M.B.N.Y. Management Briefing. November 20th Copyright Telefon AB LM Ericsson All rights reserved M.B.N.Y.

Transcription

1 M.B.N.Y. Management Briefing November 20th

2 Safe harbor statement This presentation contains forward looking statements. Such statements are based on our current expectations and are subject to certain risks and uncertainties that could negatively affect our business. Please read our earnings reports and our most recent annual report for a better understanding of these risks and uncertainties

3 Today s agenda in perspective Business dynamics Recapture of Q3 numbers Regional and Segments update Way forward near term agenda

4 Today s agenda in perspective Business dynamics Recapture of Q3 numbers Regional and Segments update Way forward near term agenda

5 Our accomplishments We have a compounded average growth rate of >10% grown mobile systems market share significantly secured our technology leadership established a clear leadership in services generated industry leading margins, also in the weaker Q3 invested in new growth areas Wireline - Redback, Marconi, Entrisphere Multimedia - Tandberg, LHS, Drutt, Mobeon

6 Our strategy remains True world leadership Expand portfolio Next gen and multimedia Profitable growth Drive growth and market share Technology leadership Operational excellence Opex and cost of sales Supply and R&D road maps

7 Our strategy remains True world leadership Customer satisfaction Profitable growth Financial performance Operational excellence Employee satisfaction

8 Ericsson employee satisfaction Human Capital Index results Excellence Strength Potential Improvements needed

9 Financial performance Net sales & operating margin ,00% ,00% ,00% ,00% ,00% ,00% 0 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 0,00% Operating margin including SEMC Operating margin excluding SEMC

10 Satisfied customers H H H H H H Ericsson Ericsson Ericsson Ericsson Ericsson Ericsson Innovation Vision End-user Partnership Reputation Revenue understanding generation Source: Image Tracking survey , BPRI (Business Planning & Research Limited), Operator perception study

11 Today s agenda in perspective Business dynamics Recapture of Q3 numbers Regional and Segments update Way forward near term agenda

12 Business dynamics Market mix mature, emerging markets Business mix rollouts, expansions, upgrades, services Product mix mobile, fixed, software, technologies Cost rationalization vs price erosion vs volume growth Industry consolidation and change in business landscape In addition General economic development and FX exchange rates

13 Value creation circle From new to established positions Lower margins Entering new segments Low volumes New Technology New roll outs 2G to 3G to LTE MSC to MSS ADSL to VDSL to GPON Higher margins Scale Upgrades Mature products Expand foot prints

14 Today s agenda in perspective Business dynamics Recapture of Q3 numbers Regional and Segments update Way forward near term agenda

15 Quarter three Sales, down 4.2 b from Q2 Less than expected capacity upgrades in North America and Western Europe - China negative, lumpy invoicing Lower software sales USD exchange rate decline Margins, down 3.7 b from Q2 Lower sales volumes More new network buildouts - less high margin expansions Unfavorable mix - lower software, more hardware, services

16 Our networks business - background Balance between rollouts, expansions and upgrades Margins Highest Medium Lowest Historical business mix Upgrades Expansions Network build outs Characteristics Upgrading installed base, Short order cycle Expanding installed base Shorter projects Building installed base Open bidding, long projects

17 Our networks business mix change Strategy has been effective in regaining scale Shortfall in expansions and upgrades have hit Q3 margins New network builds to weigh on margins next several quarters Margins Highest Medium Current business mix Upgrades Expansions Characteristics Upgrading installed base Expanding installed base Lowest Network build outs Building installed base

18 Today s agenda in perspective Business dynamics Recapture of Q3 numbers Regional and Segments update Way forward near term agenda

19 Regional characteristics WE ~25% of sales - Ericsson leading but not in all markets The customer perspective Cost focus and consolidation, flat capex at best New services to drive ARPU Customer retention rather than acquisition Fixed/mobile substitution, growing MoU Mobile broadband excitement, business models? Business focus Effects on Ericsson Market outlook Leverage current assets Managed services Transmission Multimedia Technology migration Leverage synergies Product mix shift Invest in Multimedia GBit/RNC/h sep- 06 WE Packet data traffic development in measured 3G nodes oct- 06 nov- 06 dec- 06 jan- 07 feb- 07 mar- 07 apr- 07 may- 07 jun- 07 Mid term Longer term jul- 07 aug- 07 sep- 07 oct- 07 *This slide contains forward-looking statements

20 Regional characteristics North America ~10% of sales, Ericsson leading GSM/WCDMA The customer perspective Non-voice revenue growth Next generation networks Triple play with mobile broadband New entrants PC centric Business focus Effects on Ericsson Market outlook Technology leadership Triple play capabilities Fiber to the home Internet orientation Leverage on mobile position Leverage acquired assets Build footprint in wireline Drive prime integrator role Mid term Longer term Petabyte Classic Voice VoIP Internet IPTV *This slide contains forward-looking statements

21 Regional characteristics Emerging markets ~55% of sales, Ericsson s home turf The customer perspective Subscriber growth Market share costly to loose time 90% of all new global subscribers Mobile centric limited fixed networks Mobile broadband opens for internet Reported Subscriptions (Millions) Analogue & Other TDMA CDMA Mobile WiMAX GSM/GPRS/EDGE WCDMA/HSPA LTE Business focus Effects on Ericsson Market outlook Time to market Turn key Local presence Internet goes mobile Build GSM footprint and expand Working capital build up Driver of global scale Mobility to close digital divide Mid term Longer term *This slide contains forward-looking statements

22 Networks Strategy for growth Net sales and operating margin, % Technology leadership Scale Operational excellence % 70% 35 60% 30 50% % 15 30% 10 20% 5 10% 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 0% World s largest telecom equipment supplier Well over 40% market share in mobile networks 2007 another record year for GSM HSPA boosting Expanding leading end-to-end portfolio to fixed and converging networks Strengthened IP capabilities through acquisitions

23 Professional services Strategy for growth Net sales and operating margin, % Scale leverage Maximize use of assets Skill leverage Maximize use of knowledge % 70% 60% Seamless organization Standardized tools Standardized processes Best practices Best knowledge sharing Business process expertise % 40% 30% 20% 2 10% Technology leadership and customer base 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 0% World s largest telecom services provider Support, systems integration, consultancy, managed services 150 countries, 28,000 employees, 14,000 partners Networks with 1 b subs supported 24/7 Networks with 160 m subs under management

24 Multimedia Strategy for growth Net sales and operating margin, % 5 80% Leverage: - Ericsson s position in mobility and convergence - local expertise with global resources - leadership in managing e2e solutions and complexity - global customer base to energize the consumer experience 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q % 60% 50% 40% 30% 20% 10% 0% Expand in new areas Networked media and messaging, including TV Enterprise mobility Building on our leadership in Revenue management, service delivery platforms, mobile platforms

25 Today s agenda in perspective Recapture of Q3 numbers Regional and Segments update Way forward near term agenda

26 Planning assumptions for Q4 At day of profit warning Sales of SEK b Operating margin in mid-teens, incl. SEMC Recent developments Some further issues in the networks market Europe and US tightens Political unrest in certain emerging markets Further dollar decline create translation effects We are likely to end up in the lower end of the range *This slide contains forward-looking statements

27 Market outlook 2008 Early expectation for 2008 is that the current market conditions will prevail Longer term market outlook remains unchanged *Measured in USD, this slide contains forward-looking statements

28 Ericsson moving forward Business objectives Focus Areas Key priorities Grow faster Grow faster than than the market Enable Best in class Ericsson margins Cash conversion Improve > 70% profitability Leverage leading position and grow in new areas Technology leadership operational excellence and scale Build Innovate on foot print Leverage Expand acquisitions in Services Grow New client in Multimedia segments Base Expand account services growth Balance Globally growth/margin integrated Costs Industrialize alignment Cash focused Standardize activities R&D Best efficiency practices

29 CEO agenda Closely monitor business development in different markets Seek underlying market changes - uncertainties in Europe Even stronger focus on operational excellence Adjust cost wherever possible Leverage leading position balance margins and growth Capitalize on restored scale advantage Leverage acquired assets sales growth over margins Converging networks, IPTV, US position, Charging Improve cash conversion Even with continued growth in turnkey projects Strategy remains unchanged expanding growth platform

30 CFO agenda Improve trends analysis and forecasting All data available - reporting systems OK Improve financial communications Business dynamics impact, etc Conclusion from September sales shortfall Analyze underlying trends Costs alignment with business developments Contingency plans in place for possible slowdown Improve cash conversion even with cont d turnkey growth T&C s, incentives, processes

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