Segment results
9    Regional sales overview
11    Parent Company information
12    Other information
14    Assessment of risk environment
15    Editor’s note
16    Safe harbor statement
17    Financial statements and additional information
 

 

SEK b.

   Q2
2013
    Q2
2012
    YoY
Change
    Q1
2013
    QoQ
Change
    6 months
2013
    6 months
2012
 

Net sales

     55.3        55.3        0     52.0        6     107.4        106.3   

Of which Networks

     28.1        27.8        1     28.1        0     56.3        55.1   

Of which Global Services

     24.9        24.1        3     21.5        16     46.3        44.7   

Of which Support Solutions

     2.3        3.5        -33     2.4        -4     4.8        6.5   

Gross margin

     32.4     32.0     —          32.0     —          32.2     32.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income excl JV

     2.5        3.3        -24     2.1        17     4.6        13.8   

Operating margin excl JV

     4.5     5.9     —          4.1     —          4.3     13.0

Of which Networks

     5     5     —          6     —          5     5

Of which Global Services

     6     6     —          3     —          5     6

Of which Support Solutions

     -12     12     —          -1     —          -7     6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income incl JV

     2.5        2.1        19     2.1        17     4.6        11.2   

Operating margin incl JV

     4.5     3.8     —          4.0     —          4.3     10.5

Net income

     1.5        1.2        26     1.2        26     2.7        10.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EPS diluted, SEK

     0.45        0.34        32     0.37        22     0.82        3.10   

Cash flow from operating activities

     4.3        -1.4        —          -3.0        —          1.3        -0.6   

*Net cash, end of period

     27.4        25.9        6     32.2        -15     27.4        25.9   

 

* Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures can be found on page 31

 

Ericsson Second Quarter Report 2013

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Comments from Hans Vestberg, President and CEO

 

Reported sales were flat YoY, due to continued currency headwind,” said Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC).

“There was continued high project activity in Europe as well as in North America where two large mobile broadband coverage projects have peaked in first half 2013. North East Asia had another challenging quarter following continued structural decline in GSM investments in China, FX in Japan and lower business activity in South Korea due to spectrum delays.

The business mix, with a higher share of coverage projects than capacity projects, started to shift slightly towards more capacity during the quarter.

We implemented our strategy to capture new market share in the network modernization projects in Europe starting in 2010, despite their initial lower margins. Now that these projects gradually come to an end, we can conclude that we have been successful in gaining market share and regained leadership in Europe. It is also encouraging to see that we are now starting to engage in new business, based on this footprint, regarding capacity and LTE projects in Europe.

We continue to strengthen our leading position in 4G/LTE. The vendor selection processes for 4G/LTE in Russia and China continue and to date we have been awarded contracts by two large operators in Russia.

During the quarter we also reached one billion subscribers in networks managed by Ericsson. This clearly shows the confidence our customers have in our ability to create value for them.

Profitability improved YoY, adjusted for one-time effects related to exiting the telecom and power cable operations and the divestment of Applied Communication Sciences (ACS). The improvement was driven by higher gross margins and lower operating expenses. This was partly offset by currency headwind.

With the announcement in April and July of the intended acquisitions of Microsoft’s Mediaroom and Red Bee Media, we continue to strengthen our position in TV and media. As TV and media converge with telecom we can leverage our strength in media management and managed services. Video is already the single largest contributor to traffic in mobile networks and is expected to grow by 60% annually until 2018.

While the macroeconomic situation in Europe remains challenging and the political uncertainty in parts of Region Middle East, such as Egypt, increases, the long-term fundamentals in the industry remain attractive and we are well positioned to continue to support our customers in a transforming ICT market,” concludes Vestberg.

 

 

Ericsson Second Quarter Report 2013

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Financial highlights – second quarter

INCOME STATEMENT

 

LOGO

 

Networks sales increased 1% YoY, with strong growth in North America and Latin America as well as Western and Central Europe, while sales continued to decline in North East Asia. Networks sales were flat QoQ, with strong sales in Latin America. CDMA sales continued to decline rapidly both YoY and QoQ.

Global Services grew 3% YoY, driven by continued high activity in Network Rollout. Professional Services sales declined -1% YoY, negatively impacted by FX effects. Sequentially, Global Services grew by 16% and Professional Services grew by 15%. Services-related sales in North America were strong in the quarter.

Support Solutions sales declined -33% YoY and -4% QoQ. The YoY decline is mainly due to the divestment of Multimedia Brokering (IPX) in Q312 and continued decline in Media Management sales following the strong first half 2012 sales in IPTV and compression.

Restructuring charges for Ericsson amounted to SEK 0.9
(0.6) b.

Gross margin increased YoY to 32.4% (32.0%), and from 32.0% Q113, despite higher services share QoQ from 41% to 45%. The margin increase was primarily driven by improved hardware and services margins.

The business mix, with a higher share of coverage projects than capacity projects, started to shift slightly towards more capacity during the quarter.

Total operating expenses decreased YoY by SEK 0.6 b. to SEK 14.4 (15.0) b. due to earlier implemented efficiency measures. R&D expenses amounted to SEK 7.7 (8.1) b. Selling and general administrative expenses (SG&A) amounted to SEK 6.6 (6.9) b.

 

 

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Other operating income and expenses amounted to SEK -1.0 (0.5) b. due to costs for exiting the telecom and power cable operations of SEK -0.6 b., a loss related to the divestment of ACS1) of SEK -0.3 b. and a revaluation effect for new hedges taken in 2013 of SEK -0.2 b. For these new hedges we do not apply hedge accounting (see Accounting Policies). Ericsson’s share in ST-Ericsson’s income before tax was SEK 0.0
(-1.3) b.

Operating income, including JV, increased to SEK 2.5 (2.1) b. In Q412, Ericsson made a provision of SEK 3.3 b. which provides for Ericsson’s share of obligations for the wind-down of ST-Ericsson. As of December 31, 2012 there are no remaining investments related to ST-Ericsson on Ericsson’s balance sheet and therefore no result from ST-Ericsson is included in Ericsson’s result.

Operating income was positively impacted by reduced operating expenses and improved gross margin, partly offset by one-time effects of SEK -0.9 b. from losses due to divestments and exiting the telecom and power cable operations and FX.

Operating margin, including JV, was 4.5% (3.8%). Financial net amounted to SEK -0.3 (-0.3) b. and improved QoQ from SEK -0.4 b. Tax costs were SEK -0.6 (-0.6) b.

Net income increased to SEK 1.5 (1.2) b.

EPS diluted was SEK 0.45 (0.34).

 

1)

ACS, formerly the research and engineering of Telcordia Technologies, was established in 2012 following Ericsson’s acquisition of Telcordia and was never operationally integrated into Ericsson.

 

 

BALANCE SHEET AND OTHER PERFORMANCE INDICATORS – SECOND QUARTER

 

LOGO

 

Trade receivables decreased QoQ to SEK 63.1 (65.1) b. Inventory decreased slightly QoQ to SEK 29.7 (29.8) b. Trade payables increased QoQ to 20.8 (19.9) b. following the high business activity.

During the quarter we have signed a new USD 2 b. multi-currency revolving credit facility and refinanced a credit facility signed in 2007. The new facility has a tenure of five years, with two extension options of one year each, and the facility serves for general corporate purposes. During the quarter we also repaid SEK 2.9 b. of maturing debt.

Cash, cash equivalents and short-term investments amounted to SEK 64.8 (72.1) b. The *net cash position decreased QoQ by SEK -4.8 b. to SEK 27.4 (32.2) b., due to shareholder dividend payments of SEK -8.9 b. offset by positive operating cash flow.

During the quarter, approximately SEK 2.4 b. of provisions were utilized, of which SEK 1.0 b. were related to restructuring. Additions of SEK 1.2 b. were made, of which SEK 0.3 b. related to restructuring. Reversals of SEK 0.6 b. were made. Cash outlays of SEK 2.3 b. remain to be made from the restructuring provision.

Cash flow from operating activities was SEK 4.3 b. driven by reduced working capital. *Cash conversion year-to-date is 26%.

The total number of employees increased QoQ to 111,805 (109,648) primarily due to new managed services contracts and closing of acquisitions.

 

* Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures can be found on page 31
 

 

Ericsson Second Quarter Report 2013

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Segment results

NETWORKS

 

LOGO

 

SEK b.

   Q2
2013
    Q2
2012
    YoY
Change
    Q1
2013
    QoQ
Change
    6 months
2013
    6 months
2012
 

Network sales

     28.1        27.8        1     28.1        0     56.3        55.1   

Operating income

     1.3        1.3        6     1.6        -15     2.9        2.9   

Operating margin

     5     5     —          6     —          5     5

 

Sales was driven by mobile broadband deployments with LTE and HSPA, mainly in North America and Latin America. The strong sales in HSPA and LTE radio networks is a result of operators’ focus on enhancing data user experience and smart phone efficiency. Networks sales were flat QoQ.

The structural decline in GSM sales in China and in CDMA sales in North America continued as anticipated. CDMA sales declined by -54% YoY and -31% QoQ to SEK 0.9 b. In South Korea we saw lower business activity due to delays in releasing additional LTE spectrum. Sales related to circuit-switched core continued to decline.

During the quarter we reached an important milestone in our IP strategy by launching the third application on our multi-application router for both fixed and mobile networks. With the latest Smart Services Router (SSR 8000) application, Broadband Network Gateway (BNG) for fixed networks, we now address the converged IP Edge market with one router platform. Out of 15 new SSR contracts signed in the quarter,

four were BNG. In the quarter, we secured several break-in contracts for Evolved Packet Core (EPC), demonstrating our leading position in LTE and Packet Core.

Service providers increasingly focus on indoor and outdoor network performance as the key differentiator and a prime driver for customer retention. This drives the interest for Ericsson’s solutions around heterogeneous networks. The approach of building coordinated macro and small cells networks is gaining momentum as the preferred solution to offer superior mobile broadband user experience.

Excluding one-time items of SEK 0.6 (0.0) b. related to exiting the telecom and power cable operations, operating income improved due to declining negative impact from the network modernization projects in Europe as well as continued operational efficiency gains.

Restructuring charges amounted to SEK 0.3 (0.2) b. in the quarter.

 

 

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GLOBAL SERVICES

 

LOGO

 

SEK b.

   Q2
2013
    Q2
2012
    YoY
Change
    Q1
2013
    QoQ
Change
    6 months
2013
    6 months
2012
 

Global Services sales

     24.9        24.1        3     21.5        16     46.3        44.7   

Of which Professional Services

     16.8        16.9        -1     14.6        15     31.4        31.8   

Of which Managed Services

     6.8        6.5        4     5.9        15     12.6        12.2   

Of which Network Rollout

     8.1        7.1        13     6.8        18     14.9        12.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1.6        1.4        15     0.7        115     2.3        2.6   

Of which Professional Services

     2.3        2.1        7     1.8        24     4.1        4.0   

Of which Network Rollout

     -0.7        -0.8        7     -1.1        35     -1.8        -1.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     6 %      6 %      —          3 %      —          5     6 % 

Of which Professional Services

     14     13     —          13     —          13     13

Of which Network Rollout

     -9     -11     —          -16     —          -12     -11

 

Sales was driven by Network Rollout and Managed Services primarily due to high activities in North America. Professional Services sales decreased -1% YoY negatively impacted by FX. Global Services sales growth QoQ was 16%. We continue to see good momentum for Professional Services and QoQ sales grew 15%.

Operating margin for Global Services was flat YoY with Professional Services margin improving from 13% to 14% due to continued efficiency gains.

Global Services operating margin improved QoQ with reduced losses in Network Rollout. This was partly an effect

of gradually decreasing negative effects from the network modernization projects in Europe.

Professional Services margin improved QoQ driven by higher sales, offset by the divestment of ACS, which resulted in a loss of SEK -0.3 b., equally divided between Professional Services and Support Solutions.

Restructuring charges amounted to SEK 0.6 (0.4) b. in the quarter.

 

 

Other information

   Q2
2013
     Q1
2013
     Full year
2012
 

No. of signed Managed Services contracts

     19         21         52   

Of which expansions/extensions

     5         8         19   

No. of signed significant consulting & systems integration contracts1)

     8         8         24   

Number of subscribers in networks managed by Ericsson, end of period 2)

     1 b.         ~ 950 m.         ~ 950 m.   

Of which in network operations contracts

     600 m.         550 m.         550 m.   

Number of Ericsson services professionals, end of period

     64,000         61,000         60,000   

 

1) 

In the areas of OSS and BSS, IP, Service Delivery Platforms and data center build projects.

2) 

The figure includes network operations contracts and field operation contracts.

 

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SUPPORT SOLUTIONS

 

LOGO

 

SEK b.

   Q2
2013
    Q2
2012
    YoY
Change
    Q1
2013
    QoQ
Change
    6 months
2013
    6 months
2012
 

Support Solutions sales

     2.3        3.5        -33     2.4        -4     4.8        6.5   

Operating income

     -0.3        0.4        —          0.0        —          -0.3        0.4   

Operating margin

     -12     12     —          -1     —          -7     6

 

The sales decline was driven by lower Media Management sales following the strong first half 2012 sales in IPTV and compression as well as a temporary decline in BSS sales in Latin America and Middle East. This was partly offset by growth in OSS.

Demand for OSS and BSS continues to be strong driven by operators’ focus on improving efficiency and adapting to mobile broadband business requirements. Sales cycles in these areas are typically long and volumes vary between quarters.

We have maintained our market position and during the quarter leading industry analyst firm Gartner ranked Ericsson first worldwide for OSS, BSS and next generation service delivery solutions and services.

We continue to invest in our support solution strategy targeting OSS and BSS, TV and Media and M-commerce. During the quarter we announced the intention to acquire Microsoft’s TV solution business Mediaroom, further strengthening our position in the growing media management market.

Operating margin was negatively impacted by lower sales volumes and the divestment of ACS, which resulted in a loss of SEK -0.3 b., equally divided between Global Services and Support Solutions.

The number of subscriptions served by Ericsson’s charging and billing solutions was 2 billion at end of the period.

 

 

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ST-ERICSSON

 

As announced on March 18, 2013, ST-Ericsson will be split between the parents. Ericsson will take on the design, development and sales of the LTE multimode thin modem business products, including 2G, 3G and 4G multimode. STMicroelectronics will take on the existing ST-Ericsson products, other than the LTE multimode thin modems and related business, as well as certain assembly and test facilities. The remaining parts of ST-Ericsson will be closed down. Both parents are assuming equal funding of the wind-down related activities. The formal transfer of the relevant parts of ST-Ericsson to the parent companies is expected to be completed during the third quarter of 2013, subject to regulatory approvals.

Ericsson’s share in ST-Ericsson’s income before tax was SEK 0.0 (-1.3) b. As of December 31, 2012 there are no remaining investments related to ST-Ericsson on Ericsson’s balance sheet and therefore no result from ST-Ericsson is included in Ericsson’s result.

In Q412, Ericsson made a provision of SEK 3.3 b., which provides for Ericsson’s share of obligations for the wind-down of ST-Ericsson and resulted in a net exposure of SEK 1.6 b. at the end of the quarter.

We are progressing as planned toward a Q313 transaction close to separate the thin modem business from ST-Ericsson and integrate into Ericsson. Our focus is on continued execution during the transition period and to continue the engagement with customer development teams.

Once the multimode thin modem business has been fully integrated into Ericsson in Q413 the operation will continue to be reported as a segment. Our current best estimate is that it will generate operating losses of approximately SEK -0.5 b. in Q413, primarily related to R&D expenses.

 

 

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Regional sales overview

REGIONAL SALES

 

     Second quarter 2013      Growth  

SEK b.

   Networks      Global
Services
     Support
Solutions
     Total      YoY     QoQ  

North America

     7.4         7.4         0.5         15.3         18     -3

Latin America

     3.0         2.3         0.3         5.6         6     27

Northern Europe and Central Asia

     1.6         1.0         0.1         2.7         -19     19

Western and Central Europe

     2.0         2.4         0.1         4.5         10     4

Mediterranean

     2.9         3.1         0.2         6.2         -1     17

Middle East

     1.8         2.0         0.2         4.0         7     26

Sub-Saharan Africa

     1.2         1.1         0.3         2.7         -5     24

India

     0.5         0.7         0.1         1.3         -25     -20

North East Asia

     3.8         2.8         0.1         6.6         -21     10

South East Asia and Oceania

     2.0         1.6         0.1         3.8         2     -9

Other1)

     1.9         0.3         0.5         2.7         -13     -6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     28.1         24.9         2.3         55.3         0     6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

1) 

Region “Other” includes licensing revenues, sales of cables, broadcast services, power modules and other businesses.

In the regional dimension, all of the Telcordia sales are reported in the Support Solutions segment except for North America where it is split 50/50 between Global Services and Support Solutions. The acquired Technicolor Broadcast Service Division is reported in region “Other”. Multimedia brokering (IPX) was previously reported in each region in segment Support Solutions. For the first three quarters 2012 it was part of region “Other”. IPX was divested end Q312.

 

North America

Sales grew with continued high activity levels in large mobile broadband coverage projects that peaked in first half 2013. CDMA equipment sales continued to decline. Network evolution and professional services remain a growth theme in North America.

Latin America

YoY sales growth was primarily driven by network quality investments in 3G and initial LTE rollouts, although still at slow pace. The business in several countries was impacted by currency depreciations.

Northern Europe and Central Asia

Sales declined YoY mainly due to very high project levels in Russia in Q212. Selection of LTE vendors in Russia is still ongoing, and deployment of the recently announced LTE contracts will start second half 2013. During the quarter we achieved new wins with non-operator customers in the Nordics and Baltics.

Western and Central Europe

YoY sales growth continued, driven by high activity level in network modernization projects. Continued demand for professional services where systems integration grew YoY.

Mediterranean

Modernization projects in France and high project activity in North West Africa continued to drive YoY sales, offset by lower investments in Spain and Italy. Macroeconomic development remained weak in parts of the region.

Middle East

Initial LTE deployments are ongoing but are still a small share of sales. Demand continued to be good for professional services as operators focus on network performance and operational efficiencies. Political unrest prevails and is still impacting sales.

 

 

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Sub-Saharan Africa

The growth in services is mainly fuelled by new managed services contracts. 3G as well as initial 4G deployments are ongoing. The majority of networks sales are, however, related to 2G.

India

Business volumes declined as operators continued to invest cautiously mainly due to sustained regulatory uncertainty and weak macroeconomic development. The growth in services was driven by a new managed services contract.

North East Asia

Sales continued to decline YoY mainly due to the continued structural decline in GSM investments in China combined with negative FX in Japan and lower business activity in South Korea due to delayed spectrum auctions.

South East Asia and Oceania

Sales were basically flat YoY, where a peak in deployment of major projects in Indonesia offset lower business activity in Australia in the quarter.

Other

IPX was divested at the end of Q312 impacting Support Solutions sales YoY comparison. Licensing revenues continued to show stable development YoY. Sales of broadcast services, cables, power modules and other businesses are also included in “Other”.

 

 

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Parent company information

 

Income after financial items was SEK 2.7 (7.0) b. The Parent Company’s financial position had the following major changes during the year; decreased cash, cash equivalents and short-term investments of SEK 13.0 b. and decreased current and non-current receivables from subsidiaries of SEK 5.9 b.

During the quarter, the dividend payment of SEK 8.9 b., as decided by the Annual General Meeting, was made. At the end of the quarter, cash, cash equivalents and short-term investments amounted to SEK 44.4 (57.4) b.

In accordance with the conditions of the long-term variable remuneration program (LTV) for Ericsson employees, 2,465,083 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock at June 30, 2013, was 79,744,080 Class B shares.

 

 

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Other information

 

Samsung litigation

On November 27, 2012, Ericsson filed two patent infringement lawsuits in the US District Court for the Eastern District of Texas against Samsung. Ericsson seeks damages and an injunction. Ericsson also asked the Court to adjudge that Samsung breached its commitment to license any standard-essential patents it owns on fair, reasonable, and non-discriminatory terms and to declare Samsung’s allegedly standard essential patents to be unenforceable. On November 30, 2012, Ericsson filed a complaint with the US International Trade Commission (ITC) seeking an exclusion order blocking Samsung from importing certain products into the US. On December 21, 2012, Samsung filed a complaint with the ITC seeking an exclusion order blocking Ericsson from import of certain products into the US.

On March 18, 2013, Samsung filed its answers and counterclaims in the Ericsson suits (above) in Texas, USA.

Airvana litigation

In February 2012, Airvana Networks Solutions Inc (Airvana) filed a complaint against Ericsson in the Supreme Court of the State of New York, USA, alleging that Ericsson has violated key contract terms and misappropriated Airvana trade secrets and proprietary information. Airvana is seeking damages of USD 330 million and to enjoin Ericsson from developing, deploying or commercializing Ericsson products allegedly based on Airvana’s proprietary technology.

On March 19, 2013, the Court issued a preliminary injunction barring Ericsson or any party in privity with Ericsson from using, operating, testing or deploying certain Airvana-based EV-DO hardware unless it is executing software that is licensed from Airvana.

The Court also conducted a separate related hearing in April on a second preliminary injunction motion filed by Airvana seeking to prevent deployment of the Digital Baseband Advanced (“DBA”) hardware with any EV-DO software other than Airvana’s. That hearing did not conclude at that time. Thereafter, the parties entered in settlement negotiations which have resulted in a non-binding letter of intent. The parties are presently negotiating a definitive, binding agreement.

Settlement of H3G S.p.A. (H3G) dispute

In 2007, H3G S.p.A. filed arbitral proceedings in Italy against Ericsson. H3G claimed compensation from Ericsson for alleged breach of contract. In June 2013, the parties settled the dispute.

Ericsson to acquire Microsoft Mediaroom

On April 8, 2013, Ericsson announced that the company has reached an agreement with Microsoft to acquire its TV solution business Mediaroom. This will make Ericsson a leading provider of IPTV and multi-screen solutions with a market share of over 25%. Closing is expected in the second half of 2013 subject to customary regulatory approvals and other conditions.

Acquisition of Devoteam Telecom & Media

On May 2, 2013, Ericsson closed the acquisition of Devoteam Telecom & Media in France, bringing 400 IT-services professionals. The intention to acquire parts of Devoteam was originally announced on January 21, 2013.

Divestment of power cables operation to NKT Cables

On May 3, 2013, Ericsson announced a conditional agreement with Danish company NKT Cables to divest its power cables operation. As a result of the agreement approximately 320 employees and consultants will transfer to NKT Cables. The value of the transaction is SEK 250 million and the transaction was closed on July 1, 2013.

Divestment of Applied Communication Sciences

On May 15, 2013, Ericsson completed the sale of Applied Communication Sciences (ACS), the former research and engineering arm of Telcordia Technologies. The operation was acquired by the SI Organization, Inc in the US. ACS, a leading provider of applied research, technical consulting and technology solutions to U.S. defense and intelligence agencies, U.S. civil government organizations and commercial customers, was established in January 2012 when Ericsson acquired Telcordia and has never been integrated operationally into Ericsson.

 

 

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Exit of telecom cable manufacturing

On May 21, 2013, Ericsson initiated union negotiations to close down its telecom cables operation. This primarily impacts operations in Hudiksvall and Stockholm, Sweden.

Expected to be completed during second half 2013.

On new positions

As of July 1, 2013, Peter Laurin is appointed Head of Global Customer Unit Vodafone and a member of Ericsson’s Global Leadership Team. Laurin previously held the position as Head of Customer Unit T-Mobile within Region North America.

As of August 1, 2013, Valter D’Avino is appointed Head of Region Western & Central Europe and a member of Ericsson’s Global Leadership Team. D’Avino currently holds the position as Head of Managed Services within Business Unit Global Services.

Ericsson’s nomination committee appointed

On May 31, 2013, Ericsson announced the appointment of the Nomination Committee for the Annual General Meeting 2014, in accordance with the Instruction for the Nomination Committee resolved by the Annual General Meeting 2013.

Composition of the Board of Directors

On April 9, 2013, Ericsson announced that in accordance with the proposal of the Nomination Committee, the Annual General Meeting resolved to re-elect Leif Johansson as Chairman of the Board of Directors and Roxanne S. Austin, Sir Peter L. Bonfield, Börje Ekholm, Alexander Izosimov, Ulf J. Johansson, Sverker Martin-Löf, Hans Vestberg, and Jacob Wallenberg were re-elected as members of the Board of Directors. Nora Denzel, Kristin Skogen Lund and Pär Östberg were elected new members of the Board of Directors. Board members appointed by the unions are Pehr Claesson, Kristina Davidsson and Karin Åberg. Deputy board members appointed by the unions are Rickard Fredriksson, Karin Lennartsson and Roger Svensson.

POST-CLOSING EVENTS

Ericsson to acquire leading media services company Red Bee Media

On July 1, 2013, Ericsson announced its intention to acquire Red Bee Media from an entity controlled by Macquarie Advanced Investment Partners, L.P. The acquisition, which is subject to regulatory approvals, supports Ericsson’s strategy to grow in the broadcast services market. It will bring 1,500 employees, as well as media services and operations facilities in the UK, France, Germany, Spain and Australia.

Ruling in Wi-LAN litigation

In October 2010, Canadian company Wi-LAN sued Ericsson, in Texas, alleging that Ericsson’s RBS 3000 and RBS 6000 series base stations sold in the US infringe three patents that Wi-LAN claimed to be essential to HSDPA.

In October 2012, Wi-LAN filed a second lawsuit against Ericsson, in Florida, alleging that Ericsson’s LTE-compliant base stations sold in the US infringe three other patents that Wi-LAN claimed to be essential to the LTE standard.

In June 2013, a District Court Judge in the Florida case granted Ericsson’s request for a Summary Judgment and dismissed Wi-LAN’s claims against Ericsson.

On July 15, 2013, a jury in Tyler, Texas, found in Ericsson’s favor in the Texas case. The jury recognized that although Ericsson’s base stations comply with mandatory HSDPA and 3G standards, the patents Wi-LAN was asserting do not apply to these standards, nor do Ericsson’s base stations infringe any of those patents. The jury also agreed with every one of Ericsson and the other defendants’ invalidity challenges to the asserted patents, and finally, determined that Wi-LAN is not entitled to any damages from Ericsson or the other defendants.

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

During the second quarter of 2013, Ericsson made sales of telecommunications infrastructure related products and services in Iran to MTNIrancell and to Mobile Communication Company of Iran, which generated gross revenues (reported as net sales) of approximately SEK 175 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 net profit from such sales, after internal cost allocation, during the second quarter of 2013 would be substantially lower than such gross revenues.

 

 

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Assessment of risk environment

Ericsson’s operational and financial risk factors and uncertainties along with our strategies and tactics to mitigate risk exposures or limit unfavorable outcomes are described in our Annual Report 2012. Compared to the risks described in the Annual Report 2012, no material, new or changed risk factors or uncertainties have been identified in the quarter.

Risk factors and uncertainties in focus short-term for the Parent Company and the Ericsson Group include:

 

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 us to provide financing;

 

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

 

Effects on gross margins and/or working capital of the product mix in the Networks segment between sales of upgrades and expansions (mainly software) and new build-outs of coverage (mainly hardware);

 

Effects on gross margins of the product mix in the Global Services segment including proportion of new network build-outs and share of new managed services deals with initial transition costs;

 

A continued volatile sales pattern in the Support Solutions segment or variability in our overall sales seasonality could make it more difficult to forecast future sales;

 

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;

 

Implementation of the strategic option for our joint venture ST-Ericsson and related capital need;

 

Changes in foreign exchange rates, in particular USD, JPY and EUR;

 

Political unrest or instability in certain markets;

 

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;

 

Natural disasters and other events, affecting business, production, supply and transportation.

Ericsson stringently monitors the compliance with all relevant trade regulations and trade embargos applicable to dealings with customers operating in countries where there are trade restrictions or trade restrictions are discussed. Moreover, Ericsson operates globally in accordance with Group policies and directives for business ethics and conduct.

Stockholm, July 18, 2013

Telefonaktiebolaget LM Ericsson (publ)

Hans Vestberg, President and CEO

Org. Nr. 556016-0680

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

Date for next report: October 24, 2013

 

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Editor’s note

 

Ericsson invites media, investors and analysts to a press conference at the Ericsson Studio, Grönlandsgången 4, Stockholm, at 09.00 (CET), July 18, 2013. An analysts, investors and media conference call will begin at 15.00 (CET).

For further information, please contact:

Helena Norrman, Senior Vice President,

Communications

Phone: +46 10 719 34 72

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

media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson (publ)

Org. number: 556016-0680

Torshamnsgatan 23

SE-164 83 Stockholm

Phone: +46 10 719 00 00

Investors

Stefan Jelvin, Director,

Investor Relations

Phone: +46 10 714 20 39, +46 70 986 02 27

E-mail: investor.relations@ericsson.com

Åsa Konnbjer, Director,

Investor Relations

Phone: +46 10 713 39 28, +46 73 082 59 28

E-mail: investor.relations@ericsson.com

Rikard Tunedal, Director,

Investor Relations

Phone: +46 10 714 54 00, +46 761 005 400

E-mail: investor.relations@ericsson.com

Media

Ola Rembe, Vice President,

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

 

 

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Safe harbor statement

 

All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “would”, “potential”, “continue”, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; (xii) plans to launch new products and services; (xiii) assessments of risks; (xiv) integration of acquired businesses; (xv) compliance with rules and regulations and (xvi) infringements of intellectual property rights of others.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate or interest rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.

 

 

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Financial statements and additional information

 

Financial statements
18    Consolidated income statement
18    Statement of comprehensive income
19    Consolidated balance sheet
20    Consolidated statement of cash flows
21    Consolidated statement of changes in equity
22    Consolidated income statement—isolated quarters
23    Consolidated statement of cash flows—isolated quarters

Additional information

24    Accounting policies
25    Accounting policies (continued)
26    Net sales by segment by quarter
27    Operating income by segment by quarter
27    Operating margin by segment by quarter
28    Net sales by region by quarter
29    Net sales by region by quarter (cont.)
29    Top 5 countries in sales
30    Net sales by region by segment
31    Provisions
31    Information on investments in assets subject to depreciation, amortizations, impairment and write-downs
31    Reconciliation table, non-IFRS measurements
32    Other information
32    Number of employees
33    Restructuring charges by function
33    Restructuring charges by segment
 

 

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CONSOLIDATED INCOME STATEMENT

 

     Apr - Jun           Jan - Jun        

SEK million

   2012     2013     Change     2012     2013     Change  

Net sales

     55,319        55,331        0     106,293        107,363        1

Cost of sales

     -37,611        -37,412        -1     -71,596        -72,806        2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     17,708        17,919        1     34,697        34,557        0

Gross margin (%)

     32.0     32.4       32.6     32.2  

Research and development expenses

     -8,097        -7,747        -4     -16,113        -15,624        -3

Selling and administrative expenses

     -6,855        -6,629        -3     -13,087        -13,272        1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -14,952        -14,376        -4     -29,200        -28,896        -1

Other operating income and expenses

     530        -1,040          8,279 1)      -1,020     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before shares in earnings of JV and associated companies

     3,286        2,503        -24     13,776        4,641        -66

Operating margin before shares in earnings of JV and associated companies (%)

     5.9     4.5       13.0     4.3  

Shares in earnings of JV and associated companies

     -1,208        -38        -97     -2,611        -70        -97
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,078        2,465        19     11,165        4,571        -59

Financial income

     618        304          880        484     

Financial expenses

     -924        -606          -1,197        -1,171     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     1,772        2,163        22     10,848        3,884        -64

Taxes

     -567        -647          -839        -1,164     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1,205        1,516        26     10,009        2,720        -73
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

            

- Stockholders of the Parent Company

     1,110        1,469          10,060        2,674     

- Non-controlling interests

     95        47          -51        46     

Other information

            

Average number of shares, basic (million)

     3,215        3,224          3,213        3,223     

Earnings per share, basic (SEK) 2)

     0.35        0.46          3.13        0.83     

Earnings per share, diluted (SEK) 2)

     0.34        0.45          3.10        0.82     

STATEMENT OF COMPREHENSIVE INCOME

 

     Apr - Jun      Jan - Jun  

SEK million

   2012      2013      2012      2013  

Net income

     1,205         1,516         10,009         2,720   

Other comprehensive income

           

Items that will not be reclassified to profit or loss

           

Remeasurements of defined benefits pension plans incl. asset ceiling

     -1,201         954         -765         1,773   

Revaluation of other investments in shares and participations

           

Fair value remeasurement

     1         69         1         69   

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

     403         -333         264         -721   

Items that may be reclassified to profit or loss

           

Cash flow hedges

           

Gains/losses arising during the period

     -586         -36         199         138   

Reclassification adjustments for gains/losses included in profit or loss

     70         -297         -143         -763   

Adjustments for amounts transferred to initial carrying amount of hedged items

     —           —           92         —     

Changes in cumulative translation adjustments

     1,323         1,404         -681         686   

Share of other comprehensive income on JV and associated companies

     34         120         -18         104   

Tax on items that may be reclassified to profit or loss

     142         80         -111         142   

Total other comprehensive income

     186         1,961         -1,162         1,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

     1,391         3,477         8,847         4,148   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income attributable to:

           

Stockholders of the Parent Company

     1,229         3,394         8,879         4,087   

Non-controlling interests

     162         83         -32         61   

 

1) 

Includes gain on sale of Sony Ericsson SEK 7.7 billion in Q1 2012

2) 

Based on Net income attributable to stockholders of the Parent Company

 

 

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CONSOLIDATED BALANCE SHEET

 

 

     Dec 31      Mar 31      Jun 30  

SEK million

   2012      2013      2013  

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     3,840         3,819         3,691   

Goodwill

     30,404         30,297         30,855   

Intellectual property rights, brands and other intangible assets

     15,202         14,205         13,405   

Property, plant and equipment

     11,493         11,461         11,766   

Financial assets

        

Equity in JV and associated companies

     2,842         2,799         2,883   

Other investments in shares and participations

     386         389         495   

Customer finance, non-current

     1,290         1,146         1,109   

Other financial assets, non-current

     3,964         4,180         4,807   

Deferred tax assets

     12,321         12,132         12,299   
  

 

 

    

 

 

    

 

 

 
     81,742         80,428         81,310   

Current assets

        

Inventories

     28,802         29,811         29,685   

Trade receivables

     63,660         65,101         63,084   

Customer finance, current

     4,019         3,869         2,998   

Other current receivables

     20,065         19,206         19,552   

Short-term investments 1)

     32,026         34,641         26,335   

Cash and cash equivalents

     44,682         37,444         38,479   
  

 

 

    

 

 

    

 

 

 
     193,254         190,072         180,133   

Total assets

     274,996         270,500         261,443   
  

 

 

    

 

 

    

 

 

 

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

     136,883         137,668         132,326   

Non-controlling interest in equity of subsidiaries

     1,600         1,501         1,540   
  

 

 

    

 

 

    

 

 

 
     138,483         139,169         133,866   

Non-current liabilities

        

Post-employment benefits 2)

     9,503         11,132         10,907   

Provisions, non-current

     211         247         281   

Deferred tax liabilities

     3,120         3,281         3,326   

Borrowings, non-current

     23,898         23,638         22,471   

Other non-current liabilities

     2,377         2,407         2,330   
  

 

 

    

 

 

    

 

 

 
     39,109         40,705         39,315   

Current liabilities

        

Provisions, current

     8,427         9,252         7,435   

Borrowings, current

     4,769         5,084         4,018   

Trade payables

     23,100         19,898         20,760   

Other current liabilities 2)

     61,108         56,392         56,049   
  

 

 

    

 

 

    

 

 

 
     97,404         90,626         88,262   

Total equity and liabilities

     274,996         270,500         261,443   
  

 

 

    

 

 

    

 

 

 

Of which interest-bearing liabilities and post-employment benefits

     38,170         39,854         37,396   

Of which net cash

     38,538         32,231         27,418   

Assets pledged as collateral

     520         2,534         2,587   

Contingent liabilities

     613         601         586   

 

1)

Including loan to ST-Ericsson of SEK 982 million as of June 30, 2013 (SEK 540 million as of March 31, 2013, SEK 0 million as of December 31, 2012)

2) 

The provision for the Swedish special payroll taxes, amounting to SEK 1.8 (1.8) billion, which was previously included in Other current liabilities, has been re-classified as pension liability in line with the implementation of IAS19R on January 1, 2013

 

 

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CONSOLIDATED STATEMENT OF CASH FLOWS

 

     Apr - Jun      Jan - Jun      Jan - Dec  

SEK million

   2012      2013      2012     2013      2012  

Operating activities

             

Net income

     1,205         1,516         10,009        2,720         5,938   

Adjustments to reconcile net income to cash

             

Taxes

     -1,185         -689         -2,303        -2,538         -1,140   

Earnings/dividends in JV and associated companies

     1,193         37         2,483        70         11,769   

Depreciation, amortization and impairment losses

     2,401         2,436         4,716        4,847         9,889   

Other

     -466         183         -7,488        -18         -7,441   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     3,148         3,483         7,417        5,081         19,015   

Changes in operating net assets

             

Inventories

     43         600         -16        -826         2,752   

Customer finance, current and non-current

     0         912         282        1,172         -1,259   

Trade receivables

     -5,427         3,084         -1,705        1,150         -1,103   

Trade payables

     1,717         518         -996        -2,430         -1,311   

Provisions and post-employment benefits

     -353         -1,752         -2,124        -597         -1,920   

Other operating assets and liabilities, net

     -492         -2,554         -3,491        -2,229         5,857   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     -4,512         808         -8,050        -3,760         3,016   

Cash flow from operating activities

     -1,364         4,291         -633        1,321         22,031   

Investing activities

             

Investments in property, plant and equipment

     -994         -1,278         -2,642        -2,474         -5,429   

Sales of property, plant and equipment

     -10         11         299        102         568   

Acquisitions/divestments of subsidiaries and other operations, net

     -110         -39         -1,840 1)      -175         -2,077 1) 

Product development

     -525         -214         -776        -496         -1,641   

Other investing activities

     -520         -203         -325        95         1,540   

Short-term investments

     8,133         9,209         4,134        6,349         2,151   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Cash flow from investing activities

     5,974         7,486         -1,150        3,401         -4,888   

Cash flow before financing activities

     4,610         11,777         -1,783        4,722         17,143   

Financing activities

             

Dividends paid

     -8,252         -8,863         -8,252        -8,924         -8,632   

Other financing activities

     1,112         -4,236         -206        -4,144         -753   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Cash flow from financing activities

     -7,140         -13,099         -8,458        -13,068         -9,385   

Effect of exchange rate changes on cash

     599         2,357         272        2,143         -1,752   

Net change in cash

     -1,931         1,035         -9,969        -6,203         6,006   

Cash and cash equivalents, beginning of period

     30,638         37,444         38,676        44,682         38,676   

Cash and cash equivalents, end of period

     28,707         38,479         28,707        38,479         44,682   

 

1) 

Includes payment of external loan of SEK -6.2 billion attributable to the acquisition of Telcordia in Q1 2012

 

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

     Jan - Jun      Jan - Jun      Jan - Dec  

SEK million

   2012      2013      2012  

Opening balance

     145,270         138,483         145,270   

Total comprehensive income

     8,847         4,148         1,830   

Sale/repurchase of own shares

     159         40         -93   

Stock issue

     -126         —           159   

Stock purchase plan

     218         193         405   

Dividends paid

     -8,252         -8,924         -8,632   

Transactions with non-controlling interests

     -369         -73         -456   
  

 

 

    

 

 

    

 

 

 

Closing balance

     145,747         133,867         138,483   
  

 

 

    

 

 

    

 

 

 

 

Ericsson Second Quarter Report 2013

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CONSOLIDATED INCOME STATEMENT – ISOLATED QUARTERS

 

     2012     2013  

Isolated quarters, SEK million

   Q1     Q2     Q3     Q4     Q1     Q2  

Net sales

     50,974        55,319        54,550        66,936        52,032        55,331   

Cost of sales

     -33,985        -37,611        -37,970        -46,133        -35,394        -37,412   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     16,989        17,708        16,580        20,803        16,638        17,919   

Gross margin (%)

     33.3     32.0     30.4     31.1     32.0     32.4

Research and development expenses

     -8,016        -8,097        -7,473        -9,247        -7,877        -7,747   

Selling and administrative expenses

     -6,232        -6,855        -5,797        -7,139        -6,643        -6,629   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -14,248        -14,952        -13,270        -16,386        -14,520        -14,376   

Other operating income and expenses

     7,749 1)      530        341        345        20        -1,040   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before shares in earnings of JV and associated companies

     10,490        3,286        3,651        4,762        2,138        2,503   

Operating margin before shares in earnings of JV and associated companies (%)

     20.6     5.9     6.7     7.1     4.1     4.5

Shares in earnings of JV and associated companies

     -1,403        -1,208        -555        -8,565 2)      -32        -38   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     9,087        2,078        3,096        -3,803        2,106        2,465   

Financial income

     262        618        390        438        180        304   

Financial expenses

     -273        -924        -275        -512        -565        -606   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     9,076        1,772        3,211        -3,877        1,721        2,163   

Taxes

     -272        -567        -1,027        -2,378        -517        -647   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8,804        1,205        2,184        -6,255        1,204        1,516   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

            

- Stockholders of the Parent Company

     8,950        1,110        2,177        -6,462        1,205        1,469   

- Non-controlling interests

     -146        95        7        207        -1        47   

Other information

            

Average number of shares, basic (million)

     3,212        3,215        3,217        3,219        3,222        3,224   

Earnings per share, basic (SEK) 3)

     2.79        0.35        0.68        -2.01        0.37        0.46   

Earnings per share, diluted (SEK) 3)

     2.76        0.34        0.67        -1.99        0.37        0.45   

 

1)

Includes gain on sale of Sony Ericsson SEK 7.7 billion in Q1 2012

2) 

Negatively impacted by a non-cash charge related to ST-Ericsson of SEK -8.0 billion in Q4 2012

3) 

Based on Net income attributable to stockholders of the Parent Company

 

Ericsson Second Quarter Report 2013

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CONSOLIDATED STATEMENT OF CASH FLOWS—ISOLATED QUARTERS

 

     2012      2013  

Isolated quarters, SEK million

   Q1     Q2      Q3      Q4      Q1      Q2  

Operating activities

                

Net income

     8,804        1,205         2,184         -6,255         1,204         1,516   

Adjustments to reconcile net income to cash

                

Taxes

     -1,118        -1,185         -886         2,049         -1,849         -689   

Earnings/dividends in JV and associated companies

     1,290        1,193         579         8,707         33         37   

Depreciation, amortization and impairment losses

     2,315        2,401         2,394         2,779         2,411         2,436   

Other

     -7,022        -466         413         -366         -201         183   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     4,269        3,148         4,684         6,914         1,598         3,483   

Changes in operating net assets

                

Inventories

     -59        43         -650         3,418         -1,426         600   

Customer finance, current and non-current

     282        —           -164         -1,377         260         912   

Trade receivables

     3,722        -5,427         2,882         -2,280         -1,934         3,084   

Trade payables

     -2,713        1,717         -1,455         1,140         -2,948         518   

Provisions and post-employment benefits

     -1,771        -353         -175         379         1,155         -1,752   

Other operating assets and liabilities, net

     -2,999        -492         1,851         7,497         325         -2,554   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     -3,538        -4,512         2,289         8,777         -4,568         808   

Cash flow from operating activities

     731        -1,364         6,973         15,691         -2,970         4,291   

Investing activities

                

Investments in property, plant and equipment

     -1,648        -994         -1,461         -1,326         -1,196         -1,278   

Sales of property, plant and equipment

     309        -10         17         252         91         11   

Acquisitions/divestments of subsidiaries and other operations, net

     -1,730 1)      -110         -357         120         -136         -39   

Product development

     -251        -525         -435         -430         -282         -214   

Other investing activities

     195        -520         1,652         213         298         -203   

Short-term investments

     -3,999        8,133         -938         -1,045         -2,860         9,209   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -7,124        5,974         -1,522         -2,216         -4,085         7,486   

Cash flow before financing activities

     -6,393        4,610         5,451         13,475         -7,055         11,777   

Financing activities

                

Dividends paid

     —          -8,252         -381         1         -61         -8,863   

Other financing activities

     -1,318        1,112         1,062         -1,609         92         -4,236   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -1,318        -7,140         681         -1,608         31         -13,099   

Effect of exchange rate changes on cash

     -327        599         -1,994         -30         -214         2,357   

Net change in cash

     -8,038        -1,931         4,138         11,837         -7,238         1,035   

Cash and cash equivalents, beginning of period

     38,676        30,638         28,707         32,845         44,682         37,444   

Cash and cash equivalents, end of period

     30,638        28,707         32,845         44,682         37,444         38,479   

 

1) 

Includes payment of external loan of SEK -6.2 billion attributable to the acquisition of Telcordia in Q1 2012

 

Ericsson Second Quarter Report 2013

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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, 2012, and should be read in conjunction with that annual report.

Change of hedge accounting

Due to cost efficiency reasons Ericsson has changed the hedge accounting.

Ericsson hedges highly probable forecast transactions related to sales and purchases with the purpose to limit the impact related to currency fluctuations on these forecasted transactions. This will not be changed.

Ericsson has, however, decided to discontinue hedge accounting for this type of hedges. Until 2012 Ericsson applied cash flow hedge accounting for highly probable forecast transactions. Revaluation of these hedges (incepted prior to January 1, 2013) are prior to release reported under “Other comprehensive income” (OCI) and is at release recycled to sales, cost of sales and R&D expenses respectively.

As from 2013, revaluation of new hedges (inception as from January 1, 2013) are reported under “Other operating income and expenses” in the Income statement.

As from January 1, 2013, the Company has applied the following new or amended IFRSs and IFRICs:

Amendment to IAS 1, “Financial statement presentation” regarding Other comprehensive income. The main change resulting from this amendment is a requirement for entities to group items presented in “other comprehensive income” (OCI) on the basis of whether they are potentially recycled to profit or loss subsequently (reclassification adjustments). The amendment does not address which items are presented in OCI.

Amendment to IAS 19, “Employee benefits” eliminates the corridor approach and calculates finance costs on a net funding basis. The Company implemented the immediate and full recognition of actuarial gains/losses in other “Other comprehensive income” (OCI) in 2006, meaning that the corridor method has not been applied by the Company as from that date and therefore the transition to the revised IAS 19 has not had an effect on the present obligation. The main issue to address is the implementation of the net interest cost/gain, which integrates the interest cost and expected return on assets to be based on a common discount rate. An analysis of fiscal year 2012 in relation to this amendment indicated an impact on pension costs for 2012 with an increase of approximately SEK 0.4 (–0.1) billion. The Company also needs to address the taxes to be incorporated into the defined benefit obligation. This amendment relates to the Swedish special payroll taxes to be reclassified from “Other current liabilities” to “Post-employment benefits” with an estimated amount of SEK 1.8 (1.8) billion as per December 31, 2012 *. The amendment also includes additional disclosure requirements on yearly financial and demographic assumptions, sensitivity analysis, duration and multi-employer plans.

Amendment to IFRS 7, “Financial instruments: Disclosures’ on asset and liability offsetting”. This amendment requires disclosure of gross amounts related to financial instruments for which offset has been made.

 

* See also footnote under the balance sheet.

 

Ericsson Second Quarter Report 2013

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Accounting policies (continued)

IFRS 10, “Consolidated financial statements”. The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities to present consolidated financial statements. It defines the principle of control, and establishes control as the basis for consolidation. It sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. An entity controls an investee if the entity has power over the investee, has the ability to use the power and is exposed to variable returns. It also sets out the accounting requirements for the preparation of consolidated financial statements.

IFRS 11, “Joint arrangements” is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Proportional consolidation of joint ventures is no longer allowed. The Company did not apply the proportionate consolidation method prior to 2013.

IFRS 12, “Disclosures of interests in other entities” includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles.

IFRS 13, “Fair value measurement” does not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. This standard has also added disclosure requirements in IAS 34, Interim Financial Reporting regarding the disclosure for financial instruments.

IAS 27 (revised 2011), “Separate financial statements” includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.

IAS 28 (revised 2011), “Associates and joint ventures” includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11.

None of the new or amended standards and interpretations has had any significant impact on the financial result or position of the Company. There is no significant difference between IFRS effective as per June 30, 2013 and IFRS as endorsed by the EU.

Disclosures required by the IASB on an interim basis as from 2013

Fair valuation of financial instruments

The fair value of the Company’s financial instruments, recognized at fair value, is determined based on quoted market prices or rates. Financial instruments, measured according to the category “Fair value through profit or loss” showed a net fair value measurement negative effect of SEK 0.4 billion. The amount is recognized in the balance sheet as per June 30, 2013.

Book value for “Notes and bond loans” amounts to SEK 14.9 billion and fair value to SEK 16.9 billion. Fair values of “Current part of non-current borrowings”, “Other borrowings non-current” as well as “Other financial instruments” are not estimated to materially differ from book values.

For further information about valuation principles, please see Note C1, “Significant accounting policies” in the Annual Report of 2012.

 

Ericsson Second Quarter Report 2013

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NET SALES BY SEGMENT BY QUARTER

Segments Sony Ericsson and ST-Ericsson are reported in accordance with the equity method, thus their sales are not included.

 

     2012     2013  

Isolated quarters, SEK million

   Q1     Q2     Q3     Q4     Q1     Q2  

Networks

     27,314        27,766        26,939        35,266        28,133        28,142   

Global Services

     20,631        24,074        24,296        28,042        21,452        24,851   

Of which Professional Services

     14,884        16,947        16,388        18,873        14,626        16,773   

Of which Managed Services

     5,708        6,468        6,306        6,752        5,888        6,754   

Of which Network Rollout

     5,747        7,127        7,908        9,169        6,826        8,078   

Support Solutions

     3,029        3,479        3,315        3,628        2,447        2,338   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     50,974        55,319        54,550        66,936        52,032        55,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2012     2013  

Sequential change, percent

   Q1     Q2     Q3     Q4     Q1     Q2  

Networks

     -18     2     -3     31     -20     0

Global Services

     -24     17     1     15     -24     16

Of which Professional Services

     -18     14     -3     15     -23     15

Of which Managed Services

     -6     13     -3     7     -13     15

Of which Network Rollout

     -35     24     11     16     -26     18

Support Solutions

     -11     15     -5     9     -33     -4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -20     9     -1     23     -22     6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2012     2013  

Year over year change, percent

   Q1     Q2     Q3     Q4     Q1     Q2  

Networks

     -18     -17     -17     6     3     1

Global Services

     18     26     19     4     4     3

Of which Professional Services

     18     26     11     4     -2     -1

Of which Managed Services

     16     37     19     12     3     4

Of which Network Rollout

     18     28     38     3     19     13

Support Solutions

     33     47     29     6     -19     -33
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -4     1     -2     5     2     0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2012     2013  

Year to date, SEK million

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

Networks

     27,314        55,080        82,019        117,285        28,133        56,275   

Global Services

     20,631        44,705        69,001        97,043        21,452        46,303   

Of which Professional Services

     14,884        31,830        48,219        67,092        14,626        31,399   

Of which Managed Services

     5,708        12,176        18,482        25,234        5,888        12,642   

Of which Network Rollout

     5,747        12,875        20,782        29,951        6,826        14,904   

Support Solutions

     3,029        6,508        9,823        13,451        2,447        4,785   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     50,974        106,293        160,843        227,779        52,032        107,363   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2012     2013  

year over year change, percent

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

Networks

     -18     -17     -17     -11     3     2

Global Services

     18     23     21     16     4     4

Of which Professional Services

     18     22     18     14     -2     -1

Of which Managed Services

     16     26     24     20     3     4

Of which Network Rollout

     18     23     29     20     19     16

Support Solutions

     33     40     36     26     -19     -26
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -4     -1     -1     0     2     1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Ericsson Second Quarter Report 2013

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Table of Contents

OPERATING INCOME BY SEGMENT BY QUARTER

 

     2012     2013  

Isolated quarters, SEK million

   Q1     Q2      Q3      Q4     Q1      Q2  

Networks

     1,649        1,255         1,341         2,812        1,565         1,335   

Global Services

     1,267        1,362         1,835         1,762        726         1,564   

Of which Professional Services

     1,908        2,142         2,293         2,768        1,837         2,285   

Of which Network Rollout

     -641        -780         -458         -1,006        -1,111         -721   

Support Solutions

     -28        420         480         278        -29         -283   

Unallocated 1)

     -97        -43         6         -133        -156         -151   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     2,791        2,994         3,662         4,719        2,106         2,465   

Sony Ericsson

     7,691 2)      347         -1         -11        —           —     

ST-Ericsson

     -1,395        -1,263         -565         -8,511 3)      —           —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal Sony Ericsson and ST-Ericsson

     6,296        -916         -566         -8,522        —           —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

     9,087        2,078         3,096         -3,803        2,106         2,465   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     2012     2013  

Year to date, SEK million

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

Networks

     1,649        2,904         4,245         7,057        1,565         2,900   

Global Services

     1,267        2,629         4,464         6,226        726         2,290   

Of which Professional Services

     1,908        4,050         6,343         9,111        1,837         4,122   

Of which Network Rollout

     -641        -1,421         -1,879         -2,885        -1,111         -1,832   

Support Solutions

     -28        392         872         1,150        -29         -312   

Unallocated 1)

     -97        -140         -134         -267        -156         -307   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal Segments excluding Sony Ericsson and ST-Ericsson

     2,791        5,785         9,447         14,166        2,106         4,571   

Sony Ericsson

     7,691 2)      8,038         8,037         8,026        —           —     

ST-Ericsson

     -1,395        -2,658         -3,223         -11,734 3)      —           —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal Sony Ericsson and ST-Ericsson

     6,296        5,380         4,814         -3,708        —           —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

     9,087        11,165         14,261         10,458        2,106         4,571   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

OPERATING MARGIN BY SEGMENT BY QUARTER

 

As percentage of net sales, isolated quarters

   2012     2013  
   Q1     Q2     Q3     Q4     Q1     Q2  

Networks

     6     5     5     8     6     5

Global Services

     6     6     8     6     3     6

Of which Professional Services

     13     13     14     15     13     14

Of which Network Rollout

     -11     -11     -6     -11     -16     -9

Support Solutions

     -1     12     14     8     -1     -12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal excluding Sony Ericsson and ST-Ericsson

     5     5     7     7     4     4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As percentage of net sales, Year to date

   2012     2013  
   Jan - Mar     Jan - Jun     Jan - Sep     Jan - Dec     Jan - Mar     Jan - Jun  

Networks

     6     5     5     6     6     5

Global Services

     6     6     6     6     3     5

Of which Professional Services

     13     13     13     14     13     13

Of which Network Rollout

     -11     -11     -9     -10     -16     -12

Support Solutions

     -1     6     9     9     -1     -7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal excluding Sony Ericsson and ST-Ericsson

     5     5     6     6     4     4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1) 

“Unallocated” consists mainly of costs for corporate staff, non-operational capital gains and losses

2) 

Includes gain on sale of Sony Ericsson SEK 7.7 billion in Q1 2012

3) 

Negatively impacted by a non-cash charge related to ST-Ericsson of SEK -8.0 billion in Q4 2012

 

Ericsson Second Quarter Report 2013

  27


Table of Contents

NET SALES BY REGION BY QUARTER

 

     2012     2013  

Isolated quarters, SEK million

   Q1     Q2     Q3     Q4     Q1     Q2  

North America

     12,775        12,987        14,037        16,950        15,773        15,341   

Latin America

     4,822        5,243        5,424        6,517        4,374        5,565   

Northern Europe & Central Asia 1) 2)

     2,292        3,358        2,697        2,998        2,283        2,708   

Western & Central Europe 2)

     4,306        4,094        3,630        5,448        4,349        4,522   

Mediterranean 2)

     4,620        6,214        5,401        7,064        5,271        6,159   

Middle East

     3,157        3,701        3,637        5,061        3,160        3,978   

Sub Saharan Africa

     2,200        2,791        2,800        3,558        2,131        2,653   

India

     1,421        1,700        1,737        1,602        1,606        1,279   

North East Asia

     9,154        8,423        8,373        10,246        6,054        6,642   

South East Asia & Oceania

     3,374        3,674        3,505        4,515        4,129        3,758   

Other 1) 2)

     2,853        3,134        3,309        2,977        2,902        2,726   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     50,974        55,319        54,550        66,936        52,032        55,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which Sweden

     834        1,282        1,649        1,268        1,020        1,276   

2) Of which EU

     9,502        11,201        10,604        12,923        9,782        10,816   
     2012     2013  

Sequential change, percent

   Q1     Q2     Q3     Q4     Q1     Q2  

North America

     14     2     8     21     -7     -3

Latin America

     -31     9     3     20     -33     27

Northern Europe & Central Asia 1) 2)

     -39     47     -20     11     -24     19

Western & Central Europe 2)

     -18     -5     -11     50     -20     4

Mediterranean 2)

     -44     35     -13     31     -25     17

Middle East

     -39     17     -2     39     -38     26

Sub Saharan Africa

     -32     27     0     27     -40     24

India

     -7     20     2     -8     0     -20

North East Asia

     -16     -8     -1     22     -41     10

South East Asia & Oceania

     -16     9     -5     29     -9     -9

Other 1) 2)

     -14     10     6     -10     -3     -6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -20     9     -1     23     -22     6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which Sweden

     -8     54     29     -23     -20     25

2) Of which EU

     -29     18     -5     22     -24     11
     2012     2013  

Year-over-year change, percent

   Q1     Q2     Q3     Q4     Q1     Q2  

North America

     -3     5     16     51     23     18

Latin America

     20     6     -10     -7     -9     6

Northern Europe & Central Asia 1) 2)

     -32     -26     -24     -21     0     -19

Western & Central Europe 2)

     -10     -6     -21     3     1     10

Mediterranean 2)

     -4     12     3     -14     14     -1

Middle East

     3     4     0     -3     0     7

Sub Saharan Africa

     -1     26     11     11     -3     -5

India

     -55     -39     -24     5     13     -25

North East Asia

     6     -7     -13     -6     -34     -21

South East Asia & Oceania

     9     21     -6     13     22     2

Other 1) 2)

     9     27     49     -10     2     -13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -4     1     -2     5     2     0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which Sweden

     -10     16     75     40     22     0

2) Of which EU

     -5     9     4     -4     3     -3

 

Ericsson Second Quarter Report 2013

  28


Table of Contents

NET SALES BY REGION BY QUARTER (continued)

 

     2012     2013  

Year to date, SEK million

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

North America

     12,775        25,762        39,799        56,749        15,773        31,114   

Latin America

     4,822        10,065        15,489        22,006        4,374        9,939   

Northern Europe & Central Asia 1) 2)

     2,292        5,650        8,347        11,345        2,283        4,991   

Western & Central Europe 2)

     4,306        8,400        12,030        17,478        4,349        8,871   

Mediterranean 2)

     4,620        10,834        16,235        23,299        5,271        11,430   

Middle East

     3,157        6,858        10,495        15,556        3,160        7,138   

Sub Saharan Africa

     2,200        4,991        7,791        11,349        2,131        4,784   

India

     1,421        3,121        4,858        6,460        1,606        2,885   

North East Asia

     9,154        17,577        25,950        36,196        6,054        12,696   

South East Asia & Oceania

     3,374        7,048        10,553        15,068        4,129        7,887   

Other 1) 2)

     2,853        5,987        9,296        12,273        2,902        5,628   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     50,974        106,293        160,843        227,779        52,032        107,363   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which Sweden

     834        2,116        3,765        5,033        1,020        2,296   

2) Of which EU

     9,502        20,703        31,307        44,230        9,782        20,598   
Year to date,    2012     2013  

year-over-year change, percent

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

North America

     -3     1     6     16     23     21

Latin America

     20     13     4<