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Mobile IoT: Press Release

Ericsson Reports Second Quarter Results

Group sales in the quarter increased by 14% year-over-year

"Group sales in the quarter increased by 14% year-over-year driven by a continued strong demand for mobile broadband. Sales were negatively impacted by the strong SEK and sales for comparable units, adjusted for currency and hedging, increased 27% year-over-year. The strong growth we have seen in the past quarters continued also this quarter," says Hans Vestberg, President and CEO of Ericsson (NASDAQ: ERIC). "Operating income, excluding joint ventures, decreased to SEK 5.0 (5.3) b. in the quarter negatively impacted by a one- off restructuring charge of SEK 1.3 b related to reduction of staff in Sweden. Net income amounted to SEK 3.2 (2.0) b., an increase of 59%.

In the quarter we saw a change in market mix where Brazil, China, Germany, Korea, and Russia showed especially strong growth both year-over-year and sequentially. The US maintained its high business activity although sequentially the networks business was somewhat slower while services continued to show good development.

Segment Networks sales grew 31% year-over-year. In addition to continued increased sales of mobile broadband, IP network product revenues showed strong development. Segment Global Services sales decreased -5% year-over-year primarily due to currency exchange rate effects. In local currencies Professional Services sales were almost flat. Managed Services sales were down compared to the second quarter 2010. The underlying fundamental growth drivers for the services business remain and customer interest is high. Segment Multimedia sales were down -2% year-over-year, however, with good traction for revenue management.

The impact from the earthquake and tsunami in Japan was limited in the second quarter due to successful mitigation activities. Our supply chain has recovered quicker than expected and lead times for our products are being gradually restored to normal levels.

The quarter was challenging for our joint ventures and both reported losses. Sony Ericsson's profitability was impacted by the earthquake in Japan resulting in supply chain constraints of close to 1.5 million units. There is a continued strong consumer and operator demand across the smartphone portfolio.

ST-Ericsson increased its loss in the quarter mainly due to recent changes in the market demand for feature phones," concludes Hans Vestberg.

FINANCIAL HIGHLIGHTS

Income statement and cash flow

Sales in the quarter amounted to SEK 54.8 (48.0) b., up 14% year-over-year and 3% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 27% year-over-year. Including acquired businesses sales increased further 2%-points. The strong growth we have seen in the past quarters continued also this quarter.

Reported numbers for the second quarter 2010 exclude restructuring charges of SEK 2.0 b., while reported numbers for the second quarter 2011 include restructuring charges of SEK 1.7 b. Of the charges, SEK 1.3 b. relates to headcount reductions in Sweden in mainly sales and administration. The cost reduction program was concluded and agreed with the unions in mid-June with a higher than targeted outcome on voluntary redundancies and a larger share of early retirements. All in all, the activities will result in a run-rate reduction with full impact in the fourth quarter 2011. Pay-back time is estimated at 2.5 years.

In the report for the fourth quarter 2010 Ericsson estimated restructuring charges for 2011 of approximately SEK 2 b. Restructuring charges for 2011 are now estimated to approximately SEK 3 b. due to the larger scope of the reductions in Sweden.

Gross margin in the quarter was down year-over-year at 37.8% (39.0%), and was slightly down from 38.5% sequentially. Restructuring charges related to activities in Sweden of SEK 0.1 b. impacted cost of sales. Year-over-year, margins were negatively impacted by 3G rollouts in India as well as network modernization projects in Europe. A lower share of services revenues had a positive impact. Sequentially, margins were negatively impacted by a change in project mix with a higher proportion of services, especially network rollout. In the first quarter 2011, sales and margins were positively impacted by a one-off revenue from the sale of patents of SEK 0.3 b.

The network modernization projects in Europe, with their lower margins, will accelerate during the second half of 2011. Average project duration is expected to be18-24 months.

Total operating expenses amounted to SEK 15.8 (13.9) b. R&D expenses amounted to SEK 8.1 (7.1) b., an increase by 14% year-over-year. The increase is a result of the planned higher investments in radio, such as TD-LTE and IP as well as the acquired LG-Ericsson operations. Selling and general administrative expenses (SG&A) amounted to SEK 7.7 (6.8) b., an increase by 15% year-over-year, representing 14% of sales. Excluding restructuring charges of SEK 1.2 b. related to activities in Sweden the SG&A to sales ratio was stable sequentially at 12% and down 2%-points year-over-year.

Other operating income and expenses amounted to SEK 0.2 (0.5) b. in the quarter.

Operating income, excluding joint ventures, decreased to SEK 5.0 (5.3) b. in the quarter negatively impacted by the one-off restructuring charge of SEK 1.3 b related to reduction of staff in Sweden. As a result, operating margin decreased to 9.2% (11.1%) year-over-year. Excluding the one-off restructuring charge operating margin amounted to 11.6%.

Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.8 (-0.1) b., compared to SEK -0.5 b. in the first quarter 2011. Ericsson's share in Sony Ericsson's loss was SEK -0.2 b. and in ST-Ericsson SEK -0.7 b.

Financial net amounted to SEK 0.3 (-0.1) b. in the quarter. Financial net improved slightly sequentially from SEK 0.0 b. due to positive revaluation of financial assets due to changes in interest rates.

Net income improved year-over-year to SEK 3.2 (2.0) b. due to higher sales volumes and despite a negative impact from increased loss in joint ventures. Sequentially net income decreased from SEK 4.1 b. mainly due to the loss of SEK -0.8 b. in joint ventures and higher restructuring charges.

Earnings per share were SEK 0.96 (0.58) in the quarter. Earnings per share, Non- IFRS, diluted, i.e. excluding amortizations and write-downs of acquired intangibles, were SEK 1.21 (0.85) in the second quarter, up 42%.

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