third-generation mobile systems - ericsson · 2016-04-25 · third-generation mobile systems: in...

R380, dual-band telephone withbuilt-in PDA, based on EPOC.

Communication tool,calendar, built-in modem.

2ERICSSON IN BRIEF 1999

- : InNovember, itu established wcdma as the standardfor g mobile systems under the name imtDirect Spread. The decision was welcomed by Erics-son, which can now offer its operator customers allthree major versions of this standard.

: In terms of number of employees, thetakeover of Qualcomm’s infrastructure division wasEricsson’s largest acquisition during , provid-ing Ericsson with a complete product portfolio ofsecond- and third-generation mobile systems. Italso accelerated the pace of work in the standardiza-tion area, which was appreciated by the industry asa whole, particularly by the operators.

: Ericsson acquired theAmerican companies Torrent and TouchWave andthe Danish company Telebit a/s to furtherstrengthen its position in the market for ip anddatacom solutions.

: In December, Ericsson and Microsoftannounced that they would cooperate in the devel-opment and marketing of total solutions for wire-less Internet access. The parties will establish ajointly owned company to market and supplymobile e-mail solutions. Ericsson will be themajority owner in the new company.

: During , Ericsson achieved majorsuccesses with engine, a solution for migratingcircuit-switched fixed telecommunications net-works to a next-generation network that can handlecircuit-switched and ip-based, packet-linked traf-fic. bt in the U.K., kpn in the Netherlands, Teliain Denmark and Telefónica in Spain chose engineduring the year.

: At the beginning of July,Kurt Hellström was appointed president of Erics-son, succeeding Sven-Christer Nilsson, who left theCompany. Group Chairman Lars Ramqvist wasappointed Chief Executive Officer. •

ERICSSON’S MISSION isto understand itscustomers’ opportunitiesand needs, and to providecommunication solutionsbetter than anycompetitor.

IN DOING SO, Ericssonshall generate acompetitive economicreturn for its shareholders.

UNCERTAIN FACTORS IN THE FUTURE

“Safe Harbor” Statement under the U.S. Private Securi-ties Litigation Reform Act of 1995:

Some statements in this Annual Report are forwardlooking and actual results may differ materially fromthose stated. In addition to the factors discussed,among other factors that may affect results are productdemand, the effect of economic conditions, exchange-rate and interest-rate movements, the impact ofcompeting products and their pricing, productdevelopment, commercialization and technologicaldifficulties, political risks in the countries in which theCompany has operations or sales, supply constraints,and the results of customer financing efforts. •

3ERICSSON IN BRIEF 1999

1999 1998 PercentSEK m . SEK m . change

Orders booked 223,828 187,415 19

Net sales 215,403 184,438 17

Income before taxes 16,386 18,210 –10

Earnings per share, SEK 6.17 6.66 –7

Earnings per share according to U.S. GAAP, SEK 7.68 7.87 –2

Dividend per share, SEK 2.00 * 2.00 -

Number of employees, December 31 103,290 103,667 -

* For 1999, proposed by the Board of Directors

LIABILITIES AND EQUITY (SEK m.)

MARKET CAPITALIZATION YEAR-END 1995–1999 (SEK m.)

NET SALES AND ORDERS BOOKED (SEK m.) ERICSSON’S 10 LARGEST MARKETS,(PERCENT OF TOTAL SALES)

INCOME PER SHARE (SEK), ANDRETURN ON CAPITAL EMPLOYED (PERCENT)

Orders bookedNet sales

SEK m.

0

20,000

60,000

100,000

140,000

180,000

220,000

1995 1996 1997 1998 1999

0

200,000

400,000

600,000

800,000

1,000,000

1995 1996 1997 1998

SEK m.

1999

United States

China

Britain

Brazil

Spain

Italy

Turkey

Japan

Sweden

Germany

11

9

7

7

6

6

5

4

4

3

11

9

7

7

6

6

5

4

4

3

Long-term liabilties Current liabilties

Equity Minority interests

1995 1996 1997 1998 1999

0

40,000

80,000

120,000

160,000

200,000

SEK m.

1995 1996 1997 1998 1999

Return on capital employed, % Income per share, SEK

Percent SEK

1995 1996 1997 1998 199900

2

4

6

8

8

16

24

32

4ERICSSON SHARE DATA 1999

600Afv General IndexB share

520440360

280

200

120

80

40

1995 1996 1997 1998 19990

100

200

300

400

500

600

700

800

Jan

London Nasdaq Stockholm

Million shares

Mar May Jul Sep Nov

SHARE TREND 1995–1999 SHARE TURNOVER 1999

As of December , , Ericsson’s share capitalconsisted of sek ,,, (,,,),represented by ,,, shares. The par value ofeach share is sek .. As of December , , theshares were divided into ,, Series A shares,each carrying one vote, and ,,, Series Bshares, each carrying one-thousandth of a vote.

During the number of shares was increasedby ,, through conversions of convertibledebentures. During the period January to January, , convertible debentures related to convert-ible liabilities for were converted to ,B shares. Between January and February , ,additional debentures related to convertible liabili-ties for were convertible to shares, with rightsto dividend for .

Ericsson’s Series A and Series B shares are traded onthe om Stockholm Stock Exchange, and the SeriesB shares are also traded on the exchanges in Düssel-dorf, Frankfurt, Hamburg, London and Paris, andon the “Swiss Exchange” in Switzerland. Ericssonshares are also traded in the United States in theform of American Depositary Receipts (adrs)through the nasdaq system, under the symbolericy. Each adr represents one Series B share.

American Depositary Debentures (adds) are alsotraded on the nasdaq system under the symbolericz. Each add represents one convertible deben-ture related to the ⁄ convertible debentureloan. Ericsson shares have been traded in Euros inFrankfurt and Paris since January , .

Nearly five billion shares were traded in .Of this number, about () percent were tradedon the om Stockholm Stock Exchange, ()percent via the nasdaq exchange and () per-cent on the London Stock Exchange. Trading onother exchanges amounted to about percent of thetotal, unchanged from the previous year.

The total market value of the Ericsson share rose

percent in to sek , b. The index forthe om Stockholm Stock Exchange rose . per-cent during the year.

In all, about percent of Ericsson’s shares areowned by Swedish and international institutions. Atthe end of , about () percent of the share-holders were outside Sweden, with () percent inthe U.S., () percent in Britain, () percent inGermany, and () percent in other countries.

The Ericsson Savings Fund (Ericssons Allemans-fond) was started in . The Fund, which has ,participants, invests in Ericsson’s shares. At the endof the Fund held , shares. The price perunit at year-end was sek , (sek ,).

A convertible debenture loan amounting to sek, m. was issued in with preferential rightsto Ericsson’s employees. Employees who joinedEricsson after October , , were given anopportunity to purchase convertible debenturesissued by ab Aulis, an Ericsson company.

In , an option plan was implemented for key personnel, who were allotted seven-yearcall options in Ericsson. The size of the allotmentwas decided by earnings per share for , and theemployee salary and bonus category. Based on thesame principles, some , key employees andsenior executives will receive seven-year calloptions based on earnings in . At an Extraordi-nary General Meeting in November, , it wasdecided to implement a stock opion plan also forfiscal year . In accordance with this resolution,. million options will be issued to approximate-ly , employees.

The Board proposes a bonus issue by way of anincrease of the par value of the share from sek .to sek ., followed by a split :. Trading withthe new par value of sek . is expected to com-mence in the beginning of May . •

5ERICSSON SHARE DATA 1999

CHANGES IN CAPITAL STOCK 1995–1999

Number of shares Capital stock

1995 January 1 217,229,118 2,172,291,180

1995 Split 4:1 651,687,354 -

1995 New issue 87,009,390 217,523,475

1995 Conversions 1,689,035 4,222,588

1996 Conversions 3,547,308 8,868,270

1997 Conversions 13,333,854 33,334,635

1998 Bonus issue 1:1 975,097,150 2,437,742,875

1998 Conversions 1,759,181 4,397,952

1999 Conversions 5,786,131 14,465,328

1999 December 31 1,957,138,521 4,892,846,303

LARGEST SHAREHOLDERS, BY VOTING RIGHTS, DECEMBER 31, 1999

Number Voting rightsof shares percent

AB Industrivärden 46,520,000 28.0

Investor AB 68,376,700 22.3

Wallenberg-stiftelser 27,293,024 16.5

Svenska Handelsbankens Pensionsstiftelse 10,640,000 5.6

Livförsäkrings AB Skandia 21,855,843 5.0

Pensionskassan SHB Försäkringsförening 7,920,000 4.8

Oktogonen, Stiftelsen 4,020,000 1.9

SEB-stiftelsen 3,140,000 1.5

Svenska Handelsbankens personalstiftelse 2,460,000 1.5

Fjärde AP-Fonden 75,998,018 1.4

SEB-Trygg Försäkring 19,893,560 1.3

Svenska Handelsbankens aktiefonder 10,782,600 0.8

Wallanders och Hedelius’ stiftelse 800,000 0.5

Foreign ownership 897,506,209 2

SHARE DATA

1999 1998 4) 1997 4) 1996 4) 1995 1) 4)

Earnings per share 6.17 6.66 6.08 3.64 2.92

P/E ratio, “B” shares 2) 89 29 25 29 22

Dividend 2.0 3) 2.00 1.75 1.25 0.88

Direct return % 0.4 1.0 1.2 1.2 1.3

OM Stockholm Stock Exchange share prices (SEK)

A at December 30 575.0 209.5 157 109 69

B at December 30 548.0 193 149 106 65

B high for year 571.0 268 192 106 89

B low for year 175.0 118.5 102.5 56.5 48

1) After 4:1 split.

2) P/E ratio = Price pershare at December 31,divided by earningsper share after fullconversion.

3) For 1999, proposed bythe board of directors.

4) After 1:1 bonus issue.

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exciting and eventfulfor Ericsson. It began slowly but finishedin high gear. Income before tax for thefourth quarter reached a record level –

sek . billion. The performance of the Ericssonshare was highly favorable during the year, increa-sing percent in value. This meant that the valueof shareholders’ investments in the company roseby sek billion in .

Ericsson is the global leader in mobile commu-nications. More than percent of our sales aregenerated from mobile systems and terminals. It issignificant that this is where Ericsson’s realstrength lies, because mobile communications isnow the largest and fastest-growing area in ourindustry – an industry that in the past few years hasundergone more rapid and extensive transformationthan any other.

The mobile Internet and mobile datacom arebecoming a reality. This development is increasing-ly apparent in trend-setting countries such as Japanand the U.S. In Japan, the star player in wasi-Mode, a solution for direct connection to theInternet via mobile terminals; in the U.S., the deve-lopment shows in the fact that operators of Mobitexnetworks from Ericsson experienced substantialgrowth in the number of subscribers in .

This development has not come as a surprise toEricsson. On the contrary, we have been preparingfor it for a long time. We have been working ondeveloping the third generation of mobile systemsfor more than a decade. We are currently the onlysupplier offering a large number of test systems tocustomers worldwide – systems to be exact. In we received several commercial orders for suchsystems – for example, from ntt DoCoMo inJapan.

The growing number of mobile subscribers createsdemand and development in the market. As earlyas we expect the number of subscribers tohave reached one billion. Some million areexpected to be using third-generation systems asearly as .

The mobile Internet brings significant businessopportunities to Ericsson, not only because themobile networks must be upgraded and adaptedwith equipment for the new generation of systems.The demand for various types of mobile data ser-vices also brings a strongly increased need for capa-city in the mobile networks, resulting in demand

for new infrastructure investments by operators. Totake full advantage of the new technology, subscri-bers will require new and advanced mobile termi-nals – terminals that are currently being developedby Ericsson.

The first major step toward the mobile Internet isnow being taken with the help of wap technology.Its current position as the focus of market interestclearly demonstrates the growing importance of themobile Internet, even now before the higher trans-mission speeds of third-generation systems can beachieved.

As one of the initiators of the wap standard,Ericsson is well prepared. We currently have themarket’s broadest range of wap knowledge, inclu-ding hardware, applications development, consul-tants and terminals. In a campaign during lateautumn, we offered the services of highly qua-lified consultants to companies interested in deve-loping wap services.

The next step toward third-generation systemsis gprs. This is a packet-switched technology thatconsiderably increases the capacity of the mobilenetworks, which also makes it possible to introducenew services and provide better service to the sub-scriber. In , Ericsson won well over percentof the world’s gprs orders.

We are also leading in edge, a third-generationtechnology for existing frequency bands. With theU.S. launch scheduled for the beginning of ,edge will be the first third-generation mobilesystem to be placed in commercial operation.During the year Ericsson installed test systems foredge and signed the first major contracts. This isfurther confirmation that we are leading the way tothe next generation of systems.

In addition to technology, applications are crucialto the development of the mobile Internet. The keyis to offer customers simple, fast and secure solu-tions for e-commerce. During the year, Ericsson’sachievements included a strategic partnership withVisa International and a joint development withSonera SmartTrust for the world’s first digitalsignature for secure e-commerce using wapphones.

In , Ericsson brought together its resourcesin service offerings and business consulting. Erics-son Services offers operators a powerful portfolio of

Ericsson well prepared for the new millennium

T

TO THE SHAREHOLDERS

7

services, thus strengthening Ericsson’s position ascomplete supplier, system integrator and partner.Ericsson Business Consulting, which targets theenterprise sector, had , highly qualifiedemployees in countries at year-end, makingEricsson the leading supplier of Internet-basedbusiness solutions. Customers during the yearincluded Reuters, the Dutch daily newspaper,de telegraaf, Scania, lycos and sas.

Ericsson’s goal is to lead the development of themobile Internet. We will do so, based on our strongposition as a complete supplier of communicationssolutions ranging from backbone networks andmobile infrastructure to applications, consultingand terminals.

During the year Ericsson gradually strengthened itsposition in next-generation ip-based core networks.Ericsson’s solution for the successive migration ofexisting circuit-switched networks, to enable themto support ip and atm-based services, has also beenhighly successful. The year began with a break-through order from bt, which was followed byorders from Diginet in Latin America, Telia inDenmark, Dutch kpn and Spanish Telefónica.During the autumn, Ericsson’s offering was presen-ted under the engine concept.

For third-generation mobile systems, Ericssonhas developed a new platform that handles atmand ip traffic. As a real-time router it is called therxi .

A number of important strategic acquisitionswere carried out during the year to further streng-

then Ericsson’s position in the market for ip anddata-communications solutions. The Americancompanies Torrent and TouchWave contributebroad expertise and a complementary product port-folio in data communications.

Ericsson’s incorporation of the Danish compa-ny, Telebit a/s, which is world-leading in the nextgeneration of the Internet protocol, ip version ,has given Ericsson access to leading-edge expertisein a strategically key area.

The largest single acquisition, by number ofemployees, was the infrastructure division of Qual-comm. This enabled Ericsson to offer a completeproduct portfolio in both second and third-genera-tion mobile systems. In addition, the acquisitionhad a favorable effect on standardization, whichstimulated the entire industry.

Other examples of strategic partnerships thatwere deepened or commenced during the yearinclude the partnership with Juniper and Ericsson’scooperation with Microsoft. Together with Micro-soft we have established a company that willdevelop mobile Internet applications, such as wire-less e-mail.

The joint development work of the Symbianconsortium on the epoc operating system has cont-inued to advance favorably. The first mobile phonesusing epoc were introduced during the year.

The business segment Consumer Products showedunsatisfactory results during most of the year. Thistrend, however, was broken during the fourth quar-

Lars Ramqvist, Kurt Hellström, Chairman of the Board and Chief Executive Officer President

8

ter. Targeted production speed was achieved at theend of the year. During the year, a number of newphones were presented, together with a range ofnew accessories, several of which were strikinglyinnovative and attracted much attention in themarket, especially among younger consumers.Ericsson’s Chatboard, fm-radio attachment andmp player are proof that innovations are nowreceiving great attention within the company.

Ericsson now has a very competitive productportfolio, which will be expanded in withmore products based on the entirely new technicalplatform developed in . Measures have beentaken with the objective of gaining market shareand regaining the position as number two in theworld.

We can now conclude that the unfavorable opera-tional performance that was developing at mid-yearhas been reversed. The dramatic trend of risingcosts was broken. Negative cash flow has turnedpositive. Ericsson’s business is once again undergood control and improving.

Ericsson is entering the new millennium withstrong momentum, a clear vision of our strategicdirection, a first-class product portfolio and a uni-que position of market leadership in the mostexpansive area of the industry. The continuinggrowth of mobile communications in all markets,improving conditions in several key markets andthe strong market interest in the mobile Internetall indicate that the year will be one of themost exciting in Ericsson’s history.

For the full year , we believe in continuedstrong market growth, where Ericsson gains bene-

fits from its leading position in mobile telephonyand its unique ability to offer customers compre-hensive solutions. Our long-term financial targetsremain unchanged. We intend to grow faster thanthe market, which means growing by at least percent, with a return on capital employed of –percent, positive cash flow before strategic acquisi-tions and operating margin of at least percent.

We expect sales to increase by more than percent during the year , and earnings to growsubstantially. We intend to achieve this with apositive cash flow.

We are convinced that Ericsson will reach itsobjective of being the leading company intomorrow’s integrated data and telecommunica-tions market. The combination of our expertise insystems, applications and in mobile terminals is astrong indication that in the future Ericsson willcontinue to provide its owners a favorable return ontheir investment in the company.

It is pleasing to note that an increasingly largernumber of Ericssson employees can now also bene-fit from the favorable trend of the Ericsson sharethrough participation in the personnel convertiblesand options programs. It is in fact their skills andprofessional efforts that have paved the way toEricsson’s successes. •

Chairman and ceo

President

TO THE SHAREHOLDERS

FINANCIAL OBJECTIVES

OUR LONG-TERM

financial goals areretained. We shall grow byat least 20 percent peryear, which is faster thanthe market. Return oncapital employed will be20 to 25 percent, andcash flow will be positivebefore strategicacquisitions. Theoperating margin will beat least 10 percent.

STEN FORNELL,

EXECUTIVE VICE PRESIDENT

CHIEF FINANCIAL OFFICER

9

O ’ most importantoverall objectives is to create strong,competitive, value growth for its share-holders.

Ericsson’s long-term objective remains unchanged.The objective is that the company will grow fasterthan the market, which involves long-term growthof at least percent annually. This growth objecti-ve should be viewed over a five-year period, sincethe Company does not expect certain growth mar-kets, particularly mobile data communications, toaccelerate until we are a few years into the stcentury.

The growth objective is to be reached by main-taining or improving positions within all three ofEricsson’s business segments: Network Operatorsand Services Providers, Consumer Products andEnterprise Solutions.

Ericsson strives to have a positive cash flow beforestrategic acquisitions. Growth of at least percentwith a positive cash flow requires a return on capi-tal employed of between and percent forEricsson as a whole. To reach this objective Ericssonmust maintain an average operating margin of atleast percent and a capital turnover rate of two orbetter.

However, return requirements may vary fordifferent segments. A lower operating margin canalso be offset by a higher rate of capital turnover.

In the Ericsson organization, all the different

units – business units, product units, and marketunits – have a distinct profitability responsibility.This means that each unit, in addition to beingresponsible for profit, is also responsible for itsshare of capital employed.

A very strong fourth quarter with record levels oforders, sales, income and cash flow made the year’sresults better than expected.

We did not successfully fulfill all our long-termobjectives in , mainly due to the weak perfor-mance during the first half of the year.• The sales growth was percent for comparable

units vs. target + percent.• We reached a positive cash flow before acquisi-

tions, sek +. b.• We reached a capital turnover of . turns vs.

target ..• roce at percent was slightly below the targe-

ted ‒ percent.• Operating margin at . percent of sales is below

the target of at least percent.

Continued market growth is expected throughout, where Ericsson will gain benefits from itsleading position in mobile telephony and thegrowth in mobile Internet.

Sales is expected to increase by more than percent, and earnings to show a substancial growth.These objectives are intended to be achieved with apositive cash flow. •

Ericsson to growfaster than the market

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the increasingly con-verging data and telecommunicationsmarkets is now proceeding extremelyrapidly. During , two factors were

more evident than any others in driving this trend:continued and sharply accelerating growth ofmobile telephony and an equally rapid expansion inInternet use. Both development trends are fueling asharp increase in demand for telecommunications –to the benefit of Ericsson and other suppliers of theworld’s telecom operators.

The closing year of the s was the high point– thus far, at least – of the momentous changes thatare transforming the global telecom industry. Overthe past decades, a wave of privatization and deregu-lation has swept the world and triggered a global-ization of the major telecom operators. Globaliza-tion, in turn, has prompted many mergers, acquisi-tions, partnerships and strategic alliances amongoperators. At the same time, fantastic opportunitiesare being created for new operators to establishthemselves in the market, often as niche operators inone of the many data and telecom market segmentsor as operators in a limited geographical region.

The global alliances, which to an increasingdegree are shaping the market, also include compa-nies that are not traditional telecom companies.Internet companies, entertainment companies andcompanies with a clear datacom focus are more andmore frequently included in the new alliances. Theboundaries between data and telecom and themedia industry are becoming increasingly blurred.

-

at&t is one of the very large operators that hasbeen extremely active during in building newalliances. Together with bt, the company startedthe joint venture Concert for the two operators’international operations. Through acquisitions of,or partnerships with, several cable tv companies,at&t has gained direct access in its home marketto millions of U.S. homes.

The mobile operators Vodafone and Airtouchmerged during the year. At the end of , Voda-fone began an attempt to take over Mannesmann inwhat could become the largest deal to date betweentwo telecom operators. The largest merger in thehistory of telecommunications thus far took place inOctober, when mci Worldcom acquired the Ameri-can operator Sprint for usd billion. This was oneof several examples of how fixed network operatorsare trying to enter the lucrative wireless industry.

As restructuring and consolidation now begin totransform the Internet access market also, themajor traditional operators are active in acquiringnewly started, successful isps (Internet ServiceProviders).

Some major operators are beginning to outsourceportions of their operations to their suppliers. Thistrend applies to established and new operators.Cable & Wireless and Global Crossing are examplesof operators that in this manner increasingly focuson their own core operations. Another clear trend,on the other hand, is the growing business amongoperators who take over telecom operations frommajor corporate customers – in response to cus-tomers outsourcing data and telecommunicationsin order to focus on their core operations.

Several factors indicate that traffic growth inmobile telephone networks is about to explode.Prepaid calls, reduced charges for normal mobilecalls and a sharp increase in wireless data commu-nications are important factors driving growth. Insome countries, prepaid service now accounts formore than percent of all traffic.

Internet and mobilecommunications to explode

D

11

The very strong growth in sales of Ericsson’smobile systems in North America during is anexcellent example of how rapidly traffic can growwhen these trends take effect. The introduction ofgprs – which is a step toward next-generationmobile telephony – and wap services are otherfactors that will contribute strongly to trafficgrowth in mobile networks over the coming years.

At year-end , there were nearly millionmobile phone subscribers around the world, ofwhom half use gsm systems. In early , thenumber of mobile subscribers is expected to exceedone billion. This massive increase, however, will bedwarfed by the growth in traffic, which is expectedto increase by more than fivefold over the comingfive years.

In the fixed networks, the growth curve for tradi-tional voice telephony is now starting to level off.Instead, the already strong growth of data traffic inthese networks is accelerating, particularly in whatare called packet-switched networks, which todayare increasingly based on ip (Internet Protocol).Traditional voice traffic continues to generate themajor share of operator revenues, but a rapid shifttoward lower call charges has begun.

Internet traffic plays an important role in trafficgrowth in the fixed networks. During , thenumber of Internet users in the world increased from to million. By , nearly million usersare expected to be connected to the Internet. At thesame time, the average time that Internet users areconnected is increasing by percent annually.

During , this resulted in a sharp increase in

the demand for established solutions for increasingbandwidth, such as isdn and adsl. Similarly,investments in next-generation atm- and ip-basednetworks began to gain momentum.

Less and less of the value of a mobile phone lies inthe unit itself. As with personal computers, appli-cations and software now account for an ever-greater proportion of the value of the product.Manufacturers are already developing increasinglysophisticated products and are increasing the num-ber of functions in phones.

The assortment of mobile phones – or more accu-rately, mobile terminals – is increasing dramatically,and this trend will continue. Tomorrow’s mobilephones may be built into portable cd players,watches, cameras, pocket computers and similardevices. This also means that the major manufactur-ers of such products will become competitors tocompanies like Ericsson, Nokia and Motorola butalso that these companies’ demands for Ericsson’sproducts for wireless communication will increase.

In such a situation, the brand is increasinglyimportant. This is why Ericsson over the past fewyears has been investing so heavily in strengthen-ing its brand. These investments are only begin-ning, but they have already produced tangible andpositive results.

More and more of Ericsson’s customers are express-ing interest in how their suppliers manage environ-mental issues. These issues influence customers’purchasing decisions to an increasing extent. Thisis a positive trend for Ericsson, which is well posi-tioned to take advantage of interest for the environ-ment both in its branding and with respect tostrengthening the Company’s image in general.Ericsson has long given environmental concernshigh priority and can point to major achievementin this area.

Efforts to reduce the environmental impact ofproduction and of finished products is good busi-ness. Ericsson has found many clear correlationsbetween the efficient use of resources and cost-effectiveness.

Extensive press coverage has actively contributed tothat individual consumers now and then expressconcern for their health and safety when usingmobile phones and installing radio base stations.

Ericsson supports research in the field, through,among others, the World Health Organization(who). •

MARKET AND BUSINESS CONDITIONS – TODAY

MC218, separate WAP-based PDA (personal digital assistant), based on Psion 5.

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of , Ericssonlaunched the “Power of Mobility”concept as the theme for its marketingto network operators and enterprises.

The choice of this theme was dictated by theCompany’s view of how the converging media,data and telecom markets will develop over thecoming years. It also reflects the assessment oftomorrow’s market on which Ericsson is basing itsnew business strategy.

Over the coming years, global network operatorswill continue to group themselves. They willrequire new strategies to protect revenue streamsfrom fixed and wireless networks. In tomorrow’scompetition, there is every indication that opera-tors who focus on volume and/or specialization willbe the winners. Aggressive marketing, innovativenew services and packaged solutions in which evencontent – for instance in the form of entertainmentor information – is included in the offer are some ofthe methods that will be used in the battle to wincustomers. The leading companies will be recog-nized for their ability to offer personalized servicesin which mobility will be one of the greatest bene-fits offered to customers.

Ericsson believes that the market is facing a para-digm shift in which mobility and content will bethe key concepts. Users will rank different suppli-ers on the basis of their ability to provide bothfixed and wireless access to the network. They will

demand simple solutions that allow them to beconnected to the network at all times (while payingonly for the actual time they use it), to have a singletelephone number and a single e-mail address, toreceive a single invoice for all services used, and soon. And – not least important – to have a singleplace to turn when they need service, want to ordernew services or need help in managing their per-sonal communications.

To meet these user demands, the operators’ net-works must allow mobility in a broad sense. Thismeans the mobility provided by wireless networksas well as other forms of mobility, such as enablinga subscriber to be reached at the same telephonenumber or e-mail address regardless of where in theworld he or she might be located.

New operators are now attracting subscribers byoffering free access to communication networks.These operators are seeking revenues higher up inthe value chain by offering online services such aselectronic commerce and entertainment. This trendis a future threat to established operators who mustoffer the same terms to their customers. This is whyoperators are already beginning to offer Internetportals and forming alliances with content-orientedcompanies in the entertainment and informationindustries.

It is vitally important that today’s operatorschoose the right strategy as they face the yearsahead. They must also modernize their networks sothat they are able to meet the demand for increas-ingly bandwidth-hungry services, including thosewe can foresee and others of which we as yet haveno clear perception. The network upgrades nowrequired must also be made without sacrificingprofitability in today’s service offering. New initia-tives, and in many cases revolutionary solutions, arerequired to ensure future competitiveness.

The vision of a future in which mobility is a cen-tral feature, and in which an entirely new businesslogic demands innovative solutions, has providedthe foundation for Ericsson’s new business strate-gy. It is a strategy that takes as its starting pointthe Company’s position as the undisputed globalleader in mobile communications – viewed fromall perspectives – and its well-documented abilityto offer innovative technology. What Ericssonnow offers its customers are solutions for migrat-ing to tomorrow’s network architecture by gradu-ally expanding network capacity and improvingquality. •

MARKET AND BUSINESS CONDITIONS – TOMORROW

DMoving toward a mobile future

Switch circuit forthird-generation/

WCDMA networks.

ERICSSON’S MISSION

is to understand its customers’ opportunitiesand needs, and to provide communicationsolutions better than anycompetitor.

IN DOING SO, Ericssonshall generate a competitive economicreturn for its shareholders.

ERICSSON’S STRATEGIES

13

Developing Ericsson’s businesswith focus on profitable growth

’ Executive Teamworked intensively during to furtherrefine the business strategy that was formu-lated in and presented in last year’s

Annual Report. The Company’s strategic focus isnow even clearer: Ericsson will be the leader intomorrow’s converged data and telecom market byfocusing its strengths on solutions for the mobileInternet and mobile telephony.

It is perfectly clear that communications willplay the central role in tomorrow’s world. In thisworld, voice, data, images and video can be com-municated anywhere and anytime using manydifferent types of device. This will increase produc-tivity and the quality of life around the globe, thuscreating a new world in which resources are usedmore efficiently.

Many progressive forces around the world arecontributing to create these opportunities. Ericsson isone of the foremost and intends to be a driving forcein the creation of tomorrow’s sophisticated com-munications solutions and a prime model of network-based organizations in which innovators and entre-preneurs work together in global teams.

’

• FOCUS ON PROFITABLE GROWTH

Ericsson will be the industry leader by focusingstrongly on the sectors that the Company views asthe most lucrative for the future – Internet solu-tions in the widest sense, but with particularemphasis on solutions for wireless access to theInternet. Total network solutions and applicationsand terminals for the mobile Internet are the areasthat offer Ericsson the greatest business opportuni-ties and that will be most strongly in focus in a fewyears.

When third-generation mobile phone systemsbecome a reality, extremely strong growth is pre-dicted for the mobile Internet. The development ofwireless data communication is already picking upspeed, and the pace will accelerate over the year, asgprs and other new technologies increase speedsfor wireless data transmission.

• SOLUTIONS TO TOMORROW’S NEEDS

Because established operators control the publiccommunication networks, they have an advantageover the competition. Ericsson can help theseoperators exploit their advantage by offering cost-effective solutions for the necessary transition to a

new generation of network infrastructure andapplications.

Ericsson’s product portfolio spans over the newbackbone networks that will handle many differenttypes of service and includes solutions for accessingthese networks.

Within business communications, Ericsson isalready the leading supplier of systems and servicesfor cordless telephony. Now the goal is also to takethe lead in solutions for wireless data networks forbusiness.

Ericsson will take advantage of its unique abilityto offer total solutions that include infrastructure,terminals, applications and services, while continu-ing to promote open standards for data andtelecommunications.

• CREATE ADDED VALUE FOR CUSTOMERS

AND STRENGTHEN CUSTOMER RELATIONS

This is an important cornerstone in Ericsson’s busi-ness strategy. The Company’s new and stronglymarket-oriented organization is a valuable asset,because it clearly defines responsibility at a highlevel for all existing global and key accounts andalso for important customers among the increasingnumber of new telecom operators. Great emphasisis placed on increasing understanding of user needsso that Ericsson will be better able to offer its oper-ator customers the new solutions that users willdemand.

Ericsson is active in more than countriesaround the world and has over years built up thelargest customer base of any company in the indus-try. It is therefore essential – and in line with Erics-son’s corporate values of professionalism, respect andperseverance – that we do not to leave existing cus-tomers in the lurch. Ericsson’s business strategy thusemphasizes the importance of continuity in businessrelations, both between Ericsson and its customers,and between our customers and their customers.

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E-box, gateway for managementof intelligent home equipment.

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• REDUCE COSTS AND INCREASE EFFICIENCY

In order to meet the market’s demands, Ericssonmust become faster and more cost-efficient andoffer products of even higher quality. Increasingdemands are also being placed on the Company’sability to develop new products and servicesquickly. To meet these demands, Ericsson isworking on a broad scale in the Global ttc(Time To Customer) project, which is intended toreduce lead times drastically and to make theordering of Ericsson products and services signifi-cantly easier and more reliable. The majorupgrades of Ericsson’s internal it infrastructurenow in progress are another important factor inincreasing efficiency.

• STIMULATE INNOVATION

Ericsson set a new record in in the number ofpatent applications. A strong patent portfolio isextremely important in a technology-intensiveindustry such as data and telecommunications.Creating an innovative environment in which newproduct ideas can be evaluated quickly – andquickly brought to market– is therefore a highpriority for Ericsson. It is essential that the Compa-ny works unceasingly to identify new businessopportunities.

• STRENGTHEN THE MARKET’S PERCEPTION OF

ERICSSON THROUGH BRANDING AND MARKETING

A large share of Ericsson’s sales are made directly toconsumers, making it all the more important tostrengthen the Ericsson brand. The Company willtherefore invest even more heavily in aggressivecommunication of its marketing messages and inother activities that will increase recognition andappreciation of Ericsson among broad groups. Anincreased emphasis on contacts with public author-ities is motivated by the need to strengthen theCompany’s position among government agenciesand organizations.

• DEVELOP THE INTERNAL CULTURE, AWARENESS

AND COMPETENCE

Ericsson’s products must be renewed faster thanever. At the same time, customers’ are increasinglyexpecting us to understand their needs. Ericssonemployees must therefore increase their awarenessof what the industry is like today and how it willdevelop in the future.

During , Ericsson initiated its greatest-evereffort to increase internal competence and aware-ness of the industry’s constantly changing condi-tions.

Also, salaries and other benefits are beingreviewed to make it easier for Ericsson to recruitand retain top talent. The extended option planapproved by an Extraordinary General Meetingduring the autumn is an example of the type ofmeasures that are now needed. •

its market posi-tion substantially during throughacquisitions and new strategic alliances. In

line with its strategy to focus on small and med-ium-size companies with skills that supplementEricsson’s own expertise, Ericsson acquired severalcompanies and became part-owner in others. Inother cases, Ericsson broadened its skills and exper-tise through far-reaching programs of cooperation.

A strategic alliance with Microsoft, which wasannounced in the beginning of December, attractedthe most attention, but many other importantstrategic moves were also made during tostrengthen Ericsson’s competitiveness. Some of themost important, in alphabetical order, were:

ELECTROLUX, SWEDEN

A joint venture company was established byElectrolux and Ericsson to research, develop andmarket products with access to the Internet toprivate homes.

JUNIPER NETWORKS, USA

Ericsson has entered a strategic alliance withJuniper in the area of next-generation multiservice-ip networks. Ericsson has gained distributionrights to Juniper’s m router under the designa-tion Ericsson axi . Ericsson and Juniper willwork together to develop new solutions for voiceand ip communications.

MATEC, BRAZIL

Ericsson Telecommunicações in Brazil acquired anadditional . percent of all shares outstanding inMatec. Prior to the acquisition, Ericsson owned percent of the Brazilian company, which sellsEricsson’s solutions for enterprise communications inthe Brazilian market.

MICROSOFT, USA

A strategic alliance that focuses on the developmentand sales of total solutions for wireless Internet accesshas been formed. The alliance is based on a sharedvision of convenient and rapid access to informationanytime, anywhere, on any device. Microsoft andEricsson will establish a joint-venture company tomarket and supply wireless e-mail solutions. Erics-son will be the majority owner of the new company.The agreement provides Microsoft with access toEricsson’s wap software, while Ericsson, in turn,will be entitled to use Microsoft Mobile Explorer forits more advanced wireless terminals.

The joint venture will focus on building, market-ing and using solutions based on Microsoft Windowsnt Server and Exchange platforms with Ericsson’sinfrastructure and mobile Internet technologies.

OZ.COM, ICELAND

Ericsson is a part owner of the Icelandic company,which develops Internet software. The companies

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AS THE EMPHASIS

in data and telecom-munications shifts to the mobile Internet,Ericsson will take the lead. Our dominancein mobile systems andunique expertise in wireless data provide a strong foundation forachieving this position.

TORBJÖRN NILSSON,

SENIOR VICE PRESIDENT,

MARKETING AND

STRATEGIC BUSINESS

DEVELOPMENT.

have cooperated in the past on projects such asiPulse, an Internet portal for simple Internet com-munications.

QUALCOMM, USA

Ericsson has acquired the infrastructure division ofQualcomm Inc., based in San Diego, ca, in theU.S. The acquisition was part of a larger agreementbetween Ericsson and Qualcomm, whereby allpatent disputes between the two companies wereresolved.

The acquisition includes Qualcomm’s produc-tion and development units for cdma systems inSan Diego, ca and Boulder, co. Ericsson alsoacquired Qualcomm’s customer contracts for thesystems, including some customer financing.

SARAÏDE-COM, USA

Ericsson has become a minority owner of the SanFrancisco-based company. Saraïde develops andprovides sophisticated data communications ser-vices for mobile operators. Ericsson’s investment isintended to stimulate the use of innovative servicesfor mobile data communications.

SYMBIAN, UK

Ericsson’s cooperation within the parameters of theSymbian consortium is not affected by the year-endagreement with Microsoft. Symbian, which devel-ops operating systems for mobile terminals, wasjoined during the year by another important part-

ner: Matsushita Communication Industrial Co., theworld’s fourth largest manufacturer of mobilephones. Previous owners were Ericsson, Motorola,Nokia and Psion.

SYMBOL TECHNOLOGIES, USA

The companies will jointly market and exchangetechnical expertise in wireless lan-based telephonyand datacom solutions. The alliance is focused on themarket for local mobility within business enterprisesvia a common network for voice and data.WebSwitch and other access products are now beingoffered to Symbol, which, in turn, provides tele-phones for VoIP (Voice over ip), portable computersand other products.

TELEBIT A/S, DENMARK

Ericsson acquired percent of the Danish compa-ny, which specializes in the development of next-generation Internet. Telebit is the world leader inip version , and was the first company to offercommercial router solutions for this version of theInternet protocol. Software for IPv6 and multi-protocol solutions will be integrated into Ericsson’smobile network offering.

TELULAR, USA

Cooperation focused on the development and salesof Telular’s terminals for fixed cellular tdma net-works. The alliance provides Ericsson with opportu-nities to offer turnkey solutions for these networks.The companies will work together on further devel-opment of Telular’s terminals by integratingEricsson’s radio modules for tdma into theproducts.

TORRENT NETWORKING TECHNOLOGIES, USA

Ericsson acquired the Maryland-based company inthe beginning of . Torrent manufactures high-capacity aggregation routers. Its router productsoffer strong supplements to Ericsson’s own solutionsfor ip over atm networks. Torrent’s operations havebeen integrated into Ericsson’s Datacom and ip busi-ness unit under the name of Ericsson IP Infrastruc-ture Inc.

TOUCHWAVE, USA

Ericsson acquired TouchWave, an American com-pany based in Silicon Valley, in the beginning of. The company develops and manufactures ip-telephony solutions for enterprise communications.As a result of the acquisition, Ericsson is now ableto offer total solutions for ip-pbx systems, whichoperate with VoIP. The company’s most importantproduct is WebSwitch , an ip-based enterpriseswitch for small companies. TouchWave is nowincluded in Ericsson’s Enterprise Solutions businesssegment under the name Ericsson WebCom Inc. •

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Bluetooth, module for wireless communication over short distances.

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, was started torefine Ericsson’s product portfolio, sothat it better corresponds to the Com-pany’s strategic focus on wireless multi-

media and broadband access, as well as to the newgeneration of infrastructure that will be required.

To understand the logic behind the strategicproduct portfolio that Ericsson is now building, thereader must first understand the logic behindtomorrow’s data and telecommunications networks.The next generation of communications networkswill be built according to a model with three clearlydistinguishable and mutually independent levels:

• CONTENT, APPLICATIONS AND PORTALS

• CONTROL AND MANAGEMENT

• CONNECTION AND TRANSPORT

The content level contains applications for individ-ual users. These may be made available over theInternet or on special network servers.

The control level contains all the functionalityrequired for controlling and managing the net-work, keeping track of subscribers, handlingmobility, monitoring the network, and so on. Inshort, it provides everything needed to set up aconnection for data or telecommunication.

The connection and transport level is that whichmost resembles a traditional communications net-work. It contains all functionality for access to thenetwork, as well as the central transport or back-bone network. Simply put, it provides the physicalchannel for communication and information.

Viewing the network from these three levelsmakes it easier to understand the logical division oflabor in tomorrow’s communication networks. Themodel can be applied to all types of network –public or enterprise. This applies to fixed or wire-less, voice or data, and so on. Each individual layerplays its own role in generating revenues for theoperator.

The primary source of revenue for tomorrow’s net-work operators will be found at the content andapplications level. This is where the information-based services are located for which users are will-ing to pay, either in relation to the time they areconnected or the volume of information that isdownloaded via the network. Electronic commerceand other online services are good examples of

applications found at this level. Another stronggrowth area is asp (Application Service Provision-ing), which is a technique for enabling users todownload application software over the Internet fora fixed price instead of buying it over the counter.

In the future, traditional voice communicationswith good speech quality will be just one of manyservices and applications. Voice recognition is anexample of how tomorrow’s networks will some-times need to employ real-time voice communica-tions.

The various services at this level will primarilybe developed by specialized companies that haveentered into partnerships or some other form ofalliance with network operators. The equipmentrequired at this level consists primarily of serverplatforms with open interfaces and software thatenables communication.

Ericsson has developed a concept called OpenService Architecture (osa) for this level. osa sup-ports all forms of access and global interoperabilityand works with technical equipment from mostsuppliers.

wap services are another area in which Ericssonis extremely active in supporting the developmentof new applications at the content level. The busi-ness logic for Ericsson is simple: the more servicesand applications that can attract end-users at thislevel, the greater will be the load at lower levelsand the corresponding need for Ericsson’s systemsand solutions for these levels.

The partnership with Microsoft, which wasannounced in December, should also be viewedagainst the background of the new business logic.The same applies to investments during in thecompanies oz.com and Saraïde, both of which arefocused on developing attractive services for net-work operators’ customers.

The Internet would not be possible without mecha-nisms for linking public and private networks.These mechanisms, communications protocols andsignaling standards, are regulated at the communi-cation control and management level. For theoperator, this level simply must function, otherwiserevenues are lost. This level contains the systemlogic for systems such as gsm, fixed telecom net-works, data and ip networks and, of course, forfuture systems such as third-generation mobilesystems and other multimedia networks.

Much of the network operator’s profits will be


D

Complete product portfolio for tomorrow’s networks

generated at this level. According to the businessmodel, if operators are to retain their position atthis level of the network model, they must protecttheir competence in this area and make therequired investments in server platforms.

Ericsson has developed several such server solu-tions, launching Telephony Server during ,which is a technology for voice communicationover ip (Voice over ip, VoIP), as well as a solutionfor messaging in ip networks (Messaging over ip),which can also handle mobility.

Ericsson is also a leader with respect to manage-ment and operations support systems for communi-cations networks. In this area, Ericsson works inpartnership with companies like Hewlett-Packard,Compaq, and Bull.

The level for connection and transport provides themechanisms for the transport of all types of informa-tion: voice, data or multimedia. In the future, thesemechanisms will be based on ip and atm technolo-gy. For operators, the challenge is to find the mostcost-effective solution for building this networklevel. The architecture required at this level encom-passes the transport (backbone) and access networks.

The development of products for tomorrow’saccess network receives high priority at Ericsson.This is also the part of the network architecturethat accounts for the major share of investments atthis level in the network model.

For mobile access, where Ericsson is the worldleader, systems are offered for every standard cur-rently in operation. Extensive investments in gprs,which will significantly increase data rates in gsmnetworks, have also made Ericsson the leader in thisarea. In next-generation (g) systems, Ericsson hasbeen driving development for some time and is the

only supplier able to offer g systems in accordancewith all currently established g variants.

g offers wireless broadband access. For broadbandaccess to the fixed network, Ericsson has focused onthree solutions: adsl for broadband access overordinary copper cable, lmds (mini-link bas) forbroadband access to the fixed network over radio,and PipeRider for broadband communication viathe cable tv network.

In tomorrow’s ip-based networks, communica-tion will be switched from the access network tothe transport network via access routers.

Ericsson has developed a common platform forthe access network that can handle both ip andatm. The rxi is a first-of-a-kind real-timerouter developed specifically for wireless networks.It is intended for use in ip-based networks thatrequire real-time performance and low fault toler-ance. It handles the latest versions of the Internetprotocol, ipv and ipv, and can be expanded incre-mentally as capacity requirements increase. Anotheraccess router from Ericsson is the axc (Tigris).

In the backbone network, signals are first for-warded to aggregation routers. With the purchaseof Torrent Networking Technologies Inc. lastspring, Ericsson gained access to a gigabit aggrega-tion router, the axi . For traffic in atm-basednetworks, the company has developed the axd ,which is a scalable atm switch and the cornerstonein Ericsson’s engine concept for incrementallyintroducing ip and atm technology into the back-bone network.

At the highest level in the network, Ericsson,through its partnership and equity stake in JuniperNetworks, can offer the axi , a router for dataspeeds of gigabits per second and higher. •

17

RXI 820, the world’s first real-timerouter for wireless networks.

Technical development supports Ericsson’s strategy

’ portfoliois being enhanced continuously. In order tostrengthen its position in the market fordatacom and ip networks, Ericsson has

made a number of strategic acquisitions and enteredimportant partnerships in recent years. However,within its own core business, mobile telephony andreal-time telecommunications networks, Ericsson isa global leader in technology development.

Ericsson’s corporate function Technology has asits primary mission to ensure that product develop-ment is in line with the Company’s business strate-gy and to define the strategies that determine whennew products will be introduced. The corporatefunction Technology is also charged with identify-

ing areas in which synergies in Ericsson’s technicaldevelopment can be exploited.

During , Ericsson invested sek , m.(,) in technical development, correspondingto percent of net sales. The number of employeesactive in research and development during the yearwas , distributed among research centers in countries.

The fact that Ericsson’s technical development isso highly decentralized is primarily due to histori-cal reasons. The Company’s research and develop-ment organization has expanded greatly over thepast years thanks to the axe system’s success.One of the advantages of axe is that it is a modularsystem. As a consequence, it has been easy to dele-

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TECHNICAL DEVELOPMENT

gate design responsibility for local adaptations toEricsson units in the markets in which the Compa-ny’s largest axe customers are active. In manycases, establishing local technical resources in thismanner was a political prerequisite for winningcontracts at a time when many operators werestate-controlled monopolies.

In view of the pending technology shift, in whichcircuit-switched systems such as axe are mergingwith ip- and atm-based communications systems,the demands on Ericsson’s development organizationare also changing. In tomorrow’s systems, it will benecessary to make modifications for local marketsquickly and within the framework of common andopen standards. This will require a concentration ofresources to fewer and stronger resource centers.

The goal is that it should be possible to imple-ment this process without losing valuable exper-tise. The new technology organization that is tak-ing shape will be sufficiently flexible to handle thewidely varying demands on development resourcesmade by today’s product cycles.

Ericsson’s product development takes place inspecial product units. Operations in these unitswere streamlined during to encompass onlyproduct development. In cases where resources hadbeen built up for sales and marketing, for example,they were transferred to the business unit to whichthe product unit belongs. The result of this stream-lining is greater efficiency and a clearer focus foreach product unit.

Ericsson’s position as the technology leader inmobile systems is undisputed. No other companycan offer its customers mobile systems according toevery existing analog and digital system up to andincluding second-generation mobile systems,which are now in operation all over the world.Neither can any other company offer customers asbroad a range of solutions for what is called g(third-generation) mobile systems. At year-end, Ericsson had functioning g test systems inoperation. The first of these was approved in early by ntt DoCoMo in Japan, which in April is expected to be the world’s first operator totake a commercial system into operation – suppliedlargely by Ericsson.

Ever since discussion of a new global system forthird-generation mobile telephony began, Ericssonhas played a leading role. The Company can nowtake satisfaction in the fact that wcdma, the tech-nology that Ericsson began developing in , isnow the established standard for g. During , adecision was taken by etsi and arib, the Europeanand Japanese standards bodies, to adopt wcdma as

the standard for g. This led to the formation of theglobal standards organization gpp.

In March , an agreement was reachedbetween Ericsson and Qualcomm, which meantthat both companies would back a common globalwcdma standard. The agreement paved the wayfor an itu decision in November establishingwcdma as the standard for g under the nameimt- Direct Spread. The first release of thestandard was finalized by gpp in December .

With the acquisition of Qualcomm’s infrastruc-ture division, Ericsson also gained access to is-and its enhancement in the form of the technologycalled imt- Multi-carrier.

Ericsson is pleased that the itu recently alsoestablished edge as a standard for g. edge pro-vides a natural migration of gsm to g but willalso be an important g technology for existingtdma operators in the U.S. and Latin America.These operators will be able to use edge to intro-duce g in existing frequency bands, while wcdmawill require specially allocated frequencies in the GHz band, which has been reserved in most partsof the world for umts and imt-.

Third-generation mobile systems offer wirelessbroadband communications at speeds up to times faster than today. There are many applicationareas for this technology including wireless Inter-net access, e-mail and the transmission of multi-media to portable terminals or postcards directlyfrom mobile phones to the receiver.

This revolution in wireless communications willalso require modifications in the fixed network.This is why g is such a powerful driving forcebehind the new network architecture now on thehorizon. New solutions have been developed tomake this architecture possible.

A platform that handles both atm and ip hasbeen developed. It functions as a media gatewaythat mediates access to the backbone network fromg networks. Ericsson successfully tested the plat-form in Japan during and expects to make theproduct available when g networks start to bedeployed in .

The same platform is included in the new rxi ip router, which is a part of Ericsson’s solutionfor the g network. The platform was developedspecifically for wireless broadband networks andtheir demands for real-time functionality; forexample, to handle the synchronization of basestations.

’

Many of Ericsson’s technical solutions are character-ized by their facilitating a smooth migration frompreviously installed systems to a new system. Thiswas the case, for example, with mobile systems fortdma, for which operators of analog amps networks

THE ITU DECISION

in 1999 to adopt WCDMAas a standard for third-generation mobile tele-phony is a major cause forcelebration. Ericsson hasbeen promoting this solu-tion for several years anddriving efforts to harmonizethe various proposals forthird-generation systems.

JAN UDDENFELDT,


TECHNOLOGY

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were offered a technology that was added to theexisting infrastructure and which thereby digitizedthe network. This method of migrating from onetechnology to another is extremely cost-effective forthe customer and allows shifts in technology to bemade incrementally, without affecting end-users.

Ericsson’s wcdma technology is designed toallow today’s gsm customers to migrate easily tothe new technology.

The corresponding migration technology for thefixed network is provided by engine, whichaccommodates circuit-switched and packet-switched services in the same network. Existingaxe switches, for example, can be expanded withaxd , Ericsson’s scalable atm switch, in orderto handle a growing volume of data traffic in thesame network. This solution for next-generationnetworks achieved a breakthrough in .

For more than years, axe has been the founda-tion of Ericsson’s success in fixed and wirelesscommunications. During these years, developmentof the axe system has continued.

During , work continued with the next-generation axe system, which is scheduled forintroduction during . The new-generationsystem will constitute yet another giant step inincreased capacity and reduced size for axe switch-es. Development of the axe system will continuefor several years.

Ericsson achieved major advances in the market forip and data communication during . The goalof becoming a leading supplier even in this area hasnot yet been completely realized, but the Compa-ny’s position was strengthened considerably.

The axd atm switch, which was developedby Ericsson, is beginning to achieve commercialsuccess. Ericsson’s platform for combined ip andatm traffic in g networks is another technicallyvery powerful solution. In addition, the Companystrengthened its position in routers during through several strategic acquisitions and partner-ships.

A previously established partnership withJuniper Networks regarding the development ofbackbone routers was extended during the year.Ericsson obtained the right to market Juniper’s gigabit router under its own brand.

In March, Ericsson acquired Torrent Network-ing Technologies in Maryland in the U.S. Marketedas the Ericsson axi and axi , Juniper’s andTorrent’s aggregation routers fit well into Ericsson’sproduct portfolio, as does the Tigris access routerobtained from the California-based company acc,which was acquired in .

ip-based communication is one application areafor routers. With the acquisition of the Århus,

Denmark-based company, Telebit, during theautumn, Ericsson was assured of leading-edgeexpertise in the development of IPv6, which is thenext version of the protocol. Telebit is a worldleader in developing this important next-genera-tion ip technology and already has the world’slargest installed base of next-generation routers.

Never before has Ericsson introduced as manymobile phones as in . With the t, a transi-tion was made to an entirely new technical plat-form using three volts instead of four and withmany new technical features, including a new chip

Eight-inch silicon wafer with datacom circuits.

21

TECHNICAL DEVELOPMENT

set and a new radio subsystem employing homo-dyne technology. This platform will be used fornew models to be introduced during the year .

Three different terminals were also introducedduring that employ wap (Wireless Applica-tion Protocol) technology for more efficientexchange of information between the Internet andthe wireless device. The mc, which was intro-duced first, is a separate handheld computer forwireless communication and includes an infraredport. The epoc operating system is also built intothe mc, making it the first concrete result forEricsson of the Symbian joint venture. The Sym-bian partnership, which was started by Ericsson,Motorola, Nokia, Psion and others, was expandedin to include the Japanese company Matsushi-ta.

The r and the r are wap-phones thatwill be avilable in volumes during . The rcan most easily be described as a t with a consid-erably larger display and extra keys for wap-navi-gating in the display. The larger r has a largerdisplay that can be used to access built-in applica-tions such as a calendar, an e-mail client and a webbrowser.

Bluetooth is a new, small and inexpensive radio-frequency chip that Ericsson Components has

already taken into production. The chip is based ontechnology that was developed by Ericsson andoffered to other companies as early as , when aconsortium was established by Ericsson, ibm,Nokia and Toshiba to support the technology. Dur-ing , the special interest group that was estab-lished for Bluetooth grew from to close to, companies. Bluetooth is thus the de factoglobal standard for radio communication betweendifferent devices over short distances.

At the Comdex exhibition in the U.S. in theautumn of , Ericsson demonstrated its firstBluetooth product, which consisted of a cordlessheadset equipped with a microphone that communi-cates with a mobile phone that can be carried in apocket or a purse or located elsewhere within the-meter range of current Bluetooth technology.

Toward the end of , Ericsson established itsstrategy for access products. This decision marked aconcentration of the Company’s developmentefforts to three areas: adsl, lmds and ip via cable-tv networks. adsl (Asymmetrical Digital Sub-scriber Line), a technique for increasing capacity inexisting copper networks, provides very high band-width for the downstream link. This technology isparticularly suitable for using existing telephonelines for video on demand, high-speed Internetaccess and similar services. Ericsson has a leadingposition in this area. Swedish network operatorTelia is building an extensive adsl network withthe help of Ericsson and other suppliers.

lmds (Local Multipoint Distribution Services)is a technology for high-speed radio networks inwhich microwave transmission provides a high-speed connection to voice and Internet services forsmall and medium-size business and multiple unitdwellings. Radio technology is thus employed torapidly and cost-efficiently provide broadbandaccess to the fixed network.

Ericsson’s main product in this area is mini-link bas, which is available for European andU.S. radio standards. The U.S.-based Diginet is onecustomer who has already ordered this access solu-tion from Ericsson for deployment in its network inLatin America.

For the third type of broadband access, which iscable tv, Ericsson introduced the PipeRiderproduct in . PipeRider is a cable-tv modemthat is used to provide voice and Internet access inthe home. In its first generation, PipeRider wasdesigned according to the American docsis stan-dard. Using its router products, Ericsson is alsodeveloping infrastructure for ip communicationand delivery of voice and data over cable-tv net-works. •

T28 and T28 World, dual-band phones based on new technology andhardware platform. Voice control, lithium polymer battery.

MINI-LINK BAS, system forwireless–fixed network accessusing so-called LMDS point-to-mulitpoint solutions.

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THE GOAL OF

TTC Global is to sharplyreduce lead times and tosimplify the entire supplychain. The economicpotential of such improve-ment is substantial. Wecan reduce personnelrequirements in the supplychain by 25 percent,which in terms of moneyis at least 3 percent ofsales for all products thatcan be handled in thisway.

BJÖRN BOSTRÖM,


SUPPLY AND INFORMATION

TECHNOLOGY

S in the data and telecommunica-tions market requires being able to deal withrapid change. Ericsson’s customers – networkoperators and businesses – are keenly aware of

this. That is why they demand so much of theirsuppliers: fast delivery, rapid development of newsolutions requested by users, quick response when aproblem needs to be solved, and so on.

Ericsson has been working hard and conscien-tiously over a period of years to reduce lead times atall levels. When the new organization was intro-duced at year-end , the need for speed wasgiven additional emphasis. Over the past year,major steps have been taken within the frameworkof ttc Global, an Ericsson-wide project led by thecorporate function Supply & it that, among otherthings, aims at reducing lead times.

Shortening ttc, or Time to Customer, is theoverriding goal of the project, by reducing the timefrom when the customer places an order until aproduct has been delivered and is ready to be putinto operation. The target for ttc Global is toreduce lead times in the supply chain by percentor more. At the same time, using Internet technol-ogy, simpler and thereby faster ordering routinesare being created for customers.

-

One of the most important means of achieving thettc Global goals is a transition from previousdelivery methods to what is called high-level deliv-erables. This means that products delivered tocustomers should be as ready to use as possible. Aradio base station, for example, should have allsoftware installed and be ready to take into opera-tion. It should be delivered completely assembledand ready for rapid installation, which entails sim-ply connecting the necessary power and communi-cations cables.

The transition to high-level deliverables meansthat the customer can identify a suitable solution inEricsson’s product portfolio based on currentrequirements and order a complete package via aweb-based application.

The ttc Global management is aware that notall of Ericsson’s product portfolio can be ordered inthis manner, but most products can be deliveredusing the simplified routines.

Because the operations of Ericsson’s customersare becoming more global, this method of deliveryis much appreciated. What a mobile operatorneeds for a network in one part of the world isoften exactly the same as what was purchased for

the same operator’s network somewhere else. Glob-al customers demand the same simple orderingroutines and delivery procedures, regardless ofwhere in the world the product will be put intooperation.

The transition to direct ordering via the Internetenables substantial savings through rationalization.Previously, orders were often sent from one orderoffice to another within Ericsson before finallyreaching the unit that would complete the delivery.Most of these intermediary points in the oldprocess can now be eliminated. Every step in theprocess that does not add value for the customerwill be removed.

The methods developed by ttc Global were testedsuccessfully during and with deliveries ofradio base stations to Germany. This experienceproved that the methods are sound. Customerreactions were overwhelmingly positive. The sim-plified ordering routines pleased the customers andearned them money, since deliveries of neededcapacity increases could be guaranteed in half thetime previously required.

Customers are also receiving better informationthan before. Web technology is being used tosimplify customer orders, and to allow thecustomer to track how orders are being processedwithin Ericsson’s organization.

The new methods are now being used with moreproducts throughout Ericsson. Wide application ofthe ttc Global methods is being given the highestpriority by executive management, not onlybecause they improve and strengthen therelationship with the customer, but alsobecause of economic incentives. ttcGlobal has shown that it is possible toreduce personnel requirements in thesupply chain by percent. In monetaryterms, this corresponds to at least per-cent of invoiced sales for all products thatcan be handled in this manner.

Vodafone Airtouch, which is one ofEricsson’s largest customers in mobilesystems, gave the Company the highestpossible marks for its working methodslast year when the operator decided thatthis delivery model would be the stan-dard for all its networks around theworld. •

How to save money whilepleasing customers even more

TIME TO CUSTOMER

S

R250 PRO, the world’s first water- and shock-resistantmobile phone. Combined mobile phone and private radio.

T for Ericsson’smillennium program were to uphold cus-tomer confidence, to protect shareholderinvestments and to secure the Company’s

internal working conditions.All three of these goals were achieved inasmuch

as Ericsson did not experience a single serious inci-dent during the transition to the new millennium.After the New Year, work resumed among Erics-son’s customers without interruptions.

Ericsson took the yk issue seriously. An exten-sive program to handle the transition was started asearly as . The program encompassed all Erics-son companies and operations and was monitoredby executive management. The total cost of theMillennium Program was sek , m.

Ericsson made a great effort to eliminate andminimize all yk-related problems. All productswere tested to determine whether or not they areyk-compliant. In certain cases, customers wereoffered upgrades. An extensive review was alsoconducted of mission-critical information systemsand of all steps in the delivery chain from order toinstallation.

To assist customers around the world, more than, Ericsson employees were on duty on NewYear’s Eve in more than locations around theworld. To coordinate their activities, a number ofnew routines and systems were implemented andtested, including a worldwide communicationssystem for the rapid collection of information.

At the millennium shift, the load on publictelephone systems was at times extremely high. Insome areas, subscribers experienced problems inmaking calls, but this was due entirely to over-loading of the networks. When traffic returned tonormal, service levels were also restored to nor-mal.

As a result of the millennium shift, Ericsson’s inter-nal it infrastructure is more highly optimized,more secure and more efficient than ever before. Allsoftware used throughout Ericsson was reviewed.Many systems and applications were phased outentirely, while others were upgraded. Work tocreate uniform standards, including the continued

introduction of esoe (Ericsson Standard OfficeEnvironment), was speeded up by the MilleniumProgram.

esoe means that an Ericsson employee is able tosit at any pc anywhere throughout the organizationand immediately begin working with familiar soft-ware in a familiar computing environment. Thisincreases internal efficiency and makes it easier torelocate employees temporarily or permanently.

Several major virus attacks during alsoconfirmed the strength of the esoe concept.Thanks to central administration of virus protec-tion and frequent updates, Ericsson has withstoodall severe virus attacks to date without major dam-age. By year-end , nearly percent of allEricsson employees had esoe installed in theirpcs. The goal is to complete the implementation ofthis standard environment during the year .

sap r/ has also been introduced as a standardizedenvironment for many of Ericsson’s administrativeroutines. To date, major installations have beencompleted throughout Ericsson.

During , a number of new intranet-basedsystems for internal administration were taken intooperation. “Click to Buy” is one example of theincreased efficiency made possible using intranettechnology. This is a system for purchasing andordering non-product related goods that will grad-ually replace traditional methods, which are oftencumbersome and bureaucratic. For input goods, theelectronic transfer of information already exists. •

23

Millenniumshift renewsit structure

THE MILLENNIUM SHIFT AND IT

T

PipeRider, modem fordata communication overcable-TV networks.

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NEVER BEFORE HAS

Ericsson worked so hardto increase internal com-petence and to changethe way of thinking andacting on the job. If we areto succeed in the newtelecom world, everyemployee must under-stand how it works andwhat will be demanded ofour customers if they areto succeed.

BRITT REIGO,


HUMAN RESOURCES AND

ORGANIZATION

, had ,employees, more than half of whomworked in a business area called PublicTelecommunications. It was built up

around the axe switch and dominated Ericsson’sbusiness totally. This was the unit that generatedthe profits that financed Ericsson’s bold new invest-ments in mobile telephony, business systems andcomponent manufacturing.

Ericsson’s customers were state-owned ptts, onein every country, that at regular intervals went to themarket and requested tenders for new deliveriesbased on very detailed technical specifications devel-oped by the customer’s engineers. A typical tenderoccupied several meters of shelf space and tookmonths for a team of skilled engineers to prepare.

That was what the telecom world was like tenyears ago. Just about what it was like years ago.

Today, ten years later, it is history. Communica-tion in fixed telecom networks is still an importantbusiness for Ericsson, but it is no longer the motor inthe Company’s operations. Instead, mobile telephonyaccounts for the lion’s share of revenues and totallydominates the business. The ten years that havepassed have entailed enormous changes in the Com-pany. The ten years ahead will bring even greaterchanges.

Restructuring is a word that Ericsson and othercompanies in the industry will need to learn to livewith. Tomorrow’s winners will be the companiesthat are best at change and best in reallocatingcompetence and resources.

Daring structural initiatives, distinct and proac-tive management and smart working methods willunquestionably be needed to provide the flexibilitythe market demands. But above all, an open mindwill be required of everyone working in the Com-pany, meaning that the business culture must beone that encourages change and seeks opportunitiesin change. This is why one of the most importantaspects of Ericsson’s business strategy is the onethat concerns the people within the Company.

• DEVELOP THE INTERNAL CULTURE, AWARENESS

AND COMPETENCE

During , work to restructure Ericsson continuedat an increasingly rapid pace. The organization thatwas introduced in January was polished andfurther refined during the year. Great effort wasdevoted to promoting understanding of the new

organization among the Company’s employees andto defining and disseminating knowledge of the newdivision of roles and responsibilities in the Company.

At year-end , Ericsson had , employees.One year later this number had fallen to ,.This relatively modest decline is the net result of, persons leaving Ericsson during the year,while , joined the Company through acquisi-tions or strengthening of resources in strategic areasfor the future. Mobility within Ericsson remainshigh.

This trend will continue in , as a result ofletters of intent that were signed in late , andthrough a continued realignment of work assign-ments. The sale of the Energy Systems business inJanuary was a first step in Ericsson’s contin-ued focus on core operations, meaning that ,persons begin working for a new employer.

Several important company acquisitions during greatly contributed to strengthening Erics-son’s competence in the datacom and ip field. Withthe Company’s current strategic focus, additionalstrengthening of resources in this and other centralareas will be required. Ericsson is therefore contin-

A new Ericssonemerging

T

uing to pursue an acquisition strategy that seeks toidentify small and medium-size companies withkey expertise that supplements the already highlevel of skills within Ericsson.

Individual recruitment of highly skilled newemployees is also a high priority for Ericsson. Dur-ing , a completely new policy was establishedfor new recruitment by which we will not recruit to

fill vacancies in existing operations, but insteadactively seek the most talented people, offeremployment, and thus secure the skills the compa-ny needs. An international working group is nowworking to develop guidelines for implementingthis policy.

To support the new recruitment model, Ericssonis also working actively to become more visible and

HUMAN RESOURCES

25

The Bluetooth Headset contains awireless earpiece and microphonefor mobile phones.

During 1999, the number of Ericsson employees declined slightly. The markets in which the number of employees increased the mostare primarily markets, such as the U.S. and Brazil, in which companies were acquired during the year. In Sweden, the number ofemployees continued to decline as a consequence of operations being sold to other companies.

NUMBER OF EMPLOYEES BY GEOGRAPHIC REGION

1999 1998 1994

Number of Number of Number of employees percent employees percent employees percent

Europe, Middle East, Africa 70,900 68 74,900 72 59,300 78

USA and Canada 12,200 12 9,800 9 6,200 8

Latin America 8,200 8 7,800 8 4,500 6

Asia Pacific 12,000 12 11,200 11 6,100 8

Total 103,300 103,700 76,100

Of which Sweden 43,500 42 44,600 43 36,600 48

Of which EU 65,700 64 70,000 67 17,700 23

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better represented at leading universities and col-leges around the world. The Company has long hadexcellent relations with the academic world, whichwill now be cultivated in order to make Ericssoneven more known as an excellent and excitingemployer.

Ericsson’s global presence in more than coun-tries gives the Company a very broad base forrecruitment, while allowing new employees to beoffered an opportunity to work internationally. Anexcellent start for an international career at Erics-son is the new global trainee program that wasstarted during .

This is a two-year program consisting of threesix-month job training periods interspersed withtheoretical studies. One job-training period is spentwith an Ericsson customer, while the theory unitsare arranged in cooperation with leading universi-ties worldwide. The program is very internationalwith study units arranged in different parts of theworld and in the composition of the trainee group.

Several thousand persons applied for the placesin the first program. Six women and eleven menfrom nine different countries were selected. All hadhigh grades from university, and most had twodegrees. The trainee program is actively supported atthe highest level in the Company. The steering com-mittee for the program includes three of the fourteenmembers of the executive management team.

During the spring of , Ericsson’s executivemanagement began planning for what would be

the Company’s largest investment in skillsenhancement to date. Through the CompetenceShift, as the program is called, the intention is thatall of the Company’s , employees will gainan increased understanding of how the new telecomworld functions. The Competence Shift focuses onexplaining new technology, new business logic andthe new market situation that Ericsson is facing.The idea is that awareness of the forces drivingdevelopment will make it easier to understand andaccept the Company’s business and product strate-gies.

An internal development program this compre-hensive would not be possible without the verytechnology that the Competence Shift is designedto explain. A new web site on Ericsson’s intranetprovides the base for the entire program. Hereemployees can start by playing an entertainingdiagnostic game that reveals the gaps in theirknowledge. These gaps can then be filled throughvarious interactive courses.

In addition to the centrally initiated Compe-tence Shift, a number of similar activities werestarted throughout Ericsson in . The gsmSystems business unit provided training in datacommunications for , employees during theyear. The Knowledge Step, as the program is called,is now being extended to many other companiesand units within Ericsson.

For customer account managers, Ericsson Busi-ness Academy developed an intensive course calledInside the ip tornado, which describes the businesslogic in Silicon Valley. During , at least persons will participate in this training.

There are also various local initiatives in thearea based on needs in respective Ericsson markets.

•

HUMAN RESOURCES

Mandatory school Higher secondary education

Specialized school University degree or higher

21 %

27 %

9 %43 %

EMPLOYEES BY AGE GROUP

EMPLOYEES BY LEVEL OF EDUCATION

The average age of Ericsson employees is gradually declining.More than half of all employees are 35 or younger. The lowestaverage ages are found in growth countries, such as China andBrazil, where it is 32. The average age in Sweden is 39.

–1920–24

25–2930–34

35–3940–44

45–4950–54

55–5960–64

Sweden (total: 43,500) Rest of the world (total: 59,800)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

The level of education of Ericsson employees has increasedthroughout the 1990s. Today, 49 percent of all Ericsson employ-ees have an academic degree, which is an increase of five per-centage points over the past two years. The average level ofeducation is highest in growth markets in Asia and EasternEurope, as well as in parts of Latin America. In several countries,more than 75 percent of all employees have an academic degree.

Chatboard, keyboard to facilitatethe writing of SMS messagesand e-mail.

M around the worldhave realized the importance of beingperceived as a respectable and responsi-ble citizen in society. They have under-

stood that a good reputation also has a commercialvalue. It is easy to appreciate that public authoritiesand organizations are more favorably disposed tocompanies that contribute to improving society andmake their resources available in emergency situa-tions. Not quite as self-evident – but no less impor-tant – is that today’s consumers increasingly expectthat the companies whose products they purchaseshould be companies that distinguish themselvesfrom others and through their actions win the cus-tomer’s confidence. It is becoming increasingly nat-ural for today’s consumers to prefer doing businesswith “good” companies rather than with “bad” ones.

Ever since the Company was founded more than years ago, Ericsson has taken pride in beingethical in its actions and practicing fair businessmethods. This is a part of the business culture thatLars Magnus Ericsson established and somethingthat has contributed to creating a positive image ofEricsson as a company.

Through the years, this image has been strength-ened by activities that have been conducted in variousparts of the world to demonstrate Ericsson’s socialresponsibility in the countries in which it is active.With the support of local management, Ericssonemployees in many countries have participated indifferent social projects. Such work not only strength-ens Ericsson’s positive image, but also contributes tostrengthening the team spirit within the Company.

These often spontaneous expressions of solidarityare very valuable, but more is required. The realiza-tion that it is essential to coordinate and developsuch activities, resulted in a comprehensive reviewbeing conducted in of Ericsson’s role in soci-ety. A special group was established within Erics-son’s marketing function that was charged withfurther developing Ericsson’s activities in this area.

Experiences during confirm that humanitari-an assistance in the form of communications sys-tems in conjunction with natural catastrophes andsimilar situations is the area in which Ericsson canprovide the greatest benefit. During the precedingyear, significant efforts were made in several situa-tions around the world.

Following the major earthquake in Turkey,

Ericsson’s local company worked together with thelocal mobile operator Turkcell to ensure thatmobile communication in the affected area contin-ued to function. Ericsson employees in Turkeydonated money, gave blood and provided otherassistance during rescue efforts.

When floods struck Vietnam in November,Ericsson’s local office provided emergency assis-tance in a number of ways. Ericsson volunteerworkers, mobile phones and other resources wereplaced at the disposal of the authorities during thereconstruction work.

In Canada, Ericsson quickly provided a mobilebase station on wheels to assist rescue personnel andthe families of victims following a major air crash.

Obviously, catastrophes make headlines, but thereare many countries in the world that face majorchallenges every day. These challenges range fromhelping people to find food, work or housing toteaching them to read and write.

In order to support and reward innovative efforts inthis area, Ericsson founded the erica Award (Erics-son Internet Community Award). This award, whichis also sponsored by other companies, is given to non-profit organizations that use Internet technology tohelp others. In , a total of usd , wasawarded. The prize was shared by three winners: theNational Library for the Blind in Great Britain, Med-ical Training Worldwide in Novato, California andKids HealthLINK in San Francisco, California.

Ericsson will continue to provide humanitarianassistance in the form of communications systems. Inthis way, the Company will play a leading role inhelping to reduce human suffering in conjunctionwith catastrophes. The message to the world is clear:Ericsson is a company that takes responsibility, thatreally makes a difference. It is a company which ischaracterized by high ethical standards and which isa respectable and responsible employer that takes along-term view of environmental issues and has beendoing so for some time. It is a company that cares. •

27

CORPORATE CITIZENSHIP

Good reputation in societyincreasingly important

M

THROUGH public serviceactivities, Ericssoncompanies around theworld are strengtheningour positive image. This isvery important in a marketwhere people increasinglylet their hearts dictatebusiness and purchasingdecisions.

LARS A. STÅLBERG,


COMMUNICATIONS

A1018, mobile phonefor the low-price

segment. Available infive different colors.

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DURING 1999 our mobilesystems operations grewby more than 40 percent.We took the lead in allareas of the mobile Inter-net and we developed andsold systems that help ourcustomers to migrate theirexisting investmentsforward into the newtelecom world and itsnetwork architecture.

MATS DAHLIN,

EXECUTIVE VICE PRESIDENT,

BUSINESS SEGMENT

NETWORK OPERATORS

AND SERVICE PROVIDERS.

’ the leadingsupplier in the new telecom world demandsthat the Company should be able to offer abroad portfolio of network solutions and

continue to focus strongly on the ip and datacommarket. Achievements during show that theprospects for achieving this goal are favorable.

Ericsson’s Network Operators/Service Providersbusiness segment experienced an eventful year in. A dramatic increase in traffic was noted in alltelecommunications networks. Very rapid growthin mobile telephony and continued strong growthof Internet traffic combined to generate exponentialgrowth in network traffic.

In mobile networks, the number of subscribersincreased by percent during the year, while traf-fic increased even more. More than million newusers were connected to the Internet during .The result was that network capacity had to beincreased during the year at a much faster rate thananyone had expected.

For this business segment, these trends con-tributed to extremely strong growth, strengthen-ing the segment’s position as Ericsson’s largest,with percent of net sales.

Net sales amounted to sek , m.(,) in , which was an increase of per-cent. With an operating margin of percent, thebusiness segment is also Ericsson’s most profitable.

One of the reasons why Ericsson is the world leaderin mobile systems is that Ericsson is the only com-pany able to offer mobile systems according to allexisting standards. This has applied to first- andsecond-generation systems and is now also true forthird-generation systems.

Ericsson has long been one of the principaldrivers behind the development of third-genera-tion (g) mobile communications. With theannouncement in March of an agreementwith the American company, Qualcomm, Ericssonfurther strengthened its position in mobilesystems. As part of the agreement, Ericssonacquired Qualcomm’s infrastructure operations,thus allowing the Company to expand its productportfolio with cdmaOne, previously known ascdma is-.

When the itu, at the end of , announced itsdecision on g, it became clear that Ericsson will beable to supply systems for each of the three mostimportant standards.

During the year, Ericsson signed the first commer-cial contract for a g system with ntt DoCoMo inJapan. Ericsson will supply radio base stations andterminals for ntt’s network, which when it istaken into commercial operation next year, will bethe world’s first g network. Additional contractswere signed during the year covering commercialand test systems. Test systems for wcdma andedge are now in operation with more than operators, which means that Ericsson is far ahead ofits main competitors in this area.

Planning for g systems is underway all over theworld. Many operators have applied for g licenses,and Ericsson is discussing deliveries with most ofthem. However, license allocation is not expectedto gain momentum until sometime in , whichmeans that the rest of the world will be somewhatbehind Japan when g is taken into commercialoperation.

In anticipation of g systems, gprs has attractedconsiderable interest during the year. This is a partof the gsm system that makes it possible to signifi-cantly increase data capacity using packet-switching techniques in gsm networks. Ericssonsigned a large number of gprs contracts duringthe year, thereby winning half of all business asmeasured by the operator’s subscriber base.

Ericsson is also leading the way with respect tothe g standard, edge. BellSouth and RogersCantel have placed orders for such systems, whichare expected to be taken into operation by .

Technologies that allow wireless access to the Inter-net received considerable attention during the year.The business segment is working hard to furtherstrengthen Ericsson’s offering with respect to thesetechnologies, which include operating systems,

Solid growth for mobile systemsand new fixed network solutions

E

BUSINESS SEGMENT NETWORK OPERATORS

AND SERVICE PROVIDERS 1999

Change1999 1998 (percent)

Orders booked, SEK b. 151.8 127.6 19

Net sales, SEK b. 149.9 123.2 22

Operating margin, SEK b. 19.6 15.3

Operating margin, percent 13 12

Number of employees 64,695 68,645 –6

communications platforms and content. Ericsson isactive on a broad front in this area.

Content is being developed in cooperation witha large number of companies and operators. Erics-son’s demonstration systems for g in various partsof the world are a valuable asset in illustrating theopportunities provided by the new technology.

In order to further promote the development ofapplications for g and other technologies, Ericssontook an ownership stake in companies such asoz.com and Saraïde during the year. Althoughthese investments might seem to be somewhatperipheral to Ericsson’s core business, Ericssonintends to take an active part in driving a marketfor the mobile Internet and to support new ip-based solutions that generate more network traffic.

With a market share of over percent, Ericssondominates the market for mobile systems. Ericssonis also one of the leading suppliers of infrastructurefor fixed communications. The axe system, thesales of which exceed those of any other switchingsystem, is the foundation of Ericsson’s success ineach of these markets. During , more axelines were sold than ever before, bringing the totalinstalled base up to million fixed lines. This isthe world’s largest installed base for fixed telecom-munications and a major source of future revenues.Several of Ericsson’s operator customers are nowbeginning the work of upgrading their networks tothe next-generation network architecture. Thisarchitecture will handle data and multimedia com-munications in fixed and wireless networks.

During , Ericsson’s engine concept achievedconsiderable success. This is a solution for themigration of circuit-switched networks for fixed

telecommunications to a new generation of net-works that will handle circuit-switched andip/atm-based packet-switched traffic. During, bt in Great Britain, kpn in the Netherlands,Telia in Denmark and Telefónica in Spain choseengine for modernizing their networks. An orderfrom Diginet, which intends to use engine for anextensive Latin American ip network with wirelessaccess, confirms that this is a solution that also fitsnewly established operators.

engine’s success was the result of strategicmarketing activities to reposition Ericsson as asupplier of networks for data and telecommunica-tions. This was made possible by restructuring theWireline Systems business unit to become a suppli-er of total solutions and services.

The positive results achieved by engine are notthe only examples that confirm that Ericsson is one ofthe key players in the ip and datacom market. In thearea of ip-based voice telephony, called VoIP (Voiceover ip), Ericsson is now the world leader after havingsigned several important contracts during .

Ericsson’s systematic investments in ip commu-nication also resulted in the establishment of theDatacom and ip Services business unit in Boston inthe U.S.

The concerted effort to further strengthen Ericsson’sexpertise in ip technology made during the past fewyear was accelerated significantly during . Sever-al important acquisitions and partnerships wereannounced during the year. Consequently, Ericssonnow has a complete product portfolio for tomorrow’sdata and telecom networks. Today, Ericsson has aunique capacity to offer total solutions for all typesof wireless and fixed networks.

In order to strengthen Ericsson’s offering to thesegment’s customer groups, Ericsson Services was

BUSINESS SEGMENT NETWORK OPERATORS AND SERVICE PROVIDERS

29

RBS 2401, complete picobasestation for installation indoors.

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established as a new business unit during the year.With a strong portfolio of services, Ericsson’s posi-tion as a total supplier, systems integrator andpartner is strengthened.

Several of the business segment’s mature productscontinued to show favorable margins during .Mobitex is one such product, which during underwent somewhat of a renaissance. Increaseddemand for wireless data communication in theU.S. more than doubled the number of subscribersof one of Ericsson’s customers during the year.Ericsson received new orders for equipment for theMobitex network, which for the time being is thecountry’s only nation-wide network for wirelessdata communication.

lmds, Ericsson’s system for wireless broadbandaccess, optimized for high-speed ip traffic, hasattracted major interest in the market. Ericssonsigned its first contracts and the system is nowbeing used in trials by the American operatornextlink. Ericsson is mainly targeting the enter-prise market, but in the long-term lmds can enjoywider application, as new licenses are issued andnew operators surface. The system is based onEricsson’s successful mini-link system, whichcurrently holds a -percent market share.

Ericsson also offers cdpd, a first packet-switched technology for tdma that provides forservices at twice the speed of existing networks. Anumber of important contracts were signed duringthe year with at&t and others.

During , isdn made a strong comeback.Ericsson’s customers have a large installed base ofcopper networks offering conventional narrowbandservices that are an excellent source of add-on sales.The strong growth in Internet traffic increasedinterest among operators for investing in greatercapacity in the existing copper network. Ericssonproducts easily allow these operators to increasebandwidth at the desired rate, first with isdn andpossibly later with adsl.

Ericsson’s wdm technology substantiallyincreases capacity in wireline transportation net-works while maintaining a high transmission secu-rity level. Contracts were signed with Telefónica inSpain and U.S.-based aol during the year.

The business segment’s internal work during was characterized by continued restructuring ofoperations. This applied primarily to the WirelineSystems business unit, which during the past yearsharply reduced the number of employees. Duringthe s, the number of employees in the compa-nies currently included in this business unit wasreduced by more than percent and totaled some, persons at year-end .

During , the restructuring of Wireline

Systems will continue, and the workforce will beadapted to order volumes and new technology.

The implemented structural measures, togetherwith satisfactory sales and new solutions, generatedearnings that exceeded expectations andcontributed positively to Ericsson’s profitability.

The dominant share of reductions within thebusiness segment during took place throughoutsourcing. For example, , employees beganworking for new employers when production unitsin Visby, Katrineholm, Östersund, Longuenesseand Madrid were transferred to external partners.

In Norrköping, employees were transferredto the staffing company Proffice. A similar solutionfor affected personnel in the Stockholm area wasarranged through the establishment of Framtidsfo-rum, which is helping about , employees inthe business segment to find new career paths.Those who have not succeeded within one year willbe offered employment with Manpower, anotherstaffing company.

The New and Special Business Operations businessunit includes operations that Ericsson is preparingto phase out of its product portfolio and operationsthat are completely new and have not yet resultedin finished commercial products.

One example is the Private Radio Systems Unit,which was sold in the beginning of to theU.S. company, Com-Net Critical Communications.

The business unit also includes units of a purelyentrepreneurial character, often organized as inno-vation cells, which are groups formed around ideasthat are considered to be worth developing. Forinstance, E-box, Ericsson’s product for remotelycontrolling household equipment via the telephonenetwork, was developed by such a group. •

BUSINESS SEGMENT NETWORK OPERATORS AND SERVICE PROVIDERS

MacroDens, power module for supplying current to PC circuit cards andsimilar components.

E can lookback on a period of rapid growth, which isexpected to continue with the new businessopportunities provided by the company’s

two main product areas: defense systems andmicrowave communications. The company’s salesamounted to sek , m.

Continued rapid growth of traffic in fixed andwireless networks serves to promote the company’sprimary civil product, which is the mini-linkmicrowave link. During , more than ,such units were produced. Over the past severalyears, Ericsson’s mini-link has dominated theworld market for microwave links.

-

A new application area was added with the intro-duction of mini-link basin the beginning of .This is a system for broad-band access via a micro-wave link. The marketpotential is expected to besubstantial.

Another important partof civil operations at Erics-son Microwave Systems is the development of basestations for wcdma. Ericsson received its firstwcdma contract from ntt DoCoMo in Japan atthe beginning of the year.

Ericsson’s focus in defense systems is on sensors andinformation technology. This is a direction that isfavored by trends in a market that is generallycharacterized by increasing demands for advancedtechnology systems. Sensors, such as control andcommunications systems, are an area of top priorityfor many countries’ military forces.

During , Ericsson Microwave Systemsreceived an additional foreign contract for the air-borne surveillance radar, Erieye, from the Greek AirForce, which ordered four such systems. The SwedishArmed Forces, in which Erieye is already operational,commissioned Ericsson to continue developing thenext generation of airborne radar. The so-called aesatechnology, on which this radar is based, represents amajor advance in radar technology.

The Arthur artillery localization radar systemwas delivered to the Swedish and Norwegiandefense forces during . Additional contracts forthese systems were signed with two other countriesduring the year. The South African order of the jas Gripen aircraft was another important event forEricsson Microwave Systems and the associatedcompany, Ericsson saab Avionics. •

OTHER OPERATIONS

31

E (now EricssonMicroelectronics) reported net sales ofsek , m. (,) in . Operationsconsist of the Energy Systems, Microelec-

tronics and Electronic Distribution business units.Energy Systems had an extremely good year. One

of the high points was a contract with Telefónica delPeru that gave Energy Systems total responsibility forsupplying power to their some , customer instal-lations. Through a general agreement with Siemens,Energy Systems became a strategic supplier to theGerman manufacturer of telecom systems. Ericssonstrengthened its position as a world leader in powermodules, delivering its millionth module from thepkf family, a unique record in the industry.

Microelectronics showed very strong growth dur-ing the year. Thanks to an increased focus on appli-cations for broadband and mobile telephony, largevolumes of components could be delivered, particu-larly in mobile telephony.

Significant investments were made during theyear to increase manufacturing capacity for integrat-ed circuits in Kista. An important partnershipagreement was signed with Chartered Semiconduc-tor for joint development and production of inte-grated circuits for next-generation radio technology.

Demand for power transistors for radio basestations continued to show strong growth, bothfrom internal and external customers.

Continued upgrading to digital lines, a trend thatis driven by increasing Internet use, resulted in adoubling of deliveries of line circuits for networkterminals installed as customer premises equipment.

Volume production of radio modules for theBluetooth standard was started during the year.Demand for these chips is strong among variousapplication developers both within Ericsson andexternally. Microelectronics is currently the leaderin developing and supplying Bluetooth modules.

The Electronic Distribution business unit contin-ued to grow geographically and in terms of sales.New offices were opened in Germany and the U.K.In addition to successful projects for customers, suchas Electrolux and Lego, a new generation of Erics-son’s Internet catalogue was developed, enablingcustomers to pay for purchases with a credit card.

Effective February , , Microelectronics’ activi-ties will be carried out at Ericsson Microelectronicsab and its foreign operations. An agreement wasreached in January covering the sale of the energysystem operations to Emerson Electric Co. in the U.S.Microelectronics now also includes power modules. •

Components Microwave Systems

E E

Erieye, system for airbornesurveillance. Shown mounted onthe Brazilian Embraer EMB145.

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PROFITS WERE adisappointment in 1999,but an upturn was notedin the fourth quarter. Withour new product portfoliowe will recapture ourmarket position and canhope to improve margins.

JOHAN SIBERG, EXECUTIVE

VICE PRESIDENT,

BUSINESS SEGMENT

CONSUMER PRODUCTS

NEW HEAD of BusinessSegment Consumer Prod-ucts as of February 15,2000, is Jan Wäreby,previously head ofMarket Area Europe,Middle East and Africa.

Ericsson launchedso many new products for the consumermarket as it did during . Some new mobile phones were introduced, of

which several were based on an entirely new gener-ation of technical platforms. However, delay in theprocess of increasing volume production of the newphones, caused products in the lower price seg-ments to dominate sales during the year, thussharply reducing profitability for the business seg-ment.

Ericsson’s business segment Consumer Productsis still mainly focused on the sales of mobile phones.During , however, a special business unit forHome Communications was established that initial-ly will offer consumers cordless phones for the homeand Ericsson’s PipeRider, a modem for ip communi-cation via the cable-tv network.

Net sales for the business segment amounted tosek , m. in , an increase of percentcompared with the preceding year. The segmentthus accounted for percent of Ericsson’s total netsales.

In terms of volume, was a record year, with million phones sold compared with million in.

Because the low-price segment accounted for alarger share of sales, the sales increase in sek wasnot as strong. This, plus the high costs for technicalrenewal of the product portfolio incurred duringthe year, resulted in an operating margin for thebusiness segment of only percent compared with percent in . However, a clear trend reversalwas noted in the fourth quarter, during which salesof the t and other new models contributed posi-tively to profitability.

The consumer market is different in many

respects from Ericsson’s other markets. In particu-lar, the brand plays an essential role. During ,Ericsson continued to invest heavily in variousactivities to strengthen the Company’s brand.

Although global advertising campaigns, spon-sorship events and intensive tv advertising arecostly, these measures are now beginning to produceresults. In the prominent international study ofbrand awareness, conducted over the past ten yearsby the distinguished research firm Interbrand,Ericsson ranked th in the world in . Thisranking provided a strong incentive for continuingsystematic work to build the Ericsson brand.

A strong brand is extremely important for Erics-son at this point in time. Advances in technologyare making it increasingly easy for manufacurers inChina and Southeast Asia to begin competing withEricsson, Motorola and Nokia, the current marketleaders in mobile phones.

To provide a foundation for future product develop-ment, Ericsson is constantly conducting carefulstudies of the market and consumers. At the Com-pany’s Consumer Lab in Lund, Sweden, mobilephone users’ behavior and preferences are analyzedin detail. These market studies and analyses showthat there are different types of users.

Based on these observations, the product portfo-lio is now being adapted to the customer segmentsthat Ericsson has chosen to target. For youngerusers and users who often purchase a mobile phonewith prepaid calling time, the a and tphones were launched during . The former is atrue volume product, which accounted for a verylarge proportion of Ericsson’s sales during the year.

For more professional users in job categories in

A year of innovative concepts

HPR-08, a small FM radiothat can be connected

to a mobile phone

N

BUSINESS SEGMENT CONSUMER PRODUCTS

33

which the phone is subjected to rough treatment,the r pro was launched as the world’s firstwater-, dust- and shockproof mobile phone. Thisphone is designed for gsm pro, which means thatit can also be used as a private radio terminal.

The t and t world models are phones thattarget consumers who want high quality and areprepared to pay for intelligent functions. Ericsson’smc was the first wap product on the market. Itis a handheld computer, which via a built-ininfrared port for communication with a mobilephone, allows wireless access to the Internet ande-mail. It also includes software for word process-ing, image transmission and other functions.

For the demanding Japanese market, Ericssonproduced a variation on the t for ntt DoCoMo.This phone, which was sold in limited test quanti-ties, was very well received in the market.

The telephone that was most in the spotlight dur-ing was the t. When it was first shown inJanuary, it generated considerable attention due toits extremely light weight, modern design andadvanced functions. The market’s reception wasvery positive, and expectations were high that thet would sell extremely well.

It was not until the autumn, however, that thetremendous demand for the t could be satisfiedby greater volumes. This was due to componentshortages that affected the entire industry, as wellas delays in trimming in production. The t isbased on a completely new technical platform,which includes a new processor, a new radio sub-system and an innovative new battery technologythat Ericsson was first to bring to market.

During the latter part of the year, the situationimproved, and production of the t is graduallybeing stepped up. The technical difficulties in thetransition to the new technical platform have beenovercome, suggesting that forthcoming modelsbased on the same platform will be significantlyeasier to industrialize.

To meet sharply increasing volumes, Ericsson signifi-cantly increased its production capacity during .A new production plant in Malaysia was taken intooperation, and in China a second joint-venture com-

pany was started for telephone production. Expansionof production in Brazil continued.

In addition to expanding its own productioncapacity, the business segment continued to out-source production to external partners. Togetherwith Ericsson’s own production increases, this meansthat the Company is well prepared to meet theincrease in volume expected in .

Several new accessories for Ericsson mobile phoneswere launched during the year. The accessoriesmarket is increasingly important, since it oftenoffers greater margins than volume phone sales.Several of the new accessories were entirely newinnovations – and the result of creative thinking onthe part of the Company’s product developers.

Chatboard is a small keyboard which is connect-ed to the mobile phone to facilitate entry of smsmessages and which can even be used to sende-mail. An fm radio that also functions as a hands-free headset was another popular new product, aswas the mp player shown at Telecom in Geneva.

During the autumn, the first Blue-tooth product, a cordless handsfreeheadset, was also shown. Bluetooth isa technology for wireless transmissionover short distances that was devel-oped by Ericsson but released to thepublic domain. Development is beingcontinued by Ericsson, Com, ibm,Intel, Lucent, Motorola, Nokia, andToshiba. Close to , companieshave adopted the technology and aredeveloping Bluetooth products.Ericsson Components is one of the manufacturersthat is already producing Bluetooth chips for inte-gration into these future products.

The partnership between Ericsson and Microsoftthat was announced in December will have asignificant impact on the business segment’s con-tinued product development. With this partner-ship, that relates to the mobile Internet, Ericssongains access to Microsoft’s Mobile Explorer for itsmore advanced telephones.

The agreement with Microsoft does not affectcollaboration through the Symbian consortium, inwhich Ericsson is working with Matsushita,Motorola, Nokia and Psion to further refine theepoc operating system for wireless terminals.During , Ericsson introduced the epoc-basedmc, as well as the r, which will begin to besold in full scale during .

The partnership for the networked home of thefuture, which was announced by Ericsson and Elec-trolux during the autumn, is based in large part onforthcoming products from the business segmentConsumer Products. •

BUSINESS SEGMENT CONSUMER PRODUCTS 1999



Net sales, SEK b. 46.4 45.2 3



Number of employees 16,446 14,193 16

T10, dual-band phone withvibrating alert. Available in fivedifferent colors.

HS210, cordless display phonefor home communications.Provides direct access to theInternet and e-mail usingBluetooth technology anda small base station.

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A MULTI-YEAR contractwith the MetropolitanPolice shows thatEricsson is a long-termstrategic partner forcompanies who wantassistance with operatingand developing theiroperations and theircommunications solutionsin a world that will becharacterized by mobilityand the Internet.

HAIJO PIETERSMA,


BUSINESS SEGMENT

ENTERPRISE SOLUTIONS

the development oftomorrow’s multimedia communications.Business users already account for mostbroadband traffic and are the driving force

behind new Internet and intranet applications,such as e-commerce and e-mail.

Companies are becoming more aware that theircustomers are increasingly mobile. The mobileInternet will allow them to create completely newchannels for communicating with customers andoffering personalized services. Increasingly, employ-ees are also being given access to network servicesand information, even when out of the office.

These trends are the primary drivers in developingnew applications that will generate most of the trafficand content in next-generation mobile networks.

Ericsson’s business segment Enterprise Solutions isof great strategic importance in responding to thesetrends.

The business segment’s sales for comparableunits increased percent in to sek , m.,which corresponded to percent of Ericsson’s totalsales. Several different improvement programs dur-ing the year contributed actively to improving earn-ings, which nonetheless remain at a low level, dueto continued heavy investment in future growthareas. The number of employees increased as a resultof company acquisitions and organic growth in newareas such as business consulting, while the work-force was reduced by more than percent in tradi-tional operations, primarily business switches. Thebusiness segment had , employees at year-end.

To strengthen Ericsson’s position as a supplier oftomorrow’s business systems, while improving thesegment’s profitability, operations were consolid-ated in .

In , continued emphasis will be put on thedevelopment of sales channels, the launching of ipswitches and on increased growth for the businessconsulting operations that provides business solu-tions for the Internet.

Development work was refocused on ip applica-tions and mobile Internet solutions. Investmentswere increased in developing tomorrow’s wirelessbusiness networks, an area where Ericsson will offerhigh-capacity networks for data transmission basedon the HiperLAN standard.

Another important component in the segment’sfocus on the future are efforts to establish andexpand business consulting activities. The goal isthat Ericsson should be the leader in providingcompanies with business solutions and services forthe mobile Internet. During , the EricssonBusiness Consulting business unit was formedthrough a merger of internal consulting and serviceoperations from parts of Ericsson Data, which wasrecently dissolved. Several new business consultantswere also recruited.

Approximately , of the business unit’s, employees work as business consultants, itand telecom consultants and wap consultants in markets. Other employees of the business segmentwork with the operations and maintenance of Erics-son’s it activities.

In business solutions for the mobile Internet,Ericsson is focusing on the banking and finance,transport, travel, media and entertainment seg-ments. These efforts, plus Ericsson’s wap expertise,have strengthened customer confidence in Ericssonas a partner in developing new business conceptscombined with new systems solutions. Bank trans-actions over the Internet, wap solutions for wireless

Focus on ip-telephony servicesand mobile enterprise solutions

WebSwitch 2000, IP-basedbusiness switch for smallcompanies. Developed byEricssonWebCom Inc.,formerly TouchWave Inc.

B

R320, WAP telephone withbuilt-in IR modem andcalendar that can besynchronized with PC orPDA. Weighs less than100 grams.

BUSINESS SEGMENT ENTERPRISE SOLUTIONS

35

banking services and wireless e-commerce areexamples of concepts developed during the year.

As companies focus more on core operations,they are outsourcing operation, maintenance anddevelopment of their communication networks toexternal partners. Ericsson Business Consulting canoffer customers an opportunity to migrate existingsystems to new mobile solutions. A five-year contract, signed in , to maintain and supplyBritain’s Metropolitan Police network marked abreakthrough in this area.

The acquisition in May of the U.S. company,TouchWave Inc., gave Enterprise Solutions accessto WebSwitch, which is an ip-based switchthat can handle conventional analog and ip-basedtelephony for smaller companies.

Products from this company, which wasrenamed Ericsson WebCom, will play an importantrole in the ip product portfolio, as well as for Erics-son’s continued expansion in the U.S.

WebSwitch received several prestigiousawards during the year at telecom shows in theU.S. WebCom has already sold more than ,switches to customers in the U.S. An importantaspect of Ericsson’s U.S. product strategy is expan-sion of indirect sales channels for the Company’snew ip-based products.

The business segment is not only developing innew areas of operations. Sales of Ericsson’s businessswitches also increased in , with more linessold than ever of md (for large) and Business-Phone (for small and mid-size companies). Growthin Europe, especially in the U.K. and Italy, wasparticularly strong.

Ericsson sells call-center solutions that supportcustomer service functions. Ericsson is the leader inthis segment, particularly in Europe. During ,Ericsson launched a new generation of server-basedcall centers.

With its large installed base in business commu-nications – , large companies have purchasedmd – Ericsson’s business potential for tomor-row’s ip-based solutions is substantial.

Meanwhile, rationalization continues in tradi-tional operations involving business switches. Twoof the segment’s research and development centerswere discontinued during the year, as were twoproduct areas peripheral to core operations. Plantsin Austria and China were transferred to externalpartners through outsourcing.

Restructuring will continue in with strongfocus on continued expansion of the distributornetwork and on reducing costs for direct sales.Central to these efforts is an emphasis on profitabil-ity and cost reductions and the need to increaseEricsson’s presence in the market segment for smalland mid-size companies. •

BUSINESS SEGMENT

ENTERPRISE SOLUTIONS 1999



Net sales, SEK b. 17.3 14.6 19



Number of employees 9,615 9,966 –4

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Ericsson’s sales in this market areaincreased 18 percent during theyear, but there were large variationsbetween individual markets. Themost rapid growth in relative termswas in Belgium (+147 percent), butSpain was the market that increasedmost in real terms, from SEK 7.0 to13.0 b .

Turkey (+117 percent) and theU.K. (+15 percent) were two othermarkets showing strong salesgrowth. For the first time, Turkeybecame one of Ericsson’s ten largestmarkets. In central and easternEurope, the trend was also positivein 1999, while a downturn was notedin Russia (–55 percent). Sales alsodeclined in Denmark (–40 percent),Finland (–16 percent) and Norway(–12 percent).

The trend for mobile telephony isdriving the positive development ofEricsson’s business in the marketarea. Several large networks wereadded during the year, while at thesame time the growth in the numberof subscribers was high in existingnetworks, which forced investmentin increased capacity.

As a result of development duringthe year, Ericsson strengthened itsoverall position in the area and grewfaster than the market.

Important contracts announced in1999:

CZECH REPUBLIC

Cesky Mobil – Turnkey GSM/GPRSsystem valued at SEK 1,630 m.

DENMARK

Telia Danmark – Multiservice net-work for voice and dataTelia Danmark – GSM Mobile Cen-trex, new mobile solution for business

ESTONIA

Eesti Mobiltelefon AS – Positioningsystem for GSM

FINLAND

Telephone Company of VaasaProvince – GSM 1800 system

GERMANY

o.tel.o – Turnkey WDM system(owned since April by Mannesmann)Siemens – OEM supplier of powersystems, SEK 1,650 m.

GREECE

Greek Air Force – Erieye airbornesurveillance radar, four systems,valued at SEK 4,900 m.

ICELAND

Islandssimi hf – Multiservice voiceand data network with IP over ATM

ITALY

Telespazio SpA – Infrastructure forbroadband access via satellite forthe Astrolink system.

MOROCCO

Medi Telecom – Turnkey GSMnetwork valued at SEK 1,150 m.

NETHERLANDS

Telfort – GPRS system and GSMexpansion valued at more thanSEK 1,000 m.WISH – Infrastructure for Internetaccess valued at SEK 100 m.KPN International Network Ser-vices – ENGINE solution for integra-ted data and telecomWISH – Payment system for electro-nic commerce based on Ericsson’sJalda technologyKPN Telecom – AXE Transgateswitches

NORWAY

Telenor Mobil – Introduction ofwireless e-commerce solution deve-loped together with Ericsson, movietickets via mobile phonesTelenor Mobil – Development ofWAP services

POLAND

Polska Telefonia Cyfrowa – GSMnetwork expansion valued at morethan SEK 660 m.

’ during was charac-terized by two strong market trends: continued exceptionally strong growth inthe world’s mobile phone systems and increased investments in fixed communi-cation networks to satisfy requirements for increased capacity due to similarly

exceptionally strong growth in the number of Internet subscribers. A review ofimportant contracts announced during the year confirms these trends. As alwayswith Ericsson, it must be emphasized that percent of the Company’s sales repre-sent ongoing sales to existing customers that are not registered as new sales in the listbelow.

Strong year thanks to growth inmobile systems and fixed networks

E

,

ERICSSON strengthened its overall position inEurope during 1999,where growth exceeded the marketaverage and wasbolstered significantly by the continuing exceptionally strong trend for mobile telephonyin the region.

JAN WÄREBY,


EUROPE, MIDDLE EAST

AND AFRICA

EFFECTIVE February 15,Ragnar Bäck succeededJan Wäreby as managerof the new Western Euro-pe market area. The manager of the new Eastern Europe,Middle East and Africamarket area had not been appointed at thetime of printing.

Countries in which Ericsson has companies or offices Countries in which Ericsson is not represented

ERICSSON AROUND THE WORLD

37

Europe, MiddleEast and AfricaAustriaAlbaniaAlgeriaBahrainBelarusBelgiumBosnia-

HerzogovinaBotswanaBulgariaCroatiaCyprusCzech RepublicDenmarkEgyptEstoniaEthiopiaFinlandFranceGabon

GeorgiaGermanyGhanaGreeceHungaryIranIrelandIcelandIsraelItalyJordanKazakhstanKyrgyzstanLatviaLebanonLibyaLithuaniaLuxembourgMacedoniaMaltaMoldaviaMorocco

NetherlandsNigeriaNorwayOmanPolandPortugalRomaniaRussian

FederationSaudi ArabiaSerbiaSlovakiaSloveniaSouth AfricaSpainSwitzerlandSwedenSyriaTajikistanTanzaniaTunisiaTurkey

UkraineUnited Arab

EmiratesUnited KingdomUzbekistanYemenYugoslaviaZimbabwe

Asia and OceaniaAustraliaBangladeshChinaHong Kong

& MacaoIndiaIndonesiaJapanMalaysiaNew GuineaNew Zealand

PakistanPhilippinesSingaporeRepublic of

KoreaSri LankaTaiwanThailandVietnam

North AmericaCanadaUnited States

Latin AmericaArgentinaBoliviaBrazilChileColombiaCosta RicaEcuadorEl SalvadorGuatemalaHondurasJamaicaMexicoNetherlands

AntillesNicaraguaPanamaParaguayPeruPuerto RicoUruguayVenezuela

Ericsson has companies or offices in the following countries

Ericsson has had an international focus since the earliest days of its history. Today, the company is one of the most geographically diversifiedenterprises in the world. With operations in more than 140 countries, Ericsson is unique in its industry and is one of the companies that is bestequipped to assist increasingly more global companies.

Länder där Ericsson har bolag eller kontor Länder utan Ericssonbolag eller -kontor

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IN THE U.S., people aretalking about the MobileMillennium in view of theexpected development formobile data communi-cations. During 1999, thenumber of mobile tele-phone subscribers sky-rocketed, with an increaseof nearly 50 percent. At thesame time, the price ofInternet connections drop-ped dramatically. Together,these two trends are dri-ving the market towardswireless Internet access.

BO DIMERT,


NORTH AMERICA

The trend for Ericsson in the NorthAmerican market area, which inclu-des Canada and the United States,was very positive in 1999. The intro-duction of new and simpler callingcharges resulted in strong growth formobile telephony in the U.S. Thenumber of mobile phone subscribersincreased by nearly 50 percentduring the year. As a result, salesand order booking for mobile sys-tems were extremely strong. Erics-son’s total sales in the U.S. increa-sed 39 percent to nearly SEK 24 b.,thereby re-establishing the U.S. asEricsson’s largest single market.Sales in Canada increased by 2percent. For the market area as awhole, the sales increase amountedto a full 36 percent in 1999.Another

notable trend in this market duringthe year was the continued consoli-dation among network operators,Internet companies and companiesin the media industry.


CANADA

Cescom – Five-year contract forVoice over IP valued at SEK 118 MRogers Cantel – Development ofthird-generation mobile networkvalued at SEK 2,800 m.BridgePoint Enterprises – Solu-tions for IP telephony and datanetworks valued at SEK 530 m.

UNITED STATES

BellSouth Cellular Corporation– Infrastructure for 14 U.S. marketsvalued at SEK 6,300 m.America Online (AOL) – ERIONNetworker and WDM infrastructureSBC Wireless – Jambala openservice platform for TDMA networksin Chicago and Springfield, IllinoisNEXTLINK – Field trials of point-to-point microwave systems (MINI-LINK BAS)Sprint PCS – Seven-year contractfor expansion of cdmaOne networkOmnipoint Communications– Installation and first U.S. field trialsof GPRSTritel Communications – Contractfor TDMA (IS-136) infrastructurevalued at SEK 2,310 m.

Netia Holdings SA – Nationwidenetwork for IP services

PORTUGAL

Interoute – Network for IP telephony

ROMANIA

Rom Telecom – Breakthrough AXEorder for fixed networks valued atSEK 830 m.

SLOVENIA

Mobitel – GSM network expansionsvalued at SEK 1,200 m.

SOUTH AFRICA

MTN – World’s first GSM Pro net-work, including terminals, valued atSEK 210 m.

SPAIN

Interoute TelecommunicacionesSA – Nationwide system for IP tele-phony valued at SEK 90 m.Telefónica – Cenaxis, Ericsson’snew network-based call-centersolution, valued at SEK 83 m.Telefónica – ENGINE solution forintegrated data and voice communi-cations

SWEDEN

Telia Mobile – Introduction of a newplatform for real-time data communi-cation via GSM

TURKEY

Turkcell – Expansion of GSM net-work valued at SEK 8,510 m.

UKRAINE

Digital Cellular Communications –TDMA expansion valued atSEK 250 m.Ukrtelecom – SDH network valuedat SEK 255 m.

UNITED ARAB EMIRATES

Etisalet Telecommunications –Access network based on ADSL

UNITED KINGDOM

WCDMA system for testing by ope-ratorsOne2One – GPRS contract as partof major infrastructure expansionvalued at SEK 2,560 m.Vodafone – Joint development of3G and WCDMAMetropolitan Police Service – Five-year management and developmentcontract for all telecom servicesvalued at SEK 990 m.One2One – Test system for GSM onthe Net with IP-based wireless multi-media servicesVirgin Radio – Joint developmentand testing of radio broadcasting via3G mobile networksVodafone Airtouch Plc – Infrastruc-ture for GPRS

BT – ENGINE solution featuringAXE/AXD301 hybrid switches formultiservice network valued atSEK 1,500 m.

39

Thanks to very strong growth of salesin Mexico (+74 percent) and continu-ed solid development in Brazil –despite the strong devaluation at thebeginning of the year – the marketarea as a whole showed favorablegrowth during 1999 (+19 percent).The development in Central Americawas also positive during the year.

Brazil is Ericsson’s single largestmarket in the area and Ericsson’sfourth largest market globally, withsales in 1999 of slightly more thanSEK 14 b. (+20 percent).

Mobile systems and phonesaccount for the majority of growth inthe area. Nonetheless, investmentscontinue to be made in expansionsof the fixed telephone network,particularly in Brazil and Mexico.


ARGENTINA

Telecom and Telefónica – TDMAnetworks valued at SEK 3,300 m.

BRAZIL

TIM (Telecom Italia Mobile) –Expansion of TDMA networks.TESS (Telia) – Expansion of TDMAnetworks.Vesper S.A. (previously MirrorS.A.) – cdmaOne network for wire-less access to the fixed network.

CHILE

CTC Startel (Telefónica) – TDMAnetwork expansion.Entel PCS – GSM expansion

MEXICO

Telcel – Prepaid services for Telcel’sentire TDMA network

VENEZUELA

Movinet – Expansion of TDMAnetwork for 3G valued atSEK 1,700 m.

SEVERAL COUNTRIES

Diginet Americas – Broadbandnetwork for wireless access coveringseveral Latin American countriesvalued at SEK 2,500 m.


Market Area Western Europe Market Area Eastern Europe, Middle East and Africa

Market Area Asia Pacific

Market Area North America Market Area Latin America

ERICSSON’S MARKET

share for mobile tele-phony in Latin Americaexceeds 40 percent, butthe Company also has aleading position in fixedtelecommunications.During the more than 100years that Ericsson hasbeen active in this market,a strong customer basehas been established invirtually every country.

BENGT FORSSBERG,


LATIN AMERICA

In conjunction with the release of its year-end financial report on 1999 operations, Ericsson announced that it is reorganizing the Europe, Africa andMiddle East market area, dividing it into two areas: Western Europe market area, which comprises the EU countries plus Norway and Switzerland, andthe Eastern Europe, Middle East and Africa market area.


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After the deep economic crisis in1998, conditions stabilized in severalcountries during 1999. This resultedin modest, but nonetheless positivegrowth (+5 percent) of Ericsson’ssales in the market area as a whole.There were significant differencesbetween countries, however.

China, which was Ericsson’slargest market in 1998, declinedsharply. As a result of the restructu-ring currently in progress amongChinese operators and changes inmarket regulation, market activitytapered off significantly. For Erics-son, the result was a 16-percentdecline in sales in both infrastructureand mobile phones.

In Japan, on the other hand, Erics-son’s sales increased by 78 percent,while sales in India increased by 82percent. Increases were also notedin Australia (+24 percent) and NewZealand (+22 percent), while salesdeclines in Malaysia (–34 percent),Singapore (–29 percent) and in thePhilippines (–17 percent) reflectcontinuing economic uncertainty inthese countries.


AUSTRALIA

Enermet – GSM modules for rea-ding energy consumption at consu-mer sites, SEK 160 m.Queensland Ambulance – Mobitexsystem, SEK 45 m.

PHILIPPINES

Globe Telecom – GSM systemvalued at SEK 355 m.

JAPAN

Japanese Digital Phone Corp. –Expansion of PDC system valued atSEK 1,470 m.Japanese Digital TuKa Group –Three-year general agreement forcontinued expansion and upgradingvalued at SEK 1,700 m.

CHINA

Inner Mongolia Post and TelecomAdministration – GSM systemvalued at SEK 345 m.Liaoning Post and Telecommuni-cations Administration – Expan-sion of GSM network valued at SEK1,260 m.China Telecom (Hong Kong) Ltd.– GSM expansion in Guandongvalued at SEK 2,416 m.

SmarTone Mobile Communica-tions Ltd, Hong Kong – WCDMAtest system and GPRS infrastructureGuandong Mobile Communica-tions Co. Ltd. – GSM expansionvalued at SEK 650 m.China Unicom – GSM expansion insix provinces valued at more thanSEK 1,000 m.Shandong MCC – Expansion ofGSM network valued at SEK 840 m.Sichuan Mobile CommunicationsCo. – GSM expansion valued atSEK 835 m.SmarTone Mobile Communica-tions Ltd., Hong Kong – WAP sys-tem

SRI LANKA

Mobitel – Digitization of AMPSnetwork valued at SEK 160 m.

TAIWAN

Chungwa Telecom of Taiwan– Upgrading of AMPS network,SEK 390 m. Far EasTone Communications– GPRS system

THAILAND

Advanced Info Service PublicCompany Ltd. – Expansion of GSMnetwork valued at SEK 450 m. •

NET SALES PER MARKET AREAS (SEK m.)

Percent1999 1998 change

Europe, Middle East and Africa *) 115,065 97,456 18.1

North America 25,175 18,560 35.6

Latin America 30,263 25,537 18.5

Asia Pacific 44,900 42,885 4.7

215,403 184,438 16.8

*) of which Sweden 7,551 8,509 –11.3

*) of which EU 80,345 71,094 13.0

1998 figures restated according to the Market Area organization that was introduced on January 1, 1999.

THE YEAR wascharacterized by verystrong growth in Japanand India, while sales inChina declined.The decline in China wasdue to a weakening of themarket, which Ericssonconsiders to betemporary, and byrestructuring amongChinese operators. Anupturn was noted duringthe fourth quarter.

KJELL SÖRME,


ASIA PACIFIC

(TOOK OVER THE POSITION

DURING THE YEAR)

41

TREASURY MANAGEMENT AND FINANCIAL RISKS

characterized bycontinued success for the U.S.economy. During the year,

Asia recovered strongly after the crisis –and Europe showed gradual signs of recovery. InLatin America the Brazilian economy strengthenedsome after the substantial devaluation in the begin-ning of the year.

Ericsson’s liquidity increased during the yearwith sek . b. and net, after deduction of short-term interest-bearing liabilities, with sek . b.This in spite of a number of strategic investments,including the acquisitions of Torrent NetworkingTechnologies Inc. (U.S.), Qualcomm InfrastructureDivision (U.S.), TouchWave Inc. (U.S.), Telebit a/s(Denmark) and minority shares in Juniper (U.S.),Saraïde (U.S.) and oz.com (Iceland). These invest-ments of approximately sek . b. were financedprimarily through a number of bond issuesamounting to sek . b. The bond issues in May,of sek b., were the largest ever by a Nordiccorporation. In addition, a number of liquiditystrengthening activities were implemented, such asthe establishment of a pan-European securitizationprogram, which was utilized to sek m., andfactoring. During the year, all short- and long-termborrowing programs and long-term credit facilitieshave been increased and updated.

Ericsson has a policy for managing financial risksestablished by the Board of Directors. Respons-ibility for identifying and hedging financial risksarising in the Group’s operations rests with theindividual Ericsson companies. Risks are normallyhedged through Ericsson’s internal bank, EricssonTreasury Services, which in turn manages the Groupexposure externally. The major part of the risksassumed by the internal bank in this way are hedgedin the financial market, but the bank also has theright to take positions in the financial market with-in the framework of the policy established by theBoard of Directors. The risk mandate whichamounts to sek m., is based on a percentchange in each open foreign exchange position and achange of one percentage point in interest rates.Ericsson Treasury Services operates via treasurycenters in Stockholm, Dublin, Singapore and Dal-las.

Ericsson hedges financial risks by balancingassets and liabilities with respect to currencies andinterest-rate periods and by using derivative instru-ments.

FINANCIAL EXPOSURE

With exports from Sweden amounting to approxi-mately sek b. (sek b. in ) and sales inSweden of sek b. (sek b. in ), Ericsson isrelatively heavily dependent on the development ofexchange rates between the Swedish currency andforeign currencies, as well as on economic condi-tions in Sweden. As opposed to the transactionexposure, and to some extent translation exposure,Ericsson does not have a policy to hedge the finan-cial exposure.

TRANSACTION EXPOSURE

To limit currency risks as much as possible in con-junction with import and export activities, pur-chases and sales in foreign currencies are hedged bycurrency forward contracts in cases that involvefirm commitments with customers and suppliers.In addition, estimated purchases and sales arehedged for periods of up to months, based onassessments of stability in volumes, pricing andother factors within Ericsson’s business segments.Outstanding bids are also hedged, normally withcurrency options. Hedge periods agree with thetiming of the anticipated future cash flows. Theforeign exchange exposure is concentrated mainlyin the large production companies, notably theSwedish units, since the foreign subsidiaries areinvoiced in their local currencies. Table shows thedistribution of commercial net cash flows of majorcurrencies for Ericsson’s companies in Sweden.

TABLE 1 – NET CASH FLOWS OF CURRENCIES TO

AND FROM SWEDEN (PERCENT)

Specification of currencies with net flows

exceeding SEK 0.5 billion

Currency 1999 1998

AUD 6 4CHF 4 3EUR 42 35HKD 2 8GBP 4 5JPY 7 4USD 37 34Other –2 7

100 100

The table is based on statistical data pertaining to flows to andfrom Ericsson’s companies in Sweden.

1999

ii·

in f

oc

us

42

The net currency exposure for the Swedish compa-nies is mainly in usd and Euro, with balancebetween the two respective currencies. This meansthat Ericsson has limited exposure to an isolatedeur/usd change. With the exception of a few lessimportant currencies, Ericsson is mainly exposed tothe development of the Swedish krona.

Based on the net currency flows to and from theSwedish companies, a lasting change of the Swedishkrona against usd and Euro of percent wouldhave an effect on the consolidated net income ofapproximately sek . b. and sek . b. respective-ly. The net income effect for of changes inforeign currency exchange rates compared to lastyear’s rates was approximately sek . b.

TABLE 2 – NET CURRENCY FORWARDS BALANCES

AS OF DECEMBER 31, 1999, PERTAINING

TO ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE

AND FUTURE CASH FLOWS, SEK BILLIONS

Sell (+)

Currency Buy (–)

AUD 0.2CHF 1.5DKK 0.2EUR 32.6GBP 6.6GRD 1.2HKD –0.2JPY –0.6NOK –0.2USD 34.2Other currencies 0.7

76.2

Exposure arising from borrowing is limited, sincemost loans by foreign subsidiaries are denominatedin local currencies. Currency balances in subsid-iaries are monitored to secure minimum transactionexposure in Ericsson companies.

TRANSLATION EXPOSURE

Exposures in foreign subsidiaries are hedged withina framework established by Company management:• Monetary net in companies translated according

to the temporal method are hedged to per-cent.

• Equity in companies translated according to thecurrent method are hedged very selectively up to percent of the total monetary net in suchsubsidiaries. One percent of such monetary netwas hedged at year-end .

CHART 1 – MONETARY NETS

AS OF DECEMBER 31, 1999, IN PERCENT

OF TOTAL FOREIGN MONETARY NET

The translation differences reported in equity dur-ing the year are sek –. b., mainly as a result ofthe devaluation in Brazil.

-

Ericsson’s interest-rate risks are managed centrally.The focus during the year was short-term and bal-anced interest-rate periods for interest-bearingassets and liabilities.

TABLE 3 – DISTRIBUTION OF FIXED AND FLOATING

INTEREST RATES, SEK BILLIONS

1999 1998

Interest-bearing assetsShort-term financial assets 31.5 18.2Long-term financial assets, floating rate 10.8 11.4

Total interest-bearing assets 42.3 29.6

Interest-bearing liabilitiesShort-term financial liabilities 12.0 6.6Pension liabilities 8.4 8.1Long-term financial liabilities, fixed rate 0.7 2.3Long-term financial liabilities, floating rate 23.7 10.5

Total interest-bearing liabilities 44.8 27.5

Other currencies AUD

BRL

HKD

CNY

EUR

GBP

JPY

MYR

USD

Monetary nets in foreign companies, by functional currency, asof December 31, 1999 (including associated companies andcompanies with financial operations). SEK billions.

43

TREASURY MANAGEMENT AND FINANCIAL RISKS

Ericsson’s policy is to invest excess liquidity mainlyin government papers, as well as in commercialpaper and corporate bonds with ratings of a/p orhigher. Ericsson Treasury Services has credit limitsfor each issuer and counterparty. The exposure inderivative instruments is valued at market dailyand is expressed as a liability to, or receivable from,each counterparty. Netting contracts – so-calledisda agreements – are in force for most of thecounterparties, which substantially reduces coun-terparty risk. Counterpatry limits are reviewedcontinuously. No credit losses were incurred duringthe year.

TABLE 4 – ERICSSON TREASURY SERVICE’S

INVESTMENTS, DECEMBER 31, 1999, SEK BILLIONS

Treasury bills 7.0Treasury bonds 2.1Mortage bonds 0.1Commercial papers 2.1Corporate bonds 0.8Cash, bank deposits 5.7

Total 17.8

TABLE 5 – NET RISK IN INTEREST-RATE

DERIVATIVES, SEK MILLIONS

Type of instrument

Forward-rate agreements (FRA) 83.1Interest-rate swap contracts 212.8Interest-rate futures 3.3Total net risk in interest-rate derivatives 152.3

Net risk in interest-rate derivatives expressed as the effect of achange of one percentage point in interest rates as of December31, 1999, SEK millions.

The ability and willingness among telecom vendorsto offer financing support has become an increas-ingly important factor for customers’ when select-ing a supplier. Customer finance is a very powerfulmeans of competing. The granting of credits andthe implied credit risk has continued to increase,but without major losses during the year.

In total, the credit risk exposure amounts tosek . b., of which sek . b. is on the balancesheet while the remaining part relates to contin-gent liabilities.

Credit risks are continuously sold to financialinstitutions, when market conditions are appropri-ate.

Ericsson’s long-term objective is to have a paymentreadiness amounting to between and percent ofsales in order to cope with rapid changes in liquidi-ty requirements. Payment readiness is defined asnet liquidity – liquid funds less short-term borrow-ing, plus long-term unutilized creditcommitments.

TABLE 6 – PAYMENT READINESS, SEK BILLIONS

1999 1998

Cash, bank deposits and short-term investments 29.0 18.2Confirmed long-term credit lines 8.5 1.6Short-term borrowing –10.5 –5.4Short-term portion of long-term debt –1.5 –1.1

Payment readiness 25.5 13.3Percent of sales 11.8 7.2

To ensure long-term payment readiness, Ericsson’spolicy is that the greater part of its borrowingshould be long-term or its needs should be coveredthrough long-term credit commitments. Long-term borrowing should have an evenly distributedmaturity structure, and very long maturities shouldbe avoided in order to obtain flexibility.

TABLE 7 – RATING

Rating agency Long-term Short-term

Moody’s A1 P-1Standard & Poor’s A+ A-1

Ericsson’s current rating a /a+ is well in line withits peer group.

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BOARD OF DIRECTORS’ REPORT FOR 1999

0

20,000

60,000

100,000

140,000

180,000

220,000

1995 1996

Orders booked Net Sales

1997 1998 1999

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1995 1996

Research and development Other technical costs

1997 1998 1999

The year was characterized by fast growth indemand in the area of mobile telephony, drivenby both increased number of subscribers andincreased talk-time. The year will also be remem-bered as the year when our industry became fullyaware of the potential of Internet communica-tion, not only for chatting and surfing on theWeb, but also for a lot of business applications,which will generate vast amounts of traffic incoming years. This was certainly recognized bythe stock market, and reflected in sharply risingstock prices of it-companies, and Internet-related companies in particular.

Ericsson started the year with a new organiza-tion, with a matrix of customer-oriented businesssegments for the provisioning of products andsolutions and market areas for sales. Mid-year,Kurt Hellström replaced Sven-Christer Nilssonas President. The Chairman of the Board, Dr.Lars Ramqvist, also temporarily assumed a posi-tion as Chief Executive Officer. This action wastaken by the Board to safeguard company perfor-mance, to maintain the speed in restructuring,and to focus on near-term issues regardingoperating expenses, cash flow and mobile phoneproduct launches. In December, Sten Fornell,previously Controller for the business segmentNetwork Operators and Service Providers, wasappointed Executive Vice President and ChiefFinancial Officer.

A number of significant acquisitions and jointventure agreements were concluded in .Among the most important were:• In March, Ericsson and Qualcomm struck a

deal that lead to the unlocking of closed posi-tions regarding cdma patents for the third-generation (g) wcdma standardization.Ericsson and Qualcomm agreed on intellectualproperty rights and thereby eliminated patentlitigation issues. Ericsson also acquired Qual-comm’s infrastructure division and is now, assole supplier, able to deliver mobile phonesystems of all standards.

• In the second quarter, Ericsson acquired two U.S.-based companies specialized in Internetaccess routers, Torrent Network TechnologiesInc. and TouchWave Inc. Their products willcomplement Ericsson’s offering regarding Inter-net access.

• In December, a joint-venture company, to bemanaged by Ericsson, was established withMicrosoft to develop and market solutions formobile Internet. The agreement givesMicrosoft access to Ericsson’s wap technology,and enables Ericsson to use Microsoft MobileExplorer in more sophisticated mobile phones.

A very strong fourth quarter with record levels oforders, sales, income and cash flow made the results better than expected earlier in the year.

We did not, however, succeed to meet all ourlong-term goals in , mainly due to weakperformance during the first half of the year.• Growth in sales was percent for comparable

units vs. a target of + percent.• We reached a positive cash flow before acquisi-

tions, sek +. b.• We reached a capital turnover of . turns vs. a

target of ..• roce at percent was slightly below target-

ed – percent.• Operating margin at . percent of sales is

below the target of at least percent.

ORDERS, SALES AND INCOME

Orders booked in total increased by percent fromlast year to sek . b., which is slightly belowour long-term annual growth expectations of over percent. This is mainly related to three factors:• a slow build-out of capacity in China, our

largest wireless market due to internal restruc-turing within customer organizations.

• introduction problems for our new generationof mobile phones with lower volumes andsubsequent price pressure on older models.

• flat orders in our wireline business due toprice pressure driven by vendor overcapacity.

In our wireless markets, excluding China,growth was well above percent, with verystrong volumes in the U.S., Spain and Turkey.Significant orders included orders for trial gsystems – far ahead of any of our competitors.Another key achievement during was thecapturing of more than percent of all gprsorders. We also received strategic orders for ourengine solution for migrating fixed line net-works to multiservice capabilities, and an orderfor an airborne surveillance system to Greece.This positions Ericsson very well for the future.Orders in China have picked up in the fourthquarter in a promising way. Total order backlogfor Ericsson increased from sek b. tosek b.

SALES AND ORDERS

BOOKED (SEK m.)

INCOME BEFORE

TAXES (SEK m.)

TOTAL TECHNICAL

COSTS (SEK m.)

0

2,000

6,000

10,000

14,000

18,000

1995 1996 1997 1998 1999

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Net sales increased by percent to sek. b., where an increase of over percent inmobile systems is offset by slightly lower sales inWireline Systems and a modest percent increasefor mobile phones. Sales in Enterprise Solutionswere up percent over last year, and an increas-ing portion of the sales is generated from theconsulting and services activities, such as wap-applications. The U.S. again became Ericsson’slargest market with percent of sales. The NorthAmerican market area sales increased by per-cent and Latin America and Europe/MiddleEast/Africa by and percent respectively,with strong growth in Brazil, Mexico, Spain andTurkey. Asia/Pacific sales increased by only percent, due to a percent decline in China,partly offset by strong increases in Japan, Aus-tralia and India. Exports from Sweden, includingsales to consolidated companies, increased by percent to sek () b.

The gross margin declined from . percent ofNet sales to . percent, driven by the unfavor-able product mix in mobile phones, with a largershare of older models than planned, plus pricepressure in our wireline business. Gross marginswere stable in mobile systems. The increased salesvolume, however, more than offsets the impact ofa lower gross margin percentage, resulting in ansek . b. increase in gross margin.

Operating expenses developed unfavorably, withan sek b. ( percent) increase over last year.The main cause was higher selling expenses fromgeneral growth, but in particular also from pro-motion efforts in mobile phones, increased riskprovisions for customer financing, and projectcosts for process development in our time-to-customer (ttc) flow and supply chain. Restruc-turing and yk expenses also contributed to theincreased expense level compared to last year.

Research and development (r&d) expenses,including costs related to customer orders ofsek . (.) b., were sek . (.) b. or ()percent of sales. Total technical expenses, includ-ing market adaptations, were sek . (.) b.or () percent of sales. The focus of our r&d

efforts is on mobile Internet and g, as well as onadapting our switching products to the acquiredcdma products from Qualcomm.

Other operating revenues increased by sek . b.from , mainly due to capital gains from salesof shares in Intracom, and a minor portion ofEricsson’s holdings in Juniper.

Due to previous overpayment of pension pre-miums, a potential credit amount of sek . b.may be received from spp in year , this hasnot affected income in .

The resulting Operating Margin declined to .(.) percent of sales, mainly because operatingexpenses increased faster than sales ( percent vs.). Compared to , the effects of foreign cur-rency exchange rate changes had a favorable effectof sek +. (+.) b. on income.

Financial net was reduced to sek –. (–.) b.as a result of a negative cash flow, in particular inthe first half of the year. Higher borrowings ledto increased financial expenses.

Minority interest in income was sek –. (–.)b., due to the large minority holdings last yearduring January–August in our Brazilian sub-sidiary edb, which were acquired by Ericsson inSeptember of .

Income before taxes, sek . b., is sek . b.below last year’s record level of sek . b. Dueto a couple of successfully settled tax cases plusnon-taxable capital gains, the tax rate becamevery favorable, . (.) percent, resulting in aNet Income of sek . (.) b.

Earnings per share are down percent to sek. (.). The equity ratio dropped from .percent to . percent during the year. Adjustedfor temporary excess cash at year-end, the equityratio is approximately percent, which still isbelow our long-term target of percent.Reported directly in stockholders’ equity accord-ing to generally accepted accounting principlesin Sweden and U.S.A. are effects of translation offinancial statements of foreign subsidiaries ofsek –. b., of which sek –. b. as a result ofthe devaluation in Brazil.

FINANCIAL NET (SEK m.)

CASH FLOW BEFORE

EXTERNAL FINANCING,

(SEK m.)

–700

–600

–500

–400

–300

–200

–100

0

100

200

300

400

500

1995 1996 1997

1998 1999

–10,000

–8,000

–6,000

–4,000

–2,000

0

2,000

4,000

6,000

8,000

10,000

1995

1996 1997

1998 1999

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INVESTMENTS, FINANCING AND CASH FLOW

Investments in tangible fixed assets in weresek . (.) b., of which sek . (.) b. in Swe-den. Strategic acquisitions during the yearamounted to sek . b. in total, including:• Qualcomm’s infrastructure division• Torrent Networking Technologies Inc., now

renamed Ericsson ip Infrastructure Inc.• TouchWave Inc., now renamed Ericsson Web-

Com Inc.• Telebit a/s and• Minority investments in Saraïde, oz.com and

Juniper

Benchmark bond issues of sek . b. weresuccessfully launched under our European Medi-um Term Note (emtn) program. The issues inEuro and U.S. dollars were the largest ever madeby a Nordic corporation and substantially over-subscribed.

Cash flow before financing activities wassek –. (–.) b. due to a very strong fourthquarter of sek . b. We managed to reach ourtarget of favorable cash flow before strategicacquisitions. Adjusted for sek –. b. of acquisi-tions, cash flow was sek +. b. The improve-ment in operating cash flow is mainly a result ofimproved inventory, active management of cus-tomer receivables and increased operating liabili-ties including advances from customers.

Among the segments, only Network Operatorsand Service Providers performed in line with ourlong-term goals. The market for mobile telepho-ny experienced very strong growth in most mar-kets, excluding China, with increases in the num-bers of subscribers coupled with increased min-utes of usage per subscriber. In addition, manyoperators have chosen to enhance their networksfor mobile Internet capabilities.

The Network Operator segment increasedsales by percent and with improved margins.Sales of mobile systems products increased bymore than percent, while sales in WirelineSystems declined slightly. Ericsson is now theundisputed market leader in mobile systems witha market share above percent, more than twicethat of the closest competitor’s. Today, percentof all subscribers in the world are connected toEricsson systems, and all of the top ten largestoperators have chosen Ericsson. In , Ericssonwon more than percent of the orders for gprs.

With the Qualcomm acquisition, Ericsson isnow the only supplier able to offer all mobiletelephony standards, which opens up a new mar-ket for year .

The Operating margin improved, in spite of anegative effect of sek –. b. from acquiredunits. The Wireline Systems unit improved per-formance during with an operating incomeof . percent of sales, demonstrating that therestructuring activities have been successfullyimplemented and a stable turnaround achieved.Several strategic orders for the engine productconcept for migrating circuit-switched networksinto multi-service network ip and atm capabili-ties were received during from customers,such as bt, knp and Telefonica.

For Consumer Products the market sharedropped during the year, in spite of a percentincrease in volumes to million units. Due todelayed volume production of the new productportfolio, older phones were sold to unfavorableprices resulting in increased sales of only per-cent. During the fourth quarter, however, thevolumes reached targeted levels, and operatingmargin rose to . percent of sales, compared to. percent for the full year. With ramp-up ofproduction now under control and a much more0

20,000

40,000

60,000

80,000

100,000

1995 1996

Worldwide Sweden

1997 1998 1999

EQUITY RATIO, %

INVESTMENTS IN

TANGIBLE ASSETS,

(SEK m.)

NUMBER OF

EMPLOYEES

Operating

Net sales Growth Operating marginSegment (SEK b.) (percent) income (percent)

Network Operators 149.9 22 19.6 13.1 (12.4)

Consumer Products 46.4 3 0.3 0.5 ( 7.0)

Enterprise Solutions 17.3 19 0.1 0.4 ( 0.7)

Other Operations 16.8 10 0.1 0.4 ( 9.6)

Unallocated costs -2.4

Less: inter-segment sales -15.0 10

Ericsson 215.4 17 17.6 8.2 (10.4)

0

8

16

24

32

40

1995 1996 1997 1998 1999

0

1,000

3,000

5,000

7,000

9,000

1995 1996 1997 1998 1999

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competitive product portfolio, Ericsson is wellpositioned to win back market share in , asmarket demand continues to look strong.

Enterprise Solutions’ external sales increasedby percent to sek . (.) b. with strongvolumes of the pbx md. Income was at breakeven compared to last year, with continued devel-opment expenses for ip and wireless communica-tions solutions for private networks. Businessconsulting activities are focusing on solutionsand services for mobile Internet.

Other Operations includes the DedicatedNetworks unit, which will be closed down, pre-viously reported in the Enterprise Solutions seg-ment. Dedicated Networks reports a loss of sek–. b. due to unsuccessful projects. Also includ-ed in this group is Defense Systems, with lowersales and operating income compared to last yeardue to fewer orders from the Swedish ArmedForces. Defense Systems however posted a largeorder of sek . b. for airborne surveillanceequipment to Greece in the fourth quarter.

Unallocated costs mainly include core corpo-rate staff expenses and goodwill amortization oncertain acquisitions. The costs increased from lastyear due to changes in the corporate staff struc-ture, increased millennium expenses, common itprojects and goodwill amortization.

The number of employees in total did not changesignificantly during and was ,(,) at year-end. Almost , employeeswere added through acquisitions and about ,were recruited into new jobs, mainly in Con-sumer Products. Around , employees wereaffected by outsourcing and other restructuringactivities.

During the year, a decision was made toimplement a stock option plan for year inaddition to the two earlier plans for and, which were based on market solutions. The2000 plan consists of options (so-called“employee options” that are hedged by warrantsissued by Ericsson, which if fully utilized, willhave a dilutive effect on earnings per share of .percent.

The allottment and subscription prices underthe programs for and will be estab-lished at the beginning of .

After initial delays, the program announced inearly is now implemented as planned. Somedecisions made will take place in early year .In total sek . b. were spent in , with costsavings of sek . b. As indicated above, ,employees were affected. Some of the employeesparticipate in a training program for enhancedskills, to make them more attractive on the labormarket, and with a guaranteed employment in amanning-company, should they not find new jobswithin a year. Expected net savings are sek. b. in and sek . b. from . Since theprogram is now well under control, from thispoint on it will be considered a part of Ericsson’sregular operations.

The objectives for Ericsson’s millennium pro-gram were to retain satisfied customers, to pro-tect shareholder value and to secure workingconditions. All three objectives were met and nomajor incident was experienced during the tran-sition. The total accumulated costs of the projectare sek . b., of which sek . b. during ,mainly as part of selling and administrationexpenses. Additional costs of around sek . b.are expected for year .

Ericsson has production operations in facilitiesin countries, for the assembly of electroniccomponents and manufacturing of cables andcomponents. The environmental impact of theseoperations consists of emissions to air and water,waste products and noise. Chemicals used includeflux and soldering paste and powder lacquer.Life-cycle analyses of our products show thelargest impact on the environment to be theirenergy consumption in use. Ericsson is fullyexploiting the it industry’s inherent possibilitiesto miniaturize products and reduce their energyconsumption, which often reduces the unfavor-able environmental impact for a given functionconsiderably.

SWEDISH REGULATIONS REQUIRING

PERMISSIONS OR REPORTING

Ericsson has production facilities in Sweden.For of these, permission is required for opera-tions due to noise or emissions into air or water,while units are obliged to report certain haz-ardous activities. No material requests or com-plaints have been received during the year.

EARNINGS PER SHARE

(SEK)

0

1

2

3

4

5

6

7

1995 1996 1997 1998 1999

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ISO-CERTIFICATES

The iso environmental management systemis scheduled for implementation in all productionunits at the latest at the end of year . In Swe-den, of Ericsson’s production units have alreadybeen certified and another are recommended buthave not yet received their certificates.

ENVIRONMENTAL LIABILITIES

The situation regarding so-called environmentalliabilities has been examined.

For the Swedish units, the total liability forenvironmental damages is less than sek million. Remedial actions for sek millionwill be carried out during year . For unitsoutside Sweden, only one material damage isknown concerning a facility in Holland. Theliability issue is now regulated in an agreementwith the Dutch authorities and a provision forthis liability is made in the accounts.

For further information on Ericsson’s environ-mental activities, please see our separate Environ-mental Report for .

Telefonaktiebolaget LM Ericsson’s Board of Direc-tors consists of nine members, without deputies,who are elected by the Annual General Meeting,and three members with deputies, who areappointed by the employee organizations. In July,ceo Sven-Christer Nilsson resigned from theBoard and was not replaced, which reduced thenumber of directors elected by the Annual Gener-al Meeting to eight. Company staff participate inBoard meetings delivering special presentations.

During fiscal year , the Board held ninemeetings. The company auditors have reportedtheir observations from the audits to the Board.

The work of the Board follows a set plan,which is designed to meet the Board’s need forinformation and otherwise follows the arrange-ment the Board has adopted with respect to thedivision of work between the Board and the Pres-ident. Accordingly, matters handled by the Boardinclude Ericsson’s strategy and organizationalstructure, major investments in businesses andplants, major sales of operations and plants, largecustomer financing projects, and rules governingcash management.

The Board has also established a presidium,consisting of the Chairman, the two Vice Chair-men and the President, which during the periodbetween Board meetings act on urgent matters,such as projects involving customer financingand acquisitions and divestments based on autho-rization by the Board. The presidium also estab-lishes the terms of employment for the presidentand reports them to the Board for approval.

The Board’s annual review of its work proce-dures has resulted in a new plan for allocation ofresponsibilities for year . Three committeescomposed of Board members, namely the FinanceCommittee, the Remuneration Committee andthe Audit Committee have substituted the pre-sidium. The Board has authorized the FinanceCommittee and the Remuneration Committee todecide on certain kinds of matters. The Boardmay also provide further authorization to itsCommittees to decide on specific matters. Thepurpose of this change is to make the work of theBoard even more effective in a business that issubject to rapid development and to enable theBoard to devote additional time to strategic mat-ters and over all planning.

In early , Ericsson sold its majority holdingsin the Italian network construction companyCosir S.p.A. Ericsson retains a minority holding.

During the year, the following acquisitionswere made:• the Brazilian company Matec s.a. is now a

subsidiary, since ownership has increased from percent to . percent.

• the Infrastructure division of Qualcomm Inc.was acquired and incorporated as EricssonWireless Communications Inc.

• the Mobile network planning and field mea-surement division of lcc International Inc.was acquired and incorporated as EricssonNetQual Inc.

• Torrent Networking Technologies Inc.,renamed Ericsson ip Infrastructure Inc.

• TouchWave Inc., renamed Ericsson WebComInc.

• Telebit a/s• Ericsson increased its holdings in the Nigerian

company LM Ericsson (Nigeria) Ltd to percent and the company is now a consolidat-ed subsidiary

• Holdings in a new associated company: acrossholding ab

• Minority holdings in:Juniper, Saraïde,oz.com, iD2 Technologies ab

A shared service company was established inSweden, Ericsson Shared Services ab, supportingSwedish subsidiaries regarding accounting,reporting, payroll and travel management ser-vices.

LM Ericsson Data ab and Semantica abchanged their names to Ericsson Business Con-sulting ab and Ericsson Business ConsultingSverige ab, respectively. These companies are apart of the business segment Enterprise solutions’consulting unit.

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In Spain, the three subsidiaries Ericsson Info-com Espana s.a., Ericsson Radio s.a. and Erics-son Redes s.a. merged into Ericsson Espana s.a.

In France, s.a. Ericsson and Ericsson Radios.a. and parts of met Commutation havemerged into Ericsson s.a.

Ericsson signed a letter of intent with Compaqto outsource it support, starting in the Nordicregion and involving more than , workstations.

Other outsourcing activities include manufac-turing and software design operations in Longue-nesse, France, and Östersund, Sweden, to Solec-tron and in Katrineholm, Sweden, to Flextronics.A software development unit in Östersund, Swe-den, has been transferred to au-system ab.

During the year it was decided that Ericssonwill divest the majority of its real estate holdingsand focus capital utilization on its core businessactivities. These divestitures will occur in year. Real estate management and services inthe Stockholm area will be outsourced to Skanskaearly in year .

Ericsson has branch and representative officesin () countries.

-

DIVESTITURES

Agreements have been entered into to divest thePrivate Radio Systems business in USA to Com-Net Critical Communications in the first quarterand the Energy Systems part of Ericsson Compo-nents to Emerson Electric Co during the secondquarter.

BOARD OF DIRECTORS

On January , , Lars-Eric Petersson resignedas a board member upon his appointment aschairman of the Swedish network operator Telia.

MANAGEMENT CHANGES

Effective February 15, Jan Wäreby, previouslyExecutive Vice President Market areaEurope/Middle East/Africa, will succeed JohanSiberg as Executive Vice President for the Con-sumer Products segment.

Johan Siberg, Executive Vice President, willassume a position as coordinator of Swedish oper-ations, reporting to the President.

Ragnar Bäck, currently President in our Ital-ian subsidiary, will take up a position as a mem-ber of the Corporate Executive Team and Execu-tive Vice President, head of of Market Area West-ern Europe. Also effective February 15, 2000.

Appointment of a manager for Market AreaEastern Europe/Middle East/Africa will beannounced shortly.

For the full year , we believe in continuedstrong market growth where Ericsson gains bene-fits from our leading position in mobile telepho-ny and in the growth of mobile Internet. Ourlong-term financial targets remain unchanged:we intend to grow faster than the market, whichmeans growing by at least percent, and with areturn on capital employed of – percent withpositive cash flow before strategic acquisitions,and an operating margin of at least percent.

During , we expect sales to increase bymore than percent and a substantial growth inearnings. We intend to achieve this with a posi-tive cash flow.

The first quarter of was exceptionallyweak, affected by restructuring costs and slowdevelopment in China and for mobile phones. Forthe first quarter of year , we expect a salesgrowth of more than percent and incomebefore taxes in the range of three times that of thefirst quarter of .

The parent company’s results include the opera-tions conducted on commission basis by Erics-son Telecom ab, Ericsson Treasury Services aband, since January 1, the newly establishedcompany Ericsson Credit ab, which managesEricsson’s customer financing credit portfolio.The commission agreement with Ericsson Tele-com ab has been cancelled as per January ,.

Net Sales for the parent company weresek . (.) b. and Income before appropria-tions to/from untaxed reserves and taxes was sek. (.) b.

Major changes in the company’s financialposition were:• increased investments in subsidiaries of

sek . b., of which sek . b. were attribut-able to stock issues in Ericsson Holding II Inc.(USA).

• increased long-term loans to subsidiaries ofsek . b.

• increased long-term customer financing ofsek . b.

• increased bank and short-term cash invest-ments of sek . b.These investments were financed through

increased borrowings. During the year, the com-pany sold a major part of its real estate holdingsto Ericsson companies in Sweden. At year-end,cash and short-term cash investments amountedto sek . b.

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The Board of Directors will propose to the Annu-al General Meeting a bonus issue, by way of anincrease of the par value of A and B shares fromsek . to sek . followed by a split :.Trading with shares of the new par value sek. is expected to commence in the beginning ofMay .

The Board of Directors welcome the proposedchange in legislation to enable repurchase ofshares and will present a proposal to the AnnualGeneral Meeting in light of the final decisionstaken by legislative bodies in Sweden.

Available for distribution by the shareholders atthe Annual General Meeting aresek ,,,. The Board of Directors pro-poses that these earnings be distributed as fol-lows:

an unchanged dividend of sek . per share to be paid to shareholders duly registered on the Record date

sek ,,,the remainder to be retained within the business sek ,,,

Total amount available sek ,,,

Debentures ⁄ converted up to Febru-ary , , are also entitled to dividend for .Assuming all such debentures are converted byFebruary , the dividend will amount to the sumspecified above.

Stockholm January , Telefonaktiebolaget LM Ericsson (publ)

Org. no. -

Tom Hedelius Lars Ramqvist Marcus WallenbergVice Chairman Chairman and Vice Chairman

Göran Lindahl Sverker Martin-Löf Clas Reuterskiöld

Peter Sutherland Göran Engström Jan Hedlund

Per Lindh

Kurt HellströmPresident

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Years ended December 31, SEK m. 1999 1998 1997

Net sales NOTE 1 215,403 184,438 167,740

Cost of sales –125,881 –105,251 –97,868

Gross Margin 89,522 79,187 69,872

Research and development and other technical expenses –33,123 –28,027 –24,242

Selling expenses –31,205 –24,108 –20,464

Administrative expenses –10,078 –8,922 –7,755

Other operating revenues NOTE 2 2,224 995 866

Share in earnings of associated companies 250 148 480

Operating Margin 17,590 19,273 18,757

Financial income NOTE 3 2,273 2,228 2,413

Financial expenses NOTE 3 –2,971 –2,465 –2,365

Income After Financial Items 16,892 19,036 18,805

Minority interest in income before taxes –506 –826 –1,587

Income Before Taxes 16,386 18,210 17,218

Taxes

Income taxes for the year NOTE 4 –4,358 -5,409 -5,755

Minority interest in taxes 102 240 478

NET INCOME 12,130 13,041 11,941

Earnings per share, SEK NOTE 5 6.17 6.66 6.08

CONSOLIDATED INCOME STATEMENT

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December 31, SEK m. 1999 1998

ASSETS

Fixed Assets

Intangible assets NOTE 6 10,548 6,354

Tangible assets NOTE 7, 23, 25 24,719 22,516

Financial assets NOTE 8

Equity in associated companies 2,712 2,777

Other investments 1,751 1,438

Long-term customer financing 6,657 5,937

Other long-term receivables 4,972 2,902

51,359 41,924

Current Assets

Inventories NOTE 10 25,701 26,973

Receivables

Accounts receivable - trade NOTE 11 63,584 53,900

Short-term customer financing 1,749 3,837

Other receivables NOTE 13 31,227 22,589

Short-term cash investments 13,415 6,356

Cash and bank 15,593 11,877

151,269 125,532

TOTAL ASSETS 202,628 167,456

Assets Pledged as Collateral NOTE 20 2,068 1,203

CONSOLIDATED BALANCE SHEET

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STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

Stockholders’ Equity NOTE 14

Capital stock 4,893 4,878

Reserves not available for distribution 32,618 28,053

Restricted equity 37,511 32,931

Retained earnings 19,535 17,140

Net income 12,130 13,041

Non-restricted equity 31,665 30,181

69,176 63,112

Minority Interest in Equity of Consolidated Subsidaries 2,182 2,051

Provisions NOTE 16 22,552 22,284

Long-Term Liabilities NOTE 17, 20

Notes and bond loans 17,486 4,470

Convertible debentures 5,453 6,241

Liabilities to financial institutions 1,448 1,898

Other long-term liabilities 567 459

24,954 13,068

Current Liabilities NOTE 20

Current maturities of long-term debt 1,491 1,188

Current liabilities to financial institutions NOTE 18 10,519 5,427

Advances from customers 6,437 8,398

Accounts payable – trade 21,618 18,246

Income tax liabilities 2,397 1,957

Other current liabilities NOTE 19 41,302 31,725

83,764 66,941

TOTAL STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES1) 202,628 167,456

Contingent Liabilities NOTE 21 10,127 8,063

1) Of which interest-bearing provisions and liabilities 45,020 27,474

CONSOLIDATED BALANCE SHEET

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OPERATIONS NOTE 22

Net income 12,130 13,041 11,941

Adjustments to Reconcile Net Income to Cash

Minority interest in net income 404 586 1,109

Undistributed earnings of associated companies 18 –359 –90

Depreciation and amortization 7,382 6,081 5,756

Capital gains (-)/losses on sale of fixed assets –1,399 –230 152

Taxes –947 –2,301 619

Changes in Operating Net Assets

Inventories 714 –2,056 –3,396

Customer financing, short-term and long-term 722 –5,727 –347

Accounts receivable - trade and other operating assets –19,562 –10,695 –15,828

Provisions and other operating liabilities 13,463 9,054 14,986

Cash Flow From Operating Activities 12,925 7,394 14,902

INVESTMENTS

Investments in tangible assets –9,085 –8,965 –7,237

Sales of tangible assets 625 632 642

Acquisitions/sales of other investments, net NOTE 22 –4,768 –8,865 –69

Net change in capital contributed by minority 134 35 21

Other –2,270 –56 –513

Cash Flow From Investing Activities –15,364 –17,219 –7,156

Cash Flow Before Financing Activities –2,439 –9,825 7,746

FINANCING NOTE 22

Changes in current liabilities to financial institutions, net 3,854 955 96

Issue of convertible debentures 58 19 4,875

Proceeds from issuance of other long-term debt 15,163 3,366 2,571

Repayments of long-term debt –1,515 –1,332 –2,672

Dividends paid –4,010 –3,800 –2,805

Cash Flow From Financing Activities 13,550 –792 2,065

Effect of exchange rate changes on cash –336 –277 256

Net Change in Cash 10,775 –10,894 10,067

Cash, Beginning of Period 18,233 29,127 19,060

CASH, END OF PERIOD 29,008 18,233 29,127

CONSOLIDATED STATEMENT OF CASH FLOWS

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Net sales NOTE 1 15,375 16,836 16,217

Cost of sales –10,944 –11,657 –12,205

Gross Margin 4,431 5,179 4,012

Research and development and other technical expenses –5,386 –6,324 –6,635

Selling expenses –4,116 –2,370 –1,568

Administrative expenses –2,580 –1,889 –1,329

Other operating revenues NOTE 2 3,155 2,666 2,368

Operating Margin –4,496 –2,738 –3,152

Financial income NOTE 3 9,915 6,052 6,223

Financial expenses NOTE 3 –2,202 –1,942 –1,827

Income After Financial Items 3,217 1,372 1,244

Appropriations to (-)/transfers from untaxed reserves

Changes in depreciation in excess of plan NOTE 15 371 204 337

Changes in other untaxed reserves NOTE 15 –2,691 –174 –504

–2,320 30 –167

Contributions from subsidiaries, net 5,292 4,749 4,074

Income Before Taxes 6,189 6,151 5,151

Income taxes for the year NOTE 4 –623 –419 –393

NET INCOME 5,566 5,732 4,758

PARENT COMPANY INCOME STATEMENT

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ASSETS

Fixed Assets

Intangible assets NOTE 6 56 78

Tangible assets NOTE 7, 25 828 2,625

Financial assets

Investments

Subsidiaries NOTE 8, 9 24,364 19,262

Associated companies NOTE 8, 9 1,039 974

Other investments NOTE 8 53 46

Receivables from subsidiaries NOTE 12 17,925 12,329

Long-term customer financing NOTE 8 6,320 280

Other long-term receivables NOTE 8 2,129 127

52,714 35,721

Current Assets

Inventories NOTE 10 952 1,607

Receivables

Accounts receivable – trade NOTE 11 2,402 2,544

Short-term customer financing 178 30

Receivables from subsidiaries NOTE 12 22,336 18,617

Other receivables NOTE 13 9,184 7,618

Short-term cash investments 12,062 5,732

Cash and bank 5,028 4,665

52,142 40,813

TOTAL ASSETS 104,856 76,534

Assets Pledged As Collateral NOTE 20 1,845 402

PARENT COMPANY BALANCE SHEET

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STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

Stockholders’ Equity NOTE 14

Capital stock 4,893 4,878

Share premium reserve 1,941 1,687

Revaluation reserve 20 95

Statutory reserve 9,681 9,680

Restricted equity 16,535 16,340

Retained earnings 10,734 8,832

Net income 5,566 5,732

Non-restricted equity 16,300 14,564

32,835 30,904

Untaxed Reserves NOTE 15 5,406 3,086

Provisions NOTE 16 5,513 3,731

Long-Term Liabilities

Notes and bond loans NOTE 17 17,486 4,470

Convertible debentures NOTE 17 5,453 6,195

Liabilities to financial institutions NOTE 17, 20 370 320

Liabilities to subsidiaries NOTE 12, 17 3,454 2,821

Other long-term liabilities NOTE 17 53 21

26,816 13,827

Current Liabilities NOTE 20

Current maturities of long-term debt 587 558

Current liabilities to financial institutions NOTE 18 929 26

Advances from customers 252 365

Accounts payable – trade 821 1,203

Liabilities to subsidiaries NOTE 12 25,601 17,448

Income tax liability 229 104

Other current liabilities NOTE 19 5,867 5,282

34,286 24,986

TOTAL STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES 104,856 76,534

Contingent Liabilities NOTE 21 11,611 6,968

PARENT COMPANY BALANCE SHEET

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OPERATIONS

Net income 5,566 5,732 4,758

Adjustments to Reconcile Net Income to Cash

Depreciation and amortization 322 442 665

Capital gains (-)/losses on sale of fixed assets 41 1,022 94

Appropriations to/transfers from (-) untaxed reserves 2,320 –30 167

Unsettled contributions from (-)/to subsidiaries –5,200 –4,700 –4,000

Unsettled dividends –3,904 –2,290 –3,269

Changes in Operating Net Assets

Inventories 655 164 –311

Customer financing, short-term and long-term –6,188 –164 –86

Accounts receivable – trade and other operating assets –155 5,133 –5,079

Provisions and other operating liabilities 1,752 –237 5,158

Cash Flow From Operating Activities –4,791 5,072 –1,903

INVESTMENTS

Investments in tangible assets –368 –396 –622

Sales of tangible assets 1,810 247 401

Acquisitions/sales of other investments, net –5,185 –5,978 –97

Lending, net –4,397 –4,706 –3,370

Other –1,705 - –111

Cash Flow From Investing Activities –9,845 –10,833 –3,799

Cash Flow Before Financing Activities –14,636 –5,761 –5,702

FINANCING

Changes in current liabilities to financial institutions, net 890 –206 207

Changes in current liabilities to subsidiaries 11,120 –4,181 13,199

Issue of convertible debentures - - 6,000

Proceeds from issuance of other long-term debt 13,323 2,645 1,866

Repayments of long-term debt –556 –428 –1,804

Dividends paid –3,904 –3,410 –2,404

Other 456 269 –38

Cash Flow From Financing Activities 21,329 –5,311 17,026

Net Change in Cash 6,693 –11,072 11,324

Cash, Beginning of Period 10,397 21,469 10,145

Cash, End of Period 17,090 10,397 21,469

PARENT COMPANY STATEMENT OF CASH FLOWS

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In millions of Swedish kronor (except per share amounts) atDecember each year, unless otherwise stated.

The consolidated financial statements ofTelefonaktiebolaget LM Ericsson and its subsidiaries(“the Company”) are prepared in accordance withaccounting principles generally accepted in Sweden,thereby applying the Swedish Financial AccountingStandards Council’s (rr) recommendations. Theseaccounting principles differ in certain respects fromthose in the United States. For a description of majordifferences, see Note .

(A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include theaccounts of the Parent Company and all subsidiaries.Subsidiaries are all companies in which the Companyhas an ownership and directly or indirectly has avoting majority or by agreement has a decisive influ-ence. Intercompany transactions have been eliminated.

The consolidated financial statements have beenprepared in accordance with the purchase method,whereby consolidated stockholders’ equity includesequity in subsidiaries and associated companiesearned only after their acquisition.

In the consolidated Income Statement, minorityinterests are, in deviation from the Swedish FinancialAccounting Standards Council’s recommendationrr, divided into two items; share in income beforetaxes and share in taxes. The reason is that thismethod, considering the significant minority interestholdings in the group during the last years, gives amore fair view of the important measure Incomebefore taxes.

Material investments in associated companies,where voting stock interest is at least percent butnot more than 50 percent, are accounted for accordingto the equity method. Ericsson’s share of incomebefore tax in these companies is reported in item“Share in earnings of associated companies”, includedin the Operating Margin. Taxes are included in item“Taxes”. Unrealized internal profits in inventory inassociated companies purchased from subsidiaries areeliminated in full in the consolidated accounts.Investments in associated companies are shown atequity after adjustments for unrealized intercompanyprofits and unamortized goodwill (see (B) below).

Undistributed earnings of associated companiesincluded in consolidated restricted equity arereported as “Equity proportion reserve”. Minor

investments in associated companies and all otherinvestments are accounted for as Other investments,and carried at the lower of cost or fair market value.

(B) GOODWILL

Goodwill, positive and negative, resulting fromacquisitions of consolidated companies isamortized/reversed according to individual assessmentof each item’s estimated economic life, resulting inamortization periods of up to years. Depending onthe nature of the acquisition, goodwill amortizationsare reported under “Research and development andother technical expenses”, “Selling expenses” or‘‘Administrative expenses”.

(C) TRANSLATION OF FOREIGN CURRENCY

FINANCIAL STATEMENTS

For most subsidiaries and associated companies, thelocal currency is the currency in which the companiesprimarily generate and expend cash, and is thus con-sidered their functional (business) currency. Theirfinancial statements plus goodwill related to suchcompanies, if any, are translated to sek using thecurrent method, whereby any translation adjustmentsare reported directly to stockholders’ equity. When acompany accounted for in accordance with these prin-ciples is sold, accumulated translation adjustmentsare included in the consolidated income.

Financial statements of companies with financeactivities or other companies, having such close rela-tions with the Swedish operations that theirfunctional currency is considered to be the Swedishkrona, are labeled “integrated companies” and aretranslated using the monetary method. Adjustmentsfrom translation of financial statements of these com-panies are included in the consolidated income state-ment (see Note ).

Financial statements of companies operating forexample in countries with highly inflationaryeconomies, whose functional currency is considered tobe another currency than local currency, are translatedin two steps. In the first step, remeasurement is madeinto the functional currency. Gains and losses result-ing from this remeasurement are included in the con-solidated income statement. In the second step, fromthe functional currency to Swedish kronor, balancesheet items are translated at year-end exchange rates,and income statement items at the average rates ofexchange during the year. The resulting translation

NOTES

Notes to the Financial StatementsAccounting principles

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adjustments are reported directly against stockholders’equity. The remeasurement in step one is a deviationfrom the Swedish Financial Accounting StandardsCouncil’s recommendation rr, which requires infla-tion adjustment of such financial statements. In ouropinion, the remeasurement method, which is inaccordance with u.s. gaap fas , gives a more fairview of these financial statements, since companiesconcerned opereate in de facto dollar-based economies.

(D) TRANSLATION OF FOREIGN CURRENCY

ITEMS IN INDIVIDUAL COMPANIES

In the financial statements, receivables and liabilitiesin foreign currencies have been translated at year-endexchange rates.

Gains and losses on foreign exchange are dividedinto operational and financial. Net operational gainsand losses are included in Cost of sales. Gains andlosses on foreign exchange attributable to financialassets are included in financial income, and gains andlosses related to financial liabilities are included infinancial expenses.

Translation effects related to permanent financingof foreign subsidiaries are reported directly toStockholder’s equity, net of tax effects.

(E) VALUATION OF SHORT-TERM CASH INVEST-

MENTS AND DERIVATIVES

Short-term cash investments held by companies otherthan Ericsson Treasury Services ab are valued at thelowest of acquisition cost plus accrued interest andmarket value.

Short-term cash investments and interest relatedderivatives in Ericsson Treasury Services ab arevalued at market value, and net unrealized gains arereserved. Gains and losses from derivatives in EricssonTreasury Services ab are reported net as Other finan-cial income/expense.

Financial assets and liabilities, including un-realized gains and losses on derivatives, are reportednet in the Balance Sheet only when accounting prin-ciples so permit, for example when isda-agreementsare signed.

Derivative instruments are used mainly to hedgefinancial interest- and currency risks.

In order to limit currency risks, purchases andsales in foreign currencies are hedged using forwardcurrency contracts in all cases involving firm commit-ments with suppliers and customers. In addition,anticipated future cash flows in foreign currencies arealso hedged for periods of – months. The hedgeperiods shall agree with expected future cash flow.Some bids are also hedged, normally through curren-cy options.

Forward exchange options and investmentshedging certain positions have been valued in a man-ner reflecting the accounting for the hedged position.Interest-related derivatives linked to specific invest-ments or loans or which are applied to hedge interestpositions are valued in the same manner as thehedged instrument. Other foreign exchange relatedderivatives are valued at market.

When a transaction hedged in advance ceases to bean exposure, the hedge is closed. Hereby deviationsbetween actual and hedged flows are recognized inincome as soon as they are identified.

Currency forward contracts related to future cashflows correspond to – months of future sales. Netunrealized loss after market evaluation of contractsrelated to future cash flows was sek –. b., which isa result mainly of higher dollar spot rates at year- endthan when hedging was made. This effect has notbeen included in income for , since these con-tracts are entered into as hedges of committed andreasonably assured cash flows and therefor by Swedishaccounting principles are not valued at market.

The use of currency forward contracts as hedges isentirely according to Ericsson’s policy to avoid cur-rency speculation and minimize risk. The hedges haveserved their purpose of safeguarding our calculatedsales margins. Forward contract periods for estimatedcash flows are chosen to give us sufficient lead timeto adjust or renegotiate prices with customers or ven-dors or take other actions, which means that effects ofnominal currency rate changes are to a large extentmoderated.

To calculate a gain or loss as if hedges had notbeen made is therefore somewhat artificial – it showsan opportunity gain or loss which would imply aspeculation element by not hedging. This opportuni-ty cost effect during the year is varied, with a netoverall loss. The loss is mainly due to usd contracts,driven by the stronger dollar resulting in hedgedrates lower than spot rates, which is partly offset bygains related mainly to a weaker Euro, where thehedged rates were higher than spot rates. Since wereceive more foreign currency than we pay, our for-ward contracts are net sales contracts where we sellour excess foreign currency to banks, which is the rea-son why a higher rate is more favorable than a lowerrate.

(F) TANGIBLE FIXED ASSETS

Tangible fixed assets are stated at cost less accumu-lated depreciation, adjusted with net value of revalua-tions.

Annual depreciation is reported as plan deprecia-tion, generally using the straight-line method, withestimated useful lives of, in general, years on

NOTES

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buildings, years on land improvements, to years on machinery and equipment, and up to yearson rental equipment. Depreciation is included in Costof Sales and in the respective functional operatingexpenses.

(G) INVENTORIES

Inventories are valued at the lowest of cost or marketon a first-in, first-out (fifo) basis. Consideration hasbeen given to risks of obsolescence.

(H) REVENUE RECOGNITION

Sales revenue is recorded upon delivery of products,software and services according to contractual termsand represent amounts realized, excluding value-added tax, and are net of goods returned, trade dis-counts and allowances.

Revenue from long-term customer contracts isrecognized successively. If costs required to completesuch contracts are estimated to exceed remainingrevenues, provision is made for estimated losses.

For sales between consolidated companies, as a rulethe same pricing is applied as in transactions withother customers, taking into account, however, thatcertain costs are eliminated in transactions betweenaffiliated companies.

(I) RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed asincurred. Costs based on orders from customers areincluded in Cost of sales.

(J) LEASING

Property leases with the company as lessee are nor-mally expensed over the term of the lease. TheCompany applies the Swedish Financial AccountingStandards Council’s recommendation No. formaterial lease contracts. Accordingly, certain leasingcontracts are capitalized and reported as acquisitionsof tangible assets and as other current liabilities andother long-term liabilities.

(K) DEFERRED TAX IN UNTAXED RESERVES

The Company reports deferred taxes attributable totemporary differences between the book value ofassets and liabilities and their tax value, and alsodeferred tax receivables attributable to unutilized losscarryforwards with a probability to be used greaterthan percent.

Appropriations and Untaxed reserves are notreported in the consolidated financial statements.

Such items reported by consolidated companies havebeen reversed, applying the current tax rate applica-ble in each country. The deferred tax so calculated isshown in the consolidated income statement asDeferred taxes. The after-tax effect is stated in theincome statement as part of net income for the year,and in the balance sheet as restricted stockholders’equity.

The accumulated deferred tax liability is adjustedeach year by applying the current tax rate in eachcountry and is reported in the consolidated balancesheet as Deferred tax. An adjustment of deferred taxliability attributable to changes in tax rates is shownin the consolidated income statement as a part of thedeferred tax expense for the period.

(L) STATEMENT OF CASH FLOWS

Statement of Cash Flows is prepared principally inaccordance with recommendation rr from theSwedish Financial Accounting Standards Council.The Statement of Cash Flows shows changes in thecash position during the year attributable to opera-tions, investing activities and financing activitiesrespectively.

Foreign subsidiaries’ transactions are translated atthe average exchange rate during the period.

Subsidiaries purchased and/or sold, net of cashacquired/sold, are reported as cash flow from invest-ment activities and do not affect reported cash flowfrom operations.

In preparation of the Statement of Cash Flows,changes in deferred tax assets and liabilities have beentaken into account.

(M) OPERATIONS ON COMMISSION BASIS

REPORTED IN PARENT COMPANY ACCOUNTS

Ericsson Treasury Services ab and Ericsson Telecomab have conducted their operations on commissionbasis for the Parent Company as in previous years.Ericsson Credit ab has been added as a commission-ary company in .

The agreement about operations on commissionbasis between Ericsson Telecom ab and the ParentCompany, signed in , has been cancelled as perJanuary , .

NOTES

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NOTES

Market Areas

CONSOLIDATED 1999 1998 1997

Europe*, Middle East, Africa 115,065 97,456 83,490North America 25,175 18,560 18,973Latin America 30,263 25,537 21,267Asia Pacific 44,900 42,885 44,010Total** 215,403 184,438 167,740

* Of which Sweden 7,551 8,509 9,320** Of which EU 80,345 71,094 64,244

PARENT COMPANY 1999 1998 1997

Europe*, Middle East, Africa 10,907 11,315 11,171North America 273 202 282Latin America 2,036 2,362 2,185Asia Pacific 2,159 2,957 2,579Total** 15,375 16,836 16,217

* Of which Sweden 2,346 2,062 3,789** Of which EU 8,047 7,903 6,064

Business Segments

CONSOLIDATED 1999 1998

Network Operators and Service Providers 149,943 123,219Consumer Products 46,444 45,237Enterprise Solutions 17,345 14,561Other operations 16,750 15,170Less: intersegment sales –15,079 –13,749Total 215,403 184,438

Parent Company sales are mainly related to business seg-ment Network Operators and Service Providers.


Financial IncomeResult from securities andreceivables accounted foras fixed assets 1,426 892 491Other interest income andsimilar profit/loss items 847 1,336 1,922

Total financial income 2,273 2,228 2,413

Financial ExpensesInterest expenses andsimilar profit/loss items 2,971 2,465 2,365

Total financial expenses 2,971 2,465 2,365

Financial Net –698 –237 48


Financial IncomeResult from participationsin subsidiaries

Dividends* 7,750 4,026 4,326Net gains on sales - 468 7

Result from participationsin associated companies

Dividends 122 6 54Net gains on sales 123 - 2

Result from other securities and receivables accounted for as fixed assets 2 2 1Other interest incomeand similar profit/loss items

Subsidiaries 1,365 892 650Other** 553 658 1,183

Total financial income 9,915 6,052 6,223

Financial ExpensesLosses on sales of participations in subsidiaries 109 1 -Losses on sales of participations in associated companies - 2 74Interest expensesand similar profit/loss items

Subsidiaries 887 1,104 859Other 1,197 824 888

Other financial expenses 9 11 6

Total financial expenses 2,202 1,942 1,827

Financial Net 7,713 4,110 4,396

* Dividends from Ericsson Cables Holding AB amounting to SEK 1,420 m. in1998 has been reported net of a SEK 1,420 m. write-down of the investment inthe company.

** Of the total amount, SEK –4 m. in 1999, SEK –150 m. in 1998, SEK –105 m. in1997 is attributable to hedge of net investments in foreign subsidiaries.

Swedish companies’ interest expenses on pension liabilitiesare included in the interest expenses shown above.

1 Net sales by market area and business segment 3 Financial income and expenses

2 Other operating revenues


Commissions, license feesand other operating revenues 825 765 1,017Gains on sales of intangible and tangible assets 307 89 9Losses on sales of intangible and tangible assets –244 –303 –159Gains on sales of investments and operations 1,733 1,208 64Losses on sales of investments and operations –397 –764 –65

2,224 995 866


Commissions, license feesand other operating revenues 3,210 2,735 2,398Net losses (–) on salesof tangible assets –55 –69 –30

3,155 2,666 2,368

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NOTES


Net income 12,130 13,041 11,941Interest expenses on convertibledebentures, net of income taxes 185 265 55

Net income after full conversion 12,315 13,306 11,996

Average number of sharesoutstanding after full conversion and stock issue including stock dividend element (millions) 1,996.9 1,996.9 1,974.4Earnings per share 6.17 6.66 6.08

5 Earnings per share

Licenses, Patents and trademarks purchasedand similar research and

CONSOLIDATED rights development Goodwill Total

Acquisitions CostOpening balance 1,298 505 7,078 8,881Acquisitions 256 745 4,372 5,373Balances regarding acquired and sold companies –4 –117 9 –112Sales/disposals –10 52 –65 –23Translation difference for the year –117 –15 –258 –390Closing balance 1,423 1,170 11,136 13,729

Accumulated DepreciationOpening balance –1,144 –424 –959 –2,527Depreciation for the year –136 –30 –684 –850Balances regarding acquired and sold companies 3 122 2 127Sales/disposals 8 –83 44 –31Translation difference for the year 110 10 –20 100Closing balance –1,159 –405 –1,617 –3,181

Total 264 765 9,519 10,548

6 Intangible assets


Income tax paid –4,756 –5,214 –6,551Income tax deferred 398 –195 796

Tax on profit for the year –4,358 –5,409 –5,755

As explained under Accounting Principles (K), theCompany reports deferred taxes attributable to untaxedreserves. The Company also reports deferred taxes attribut-able to temporary differences between the book values ofassets and liabilities and their tax values.

In addition, the Company reports deferred tax assetsattributable to unutilized loss carryforwards, if the likeli-hood that they will be used is deemed to be greater than percent. At December , the Company had total unuti-lized loss carryforwards of sek m. The final years inwhich these loss carryforwards can be utilized are shown inthe following table. The Parent Company had no unuti-lized loss carryforwards.

Year of expiration Amount

2000 882001 142002 262003 332004 1372005 or later 170

468

The Parent Company’s deferred taxes for the period amount tosek m., sek – m. and sek m. .

4 Income taxes for the year

Patents,licenses,

trademarks andPARENT COMPANY similar rights

Acquisitions Cost Opening balance 457Acquisitions -Sales/disposals -

Closing balance 457

Accumulated DepreciationOpening balance –379Depreciation for the year –22Sales/disposals -

Closing balance –401

Total 56

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Constructionin process

andLand and Other advance

CONSOLIDATED buildings Machinery equipment payments Total

Acquisitions Cost Opening balance 9,441 14,438 22,386 1,210 47,475Acquisitions 537 2,401 4,034 2,149 9,121Balances regarding acquired and sold companies –53 195 143 24 309Sales/disposals –29 –1,435 –1,901 –60 –3,425Reclassifications 342 691 642 –1,675 -Translation difference for the year –165 –179 –304 –20 –668

Closing balance 10,073 16,111 25,000 1,628 52,812

Accumulated DepreciationOpening balance –2,183 –8,440 –14,799 - –25,422Depreciation for the year –343 –2,442 –3,730 - –6,515Balances regarding acquired and sold companies - 7 172 - 179Sales/disposals 3 1,114 1,827 - 2,944Reclassifications –2 –335 337 - -Translation difference for the year 96 116 203 - 415

Closing balance –2,429 –9,980 –15,990 - –28,399

Accumulated Revaluations, NetOpening balance 461 - 2 - 463Revaluations for the year - - - - -Depreciation for the year on revaluations –53 - - - –53Sales/disposals –83 - 1 - –82Translation difference for the year –22 - - - –22

Closing balance 303 - 3 - 306

Total 7,947 6,131 9,013 1,628 24,719

Constructionin process

andLand and Other advance

PARENT COMPANY buildings Machinery equipment payments Total

Acquisitions Cost Opening balance 2,017 523 1,576 291 4,407Acquisitions 1 2 142 224 369Sales/disposals –1,744 –100 –542 –175 –2,561Reclassifications 92 0 130 –222 0

Closing balance 366 425 1,306 118 2,215

Accumulated DepreciationOpening balance –463 –398 –1,078 - –1,939Depreciation for the year –46 –45 –205 - –296Sales/disposals 446 65 331 - 842

Closing balance –63 –378 –952 - –1,393

Accumulated Revaluations, NetOpening balance 157 - - - 157Depreciation for the year on revaluations –4 - - - –4Sales/disposals –147 - - - –147

Closing balance 6 - - - 6

Total 309 47 354 118 828

During the year the Parent Company has sold to other Swedish Ericsson group companies, land, buildings and other equip-ment with a total book value of sek , m.

7 Tangible assets

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EQUITY IN ASSOCIATED COMPANIES

Opening balance 2,777Share in earnings 250Taxes –109Translation difference for the year –28Dividends –131Acquisitions 32Sales –79

Closing balance 2,712

Goodwill, net, constitutes sek m. () of the invest-ments.

Dividends received from companies accounted for underthe equity method were sek m. in and sek m.in .

Asso-ciated Other

Sub- com- invest-PARENT COMPANY sidiaries panies ments

InvestmentsOpening balance 19,262 974 46Acquisitions and stock issues 3,426 94 6Shareholders’ contribution 1,789 - -Revaluations for the year - - 1Write-downs –51 - -Reclassifications 3 –3 -Sales –65 –26 -

Closing balance 24,364 1,039 53

Long Otherterm long-

Other customer terminvest- finan- receiv-

CONSOLIDATED ments cing ables

Acquisitions CostOpening balance 1,456 7,582 2,926Acquisitions/credits granted 587 8,326 2,844Sales/repayments –270 –6,307 –754Translation difference for the year –31 –88 84Closing balance 1,742 9,513 5,100

Accumulated RevaluationsOpening balance 21 - -Closing balance 21 - -

Accumulated Write-Downs 1

Opening balance –39 –1,645 –24Write-downs for the year –12 –3,847 –62Sales/repayments 39 2,656 –47Translation difference for the year - –20 5Closing balance –12 –2,856 –128

Total 1,751 6,657 4,972 2

1 Write-Downs are included in Selling expenses due to the close relation tooperations.

2 Of which deferred tax assets SEK 964 m. (SEK 789 m. 1998).

Long-term Othercustomer long-term

PARENT COMPANY financing receivables

Acquisitions CostOpening balance 285 127Acquisitions/credits granted 8,017 2,052Sales/repayments –230 –50Closing balance 8,072 2,129

Accumulated Write-DownsOpening balance –5 -Acquired allowances –921 -Write-downs for the year –826 -Closing balance –1,752 -

Total 6,320 2,129

8 Financial assets

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SHARES DIRECTLY OWNED BY THE PARENT COMPANY

Percen-tage ofowner- Par Carrying

Type Company Reg. No. Domicile ship value value

SubsidiariesI Ericsson Utvecklings AB 556137-8646 Sweden 100 10 17I Ericsson Business Networks AB 556090-3212 Sweden 100 360 335I Ericsson Microwave Systems AB 556028-1627 Sweden 100 30 151I Ericsson Radio Systems AB 556056-6258 Sweden 100 50 636I Ericsson Telecom AB 556251-3258 Sweden 100 - -I EHPT Sweden AB 556381-7609 Sweden 60 97 108I Ericsson Mobile Communications AB 556251-3266 Sweden 100 361 516I Ericsson Radio Access AB 556250-2046 Sweden 100 20 41I Ericsson Sverige AB 556329-5657 Sweden 100 100 100I Ericsson Business Consulting AB 556250-9454 Sweden 100 85 102I Ericsson Software Technology AB 556212-7398 Sweden 100 1 67II SRA Communication AB 556018-0191 Sweden 100 47 145II AB Aulis 556030-9899 Sweden 100 14 6II Ericsson Cables Holding AB 556044-9489 Sweden 100 455 969II LM Ericsson Holding AB 556381-7666 Sweden 100 105 1,122III Ericsson Treasury Services AB 556329-5673 Sweden 100 - 2III Ericsson Credit AB 556326-0552 Sweden 100 5 5

Other Sweden - - 710I Ericsson Austria AG Austria 100 60 662I LM Ericsson A/S Denmark 100 90 216I Oy LM Ericsson Ab Finland 100 80 195II Ericsson France S.A. France 100 144 485I Ericsson GmbH Germany 100 39 341I Ericsson Communications Systems Hungary Ltd. Hungary 100 800 48III Ericsson Treasury Ireland Ltd. Ireland 100 81 3,924II Ericsson S.p.A. Italy 72 18,421 105I Ericsson A/S Norway 100 156 194I Ericsson Corporatio AO Russia 100 950 4I Ericsson AG Switzerland 100 - -II Ericsson Holding Ltd. United Kingdom 100 74 757

Other Europe (excluding Sweden) - - 103II Ericsson Holding II Inc. United States 88 1) - 10,591I Cía Ericsson S.A.C.I. Argentina 100 5 10I Teleindustria Ericsson S.A. Mexico 100 n/a 572

Other United States, Latin America - - 134II Teleric Pty Ltd. Australia 100 20 99I Beijing Ericsson Mobile Communication Co. Ltd. China 25 2) 5 36I Ericsson Ltd. China 100 2 2I Nanjing Ericsson Communication Co. Ltd. China 51 11 76I Ericsson Communication Private Ltd. India 100 525 105I Ericsson Telecommunications Sdn. Bhd. Malaysia 70 2 4I Ericsson Telecommunications Pte. Ltd. Singapore 100 - 1I Ericsson Taiwan Ltd. Taiwan 80 160 19I Ericsson (Thailand) Ltd. Thailand 49 3) 15 4

Other Other countries - - 645

Total - 24,364

Associated CompaniesIII AB LM Ericsson Finans 556008-8550 Sweden 90 4) 29 41III Ericsson Project Finance AB 556058-5936 Sweden 91 5) 425 510I Ericsson Nikola Tesla Croatia 49 196 330

Other - - 158

Total - 1,039

9 Investments

The following listing shows certain shareholdings owneddirectly and indirectly by the Parent Company. A completelisting of shareholdings, prepared in accordance with theSwedish Annual Accounts Act and filed with the Swedish

Patent and Registration Office, may be obtained uponrequest to:Telefonaktiebolaget LM Ericsson, Corporate FinancialControl, se- Stockholm, Sweden.

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SHARES OWNED BY SUBSIDIARIES

PercentageType Company Reg. No. Domicile of ownership

SubsidiariesI Ericsson Cables AB 556000-0365 Sweden 100I Ericsson Components AB 556577-4469 Sweden 100I Ericsson S.A. France 100I MET S.A. France 100I LM Ericsson Ltd. Ireland 100I Ericsson Telecomunicazioni S.p.A. Italy 72II Ericsson Holding International B.V. The Netherlands 100II Ericsson Holding Netherland B.V. The Netherlands 100I Ericsson Telecommunicatie B.V. The Netherlands 100I Ericsson España S.A. Spain 100I Ericsson Ltd. United Kingdom 100I Ericsson Mobile Communications (U.K.) Ltd. United Kingdom 100I Ericsson Communications Inc. Canada 100I Advanced Computer Communications Inc. USA 100I Ericsson Inc. USA 100I Ericsson NetQual Inc. USA 100I Ericsson WebCom Inc. USA 100I Ericsson Wireless Communication Inc. USA 100I Ericsson IP Infrastructure Inc. USA 100I Ericsson Telekomunikasyon A.S. Turkey 100I Ericsson Telecomunicações S.A. Brazil 98I Ericsson Telecom S.A. de C.V. Mexico 100I Nippon Ericsson K.K. Japan 90I Ericsson Mobile Communications Sdn Bhd Malaysia Malaysia 100I Ericsson Australia Pty. Ltd. Australia 100

Associated CompaniesI Symbian Ltd. United Kingdom 21

KEY TO TYPE OF COMPANY

9 Investment,continued

I Manufacturing, distributing and development companies

II Holding companies

III Finance companies

1 Through subsidiary holdings, total holdings amount to 100%of Ericsson Holding II Inc.

2 Through subsidiary holdings, total holdings amount to 49% ofBeijing Ericsson Mobile Communications Co. Ltd., but thevoting power is in excess of 50%.

3 Through subsidiary holdings, total holdings amount to 100%of Ericsson (Thailand) Ltd.

4 Voting power is 40%.

5 Voting power is 49%.

ParentConsolidated Company1999 1998 1999 1998

Raw material, components and consumables 13,324 10,696 105 388Manufacturing work in process 1,823 2,926 - 30Finished products and goods for resale 1,972 4,356 104 80Contract work in process 13,398 11,643 774 1,152Less advances from customers –4,816 –2,648 –31 –43

Inventories, net 25,701 26,973 952 1,607

10 Inventories

The subsidiary, Ericsson S.p.A., is listed on the Milan stockexchange in Italy.

Ericsson’s share of the market value as per December ,, was sek , m.

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Receivables inassociated companies 2,358 3,057 1,828 2,907Prepaid expenses 3,231 1,990 283 190Accrued revenues 3,083 1,695 651 272Advance payments to suppliers 887 704 15 1Deferred tax assets 3,413 3,275 - -Other 18,255 11,868 6,407 4,248

31,227 22,589 9,184 7,618

13 Other receivables


Notes and accounts receivable 63,380 53,775 2,292 2,535Receivables fromassociated companies 204 125 110 9

63,584 53,900 2,402 2,544

Allowance for doubtful accounts amounting to sek, m. (,) and sek m. () in the ParentCompany which has reduced the amounts shown above,includes amounts for estimated losses based on commercialrisk evaluations. The allowance does not include provisionsfor potential losses of a political nature.

11 Accounts receivable – trade

Capital stock

Capital stock at December , , consisted of thefollowing:

Number ofshares Aggregate

outstanding par value

A shares (par value SEK 2.50) 164,054,660 410B shares (par value SEK 2.50) 1,793,083,861 4,483

1,957,138,521 4,893

The capital stock of the Company is divided into two class-es: Class A shares (par value sek .) and Class B shares(par value sek .). Both classes have the same rights ofparticipation in the net assets and earnings of theCompany. Class A shares, however, are entitled to one voteper share while Class B shares are entitled to onethousandth of one vote per share.

Reserves not available for distribution

In accordance with statutory requirements in Sweden and cer-tain other countries in which the Company is operating,restricted reserves, not available for distribution, are reported.

According to the Swedish Annual Accounts Act, tangi-ble and financial assets may be revalued, provided theyhave a reliable and lasting value significantly greater thanbook value. Revaluation amounts must either be used forstock issue/stock split or be appropriated to a revaluationreserve. When assets are sold or discarded the revaluationreserve shall be reduced correspondingly.

Cumulative translation adjustments

Opening, balance 288Changes in cumulative translation adjustment –2,403

Closing balance –2,115

Changes in cumulative translation adjustments includechange in cumulative translative adjustments (includinggoodwill) in Brazil, sek –, m. change regarding recal-culation of goodwill in local currency (excluding goodwillin Brazil), sek m., net gain/loss (–) from hedging ofinvestments in foreign subsidiares, sek m. (sek – m.in ) and sek m. (sek m. in ) from sold/liqui-dated companies.

Currency gains/losses resulting from translation of finan-cial statements of integrated companies are included in thefollowing items in the consolidated income statement:

1999 1998

Cost of sales 65 34Financial income –11 14Taxes –3 –2

51 46

14 Stockholders’ equity

PARENT COMPANY 1999 1998

Long-Term Receivables*Financial receivables 17,925 12,329

Current ReceivablesCommercial receivables 2,989 2,398Financial receivables 19,347 16,219

22,336 18,617Long-Term Liabilities *Financial liabilities 3,454 2,821

Current LiabilitiesCommercial liabilities 2,296 1,480Financial liabilities 23,305 15,968

25,601 17,448

* Including non-interest bearing receivables and liabilities, net, amounting toSEK 11,772 m. (8,191). Interest-free transactions involving current receivablesand liabilities may also arise at times. .

12 Receivables and payables– subsidiaries

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Changes in stockholders’ equity

Equity Other Non-Capital proportion restricted Restricted restricted

CONSOLIDATED stock reserve reserves equity equity Total

January 1, 1999 4,878 1,275 26,778 32,931 30,181 63,112Conversion of debentures 15 - 269 284 - 284Capital discount - - –7 –7 - –7Proceeds from unclaimed stock dividend shares - - 1 1 - 1Dividends paid - - - - –3,905 –3,905Revaluation of fixed assets - - –36 –36 - –36Transfer between non-restricted and restricted reserves - 14 6,727 6,741 –6,741 -Changes in cumulative translation adjustments - - –2,403 –2,403 - –2,403Net income 1999 - - - - 12,130 12,130

December 31, 1999 4,893 1,289 31,329 37,511 31,665 69,176

14 continued

Of retained earnings, sek m. will be appropriated toreserves not available for distribution, in accordance withthe proposals of the respective companies’ boards of direc-tors. In evaluating the consolidated financial position, itshould be noted that earnings in foreign companies may besubject to taxation when transferred to Sweden and that, in

some instances, such transfers of earnings may be limitedby currency restrictions.

Consolidated unrestricted retained earnings are translat-ed at the year-end exchange rate. Cumulative translationadjustments have been distributed among unrestricted andrestricted stockholders’ equity.

Share Revalua- Total Disposi- Other Non-Capital premium tion Statutory restricted tion retained restricted

PARENT COMPANY stock reserve 1 reserve reserve equity reserve earnings equity Total

January 1, 1999 4,878 1,687 95 9,680 16,340 100 14,464 14,564 30,904Conversion of debentures 15 269 - - 284 - - - 284Capital discount - –15 - - –15 - - - –15Reversal of revaluation reserve - - –75 - –75 - 75 75 -Proceeds from unclaimedstock dividend shares - - - 1 1 - - - 1Dividends paid - - - - - - –3,905 –3,905 –3,905Net income 1999 - - - - - - 5,566 5,566 5,566

December 31, 1999 4,893 1,941 20 9,681 16,535 100 16,200 16,300 32,835

1 1996 and prior years’ share premium is included in Statutory reserve.

Allocations/PARENT COMPANY 1999 Jan. 1 withdrawals(–) Dec. 31

Accumulated Depreciation In Excess Of PlanIntangible assets 11 - 11Tangible assets 483 –371 112

Total accumulated depreciationin excess of plan 494 –371 123

Other Untaxed ReservesTax equalization reserve 254 –127 127Reserve for doubtful receivables 1,120 2,289 3,409Income deferral reserve 1,218 529 1,747

Total other untaxed reserves 2,592 2,691 5,283

Total Untaxed Reserves 3,086 2,320 5,406

15 Untaxed reserves

Changes in other untaxed reserves in the ParentCompany in consisted of the following: with-drawal of tax equalization reserve, sek m. ();allocation to reserve for doubtful receivables,sek m. () and allocation to income deferralreserve sek m. ().

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ParentConsolidated Company

1999 1998 1999 1998

Pensions and similarcommitments 8,398 8,056 3,037 2,900Deferred taxes 1,220 2,388 - -Other provisions 12,934 11,840 2,476 831

22,552 22,284 5,513 3,731

The pension liabilities include the Parent Company’s andother Swedish companies’ obligations in the amount of sek, m. (,) in accordance with an agreement with thePension Registration Institute (pri), which are covered bya Swedish law on safeguarding of pension commitments.The Parent Company’s pension liabilities include an oblig-ation in the amount of sek , m. (,) in accordancewith its agreement with pri.

Other provisions include amounts for warranty commit-ments, risks regarding off-balance sheet customer financ-ing, restructuring and changes in techique and markets.

16 Provisions


1999 1998 1999 1998

Liabilities to associatedcompanies 823 598 738 546Accrued expenses 27,233 20,716 1,691 1,600Prepaid revenues 966 939 29 4Other 12,280 9,472 3,409 3,132

41,302 31,725 5,867 5,282

19 Other current liabilities

Liabilities to financial institutions consist of bank over-drafts, bank loans and other short-term financial loans.Unused portions of short-term lines of credit for theCompany amounted to sek , m. and for the ParentCompany sek m. In addition, the Parent Company hadunused long-term lines of credit amounting to sek ,m.

18 Current liabilities to financial insti-tutions and unused lines of credit


1999 1998 1999 1998

Notes and bond loans(maturing 2001–2003) 17,486 4,470 17,486 4,470Convertible debentures(maturing 2000) - 725 - 679(maturing 2003) 5,453 5,516 5,453 5,516Liabilities to financial institutions 1,448 1,898 370 320Liabilities to subsidiaries - - 3,454 2,821Other 567 459 53 21

24,954 13,068 26,816 13,827

Consolidated long-term liabilities maturing five years ormore after the balance sheet date:

Notes and bond loans and liabilities to financial institutions 4,669

Other 138

4,807

The Parent Company has two convertible debenture loansoutstanding. One, issued in , with preferential rightsfor Ericsson shareholders, was in the amount of sek ,m. and carries interest of . percent. The debentures areconvertible up to and including May , , at a conver-sion price after stock split, bonus issue and adjustments fornew stock issue, of sek . per B share. During debentures in the amount of sek m. were converted to,, B shares.

Upon conversion of all outstanding debentures, therewould be a further increase of ,, in the number ofshares. During the period January to February , ,additional debentures may be converted to B shares carry-ing right to dividend for .

17 Long-term liabilities

In the consolidated accounts, the equity componentsek m. – calculated as the difference between the con-vertible debenture interest rate, . percent, at expirationof the subscription period on July , and theCompany’s alternative interest rate, . percent – has beencredited to the Statutory reserve as addition to capital in theParent Company only. This capital discount is charged toincome as interest expense under the duration of the loan.

A convertible debenture loan in the amount of sek, m. was issued during . Of the total amount,convertible debentures amounting to sek , m. weresold to Ericsson employees, and debentures amounting tosek , were sold to the wholly owned subsidiary abAulis. The debentures held by ab Aulis are offered at mar-ket price to new employees. The debentures, which carryan interest defined as stibor1 less . percent, are convert-ible to B shares from November , , up to and includ-ing May , , at a conversion price, after the bonus issue, of sek per share.

In the consolidated accounts, a capital discountamounting to sek m. has been calculated, consideringa market interest rate of . percent. The capital discounthas been credited to the Statutory reserve as an addition tocapital in the consolidated financial statements as well as inthe Parent Company (Share premium reserve) in accordancewith the Swedish Financial Accounting Standards Council’srecommendation rr. The capital discount is charged toincome as interest expense under the duration of the loan.The capital discount is re-calculated annually, based onstibor intest rate changes.

During debentures in the amount of sek m.were converted to , B shares. Upon convertion of alloutstanding debentures, there would be a further increaseof ,, in the number of shares. During the periodJanuary through January , , additional debentures,carrying rights to dividends for , were converted to, B shares. 1 Stockholm Inter Bank Offered Rate

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Liabilities Advancesto financial from Total Total

Consolidated institutions customers 1999 1998

Real estate mortgages - 36 36 249Chattel mortgages - - - 369Bank deposits 1,824 - 1,824 212Other 208 - 208 373

2,032 36 2,068 1,203

Parent Company

Chattel mortgages - - - 160Bank deposits 1,824 - 1,824 208Other 21 - 21 34

1,845 - 1,845 402

At December , , the Parent Company had nopledged assets in favor of subsidiaries. However, under cer-tain conditions, it may pledge collateral for certain sub-sidiaries’ pension obligations.

20 Assets pledged as collateral

Leasing obligations

Assets under Financial leases, recorded as tangible assets,consists of:Financial Leases 1999 1998

Acquisitions CostLand and buildings 291 321Machinery 26 25Other equipment 215 41

532 387

Accumulated DepreciationLand and buildings 141 146Machinery 26 25Other equipment 71 25

238 196

Net value 294 191

At December , , future payment obligations for leas-es were distributed as follows:

Financial Operatingleases leases

2000 107 1,9952001 95 1,6292002 39 1,3112003 17 9912004 16 8732005 and later 120 2,902

394 9,701

Expenses for the year for leasing of assets were sek ,m. (sek , m. in and sek , m. in ), ofwhich variable cost sek m.

Leasing income

Some consolidated companies lease equipment, mainly tele-phone exchanges, to customers. These leasing contractsvary in length from to years.

The acquisition value of assets leased to others underOperating leases amounted to sek m. at December , (December , : sek m.). Accumulated depre-ciation amounted to sek m. and net investments tosek m. at December , (December , : sek m. and sek m., respectively).

Net investment in Sales-type leases and Financial leasesamounted to sek m. at December , (December, : sek m.).

Future payments receivable for leased equipment aredistributed as follows:

Sales-type and OperatingFinancial leases leases

2000 15 262001 2 322002 1 122003 - 72004 - 42005 and later - -

18 81Less: interest –1

Net investment 17 81

23 Leasing


Guarantees for customer financing 7,497 4,034 6,756 2,155for accounts receivable 1,104 - 1,000 -

Other contingent liabilities 1,526 4,029 3,855 4,813

10,127 8,063 11,611 6,968

Of the guarantees assumed by the Parent Company, sek, m. in and sek , m. in are related tosubsidiaries.

21 Contingent liabilities

Interest paid in was sek , m. (,) and interestreceived was sek , m. (,). Income taxes paid weresek , m. (,).

Non-cash transaction under “Cash flow from operatingactivities” not reported separately is current year increase inpension liabilities of sek m. (sek m. in andsek m. in ).

Non-cash items in “financing activities”

In , conversions of debentures were made for sek m. ( sek m., sek m.).

Acquisitions/sales of other investments

Cash 62Goodwill 4,297Intangible assets 750Other net assets 203

Purchase price for acquired subsidiaries –5,312Cash in acquired subsidiaries 62Other acquisitions –592Sales 1,074

Acquistions/sales, net –4,768

22 Statement of cash flows

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NOTES

Elements of the Company’s accounting principles which differsignificantly from generally accepted accounting principles inthe United States (u.s. gaap) are described below:

(A) Revaluation of Assets

Certain tangible assets have been revalued at amounts inexcess of cost. Under certain conditions, this procedure isallowed in accordance with Swedish accounting practice.Revaluation of assets in the primary financial statements isnot permitted under u.s. gaap. Depreciation charges relatingto such items have been reversed to income.

(B) Capitalization of Software Development Costs

In accordance with Swedish accounting principles, softwaredevelopment costs are charged against income when incurred.

The Company practices u.s. gaap fas No. “Accoun-ting for the Cost of Computer Software to be Sold, Leased orOtherwise Marketed” and effective , it has adopted sop-, “Accounting for the costs of Computer Software Develop-ed or Obtained for Internal use”. According to these statementsdevelopment costs are capitalized after the product involved hasreached a certain degree of technological feasibility. Capitaliza-tion ceases and amortization begins when the product is readyfor its intended use. The company has adopted an amortizationperiod for capitalized software to be sold of three years and forcapitalized software for internal use of three to five years.

Development costs for softwareto be sold 1999 1998 1997

Captalization 7,898 7,170 5,232Amortization –4,460 –3,824 –3,934Write-downs –989 - -

2,449 3,346 1,298

Write-downs of previously capitalized software costs amountingto sek m. has been made in since one project hasbeen reclassified to non-commercial.

Development costs for softwarefor internal use 1999 1998 1997

Captalization 1,463 - -Amortization –152 - -

1,311 - -

The amortization is low compared to the capitalization since acouple of projects are not ready for their intended use andsome finished projects have been amortized only for a shortperiod of time.

(C) Capital Discount on Convertible Debentures

In accordance with Swedish accounting principles, the⁄ convertible debenture loan and its nominal interestpayments are valued at present value, based on market interestrate. The difference from the nominal amount, the capital dis-count, is credited directly to equity. (Please refer to note fordetails.) In accordance with u.s. gaap, convertible debentureloans are reported as liabilities at nominal value. When calcu-lating income and equity in accordance with u.s. gaap, theeffects of the capital discount are reversed.

(D) Other

Hedge accountingEricsson has currency forward exchange contracts and optionsas hedges of firm commitments as well as budgeted cash flowsregarding sales and purchases. According to Swedish account-ing practice, both kinds are considered hedges and are not val-ued at market. According to u.s. gaap, contracts and optionsnot related to firm commitments are valued at market.

24 Reconciliation to accounting princi-ples generally accepted in the U.S.

Business combination adjustments When applying Swedish accounting practice, the Company hasshown negative goodwill as a deferred credit which is releasedto income over on average – years (see also Notes to thefinancial statements, Accounting Principles (B) and Note ).In accordance with u.s. gaap, negative goodwill should firstbe applied as a reduction of noncurrent assets acquired and beamortized over the economic life of each asset.

In-process research and development In , the Company acquired technology including in-processresearch and development. The in-process research and develop-ment was valued at sek m. Since this technology has notreached technological feasibility and has no alternative use itwas charged to expense under u.s. gaap.

Tax on undistributed earnings in associated companiesIn accordance with Swedish accounting practice, no accrual ismade for withholding taxes on undistributed profits of compa-nies which are consolidated applying the equity accountingmethod. Under u.s. gaap, the company holding shares shouldaccrue for withholding taxes on possible repatriation of profits.

Sale-leaseback of propertyIn , group companies sold a property which was leased tosubsidiaries under contracts expiring in .

Under u.s. gaap, the sale during is considered afinancing arrangement and the gains are deferred and the pro-ceeds are therefore treated as a liability. In accordance withSwedish accounting practice at the time, no deferral of profithad to be made if the sale price did not exceed the market valueand if leasing costs did not exceed normal market leasing rates.

During , Ericsson waived its option to repurchase andcanceled the rental contract on the property. Consequently, theincome portion of the sales proceeds were recognized inincome for the period in accordance with u.s . gaap.

(E) Pensions

The Company participates in several pension plans, which inprinciple cover all employees of its Swedish operations as wellas certain employees in foreign subsidiaries. The Swedishplans are administered by an institution jointly establishedfor Swedish industry (pri) in which most companies inSweden participate. The level of benefits and actuarialassumptions are established by this institution and, accord-ingly, the Company may not change these.

Effective , the Company has adopted fas No. ,Employer’s Accounting for Pensions, when calculating incomeaccording to u.s. gaap. The effects for the Company of usingthis recommendation principally relate to the actuarialassumptions, and that the calculation of the obligation shouldreflect future compensation levels. The difference relative topension liabilities already booked at the introduction in is distributed over the estimated remaining service period.

(F) Capitalization of Interest Expenses

In accordance with Swedish accounting practice, the Companyhas expensed interest costs incurred in connection with thefinancing of expenditures for construction of tangible assets.Such costs are to be capitalized in accordance with u.s. gaap,and depreciated as the assets concerned. Capitalizationamounting to sek m. () has increased income and amor-tization amounting to sek m. () was charged againstincome for the period when calculating income in accordancewith u.s. gaap.

(G) Deferred Income Taxes

Deferred tax is calculated on all u.s. gaap adjustments toincome.

Application of u.s. gaap as described above would havehad the following approximate effects on consolidated net

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income and stockholders’ equity. It should be noted that, inarriving at the individual items increasing or decreasingreported net income, consideration has been given to theeffect of minority interests.

ADJUSTMENT OF NET INCOME 1999 1998 1997

Items increasing reported net incomeDepreciation on revaluation of assets 28 33 22Capitalization of software development costs

to be sold 2,449 3,346 1,298for internal use 1,311 - -

Capital discount on convertible debentures 116 120 13

Other 942 –191 –207

4,846 3,308 1,126

Items decreasing reported incomePensions 416 –211 72Capitalization of interest expenses,net after depreciation 70 67 10Deferred income taxes 1,251 954 137

1,737 810 219

Net increase in net income 3,109 2,498 907Net income as reported in the consolidated income statements 12,130 13,041 11,941

Approximate net income in accordance with U.S. GAAP 15,239 15,539 12,848

Reported income per share, fully diluted 6.17 6.66 6.08Approximate income per share in accordancewith U.S. GAAP, fully diluted 7.68 7.87 6.53

(H) Unrealized gains and losses on available-for-salessecurities

In accordance with Swedish accounting principles investmentsare valued at lower of cost and market. Under u.s. gaapsecurities available for sale that have readily determinable fairvalues shall be measured at fair value in accordance with fasNo. “Accounting for Certain Investments in Debt andEquity Securities”. Unrealized gains and losses shall beincluded in other comprehensive income.

(I) Comprehensive income

The company has presented comprehensive income in accor-dance with fas No , “Reporting Comprehensive Income”.Comprehensive income includes net income and other changesin equity, except those resulting from transactions with owners.

COMPREHENSIVE INCOME

Aproximate net income in accordance with U.S. GAAP 15,239 15,539 12,848

Other comprehensive incomeCumulative translation adjustments –2,442 732 904Cumulative translation adjustmentsfor sold/liquidated companies 1 94 –30Hedging for investments 53 –107 –86Unrealized gains and losses on available-for-sale securities 8,527 - -Minimum pension liability –47 - -Deferred income taxes –2,403 30 24

Total other comprehensive income 3,689 749 812

Approximate comprehensive income in accordance with U.S. GAAP 18,928 16,288 13,660

ADJUSTMENT OF EQUITY 1999 1998 1997

IncreasesCapitalization of softwaredevelopment costs

to be sold 13,193 10,744 7,398for internal use 1,311 - -

Unrealized gains and losses onavailable-for-sale securities 8,527 - -Pensions 422 885 674Capitalization of interest, netafter cumulative depreciation 202 273 339Other 454 –488 –305

24,109 11,414 8,106

ReductionsRevaluation of assets 372 434 425Capital discount onconvertible debentures 566 682 803Deferred income taxes 6,731 3,092 2,138

7,669 4,208 3,366

Adjustment ofstockholders’ equity, net 16,440 7,206 4,740Reported stockholders’ equity 69,176 63,112 52,624Approximate equity according to U.S. GAAP 85,616 70,318 57,364

ADJUSTMENT OF CERTAIN BALANCE SHEET ITEMSACCORDING TO U.S. GAAP

As per reported As perbalance sheet U.S. GAAP

Dec 31 Dec 31 Dec 31 Dec 31SEK m. 1999 1998 1999 1998

Intangible assets 10,548 6,354 24,828 17,098Tangible assets 24,719 22,516 24,544 22,256Other investments 1,751 1,438 10,278 1,438Other receivables 31,227 22,589 33,133 23,745Minority interest in equity 2,182 2,051 2,177 2,021Provisions 22,552 22,284 30,489 25,646Convertible debentures 5,453 6,241 6,019 6,923Other current liabilities 41,302 31,725 40,902 32,143

Provisions include the tax effect of undistributed earnings in associated compa-nies.

The Company in principle follows fas No. when preparingthe statement of cash flows.

According to fas No. , however, only cash, bank andshort-term investments with due dates within months shallbe considered cash and cash equivalents, rather than within months. Applying this definition would mean followingadjustments of reported cash:

Consolidated, SEK m. 1999 1998 1997 1996

Short-term cash investments,cash and bank, as reported 29,008 18,233 29,127 19,060Adjustment for items withmaturity of 4–12 months –9,731 –5,978 –15,004 –8,396Cash and cash equivalentsas per U.S. GAAP 19,277 12,255 14,123 10,664

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Average number of employees

1999 1998CONSOLIDATED Men Women Total Men Women Total

Europe, MiddleEast, Africa 51,716 20,196 71,912 52,365 19,661 72,026

USA and Canada 8,189 3,985 12,174 6,421 3,533 9,954

Latin America 6,571 2,054 8,625 6,279 1,837 8,116

Asia Pacific 7,826 4,429 12,255 7,303 4,086 11,389

74,302 30,664 104,966 72,368 29,117 101,485

Of which Sweden 30,254 12,939 43,193 28,907 12,647 41,554

Of which EU 47,368 18,868 66,236 48,260 18,446 66,706

1999 1998PARENT COMPANY Men Women Total Men Women Total

Europe, Middle East, Africa 3,232 1,345 4,577 4,571 1,958 6,529

USA and Canada - - - - - -

Latin America 5 1 6 - - -

Asia Pacific - - - - - -

3,237 1,346 4,583 4,571 1,958 6,529

Of which Sweden 2,670 1,269 3,939 4,018 1,892 5,910

Of which EU 2,670 1,269 3,939 4,018 1,892 5,910

Wages and salaries and social security expensesParent

Consolidated Company1999 1998 1999 1998

Wages and salaries 37,068 32,226 1,997 2,254Social security expenses 11,305 10,952 1,131 1,331Of which pension costs 2,151 2,605 522 722

Wages and salaries per geographical areaParent

Consolidated Company1999 1998 1999 1998

Europe, Middle East, Africa 25,998 23,627 1,996 2,254USA and Canada 6,360 4,806 - -Latin America 1,816 1,642 1 -Asia Pacific 2,894 2,151 - -

37,068 32,226 1,997 2,254Of which Sweden 14,308 13,301 1,855 2,153Of which EU 24,415 22,380 1,855 2,153

Board of Directors, President and Corporate Executive Vice Presidents 60 50(of which bonus and similar) (6) (12)

Remuneration in foreign currency has been translated toSwedish kronor at average exchange rates for the year.

Option plans have been implemented as a complemen-tary remuneration to key employees:

EmployeesPlan Type Exercisable affected

1998 0.7 million 1999 5007-year call optionsissued by third party

1999 7-year call options In 3 lots (30/40/30%) 2,000issued by Ericsson 3–5 years respec-(number of options tively after grantnot yet decided) to year 7

2000 12.2 million 7-year In 3 lots, 1/3 per year 8,000call options issued 1–3 years respec-by Ericsson tively after grant

to year 7

The options for the plan were granted in . Grantsfor the plan will take place after March , andgrants for the -plan were made on January , .The year plan is planned to be hedged by a swapagreement. The plan is hedged by issuance ofEricsson warrants, which, if fully utilized will have a dilu-tive effect on earnings per share of . percent.

Benefits paid to members of the corporate executive team

The Chairman of the Board of Directors received a fee ofsek ,, during the year. This fee was determined bythe Board of Directors within the total amount of Boardfees approved by the General Meeting.

Members and deputy members of the Board who areEricsson employees received no remuneration or benefitsother than their entitlements as employees. However, a feeof sek per meeting was paid to the employee repre-sentatives on the Board.

The value of the benefits, to which the present ChiefExecutive Officer in such his capacity is entitled for ,amounts to sek ,,, for which amount provision hasbeen made. In addition, the ceo has received sek ,constituting bonus earned when he was President.

The salary and value of benefits paid to the presentcompany President amount to sek 8,905,795. Provisionhas also been made for a bonus of sek , earned .

The salary and value of benefits paid to the formerPresident in amount to sek ,,, of whichsek ,, constitute salary, car benefit and other bene-fits, and sek ,, constitute bonus earned during. In addition, the Company has carried pension costsfor the former President in amounting to sek,,. Moreover, he is also entitled to agreed severance

27 Average number of employees andremuneration in and


Land and land improvements 385 383 41 244Buildings 2,656 2,557 162 1,538

25 Tax assessment values(Sweden)

Sales of the Parent Company were sek , m. (sek, m.), of which exports accounted for () percent.Consolidated companies were customers for () percentof the Parent Company’s sales, while () percent of theCompany’s total purchases of goods and services were fromsuch companies.

Loans totaling sek m. have been made to a total of employees for the purchase of shares in LM Ericsson’s ShareSavings Fund.

The Parent Company has guaranteed up to an amountof sek m. for loans obtained by employees for the pur-chase of housing and private cars.

26 Special information regardingthe Parent Company

Price-waterhouse-

Coopers KPMG Others Total

Fees to auditors 31,895 3,835 7,145 42,875Fees forother services 101,183 17,679 - -

133,078 21,514 - -

28 Fees to auditors

NOTES

Stockholm, January ,

Carl-Eric Bohlin Olof Herolf Thomas ThielAuthorized Public Accountant Authorized Public Accountant Authorized Public AccountantPricewaterhouseCoopers PricewaterhouseCoopers

To the general meeting of the shareholders of Telefonaktiebolaget LMEricsson (publ) Corporate identity number -

We have audited the annual accounts, the consolidatedaccounts, the accounting records and the administration ofthe board of directors and the managing director of Telefon-aktiebolaget LM Ericsson (publ) for the year. These accountsand the administration of the company are the responsibilityof the board of directors and the managing director. Ourresponsibility is to express an opinion on the annualaccounts, the consolidated accounts and the administrationbased on our audit.

We conducted our audit in accordance with generallyaccepted auditing standards in Sweden. Those standardsrequire that we plan and perform the audit to obtain reason-able assurance that the annual accounts and the consolidatedaccounts are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting theamounts and disclosures in the accounts. An audit alsoincludes assessing the accounting principles used and theirapplication by the board of directors and the managingdirector, as well as evaluating the overall presentation ofinformation in the annual accounts and the consolidated

accounts. As a basis for our opinion concerning dischargefrom liability, we examined significant decisions, actionstaken and circumstances of the company in order to be ableto determine the liability, if any, to the company of anyboard member or the managing director. We also examinedwhether any board member or the managing director has, inany other way, acted in contravention of the Companies Act,the Annual Accounts Act or the Articles of Association. Webelieve that our audit provides a reasonable basis for ouropinion set out below.

The annual accounts and the consolidated accounts havebeen prepared in accordance with the Annual Accounts Actand, thereby, give a true and fair view of the company’s andthe group’s financial position and results of operations inaccordance with generally accepted accounting principles inSweden.

We recommend to the general meeting of shareholdersthat the income statements and balance sheets of the parentcompany and the group be adopted, that the profit of theparent company be dealt with in accordance with the pro-posal in the administration report and that the members ofthe board of directors and the managing director be dis-charged from liability for the financial year.

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Audit report

pay up to July , , in an aggregate amount of sek,,.

The following rules regarding severance pay and pen-sion apply to persons, including the President, who aremember of the corporate executive team.

Severance payments are not made if an employee resignsvoluntarily. The same applies if employment is terminatedas a result of flagrant disregard of responsibilities. Noticegiven by the employee, when such significant structuralchanges or other events occur that, in a determining man-ner, affect the content of work or the condition for respec-tive positions, is equated with notice of termination servedby the company. Upon termination of employment, sever-ance pay amounting to two years’ salary is normally paid.In certain cases, if the employee is years of age or older, to percent of the employees final salary, dependingon age, is paid annually to age . Such payments are madecurrently during the pertinent period and cease at age .

The basic security in the pension arrangements for mem-bers of the corporate executive team consists of affiliationwith the so-called itp plan or corresponding arrangements.

The employee’s pension is premium-based. For the por-tion of a salary in excess of basis amounts, the companypays to a capital insurance an amount that is related both tothe age of the executive and to the executive’s salary plus astandard bonus. Most of the member of the corporate execu-tive team are already covered by this system.

As described in earlier Annual Reports, the following

principles apply to other members of the corporate execu-tive team:

The benefits due under the so-called itp plan apply,supplemented by the portion of salary and bonus exceedingitp, from age . In addition, the employee has the right toretire with a pension at age , at the earliest. Followingwhich the pension is based on the current pensionable salaryat retirement and amounts to between and percent ofthis salary. Subject to certain conditions, this pension is alsopaid if the employee is entitled to severance pay at age .

Costs of pensions for the former and present Presidentsand eight present and two former executive vice presidentsamounted to sek , m. during the year.

MSEK 1999 1998 1997 1996 1995

Results For The YearNet sales 215,403 184,438 167,740 124,266 98,780Operating margin 1) 17,590 19,273 18,757 10,758 8,164Financial net –698 –237 48 412 58Income before taxes 1) 16,386 18,210 17,218 10,152 7,615

Year-End PositionTotal assets 1) 202,628 167,456 147,440 112,152 90,832Working capital 66,037 52,978 53,095 36,180 29,394Capital employed 116,387 92,637 80,165 61,411 51,566Tangible assets 24,719 22,516 19,225 17,754 15,521Stockholders’ equity 1) 69,176 63,112 52,624 40,456 34,263

– after full conversion 1) 75,159 69,353 59,490 42,269 36,353Interest-bearing provisions and liabilities 45,020 27,474 23,146 17,545 15,554

Other InformationEarnings per share, SEK 1) 3) 4) 5) 6.17 6.66 6.08 3.64 2.92

– in accordance with U.S. GAAP, fully diluted 2) 3) 5) 7.68 7.87 6.53 4.08 3.56

Adjusted stockholders’ equity per share after full conversion, SEK 1) 3) 5) 38 35 30 22 20

Cash dividends per share, SEK 3) 5) 2.00 * 2.00 1.75 1.25 0.88Shares outstanding

– average (in thousands) 3) 5) 1,954,291 1,950,225 1,938,742 1,919,084 1,769,384Additions to tangible assets 9,085 8,965 7,237 7,188 6,457Depreciation 6,532 5,545 5,422 4,216 3,614Research and development

– expenses 28,330 25,189 20,906 17,467 15,093– as percent of net sales 13.2 13.7 12.5 14.1 15.3

RatiosReturn on equity, percent 1) 18.3 22.5 25.7 19.0 18.9Return on capital employed, percent 1) 19.0 24.9 29.9 22.4 20.7Equity ratio, percent 1) 35.2 38.9 38.7 39.1 39.6Debt-equity ratio 1) 0.6 0.4 0.4 0.4 0.4Current ratio 1.6 1.6 1.7 1.5 1.6

Statistical Data, Year-EndBacklog of orders 83,976 78,990 77,499 63,401 48,401Number of employees

– Worldwide 103,290 103,667 100,774 93,949 84,513– Sweden 44,040 44,979 45,360 43,896 42,022

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* For 1999, proposed by the Board of Directors.

1) 1991–1992 adjusted for change in accounting principles.

2) From 1991 adjustment is made for 1993 adoption of

FAS106, Employers’ Accounting for Postretirement Benefits

Other Than Pensions and FAS109, Accounting for Income

Taxes.

3) 1990–1994 adjusted for stock issue and 4-for-1 stock split.

4) 1990–1995 adjusted for stock dividend element of the stock

issue in 1995.

5) 1990–1994 adjusted for stock dividend element of the stock

issue in 1995.

6) 1990–1997 adjusted for stock issue 1:1.

Working capital

Current assets less current non-interest-bearing pro-visions and liabilities.

Capital employed

Capital employed is defined as total assets less non-interest-bearing provisions and liabilities.

Earnings per share

Earnings per share is based on average number ofshares per year after full conversion of convertibledebentures and after stock dividend element ofstock issue, i. e. dilution due to favorable stock issuepricing. Net income according to the IncomeStatement is adjusted by reversal of interest expensefor convertible debentures net of tax.

TEN-YEAR SUMMARY

1994 1993 1992 1991 1990 MSEK

Results For The Year82,554 62,954 47,020 45,793 45,702 Net sales6,553 3,530 1,754 2,282 5,694 Operating margin 1)

–386 8 –204 –189 –163 Financial net5,610 3,108 1,241 1,595 4,855 Income before taxes 1)

Year-End Position72,999 67,490 56,637 50,080 47,167 Total assets 1)

20,899 20,869 20,063 17,497 16,965 Working capital41,611 40,168 35,842 31,539 27,906 Capital employed13,678 12,363 11,093 10,477 9,058 Tangible assets23,302 21,305 17,720 17,050 16,753 Stockholders’ equity 1)

25,519 23,512 18,349 17,690 17,398 – after full conversion 1)

16,522 16,868 16,321 12,913 9,366 Interest-bearing provisions and liabilities

Other Information2.15 1.54 0.28 0.52 1.71 Earnings per share, SEK 1) 3) 4) 5)

– in accordance with 2.65 1.86 0.76 0.91 1.98 U.S. GAAP, fully diluted 2) 3) 5)

Adjusted stockholders’ equity 15 13 11 10 10 per share after full conversion SEK 1) 3) 5)

0.69 0.57 0.44 0.44 0.44 Cash dividends per share 3) 5)

Shares outstanding1,737,530 1,716,272 1,648,528 1,646,992 1,642,976 – average (in thousands) 3) 5)

5,137 3,805 3,847 3,583 3,448 Additions to tangible assets3,004 2,651 2,193 1,863 1,572 Depreciation

Research and development13,407 10,924 7,377 7,054 4,901 – expenses

16.2 17.4 15.7 15.4 10.7 – as percent of net sales

Ratios17.7 14.5 2.8 5.3 20.4 Return on equity, percent 1)

18.2 12.9 9.6 12.0 25.9 Return on capital employed, percent 1)

34.4 34.5 34.5 38.1 39.3 Equity ratio, percent 1)

0.7 0.7 0.8 0.7 0.5 Debt-equity ratio 1)

1.5 1.6 1.6 1.7 1.7 Current ratio

Statistical Data, Year-End45,671 45,296 38,050 28,777 30,415 Backlog of orders

Number of employees76,144 69,597 66,232 71,247 70,238 – Worldwide36,984 31,796 29,979 31,244 30,817 – Sweden

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For earnings per share accordance with u.s. gaap,see Note to the financial Statements.

Return on equity

Defined as net income expressed as a percentage ofaverage adjusted stockholders’ equity (based on theamounts at January and December ). Year

adjusted for increases resulting from a reduction inthe tax rates used when calculating the equity por-tion of timing differences.

Return on capital employed

Defined as the total of operating margin plus finan-cial income as a percentage of average capitalemployed (based on the amounts at January andDecember ).

Equity ratio

Defined as the total of stockholder’s equity andminority interest in equity of consolidated subsidia-ries, expressed as a percentage of total assets.

Debt-equity ratio

Defined as total interest-bearing provisions and lia-bilities divided by the total of stockholders’ equityand minority interest in equity of consolidated sub-sidiaries.

Current ratio

Current assets divided by the sum of current provi-sions and liabilities.

TEN-YEAR SUMMARY

LARS RAMQVIST

(1938*). Chairman and (as ofJuly 7) CEO. Doctor ofPhilosophy. HonoraryDoctor of Technology.Honorary Doctor ofPhilosophy. Chairman ofthe Boards of Skandiaand Volvo. Member of theBoards of AstraZenecaand SCA. Member of theRoyal Swedish Academyof Sciences, the RoyalSwedish Academy ofEngineering Sciences andthe European Round Tableof Industrialists. Member since 1990. Shares held in Ericsson:

B 7,548. Convertible debentures:

1997/2003: 145,347***.

TOM HEDELIUS

(1939*). Deputy Chairman.Honorary Doctor ofEconomics.Chairman of the Boards ofHandelsbanken, Bergman& Beving, Svenska LeCarbone and the Founda-tion of Anders Sandrew.Deputy Chairman ofIndustrivärden. Member ofthe Boards of Volvo andSCA. Member of SASAssembly of Representa-tives. Member since 1991. Shares held in Ericsson:

B 18,154.

MARCUS WALLENBERG

(1956*).Deputy Chairman. President of Investor.Deputy Chairman of Saab.Member of the Boards ofAstra, AstraZeneca,Investor, Scania, SEB,Stora Enso, Volvo and theFoundation of Knut andAlice Wallenberg.Member since 1996. Shares held in Ericsson:

B 88,000.

KURT HELLSTRÖM

(1943*).President (from July 7).Shares held in Ericsson:


1997/2003: 145,347***.Call options: 5,187.

GÖRAN ENGSTRÖM

(1948*).Employee representative. Member since 1994. Shares held in Ericsson:


1993/2000: 6,250**.1997/2003: 99,120***.

JAN HEDLUND

(1946*).Employee representative. Member since 1994. Convertible debentures:

1997/2003: 75,520***.

GÖRAN LINDAHL

(1945*).Honorary Doctor ofTechnology.President and CEO ofABB Ltd. Member of theBoard of DuPont. Memberof the Salomon SmithBarney InternationalAdvisory Board.Member since 1999.

PER LINDH

(1957*).Employee representative. Member since 1994.

SVERKER MARTIN-LÖF

(1943*).President and CEO ofSCA. Member of theBoards of the Federationof Swedish Industries andthe Swedish ForestIndustries Ass.Member since 1991. Shares held in Ericsson:

B 2,000.

LARS-ERIC PETERSSON

(1950*). President and CEO ofSkandia. Chairman of theBoards of the NationalAgency for Higher Educa-tion, the Swedish Insur-ance Federation and theSwedish Coalition of Ser-vice Industries. Member ofthe Boards of Pohjola, theSwedish Employers’ Con-federation and the Federa-tion of Swedish Industries.Member since 1996. Shares held in Ericsson:

B 1,000.(Lars-Eric Peterssonresigned from the Board ofDirectors in Januari 2000.

CLAS REUTERSKIÖLD

(1939*). President and CEO ofIndustrivärden. Member ofthe Boards of Handels-banken, SCA, Sandvik andSkanska.Member since 1994. Shares held in Ericsson:

B 10,000.

PETER SUTHERLAND

(1946*). Honorary Doctor. Chair-man of the Board ofGoldman Sachs Inter-national, Co-Chairman ofBP Amoco. Member of theBoards of Investor, ABBLtd and the Foundation ofthe World EconomicForum. Member since 1996.

MONICA BERGSTRÖM


1997/2003: 75,520***.

CHRISTER BINNING


1993/2000: 750**1997/2003: 145,347***.

CHRISTER ÅKERLIND

(1950*). Employee representative. Member since 1994. Shares held in Ericsson:

B 88.Convertible debentures:

1997/2003: 145,347***.

CARL-ERIC BOHLIN

Authorized PublicAccountant,PricewaterhouseCoopers.

OLOF HEROLF


THOMAS THIEL

Authorized PublicAccountant.

BO HJALMARSSON


JEANETTE SKOGLUND


STEFAN HOLMSTRÖM

Authorized PublicAccountant.

* Year of birth** Conversion rate: SEK 36:10*** Conversion rate: SEK 236

78BOARD OF DIRECTORS AND PRESIDENT 1999

LarsRamqvistTom Hedelius

Marcus Wallenberg

Göran EngströmJan Hedlund

KurtHellström

Göran Lindahl

Per Lindh

Sverker Martin-Löf

Lars-Eric PeterssonClas Reuterskiöld

Peter Sutherland

Monica Bergström

Christer Åkerlind

Christer Binning

79BOARD OF DIRECTORS AND PRESIDENT 1999

LarsRamqvistTom Hedelius

Marcus Wallenberg

Göran EngströmJan Hedlund

KurtHellström

Göran Lindahl

Per Lindh

Sverker Martin-Löf

Lars-Eric PeterssonClas Reuterskiöld

Peter Sutherland

Monica Bergström

Christer Åkerlind

Christer Binning

80CORPORATE EXECUTIVE TEAM

KURT HELLSTRÖM

(1943)*As of July 7, President ofEricsson.

M. Sc., and masterdegree from the StockholmSchool of Economics.Joined Ericsson in 1984.Has held a number ofsenior positions in mobiletelephony, with emphasison marketing and sales.Named head of BusinessArea Mobile Systems in1990. Executive Vice Presi-dent, Market Area AsiaPacific in 1999. Shares held in Ericsson:


1997/2003: 145,347.***Call options: 5,187.

STEN FORNELL

(1948)* Executive Vice Presidentand Chief Financial Officer.

B. Sc. (Econ.) JoinedEricsson in 1982. BusinessArea Controller, EricssonInformation Systems. VicePresident Finance Control-ling, Business Area MobileSystems. VP and Con-troller, Business SegmentNetwork Operators.Shares held in Ericsson:

B 44,000. Call options: 1,618.

KJELL SÖRME

(1939)*Executive Vice President,Market Area Asia Pacific.B.Sc. Joined Ericsson in1966. Head of ProductManagement andVP Systems Design, PublicTelecommunications. Headof Network Systems Divi-sion Ericsson, U.S. VPSystems Design, EricssonTelecom. President Erics-son Australia 1990–1999.Shares held in Ericsson:


1997/2003: 145,347.*** Call options: 4,547.

MATS DAHLIN

(1954)* Executive Vice President,Business Segment Net-work Operators and Ser-vice Providers.

B. Sc. Joined Ericsson in1980. Senior positions inthe U.S. and Canada.Regional manager formobile operations in AsiaPacific. Marketing managerfor the American marketsand PCS operations. EVP,Ericsson Radio Systemsand manager for GSMBusiness Unit, 1997. Shares held in Ericsson:

B 2,000. Call options: 2,593.

JOHAN SIBERG

(1944)*Executive Vice President,Business Segment Con-sumer Products.

M. Sc. and B. Sc.(Econ.). Joined Ericsson in1970. Production managerin the Business Area PublicTelecommunications,responsible for telecomestablishment in the U.S.Head of Corporate Supplyand Distribution. Since1994, head of MobilePhones and Terminals. Shares held in Ericsson:


1997/2003: 145,347.***Call options: 4,150.

HAIJO PIETERSMA

(1953)* Executive Vice President,Business Segment Enter-prise Solutions.

Native of the Nether-lands. B. Sc. Has beenwith Ericsson in variouspositions in Sweden andthe Netherlands since1978. President of localcompany in the Nether-lands, 1994. Convertible debentures:

1997/2003: 145,347.***Call options: 3,527.

BO DIMERT

(1943)* Executive Vice President,Market Area North Ameri-ca.

M.B.A. VP Sales for IBMin Sweden and President,Digital EquipmentCorporation, Nordic,before joining Ericsson in1995, as VP, in charge ofBusiness Enterprise Net-works. President, EricssonInc. in the U.S., 1998. Shares held in Ericsson:


1997/2003: 145,347.***Call options: 2,910.

SVEN-CHRISTER

NILSSON

(1944)*President and ChiefExecutive Officer up toJuly 7.

CARL WILHELM ROS

(1941)*Senior Executive VicePresident and ChiefFinancial Officer up toJune 30.

81CORPORATE EXECUTIVE TEAM

JAN UDDENFELDT

(1950)* Senior Vice President,Technology.

D. Tech., Hon. D. Tech.Joined Ericsson in 1978.Since 1985 has held seniorpositions in research anddevelopment of MobileSystems. Named VP Tech-nology in Ericsson RadioSystems and manager ofMobile Systems’ world-wide R&D operations in1990. Shares held in Ericsson:

B 208. Convertible debentures:

1993/2000: 2,400.**1997/2003: 145,347.***

Call options: 1,867.

BJÖRN BOSTRÖM

(1947)* Senior Vice President,Supply and InformationTechnology.

M. Sc. Joined Ericssonin 1970. Has held variouspositions in Sweden, Mexi-co and Ireland. Namedhead of Production inMobile Systems in 1989. Shares held in Ericsson:

B 300. Convertible debentures:

1997/2003: 145,347.***Call options: 1,660.

TORBJÖRN NILSSON

(1953)* Senior Vice President,Marketing and StrategicBusiness Development.

M. Sc. and M. B. A.Joined Ericsson in 1978.Senior positions in Market-ing and Product Manage-ment. VP Strategic Busi-ness Development inMobile Systems, 1992. Shares held in Ericsson:


1993/2000: 8,950.**1997/2003: 145,347.***

Call options: 1,660.

LARS A STÅLBERG

(1940)* Senior Vice President,Communications.

M. B. A. Joined Ericssonin 1989 following a longcareer in the SwedishMinistry of Foreign Affairs,where he held a number ofdiplomatic positions. VPCorporate Markets. SVPInformation since 1996. Convertible debentures:

1997/2003: 145,347.*** Call options: 2,178.

STEPHAN ALMQVIST

Senior Vice President,Corporate Audit andSecurity.Convertible debentures:

1997/2003: 145,347.***Call options: 1,563.

CARL OLOF

BLOMQVIST

Senior Vice President,Corporate Legal Affairs.

VIDAR MOHAMMAR

Senior Vice President,Corporate Treasury.Convertible debentures:

1997/2003: 145,347.***Call options: 606.

* Year within paren-theses indicates dateof birth

** Conversion price: SEK 36.10

*** Conversion price: SEK 235

JAN WÄREBY

(1956)* Executive Vice President,Market Area Europe, Mid-dle East and Africa.

M. Sc. Joined Ericssonin 1980, in the transmissionbusiness. Various seniorpositions in Mobile Sys-tems, including VP in Salesand Marketing in EricssonRadio Systems U.S. andEVP American Standard,Ericsson Radio Systems,1998. Shares held in Ericsson:

B 1,940.Convertible debentures:

1997/2003: 145,347.*** Call options: 2,481.

BENGT A. FORSSBERG

(1937)* Executive Vice President,Market Area Latin America.

B. Sc. Joined Ericsson in1960. Held various seniorpositions in Portugal,Egypt, Saudi Arabia,Malaysia and the U.K.Named SVP CorporateMarkets in 1996. Shares held in Ericsson:


1997/2003: 145,347.***Call options: 2,801.

BRITT REIGO

(1943)* Senior Vice President,Human Resources andOrganization.

M. Sc. Joined Ericssonin 1988 as Senior VicePresident HumanResources and Organiza-tion. Earlier, with SAS asDirector of Inflight Service,with SSAB as Administra-tive VP, and with SPP asVP Personnel. Worked inChina in 1995, building uplocal company’s organiza-tion. Shares held in Ericsson:


1997/2003: 145,347.***Call options: 3,112.

T has been prepared for abroad group of readers who may not befamiliar with technical terms in this AnnualReport. However, brief definitions of these

terms cannot provide complete explanations.

(Asymmetrical Digital Subscriber Line)A method to increase transmission speed in a cop-per cable. adsl facilitates the division of capacityinto a channel with higher speed to the subscriber,typically for video transmission, and a channel withsignificantly lower speed in the other direction.

(Advanced Mobile Phone System)The original American standard specification foranalog systems. Used primarily in North Ameri-ca, Latin America, Australia and parts of Russiaand Asia

(Asynchronous Transfer Mode)A technology for broadband transmission ofvoice, data and video transmission of telecomsignals in large amounts. In addition to high-capacity signal transmission, atm provides con-siderable flexibility, since the individual sub-scriber is able to adapt the capacity of a switchedconnection to current requirements.

(Application Service Positioning)A technology that facilitates downloading ofsoftware of the Internet instead of purchasing theprogram over the counter – against a fixed fee.

An open architecture, Ericsson’s communicationsplatform. A system for computer-controlleddigital exchanges that constitute the nodes inlarge public telecommunications networks. Thebasis for Ericsson’s wireline and mobile systems.

BluetoothA radio technology developed by Ericsson andother companies built around a new chip thatmakes it possible to transmit signals over shortdistances between telephones, computers andother devices without the use of wires.

(Code Division Multiple Access)A technology for digital transmission of radiosignals between, for example, a mobile telephoneand a radio base station. In cdma, a frequency isdivided into a number of codes. See also is-.

- (Digital Advanced Mobile Phone System) Earlier designation of American standard fordigital mobile telephony used primarily inNorth America, Latin America, Australia andparts of Russia and Asia. Now known as tdma.See also tdma and is-.

A technology that gives gsm and tdma similarcapacity to handle services for the third generationof mobile telephony. Developed to enable the trans-mission of large amounts of data at a high speed, kilobits per second in mobile applications.

An operating system for mobile terminals, devel-oped by Symbian (Ericsson joint-venture companyincluding Matsushita, Motorola, Nokia and Psion).

(General Packet Radio Service)A packet-linked technology that enables high-speed ( kilobit per second) wireless Internetand other data communications.

(Global System for Mobile Communication)Originally developed as a pan-European standardfor digital mobile telephony, gsm has becomethe world’s most widely used mobile system. It isused on the MHz and MHz frequenciesin Europe, Asia and Australia, and the MHz frequency in North America and Latin America.

- (International Mobile Telecommunica-tions)

Standard adopted by the itu for the third gener-ation of mobile telephony. Actually a family offive different specifications for the radio interfacein this new system generation.

(Internet Protocol)The Internet protocol defines how informationtravels between systems across the Internet.

-A digital mobile telephony standard based oncdma technology. See also cdma.

-A digital mobile telephony standard based ontdma technology. See also tdma and d-amps.

(Internet Service Provider)A company specializing in offering end-usersaccess to the Internet. As a rule does not haveown communications network but functions as alink between the user and the net operator.

(International Telecommunication Union)A United Nations agency that deals withtelecommunications issues.

82

T

MP3 player, based on three voltplatform, to be attached tomobile phone.

(Local Area Network)A small data network covering a limited area,such as within a building or group of buildings.

(Local Multipoint Distribution System)American standard for high-speed transmissionof voice and data using so-called pmp (Point-to-Multipoint) solutions. Used to provide wirelessbroadband traffic to small and medium-sizecompanies or in apartment buildings.

(Private Branch Exchange)An exchange system used in companies and orga-nizations to handle internal and external calls.

(Personal Communications Services)Collective term for American mobile telephoneservices in the MHz frequency band.

(Personal Digital Cellular)A Japanese standard for digital mobile telephonyin the MHz and MHz bands.

RouterA data switch that handles connections betweendifferent networks. A router identifies theaddresses on data passing through the switch,determines which route the transmission shouldtake and collects data in so-called packets thatare then sent to their destinations.

(Synchronous Digital Hierarchy)

A standard for digital signal transmission withintransport networks.

(Third-generation Partnership Project)A global cooperative project in which in whichstandardization bodies in Europe, Japan, SouthKorea and the United States as founders are coor-dinating wcdma issues. See also wcdma.

(Time Division Multiple Access)A technology for digital transmission of radiosignals between, for example, a mobile phone anda radio base station. In tdma, the frequency bandis split into a number of channels that are stackedinto short time units so that several calls can sharea single channel without interfering with oneanother. tdma is also the name of a digital tech-nology based on the is- standard. tdma is thecurrent designation for what was formerly knownas d-amps. See also is- and d-amps.

(Universal Mobile TelecommunicationsSystem)

The name of the third-generation mobile phonestandard in Europe, standardized by etsi.

VoIP (Voice over Internet Protocol)A technology for transmitting ordinarytelephone calls over the Internet using packet-linked routes. Also called ip telephony.

(Wireless Application Protocol)A free, unlicensed protocol for wireless commu-nications that makes it possible to createadvanced telecommunications services and toaccess Internet pages from a mobile telephone.wap is the de facto standard that is supported by alarge number of suppliers.

(Wideband Code Division MultipleAccess)

A technology for wideband digital radio commu-nications of Internet, multimedia, video andother capacity-demanding applications. wcdma,developed by Ericsson and others, has beenselected for the third generation of mobile tele-phone systems in Europe, Japan and the UnitedStates. The technology is also the principal alter-native being discussed in other parts of theworld, notably Asia.

(Wavelength Division Multiplexing)A new technology that uses optical signals ondifferent wavelengths to increase the capacity offiber optic networks in order to handle a numberof services simultaneously.

- (Wireless-Local Area Network)A wireless version of the lan. Provides access tothe lan even when the user is not in the office. •

83GLOSSARY

Cordless Phone 260, cordless DECT-phone with built-in speaker anddigital answering machine.

84ANNUAL GENERAL MEETING, REPORTING DATES 2000

S will beheld in the Victoria Hall, Stockholm Inter-national Fairs, Stockholm, at : p.m. onFriday, March , .

Shareholders intending to participate in theAnnual General Meeting must be entered as share-holders in the share register maintained by vpc ab(Swedish Securities Register Center) not later thanMarch , .

A shareholder whose shares are registered in thename of a trustee must temporarily be entered inthe share register not later than March , , inorder to participate in the Meeting.

In addition to the requirements listed above, share-holders shall provide notice of attendance to:

Telefonaktiebolaget LM EricssonCorporate Legal Affairsse- Stockholm, SwedenTel: + or + (between a.m. and p.m. daily),fax: + ore-mail: [email protected]

not later than Friday, March , , p.m.

In order to attend and vote as proxy on behalf of ashareholder at the Meeting, a power of attorneymust be presented to the Company, preferably atthe above address not later than March , .

A resolution adopted by shareholders at the Annu-al General Meeting will specify the date on whichthe share register and related list of pledge holderswill be reconciled as the record day. The Board ofDirectors and President have proposed April ,, as the record date. If the proposal isapproved, dividends are expected to be paid byvpc ab to all registered shareholders on April ,.

Shareholders who have changed their name, mail-ing address or account number should notify theirtrustees as soon as possible, or vpc ab, Box ,se- Stockholm, Sweden.

Interim report January–March April , Interim report January–June July , Interim report Jan.–September October , Preliminary year-end report January , Annual report March

Annual Reports and interim reports are availableon request on the Internet:www.ericsson.com/reports, or by contacting:Telefonaktiebolaget LM Ericssonse- Stockholm, SwedenTelephone: +

Ericsson Inc. Park Avenue, th floorNew York NY , U.S.A.Telephone: +

Information about Ericsson is available on theInternet:www.ericsson.com

Karin Almqvist LiwendahlDirector, Corporate CommunicationsTelefonaktiebolaget LM Ericssonse- StockholmTelephone: + Telefax: + E-mail: [email protected]

Gary PinkhamVice President, Ericsson Inc. Park Avenue, th floorNew York NY , U.S.A.Telephone: + Telefax: + E-mail: [email protected]

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