Ericsson Annual Report 1999

FY1999 Annual Report · Ericsson

Loading PDF…

ERICSSON(cid:213)S MISSION is
to understand its
customers(cid:213) opportunities
and needs, and to provide
communication solutions
better than any
competitor.

IN DOING SO, Ericsson
shall generate a
competitive economic
return for its shareholders.

R380, dual-band telephone with
built-in PDA, based on EPOC.
Communication tool,
calendar, built-in modem.

ERICSSON IN BRIEF 1999

third-generation mobile systems: In
November, itu established wcdma as the standard
for 3g mobile systems under the name imt2000
Direct Spread. The decision was welcomed by Erics-
son, which can now offer its operator customers all
three major versions of this standard.

qualcomm: In terms of number of employees, the
takeover of Qualcomm(cid:213)s infrastructure division was
Ericsson(cid:213)s largest acquisition during 1999, provid-
ing Ericsson with a complete product portfolio of
second- and third-generation mobile systems. It
also accelerated the pace of work in the standardiza-
tion area, which was appreciated by the industry as
a whole, particularly by the operators.

datacom acquisition: Ericsson acquired the
American companies Torrent and TouchWave and
the Danish company Telebit a/s to further
strengthen its position in the market for ip and
datacom solutions.

microsoft: In December, Ericsson and Microsoft
announced that they would cooperate in the devel-
opment and marketing of total solutions for wire-
less Internet access. The parties will establish a
jointly owned company to market and supply
mobile e-mail solutions. Ericsson will be the
majority owner in the new company.

engine: During 1999, Ericsson achieved major
successes with engine, a solution for migrating
circuit-switched fixed telecommunications net-
works to a next-generation network that can handle
circuit-switched and ip-based, packet-linked traf-
fic. bt in the U.K., kpn in the Netherlands, Telia
in Denmark and Telef(cid:151)nica in Spain chose engine
during the year.

new management: At the beginning of July,
Kurt Hellstr(cid:154)m was appointed president of Erics-
son, succeeding Sven-Christer Nilsson, who left the
Company. Group Chairman Lars Ramqvist was
appointed Chief Executive Officer.

UNCERTAIN FACTORS IN THE FUTURE

(cid:210)Safe Harbor(cid:211) Statement under the U.S. Private Securi-
ties Litigation Reform Act of 1995:

Some statements in this Annual Report are forward

looking and actual results may differ materially from
those stated. In addition to the factors discussed,
among other factors that may affect results are product
demand, the effect of economic conditions, exchange-
rate and interest-rate movements, the impact of
competing products and their pricing, product
development, commercialization and technological
difficulties, political risks in the countries in which the
Company has operations or sales, supply constraints,
and the results of customer financing efforts.

1998
SEK m .

Percent
change

ERICSSON IN BRIEF 1999

Orders booked

Net sales

Income before taxes

Earnings per share, SEK

1999
SEK m .

223,828

215,403

16,386

6.17

7.68

2.00 *

187,415

184,438

18,210

6.66

7.87

2.00

—10

—7

—2

Earnings per share according to U.S. GAAP, SEK

Dividend per share, SEK

Number of employees, December 31

103,290

103,667

* For 1999, proposed by the Board of Directors

NET SALES AND ORDERS BOOKED (SEK m.)

ERICSSON(cid:213)S 10 LARGEST MARKETS,
(PERCENT OF TOTAL SALES)

SEK m.

220,000

180,000

140,000

100,000

60,000

20,000

1995

1996

1997

1998

1999

Net sales(cid:13)

Orders booked

LIABILITIES AND EQUITY (SEK m.)

SEK m.

200,000

160,000

120,000

80,000

40,000

1995

1996

1997

1998

1999

1998

1999

United States(cid:13)

11(cid:13)
11(cid:13)

China(cid:13)

Britain(cid:13)

Brazil(cid:13)

Spain(cid:13)

Italy(cid:13)

Turkey(cid:13)

Japan(cid:13)

Sweden(cid:13)

Germany

9(cid:13)
9(cid:13)

7(cid:13)
7(cid:13)

6(cid:13)
6(cid:13)

5(cid:13)
5(cid:13)

4(cid:13)
4(cid:13)

3
3

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

SEK m.

1,000,000

800,000

600,000

400,000

200,000

1995

1996

1997

1998

1999

INCOME PER SHARE (SEK), AND
RETURN ON CAPITAL EMPLOYED (PERCENT)

Percent

SEK

Equity(cid:13)
Minority interests

Long-term liabilties(cid:13)
Current liabilties

1995

1996

1997

1998

1999

Return on capital employed, %

Income per share, SEK

(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
4

share capital
As of December 31, 1999, Ericsson(cid:213)s share capital
consisted of sek 4,892,846,303 (4,878,380,975),
represented by 1,957,138,521 shares. The par value of
each share is sek 2.50. As of December 31, 1999, the
shares were divided into 164,054,660 Series A shares,
each carrying one vote, and 1,793,083,861 Series B
shares, each carrying one-thousandth of a vote.

During 1999 the number of shares was increased

by 5,786,131 through conversions of convertible
debentures. During the period January 1 to January
21, 2000, convertible debentures related to convert-
ible liabilities for 1997 were converted to 228,975
B shares. Between January 1 and February 5, 2000,
additional debentures related to convertible liabili-
ties for 1993 were convertible to shares, with rights
to dividend for 1999.

stock exchange trading

Ericsson(cid:213)s Series A and Series B shares are traded on
the om Stockholm Stock Exchange, and the Series
B shares are also traded on the exchanges in D(cid:159)ssel-
dorf, Frankfurt, Hamburg, London and Paris, and
on the (cid:210)Swiss Exchange(cid:211) in Switzerland. Ericsson
shares are also traded in the United States in the
form of American Depositary Receipts (adrs)
through the nasdaq system, under the symbol
ericy. Each adr represents one Series B share.

American Depositary Debentures (adds) are also

traded on the nasdaq system under the symbol
ericz. Each add represents one convertible deben-
ture related to the 1993/2000 convertible debenture
loan. Ericsson shares have been traded in Euros in
Frankfurt and Paris since January 1, 1999.

Nearly five billion shares were traded in 1999.
Of this number, about 48 (39) percent were traded
on the om Stockholm Stock Exchange, 22 (30)
percent via the nasdaq exchange and 29 (30) per-
cent on the London Stock Exchange. Trading on
other exchanges amounted to about 1 percent of the
total, unchanged from the previous year.

share price trend

The total market value of the Ericsson share rose

ERICSSON SHARE DATA 1999

183 percent in 1999 to sek 1,073 b. The index for
the om Stockholm Stock Exchange rose 65.9 per-
cent during the year.

shareholders
In all, about 90 percent of Ericsson(cid:213)s shares are
owned by Swedish and international institutions. At
the end of 1999, about 55 (50) percent of the share-
holders were outside Sweden, with 33 (30) percent in
the U.S., 6 (6) percent in Britain, 4 (4) percent in
Germany, and 12 (10) percent in other countries.

employee ownership

The Ericsson Savings Fund (Ericssons Allemans-
fond) was started in 1984. The Fund, which has 1,254
participants, invests in Ericsson(cid:213)s shares. At the end
of 1999 the Fund held 962,000 shares. The price per
unit at year-end was sek 7,568 (sek 2,654).

A convertible debenture loan amounting to sek
6,000 m. was issued in 1997 with preferential rights
to Ericsson(cid:213)s employees. Employees who joined
Ericsson after October 10, 1997, were given an
opportunity to purchase convertible debentures
issued by ab Aulis, an Ericsson company.

In 1998, an option plan was implemented for
500 key personnel, who were allotted seven-year
call options in Ericsson. The size of the allotment
was decided by earnings per share for 1998, and the
employee salary and bonus category. Based on the
same principles, some 2,000 key employees and
senior executives will receive seven-year call
options based on earnings in 1999. At an Extraordi-
nary General Meeting in November, 1999, it was
decided to implement a stock opion plan also for
fiscal year 2000. In accordance with this resolution,
12.6 million options will be issued to approximate-
ly 8,000 employees.

bonus issue and split

The Board proposes a bonus issue by way of an
increase of the par value of the share from sek 2.50
to sek 4.00, followed by a split 4:1. Trading with
the new par value of sek 1.00 is expected to com-
mence in the beginning of May 2000.

SHARE TREND 1995—1999

SHARE TURNOVER 1999

600
520
440
360

280

200

120

B share

Afv General Index

Million shares

800

700

600

500

400

300

200

100

London(cid:13)
Nasdaq(cid:13)
Stockholm

1995

1996

1997

1998

1999

Jan

Mar

May

Jul

Sep

Nov

ERICSSON SHARE DATA 1999

SHARE DATA

Earnings per share
P/E ratio, (cid:210)B(cid:211) shares 2)
Dividend

Direct return %

OM Stockholm Stock Exchange share prices (SEK)

A at December 30

B at December 30

B high for year

B low for year

CHANGES IN CAPITAL STOCK 1995—1999

1995

January 1

Split

1995 New issue

1995 Conversions

1996 Conversions

1997 Conversions

1998

Bonus issue

1998 Conversions

1999 Conversions

1999 December 31

4:1

1:1

1999

6.17

89
2.0 3)
0.4

575.0

548.0

571.0

175.0

1998 4)
6.66

2.00

1.0

209.5

193

268

118.5

1997 4)
6.08

1.75

1.2

157

149

192

102.5

1996 4)
3.64

1995 1) 4)
2.92

1.25

1.2

109

106

56.5

0.88

1.3

1) After 4:1 split.

2) P/E ratio = Price per

share at December 31,
divided by earnings
per share after full
conversion.

3) For 1999, proposed by
the board of directors.

4) After 1:1 bonus issue.

Number of shares

217,229,118

651,687,354

87,009,390

1,689,035

3,547,308

13,333,854

975,097,150

1,759,181

5,786,131

Capital stock

2,172,291,180

217,523,475

4,222,588

8,868,270

33,334,635

2,437,742,875

4,397,952

14,465,328

1,957,138,521

4,892,846,303

LARGEST SHAREHOLDERS, BY VOTING RIGHTS, DECEMBER 31, 1999

AB Industriv(cid:138)rden

Investor AB

Wallenberg-stiftelser

Svenska Handelsbankens Pensionsstiftelse

Livf(cid:154)rs(cid:138)krings AB Skandia

Pensionskassan SHB F(cid:154)rs(cid:138)kringsf(cid:154)rening

Oktogonen, Stiftelsen

SEB-stiftelsen

Svenska Handelsbankens personalstiftelse

Fj(cid:138)rde AP-Fonden

SEB-Trygg F(cid:154)rs(cid:138)kring

Svenska Handelsbankens aktiefonder

Wallanders och Hedelius(cid:213) stiftelse

Number
of shares

46,520,000

68,376,700

27,293,024

10,640,000

21,855,843

7,920,000

4,020,000

3,140,000

2,460,000

75,998,018

19,893,560

10,782,600

800,000

Foreign ownership

897,506,209

Voting rights
percent

28.0

22.3

16.5

5.6

5.0

4.8

1.9

1.5

1.4

1.3

0.8

0.5

Ericsson well prepared
for the new millennium

he past year was exciting and eventful
for Ericsson. It began slowly but finished
in high gear. Income before tax for the
fourth quarter reached a record level —

sek 8.5 billion. The performance of the Ericsson
share was highly favorable during the year, increa-
sing 183 percent in value. This meant that the value
of shareholders(cid:213) investments in the company rose
by sek 694 billion in 1999.

Ericsson is the global leader in mobile commu-

nications. More than 70 percent of our sales are
generated from mobile systems and terminals. It is
significant that this is where Ericsson(cid:213)s real
strength lies, because mobile communications is
now the largest and fastest-growing area in our
industry — an industry that in the past few years has
undergone more rapid and extensive transformation
than any other.

The mobile Internet and mobile datacom are
becoming a reality. This development is increasing-
ly apparent in trend-setting countries such as Japan
and the U.S. In Japan, the star player in 1999 was
i-Mode, a solution for direct connection to the
Internet via mobile terminals; in the U.S., the deve-
lopment shows in the fact that operators of Mobitex
networks from Ericsson experienced substantial
growth in the number of subscribers in 1999.

This development has not come as a surprise to
Ericsson. On the contrary, we have been preparing
for it for a long time. We have been working on
developing the third generation of mobile systems
for more than a decade. We are currently the only
supplier offering a large number of test systems to
customers worldwide — 17 systems to be exact. In
1999 we received several commercial orders for such
systems — for example, from ntt DoCoMo in
Japan.

significant business opportunities

The growing number of mobile subscribers creates
demand and development in the market. As early
as 2003 we expect the number of subscribers to
have reached one billion. Some 120 million are
expected to be using third-generation systems as
early as 2004.

The mobile Internet brings significant business

opportunities to Ericsson, not only because the
mobile networks must be upgraded and adapted
with 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. To
take full advantage of the new technology, subscri-
bers will require new and advanced mobile termi-
nals — terminals that are currently being developed
by Ericsson.

focus on the mobile internet

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

As one of the initiators of the wap standard,
Ericsson is well prepared. We currently have the
market(cid:213)s broadest range of wap knowledge, inclu-
ding hardware, applications development, consul-
tants and terminals. In a campaign during late
autumn, we offered the services of 400 highly qua-
lified consultants to companies interested in deve-
loping wap services.

The next step toward third-generation systems
is gprs. This is a packet-switched technology that
considerably increases the capacity of the mobile
networks, which also makes it possible to introduce
new services and provide better service to the sub-
scriber. In 1999, Ericsson won well over 50 percent
of the world(cid:213)s gprs orders.

We are also leading in edge, a third-generation
technology for existing frequency bands. With the
U.S. launch scheduled for the beginning of 2001,
edge will be the first third-generation mobile
system to be placed in commercial operation.
During the year Ericsson installed test systems for
edge and signed the first major contracts. This is
further confirmation that we are leading the way to
the next generation of systems.

unique knowledge for sale

In addition to technology, applications are crucial
to the development of the mobile Internet. The key
is to offer customers simple, fast and secure solu-
tions for e-commerce. During the year, Ericsson(cid:213)s
achievements included a strategic partnership with
Visa International and a joint development with
Sonera SmartTrust for the world(cid:213)s first digital
signature for secure e-commerce using wap
phones.

In 1999, Ericsson brought together its resources
in service offerings and business consulting. Erics-
son Services offers operators a powerful portfolio of

TO THE SHAREHOLDERS

Lars Ramqvist,
Chairman of the Board and Chief Executive Officer

Kurt Hellstr(cid:154)m,
President

services, thus strengthening Ericsson(cid:213)s position as
complete supplier, system integrator and partner.
Ericsson Business Consulting, which targets the
enterprise sector, had 2,700 highly qualified
employees in 36 countries at year-end, making
Ericsson the leading supplier of Internet-based
business solutions. Customers during the year
included Reuters, the Dutch daily newspaper,
de telegraaf, Scania, lycos and sas.

Ericsson(cid:213)s goal is to lead the development of the
mobile Internet. We will do so, based on our strong
position as a complete supplier of communications
solutions ranging from backbone networks and
mobile infrastructure to applications, consulting
and terminals.

strengthened position
in ip and data communications

During the year Ericsson gradually strengthened its
position in next-generation ip-based core networks.
Ericsson(cid:213)s solution for the successive migration of
existing circuit-switched networks, to enable them
to support ip and atm-based services, has also been
highly successful. The year began with a break-
through order from bt, which was followed by
orders from Diginet in Latin America, Telia in
Denmark, Dutch kpn and Spanish Telef(cid:151)nica.
During the autumn, Ericsson(cid:213)s offering was presen-
ted under the engine concept.

For third-generation mobile systems, Ericsson

has developed a new platform that handles atm
and ip traffic. As a real-time router it is called the
rxi 820.

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

then Ericsson(cid:213)s position in the market for ip and
data-communications solutions. The American
companies Torrent and TouchWave contribute
broad expertise and a complementary product port-
folio in data communications.

Ericsson(cid:213)s incorporation of the Danish compa-
ny, Telebit a/s, which is world-leading in the next
generation of the Internet protocol, ip version 6,
has given Ericsson access to leading-edge expertise
in a strategically key area.

a welcome acquisition

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

Other examples of strategic partnerships that

were deepened or commenced during the year
include the partnership with Juniper and Ericsson(cid:213)s
cooperation with Microsoft. Together with Micro-
soft we have established a company that will
develop mobile Internet applications, such as wire-
less e-mail.

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

a year of innovations

The business segment Consumer Products showed
unsatisfactory results during most of the year. This
trend, however, was broken during the fourth quar-

ter. Targeted production speed was achieved at the
end of the year. During the year, a number of new
phones were presented, together with a range of
new accessories, several of which were strikingly
innovative and attracted much attention in the
market, especially among younger consumers.
Ericsson(cid:213)s Chatboard, fm-radio attachment and
mp3 player are proof that innovations are now
receiving great attention within the company.

Ericsson now has a very competitive product
portfolio, which will be expanded in 2000 with
more products based on the entirely new technical
platform developed in 1999. Measures have been
taken with the objective of gaining market share
and regaining the position as number two in the
world.

turnaround in the second half

We can now conclude that the unfavorable opera-
tional performance that was developing at mid-year
has been reversed. The dramatic trend of rising
costs was broken. Negative cash flow has turned
positive. Ericsson(cid:213)s business is once again under
good control and improving.

Ericsson is entering the new millennium with
strong momentum, a clear vision of our strategic
direction, a first-class product portfolio and a uni-
que position of market leadership in the most
expansive area of the industry. The continuing
growth of mobile communications in all markets,
improving conditions in several key markets and
the strong market interest in the mobile Internet
all indicate that the year 2000 will be one of the
most exciting in Ericsson(cid:213)s history.

financial targets unchanged
For the full year 2000, we believe in continued
strong market growth, where Ericsson gains bene-

TO THE SHAREHOLDERS

fits from its leading position in mobile telephony
and its unique ability to offer customers compre-
hensive solutions. Our long-term financial targets
remain unchanged. We intend to grow faster than
the market, which means growing by at least 20
percent, with a return on capital employed of 20—25
percent, positive cash flow before strategic acquisi-
tions and operating margin of at least 10 percent.
We expect sales to increase by more than 20
percent during the year 2000, and earnings to grow
substantially. We intend to achieve this with a
positive cash flow.

We are convinced that Ericsson will reach its

objective of being the leading company in
tomorrow(cid:213)s integrated data and telecommunica-
tions market. The combination of our expertise in
systems, applications and in mobile terminals is a
strong indication that in the future Ericsson will
continue to provide its owners a favorable return on
their investment in the company.

It is pleasing to note that an increasingly larger
number of Ericssson employees can now also bene-
fit from the favorable trend of the Ericsson share
through participation in the personnel convertibles
and options programs. It is in fact their skills and
professional efforts that have paved the way to
Ericsson(cid:213)s successes.

lars ramqvist
Chairman and ceo

kurt hellstrm

President

FINANCIAL OBJECTIVES

Ericsson to grow
faster than the market
O
One of ericsson’s most important

overall objectives is to create strong,
competitive, value growth for its share-
holders.

growth objective

units — business units, product units, and market
units — have a distinct profitability responsibility.
This means that each unit, in addition to being
responsible for profit, is also responsible for its
share of capital employed.

Ericsson(cid:213)s long-term objective remains unchanged.
The objective is that the company will grow faster
than the market, which involves long-term growth
of at least 20 percent annually. This growth objecti-
ve should be viewed over a five-year period, since
the Company does not expect certain growth mar-
kets, particularly mobile data communications, to
accelerate until we are a few years into the 21st
century.

The growth objective is to be reached by main-
taining or improving positions within all three of
Ericsson(cid:213)s business segments: Network Operators
and Services Providers, Consumer Products and
Enterprise Solutions.

cash flow and capital turnover

Ericsson strives to have a positive cash flow before
strategic acquisitions. Growth of at least 20 percent
with a positive cash flow requires a return on capi-
tal employed of between 20 and 25 percent for
Ericsson as a whole. To reach this objective Ericsson
must maintain an average operating margin of at
least 10 percent and a capital turnover rate of two or
better.

However, return requirements may vary for
different segments. A lower operating margin can
also be offset by a higher rate of capital turnover.
In the Ericsson organization, all the different

financial results

A very strong fourth quarter with record levels of
orders, sales, income and cash flow made the year(cid:213)s
results better than expected.

We did not successfully fulfill all our long-term
objectives in 1999, mainly due to the weak perfor-
mance during the first half of the year.
¥ The sales growth was 18 percent for comparable

units vs. target +20 percent.

¥ We reached a positive cash flow before acquisi-

¥ We reached a capital turnover of 2.1 turns vs.

tions, sek +2.9 b.

target 2.0.

ted 20‒25 percent.

¥ roce at 19 percent was slightly below the targe-

¥ Operating margin at 8.2 percent of sales is below

the target of at least 10 percent.

outlook for 2000

Continued market growth is expected throughout
2000, where Ericsson will gain benefits from its
leading position in mobile telephony and the
growth in mobile Internet.

Sales is expected to increase by more than 20
percent, and earnings to show a substancial growth.
These objectives are intended to be achieved with a
¥
positive cash flow.

OUR LONG-TERM
financial goals are
retained. We shall grow by
at least 20 percent per
year, which is faster than
the market. Return on
capital employed will be
20 to 25 percent, and
cash flow will be positive
before strategic
acquisitions. The
operating margin will be
at least 10 percent.

STEN FORNELL,

EXECUTIVE VICE PRESIDENT

CHIEF FINANCIAL OFFICER

0
1

w
e
i
v
r
e
v
o

Internet and mobile
communications to explode

As restructuring and consolidation now begin to

transform the Internet access market also, the
major traditional operators are active in acquiring
newly started, successful isps (Internet Service
Providers).

outsourcing

Some major operators are beginning to outsource
portions of their operations to their suppliers. This
trend applies to established and new operators.
Cable & Wireless and Global Crossing are examples
of operators that in this manner increasingly focus
on their own core operations. Another clear trend,
on the other hand, is the growing business among
operators who take over telecom operations from
major corporate customers — in response to cus-
tomers outsourcing data and telecommunications
in order to focus on their core operations.

mobile explosion

Several factors indicate that traffic growth in
mobile telephone networks is about to explode.
Prepaid calls, reduced charges for normal mobile
calls and a sharp increase in wireless data commu-
nications are important factors driving growth. In
some countries, prepaid service now accounts for
more than 40 percent of all traffic.

evelopment of the increasingly con-
verging data and telecommunications
markets is now proceeding extremely
rapidly. During 1999, two factors were
more evident than any others in driving this trend:
continued and sharply accelerating growth of
mobile telephony and an equally rapid expansion in
Internet use. Both development trends are fueling a
sharp increase in demand for telecommunications —
to the benefit of Ericsson and other suppliers of the
world(cid:213)s telecom operators.

The closing year of the 1900s was the high point
— thus far, at least — of the momentous changes that
are transforming the global telecom industry. Over
the 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 among
operators. At the same time, fantastic opportunities
are being created for new operators to establish
themselves in the market, often as niche operators in
one of the many data and telecom market segments
or as operators in a limited geographical region.
The global alliances, which to an increasing
degree are shaping the market, also include compa-
nies that are not traditional telecom companies.
Internet companies, entertainment companies and
companies with a clear datacom focus are more and
more frequently included in the new alliances. The
boundaries between data and telecom and the
media industry are becoming increasingly blurred.

mega-operators
at&t is one of the very large operators that has
been extremely active during 1999 in building new
alliances. Together with bt, the company started
the joint venture Concert for the two operators(cid:213)
international operations. Through acquisitions of,
or partnerships with, several cable tv companies,
at&t has gained direct access in its home market
to millions of U.S. homes.

The mobile operators Vodafone and Airtouch
merged during the year. At the end of 1999, Voda-
fone began an attempt to take over Mannesmann in
what could become the largest deal to date between
two telecom operators. The largest merger in the
history of telecommunications thus far took place in
October, when mci Worldcom acquired the Ameri-
can operator Sprint for usd 129 billion. This was one
of several examples of how fixed network operators
are trying to enter the lucrative wireless industry.

MARKET AND BUSINESS CONDITIONS — TODAY

The very strong growth in sales of Ericsson(cid:213)s
mobile systems in North America during 1999 is an
excellent example of how rapidly traffic can grow
when these trends take effect. The introduction of
gprs — which is a step toward next-generation
mobile telephony — and wap services are other
factors that will contribute strongly to traffic
growth in mobile networks over the coming years.
At year-end 1999, there were nearly 475 million

mobile phone subscribers around the world, of
whom half use gsm systems. In early 2003, the
number of mobile subscribers is expected to exceed
one billion. This massive increase, however, will be
dwarfed by the growth in traffic, which is expected
to increase by more than fivefold over the coming
five years.

increased need for fixed networks

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 in
these networks is accelerating, particularly in what
are called packet-switched networks, which today
are increasingly based on ip (Internet Protocol).
Traditional voice traffic continues to generate the
major share of operator revenues, but a rapid shift
toward lower call charges has begun.

Internet traffic plays an important role in traffic

growth in the fixed networks. During 1999, the
number of Internet users in the world increased from
118 to 180 million. By 2002, nearly 300 million users
are expected to be connected to the Internet. At the
same time, the average time that Internet users are
connected is increasing by 20 percent annually.

During 1999, this resulted in a sharp increase in

1 1

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

brand increasingly important

Less and less of the value of a mobile phone lies in
the 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 increasingly
sophisticated 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(cid:213)s mobile
phones may be built into portable cd players,
watches, cameras, pocket computers and similar
devices. This also means that the major manufactur-
ers of such products will become competitors to
companies like Ericsson, Nokia and Motorola but
also that these companies(cid:213) demands for Ericsson(cid:213)s
products for wireless communication will increase.
In such a situation, the brand is increasingly
important. This is why Ericsson over the past few
years has been investing so heavily in strengthen-
ing its brand. These investments are only begin-
ning, but they have already produced tangible and
positive results.

environmental issues more important

More and more of Ericsson(cid:213)s customers are express-
ing interest in how their suppliers manage environ-
mental issues. These issues influence customers(cid:213)
purchasing decisions to an increasing extent. This
is 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 to
strengthening the Company(cid:213)s image in general.
Ericsson has long given environmental concerns
high priority and can point to major achievement
in this area.

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

health and safety

Extensive press coverage has actively contributed to
that individual consumers now and then express
concern for their health and safety when using
mobile phones and installing radio base stations.

Ericsson supports research in the field, through,

among others, the World Health Organization
(who).

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

2
1

w
e
i
v
r
e
v
o

MARKET AND BUSINESS CONDITIONS — TOMORROW

Moving toward a mobile future

uring the autumn of 1999, Ericsson
launched the (cid:210)Power of Mobility(cid:211)
concept as the theme for its marketing
to network operators and enterprises.

The choice of this theme was dictated by the
Company(cid:213)s view of how the converging media,
data and telecom markets will develop over the
coming years. It also reflects the assessment of
tomorrow(cid:213)s market on which Ericsson is basing its
new business strategy.

Over the coming years, global network operators

will continue to group themselves. They will
require new strategies to protect revenue streams
from fixed and wireless networks. In tomorrow(cid:213)s
competition, there is every indication that opera-
tors who focus on volume and/or specialization will
be the winners. Aggressive marketing, innovative
new services and packaged solutions in which even
content — for instance in the form of entertainment
or information — is included in the offer are some of
the methods that will be used in the battle to win
customers. The leading companies will be recog-
nized for their ability to offer personalized services
in which mobility will be one of the greatest bene-
fits offered to customers.

paradigm shift

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

Switch circuit for
third-generation/
WCDMA networks.

demand simple solutions that allow them to be
connected to the network at all times (while paying
only for the actual time they use it), to have a single
telephone number and a single e-mail address, to
receive a single invoice for all services used, and so
on. And — not least important — to have a single
place to turn when they need service, want to order
new services or need help in managing their per-
sonal communications.

To meet these user demands, the operators(cid:213) net-

works must allow mobility in a broad sense. This
means the mobility provided by wireless networks
as well as other forms of mobility, such as enabling
a subscriber to be reached at the same telephone
number or e-mail address regardless of where in the
world he or she might be located.

new business logic

New operators are now attracting subscribers by
offering free access to communication networks.
These operators are seeking revenues higher up in
the value chain by offering online services such as
electronic commerce and entertainment. This trend
is a future threat to established operators who must
offer the same terms to their customers. This is why
operators are already beginning to offer Internet
portals and forming alliances with content-oriented
companies in the entertainment and information
industries.

It is vitally important that today(cid:213)s operators
choose the right strategy as they face the years
ahead. They must also modernize their networks so
that they are able to meet the demand for increas-
ingly bandwidth-hungry services, including those
we can foresee and others of which we as yet have
no clear perception. The network upgrades now
required must also be made without sacrificing
profitability in today(cid:213)s service offering. New initia-
tives, and in many cases revolutionary solutions, are
required to ensure future competitiveness.

strong business strategy

The vision of a future in which mobility is a cen-
tral feature, and in which an entirely new business
logic demands innovative solutions, has provided
the foundation for Ericsson(cid:213)s new business strate-
gy. It is a strategy that takes as its starting point
the Company(cid:213)s position as the undisputed global
leader in mobile communications — viewed from
all perspectives — and its well-documented ability
to offer innovative technology. What Ericsson
now offers its customers are solutions for migrat-
ing to tomorrow(cid:213)s network architecture by gradu-
ally expanding network capacity and improving
quality.

ERICSSON(cid:213)S STRATEGIES

Developing Ericsson(cid:213)s business
with focus on profitable growth

1 3

new generation of network infrastructure and
applications.

Ericsson(cid:213)s product portfolio spans over the new
backbone networks that will handle many different
types of service and includes solutions for accessing
these networks.

Within business communications, Ericsson is
already the leading supplier of systems and services
for cordless telephony. Now the goal is also to take
the lead in solutions for wireless data networks for
business.

Ericsson will take advantage of its unique ability

to offer total solutions that include infrastructure,
terminals, applications and services, while continu-
ing to promote open standards for data and
telecommunications.

¥ CREATE ADDED VALUE FOR CUSTOMERS

AND STRENGTHEN CUSTOMER RELATIONS

This is an important cornerstone in Ericsson(cid:213)s busi-
ness strategy. The Company(cid:213)s new and strongly
market-oriented organization is a valuable asset,
because it clearly defines responsibility at a high
level for all existing global and key accounts and
also for important customers among the increasing
number of new telecom operators. Great emphasis
is placed on increasing understanding of user needs
so that Ericsson will be better able to offer its oper-
ator customers the new solutions that users will
demand.

Ericsson is active in more than 140 countries
around the world and has over 120 years built up the
largest customer base of any company in the indus-
try. It is therefore essential — and in line with Erics-
son(cid:213)s corporate values of professionalism, respect and
perseverance — that we do not to leave existing cus-
tomers in the lurch. Ericsson(cid:213)s business strategy thus
emphasizes the importance of continuity in business
relations, both between Ericsson and its customers,
and between our customers and their customers.

ERICSSON(cid:213)S MISSION
is to understand its
customers(cid:213) opportunities
and needs, and to
provide communication
solutions better than any
competitor.

IN DOING SO, Ericsson
shall generate
a competitive economic
return for its shareholders.

E-box, gateway for management
of intelligent home equipment.

ricsson’s corporate Executive Team
worked intensively during 1999 to further
refine the business strategy that was formu-
lated in 1998 and presented in last year(cid:213)s
Annual Report. The Company(cid:213)s strategic focus is
now even clearer: Ericsson will be the leader in
tomorrow(cid:213)s converged data and telecom market by
focusing its strengths on solutions for the mobile
Internet and mobile telephony.

It is perfectly clear that communications will
play the central role in tomorrow(cid:213)s world. In this
world, voice, data, images and video can be com-
municated anywhere and anytime using many
different types of device. This will increase produc-
tivity and the quality of life around the globe, thus
creating a new world in which resources are used
more efficiently.

Many progressive forces around the world are
contributing to create these opportunities. Ericsson is
one of the foremost and intends to be a driving force
in the creation of tomorrow(cid:213)s sophisticated com-
munications solutions and a prime model of network-
based organizations in which innovators and entre-
preneurs work together in global teams.

ericsson’s business strategy

¥ FOCUS ON PROFITABLE GROWTH

Ericsson will be the industry leader by focusing
strongly on the sectors that the Company views as
the most lucrative for the future — Internet solu-
tions in the widest sense, but with particular
emphasis on solutions for wireless access to the
Internet. Total network solutions and applications
and terminals for the mobile Internet are the areas
that offer Ericsson the greatest business opportuni-
ties and that will be most strongly in focus in a few
years.

When third-generation mobile phone systems
become a reality, extremely strong growth is pre-
dicted for the mobile Internet. The development of
wireless data communication is already picking up
speed, and the pace will accelerate over the year, as
gprs and other new technologies increase speeds
for wireless data transmission.

¥ SOLUTIONS TO TOMORROW(cid:213)S NEEDS
Because established operators control the public
communication networks, they have an advantage
over the competition. Ericsson can help these
operators exploit their advantage by offering cost-
effective solutions for the necessary transition to a

4
1

w
e
i
v
r
e
v
o

AS THE EMPHASIS
in data and telecom-
munications shifts
to the mobile Internet,
Ericsson will take
the lead. Our dominance
in mobile systems and
unique expertise in
wireless data provide
a strong foundation for
achieving this position.

TORBJ(cid:133)RN NILSSON,

SENIOR VICE PRESIDENT,

MARKETING AND

STRATEGIC BUSINESS

DEVELOPMENT.

¥ REDUCE COSTS AND INCREASE EFFICIENCY
In order to meet the market(cid:213)s demands, Ericsson
must become faster and more cost-efficient and
offer products of even higher quality. Increasing
demands are also being placed on the Company(cid:213)s
ability to develop new products and services
quickly. To meet these demands, Ericsson is
working on a broad scale in the Global ttc
(Time To Customer) project, which is intended to
reduce lead times drastically and to make the
ordering of Ericsson products and services signifi-
cantly easier and more reliable. The major
upgrades of Ericsson(cid:213)s internal it infrastructure
now in progress are another important factor in
increasing efficiency.

¥ STIMULATE INNOVATION
Ericsson set a new record in 1999 in the number of
patent applications. A strong patent portfolio is
extremely important in a technology-intensive
industry such as data and telecommunications.
Creating an innovative environment in which new
product ideas can be evaluated quickly — and
quickly brought to market— is therefore a high
priority for Ericsson. It is essential that the Compa-
ny works unceasingly to identify new business
opportunities.

¥ STRENGTHEN THE MARKET(cid:213)S PERCEPTION OF

ERICSSON THROUGH BRANDING AND MARKETING

A large share of Ericsson(cid:213)s sales are made directly to
consumers, making it all the more important to
strengthen the Ericsson brand. The Company will
therefore invest even more heavily in aggressive
communication of its marketing messages and in
other activities that will increase recognition and
appreciation of Ericsson among broad groups. An
increased emphasis on contacts with public author-
ities is motivated by the need to strengthen the
Company(cid:213)s position among government agencies
and organizations.

¥ DEVELOP THE INTERNAL CULTURE, AWARENESS

AND COMPETENCE

Ericsson(cid:213)s products must be renewed faster than
ever. At the same time, customers(cid:213) are increasingly
expecting us to understand their needs. Ericsson
employees must therefore increase their awareness
of what the industry is like today and how it will
develop in the future.

During 1999, Ericsson initiated its greatest-ever

effort to increase internal competence and aware-
ness of the industry(cid:213)s constantly changing condi-
tions.

Also, salaries and other benefits are being
reviewed to make it easier for Ericsson to recruit
and retain top talent. The extended option plan
approved by an Extraordinary General Meeting
during the autumn is an example of the type of
measures that are now needed.

ricsson strengthened its market posi-
tion substantially during 1999 through
acquisitions and new strategic alliances. In
line with its strategy to focus on small and med-
ium-size companies with skills that supplement
Ericsson(cid:213)s own expertise, Ericsson acquired several
companies and became part-owner in others. In
other cases, Ericsson broadened its skills and exper-
tise through far-reaching programs of cooperation.
A strategic alliance with Microsoft, which was
announced in the beginning of December, attracted
the most attention, but many other important
strategic moves were also made during 1999 to
strengthen Ericsson(cid:213)s competitiveness. Some of the
most important, in alphabetical order, were:

ELECTROLUX, SWEDEN
A joint venture company was established by
Electrolux and Ericsson to research, develop and
market products with access to the Internet to
private homes.

JUNIPER NETWORKS, USA
Ericsson has entered a strategic alliance with
Juniper in the area of next-generation multiservice-
ip networks. Ericsson has gained distribution
rights to Juniper(cid:213)s m40 router under the designa-
tion Ericsson axi 520. Ericsson and Juniper will
work together to develop new solutions for voice
and ip communications.

MATEC, BRAZIL
Ericsson Telecommunica(cid:141)(cid:155)es in Brazil acquired an
additional 67.5 percent of all shares outstanding in
Matec. Prior to the acquisition, Ericsson owned 30
percent of the Brazilian company, which sells
Ericsson(cid:213)s solutions for enterprise communications in
the Brazilian market.

MICROSOFT, USA
A strategic alliance that focuses on the development
and sales of total solutions for wireless Internet access
has been formed. The alliance is based on a shared
vision of convenient and rapid access to information
anytime, anywhere, on any device. Microsoft and
Ericsson will establish a joint-venture company to
market and supply wireless e-mail solutions. Erics-
son will be the majority owner of the new company.
The agreement provides Microsoft with access to
Ericsson(cid:213)s wap software, while Ericsson, in turn,
will be entitled to use Microsoft Mobile Explorer for
its more advanced wireless terminals.

The joint venture will focus on building, market-
ing and using solutions based on Microsoft Windows
nt Server and Exchange platforms with Ericsson(cid:213)s
infrastructure and mobile Internet technologies.

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

1 5

ERICSSON(cid:213)S STRATEGIES

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

QUALCOMM, USA
Ericsson has acquired the infrastructure division of
Qualcomm Inc., based in San Diego, ca, in the
U.S. The acquisition was part of a larger agreement
between Ericsson and Qualcomm, whereby all
patent disputes between the two companies were
resolved.

The acquisition includes Qualcomm(cid:213)s produc-
tion and development units for cdma systems in
San Diego, ca and Boulder, co. Ericsson also
acquired Qualcomm(cid:213)s customer contracts for the
systems, including some customer financing.

SARA(cid:236)DE-COM, USA
Ericsson has become a minority owner of the San
Francisco-based company. Sara(cid:149)de develops and
provides sophisticated data communications ser-
vices for mobile operators. Ericsson(cid:213)s investment is
intended to stimulate the use of innovative services
for mobile data communications.

SYMBIAN, UK
Ericsson(cid:213)s cooperation within the parameters of the
Symbian consortium is not affected by the year-end
agreement with Microsoft. Symbian, which devel-
ops operating systems for mobile terminals, was
joined during the year by another important part-

ner: Matsushita Communication Industrial Co., the
world(cid:213)s fourth largest manufacturer of mobile
phones. Previous owners were Ericsson, Motorola,
Nokia and Psion.

SYMBOL TECHNOLOGIES, USA
The companies will jointly market and exchange
technical expertise in wireless lan-based telephony
and datacom solutions. The alliance is focused on the
market for local mobility within business enterprises
via a common network for voice and data.
WebSwitch and other access products are now being
offered to Symbol, which, in turn, provides tele-
phones for VoIP (Voice over ip), portable computers
and other products.

TELEBIT A/S, DENMARK
Ericsson acquired 75 percent of the Danish compa-
ny, which specializes in the development of next-
generation Internet. Telebit is the world leader in
ip version 6, and was the first company to offer
commercial router solutions for this version of the
Internet protocol. Software for IPv6 and multi-
protocol solutions will be integrated into Ericsson(cid:213)s
mobile network offering.

TELULAR, USA
Cooperation focused on the development and sales
of Telular(cid:213)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(cid:213)s terminals by integrating
Ericsson(cid:213)s radio modules for tdma into the
products.

TORRENT NETWORKING TECHNOLOGIES, USA
Ericsson acquired the Maryland-based company in
the beginning of 1999. Torrent manufactures high-
capacity aggregation routers. Its router products
offer strong supplements to Ericsson(cid:213)s own solutions
for ip over atm networks. Torrent(cid:213)s operations have
been integrated into Ericsson(cid:213)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
1999. The company develops and manufactures ip-
telephony solutions for enterprise communications.
As a result of the acquisition, Ericsson is now able
to offer total solutions for ip-pbx systems, which
operate with VoIP. The company(cid:213)s most important
product is WebSwitch 2000, an ip-based enterprise
switch for small companies. TouchWave is now
included in Ericsson(cid:213)s Enterprise Solutions business
segment under the name Ericsson WebCom Inc. ¥

Bluetooth, module for wireless communication over short distances.

6
1

w
e
i
v
r
e
v
o

ERICSSON(cid:213)S STRATEGIES

Complete product portfolio
for tomorrow(cid:213)s networks

uring 1999, work was started to
refine Ericsson(cid:213)s product portfolio, so
that it better corresponds to the Com-
pany(cid:213)s strategic focus on wireless multi-

media and broadband access, as well as to the new
generation of infrastructure that will be required.
To understand the logic behind the strategic
product portfolio that Ericsson is now building, the
reader must first understand the logic behind
tomorrow(cid:213)s data and telecommunications networks.
The next generation of communications networks
will be built according to a model with three clearly
distinguishable 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 the
Internet or on special network servers.

The control level contains all the functionality

required for controlling and managing the net-
work, keeping track of subscribers, handling
mobility, monitoring the network, and so on. In
short, it provides everything needed to set up a
connection for data or telecommunication.

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

Viewing the network from these three levels
makes it easier to understand the logical division of
labor in tomorrow(cid:213)s communication networks. The
model 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 layer
plays its own role in generating revenues for the
operator.

focus on information

The primary source of revenue for tomorrow(cid:213)s net-
work operators will be found at the content and
applications 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 are
connected or the volume of information that is
downloaded via the network. Electronic commerce
and other online services are good examples of

applications found at this level. Another strong
growth area is asp (Application Service Provision-
ing), which is a technique for enabling users to
download application software over the Internet for
a fixed price instead of buying it over the counter.
In the future, traditional voice communications
with good speech quality will be just one of many
services and applications. Voice recognition is an
example of how tomorrow(cid:213)s networks will some-
times need to employ real-time voice communica-
tions.

The various services at this level will primarily
be developed by specialized companies that have
entered into partnerships or some other form of
alliance with network operators. The equipment
required at this level consists primarily of server
platforms with open interfaces and software that
enables communication.

Ericsson has developed a concept called Open
Service Architecture (osa) for this level. osa sup-
ports all forms of access and global interoperability
and works with technical equipment from most
suppliers.

wap services are another area in which Ericsson
is extremely active in supporting the development
of new applications at the content level. The busi-
ness logic for Ericsson is simple: the more services
and applications that can attract end-users at this
level, the greater will be the load at lower levels
and the corresponding need for Ericsson(cid:213)s systems
and solutions for these levels.

The partnership with Microsoft, which was
announced in December, should also be viewed
against the background of the new business logic.
The same applies to investments during 1999 in the
companies oz.com and Sara(cid:149)de, both of which are
focused on developing attractive services for net-
work operators(cid:213) customers.

retaining control essential

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

Much of the network operator(cid:213)s profits will be

1 7

RXI 820, the world(cid:213)s first real-time
router for wireless networks.

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

Ericsson has developed several such server solu-

tions, launching Telephony Server during 1999,
which is a technology for voice communication
over ip (Voice over ip, VoIP), as well as a solution
for 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 in
partnership with companies like Hewlett-Packard,
Compaq, and Bull.

complete network portfolio

The level for connection and transport provides the
mechanisms for the transport of all types of informa-
tion: voice, data or multimedia. In the future, these
mechanisms will be based on ip and atm technolo-
gy. For operators, the challenge is to find the most
cost-effective solution for building this network
level. The architecture required at this level encom-
passes the transport (backbone) and access networks.
The development of products for tomorrow(cid:213)s
access network receives high priority at Ericsson.
This is also the part of the network architecture
that accounts for the major share of investments at
this level in the network model.

For mobile access, where Ericsson is the world
leader, systems are offered for every standard cur-
rently in operation. Extensive investments in gprs,
which will significantly increase data rates in gsm
networks, have also made Ericsson the leader in this
area. In next-generation (3g) systems, Ericsson has
been driving development for some time and is the

only supplier able to offer 3g systems in accordance
with all currently established 3g variants.

three solutions for broadband access
3g offers wireless broadband access. For broadband
access to the fixed network, Ericsson has focused on
three solutions: adsl for broadband access over
ordinary copper cable, lmds (mini-link bas) for
broadband access to the fixed network over radio,
and PipeRider for broadband communication via
the cable tv network.

In tomorrow(cid:213)s ip-based networks, communica-
tion will be switched from the access network to
the transport network via access routers.

Ericsson has developed a common platform for

the access network that can handle both ip and
atm. The rxi 820 is a first-of-a-kind real-time
router developed specifically for wireless networks.
It is intended for use in ip-based networks that
require real-time performance and low fault toler-
ance. It handles the latest versions of the Internet
protocol, ipv4 and ipv6, and can be expanded incre-
mentally as capacity requirements increase. Another
access router from Ericsson is the axc 711 (Tigris).
In the backbone network, signals are first for-
warded to aggregation routers. With the purchase
of Torrent Networking Technologies Inc. last
spring, Ericsson gained access to a gigabit aggrega-
tion router, the axi 540. For traffic in atm-based
networks, the company has developed the axd 301,
which is a scalable atm switch and the cornerstone
in Ericsson(cid:213)s engine concept for incrementally
introducing ip and atm technology into the back-
bone network.

At the highest level in the network, Ericsson,
through its partnership and equity stake in Juniper
Networks, can offer the axi 520, a router for data
speeds of 40 gigabits per second and higher.

8
1

w
e
i
v
r
e
v
o

A2618, dual-band phone
with exchangeable
snap-on covers and
extended personalization
features.

Technical development
supports Ericsson(cid:213)s strategy

ricsson’s strategic product portfolio
is being enhanced continuously. In order to
strengthen its position in the market for
datacom and ip networks, Ericsson has
made a number of strategic acquisitions and entered
important partnerships in recent years. However,
within its own core business, mobile telephony and
real-time telecommunications networks, Ericsson is
a global leader in technology development.

Ericsson(cid:213)s corporate function Technology has as
its primary mission to ensure that product develop-
ment is in line with the Company(cid:213)s business strate-
gy and to define the strategies that determine when
new products will be introduced. The corporate
function Technology is also charged with identify-

ing areas in which synergies in Ericsson(cid:213)s technical
development can be exploited.

During 1999, Ericsson invested sek 34,700 m.
(30,200) in technical development, corresponding
to 16 percent of net sales. The number of employees
active in research and development during the year
was 23,500 distributed among research centers in 25
countries.

The fact that Ericsson(cid:213)s technical development is
so highly decentralized is primarily due to histori-
cal reasons. The Company(cid:213)s research and develop-
ment organization has expanded greatly over the
past 20 years thanks to the axe system(cid:213)s success.
One of the advantages of axe is that it is a modular
system. As a consequence, it has been easy to dele-

1 9

THE ITU DECISION
in 1999 to adopt WCDMA
as a standard for third-
generation mobile tele-
phony is a major cause for
celebration. Ericsson has
been promoting this solu-
tion for several years and
driving efforts to harmonize
the various proposals for
third-generation systems.

JAN UDDENFELDT,

SENIOR VICE PRESIDENT,

TECHNOLOGY

TECHNICAL DEVELOPMENT

gate design responsibility for local adaptations to
Ericsson units in the markets in which the Compa-
ny(cid:213)s largest axe customers are active. In many
cases, establishing local technical resources in this
manner was a political prerequisite for winning
contracts at a time when many operators were
state-controlled monopolies.

consolidation now necessary

In view of the pending technology shift, in which
circuit-switched systems such as axe are merging
with ip- and atm-based communications systems,
the demands on Ericsson(cid:213)s development organization
are also changing. In tomorrow(cid:213)s systems, it will be
necessary to make modifications for local markets
quickly and within the framework of common and
open standards. This will require a concentration of
resources 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 the
widely varying demands on development resources
made by today(cid:213)s product cycles.

the standard for 3g. This led to the formation of the
global standards organization 3gpp.

In March 1999, an agreement was reached
between Ericsson and Qualcomm, which meant
that both companies would back a common global
wcdma standard. The agreement paved the way
for an itu decision in November 1999 establishing
wcdma as the standard for 3g under the name
imt-2000 Direct Spread. The first release of the
standard was finalized by 3gpp in December 1999.
With the acquisition of Qualcomm(cid:213)s infrastruc-

ture division, Ericsson also gained access to is-95
and its enhancement in the form of the technology
called imt-2000 Multi-carrier.

Ericsson is pleased that the itu recently also
established edge as a standard for 3g. edge pro-
vides a natural migration of gsm to 3g but will
also be an important 3g technology for existing
tdma operators in the U.S. and Latin America.
These operators will be able to use edge to intro-
duce 3g in existing frequency bands, while wcdma
will require specially allocated frequencies in the
2 GHz band, which has been reserved in most parts
of the world for umts and imt-2000.

focused product units

new network architecture

Ericsson(cid:213)s product development takes place in
special product units. Operations in these units
were streamlined during 1999 to encompass only
product development. In cases where resources had
been built up for sales and marketing, for example,
they were transferred to the business unit to which
the product unit belongs. The result of this stream-
lining is greater efficiency and a clearer focus for
each product unit.

driving force behind 3g

Ericsson(cid:213)s position as the technology leader in
mobile systems is undisputed. No other company
can offer its customers mobile systems according to
every existing analog and digital system up to and
including second-generation mobile systems,
which are now in operation all over the world.
Neither can any other company offer customers as
broad a range of solutions for what is called 3g
(third-generation) mobile systems. At year-end
1999, Ericsson had 17 functioning 3g test systems in
operation. The first of these was approved in early
1998 by ntt DoCoMo in Japan, which in April
2001 is expected to be the world(cid:213)s first operator to
take a commercial system into operation — supplied
largely by Ericsson.

Ever since discussion of a new global system for
third-generation mobile telephony began, Ericsson
has played a leading role. The Company can now
take satisfaction in the fact that wcdma, the tech-
nology that Ericsson began developing in 1990, is
now the established standard for 3g. During 1998, a
decision was taken by etsi and arib, the European
and Japanese standards bodies, to adopt wcdma as

Third-generation mobile systems offer wireless
broadband communications at speeds up to 100
times faster than today. There are many application
areas for this technology including wireless Inter-
net access, e-mail and the transmission of multi-
media to portable terminals or postcards directly
from mobile phones to the receiver.

This revolution in wireless communications will

also require modifications in the fixed network.
This is why 3g is such a powerful driving force
behind the new network architecture now on the
horizon. New solutions have been developed to
make this architecture possible.

A platform that handles both atm and ip has
been developed. It functions as a media gateway
that mediates access to the backbone network from
3g networks. Ericsson successfully tested the plat-
form in Japan during 1999 and expects to make the
product available when 3g networks start to be
deployed in 2001.

The same platform is included in the new rxi
820 ip router, which is a part of Ericsson(cid:213)s solution
for the 3g network. The platform was developed
specifically for wireless broadband networks and
their demands for real-time functionality; for
example, to handle the synchronization of base
stations.

migration for the customer’s sake
Many of Ericsson(cid:213)s technical solutions are character-
ized by their facilitating a smooth migration from
previously installed systems to a new system. This
was the case, for example, with mobile systems for
tdma, for which operators of analog amps networks

Eight-inch silicon wafer with datacom circuits.

Denmark-based company, Telebit, during the
autumn, Ericsson was assured of leading-edge
expertise in the development of IPv6, which is the
next version of the protocol. Telebit is a world
leader in developing this important next-genera-
tion ip technology and already has the world(cid:213)s
largest installed base of next-generation routers.

wap and bluetooth for consumers

Never before has Ericsson introduced as many
mobile phones as in 1999. With the t28, a transi-
tion was made to an entirely new technical plat-
form using three volts instead of four and with
many new technical features, including a new chip

0
2

w
e
i
v
r
e
v
o

were offered a technology that was added to the
existing infrastructure and which thereby digitized
the network. This method of migrating from one
technology to another is extremely cost-effective for
the customer and allows shifts in technology to be
made incrementally, without affecting end-users.
Ericsson(cid:213)s wcdma technology is designed to
allow today(cid:213)s gsm customers to migrate easily to
the new technology.

The corresponding migration technology for the

fixed network is provided by engine, which
accommodates circuit-switched and packet-
switched services in the same network. Existing
axe switches, for example, can be expanded with
axd 301, Ericsson(cid:213)s scalable atm switch, in order
to handle a growing volume of data traffic in the
same network. This solution for next-generation
networks achieved a breakthrough in 1999.

new generation axe
For more than 20 years, axe has been the founda-
tion of Ericsson(cid:213)s success in fixed and wireless
communications. During these years, development
of the axe system has continued.

During 1999, work continued with the next-
generation axe system, which is scheduled for
introduction during 2000. The new-generation
system will constitute yet another giant step in
increased capacity and reduced size for axe switch-
es. Development of the axe system will continue
for several years.

complete router family

Ericsson achieved major advances in the market for
ip and data communication during 1999. The goal
of becoming a leading supplier even in this area has
not yet been completely realized, but the Compa-
ny(cid:213)s position was strengthened considerably.

The axd 301 atm switch, which was developed

by Ericsson, is beginning to achieve commercial
success. Ericsson(cid:213)s platform for combined ip and
atm traffic in 3g networks is another technically
very powerful solution. In addition, the Company
strengthened its position in routers during 1999
through several strategic acquisitions and partner-
ships.

A previously established partnership with
Juniper Networks regarding the development of
backbone routers was extended during the year.
Ericsson obtained the right to market Juniper(cid:213)s 40
gigabit router under its own brand.

In March, Ericsson acquired Torrent Network-
ing Technologies in Maryland in the U.S. Marketed
as the Ericsson axi 520 and axi 540, Juniper(cid:213)s and
Torrent(cid:213)s aggregation routers fit well into Ericsson(cid:213)s
product portfolio, as does the Tigris access router
obtained from the California-based company acc,
which was acquired in 1998.

ip-based communication is one application area

for routers. With the acquisition of the (cid:129)rhus,

TECHNICAL DEVELOPMENT

set and a new radio subsystem employing homo-
dyne technology. This platform will be used for
new models to be introduced during the year 2000.
Three different terminals were also introduced
during 1999 that employ wap (Wireless Applica-
tion Protocol) technology for more efficient
exchange of information between the Internet and
the wireless device. The mc218, which was intro-
duced first, is a separate handheld computer for
wireless communication and includes an infrared
port. The epoc operating system is also built into
the mc218, making it the first concrete result for
Ericsson of the Symbian joint venture. The Sym-
bian partnership, which was started by Ericsson,
Motorola, Nokia, Psion and others, was expanded
in 1999 to include the Japanese company Matsushi-
ta.

The r320 and the r380 are wap-phones that
will be avilable in volumes during 2000. The r320
can most easily be described as a t28 with a consid-
erably larger display and extra keys for wap-navi-
gating in the display. The larger r380 has a larger
display that can be used to access built-in applica-
tions such as a calendar, an e-mail client and a web
browser.

Bluetooth is a new, small and inexpensive radio-

frequency chip that Ericsson Components has

2 1

MINI-LINK BAS, system for
wireless—fixed network access
using so-called LMDS point-to-
mulitpoint solutions.

already taken into production. The chip is based on
technology that was developed by Ericsson and
offered to other companies as early as 1998, when a
consortium was established by Ericsson, ibm,
Nokia and Toshiba to support the technology. Dur-
ing 1999, the special interest group that was estab-
lished for Bluetooth grew from 400 to close to
2,000 companies. Bluetooth is thus the de facto
global standard for radio communication between
different devices over short distances.

At the Comdex exhibition in the U.S. in the
autumn of 1999, Ericsson demonstrated its first
Bluetooth product, which consisted of a cordless
headset equipped with a microphone that communi-
cates with a mobile phone that can be carried in a
pocket or a purse or located elsewhere within the
10-meter range of current Bluetooth technology.

strategies for broadband access
Toward the end of 1999, Ericsson established its
strategy for access products. This decision marked a
concentration of the Company(cid:213)s development
efforts to three areas: adsl, lmds and ip via cable-
tv networks. adsl (Asymmetrical Digital Sub-
scriber Line), a technique for increasing capacity in
existing copper networks, provides very high band-
width for the downstream link. This technology is
particularly suitable for using existing telephone
lines for video on demand, high-speed Internet
access and similar services. Ericsson has a leading
position in this area. Swedish network operator
Telia is building an extensive adsl network with
the help of Ericsson and other suppliers.

lmds (Local Multipoint Distribution Services)

is a technology for high-speed radio networks in
which microwave transmission provides a high-
speed connection to voice and Internet services for
small and medium-size business and multiple unit
dwellings. Radio technology is thus employed to
rapidly and cost-efficiently provide broadband
access to the fixed network.

Ericsson(cid:213)s main product in this area is mini-
link bas, which is available for European and
U.S. radio standards. The U.S.-based Diginet is one
customer who has already ordered this access solu-
tion from Ericsson for deployment in its network in
Latin America.

For the third type of broadband access, which is

cable tv, Ericsson introduced the PipeRider
product in 1999. PipeRider is a cable-tv modem
that is used to provide voice and Internet access in
the home. In its first generation, PipeRider was
designed according to the American docsis stan-
dard. Using its router products, Ericsson is also
developing infrastructure for ip communication
and delivery of voice and data over cable-tv net-
works.

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

2
2

s
u
c
o
f

i
i

TIME TO CUSTOMER

How to save money while
pleasing customers even more
S
Succeeding in the data and telecommunica-

tions market requires being able to deal with
rapid change. Ericsson(cid:213)s customers — network
operators and businesses — are keenly aware of

the same operator(cid:213)s network somewhere else. Glob-
al customers demand the same simple ordering
routines and delivery procedures, regardless of
where in the world the product will be put into
operation.

this. That is why they demand so much of their
suppliers: fast delivery, rapid development of new
solutions requested by users, quick response when a
problem needs to be solved, and so on.

THE GOAL OF
TTC Global is to sharply
reduce lead times and to
simplify the entire supply
chain. The economic
potential of such improve-
ment is substantial. We
can reduce personnel
requirements in the supply
chain by 25 percent,
which in terms of money
is at least 3 percent of
sales for all products that
can be handled in this
way.

BJ(cid:133)RN BOSTR(cid:133)M,

SENIOR VICE PRESIDENT,

SUPPLY AND INFORMATION

TECHNOLOGY

Ericsson has been working hard and conscien-
tiously over a period of years to reduce lead times at
all levels. When the new organization was intro-
duced at year-end 1998, the need for speed was
given additional emphasis. Over the past year,
major steps have been taken within the framework
of ttc Global, an Ericsson-wide project led by the
corporate function Supply & it that, among other
things, aims at reducing lead times.

Shortening ttc, or Time to Customer, is the
overriding goal of the project, by reducing the time
from when the customer places an order until a
product has been delivered and is ready to be put
into operation. The target for ttc Global is to
reduce lead times in the supply chain by 50 percent
or more. At the same time, using Internet technol-
ogy, simpler and thereby faster ordering routines
are being created for customers.

high-level deliverables

One of the most important means of achieving the
ttc Global goals is a transition from previous
delivery methods to what is called high-level deliv-
erables. This means that products delivered to
customers should be as ready to use as possible. A
radio base station, for example, should have all
software installed and be ready to take into opera-
tion. It should be delivered completely assembled
and ready for rapid installation, which entails sim-
ply connecting the necessary power and communi-
cations cables.

The transition to high-level deliverables means
that the customer can identify a suitable solution in
Ericsson(cid:213)s product portfolio based on current
requirements and order a complete package via a
web-based application.

The ttc Global management is aware that not
all of Ericsson(cid:213)s product portfolio can be ordered in
this manner, but most products can be delivered
using the simplified routines.

Because the operations of Ericsson(cid:213)s customers
are becoming more global, this method of delivery
is much appreciated. What a mobile operator
needs for a network in one part of the world is
often exactly the same as what was purchased for

The transition to direct ordering via the Internet
enables substantial savings through rationalization.
Previously, orders were often sent from one order
office to another within Ericsson before finally
reaching the unit that would complete the delivery.
Most of these intermediary points in the old
process can now be eliminated. Every step in the
process that does not add value for the customer
will be removed.

base station in 15 days
The methods developed by ttc Global were tested
successfully during 1998 and 1999 with deliveries of
radio base stations to Germany. This experience
proved that the methods are sound. Customer
reactions were overwhelmingly positive. The sim-
plified ordering routines pleased the customers and
earned them money, since deliveries of needed
capacity increases could be guaranteed in half the
time previously required.

Customers are also receiving better information

than before. Web technology is being used to
simplify customer orders, and to allow the
customer to track how orders are being processed
within Ericsson(cid:213)s organization.

spreading throughout ericsson

The new methods are now being used with more
products throughout Ericsson. Wide application of
the ttc Global methods is being given the highest
priority by executive management, not only
because they improve and strengthen the
relationship with the customer, but also
because of economic incentives. ttc
Global has shown that it is possible to
reduce personnel requirements in the
supply chain by 25 percent. In monetary
terms, this corresponds to at least 3 per-
cent of invoiced sales for all products that
can be handled in this manner.

Vodafone Airtouch, which is one of
Ericsson(cid:213)s largest customers in mobile
systems, gave the Company the highest
possible marks for its working methods
last year when the operator decided that
this delivery model would be the stan-
dard for all its networks around the
world.

R250 PRO, the world(cid:213)s first water- and shock-resistant
mobile phone. Combined mobile phone and private radio.

THE MILLENNIUM SHIFT AND IT

2 3

Millennium
shift renews
it structure
T
The guiding principles for Ericsson(cid:213)s

millennium program were to uphold cus-
tomer confidence, to protect shareholder
investments and to secure the Company(cid:213)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(cid:213)s customers without interruptions.

Ericsson took the y2k issue seriously. An exten-
sive program to handle the transition was started as
early as 1997. The program encompassed all Erics-
son companies and operations and was monitored
by executive management. The total cost of the
Millennium Program was sek 2,700 m.

Ericsson made a great effort to eliminate and
minimize all y2k-related problems. All products
were tested to determine whether or not they are
y2k-compliant. In certain cases, customers were
offered upgrades. An extensive review was also
conducted of mission-critical information systems
and of all steps in the delivery chain from order to
installation.

working around the world

To assist customers around the world, more than
3,000 Ericsson employees were on duty on New
Year(cid:213)s Eve in more than 200 locations around the
world. To coordinate their activities, a number of
new routines and systems were implemented and
tested, including a worldwide communications
system for the rapid collection of information.

At the millennium shift, the load on public
telephone systems was at times extremely high. In
some areas, subscribers experienced problems in
making calls, but this was due entirely to over-
loading of the networks. When traffic returned to
normal, service levels were also restored to nor-
mal.

more reliable it infrastructure

As a result of the millennium shift, Ericsson(cid:213)s inter-
nal it infrastructure is more highly optimized,
more secure and more efficient than ever before. All
software used throughout Ericsson was reviewed.
Many systems and applications were phased out
entirely, while others were upgraded. Work to
create uniform standards, including the continued

PipeRider, modem for
data communication over
cable-TV networks.

introduction of esoe (Ericsson Standard Office
Environment), was speeded up by the Millenium
Program.

esoe means that an Ericsson employee is able to
sit at any pc anywhere throughout the organization
and immediately begin working with familiar soft-
ware in a familiar computing environment. This
increases internal efficiency and makes it easier to
relocate employees temporarily or permanently.
Several major virus attacks during 1999 also

confirmed the strength of the esoe concept.
Thanks to central administration of virus protec-
tion and frequent updates, Ericsson has withstood
all severe virus attacks to date without major dam-
age. By year-end 1999, nearly 80 percent of all
Ericsson employees had esoe installed in their
pcs. The goal is to complete the implementation of
this standard environment during the year 2000.

new administrative systems
sap r/3 has also been introduced as a standardized
environment for many of Ericsson(cid:213)s administrative
routines. To date, 36 major installations have been
completed throughout Ericsson.

During 1999, a number of new intranet-based
systems for internal administration were taken into
operation. (cid:210)Click to Buy(cid:211) is one example of the
increased efficiency made possible using intranet
technology. This is a system for purchasing and
ordering non-product related goods that will grad-
ually replace traditional methods, which are often
cumbersome and bureaucratic. For input goods, the
¥
electronic transfer of information already exists.

4
2

s
u
c
o
f

i
i

NEVER BEFORE HAS
Ericsson worked so hard
to increase internal com-
petence and to change
the way of thinking and
acting on the job. If we are
to succeed in the new
telecom world, every
employee must under-
stand how it works and
what will be demanded of
our customers if they are
to succeed.

BRITT REIGO,

SENIOR VICE PRESIDENT,

HUMAN RESOURCES AND

ORGANIZATION

A new Ericsson
emerging

en years ago, ericsson had 70,000
employees, more than half of whom
worked in a business area called Public
Telecommunications. It was built up

around the axe switch and dominated Ericsson(cid:213)s
business totally. This was the unit that generated
the profits that financed Ericsson(cid:213)s bold new invest-
ments in mobile telephony, business systems and
component manufacturing.

Ericsson(cid:213)s customers were state-owned ptts, one
in every country, that at regular intervals went to the
market and requested tenders for new deliveries
based on very detailed technical specifications devel-
oped by the customer(cid:213)s engineers. A typical tender
occupied several meters of shelf space and took
months for a team of skilled engineers to prepare.
That was what the telecom world was like ten
years ago. Just about what it was like 50 years ago.
Today, ten years later, it is history. Communica-
tion in fixed telecom networks is still an important
business for Ericsson, but it is no longer the motor in
the Company(cid:213)s operations. Instead, mobile telephony
accounts for the lion(cid:213)s share of revenues and totally
dominates the business. The ten years that have
passed have entailed enormous changes in the Com-
pany. The ten years ahead will bring even greater
changes.

Restructuring is a word that Ericsson and other
companies in the industry will need to learn to live
with. Tomorrow(cid:213)s winners will be the companies
that are best at change and best in reallocating
competence and resources.

Daring structural initiatives, distinct and proac-
tive management and smart working methods will
unquestionably be needed to provide the flexibility
the market demands. But above all, an open mind
will be required of everyone working in the Com-
pany, meaning that the business culture must be
one that encourages change and seeks opportunities
in change. This is why one of the most important
aspects of Ericsson(cid:213)s business strategy is the one
that concerns the people within the Company.

¥ DEVELOP THE INTERNAL CULTURE, AWARENESS

AND COMPETENCE

continued restructuring

During 1999, work to restructure Ericsson continued
at an increasingly rapid pace. The organization that
was introduced in January 1999 was polished and
further refined during the year. Great effort was
devoted to promoting understanding of the new

organization among the Company(cid:213)s employees and
to defining and disseminating knowledge of the new
division of roles and responsibilities in the Company.

slightly fewer employees
At year-end 1998, Ericsson had 103,700 employees.
One year later this number had fallen to 103,300.
This relatively modest decline is the net result of
8,000 persons leaving Ericsson during the year,
while 7,600 joined the Company through acquisi-
tions or strengthening of resources in strategic areas
for the future. Mobility within Ericsson remains
high.

This trend will continue in 2000, as a result of
letters of intent that were signed in late 1999, and
through a continued realignment of work assign-
ments. The sale of the Energy Systems business in
January 2000 was a first step in Ericsson(cid:213)s contin-
ued focus on core operations, meaning that 2,300
persons begin working for a new employer.

Several important company acquisitions during

1999 greatly contributed to strengthening Erics-
son(cid:213)s competence in the datacom and ip field. With
the Company(cid:213)s current strategic focus, additional
strengthening of resources in this and other central
areas will be required. Ericsson is therefore contin-

HUMAN RESOURCES

2 5

The Bluetooth Headset contains a
wireless earpiece and microphone
for mobile phones.

uing to pursue an acquisition strategy that seeks to
identify small and medium-size companies with
key expertise that supplements the already high
level of skills within Ericsson.

Individual recruitment of highly skilled new
employees is also a high priority for Ericsson. Dur-
ing 1999, a completely new policy was established
for new recruitment by which we will not recruit to

fill vacancies in existing operations, but instead
actively seek the most talented people, offer
employment, and thus secure the skills the compa-
ny needs. An international working group is now
working to develop guidelines for implementing
this policy.

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

NUMBER OF EMPLOYEES BY GEOGRAPHIC REGION

Europe, Middle East, Africa

USA and Canada

Latin America

Asia Pacific

Total

Of which Sweden

Of which EU

1999

1998

1994

Number of
employees

percent

Number of
employees

percent

Number of
employees

percent

70,900

12,200

8,200

12,000

103,300

43,500

65,700

74,900

9,800

7,800

11,200

103,700

44,600

70,000

59,300

6,200

4,500

6,100

76,100

36,600

17,700

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

6
2

s
u
c
o
f

i
i

better represented at leading universities and col-
leges around the world. The Company has long had
excellent relations with the academic world, which
will now be cultivated in order to make Ericsson
even more known as an excellent and exciting
employer.

global trainee program
Ericsson(cid:213)s global presence in more than 140 coun-
tries gives the Company a very broad base for
recruitment, while allowing new employees to be
offered an opportunity to work internationally. An
excellent start for an international career at Erics-
son is the new global trainee program that was
started during 1999.

This is a two-year program consisting of three
six-month job training periods interspersed with
theoretical studies. One job-training period is spent
with an Ericsson customer, while the theory units
are arranged in cooperation with leading universi-
ties worldwide. The program is very international
with study units arranged in different parts of the
world and in the composition of the trainee group.
Several thousand persons applied for the 17 places

in the first program. Six women and eleven men
from nine different countries were selected. All had
high grades from university, and most had two
degrees. The trainee program is actively supported at
the highest level in the Company. The steering com-
mittee for the program includes three of the fourteen
members of the executive management team.

going for a shift in skills
During the spring of 1999, Ericsson(cid:213)s executive
management began planning for what would be

Chatboard, keyboard to facilitate
the writing of SMS messages
and e-mail.

EMPLOYEES BY AGE GROUP

14,000

12,000

10,000

8,000

6,000

4,000

2,000

—

Sweden (total: 43,500)

Rest of the world (total: 59,800)

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

HUMAN RESOURCES

EMPLOYEES BY LEVEL OF EDUCATION

9 %

27 %

43 %

21 %

Mandatory school(cid:13)
Higher secondary(cid:13)
education

Specialized school(cid:13)
University degree(cid:13)
or higher

The level of education of Ericsson employees has increased
throughout 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 of
education is highest in growth markets in Asia and Eastern
Europe, as well as in parts of Latin America. In several countries,
more than 75 percent of all employees have an academic degree.

the Company(cid:213)s largest investment in skills
enhancement to date. Through the Competence
Shift, as the program is called, the intention is that
all of the Company(cid:213)s 100,000 employees will gain
an increased understanding of how the new telecom
world functions. The Competence Shift focuses on
explaining new technology, new business logic and
the new market situation that Ericsson is facing.
The idea is that awareness of the forces driving
development will make it easier to understand and
accept the Company(cid:213)s business and product strate-
gies.

An internal development program this compre-

hensive would not be possible without the very
technology that the Competence Shift is designed
to explain. A new web site on Ericsson(cid:213)s intranet
provides the base for the entire program. Here
employees can start by playing an entertaining
diagnostic game that reveals the gaps in their
knowledge. These gaps can then be filled through
various interactive courses.

In addition to the centrally initiated Compe-

tence Shift, a number of similar activities were
started throughout Ericsson in 1999. The gsm
Systems business unit provided training in data
communications for 4,500 employees during the
year. The Knowledge Step, as the program is called,
is now being extended to many other companies
and units within Ericsson.

For customer account managers, Ericsson Busi-
ness Academy developed an intensive course called
Inside the ip tornado, which describes the business
logic in Silicon Valley. During 2000, at least 300
persons will participate in this training.

There are also various local initiatives in the
area based on needs in respective Ericsson markets.
¥

(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
CORPORATE CITIZENSHIP

2 7

Good reputation in society
increasingly important
M
Many companies around the world

have realized the importance of being
perceived as a respectable and responsi-
ble citizen in society. They have under-

A1018, mobile phone
for the low-price
segment. Available in
five different colors.

stood that a good reputation also has a commercial
value. It is easy to appreciate that public authorities
and organizations are more favorably disposed to
companies that contribute to improving society and
make their resources available in emergency situa-
tions. Not quite as self-evident — but no less impor-
tant — is that today(cid:213)s consumers increasingly expect
that the companies whose products they purchase
should be companies that distinguish themselves
from others and through their actions win the cus-
tomer(cid:213)s confidence. It is becoming increasingly nat-
ural for today(cid:213)s consumers to prefer doing business
with (cid:210)good(cid:211) companies rather than with (cid:210)bad(cid:211) ones.

positive image

Ever since the Company was founded more than
120 years ago, Ericsson has taken pride in being
ethical in its actions and practicing fair business
methods. This is a part of the business culture that
Lars Magnus Ericsson established and something
that has contributed to creating a positive image of
Ericsson as a company.

Through the years, this image has been strength-
ened by activities that have been conducted in various
parts of the world to demonstrate Ericsson(cid:213)s social
responsibility in the countries in which it is active.
With the support of local management, Ericsson
employees in many countries have participated in
different social projects. Such work not only strength-
ens Ericsson(cid:213)s positive image, but also contributes to
strengthening the team spirit within the Company.

These often spontaneous expressions of solidarity
are very valuable, but more is required. The realiza-
tion that it is essential to coordinate and develop
such activities, resulted in a comprehensive review
being conducted in 1999 of Ericsson(cid:213)s role in soci-
ety. A special group was established within Erics-
son(cid:213)s marketing function that was charged with
further developing Ericsson(cid:213)s activities in this area.

emergency assistance
Experiences during 1999 confirm that humanitari-
an assistance in the form of communications sys-
tems in conjunction with natural catastrophes and
similar situations is the area in which Ericsson can
provide the greatest benefit. During the preceding
year, significant efforts were made in several situa-
tions around the world.

Following the major earthquake in Turkey,

Ericsson(cid:213)s local company worked together with the
local mobile operator Turkcell to ensure that
mobile communication in the affected area contin-
ued to function. Ericsson employees in Turkey
donated money, gave blood and provided other
assistance during rescue efforts.

When floods struck Vietnam in November,
Ericsson(cid:213)s local office provided emergency assis-
tance in a number of ways. Ericsson volunteer
workers, mobile phones and other resources were
placed at the disposal of the authorities during the
reconstruction work.

In Canada, Ericsson quickly provided a mobile
base station on wheels to assist rescue personnel and
the families of victims following a major air crash.

the erica prize

Obviously, catastrophes make headlines, but there
are many countries in the world that face major
challenges every day. These challenges range from
helping people to find food, work or housing to
teaching them to read and write.

In order to support and reward innovative efforts in

this area, Ericsson founded the erica Award (Erics-
son Internet Community Award). This award, which
is also sponsored by other companies, is given to non-
profit organizations that use Internet technology to
help others. In 1999, a total of usd 250,000 was
awarded. The prize was shared by three winners: the
National Library for the Blind in Great Britain, Med-
ical Training Worldwide in Novato, California and
Kids HealthLINK in San Francisco, California.

leading role

Ericsson will continue to provide humanitarian
assistance in the form of communications systems. In
this way, the Company will play a leading role in
helping to reduce human suffering in conjunction
with catastrophes. The message to the world is clear:
Ericsson is a company that takes responsibility, that
really makes a difference. It is a company which is
characterized by high ethical standards and which is
a respectable and responsible employer that takes a
long-term view of environmental issues and has been
doing so for some time. It is a company that cares. ¥

THROUGH public service
activities, Ericsson
companies around the
world are strengthening
our positive image. This is
very important in a market
where people increasingly
let their hearts dictate
business and purchasing
decisions.

LARS A. ST(cid:129)LBERG,

SENIOR VICE PRESIDENT,

COMMUNICATIONS

8
2

s
u
c
o
f

i
i

Solid growth for mobile systems
and new fixed network solutions

ricsson’s goal of being the leading
supplier in the new telecom world demands
that the Company should be able to offer a
broad portfolio of network solutions and
continue to focus strongly on the ip and datacom
market. Achievements during 1999 show that the
prospects for achieving this goal are favorable.

Ericsson(cid:213)s Network Operators/Service Providers

business segment experienced an eventful year in
1999. A dramatic increase in traffic was noted in all
telecommunications networks. Very rapid growth
in mobile telephony and continued strong growth
of Internet traffic combined to generate exponential
growth in network traffic.

In mobile networks, the number of subscribers
increased by 53 percent during the year, while traf-
fic increased even more. More than 60 million new
users were connected to the Internet during 1999.
The result was that network capacity had to be
increased during the year at a much faster rate than
anyone had expected.

For this business segment, these trends con-
tributed to extremely strong growth, strengthen-
ing the segment(cid:213)s position as Ericsson(cid:213)s largest,
with 69 percent of net sales.

Net sales amounted to sek 149,9oo m.

(123,200) in 1999, which was an increase of 22 per-
cent. With an operating margin of 13 percent, the
business segment is also Ericsson(cid:213)s most profitable.

all mobile standards

One of the reasons why Ericsson is the world leader
in mobile systems is that Ericsson is the only com-
pany able to offer mobile systems according to all
existing standards. This has applied to first- and
second-generation systems and is now also true for
third-generation systems.

Ericsson has long been one of the principal
drivers behind the development of third-genera-
tion (3g) mobile communications. With the
announcement in March 1999 of an agreement
with the American company, Qualcomm, Ericsson
further strengthened its position in mobile
systems. As part of the agreement, Ericsson
acquired Qualcomm(cid:213)s infrastructure operations,
thus allowing the Company to expand its product
portfolio with cdmaOne, previously known as
cdma is-95.

When the itu, at the end of 1999, announced its
decision on 3g, it became clear that Ericsson will be
able to supply systems for each of the three most
important standards.

far ahead in 3g
During the year, Ericsson signed the first commer-
cial contract for a 3g system with ntt DoCoMo in
Japan. Ericsson will supply radio base stations and
terminals for ntt(cid:213)s network, which when it is
taken into commercial operation next year, will be
the world(cid:213)s first 3g network. Additional contracts
were signed during the year covering commercial
and test systems. Test systems for wcdma and
edge are now in operation with more than 15
operators, which means that Ericsson is far ahead of
its main competitors in this area.

Planning for 3g systems is underway all over the
world. Many operators have applied for 3g licenses,
and Ericsson is discussing deliveries with most of
them. However, license allocation is not expected
to gain momentum until sometime in 2000, which
means that the rest of the world will be somewhat
behind Japan when 3g is taken into commercial
operation.

gprs and edge
In anticipation of 3g systems, gprs has attracted
considerable interest during the year. This is a part
of the gsm system that makes it possible to signifi-
cantly increase data capacity using packet-
switching techniques in gsm networks. Ericsson
signed a large number of gprs contracts during
the year, thereby winning half of all business as
measured by the operator(cid:213)s subscriber base.

Ericsson is also leading the way with respect to

the 3g standard, edge. BellSouth and Rogers
Cantel have placed orders for such systems, which
are expected to be taken into operation by 2001.

mobile internet

Technologies that allow wireless access to the Inter-
net received considerable attention during the year.
The business segment is working hard to further
strengthen Ericsson(cid:213)s offering with respect to these
technologies, which include operating systems,

BUSINESS SEGMENT NETWORK OPERATORS

AND SERVICE PROVIDERS 1999

1999

1998

Orders booked, SEK b.

Net sales, SEK b.

151.8

149.9

Operating margin, SEK b.

19.6

Operating margin, percent

127.6

123.2

15.3

Change
(percent)

Number of employees

64,695

68,645

—6

DURING 1999 our mobile
systems operations grew
by more than 40 percent.
We took the lead in all
areas of the mobile Inter-
net and we developed and
sold systems that help our
customers to migrate their
existing investments
forward into the new
telecom world and its
network architecture.

MATS DAHLIN,

EXECUTIVE VICE PRESIDENT,

BUSINESS SEGMENT

NETWORK OPERATORS

AND SERVICE PROVIDERS.

BUSINESS SEGMENT NETWORK OPERATORS AND SERVICE PROVIDERS

2 9

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

Content is being developed in cooperation with
a large number of companies and operators. Erics-
son(cid:213)s demonstration systems for 3g in various parts
of the world are a valuable asset in illustrating the
opportunities provided by the new technology.

In order to further promote the development of
applications for 3g and other technologies, Ericsson
took an ownership stake in companies such as
oz.com and Sara(cid:149)de during the year. Although
these investments might seem to be somewhat
peripheral to Ericsson(cid:213)s core business, Ericsson
intends to take an active part in driving a market
for the mobile Internet and to support new ip-
based solutions that generate more network traffic.

new generation in fixed networks
With a market share of over 30 percent, Ericsson
dominates the market for mobile systems. Ericsson
is also one of the leading suppliers of infrastructure
for fixed communications. The axe system, the
sales of which exceed those of any other switching
system, is the foundation of Ericsson(cid:213)s success in
each of these markets. During 1999, more axe
lines were sold than ever before, bringing the total
installed base up to 150 million fixed lines. This is
the world(cid:213)s largest installed base for fixed telecom-
munications and a major source of future revenues.
Several of Ericsson(cid:213)s operator customers are now
beginning the work of upgrading their networks to
the next-generation network architecture. This
architecture will handle data and multimedia com-
munications in fixed and wireless networks.

migration solution for ip
During 1999, Ericsson(cid:213)s engine concept achieved
considerable success. This is a solution for the
migration of circuit-switched networks for fixed

telecommunications to a new generation of net-
works that will handle circuit-switched and
ip/atm-based packet-switched traffic. During
1999, bt in Great Britain, kpn in the Netherlands,
Telia in Denmark and Telef(cid:151)nica in Spain chose
engine for modernizing their networks. An order
from Diginet, which intends to use engine for an
extensive Latin American ip network with wireless
access, confirms that this is a solution that also fits
newly established operators.

engine(cid:213)s success was the result of strategic
marketing activities to reposition Ericsson as a
supplier of networks for data and telecommunica-
tions. This was made possible by restructuring the
Wireline Systems business unit to become a suppli-
er of total solutions and services.

The positive results achieved by engine are not
the only examples that confirm that Ericsson is one of
the key players in the ip and datacom market. In the
area of ip-based voice telephony, called VoIP (Voice
over ip), Ericsson is now the world leader after having
signed several important contracts during 1999.

Ericsson(cid:213)s systematic investments in ip commu-

nication also resulted in the establishment of the
Datacom and ip Services business unit in Boston in
the U.S.

total supplier

The concerted effort to further strengthen Ericsson(cid:213)s
expertise in ip technology made during the past few
year was accelerated significantly during 1999. Sever-
al important acquisitions and partnerships were
announced during the year. Consequently, Ericsson
now has a complete product portfolio for tomorrow(cid:213)s
data and telecom networks. Today, Ericsson has a
unique capacity to offer total solutions for all types
of wireless and fixed networks.

In order to strengthen Ericsson(cid:213)s offering to the
segment(cid:213)s customer groups, Ericsson Services was

RBS 2401, complete picobase
station for installation indoors.

0
3

s
u
c
o
f

i
i

BUSINESS SEGMENT NETWORK OPERATORS AND SERVICE PROVIDERS

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

The implemented structural measures, together
with satisfactory sales and new solutions, generated
earnings that exceeded expectations and
contributed positively to Ericsson(cid:213)s profitability.
The dominant share of reductions within the
business segment during 1999 took place through
outsourcing. For example, 2,500 employees began
working for new employers when production units
in Visby, Katrineholm, (cid:133)stersund, Longuenesse
and Madrid were transferred to external partners.
In Norrk(cid:154)ping, 300 employees were transferred
to the staffing company Proffice. A similar solution
for affected personnel in the Stockholm area was
arranged through the establishment of Framtidsfo-
rum, which is helping about 1,000 employees in
the business segment to find new career paths.
Those who have not succeeded within one year will
be offered employment with Manpower, another
staffing company.

innovation cells

The New and Special Business Operations business
unit includes operations that Ericsson is preparing
to phase out of its product portfolio and operations
that are completely new and have not yet resulted
in finished commercial products.

One example is the Private Radio Systems Unit,

which was sold in the beginning of 2000 to the
U.S. company, Com-Net Critical Communications.
The business unit also includes units of a purely
entrepreneurial character, often organized as inno-
vation cells, which are groups formed around ideas
that are considered to be worth developing. For
instance, E-box, Ericsson(cid:213)s product for remotely
controlling household equipment via the telephone
¥
network, was developed by such a group.

established as a new business unit during the year.
With a strong portfolio of services, Ericsson(cid:213)s posi-
tion as a total supplier, systems integrator and
partner is strengthened.

investments in data capacity

Several of the business segment(cid:213)s mature products
continued to show favorable margins during 1999.
Mobitex is one such product, which during 1999
underwent somewhat of a renaissance. Increased
demand for wireless data communication in the
U.S. more than doubled the number of subscribers
of one of Ericsson(cid:213)s customers during the year.
Ericsson received new orders for equipment for the
Mobitex network, which for the time being is the
country(cid:213)s only nation-wide network for wireless
data communication.

lmds, Ericsson(cid:213)s system for wireless broadband

access, optimized for high-speed ip traffic, has
attracted major interest in the market. Ericsson
signed its first contracts and the system is now
being used in trials by the American operator
nextlink. Ericsson is mainly targeting the enter-
prise market, but in the long-term lmds can enjoy
wider application, as new licenses are issued and
new operators surface. The system is based on
Ericsson(cid:213)s successful mini-link system, which
currently holds a 30-percent market share.
Ericsson also offers cdpd, a first packet-
switched technology for tdma that provides for
services at twice the speed of existing networks. A
number of important contracts were signed during
the year with at&t and others.

During 1999, isdn made a strong comeback.
Ericsson(cid:213)s customers have a large installed base of
copper networks offering conventional narrowband
services that are an excellent source of add-on sales.
The strong growth in Internet traffic increased
interest among operators for investing in greater
capacity in the existing copper network. Ericsson
products easily allow these operators to increase
bandwidth at the desired rate, first with isdn and
possibly later with adsl.

Ericsson(cid:213)s wdm technology substantially
increases capacity in wireline transportation net-
works while maintaining a high transmission secu-
rity level. Contracts were signed with Telef(cid:151)nica in
Spain and U.S.-based aol during the year.

shrinking rapidly
The business segment(cid:213)s internal work during 1999
was characterized by continued restructuring of
operations. This applied primarily to the Wireline
Systems business unit, which during the past year
sharply reduced the number of employees. During
the 1990s, the number of employees in the compa-
nies currently included in this business unit was
reduced by more than 50 percent and totaled some
16,000 persons at year-end 1999.

During 2000, the restructuring of Wireline

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

OTHER OPERATIONS

Components

Microwave Systems

3 1

Ericsson components (now Ericsson
E

Microelectronics) reported net sales of
sek 8,600 m. (6,700) in 1999. Operations
consist 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 Telef(cid:151)nica del
Peru that gave Energy Systems total responsibility for
supplying power to their some 2,000 customer instal-
lations. Through a general agreement with Siemens,
Energy Systems became a strategic supplier to the
German manufacturer of telecom systems. Ericsson
strengthened its position as a world leader in power
modules, delivering its 10 millionth module from the
pkf family, a unique record in the industry.

focus on microelectronics

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

Significant investments were made during the
year to increase manufacturing capacity for integrat-
ed circuits in Kista. An important partnership
agreement 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 base
stations continued to show strong growth, both
from internal and external customers.

Continued upgrading to digital lines, a trend that

is driven by increasing Internet use, resulted in a
doubling of deliveries of line circuits for network
terminals installed as customer premises equipment.
Volume production of radio modules for the
Bluetooth standard was started during the year.
Demand for these chips is strong among various
application developers both within Ericsson and
externally. Microelectronics is currently the leader
in 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, such
as Electrolux and Lego, a new generation of Erics-
son(cid:213)s Internet catalogue was developed, enabling
customers to pay for purchases with a credit card.

organizational change
Effective February 1, 2000, Microelectronics(cid:213) activi-
ties will be carried out at Ericsson Microelectronics
ab and its foreign operations. An agreement was
reached in January covering the sale of the energy
system operations to Emerson Electric Co. in the U.S.
Microelectronics now also includes power modules. ¥

Ericsson microwave systems can look
E

back on a period of rapid growth, which is
expected to continue with the new business
opportunities provided by the company(cid:213)s

two main product areas: defense systems and
microwave communications. The company(cid:213)s sales
amounted to sek 7,325 m.

Erieye, system for airborne
surveillance. Shown mounted on
the Brazilian Embraer EMB145.

Continued rapid growth of traffic in fixed and
wireless networks serves to promote the company(cid:213)s
primary civil product, which is the mini-link
microwave link. During 1999, more than 60,000
such units were produced. Over the past several
years, Ericsson(cid:213)s mini-link has dominated the
world market for microwave links.

new market for mini-link

A new application area was added with the intro-
duction of mini-link bas
in the beginning of 1999.
This is a system for broad-
band access via a micro-
wave link. The market
potential is expected to be
substantial.

Another important part
of civil operations at Erics-
son Microwave Systems is the development of base
stations for wcdma. Ericsson received its first
wcdma contract from ntt DoCoMo in Japan at
the beginning of the year.

favorable trend for defense systems

Ericsson(cid:213)s focus in defense systems is on sensors and
information technology. This is a direction that is
favored by trends in a market that is generally
characterized by increasing demands for advanced
technology systems. Sensors, such as control and
communications systems, are an area of top priority
for many countries(cid:213) military forces.

During 1999, Ericsson Microwave Systems
received an additional foreign contract for the air-
borne surveillance radar, Erieye, from the Greek Air
Force, which ordered four such systems. The Swedish
Armed Forces, in which Erieye is already operational,
commissioned Ericsson to continue developing the
next generation of airborne radar. The so-called aesa
technology, on which this radar is based, represents a
major advance in radar technology.

The Arthur artillery localization radar system

was delivered to the Swedish and Norwegian
defense forces during 1999. Additional contracts for
these systems were signed with two other countries
during the year. The South African order of the jas
28 Gripen aircraft was another important event for
Ericsson Microwave Systems and the associated
company, Ericsson saab Avionics.

2
3

s
u
c
o
f

i
i

HPR-08, a small FM radio
that can be connected
to a mobile phone

A year of innovative concepts

PROFITS WERE a
disappointment in 1999,
but an upturn was noted
in the fourth quarter. With
our new product portfolio
we will recapture our
market position and can
hope to improve margins.

JOHAN SIBERG, EXECUTIVE

VICE PRESIDENT,

BUSINESS SEGMENT

CONSUMER PRODUCTS

NEW HEAD of Business
Segment Consumer Prod-
ucts as of February 15,
2000, is Jan W(cid:138)reby,
previously head of
Market Area Europe,
Middle East and Africa.

ever before has Ericsson launched
so many new products for the consumer
market as it did during 1999. Some 20
new mobile phones were introduced, of
which several were based on an entirely new gener-
ation of technical platforms. However, delay in the
process of increasing volume production of the new
phones, caused products in the lower price seg-
ments to dominate sales during the year, thus
sharply reducing profitability for the business seg-
ment.

Ericsson(cid:213)s business segment Consumer Products
is still mainly focused on the sales of mobile phones.
During 1999, however, a special business unit for
Home Communications was established that initial-
ly will offer consumers cordless phones for the home
and Ericsson(cid:213)s PipeRider, a modem for ip communi-
cation via the cable-tv network.

Net sales for the business segment amounted to

sek 46,400 m. in 1999, an increase of 3 percent
compared with the preceding year. The segment
thus accounted for 21 percent of Ericsson(cid:213)s total net
sales.

In terms of volume, 1999 was a record year, with
31 million phones sold compared with 24 million in
1998.

Because the low-price segment accounted for a
larger share of sales, the sales increase in sek was
not as strong. This, plus the high costs for technical
renewal of the product portfolio incurred during
the year, resulted in an operating margin for the
business segment of only 1 percent compared with
7 percent in 1998. However, a clear trend reversal
was noted in the fourth quarter, during which sales
of the t28 and other new models contributed posi-
tively to profitability.

The consumer market is different in many

respects from Ericsson(cid:213)s other markets. In particu-
lar, the brand plays an essential role. During 1999,
Ericsson continued to invest heavily in various
activities to strengthen the Company(cid:213)s brand.

Although global advertising campaigns, spon-

sorship events and intensive tv advertising are
costly, these measures are now beginning to produce
results. In the prominent international study of
brand awareness, conducted over the past ten years
by the distinguished research firm Interbrand,
Ericsson ranked 17th in the world in 1999. This
ranking provided a strong incentive for continuing
systematic work to build the Ericsson brand.

A strong brand is extremely important for Erics-

son at this point in time. Advances in technology
are making it increasingly easy for manufacurers in
China and Southeast Asia to begin competing with
Ericsson, Motorola and Nokia, the current market
leaders in mobile phones.

segmented market

To provide a foundation for future product develop-
ment, Ericsson is constantly conducting careful
studies of the market and consumers. At the Com-
pany(cid:213)s Consumer Lab in Lund, Sweden, mobile
phone users(cid:213) behavior and preferences are analyzed
in detail. These market studies and analyses show
that there are different types of users.

Based on these observations, the product portfo-
lio is now being adapted to the customer segments
that Ericsson has chosen to target. For younger
users and users who often purchase a mobile phone
with prepaid calling time, the a1018 and t10
phones were launched during 1999. The former is a
true volume product, which accounted for a very
large proportion of Ericsson(cid:213)s sales during the year.
For more professional users in job categories in

BUSINESS SEGMENT CONSUMER PRODUCTS

BUSINESS SEGMENT CONSUMER PRODUCTS 1999

1999

1998

Change
(percent)

Orders booked, SEK b.

Net sales, SEK b.

Operating margin, SEK b.

Operating margin, percent

47.6

46.4

0.3

44.9

45.2

3.2

pany was started for telephone production. Expansion
of production in Brazil continued.

In addition to expanding its own production
capacity, the business segment continued to out-
source production to external partners. Together
with Ericsson(cid:213)s own production increases, this means
that the Company is well prepared to meet the
increase in volume expected in 2000.

Number of employees

16,446

14,193

creative thinking

which the phone is subjected to rough treatment,
the r250 pro was launched as the world(cid:213)s first
water-, dust- and shockproof mobile phone. This
phone is designed for gsm pro, which means that
it can also be used as a private radio terminal.

The t28 and t28 world models are phones that

target consumers who want high quality and are
prepared to pay for intelligent functions. Ericsson(cid:213)s
mc218 was the first wap product on the market. It
is a handheld computer, which via a built-in
infrared port for communication with a mobile
phone, allows wireless access to the Internet and
e-mail. It also includes software for word process-
ing, image transmission and other functions.

For the demanding Japanese market, Ericsson
produced a variation on the t28 for ntt DoCoMo.
This phone, which was sold in limited test quanti-
ties, was very well received in the market.

component shortages

The telephone that was most in the spotlight dur-
ing 1999 was the t28. When it was first shown in
January, it generated considerable attention due to
its extremely light weight, modern design and
advanced functions. The market(cid:213)s reception was
very positive, and expectations were high that the
t28 would sell extremely well.

It was not until the autumn, however, that the
tremendous demand for the t28 could be satisfied
by greater volumes. This was due to component
shortages that affected the entire industry, as well
as delays in trimming in production. The t28 is
based on a completely new technical platform,
which includes a new processor, a new radio sub-
system and an innovative new battery technology
that Ericsson was first to bring to market.

During the latter part of the year, the situation
improved, and production of the t28 is gradually
being stepped up. The technical difficulties in the
transition to the new technical platform have been
overcome, suggesting that forthcoming models
based on the same platform will be significantly
easier to industrialize.

increased capacity

To meet sharply increasing volumes, Ericsson signifi-
cantly increased its production capacity during 1999.
A new production plant in Malaysia was taken into
operation, and in China a second joint-venture com-

Several new accessories for Ericsson mobile phones
were launched during the year. The accessories
market is increasingly important, since it often
offers greater margins than volume phone sales.
Several of the new accessories were entirely new
innovations — and the result of creative thinking on
the part of the Company(cid:213)s product developers.

Chatboard is a small keyboard which is connect-

ed to the mobile phone to facilitate entry of sms
messages and which can even be used to send
e-mail. An fm radio that also functions as a hands-
free headset was another popular new product, as
was the mp3 player shown at Telecom 99 in Geneva.

During the autumn, the first Blue-

tooth product, a cordless handsfree
headset, was also shown. Bluetooth is
a technology for wireless transmission
over short distances that was devel-
oped by Ericsson but released to the
public domain. Development is being
continued by Ericsson, 3Com, ibm,
Intel, Lucent, Motorola, Nokia, and
Toshiba. Close to 2,000 companies
have adopted the technology and are
developing Bluetooth products.
Ericsson Components is one of the manufacturers
that is already producing Bluetooth chips for inte-
gration into these future products.

important partnerships

The partnership between Ericsson and Microsoft
that was announced in December will have a
significant impact on the business segment(cid:213)s con-
tinued product development. With this partner-
ship, that relates to the mobile Internet, Ericsson
gains access to Microsoft(cid:213)s Mobile Explorer for its
more advanced telephones.

The agreement with Microsoft does not affect
collaboration through the Symbian consortium, in
which Ericsson is working with Matsushita,
Motorola, Nokia and Psion to further refine the
epoc operating system for wireless terminals.
During 1999, Ericsson introduced the epoc-based
mc218, as well as the r380, which will begin to be
sold in full scale during 2000.

The partnership for the networked home of the
future, which was announced by Ericsson and Elec-
trolux during the autumn, is based in large part on
forthcoming products from the business segment
Consumer Products.

3 3

HS210, cordless display phone
for home communications.
Provides direct access to the
Internet and e-mail using
Bluetooth technology and
a small base station.

T10, dual-band phone with
vibrating alert. Available in five
different colors.

4
3

s
u
c
o
f

i
i

Focus on ip-telephony services
and mobile enterprise solutions

usiness is driving the development of
tomorrow(cid:213)s multimedia communications.
Business users already account for most
broadband 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 their

customers are increasingly mobile. The mobile
Internet will allow them to create completely new
channels for communicating with customers and
offering personalized services. Increasingly, employ-
ees are also being given access to network services
and information, even when out of the office.

These trends are the primary drivers in developing
new applications that will generate most of the traffic
and content in next-generation mobile networks.

investing in growth

Ericsson(cid:213)s business segment Enterprise Solutions is
of great strategic importance in responding to these
trends.

The business segment(cid:213)s sales for comparable
units increased 19 percent in 1999 to sek 17,300 m.,
which corresponded to 8 percent of Ericsson(cid:213)s total
sales. Several different improvement programs dur-
ing the year contributed actively to improving earn-
ings, which nonetheless remain at a low level, due
to continued heavy investment in future growth
areas. The number of employees increased as a result
of company acquisitions and organic growth in new
areas such as business consulting, while the work-
force was reduced by more than 20 percent in tradi-
tional operations, primarily business switches. The
business segment had 9,600 employees at year-end.
To strengthen Ericsson(cid:213)s position as a supplier of
tomorrow(cid:213)s business systems, while improving the
segment(cid:213)s profitability, operations were consolid-
ated in 1999.

A MULTI-YEAR contract
with the Metropolitan
Police shows that
Ericsson is a long-term
strategic partner for
companies who want
assistance with operating
and developing their
operations and their
communications solutions
in a world that will be
characterized by mobility
and the Internet.

HAIJO PIETERSMA,

EXECUTIVE VICE PRESIDENT,

BUSINESS SEGMENT

ENTERPRISE SOLUTIONS

In 2000, continued emphasis will be put on the
development of sales channels, the launching of ip
switches and on increased growth for the business
consulting operations that provides business solu-
tions for the Internet.

Development work was refocused on ip applica-

tions and mobile Internet solutions. Investments
were increased in developing tomorrow(cid:213)s wireless
business networks, an area where Ericsson will offer
high-capacity networks for data transmission based
on the HiperLAN standard.

large number of consultants

Another important component in the segment(cid:213)s
focus on the future are efforts to establish and
expand business consulting activities. The goal is
that Ericsson should be the leader in providing
companies with business solutions and services for
the mobile Internet. During 1999, the Ericsson
Business Consulting business unit was formed
through a merger of internal consulting and service
operations from parts of Ericsson Data, which was
recently dissolved. Several new business consultants
were also recruited.

Approximately 2,700 of the business unit(cid:213)s
4,000 employees work as business consultants, it
and telecom consultants and wap consultants in 36
markets. Other employees of the business segment
work with the operations and maintenance of Erics-
son(cid:213)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(cid:213)s wap expertise,
have strengthened customer confidence in Ericsson
as a partner in developing new business concepts
combined with new systems solutions. Bank trans-
actions over the Internet, wap solutions for wireless

WebSwitch 2000, IP-based
business switch for small
companies. Developed by
EricssonWebCom Inc.,
formerly TouchWave Inc.

3 5

BUSINESS SEGMENT ENTERPRISE SOLUTIONS

BUSINESS SEGMENT

ENTERPRISE SOLUTIONS 1999

1999

1998

Orders booked, SEK b.

Net sales, SEK b.

Operating margin, SEK b.

Operating margin, percent

18.0

17.3

0.1

14.6

0.1

Change
(percent)

Number of employees

9,615

9,966

—4

banking services and wireless e-commerce are
examples of concepts developed during the year.
As companies focus more on core operations,
they are outsourcing operation, maintenance and
development of their communication networks to
external partners. Ericsson Business Consulting can
offer customers an opportunity to migrate existing
systems to new mobile solutions. A five-year
contract, signed in 1999, to maintain and supply
Britain(cid:213)s Metropolitan Police network marked a
breakthrough in this area.

ip traffic in the switch
The acquisition in May 1999 of the U.S. company,
TouchWave Inc., gave Enterprise Solutions access
to WebSwitch2000, which is an ip-based switch
that can handle conventional analog and ip-based
telephony for smaller companies.

Products from this company, which was

renamed Ericsson WebCom, will play an important
role in the ip product portfolio, as well as for Erics-
son(cid:213)s continued expansion in the U.S.

WebSwitch2000 received several prestigious
awards during the year at telecom shows in the
U.S. WebCom has already sold more than 1,000
switches to customers in the U.S. An important
aspect of Ericsson(cid:213)s U.S. product strategy is expan-
sion of indirect sales channels for the Company(cid:213)s
new ip-based products.

good year for business switches

The business segment is not only developing in
new areas of operations. Sales of Ericsson(cid:213)s business
switches also increased in 1999, with more lines
sold than ever of md110 (for large) and Business-
Phone (for small and mid-size companies). Growth
in Europe, especially in the U.K. and Italy, was
particularly strong.

Ericsson sells call-center solutions that support
customer service functions. Ericsson is the leader in
this segment, particularly in Europe. During 1999,
Ericsson launched a new generation of server-based
call centers.

With its large installed base in business commu-
nications — 45,000 large companies have purchased
md110 — Ericsson(cid:213)s business potential for tomor-
row(cid:213)s ip-based solutions is substantial.

R320, WAP telephone with
built-in IR modem and
calendar that can be
synchronized with PC or
PDA. Weighs less than
100 grams.

Meanwhile, rationalization continues in tradi-
tional operations involving business switches. Two
of the segment(cid:213)s research and development centers
were discontinued during the year, as were two
product areas peripheral to core operations. Plants
in Austria and China were transferred to external
partners through outsourcing.

Restructuring will continue in 2000 with strong

focus on continued expansion of the distributor
network and on reducing costs for direct sales.
Central to these efforts is an emphasis on profitabil-
ity and cost reductions and the need to increase
Ericsson(cid:213)s presence in the market segment for small
¥
and mid-size companies.

6
3

s
u
c
o
f

i
i

Strong year thanks to growth in
mobile systems and fixed networks

ricsson’s successful year in global business during 1999 was charac-
terized by two strong market trends: continued exceptionally strong growth in
the world(cid:213)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 of
important contracts announced during the year confirms these trends. As always
with Ericsson, it must be emphasized that 70 percent of the Company(cid:213)s sales repre-
sent ongoing sales to existing customers that are not registered as new sales in the list
below.

europe, middle east and africa

Ericsson(cid:213)s sales in this market area
increased 18 percent during the
year, but there were large variations
between individual markets. The
most rapid growth in relative terms
was in Belgium (+147 percent), but
Spain was the market that increased
most in real terms, from SEK 7.0 to
13.0 b .

Turkey (+117 percent) and the
U.K. (+15 percent) were two other
markets showing strong sales
growth. For the first time, Turkey
became one of Ericsson(cid:213)s ten largest
markets. In central and eastern
Europe, the trend was also positive
in 1999, while a downturn was noted
in Russia (—55 percent). Sales also
declined in Denmark (—40 percent),
Finland (—16 percent) and Norway
(—12 percent).

The trend for mobile telephony is
driving the positive development of
Ericsson(cid:213)s business in the market
area. Several large networks were
added during the year, while at the
same time the growth in the number
of subscribers was high in existing
networks, which forced investment
in increased capacity.

As a result of development during

the year, Ericsson strengthened its
overall position in the area and grew
faster than the market.

Important contracts announced in
1999:

CZECH REPUBLIC

ITALY

Telespazio SpA — Infrastructure for
broadband access via satellite for
the Astrolink system.

Cesky Mobil — Turnkey GSM/GPRS
system valued at SEK 1,630 m.

MOROCCO

DENMARK

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

ESTONIA

Eesti Mobiltelefon AS — Positioning
system for GSM

FINLAND

Telephone Company of Vaasa
Province — GSM 1800 system

GERMANY

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

GREECE

Greek Air Force — Erieye airborne
surveillance radar, four systems,
valued at SEK 4,900 m.

Medi Telecom — Turnkey GSM
network valued at SEK 1,150 m.

NETHERLANDS

Telfort — GPRS system and GSM
expansion valued at more than
SEK 1,000 m.
WISH — Infrastructure for Internet
access valued at SEK 100 m.
KPN International Network Ser-
vices — ENGINE solution for integra-
ted data and telecom
WISH — Payment system for electro-
nic commerce based on Ericsson(cid:213)s
Jalda technology
KPN Telecom — AXE Transgate
switches

NORWAY

Telenor Mobil — Introduction of
wireless e-commerce solution deve-
loped together with Ericsson, movie
tickets via mobile phones
Telenor Mobil — Development of
WAP services

ICELAND

POLAND

Islandssimi hf — Multiservice voice
and data network with IP over ATM

Polska Telefonia Cyfrowa — GSM
network expansion valued at more
than SEK 660 m.

ERICSSON strengthened
its overall position in
Europe during 1999,
where growth
exceeded the market
average and was
bolstered significantly
by the continuing
exceptionally strong
trend for mobile telephony
in the region.

JAN WÄREBY,

EXECUTIVE VICE PRESIDENT,

EUROPE, MIDDLE EAST

AND AFRICA

EFFECTIVE February 15,
Ragnar B(cid:138)ck succeeded
Jan W(cid:138)reby as manager
of the new Western Euro-
pe market area.
The manager of the
new Eastern Europe,
Middle East and Africa
market area had not
been appointed at the
time of printing.

ERICSSON AROUND THE WORLD

3 7

L(cid:138)nder d(cid:138)r Ericsson har bolag eller kontor(cid:13)
Countries in which Ericsson has companies or offices(cid:13)
L(cid:138)nder utan Ericssonbolag eller -kontor
Countries in which Ericsson is not represented

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

Ericsson has companies or offices in the following countries

Europe, Middle
East and Africa
Austria
Albania
Algeria
Bahrain
Belarus
Belgium
Bosnia-

Herzogovina

Botswana
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Egypt
Estonia
Ethiopia
Finland
France
Gabon

Georgia
Germany
Ghana
Greece
Hungary
Iran
Ireland
Iceland
Israel
Italy
Jordan
Kazakhstan
Kyrgyzstan
Latvia
Lebanon
Libya
Lithuania
Luxembourg
Macedonia
Malta
Moldavia
Morocco

Netherlands
Nigeria
Norway
Oman
Poland
Portugal
Romania
Russian

Federation
Saudi Arabia
Serbia
Slovakia
Slovenia
South Africa
Spain
Switzerland
Sweden
Syria
Tajikistan
Tanzania
Tunisia
Turkey

Ukraine
United Arab
Emirates

United Kingdom
Uzbekistan
Yemen
Yugoslavia
Zimbabwe

Pakistan
Philippines
Singapore
Republic of

Korea
Sri Lanka
Taiwan
Thailand
Vietnam

North America
Canada
United States

Asia and
Oceania
Australia
Bangladesh
China
Hong Kong
& Macao

India
Indonesia
Japan
Malaysia
New Guinea
New Zealand

Latin America
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Guatemala
Honduras
Jamaica
Mexico
Netherlands
Antilles
Nicaragua
Panama
Paraguay
Peru
Puerto Rico
Uruguay
Venezuela

8
8
3
3

s
u
s
u
c
o
k
f
o
f
n

i
i

Æ
Æ

i
i
i
i

Netia Holdings SA — Nationwide
network for IP services

TURKEY

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

PORTUGAL

Interoute — Network for IP telephony

UKRAINE

ROMANIA

Rom Telecom — Breakthrough AXE
order for fixed networks valued at
SEK 830 m.

Digital Cellular Communications —
TDMA expansion valued at
SEK 250 m.
Ukrtelecom — SDH network valued
at SEK 255 m.

SLOVENIA

UNITED ARAB EMIRATES

Mobitel — GSM network expansions
valued at SEK 1,200 m.

Etisalet Telecommunications —
Access network based on ADSL

SOUTH AFRICA

UNITED KINGDOM

MTN — World(cid:213)s first GSM Pro net-
work, including terminals, valued at
SEK 210 m.

SPAIN

Interoute Telecommunicaciones
SA — Nationwide system for IP tele-
phony valued at SEK 90 m.
Telef(cid:151)nica — Cenaxis, Ericsson(cid:213)s
new network-based call-center
solution, valued at SEK 83 m.
Telef(cid:151)nica — ENGINE solution for
integrated data and voice communi-
cations

SWEDEN

Telia Mobile — Introduction of a new
platform for real-time data communi-
cation via GSM

WCDMA system for testing by ope-
rators
One2One — GPRS contract as part
of major infrastructure expansion
valued at SEK 2,560 m.
Vodafone — Joint development of
3G and WCDMA
Metropolitan Police Service — Five-
year management and development
contract for all telecom services
valued at SEK 990 m.
One2One — Test system for GSM on
the Net with IP-based wireless multi-
media services
Virgin Radio — Joint development
and testing of radio broadcasting via
3G mobile networks
Vodafone Airtouch Plc — Infrastruc-
ture for GPRS

BT — ENGINE solution featuring
AXE/AXD301 hybrid switches for
multiservice network valued at
SEK 1,500 m.

IN THE U.S., people are
talking about the Mobile
Millennium in view of the
expected development for
mobile data communi-
cations. During 1999, the
number of mobile tele-
phone subscribers sky-
rocketed, with an increase
of nearly 50 percent. At the
same time, the price of
Internet connections drop-
ped dramatically. Together,
these two trends are dri-
ving the market towards
wireless Internet access.

BO DIMERT,

EXECUTIVE VICE PRESIDENT,

NORTH AMERICA

north america

The trend for Ericsson in the North
American market area, which inclu-
des Canada and the United States,
was very positive in 1999. The intro-
duction of new and simpler calling
charges resulted in strong growth for
mobile telephony in the U.S. The
number of mobile phone subscribers
increased by nearly 50 percent
during the year. As a result, sales
and order booking for mobile sys-
tems were extremely strong. Erics-
son(cid:213)s total sales in the U.S. increa-
sed 39 percent to nearly SEK 24 b.,
thereby re-establishing the U.S. as
Ericsson(cid:213)s largest single market.
Sales in Canada increased by 2
percent. For the market area as a
whole, the sales increase amounted
to a full 36 percent in 1999.Another

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

Important contracts announced in
1999:

CANADA

Cescom — Five-year contract for
Voice over IP valued at SEK 118 M
Rogers Cantel — Development of
third-generation mobile network
valued at SEK 2,800 m.
BridgePoint Enterprises — Solu-
tions for IP telephony and data
networks valued at SEK 530 m.

UNITED STATES

BellSouth Cellular Corporation
— Infrastructure for 14 U.S. markets
valued at SEK 6,300 m.
America Online (AOL) — ERION
Networker and WDM infrastructure
SBC Wireless — Jambala open
service platform for TDMA networks
in Chicago and Springfield, Illinois
NEXTLINK — Field trials of point-to-
point microwave systems (MINI-
LINK BAS)
Sprint PCS — Seven-year contract
for expansion of cdmaOne network
Omnipoint Communications
— Installation and first U.S. field trials
of GPRS
Tritel Communications — Contract
for TDMA (IS-136) infrastructure
valued at SEK 2,310 m.

ERICSSON AROUND THE WORLD

3 9

Market Area Western Europe(cid:13)
Market Area Eastern Europe, Middle East and Africa(cid:13)
Market Area Asia Pacific

Market Area North America(cid:13)
Market Area 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 and
Middle East market area, dividing it into two areas: Western Europe market area, which comprises the EU countries plus Norway and Switzerland, and
the Eastern Europe, Middle East and Africa market area.

latin america

Thanks to very strong growth of sales
in Mexico (+74 percent) and continu-
ed solid development in Brazil —
despite the strong devaluation at the
beginning of the year — the market
area as a whole showed favorable
growth during 1999 (+19 percent).
The development in Central America
was also positive during the year.

Brazil is Ericsson(cid:213)s single largest

market in the area and Ericsson(cid:213)s
fourth largest market globally, with
sales in 1999 of slightly more than
SEK 14 b. (+20 percent).

Mobile systems and phones

account for the majority of growth in
the area. Nonetheless, investments
continue to be made in expansions
of the fixed telephone network,
particularly in Brazil and Mexico.

Important contracts announced in
1999:

ARGENTINA

CHILE

CTC Startel (Telef(cid:151)nica) — TDMA
network expansion.
Entel PCS — GSM expansion

Telecom and Telef(cid:151)nica — TDMA
networks valued at SEK 3,300 m.

MEXICO

BRAZIL

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

Telcel — Prepaid services for Telcel(cid:213)s
entire TDMA network

VENEZUELA

Movinet — Expansion of TDMA
network for 3G valued at
SEK 1,700 m.

SEVERAL COUNTRIES

Diginet Americas — Broadband
network for wireless access covering
several Latin American countries
valued at SEK 2,500 m.

ERICSSON(cid:213)S MARKET
share for mobile tele-
phony in Latin America
exceeds 40 percent, but
the Company also has a
leading position in fixed
telecommunications.
During the more than 100
years that Ericsson has
been active in this market,
a strong customer base
has been established in
virtually every country.

BENGT FORSSBERG,

EXECUTIVE VICE PRESIDENT,

LATIN AMERICA

0
4

s
u
c
o
f

i
i

THE YEAR was
characterized by very
strong growth in Japan
and India, while sales in
China declined.
The decline in China was
due to a weakening of the
market, which Ericsson
considers to be
temporary, and by
restructuring among
Chinese operators. An
upturn was noted during
the fourth quarter.

KJELL S(cid:133)RME,

EXECUTIVE VICE PRESIDENT,

ASIA PACIFIC

(TOOK OVER THE POSITION

DURING THE YEAR)

asia pacific

After the deep economic crisis in
1998, conditions stabilized in several
countries during 1999. This resulted
in modest, but nonetheless positive
growth (+5 percent) of Ericsson(cid:213)s
sales in the market area as a whole.
There were significant differences
between countries, however.

China, which was Ericsson(cid:213)s
largest market in 1998, declined
sharply. As a result of the restructu-
ring currently in progress among
Chinese operators and changes in
market regulation, market activity
tapered off significantly. For Erics-
son, the result was a 16-percent
decline in sales in both infrastructure
and mobile phones.

In Japan, on the other hand, Erics-
son(cid:213)s sales increased by 78 percent,
while sales in India increased by 82
percent. Increases were also noted
in Australia (+24 percent) and New
Zealand (+22 percent), while sales
declines in Malaysia (—34 percent),
Singapore (—29 percent) and in the
Philippines (—17 percent) reflect
continuing economic uncertainty in
these countries.

ERICSSON AROUND THE WORLD

Important contracts announced in
1999:

AUSTRALIA

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

PHILIPPINES

Globe Telecom — GSM system
valued at SEK 355 m.

JAPAN

Japanese Digital Phone Corp. —
Expansion of PDC system valued at
SEK 1,470 m.
Japanese Digital TuKa Group —
Three-year general agreement for
continued expansion and upgrading
valued at SEK 1,700 m.

CHINA

Inner Mongolia Post and Telecom
Administration — GSM system
valued at SEK 345 m.
Liaoning Post and Telecommuni-
cations Administration — Expan-
sion of GSM network valued at SEK
1,260 m.
China Telecom (Hong Kong) Ltd.
— GSM expansion in Guandong
valued at SEK 2,416 m.

SmarTone Mobile Communica-
tions Ltd, Hong Kong — WCDMA
test system and GPRS infrastructure
Guandong Mobile Communica-
tions Co. Ltd. — GSM expansion
valued at SEK 650 m.
China Unicom — GSM expansion in
six provinces valued at more than
SEK 1,000 m.
Shandong MCC — Expansion of
GSM network valued at SEK 840 m.
Sichuan Mobile Communications
Co. — GSM expansion valued at
SEK 835 m.
SmarTone Mobile Communica-
tions Ltd., Hong Kong — WAP sys-
tem

SRI LANKA

Mobitel — Digitization of AMPS
network 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 Public
Company Ltd. — Expansion of GSM
¥
network valued at SEK 450 m.

NET SALES PER MARKET AREAS (SEK m.)

Europe, Middle East and Africa *)

North America

Latin America

Asia Pacific

*) of which Sweden

*) of which EU

1999

115,065

25,175

30,263

44,900

1998

97,456

18,560

25,537

42,885

215,403

184,438

7,551

80,345

8,509

71,094

Percent
change

18.1

35.6

18.5

4.7

16.8

—11.3

13.0

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

4 1

TREASURY MANAGEMENT AND FINANCIAL RISKS

1999

has been characterized by
continued success for the U.S.
economy. During the year,
Asia recovered strongly after the crisis 1997—1998
and Europe showed gradual signs of recovery. In
Latin America the Brazilian economy strengthened
some after the substantial devaluation in the begin-
ning of the year.

Ericsson(cid:213)s liquidity increased during the year
with sek 10.8 b. and net, after deduction of short-
term interest-bearing liabilities, with sek 5.4 b.
This in spite of a number of strategic investments,
including the acquisitions of Torrent Networking
Technologies Inc. (U.S.), Qualcomm Infrastructure
Division (U.S.), TouchWave Inc. (U.S.), Telebit a/s
(Denmark) and minority shares in Juniper (U.S.),
Sara(cid:149)de (U.S.) and oz.com (Iceland). These invest-
ments of approximately sek 5.3 b. were financed
primarily through a number of bond issues
amounting to sek 12.9 b. The bond issues in May,
of sek 10 b., were the largest ever by a Nordic
corporation. In addition, a number of liquidity
strengthening activities were implemented, such as
the establishment of a pan-European securitization
program, which was utilized to sek 850 m., and
factoring. During the year, all short- and long-term
borrowing programs and long-term credit facilities
have been increased and updated.

financial risks

Ericsson has a policy for managing financial risks
established by the Board of Directors. Respons-
ibility for identifying and hedging financial risks
arising in the Group(cid:213)s operations rests with the
individual Ericsson companies. Risks are normally
hedged through Ericsson(cid:213)s internal bank, Ericsson
Treasury Services, which in turn manages the Group
exposure externally. The major part of the risks
assumed by the internal bank in this way are hedged
in the financial market, but the bank also has the
right to take positions in the financial market with-
in the framework of the policy established by the
Board of Directors. The risk mandate which
amounts to sek 200 m., is based on a 5 percent
change in each open foreign exchange position and a
change of one percentage point in interest rates.
Ericsson Treasury Services operates via treasury
centers in Stockholm, Dublin, Singapore and Dal-
las.

Ericsson hedges financial risks by balancing
assets and liabilities with respect to currencies and
interest-rate periods and by using derivative instru-
ments.

currency risks

FINANCIAL EXPOSURE
With exports from Sweden amounting to approxi-
mately sek 131 b. (sek 110 b. in 1998) and sales in
Sweden of sek 8 b. (sek 9 b. in 1998), Ericsson is
relatively heavily dependent on the development of
exchange rates between the Swedish currency and
foreign currencies, as well as on economic condi-
tions in Sweden. As opposed to the transaction
exposure, 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 by
currency forward contracts in cases that involve
firm commitments with customers and suppliers.
In addition, estimated purchases and sales are
hedged for periods of up to 12 months, based on
assessments of stability in volumes, pricing and
other factors within Ericsson(cid:213)s business segments.
Outstanding bids are also hedged, normally with
currency options. Hedge periods agree with the
timing of the anticipated future cash flows. The
foreign exchange exposure is concentrated mainly
in the large production companies, notably the
Swedish units, since the foreign subsidiaries are
invoiced in their local currencies. Table 1 shows the
distribution of commercial net cash flows of major
currencies for Ericsson(cid:213)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
CHF
EUR
HKD
GBP
JPY
USD
Other

6
4
42
2
4
7
37
—2

4
3
35
8
5
4
34
7

100

The table is based on statistical data pertaining to flows to and
from Ericsson(cid:213)s companies in Sweden.

2
4

s
u
c
o
f

i
i

The net currency exposure for the Swedish compa-
nies is mainly in usd and Euro, with balance
between the two respective currencies. This means
that Ericsson has limited exposure to an isolated
eur/usd change. With the exception of a few less
important currencies, Ericsson is mainly exposed to
the development of the Swedish krona.

Based on the net currency flows to and from the
Swedish companies, a lasting change of the Swedish
krona against usd and Euro of 10 percent would
have an effect on the consolidated net income of
approximately sek 1.3 b. and sek 1.5 b. respective-
ly. The net income effect for 1999 of changes in
foreign currency exchange rates compared to last
year(cid:213)s rates was approximately sek 0.4 b.

CHART 1 — MONETARY NETS

AS OF DECEMBER 31, 1999, IN PERCENT

OF TOTAL FOREIGN MONETARY NET

Other currencies

HKD

AUD

USD

TABLE 2 — NET CURRENCY FORWARDS BALANCES

AS OF DECEMBER 31, 1999, PERTAINING

TO ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE

AND FUTURE CASH FLOWS, SEK BILLIONS

MYR

JPY

GBP

BRL

CNY

EUR

Currency

AUD
CHF
DKK
EUR
GBP
GRD
HKD
JPY
NOK
USD
Other currencies

Sell (+)

Buy (—)

0.2
1.5
0.2
32.6
6.6
1.2
—0.2
—0.6
—0.2
34.2
0.7

76.2

Exposure arising from borrowing is limited, since
most loans by foreign subsidiaries are denominated
in local currencies. Currency balances in subsid-
iaries are monitored to secure minimum transaction
exposure in Ericsson companies.

TRANSLATION EXPOSURE
Exposures in foreign subsidiaries are hedged within
a framework established by Company management:
¥ Monetary net in companies translated according
to the temporal method are hedged to 100 per-
cent.

¥ Equity in companies translated according to the
current method are hedged very selectively up to
20 percent of the total monetary net in such
subsidiaries. One percent of such monetary net
was hedged at year-end 1999.

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

The translation differences reported in equity dur-
ing the year are sek —2.4 b., mainly as a result of
the devaluation in Brazil.

interest-rate risks

Ericsson(cid:213)s interest-rate risks are managed centrally.
The focus during the year was short-term and bal-
anced interest-rate periods for interest-bearing
assets and liabilities.

TABLE 3 — DISTRIBUTION OF FIXED AND FLOATING

INTEREST RATES, SEK BILLIONS

Interest-bearing assets
Short-term financial assets
Long-term financial assets, floating rate

Total interest-bearing assets

Interest-bearing liabilities
Short-term financial liabilities
Pension liabilities
Long-term financial liabilities, fixed rate
Long-term financial liabilities, floating rate

Total interest-bearing liabilities

1999

1998

31.5
10.8

42.3

12.0
8.4
0.7
23.7

44.8

18.2
11.4

29.6

6.6
8.1
2.3
10.5

27.5

4 3

TREASURY MANAGEMENT AND FINANCIAL RISKS

credit and counterparty risks
in financial operations
Ericsson(cid:213)s policy is to invest excess liquidity mainly
in government papers, as well as in commercial
paper and corporate bonds with ratings of a1/p1 or
higher. Ericsson Treasury Services has credit limits
for each issuer and counterparty. The exposure in
derivative instruments is valued at market daily
and is expressed as a liability to, or receivable from,
each counterparty. Netting contracts — so-called
isda agreements — are in force for most of the
counterparties, which substantially reduces coun-
terparty risk. Counterpatry limits are reviewed
continuously. No credit losses were incurred during
the year.

credit risk related
to customer financing
The ability and willingness among telecom vendors
to offer financing support has become an increas-
ingly important factor for customers(cid:213) when select-
ing a supplier. Customer finance is a very powerful
means of competing. The granting of credits and
the implied credit risk has continued to increase,
but without major losses during the year.

In total, the credit risk exposure amounts to
sek 21.0 b., of which sek 12.0 b. is on the balance
sheet while the remaining part relates to contin-
gent liabilities.

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

TABLE 4 — ERICSSON TREASURY SERVICE(cid:213)S

INVESTMENTS, DECEMBER 31, 1999, SEK BILLIONS

financing

Treasury bills
Treasury bonds
Mortage bonds
Commercial papers
Corporate bonds
Cash, bank deposits

Total

TABLE 5 — NET RISK IN INTEREST-RATE

DERIVATIVES, SEK MILLIONS

Type of instrument

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

7.0
2.1
0.1
2.1
0.8
5.7

17.8

Ericsson(cid:213)s long-term objective is to have a payment
readiness amounting to between 7 and 10 percent of
sales in order to cope with rapid changes in liquidi-
ty requirements. Payment readiness is defined as
net liquidity — liquid funds less short-term borrow-
ing, plus long-term unutilized credit
commitments.

TABLE 6 — PAYMENT READINESS, SEK BILLIONS

83.1
212.8
3.3
152.3

Cash, bank deposits and
short-term investments
Confirmed long-term credit lines
Short-term borrowing
Short-term portion of long-term debt

1999

1998

29.0
8.5
—10.5
—1.5

25.5
11.8

18.2
1.6
—5.4
—1.1

13.3
7.2

Net risk in interest-rate derivatives expressed as the effect of a
change of one percentage point in interest rates as of December
31, 1999, SEK millions.

Payment readiness
Percent of sales

To ensure long-term payment readiness, Ericsson(cid:213)s
policy is that the greater part of its borrowing
should be long-term or its needs should be covered
through long-term credit commitments. Long-
term borrowing should have an evenly distributed
maturity structure, and very long maturities should
be avoided in order to obtain flexibility.

TABLE 7 — RATING

Rating agency

Moody(cid:213)s
Standard & Poor(cid:213)s

Long-term Short-term

A1
A+

P-1
A-1

Ericsson(cid:213)s current rating a1 /a+ is well in line with
its peer group.

4
4

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

important events during the year
The year 1999 was characterized by fast growth in
demand in the area of mobile telephony, driven
by both increased number of subscribers and
increased talk-time. The year will also be remem-
bered as the year when our industry became fully
aware of the potential of Internet communica-
tion, not only for chatting and surfing on the
Web, but also for a lot of business applications,
which will generate vast amounts of traffic in
coming years. This was certainly recognized by
the stock market, and reflected in sharply rising
stock 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 business
segments for the provisioning of products and
solutions and market areas for sales. Mid-year,
Kurt Hellstr(cid:154)m replaced Sven-Christer Nilsson
as President. The Chairman of the Board, Dr.
Lars Ramqvist, also temporarily assumed a posi-
tion as Chief Executive Officer. This action was
taken by the Board to safeguard company perfor-
mance, to maintain the speed in restructuring,
and to focus on near-term issues regarding
operating expenses, cash flow and mobile phone
product launches. In December, Sten Fornell,
previously Controller for the business segment
Network Operators and Service Providers, was
appointed Executive Vice President and Chief
Financial Officer.

A number of significant acquisitions and joint

venture agreements were concluded in 1999.
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 (3g) wcdma standardization.
Ericsson and Qualcomm agreed on intellectual
property rights and thereby eliminated patent
litigation issues. Ericsson also acquired Qual-
comm(cid:213)s infrastructure division and is now, as
sole supplier, able to deliver mobile phone
systems of all standards.

¥ In the second quarter, Ericsson acquired two
U.S.-based companies specialized in Internet
access routers, Torrent Network Technologies
Inc. and TouchWave Inc. Their products will
complement Ericsson(cid:213)s offering regarding Inter-
net access.

¥ In December, a joint-venture company, to be
managed by Ericsson, was established with
Microsoft to develop and market solutions for
mobile Internet. The agreement gives
Microsoft access to Ericsson(cid:213)s wap technology,
and enables Ericsson to use Microsoft Mobile
Explorer in more sophisticated mobile phones.

SALES AND ORDERS

BOOKED (SEK m.)

220,000

180,000

140,000

100,000

60,000

20,000

1995

1996

1997

1998

1999

Orders booked(cid:13)
Net Sales

INCOME BEFORE

TAXES (SEK m.)

18,000

14,000

10,000

6,000

2,000

1995

1996

1997

1998

1999

TOTAL TECHNICAL

COSTS (SEK m.)

35,000

30,000

25,000

20,000

15,000

10,000

5,000

1995

1996

1997

1998

1999

Research and development(cid:13)
Other technical costs

BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

financial results
A very strong fourth quarter with record levels of
orders, sales, income and cash flow made the 1999
results better than expected earlier in the year.
We did not, however, succeed to meet all our

long-term goals in 1999, mainly due to weak
performance during the first half of the year.
¥ Growth in sales was 18 percent for comparable

units vs. a target of +20 percent.

¥ We reached a positive cash flow before acquisi-

¥ We reached a capital turnover of 2.1 turns vs. a

¥ roce at 19 percent was slightly below target-

tions, sek +2.9 b.

target of 2.0.

ed 20—25 percent.

¥ Operating margin at 8.2 percent of sales is
below the target of at least 10 percent.

ORDERS, SALES AND INCOME
Orders booked in total increased by 19 percent from
last year to sek 223.8 b., which is slightly below
our long-term annual growth expectations of over
20 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 generation
of mobile phones with lower volumes and
subsequent price pressure on older models.

¥ flat orders in our wireline business due to

price pressure driven by vendor overcapacity.

In our wireless markets, excluding China,
growth was well above 50 percent, with very
strong volumes in the U.S., Spain and Turkey.
Significant orders included 17 orders for trial 3g
systems — far ahead of any of our competitors.
Another key achievement during 1999 was the
capturing of more than 50 percent of all gprs
orders. We also received strategic orders for our
engine solution for migrating fixed line net-
works to multiservice capabilities, and an order
for an airborne surveillance system to Greece.
This positions Ericsson very well for the future.
Orders in China have picked up in the fourth
quarter in a promising way. Total order backlog
for Ericsson increased from sek 79 b. to
sek 84 b.

(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

Net sales increased by 17 percent to sek
215.4 b., where an increase of over 40 percent in
mobile systems is offset by slightly lower sales in
Wireline Systems and a modest 3 percent increase
for mobile phones. Sales in Enterprise Solutions
were up 19 percent over last year, and an increas-
ing portion of the sales is generated from the
consulting and services activities, such as wap-
applications. The U.S. again became Ericsson(cid:213)s
largest market with 11 percent of sales. The North
American market area sales increased by 36 per-
cent and Latin America and Europe/Middle
East/Africa by 19 and 18 percent respectively,
with strong growth in Brazil, Mexico, Spain and
Turkey. Asia/Pacific sales increased by only 5
percent, due to a 16 percent decline in China,
partly offset by strong increases in Japan, Aus-
tralia and India. Exports from Sweden, including
sales to consolidated companies, increased by 19
percent to sek 131 (110) b.

The gross margin declined from 42.9 percent of
Net sales to 41.6 percent, driven by the unfavor-
able product mix in mobile phones, with a larger
share of older models than planned, plus price
pressure in our wireline business. Gross margins
were stable in mobile systems. The increased sales
volume, however, more than offsets the impact of
a lower gross margin percentage, resulting in an
sek 10.3 b. increase in gross margin.

Operating expenses developed unfavorably, with
an sek 13 b. (22 percent) increase over last year.
The main cause was higher selling expenses from
general growth, but in particular also from pro-
motion efforts in mobile phones, increased risk
provisions for customer financing, and project
costs for process development in our time-to-
customer (ttc) flow and supply chain. Restruc-
turing and y2k expenses also contributed to the
increased expense level compared to last year.
Research and development (r&d) expenses,

including costs related to customer orders of
sek 0.5 (1.3) b., were sek 28.3 (25.2) b. or 13 (14)
percent of sales. Total technical expenses, includ-
ing market adaptations, were sek 34.7 (30.2) b.
or 16 (16) percent of sales. The focus of our r&d

efforts is on mobile Internet and 3g, as well as on
adapting our switching products to the acquired
cdma products from Qualcomm.

Other operating revenues increased by sek 1.2 b.
from 1998, mainly due to capital gains from sales
of shares in Intracom, and a minor portion of
Ericsson(cid:213)s holdings in Juniper.

Due to previous overpayment of pension pre-
miums, a potential credit amount of sek 1.3 b.
may be received from spp in year 2000, this has
not affected income in 1999.

The resulting Operating Margin declined to 8.2
(10.4) percent of sales, mainly because operating
expenses increased faster than sales (22 percent vs.
17). Compared to 1998, the effects of foreign cur-
rency exchange rate changes had a favorable effect
of sek +0.4 (+0.8) b. on income.

Financial net was reduced to sek —0.7 (—0.2) b.
as a result of a negative cash flow, in particular in
the first half of the year. Higher borrowings led
to increased financial expenses.

Minority interest in income was sek —0.5 (—0.8)

b., due to the large minority holdings last year
during January—August in our Brazilian sub-
sidiary edb, which were acquired by Ericsson in
September of 1998.

Income before taxes, sek 16.4 b., is sek 1.8 b.
below last year(cid:213)s record level of sek 18.2 b. Due
to a couple of successfully settled tax cases plus
non-taxable capital gains, the tax rate became
very favorable, 26.0 (28.4) percent, resulting in a
Net Income of sek 12.1 (13.0) b.

Earnings per share are down 7 percent to sek
6.17 (6.66). The equity ratio dropped from 38.9
percent to 35.2 percent during the year. Adjusted
for temporary excess cash at year-end, the equity
ratio is approximately 37 percent, which still is
below our long-term target of 40 percent.
Reported directly in stockholders(cid:213) equity accord-
ing to generally accepted accounting principles
in Sweden and U.S.A. are effects of translation of
financial statements of foreign subsidiaries of
sek —2.4 b., of which sek —2.6 b. as a result of
the devaluation in Brazil.

5
4

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

FINANCIAL NET (SEK m.)

1998

1999

1995

1996

1997

500

400

300

200

100

—100

—200

—300

—400

—500

—600

—700

CASH FLOW BEFORE

EXTERNAL FINANCING,

(SEK m.)

10,000

8,000

6,000

4,000

2,000

1995

1996

1997

1998

1999

—2,000

—4,000

—6,000

—8,000

—10,000

6
4

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

EQUITY RATIO, %

1995

1996

1997

1998

1999

INVESTMENTS IN

TANGIBLE ASSETS,

(SEK m.)

9,000

7,000

5,000

3,000

1,000

1995

1996

1997

1998

1999

NUMBER OF

EMPLOYEES

100,000

80,000

60,000

40,000

20,000

1995

1996

1997

1998

1999

Worldwide(cid:13)
Sweden

segment results 1999

Segment

Network Operators

Consumer Products

Enterprise Solutions

Other Operations

Unallocated costs

Less: inter-segment sales

Ericsson

INVESTMENTS, FINANCING AND CASH FLOW
Investments in tangible fixed assets in 1999 were
sek 9.1 (9.0) b., of which sek 4.1 (3.4) b. in Swe-
den. Strategic acquisitions during the year
amounted to sek 5.3 b. in total, including:
¥ Qualcomm(cid:213)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 Sara(cid:149)de, oz.com and

Juniper

Benchmark bond issues of sek 12.9 b. were
successfully launched under our European Medi-
um Term Note (emtn) program. The issues in
Euro and U.S. dollars were the largest ever made
by a Nordic corporation and substantially over-
subscribed.

Cash flow before financing activities was
sek —2.4 (—9.8) b. due to a very strong fourth
quarter of sek 9.5 b. We managed to reach our
target of favorable cash flow before strategic
acquisitions. Adjusted for sek —5.3 b. of acquisi-
tions, cash flow was sek +2.9 b. The improve-
ment in operating cash flow is mainly a result of
improved inventory, active management of cus-
tomer receivables and increased operating liabili-
ties including advances from customers.

Among the segments, only Network Operators

and Service Providers performed in line with our
long-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, many
operators have chosen to enhance their networks
for mobile Internet capabilities.

BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

Net sales
(SEK b.)

Growth
(percent)

Operating
income

Operating
margin
(percent)

149.9

46.4

17.3

16.8

-15.0

215.4

19.6

13.1 (12.4)

0.5 ( 7.0)

0.4 ( 0.7)

0.4 ( 9.6)

0.3

0.1

-2.4

17.6

8.2 (10.4)

The Network Operator segment increased
sales by 22 percent and with improved margins.
Sales of mobile systems products increased by
more than 40 percent, while sales in Wireline
Systems declined slightly. Ericsson is now the
undisputed market leader in mobile systems with
a market share above 30 percent, more than twice
that of the closest competitor(cid:213)s. Today, 40 percent
of all subscribers in the world are connected to
Ericsson systems, and all of the top ten largest
operators have chosen Ericsson. In 1999, Ericsson
won more than 50 percent of the orders for gprs.
With the Qualcomm acquisition, Ericsson is

now the only supplier able to offer all mobile
telephony standards, which opens up a new mar-
ket for year 2000.

The Operating margin improved, in spite of a

negative effect of sek —1.3 b. from acquired
units. The Wireline Systems unit improved per-
formance during 1999 with an operating income
of 5.6 percent of sales, demonstrating that the
restructuring activities have been successfully
implemented and a stable turnaround achieved.
Several strategic orders for the engine product
concept for migrating circuit-switched networks
into multi-service network ip and atm capabili-
ties were received during 1999 from customers,
such as bt, knp and Telefonica.

For Consumer Products the market share
dropped during the year, in spite of a 30 percent
increase in volumes to 31 million units. Due to
delayed volume production of the new product
portfolio, older phones were sold to unfavorable
prices resulting in increased sales of only 3 per-
cent. During the fourth quarter, however, the
volumes reached targeted levels, and operating
margin rose to 5.6 percent of sales, compared to
0.5 percent for the full year. With ramp-up of
production now under control and a much more

(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
7
4

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

EARNINGS PER SHARE

(SEK)

1995

1996

1997

1998

1999

BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

competitive product portfolio, Ericsson is well
positioned to win back market share in 2000, as
market demand continues to look strong.

Enterprise Solutions(cid:213) external sales increased

by 19 percent to sek 11.6 (9.8) b. with strong
volumes of the pbx md110. Income was at break
even compared to last year, with continued devel-
opment expenses for ip and wireless communica-
tions solutions for private networks. Business
consulting activities are focusing on solutions
and services for mobile Internet.

Other Operations includes the Dedicated
Networks unit, which will be closed down, pre-
viously reported in the Enterprise Solutions seg-
ment. Dedicated Networks reports a loss of sek
—0.8 b. due to unsuccessful projects. Also includ-
ed in this group is Defense Systems, with lower
sales and operating income compared to last year
due to fewer orders from the Swedish Armed
Forces. Defense Systems however posted a large
order of sek 4.9 b. for airborne surveillance
equipment to Greece in the fourth quarter.

Unallocated costs mainly include core corpo-
rate staff expenses and goodwill amortization on
certain acquisitions. The costs increased from last
year due to changes in the corporate staff struc-
ture, increased millennium expenses, common it
projects and goodwill amortization.

employees

The number of employees in total did not change
significantly during 1999 and was 103,290
(103,667) at year-end. Almost 2,400 employees
were added through acquisitions and about 5,400
were recruited into new jobs, mainly in Con-
sumer Products. Around 9,600 employees were
affected by outsourcing and other restructuring
activities.

During the year, a decision was made to
implement a stock option plan for year 2000 in
addition to the two earlier plans for 1998 and
1999, which were based on market solutions. The
2000 plan consists of options (so-called
(cid:210)employee options(cid:211) that are hedged by warrants
issued by Ericsson, which if fully utilized, will
have a dilutive effect on earnings per share of 0.7
percent.

The allottment and subscription prices under

the programs for 1999 and 2000 will be estab-
lished at the beginning of 2000.

restructuring
After initial delays, the program announced in
early 1999 is now implemented as planned. Some
decisions made will take place in early year 2000.
In total sek 2.4 b. were spent in 1999, with cost
savings of sek 0.6 b. As indicated above, 9,600
employees were affected. Some of the employees
participate in a training program for enhanced
skills, to make them more attractive on the labor
market, and with a guaranteed employment in a
manning-company, should they not find new jobs
within a year. Expected net savings are sek
1.8 b. in 2000 and sek 3.7 b. from 2001. Since the
program is now well under control, from this
point on it will be considered a part of Ericsson(cid:213)s
regular operations.

millennium

The objectives for Ericsson(cid:213)s millennium pro-
gram were to retain satisfied customers, to pro-
tect shareholder value and to secure working
conditions. All three objectives were met and no
major incident was experienced during the tran-
sition. The total accumulated costs of the project
are sek 2.7 b., of which sek 1.8 b. during 1999,
mainly as part of selling and administration
expenses. Additional costs of around sek 0.4 b.
are expected for year 2000.

environmental issues
Ericsson has production operations in 38 facilities
in 13 countries, for the assembly of electronic
components and manufacturing of cables and
components. The environmental impact of these
operations consists of emissions to air and water,
waste products and noise. Chemicals used include
flux and soldering paste and powder lacquer.
Life-cycle analyses of our products show the
largest impact on the environment to be their
energy consumption in use. Ericsson is fully
exploiting the it industry(cid:213)s inherent possibilities
to miniaturize products and reduce their energy
consumption, which often reduces the unfavor-
able environmental impact for a given function
considerably.

SWEDISH REGULATIONS REQUIRING

PERMISSIONS OR REPORTING
Ericsson has 15 production facilities in Sweden.
For 8 of these, permission is required for opera-
tions due to noise or emissions into air or water,
while 5 units are obliged to report certain haz-
ardous activities. No material requests or com-
plaints have been received during the year.

8
4

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

ISO-CERTIFICATES
The iso 14001 environmental management system
is scheduled for implementation in all production
units at the latest at the end of year 2000. In Swe-
den, 10 of Ericsson(cid:213)s 15 production units have already
been certified and another 3 are recommended but
have not yet received their certificates.

ENVIRONMENTAL LIABILITIES
The situation regarding so-called environmental
liabilities has been examined.

For the Swedish units, the total liability for

environmental damages is less than sek 100
million. Remedial actions for sek 20 million
will be carried out during year 2000. For units
outside Sweden, only one material damage is
known concerning a facility in Holland. The
liability issue is now regulated in an agreement
with the Dutch authorities and a provision for
this liability is made in the accounts.

For further information on Ericsson(cid:213)s environ-
mental activities, please see our separate Environ-
mental Report for 1999.

the board of directors
and its procedures

Telefonaktiebolaget LM Ericsson(cid:213)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 are
appointed by the employee organizations. In July,
ceo Sven-Christer Nilsson resigned from the
Board and was not replaced, which reduced the
number of directors elected by the Annual Gener-
al Meeting to eight. Company staff participate in
Board meetings delivering special presentations.
During fiscal year 1999, the Board held nine
meetings. The company auditors have reported
their observations from the audits to the Board.
The work of the Board follows a set plan,
which is designed to meet the Board(cid:213)s need for
information and otherwise follows the arrange-
ment the Board has adopted with respect to the
division of work between the Board and the Pres-
ident. Accordingly, matters handled by the Board
include Ericsson(cid:213)s strategy and organizational
structure, major investments in businesses and
plants, major sales of operations and plants, large
customer financing projects, and rules governing
cash management.

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

BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

The Board(cid:213)s annual review of its work proce-
dures has resulted in a new plan for allocation of
responsibilities for year 2000. Three committees
composed of Board members, namely the Finance
Committee, the Remuneration Committee and
the Audit Committee have substituted the pre-
sidium. The Board has authorized the Finance
Committee and the Remuneration Committee to
decide on certain kinds of matters. The Board
may also provide further authorization to its
Committees to decide on specific matters. The
purpose of this change is to make the work of the
Board even more effective in a business that is
subject to rapid development and to enable the
Board to devote additional time to strategic mat-
ters and over all planning.

changes within ericsson
during the year
In early 1999, Ericsson sold its majority holdings
in the Italian network construction company
Cosir S.p.A. Ericsson retains a minority holding.
During the year, the following acquisitions

were made:
¥ the Brazilian company Matec s.a. is now a

subsidiary, since ownership has increased from
30 percent to 97.5 percent.

¥ the Infrastructure division of Qualcomm Inc.
was acquired and incorporated as Ericsson
Wireless Communications Inc.

¥ the Mobile network planning and field mea-
surement division of lcc International Inc.
was acquired and incorporated as Ericsson
NetQual Inc.

¥ Torrent Networking Technologies Inc.,
renamed Ericsson ip Infrastructure Inc.
¥ TouchWave Inc., renamed Ericsson WebCom

Inc.

¥ Telebit a/s
¥ Ericsson increased its holdings in the Nigerian
company LM Ericsson (Nigeria) Ltd to 55
percent and the company is now a consolidat-
ed subsidiary

¥ Holdings in a new associated company: across

holding ab

¥ Minority holdings in:Juniper, Sara(cid:149)de,

oz.com, iD2 Technologies ab

A shared service company was established in
Sweden, Ericsson Shared Services ab, supporting
Swedish subsidiaries regarding accounting,
reporting, payroll and travel management ser-
vices.

LM Ericsson Data ab and Semantica ab
changed their names to Ericsson Business Con-
sulting ab and Ericsson Business Consulting
Sverige ab, respectively. These companies are a
part of the business segment Enterprise solutions(cid:213)
consulting unit.

9
4

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

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 Radio

s.a. and parts of met Commutation have
merged into Ericsson s.a.

Ericsson signed a letter of intent with Compaq

to outsource it support, starting in the Nordic
region and involving more than 40,000 work
stations.

Other outsourcing activities include manufac-
turing and software design operations in Longue-
nesse, France, and (cid:133)stersund, Sweden, to Solec-
tron and in Katrineholm, Sweden, to Flextronics.
A software development unit in (cid:133)stersund, Swe-
den, has been transferred to au-system ab.

During the year it was decided that Ericsson
will divest the majority of its real estate holdings
and focus capital utilization on its core business
activities. These divestitures will occur in year
2000. Real estate management and services in
the Stockholm area will be outsourced to Skanska
early in year 2000.

Ericsson has branch and representative offices

in 45 (42) countries.

post-closing events

DIVESTITURES

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

BOARD OF DIRECTORS
On January 7, 2000, Lars-Eric Petersson resigned
as a board member upon his appointment as
chairman of the Swedish network operator Telia.

MANAGEMENT CHANGES
Effective February 15, Jan W(cid:138)reby, previously
Executive Vice President Market area
Europe/Middle East/Africa, will succeed Johan
Siberg as Executive Vice President for the Con-
sumer Products segment.

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

Ragnar B(cid:138)ck, 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 Area

Eastern Europe/Middle East/Africa will be
announced shortly.

outlook for year 2000
For the full year 2000, we believe in continued
strong market growth where Ericsson gains bene-
fits from our leading position in mobile telepho-
ny and in the growth of mobile Internet. Our
long-term financial targets remain unchanged:
we intend to grow faster than the market, which
means growing by at least 20 percent, and with a
return on capital employed of 20—25 percent with
positive cash flow before strategic acquisitions,
and an operating margin of at least 10 percent.
During 2000, we expect sales to increase by
more than 20 percent and a substantial growth in
earnings. We intend to achieve this with a posi-
tive cash flow.

The first quarter of 1999 was exceptionally
weak, affected by restructuring costs and slow
development in China and for mobile phones. For
the first quarter of year 2000, we expect a sales
growth of more than 30 percent and income
before taxes in the range of three times that of the
first quarter of 1999.

parent company telefonaktiebolaget
lm ericsson

The parent company(cid:213)s results include the opera-
tions conducted on commission basis by Erics-
son Telecom ab, Ericsson Treasury Services ab
and, since January 1, the newly established
company Ericsson Credit ab, which manages
Ericsson(cid:213)s customer financing credit portfolio.
The commission agreement with Ericsson Tele-
com ab has been cancelled as per January 1,
2000.

Net Sales for the parent company were
sek 15.4 (16.8) b. and Income before appropria-
tions to/from untaxed reserves and taxes was sek
3.2 (1.3) b.

Major changes in the company(cid:213)s financial

position were:
¥ increased investments in subsidiaries of

sek 5.1 b., of which sek 3.3 b. were attribut-
able to stock issues in Ericsson Holding II Inc.
(USA).

¥ increased long-term loans to subsidiaries of

sek 5.6 b.

¥ increased long-term customer financing of

sek 6.0 b.

¥ increased bank and short-term cash invest-

ments of sek 6.7 b.
These investments were financed through
increased borrowings. During the year, the com-
pany sold a major part of its real estate holdings
to Ericsson companies in Sweden. At year-end,
cash and short-term cash investments amounted
to sek 17.1 b.

0
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

proposed bonus issue and stock split
The Board of Directors will propose to the Annu-
al General Meeting a bonus issue, by way of an
increase of the par value of A and B shares from
sek 2.50 to sek 4.00 followed by a split 4:1.
Trading with shares of the new par value sek
1.00 is expected to commence in the beginning of
May 2000.

repurchase of shares

The Board of Directors welcome the proposed
change in legislation to enable repurchase of
shares and will present a proposal to the Annual
General Meeting in light of the final decisions
taken by legislative bodies in Sweden.

BOARD OF DIRECTORS(cid:213) REPORT FOR 1999

proposed disposition of earnings
Available for distribution by the shareholders at
the Annual General Meeting are
sek 16,300,310,622. The Board of Directors pro-
poses that these earnings be distributed as fol-
lows:

an unchanged dividend of
sek 2.00 per share to be
paid to shareholders duly
registered on the Record date

the remainder to be retained
within the business

sek 3,944,088,906

sek 12,356,221,716

Total amount available

sek 16,300,310,622

Debentures 1993/2000 converted up to Febru-
ary 7, 2000, are also entitled to dividend for 1999.
Assuming all such debentures are converted by
February 7, the dividend will amount to the sum
specified above.

Stockholm January 28, 2000
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Tom Hedelius
Vice Chairman

Lars Ramqvist
Chairman and ceo

Marcus Wallenberg
Vice Chairman

G(cid:154)ran Lindahl

Sverker Martin-L(cid:154)f

Clas Reuterski(cid:154)ld

Peter Sutherland

G(cid:154)ran Engstr(cid:154)m

Jan Hedlund

Per Lindh

Kurt Hellstr(cid:154)m
President

CONSOLIDATED INCOME STATEMENT

Years ended December 31, SEK m.

1999

1998

1997

Net sales

Cost of sales

Gross Margin

Research and development and other technical expenses

Selling expenses

Administrative expenses

Other operating revenues

Share in earnings of associated companies

Operating Margin

Financial income

Financial expenses

Income After Financial Items

Minority interest in income before taxes

Income Before Taxes

Taxes

Income taxes for the year

Minority interest in taxes

NET INCOME

Earnings per share, SEK

NOTE 1

215,403

184,438

167,740

—125,881

—105,251

—97,868

89,522

79,187

69,872

NOTE 2

—33,123

—28,027

—24,242

—31,205

—24,108

—20,464

—10,078

—8,922

—7,755

2,224

250

995

148

866

480

17,590

19,273

18,757

NOTE 3

2,273

—2,971

2,228

—2,465

2,413

—2,365

16,892

19,036

18,805

—506

—826

—1,587

16,386

18,210

17,218

NOTE 4

—4,358

-5,409

-5,755

102

240

478

12,130

13,041

11,941

NOTE 5

6.17

6.66

6.08

1
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

2
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

December 31, SEK m.

1999

1998

CONSOLIDATED BALANCE SHEET

ASSETS

Fixed Assets

Intangible assets

Tangible assets

Financial assets

Equity in associated companies

Other investments

Long-term customer financing

Other long-term receivables

Current Assets

Inventories

Receivables

Accounts receivable - trade

Short-term customer financing

Other receivables

Short-term cash investments

Cash and bank

TOTAL ASSETS

NOTE 6

NOTE 7, 23, 25

NOTE 8

NOTE 10

NOTE 11

NOTE 13

10,548

24,719

6,354

22,516

2,712

1,751

6,657

4,972

2,777

1,438

5,937

2,902

51,359

41,924

25,701

26,973

63,584

53,900

1,749

31,227

13,415

15,593

3,837

22,589

6,356

11,877

151,269

125,532

202,628

167,456

Assets Pledged as Collateral

NOTE 20

2,068

1,203

3
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

CONSOLIDATED BALANCE SHEET

December 31, SEK m.

1999

1998

STOCKHOLDERS(cid:213) EQUITY, PROVISIONS AND LIABILITIES

Stockholders(cid:213) Equity

Capital stock

Reserves not available for distribution

NOTE 14

Restricted equity

Retained earnings

Net income

Non-restricted equity

Minority Interest in Equity of Consolidated Subsidaries

Provisions

Long-Term Liabilities

Notes and bond loans

Convertible debentures

Liabilities to financial institutions

Other long-term liabilities

Current Liabilities

Current maturities of long-term debt

Current liabilities to financial institutions

Advances from customers

Accounts payable — trade

Income tax liabilities

Other current liabilities

NOTE 16

NOTE 17, 20

NOTE 20

NOTE 18

NOTE 19

4,893

4,878

32,618

28,053

37,511

19,535

12,130

31,665

69,176

32,931

17,140

13,041

30,181

63,112

2,182

2,051

22,552

22,284

17,486

5,453

1,448

567

4,470

6,241

1,898

459

24,954

13,068

1,491

10,519

6,437

1,188

5,427

8,398

21,618

18,246

2,397

41,302

83,764

1,957

31,725

66,941

TOTAL STOCKHOLDERS(cid:213) EQUITY, PROVISIONS AND LIABILITIES

202,628

167,456

Contingent Liabilities

NOTE 21

1) Of which interest-bearing provisions and liabilities

10,127

8,063

45,020

27,474

4
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

CONSOLIDATED STATEMENT OF CASH FLOWS

Years ended December 31, SEK m.

1999

1998

1997

OPERATIONS

Net income

NOTE 22

12,130

13,041

11,941

Adjustments to Reconcile Net Income to Cash

Minority interest in net income

Undistributed earnings of associated companies

Depreciation and amortization

Capital gains (-)/losses on sale of fixed assets

Taxes

Changes in Operating Net Assets

Inventories

Customer financing, short-term and long-term

Accounts receivable - trade and other operating assets

Provisions and other operating liabilities

Cash Flow From Operating Activities

INVESTMENTS

Investments in tangible assets

Sales of tangible assets

Acquisitions/sales of other investments, net

Net change in capital contributed by minority

Other

404

7,382

—1,399

586

—359

6,081

—230

—947

—2,301

1,109

—90

5,756

152

619

714

722

—2,056

—5,727

—3,396

—347

—19,562

—10,695

—15,828

13,463

9,054

14,986

12,925

7,394

14,902

—9,085

—8,965

—7,237

625

632

NOTE 22

—4,768

—8,865

134

—2,270

—56

642

—69

—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

Issue of convertible debentures

Proceeds from issuance of other long-term debt

Repayments of long-term debt

Dividends paid

Cash Flow From Financing Activities

Effect of exchange rate changes on cash

Net Change in Cash

Cash, Beginning of Period

CASH, END OF PERIOD

3,854

15,163

—1,515

—4,010

13,550

—336

955

3,366

—1,332

—3,800

—792

—277

4,875

2,571

—2,672

—2,805

2,065

256

10,775

—10,894

10,067

18,233

29,127

19,060

29,008

18,233

29,127

5
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

PARENT COMPANY INCOME STATEMENT

Years ended December 31, SEK m.

1999

1998

1997

Net sales

Cost of sales

Gross Margin

Research and development and other technical expenses

Selling expenses

Administrative expenses

Other operating revenues

Operating Margin

Financial income

Financial expenses

Income After Financial Items

Appropriations to (-)/transfers from untaxed reserves

Changes in depreciation in excess of plan

Changes in other untaxed reserves

Contributions from subsidiaries, net

NOTE 1

15,375

16,836

16,217

—10,944

—11,657

—12,205

4,431

5,179

4,012

—5,386

—4,116

—2,580

3,155

—6,324

—2,370

—1,889

2,666

—6,635

—1,568

—1,329

2,368

—4,496

—2,738

—3,152

NOTE 2

NOTE 3

9,915

—2,202

6,052

—1,942

6,223

—1,827

3,217

1,372

1,244

NOTE 15

371

—2,691

—2,320

5,292

204

—174

4,749

337

—504

—167

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

6
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

December 31, SEK m.

1999

1998

PARENT COMPANY BALANCE SHEET

ASSETS

Fixed Assets

Intangible assets

Tangible assets

Financial assets

Investments

Subsidiaries

Associated companies

Other investments

Receivables from subsidiaries

Long-term customer financing

Other long-term receivables

Current Assets

Inventories

Receivables

Accounts receivable — trade

Short-term customer financing

Receivables from subsidiaries

Other receivables

Short-term cash investments

Cash and bank

TOTAL ASSETS

NOTE 6

NOTE 7, 25

NOTE 8, 9

NOTE 8

NOTE 12

NOTE 8

NOTE 10

NOTE 11

NOTE 12

NOTE 13

828

2,625

24,364

19,262

1,039

974

17,925

12,329

6,320

2,129

280

127

52,714

35,721

952

1,607

2,402

178

2,544

22,336

18,617

9,184

12,062

5,028

7,618

5,732

4,665

52,142

40,813

104,856

76,534

Assets Pledged As Collateral

NOTE 20

1,845

402

7
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

PARENT COMPANY BALANCE SHEET

December 31, SEK m.

1999

1998

STOCKHOLDERS(cid:213) EQUITY, PROVISIONS AND LIABILITIES

Stockholders(cid:213) Equity

Capital stock

Share premium reserve

Revaluation reserve

Statutory reserve

Restricted equity

Retained earnings

Net income

Non-restricted equity

Untaxed Reserves

Provisions

Long-Term Liabilities

Notes and bond loans

Convertible debentures

Liabilities to financial institutions

Liabilities to subsidiaries

Other long-term liabilities

Current Liabilities

Current maturities of long-term debt

Current liabilities to financial institutions

Advances from customers

Accounts payable — trade

Liabilities to subsidiaries

Income tax liability

Other current liabilities

NOTE 14

NOTE 15

NOTE 16

NOTE 17

NOTE 17, 20

NOTE 12, 17

NOTE 17

NOTE 20

NOTE 18

NOTE 12

NOTE 19

4,893

1,941

9,681

4,878

1,687

9,680

16,535

16,340

10,734

5,566

16,300

32,835

8,832

5,732

14,564

30,904

5,406

3,086

5,513

3,731

17,486

5,453

370

3,454

4,470

6,195

320

2,821

26,816

13,827

587

929

252

821

558

365

1,203

25,601

17,448

229

5,867

104

5,282

34,286

24,986

TOTAL STOCKHOLDERS(cid:213) EQUITY, PROVISIONS AND LIABILITIES

104,856

76,534

Contingent Liabilities

NOTE 21

11,611

6,968

8
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

Years ended December 31, SEK m.

1999

1998

1997

PARENT COMPANY STATEMENT OF CASH FLOWS

OPERATIONS

Net income

Adjustments to Reconcile Net Income to Cash

Depreciation and amortization

Capital gains (-)/losses on sale of fixed assets

Appropriations to/transfers from (-) untaxed reserves

Unsettled contributions from (-)/to subsidiaries

Unsettled dividends

Changes in Operating Net Assets

Inventories

Customer financing, short-term and long-term

Accounts receivable — trade and other operating assets

Provisions and other operating liabilities

5,566

5,732

4,758

322

2,320

—5,200

—3,904

655

—6,188

—155

1,752

442

1,022

—30

—4,700

—2,290

164

—164

5,133

—237

665

167

—4,000

—3,269

—311

—86

—5,079

5,158

Cash Flow From Operating Activities

—4,791

5,072

—1,903

INVESTMENTS

Investments in tangible assets

Sales of tangible assets

Acquisitions/sales of other investments, net

Lending, net

Other

Cash Flow From Investing Activities

—368

1,810

—5,185

—4,397

—1,705

—396

247

—5,978

—4,706

—622

401

—97

—3,370

—111

—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

Changes in current liabilities to subsidiaries

Issue of convertible debentures

Proceeds from issuance of other long-term debt

Repayments of long-term debt

Dividends paid

Other

Cash Flow From Financing Activities

Net Change in Cash

Cash, Beginning of Period

Cash, End of Period

890

—206

207

11,120

—4,181

13,199

13,323

—556

2,645

—428

—3,904

—3,410

456

269

6,000

1,866

—1,804

—2,404

—38

21,329

—5,311

17,026

6,693

—11,072

11,324

10,397

21,469

10,145

17,090

10,397

21,469

9
5

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

Notes to the Financial Statements

In millions of Swedish kronor (except per share amounts) at
December 31 each year, unless otherwise stated.

The consolidated financial statements of
Telefonaktiebolaget LM Ericsson and its subsidiaries
((cid:210)the Company(cid:211)) are prepared in accordance with
accounting principles generally accepted in Sweden,
thereby applying the Swedish Financial Accounting
Standards Council(cid:213)s (rr) recommendations. These
accounting principles differ in certain respects from
those in the United States. For a description of major
differences, see Note 24.

(A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the
accounts of the Parent Company and all subsidiaries.
Subsidiaries are all companies in which the Company
has an ownership and directly or indirectly has a
voting majority or by agreement has a decisive influ-
ence. Intercompany transactions have been eliminated.
The consolidated financial statements have been
prepared in accordance with the purchase method,
whereby consolidated stockholders(cid:213) equity includes
equity in subsidiaries and associated companies
earned only after their acquisition.

In the consolidated Income Statement, minority
interests are, in deviation from the Swedish Financial
Accounting Standards Council(cid:213)s recommendation
rr01, divided into two items; share in income before
taxes and share in taxes. The reason is that this
method, considering the significant minority interest
holdings in the group during the last years, gives a
more fair view of the important measure Income
before taxes.

Material investments in associated companies,
where voting stock interest is at least 20 percent but
not more than 50 percent, are accounted for according
to the equity method. Ericsson(cid:213)s share of income
before tax in these companies is reported in item
(cid:210)Share in earnings of associated companies(cid:211), included
in the Operating Margin. Taxes are included in item
(cid:210)Taxes(cid:211). Unrealized internal profits in inventory in
associated companies purchased from subsidiaries are
eliminated in full in the consolidated accounts.
Investments in associated companies are shown at
equity after adjustments for unrealized intercompany
profits and unamortized goodwill (see (B) below).

Undistributed earnings of associated companies

included in consolidated restricted equity are
reported as (cid:210)Equity proportion reserve(cid:211). Minor

Accounting principles

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

(B) GOODWILL

Goodwill, positive and negative, resulting from
acquisitions of consolidated companies is
amortized/reversed according to individual assessment
of each item(cid:213)s estimated economic life, resulting in
amortization periods of up to 20 years. Depending on
the nature of the acquisition, goodwill amortizations
are reported under (cid:210)Research and development and
other technical expenses(cid:211), (cid:210)Selling expenses(cid:211) or
(cid:212)(cid:212)Administrative expenses(cid:211).

FINANCIAL STATEMENTS

For most subsidiaries and associated companies, the
local currency is the currency in which the companies
primarily generate and expend cash, and is thus con-
sidered their functional (business) currency. Their
financial statements plus goodwill related to such
companies, if any, are translated to sek using the
current method, whereby any translation adjustments
are reported directly to stockholders(cid:213) equity. When a
company accounted for in accordance with these prin-
ciples is sold, accumulated translation adjustments
are included in the consolidated income.

Financial statements of companies with finance
activities or other companies, having such close rela-
tions with the Swedish operations that their
functional currency is considered to be the Swedish
krona, are labeled (cid:210)integrated companies(cid:211) and are
translated using the monetary method. Adjustments
from translation of financial statements of these com-
panies are included in the consolidated income state-
ment (see Note 14).

Financial statements of companies operating for

example in countries with highly inflationary
economies, whose functional currency is considered to
be another currency than local currency, are translated
in two steps. In the first step, remeasurement is made
into the functional currency. Gains and losses result-
ing from this remeasurement are included in the con-
solidated income statement. In the second step, from
the functional currency to Swedish kronor, balance
sheet items are translated at year-end exchange rates,
and income statement items at the average rates of
exchange during the year. The resulting translation

0
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

adjustments are reported directly against stockholders(cid:213)
equity. The remeasurement in step one is a deviation
from the Swedish Financial Accounting Standards
Council(cid:213)s recommendation rr08, which requires infla-
tion adjustment of such financial statements. In our
opinion, the remeasurement method, which is in
accordance with u.s. gaap fas 52, gives a more fair
view of these financial statements, since companies
concerned opereate in de facto dollar-based economies.

(D) TRANSLATION OF FOREIGN CURRENCY

ITEMS IN INDIVIDUAL COMPANIES

In the financial statements, receivables and liabilities
in foreign currencies have been translated at year-end
exchange rates.

Gains and losses on foreign exchange are divided
into operational and financial. Net operational gains
and losses are included in Cost of sales. Gains and
losses on foreign exchange attributable to financial
assets are included in financial income, and gains and
losses related to financial liabilities are included in
financial expenses.

Translation effects related to permanent financing

of foreign subsidiaries are reported directly to
Stockholder(cid:213)s equity, net of tax effects.

(E) VALUATION OF SHORT-TERM CASH INVEST-

MENTS AND DERIVATIVES

Short-term cash investments held by companies other
than Ericsson Treasury Services ab are valued at the
lowest of acquisition cost plus accrued interest and
market value.

Short-term cash investments and interest related

derivatives in Ericsson Treasury Services ab are
valued at market value, and net unrealized gains are
reserved. Gains and losses from derivatives in Ericsson
Treasury Services ab are reported net as Other finan-
cial income/expense.

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

Derivative instruments are used mainly to hedge

financial interest- and currency risks.

In order to limit currency risks, purchases and
sales in foreign currencies are hedged using forward
currency contracts in all cases involving firm commit-
ments with suppliers and customers. In addition,
anticipated future cash flows in foreign currencies are
also hedged for periods of 6—9 months. The hedge
periods shall agree with expected future cash flow.
Some bids are also hedged, normally through curren-
cy options.

NOTES

Forward exchange options and investments

hedging 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 interest
positions are valued in the same manner as the
hedged instrument. Other foreign exchange related
derivatives are valued at market.

When a transaction hedged in advance ceases to be

an exposure, the hedge is closed. Hereby deviations
between actual and hedged flows are recognized in
income as soon as they are identified.

Currency forward contracts related to future cash
flows correspond to 6—9 months of future sales. Net
unrealized loss after market evaluation of contracts
related to future cash flows was sek —0.9 b., which is
a result mainly of higher dollar spot rates at year- end
than when hedging was made. This effect has not
been included in income for 1999, since these con-
tracts are entered into as hedges of committed and
reasonably assured cash flows and therefor by Swedish
accounting principles are not valued at market.

The use of currency forward contracts as hedges is

entirely according to Ericsson(cid:213)s policy to avoid cur-
rency speculation and minimize risk. The hedges have
served their purpose of safeguarding our calculated
sales margins. Forward contract periods for estimated
cash flows are chosen to give us sufficient lead time
to adjust or renegotiate prices with customers or ven-
dors or take other actions, which means that effects of
nominal currency rate changes are to a large extent
moderated.

To calculate a gain or loss as if hedges had not
been made is therefore somewhat artificial — it shows
an opportunity gain or loss which would imply a
speculation element by not hedging. This opportuni-
ty cost effect during the year is varied, with a net
overall loss. The loss is mainly due to usd contracts,
driven by the stronger dollar resulting in hedged
rates lower than spot rates, which is partly offset by
gains related mainly to a weaker Euro, where the
hedged rates were higher than spot rates. Since we
receive more foreign currency than we pay, our for-
ward contracts are net sales contracts where we sell
our excess foreign currency to banks, which is the rea-
son why a higher rate is more favorable than a lower
rate.

(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, with
estimated useful lives of, in general, 40 years on

1
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

buildings, 20 years on land improvements, 3 to 10
years on machinery and equipment, and up to 5 years
on rental equipment. Depreciation is included in Cost
of Sales and in the respective functional operating
expenses.

(G)

INVENTORIES

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

(H) REVENUE RECOGNITION

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

Revenue from long-term customer contracts is
recognized successively. If costs required to complete
such contracts are estimated to exceed remaining
revenues, provision is made for estimated losses.

For sales between consolidated companies, as a rule

the same pricing is applied as in transactions with
other customers, taking into account, however, that
certain costs are eliminated in transactions between
affiliated companies.

(I) RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as
incurred. Costs based on orders from customers are
included in Cost of sales.

Such items reported by consolidated companies have
been reversed, applying the current tax rate applica-
ble in each country. The deferred tax so calculated is
shown in the consolidated income statement as
Deferred taxes. The after-tax effect is stated in the
income statement as part of net income for the year,
and in the balance sheet as restricted stockholders(cid:213)
equity.

The accumulated deferred tax liability is adjusted

each year by applying the current tax rate in each
country and is reported in the consolidated balance
sheet as Deferred tax. An adjustment of deferred tax
liability attributable to changes in tax rates is shown
in the consolidated income statement as a part of the
deferred tax expense for the period.

(L) STATEMENT OF CASH FLOWS

Statement of Cash Flows is prepared principally in
accordance with recommendation rr07 from the
Swedish Financial Accounting Standards Council.
The Statement of Cash Flows shows changes in the
cash position during the year attributable to opera-
tions, investing activities and financing activities
respectively.

Foreign subsidiaries(cid:213) transactions are translated at

the average exchange rate during the period.

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

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

(J) LEASING

(M) OPERATIONS ON COMMISSION BASIS

REPORTED IN PARENT COMPANY ACCOUNTS

Ericsson Treasury Services ab and Ericsson Telecom
ab have conducted their operations on commission
basis for the Parent Company as in previous years.
Ericsson Credit ab has been added as a commission-
ary company in 1999.

The agreement about operations on commission
basis between Ericsson Telecom ab and the Parent
Company, signed in 1987, has been cancelled as per
January 1, 2000.

Property leases with the company as lessee are nor-
mally expensed over the term of the lease. The
Company applies the Swedish Financial Accounting
Standards Council(cid:213)s recommendation No. 6 for
material lease contracts. Accordingly, certain leasing
contracts are capitalized and reported as acquisitions
of tangible assets and as other current liabilities and
other long-term liabilities.

(K) DEFERRED TAX IN UNTAXED RESERVES

The Company reports deferred taxes attributable to
temporary differences between the book value of
assets and liabilities and their tax value, and also
deferred tax receivables attributable to unutilized loss
carryforwards with a probability to be used greater
than 50 percent.

Appropriations and Untaxed reserves are not
reported in the consolidated financial statements.

2
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

Net sales by market area

and business segment 3

Financial income and expenses

Market Areas

CONSOLIDATED

1999

1998

1997

CONSOLIDATED

1999

1998

1997

Europe*, Middle East, Africa
North America
Latin America
Asia Pacific
Total**

115,065
25,175
30,263
44,900
215,403

97,456
18,560
25,537
42,885

83,490
18,973
21,267
44,010
184,438 167,740

Of which Sweden

*
** Of which EU

7,551
80,345

8,509
71,094

9,320
64,244

Financial Income
Result from securities and
receivables accounted for
as fixed assets
Other interest income and
similar profit/loss items

1,426

892

491

847

1,336

1,922

Total financial income

2,273

2,228

2,413

Financial Expenses
Interest expenses and
similar profit/loss items

2,971

2,465

2,365

PARENT COMPANY

1999

1998

1997

Total financial expenses

2,971

2,465

2,365

Europe*, Middle East, Africa
North America
Latin America
Asia Pacific
Total**

Of which Sweden

*
** Of which EU

10,907
273
2,036
2,159
15,375

2,346
8,047

11,315
202
2,362
2,957
16,836

2,062
7,903

11,171
282
2,185
2,579
16,217

3,789
6,064

Business Segments

CONSOLIDATED

Network Operators and Service Providers
Consumer Products
Enterprise Solutions
Other operations
Less: intersegment sales
Total

1999

1998

149,943 123,219
45,237
46,444
14,561
17,345
15,170
16,750
—15,079
—13,749
215,403 184,438

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

Other operating revenues

CONSOLIDATED

1999

1998

1997

Commissions, license fees
and other operating revenues
Gains on sales of intangible
and tangible assets
Losses on sales of intangible
and tangible assets
Gains on sales of investments
and operations
Losses on sales of investments
and operations

825

307

765

1,017

—244

—303

—159

1,733

1,208

—397

2,224

—764

995

—65

866

PARENT COMPANY

1999

1998

1997

Commissions, license fees
and other operating revenues
Net losses (—) on sales
of tangible assets

3,210

2,735

2,398

—55

—69

—30

3,155

2,666

2,368

Financial Net

—698

—237

PARENT COMPANY

1999

1998

1997

Financial Income
Result from participations
in subsidiaries
Dividends*
Net gains on sales
Result from participations
in associated companies

Dividends
Net gains on sales
Result from other securities
and receivables accounted for
as fixed assets
Other interest income
and similar profit/loss items

7,750
-

4,026
468

4,326
7

122
123

6
-

54
2

Subsidiaries
Other**

1,365
553

892
658

650
1,183

Total financial income

9,915

6,052

6,223

Financial Expenses
Losses on sales of participations
in subsidiaries
Losses on sales of participations
in associated companies
Interest expenses
and similar profit/loss items

Subsidiaries
Other

Other financial expenses

109

887
1,197
9

1,104
824
11

859
888
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. in

1998 has been reported net of a SEK 1,420 m. write-down of the investment in
the company.

** Of the total amount, SEK —4 m. in 1999, SEK —150 m. in 1998, SEK —105 m. in

1997 is attributable to hedge of net investments in foreign subsidiaries.

Swedish companies(cid:213) interest expenses on pension liabilities
are included in the interest expenses shown above.

3
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

Income taxes for the year

Earnings per share

CONSOLIDATED

1999

1998

1997

CONSOLIDATED

1999

1998

1997

Income tax paid
Income tax deferred

—4,756
398

—5,214
—195

—6,551
796

Tax on profit for the year

—4,358

—5,409

—5,755

Net income
Interest expenses on convertible
debentures, net of income taxes

12,130

13,041

11,941

185

265

Net income after full conversion

12,315

13,306

11,996

Average number of shares
outstanding after full conversion
and stock issue including stock
dividend element (millions)
Earnings per share

1,996.9
6.17

1,996.9
6.66

1,974.4
6.08

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

In addition, the Company reports deferred tax assets
attributable to unutilized loss carryforwards, if the likeli-
hood that they will be used is deemed to be greater than 50
percent. At December 31, the Company had total unuti-
lized loss carryforwards of sek 468 m. The final years in
which these loss carryforwards can be utilized are shown in
the following table. The Parent Company had no unuti-
lized loss carryforwards.

Year of expiration

Amount

2000
2001
2002
2003
2004
2005 or later

88
14
26
33
137
170

468

The Parent Company(cid:213)s deferred taxes for the period amount to
sek 491 m., sek —158 m. 1998 and sek 123 m. 1997.

Intangible assets

CONSOLIDATED

Acquisitions Cost
Opening balance
Acquisitions
Balances regarding acquired
and sold companies
Sales/disposals
Translation difference for the year
Closing balance

Accumulated Depreciation
Opening balance
Depreciation for the year
Balances regarding acquired
and sold companies
Sales/disposals
Translation difference for the year
Closing balance

Total

Licenses,
trademarks
and similar

Patents and
purchased
research and
rights development

Goodwill

Total

PARENT COMPANY

Patents,
licenses,
trademarks and
similar rights

1,298
256

—4
—10
—117
1,423

—1,144
—136

3
8
110
—1,159

264

505
745

—117
52
—15
1,170

—424
—30

122
—83
10
—405

765

7,078
4,372

8,881
5,373

9
—65
—258

—112
—23
—390
11,136 13,729

—959 —2,527
—850
—684

2
44
—20

127
—31
100
—1,617 —3,181

Acquisitions Cost
Opening balance
Acquisitions
Sales/disposals

Closing balance

Accumulated Depreciation
Opening balance
Depreciation for the year
Sales/disposals

Closing balance

9,519 10,548

Total

457
-
-

457

—379
—22
-

—401

4
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

CONSOLIDATED

Acquisitions Cost
Opening balance
Acquisitions
Balances regarding acquired and sold companies
Sales/disposals
Reclassifications
Translation difference for the year

Closing balance

Accumulated Depreciation
Opening balance
Depreciation for the year
Balances regarding acquired and sold companies
Sales/disposals
Reclassifications
Translation difference for the year

Closing balance

Accumulated Revaluations, Net
Opening balance
Revaluations for the year
Depreciation for the year on revaluations
Sales/disposals
Translation difference for the year

Closing balance

Total

PARENT COMPANY

Acquisitions Cost
Opening balance
Acquisitions
Sales/disposals
Reclassifications

Closing balance

Accumulated Depreciation
Opening balance
Depreciation for the year
Sales/disposals

Closing balance

Accumulated Revaluations, Net
Opening balance
Depreciation for the year on revaluations
Sales/disposals

Closing balance

Total

NOTES

Tangible assets

Construction
in process
and
advance
payments

1,210
2,149
24
—60
—1,675
—20

1,628

-
-
-
-
-
-

-
-
-
-
-

Total

47,475
9,121
309
—3,425
-
—668

52,812

—25,422
—6,515
179
2,944
-
415

—28,399

463
-
—53
—82
—22

306

Land and
buildings

Machinery

Other
equipment

9,441
537
—53
—29
342
—165

10,073

—2,183
—343
-
3
—2
96

—2,429

461
-
—53
—83
—22

303

14,438
2,401
195
—1,435
691
—179

16,111

—8,440
—2,442
7
1,114
—335
116

—9,980

-
-
-
-
-

22,386
4,034
143
—1,901
642
—304

25,000

—14,799
—3,730
172
1,827
337
203

—15,990

2
-
-
1
-

7,947

6,131

9,013

1,628

24,719

Land and
buildings

Machinery

Other
equipment

Construction
in process
and
advance
payments

2,017
1
—1,744
92

366

—463
—46
446

—63

157
—4
—147

309

523
2
—100
0

425

—398
—45
65

—378

-
-
-

1,576
142
—542
130

1,306

—1,078
—205
331

—952

-
-
-

291
224
—175
—222

118

-
-
-

354

118

Total

4,407
369
—2,561
0

2,215

—1,939
—296
842

—1,393

157
—4
—147

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 1,662 m.

NOTES

EQUITY IN ASSOCIATED COMPANIES

Opening balance
Share in earnings
Taxes
Translation difference for the year
Dividends
Acquisitions
Sales

Closing balance

2,777
250
—109
—28
—131
32
—79

2,712

Goodwill, net, constitutes sek 125 m. (79) of the invest-
ments.

Dividends received from companies accounted for under
the equity method were sek 12 m. in 1998 and sek 142 m.
in 1997.

Asso-
ciated
com-
panies

Other
invest-
ments

Sub-
sidiaries

PARENT COMPANY

Investments
Opening balance
Acquisitions and stock issues
Shareholders(cid:213) contribution
Revaluations for the year
Write-downs
Reclassifications
Sales

19,262
3,426
1,789
-
—51
3
—65

974
94
-
-
-
—3
—26

Closing balance

24,364

1,039

5
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

Financial assets

Long
term
Other customer
finan-
cing

invest-
ments

Other
long-
term
receiv-
ables

1,456
587
—270
—31
1,742

7,582
8,326
—6,307
—88
9,513

2,926
2,844
—754
84
5,100

21
21

—39
—12
39
-
—12

-
-

—1,645
—3,847
2,656
—20
—2,856

—24
—62
—47
5
—128

CONSOLIDATED

Acquisitions Cost
Opening balance
Acquisitions/credits granted
Sales/repayments
Translation difference for the year
Closing balance

Accumulated Revaluations
Opening balance
Closing balance

Accumulated Write-Downs 1
Opening balance
Write-downs for the year
Sales/repayments
Translation difference for the year
Closing balance

46
6
-
1
-
-
-

Total

1,751

6,657

4,972 2

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

operations.

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

PARENT COMPANY

Acquisitions Cost
Opening balance
Acquisitions/credits granted
Sales/repayments
Closing balance

Accumulated Write-Downs
Opening balance
Acquired allowances
Write-downs for the year
Closing balance

Total

Long-term
customer
financing

Other
long-term
receivables

285
8,017
—230
8,072

—5
—921
—826
—1,752

6,320

127
2,052
—50
2,129

-
-
-
-

2,129

6
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

Investments

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

Patent and Registration Office, may be obtained upon
request to:
Telefonaktiebolaget LM Ericsson, Corporate Financial
Control, se-126 25 Stockholm, Sweden.

SHARES DIRECTLY OWNED BY THE PARENT COMPANY

Type Company

Reg. No.

Domicile

Percen-
tage of
owner-
ship

Par Carrying
value

value

Subsidiaries
I
I
I
I
I
I
I
I
I
I
I
II
II
II
II
III
III

Ericsson Utvecklings AB
Ericsson Business Networks AB
Ericsson Microwave Systems AB
Ericsson Radio Systems AB
Ericsson Telecom AB
EHPT Sweden AB
Ericsson Mobile Communications AB
Ericsson Radio Access AB
Ericsson Sverige AB
Ericsson Business Consulting AB
Ericsson Software Technology AB
SRA Communication AB
AB Aulis
Ericsson Cables Holding AB
LM Ericsson Holding AB
Ericsson Treasury Services AB
Ericsson Credit AB
Other
Ericsson Austria AG
LM Ericsson A/S
Oy LM Ericsson Ab
Ericsson France S.A.
Ericsson GmbH
Ericsson Communications Systems Hungary Ltd.
Ericsson Treasury Ireland Ltd.
Ericsson S.p.A.
Ericsson A/S
Ericsson Corporatio AO
Ericsson AG
Ericsson Holding Ltd.
Other
Ericsson Holding II Inc.
C(cid:146)a Ericsson S.A.C.I.
Teleindustria Ericsson S.A.
Other
Teleric Pty Ltd.
Beijing Ericsson Mobile Communication Co. Ltd.
Ericsson Ltd.
Nanjing Ericsson Communication Co. Ltd.
Ericsson Communication Private Ltd.
Ericsson Telecommunications Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other

I
I
I
II
I
I
III
II
I
I
I
II

II
I
I

II
I
I
I
I
I
I
I
I

Associated Companies
III
III
I

AB LM Ericsson Finans
Ericsson Project Finance AB
Ericsson Nikola Tesla
Other

556137-8646
556090-3212
556028-1627
556056-6258
556251-3258
556381-7609
556251-3266
556250-2046
556329-5657
556250-9454
556212-7398
556018-0191
556030-9899
556044-9489
556381-7666
556329-5673
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
Norway
Russia
Switzerland
United Kingdom
Europe (excluding Sweden)
United States
Argentina
Mexico
United States, Latin America
Australia
China
China
China
India
Malaysia
Singapore
Taiwan
Thailand
Other countries

556008-8550
556058-5936

Sweden
Sweden
Croatia

100
100
100
100
100
60
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
72
100
100
100
100
-
88 1)

100
100
-
100

25 2)

100
51
100
70
100
80
49 3)
-

10
360
30
50
-
97
361
20
100
85
1
47
14
455
105
-
5
-
60
90
80
144
39
800
81
18,421
156
950
-
74
-
-
5
n/a
-
20
5
2
11
525
2
-
160
15
-

17
335
151
636
-
108
516
41
100
102
67
145
6
969
1,122
2
5
710
662
216
195
485
341
48
3,924
105
194
4
-
757
103
10,591
10
572
134
99
36
2
76
105
4
1
19
4
645

Total

24,364

90 4)
91 5)
49
-

29
425
196
-

41
510
330
158

Total

1,039

7
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

SHARES OWNED BY SUBSIDIARIES

Type

Company

Reg. No.

Domicile

556000-0365
556577-4469

Subsidiaries
I
I
I
I
I
I
II
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

Ericsson Cables AB
Ericsson Components AB
Ericsson S.A.
MET S.A.
LM Ericsson Ltd.
Ericsson Telecomunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson Holding Netherland B.V.
Ericsson Telecommunicatie B.V.
Ericsson Espa(cid:150)a S.A.
Ericsson Ltd.
Ericsson Mobile Communications (U.K.) Ltd.
Ericsson Communications Inc.
Advanced Computer Communications Inc.
Ericsson Inc.
Ericsson NetQual Inc.
Ericsson WebCom Inc.
Ericsson Wireless Communication Inc.
Ericsson IP Infrastructure Inc.
Ericsson Telekomunikasyon A.S.
Ericsson Telecomunica(cid:141)(cid:155)es S.A.
Ericsson Telecom S.A. de C.V.
Nippon Ericsson K.K.
Ericsson Mobile Communications Sdn Bhd Malaysia
Ericsson Australia Pty. Ltd.

Associated Companies
I

Symbian Ltd.

KEY TO TYPE OF COMPANY

Sweden
Sweden
France
France
Ireland
Italy
The Netherlands
The Netherlands
The Netherlands
Spain
United Kingdom
United Kingdom
Canada
USA
USA
USA
USA
USA
USA
Turkey
Brazil
Mexico
Japan
Malaysia
Australia

United Kingdom

Investment,
continued

Percentage
of ownership

100
100
100
100
100
72
100
100
100
100
100
100
100
100
100
100
100
100
100
100
98
100
90
100
100

I Manufacturing, distributing and development companies

1 Through subsidiary holdings, total holdings amount to 100%

II Holding companies

III Finance companies

of Ericsson Holding II Inc.

2 Through subsidiary holdings, total holdings amount to 49% of
Beijing Ericsson Mobile Communications Co. Ltd., but the
voting 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%.

The subsidiary, Ericsson S.p.A., is listed on the Milan stock
exchange in Italy.

Ericsson(cid:213)s share of the market value as per December 31,
1999, was sek 9,041 m.

Inventories

Consolidated
1998
1999

Parent
Company
1999 1998

Raw material, components
and consumables
Manufacturing work in process
Finished products and goods
for resale
Contract work in process
Less advances from customers

13,324 10,696
2,926

1,823

105
-

388
30

1,972

4,356
13,398 11,643
—4,816 —2,648

80
104
774 1,152
—43
—31

Inventories, net

25,701 26,973

952 1,607

8
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

Accounts receivable — trade

Stockholders(cid:213) equity

Consolidated
1998
1999

Parent
Company
1999 1998

Capital stock
Capital stock at December 31, 1999, consisted of the
following:

NOTES

Notes and accounts receivable
Receivables from
associated companies

63,380 53,775 2,292 2,535

204

125

110

63,584 53,900 2,402 2,544

Allowance for doubtful accounts amounting to sek
2,550 m. (2,308) and sek 479 m. (369) in the Parent
Company which has reduced the amounts shown above,
includes amounts for estimated losses based on commercial
risk evaluations. The allowance does not include provisions
for potential losses of a political nature.

Receivables and payables
— subsidiaries

PARENT COMPANY

1999

1998

Long-Term Receivables*
Financial receivables

Current Receivables
Commercial receivables
Financial receivables

Long-Term Liabilities *
Financial liabilities

Current Liabilities
Commercial liabilities
Financial liabilities

17,925

12,329

2,989
19,347

2,398
16,219

22,336

18,617

2,296
23,305

1,480
15,968

25,601

17,448

Including non-interest bearing receivables and liabilities, net, amounting to
SEK 11,772 m. (8,191). Interest-free transactions involving current receivables
and liabilities may also arise at times.

Receivables in
associated companies
Prepaid expenses
Accrued revenues
Advance payments to suppliers
Deferred tax assets
Other

Other receivables

Consolidated
1998
1999

Parent
Company
1999 1998

2,358
3,231
3,083
887
3,413

3,057 1,828 2,907
190
1,990
272
1,695
1
704
-
3,275
18,255 11,868 6,407 4,248

283
651
15
-

31,227 22,589 9,184 7,618

A shares (par value SEK 2.50)
B shares (par value SEK 2.50)

Number of

shares Aggregate
par value

outstanding

164,054,660
1,793,083,861

1,957,138,521

410
4,483

4,893

The capital stock of the Company is divided into two class-
es: Class A shares (par value sek 2.50) and Class B shares
(par value sek 2.50). Both classes have the same rights of
participation in the net assets and earnings of the
Company. Class A shares, however, are entitled to one vote
per share while Class B shares are entitled to one
thousandth 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 they
have a reliable and lasting value significantly greater than
book value. Revaluation amounts must either be used for
stock issue/stock split or be appropriated to a revaluation
reserve. When assets are sold or discarded the revaluation
reserve shall be reduced correspondingly.

Opening, balance
Changes in cumulative translation adjustment

Closing balance

288
—2,403

—2,115

Changes in cumulative translation adjustments include

change in cumulative translative adjustments (including
goodwill) in Brazil, sek —2,622 m. change regarding recal-
culation of goodwill in local currency (excluding goodwill
in Brazil), sek 393 m., net gain/loss (—) from hedging of
investments in foreign subsidiares, sek 38 m. (sek —77 m.
in 1998) and sek 1 m. (sek 94 m. in 1998) from sold/liqui-
dated companies.

Currency gains/losses resulting from translation of finan-
cial statements of integrated companies are included in the
following items in the consolidated income statement:

Cost of sales
Financial income
Taxes

1999

1998

65
—11
—3

34
14
—2

3,454

2,821

Cumulative translation adjustments

NOTES

14 continued

Changes in stockholders(cid:213) equity

CONSOLIDATED

January 1, 1999
Conversion of debentures
Capital discount
Proceeds from unclaimed
stock dividend shares
Dividends paid
Revaluation of fixed assets
Transfer between non-
restricted and restricted reserves
Changes in cumulative translation
adjustments
Net income 1999

Capital
stock

4,878
15
-

-
-
-

-
-

Equity
proportion
reserve

Other

restricted Restricted
equity

reserves

Non-
restricted
equity

26,778
269
—7

1
-
—36

32,931
284
—7

1
-
—36

30,181
-
-

-
—3,905
-

Total

63,112
284
—7

1
—3,905
—36

6,727

6,741

—6,741

—2,403
-

-
12,130

—2,403
12,130

1,275
-
-

-
-
-

-
-

December 31, 1999

4,893

1,289

31,329

37,511

31,665

69,176

Of retained earnings, sek 65 m. will be appropriated to
reserves not available for distribution, in accordance with
the proposals of the respective companies(cid:213) boards of direc-
tors. In evaluating the consolidated financial position, it
should be noted that earnings in foreign companies may be
subject to taxation when transferred to Sweden and that, in

some instances, such transfers of earnings may be limited
by currency restrictions.

Consolidated unrestricted retained earnings are translat-

ed at the year-end exchange rate. Cumulative translation
adjustments have been distributed among unrestricted and
restricted stockholders(cid:213) equity.

9
6

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

PARENT COMPANY

January 1, 1999
Conversion of debentures
Capital discount
Reversal of revaluation reserve
Proceeds from unclaimed
stock dividend shares
Dividends paid
Net income 1999

Capital premium

stock

reserve 1

4,878
15
-
-

-
-
-

1,687
269
—15
-

-
-
-

Share Revalua-

tion Statutory restricted
equity

reserve

Total Disposi-
tion

Other

Non-
retained restricted
equity

reserve earnings

95
-
-
—75

-
-
-

9,680
-
-
-

1
-
-

16,340
284
—15
—75

1
-
-

100
-
-
-

-
-
-

14,464
-
-
75

-
—3,905
5,566

Total

30,904
284
—15
-

14,564
-
-
75

-
—3,905
5,566

1
—3,905
5,566

December 31, 1999

4,893

1,941

9,681

16,535

100

16,200

16,300

32,835

1 1996 and prior years(cid:213) share premium is included in Statutory reserve.

Allocations/
Jan. 1 withdrawals(—)

Dec. 31

Untaxed reserves

Changes in other untaxed reserves in the Parent
Company in 1998 consisted of the following: with-
drawal of tax equalization reserve, sek 127 m. (110);
allocation to reserve for doubtful receivables,
sek 53 m. (270) and allocation to income deferral
reserve sek 354 m. (344).

PARENT COMPANY 1999

Accumulated Depreciation
In Excess Of Plan
Intangible assets
Tangible assets

Total accumulated depreciation
in excess of plan

11
483

494

Other Untaxed Reserves
Tax equalization reserve
254
Reserve for doubtful receivables 1,120
1,218
Income deferral reserve

Total other untaxed reserves

Total Untaxed Reserves

2,592

3,086

-
—371

11
112

—371

123

—127
2,289
529

2,691

2,320

127
3,409
1,747

5,283

5,406

0
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

Pensions and similar
commitments
Deferred taxes
Other provisions

Provisions

Consolidated
1998

1999

Parent
Company
1998

1999

8,398 8,056 3,037
-
1,220 2,388
12,934 11,840 2,476

2,900
-
831

22,552 22,284 5,513

3,731

The pension liabilities include the Parent Company(cid:213)s and
other Swedish companies(cid:213) obligations in the amount of sek
6,483 m. (5,902) in accordance with an agreement with the
Pension Registration Institute (pri), which are covered by
a Swedish law on safeguarding of pension commitments.
The Parent Company(cid:213)s pension liabilities include an oblig-
ation in the amount of sek 2,788 m. (2,717) in accordance
with 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.

Notes and bond loans
(maturing 2001—2003)
Convertible debentures
(maturing 2000)
(maturing 2003)
Liabilities to financial institutions
Liabilities to subsidiaries
Other

Long-term liabilities

Consolidated
1998

1999

Parent
Company
1998

1999

17,486 4,470 17,486

4,470

-
725
5,453 5,516 5,453
370
1,448 1,898
- 3,454
53

-
567

459

679
5,516
320
2,821
21

24,954 13,068 26,816 13,827

Consolidated long-term liabilities maturing five years or
more after the balance sheet date:

Notes and bond loans and
liabilities to financial institutions

Other

4,669

138

4,807

The Parent Company has two convertible debenture loans
outstanding. One, issued in 1993, with preferential rights
for Ericsson shareholders, was in the amount of sek 2,172
m. and carries interest of 4.25 percent. The debentures are
convertible up to and including May 31, 2000, at a conver-
sion price after stock split, bonus issue and adjustments for
new stock issue, of sek 36.10 per B share. During 1999
debentures in the amount of sek 195 m. were converted to
5,411,111 B shares.

Upon conversion of all outstanding debentures, there
would be a further increase of 14,676,957 in the number of
shares. During the period January 1 to February 7, 2000,
additional debentures may be converted to B shares carry-
ing right to dividend for 1999.

NOTES

In the 1993 consolidated accounts, the equity component
sek 654 m. — calculated as the difference between the con-
vertible debenture interest rate, 4.25 percent, at expiration
of the subscription period on July 1, 1993 and the
Company(cid:213)s alternative interest rate, 10.55 percent — has been
credited to the Statutory reserve as addition to capital in the
Parent Company only. This capital discount is charged to
income as interest expense under the duration of the loan.
A convertible debenture loan in the amount of sek
6,000 m. was issued during 1997. Of the total amount,
convertible debentures amounting to sek 4,859 m. were
sold to Ericsson employees, and debentures amounting to
sek 1,141 were sold to the wholly owned subsidiary ab
Aulis. The debentures held by ab Aulis are offered at mar-
ket price to new employees. The debentures, which carry
an interest defined as stibor 1 less 1.5 percent, are convert-
ible to B shares from November 19, 1999, up to and includ-
ing May 30, 2003, at a conversion price, after the 1998
bonus issue, of sek 236 per share.

In the 1997 consolidated accounts, a capital discount
amounting to sek 816 m. has been calculated, considering
a market interest rate of 6.87 percent. The capital discount
has been credited to the Statutory reserve as an addition to
capital in the consolidated financial statements as well as in
the Parent Company (Share premium reserve) in accordance
with the Swedish Financial Accounting Standards Council(cid:213)s
recommendation rr03. The capital discount is charged to
income as interest expense under the duration of the loan.
The capital discount is re-calculated annually, based on
stibor intest rate changes.

During 1999 debentures in the amount of sek 89 m.
were converted to 375,020 B shares. Upon convertion of all
outstanding debentures, there would be a further increase
of 25,048,681 in the number of shares. During the period
January 1 through January 21, 2000, additional debentures,
carrying rights to dividends for 1999, were converted to
228,975 B shares.
1 Stockholm Inter Bank Offered Rate

18 Current liabilities to financial insti-

tutions and unused lines of credit

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 the
Company amounted to sek 5,431 m. and for the Parent
Company sek 46 m. In addition, the Parent Company had
unused long-term lines of credit amounting to sek 8,527
m.

Liabilities to associated
companies
Accrued expenses
Prepaid revenues
Other

Other current liabilities

Consolidated
1998

1999

Parent
Company
1998

1999

598

823

738
27,233 20,716 1,691
29
12,280 9,472 3,409

966

939

546
1,600
4
3,132

41,302 31,725 5,867

5,282

1
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

Consolidated

Real estate mortgages
Chattel mortgages
Bank deposits
Other

Parent Company

Chattel mortgages
Bank deposits
Other

Assets pledged as collateral

Liabilities Advances

to financial
institutions customers

from Total
1999

Total
1998

Leasing

Leasing obligations
Assets under Financial leases, recorded as tangible assets,
consists of:
Financial Leases

1999

1998

-
-
1,824
208

2,032

-
1,824
21

1,845

36
-
-
-

36
-
1,824
208

249
369
212
373

2,068

1,203

Acquisitions Cost
Land and buildings
Machinery
Other equipment

-
-
-

-
1,824
21

1,845

160
208
34

402

Accumulated Depreciation
Land and buildings
Machinery
Other equipment

291
26
215

532

141
26
71

238

294

321
25
41

387

146
25
25

196

191

At December 31, 1999, the Parent Company had no
pledged assets in favor of subsidiaries. However, under cer-
tain conditions, it may pledge collateral for certain sub-
sidiaries(cid:213) pension obligations.

Guarantees

for customer financing
for accounts receivable
Other contingent liabilities

Contingent liabilities

Consolidated
1998
1999

Parent
Company
1998

1999

7,497
1,104
1,526

4,034
-
4,029

6,756
1,000
3,855

2,155
-
4,813

10,127

8,063 11,611

6,968

Of the guarantees assumed by the Parent Company, sek
4,582 m. in 1999 and sek 4,566 m. in 1998 are related to
subsidiaries.

Statement of cash flows

Interest paid in 1999 was sek 2,560 m. (1,425) and interest
received was sek 1,516 m. (1,969). Income taxes paid were
sek 5,563 m. (6,258).

Non-cash transaction under (cid:210)Cash flow from operating
activities(cid:211) not reported separately is current year increase in
pension liabilities of sek 342 m. (sek 855 m. in 1998 and
sek 945 m. in 1997).

Non-cash items in (cid:210)financing activities(cid:211)
In 1999, conversions of debentures were made for sek 15
m. (1998 sek 4 m., 1997 sek 961 m.).

Acquisitions/sales of other investments

Cash
Goodwill
Intangible assets
Other net assets

Purchase price for acquired subsidiaries
Cash in acquired subsidiaries
Other acquisitions
Sales

Acquistions/sales, net

62
4,297
750
203

—5,312
62
—592
1,074

—4,768

Net value

At December 31, 1998, future payment obligations for leas-
es were distributed as follows:

2000
2001
2002
2003
2004
2005 and later

Financial
leases

Operating
leases

107
95
39
17
16
120

394

1,995
1,629
1,311
991
873
2,902

9,701

Expenses for the year for leasing of assets were sek 1,647
m. (sek 1,770 m. in 1998 and sek 1,659 m. in 1997), of
which variable cost sek 86 m.

Leasing income

Some consolidated companies lease equipment, mainly tele-
phone exchanges, to customers. These leasing contracts
vary in length from 1 to 14 years.

The acquisition value of assets leased to others under
Operating leases amounted to sek 523 m. at December 31,
1999 (December 31, 1998: sek 517 m.). Accumulated depre-
ciation amounted to sek 422 m. and net investments to
sek 101 m. at December 31, 1999 (December 31, 1998: sek
446 m. and sek 71 m., respectively).

Net investment in Sales-type leases and Financial leases

amounted to sek 17 m. at December 31, 1999 (December
31, 1998: sek 36 m.).

Future payments receivable for leased equipment are

distributed as follows:

Sales-type and
Financial leases

Operating
leases

2000
2001
2002
2003
2004
2005 and later

Less: interest

Net investment

15
2
1
-
-
-

18
—1

26
32
12
7
4
-

2
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

24 Reconciliation to accounting princi-

ples generally accepted in the U.S.

Elements of the Company(cid:213)s accounting principles which differ
significantly from generally accepted accounting principles in
the United States (u.s. gaap) are described below:

(A) Revaluation of Assets

Business combination adjustments
When applying Swedish accounting practice, the Company has
shown negative goodwill as a deferred credit which is released
to income over on average 5—10 years (see also Notes to the
financial statements, Accounting Principles (B) and Note 6).
In accordance with u.s. gaap, negative goodwill should first
be applied as a reduction of noncurrent assets acquired and be
amortized over the economic life of each asset.

Certain tangible assets have been revalued at amounts in
excess of cost. Under certain conditions, this procedure is
allowed in accordance with Swedish accounting practice.
Revaluation of assets in the primary financial statements is
not permitted under u.s. gaap. Depreciation charges relating
to such items have been reversed to income.

In-process research and development
In 1999, the Company acquired technology including in-process
research and development. The in-process research and develop-
ment was valued at sek 233 m. Since this technology has not
reached technological feasibility and has no alternative use it
was charged to expense under u.s. gaap.

(B) Capitalization of Software Development Costs

In accordance with Swedish accounting principles, software
development costs are charged against income when incurred.
The Company practices u.s. gaap fas No. 86 (cid:210)Accoun-
ting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed(cid:211) and effective 1999, it has adopted sop
98-1, (cid:210)Accounting for the costs of Computer Software Develop-
ed or Obtained for Internal use(cid:211). According to these statements
development costs are capitalized after the product involved has
reached a certain degree of technological feasibility. Capitaliza-
tion ceases and amortization begins when the product is ready
for its intended use. The company has adopted an amortization
period for capitalized software to be sold of three years and for
capitalized software for internal use of three to five years.

Development costs for software
to be sold

Captalization
Amortization
Write-downs

1999

1998

1997

7,898
—4,460
—989

7,170 5,232
—3,824 —3,934
-
-

2,449

3,346 1,298

Write-downs of previously capitalized software costs amounting
to sek 989 m. has been made in 1999 since one project has
been reclassified to non-commercial.

Development costs for software
for internal use

Captalization
Amortization

1999

1998

1997

1,463
—152

1,311

-
-

The amortization is low compared to the capitalization since a
couple of projects are not ready for their intended use and
some finished projects have been amortized only for a short
period of time.

(C) Capital Discount on Convertible Debentures
In accordance with Swedish accounting principles, the
1997/2003 convertible debenture loan and its nominal interest
payments are valued at present value, based on market interest
rate. The difference from the nominal amount, the capital dis-
count, is credited directly to equity. (Please refer to note 17 for
details.) In accordance with u.s. gaap, convertible debenture
loans are reported as liabilities at nominal value. When calcu-
lating income and equity in accordance with u.s. gaap, the
effects of the capital discount are reversed.

(D) Other
Hedge accounting
Ericsson has currency forward exchange contracts and options
as hedges of firm commitments as well as budgeted cash flows
regarding 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 options
not related to firm commitments are valued at market.

Tax on undistributed earnings in associated companies
In accordance with Swedish accounting practice, no accrual is
made for withholding taxes on undistributed profits of compa-
nies which are consolidated applying the equity accounting
method. Under u.s. gaap, the company holding shares should
accrue for withholding taxes on possible repatriation of profits.

Sale-leaseback of property
In 1987, group companies sold a property which was leased to
subsidiaries under contracts expiring in 1997.

Under u.s. gaap, the sale during 1987 is considered a
financing arrangement and the gains are deferred and the pro-
ceeds are therefore treated as a liability. In accordance with
Swedish accounting practice at the time, no deferral of profit
had to be made if the sale price did not exceed the market value
and if leasing costs did not exceed normal market leasing rates.
During 1997, Ericsson waived its option to repurchase and
canceled the rental contract on the property. Consequently, the
income portion of the sales proceeds were recognized in
income for the period in accordance with u. s. gaap.

(E) Pensions

The Company participates in several pension plans, which in
principle cover all employees of its Swedish operations as well
as certain employees in foreign subsidiaries. The Swedish
plans are administered by an institution jointly established
for Swedish industry (pri) in which most companies in
Sweden participate. The level of benefits and actuarial
assumptions are established by this institution and, accord-
ingly, the Company may not change these.

Effective 1989, the Company has adopted fas No. 87,
Employer(cid:213)s Accounting for Pensions, when calculating income
according to u.s. gaap. The effects for the Company of using
this recommendation principally relate to the actuarial
assumptions, and that the calculation of the obligation should
reflect future compensation levels. The difference relative to
pension liabilities already booked at the introduction in 1989
is distributed over the estimated remaining service period.

(F) Capitalization of Interest Expenses

In accordance with Swedish accounting practice, the Company
has expensed interest costs incurred in connection with the
financing 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. Capitalization
amounting to sek 81 m. (55) has increased income and amor-
tization amounting to sek 151 m. (122) was charged against
income for the period when calculating income in accordance
with u.s. gaap.

(G) Deferred Income Taxes
Deferred tax is calculated on all u.s. gaap adjustments to
income.

Application of u.s. gaap as described above would have

had the following approximate effects on consolidated net

3
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

ADJUSTMENT OF EQUITY

1999

1998

1997

Increases
Capitalization of software
development costs

to be sold
for internal use

Unrealized gains and losses on
available-for-sale securities
Pensions
Capitalization of interest, net
after cumulative depreciation
Other

Reductions
Revaluation of assets
Capital discount on
convertible debentures
Deferred income taxes

Adjustment of
stockholders(cid:213) equity, net
Reported stockholders(cid:213) equity
Approximate equity
according to U.S. GAAP

13,193
1,311

10,744 7,398
-
-

8,527
422

-
885

-
674

202
454

273
—488

339
—305

24,109

11,414 8,106

372

434

425

566
6,731

682

803
3,092 2,138

7,669

4,208 3,366

16,440
69,176

7,206 4,740
63,112 52,624

85,616

70,318 57,364

ADJUSTMENT OF CERTAIN BALANCE SHEET ITEMS
ACCORDING TO U.S. GAAP

SEK m.

Intangible assets
Tangible assets
Other investments
Other receivables
Minority interest in equity
Provisions
Convertible debentures
Other current liabilities

As per reported
balance sheet

As per
U.S. GAAP
Dec 31 Dec 31 Dec 31 Dec 31
1998

1999

1998

10,548
24,719
1,751
31,227
2,182
22,552
5,453
41,302

1,438 10,278

6,354 24,828 17,098
22,516 24,544 22,256
1,438
22,589 33,133 23,745
2,021
2,177
22,284 30,489 25,646
6,923
6,019
31,725 40,902 32,143

2,051

6,241

Provisions include the tax effect of undistributed earnings in associated compa-
nies.

The Company in principle follows fas No. 95 when preparing
the statement of cash flows.

According to fas No. 95, however, only cash, bank and
short-term investments with due dates within 3 months shall
be considered cash and cash equivalents, rather than within 12
months. Applying this definition would mean following
adjustments of reported cash:

Consolidated, SEK m.

1999

1998

1997

1996

Short-term cash investments,
cash and bank, as reported
Adjustment for items with
maturity of 4—12 months
Cash and cash equivalents
as per U.S. GAAP

29,008

18,233

29,127 19,060

—9,731

—5,978 —15,004 —8,396

19,277

12,255

14,123 10,664

NOTES

income and stockholders(cid:213) equity. It should be noted that, in
arriving at the individual items increasing or decreasing
reported net income, consideration has been given to the
effect of minority interests.

ADJUSTMENT OF NET INCOME

1999

1998

1997

Items increasing reported net income
Depreciation on revaluation of assets
Capitalization of software
development costs

to be sold
for internal use

Capital discount on convertible
debentures

Other

Items decreasing reported income
Pensions
Capitalization of interest expenses,
net after depreciation
Deferred income taxes

Net increase in net income
Net income as reported in the
consolidated income statements

Approximate net income
in accordance with U.S. GAAP

Reported income per share,
fully diluted
Approximate income
per share in accordance
with U.S. GAAP, fully diluted

2,449
1,311

3,346 1,298
-

116

942

120

—191

—207

4,846

3,308 1,126

416

—211

70
1,251

1,737

67
954

810

3,109

2,498

10
137

219

907

12,130

13,041 11,941

15,239

15,539 12,848

6.17

6.66

6.08

7.68

7.87

6.53

(H) Unrealized gains and losses on available-for-sales
securities
In accordance with Swedish accounting principles investments
are valued at lower of cost and market. Under u.s. gaap
securities available for sale that have readily determinable fair
values shall be measured at fair value in accordance with fas
No. 115 (cid:210)Accounting for Certain Investments in Debt and
Equity Securities(cid:211). Unrealized gains and losses shall be
included in other comprehensive income.

(I) Comprehensive income
The company has presented comprehensive income in accor-
dance with fas No 130, (cid:210)Reporting Comprehensive Income(cid:211).
Comprehensive income includes net income and other changes
in equity, except those resulting from transactions with owners.

COMPREHENSIVE INCOME

Aproximate net income
in accordance with U.S. GAAP

Other comprehensive income
Cumulative translation adjustments
Cumulative translation adjustments
for sold/liquidated companies
Hedging for investments
Unrealized gains and losses on
available-for-sale securities
Minimum pension liability
Deferred income taxes

15,239

15,539 12,848

—2,442

732

904

1
53

94
—107

8,527
—47
—2,403

-
-
30

—30
—86

-
-
24

Total other comprehensive income

3,689

749

812

Approximate comprehensive income
in accordance with U.S. GAAP

18,928

16,288 13,660

4
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

Tax assessment values
(Sweden)

Consolidated
1998
1999

Parent
Company
1998

1999

Land and land improvements
Buildings

385
2,656

383
2,557

41
162

244
1,538

26 Special information regarding

the Parent Company

Sales of the Parent Company were sek 15,375 m. (sek
16,836 m.), of which exports accounted for 85 (88) percent.
Consolidated companies were customers for 67 (62) percent
of the Parent Company(cid:213)s sales, while 65 (51) percent of the
Company(cid:213)s total purchases of goods and services were from
such companies.

Loans totaling sek 1 m. have been made to a total of 70
employees for the purchase of shares in LM Ericsson(cid:213)s Share
Savings Fund.

The Parent Company has guaranteed up to an amount
of sek 5 m. for loans obtained by employees for the pur-
chase of housing and private cars.

27 Average number of employees and
remuneration in 1999 and 1998

Average number of employees

CONSOLIDATED

Europe, Middle
East, Africa

USA and Canada

Latin America

Asia Pacific

1999
Men Women

Total

1998
Men Women

Total

51,716

20,196 71,912

52,365

19,661 72,026

8,189

6,571

7,826

3,985 12,174

2,054

8,625

4,429 12,255

6,421

6,279

7,303

3,533

1,837

9,954

8,116

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
PARENT COMPANY Men Women

Total

1998
Men Women

Total

Europe, Middle
East, Africa

USA and Canada

Latin America

Asia Pacific

3,232

1,345

4,577

4,571

1,958

6,529

Of which Sweden

Of which EU

3,237

2,670

1,346

1,269

4,583

3,939

4,571

4,018

1,958

1,892

6,529

5,910

Wages and salaries and social security expenses

Consolidated
1998
1999

Parent
Company
1998

1999

Wages and salaries
Social security expenses
Of which pension costs

37,068
11,305
2,151

32,226
10,952
2,605

1,997
1,131
522

2,254
1,331
722

NOTES

Wages and salaries per geographical area

Europe, Middle East, Africa
USA and Canada
Latin America
Asia Pacific

Of which Sweden
Of which EU

Consolidated
1998
1999

Parent
Company
1998

1999

25,998
6,360
1,816
2,894

37,068
14,308
24,415

23,627
4,806
1,642
2,151

32,226
13,301
22,380

1,996
-
1
-

1,997
1,855
1,855

2,254
-
-
-

2,254
2,153
2,153

Board of Directors, President and
Corporate Executive Vice Presidents
(of which bonus and similar)

60
(6)

50
(12)

Remuneration in foreign currency has been translated to
Swedish kronor at average exchange rates for the year.

Option plans have been implemented as a complemen-

tary remuneration to key employees:

Plan Type

Exercisable

Employees
affected

1999

500

1998

1999

0.7 million
7-year call options
issued by third party

7-year call options
issued by Ericsson
(number of options
not yet decided)

2000

12.2 million 7-year
call options issued
by Ericsson

In 3 lots (30/40/30%)
3—5 years respec-
tively after grant
to year 7

In 3 lots, 1/3 per year
1—3 years respec-
tively after grant
to year 7

2,000

8,000

The options for the 1998 plan were granted in 1999. Grants
for the 1999 plan will take place after March 1, 2000 and
grants for the 2000-plan were made on January 17, 2000.
The 1999 year plan is planned to be hedged by a swap
agreement. The 2000 plan is hedged by issuance of
Ericsson warrants, which, if fully utilized will have a dilu-
tive effect on earnings per share of 0.7 percent.

Benefits paid to members
of the corporate executive team

The Chairman of the Board of Directors received a fee of
sek 1,500,000 during the year. This fee was determined by
the Board of Directors within the total amount of Board
fees approved by the General Meeting.

Members and deputy members of the Board who are
Ericsson employees received no remuneration or benefits
other than their entitlements as employees. However, a fee
of sek 900 per meeting was paid to the employee repre-
sentatives on the Board.

The value of the benefits, to which the present Chief
Executive Officer in such his capacity is entitled for 1999,
amounts to sek 6,000,000, for which amount provision has
been made. In addition, the ceo has received sek 462,240
constituting bonus earned 1998 when he was President.
The salary and value of benefits paid to the present
company President amount to sek 8,905,795. Provision
has also been made for a bonus of sek 919,589 earned 1999.
The salary and value of benefits paid to the former
President in 1999 amount to sek 10,253,995, of which
sek 7,142,032 constitute salary, car benefit and other bene-
fits, and sek 1,348,200 constitute bonus earned during
1998. In addition, the Company has carried pension costs
for the former President in 1999 amounting to sek
3,250,000. Moreover, he is also entitled to agreed severance

5
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

NOTES

pay up to July 8, 2001, in an aggregate amount of sek
10,664,303.

The following rules regarding severance pay and pen-

sion apply to persons, including the President, who are
member of the corporate executive team.

Severance payments are not made if an employee resigns
voluntarily. The same applies if employment is terminated
as a result of flagrant disregard of responsibilities. Notice
given by the employee, when such significant structural
changes 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 served
by the company. Upon termination of employment, sever-
ance pay amounting to two years(cid:213) salary is normally paid.
In certain cases, if the employee is 50 years of age or older,
40 to 60 percent of the employees final salary, depending
on age, is paid annually to age 60. Such payments are made
currently during the pertinent period and cease at age 60.

The basic security in the pension arrangements for mem-

bers of the corporate executive team consists of affiliation
with the so-called itp plan or corresponding arrangements.
The employee(cid:213)s pension is premium-based. For the por-

tion of a salary in excess of 20 basis amounts, the company
pays to a capital insurance an amount that is related both to
the age of the executive and to the executive(cid:213)s salary plus a
standard 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 exceeding
itp, from age 65. In addition, the employee has the right to
retire with a pension at age 60, at the earliest. Following
which the pension is based on the current pensionable salary
at retirement and amounts to between 40 and 70 percent of
this salary. Subject to certain conditions, this pension is also
paid if the employee is entitled to severance pay at age 60.
Costs of pensions for the former and present Presidents
and eight present and two former executive vice presidents
amounted to sek 50,7 m. during the year.

Fees to auditors
Fees for
other services

Fees to auditors

Price-
waterhouse-
Coopers

KPMG Others

Total

31,895

3,835

7,145

42,875

101,183

17,679

133,078

21,514

Audit report

To the general meeting of the shareholders of Telefonaktiebolaget LM
Ericsson (publ) Corporate identity number 556016-0680

We have audited the annual accounts, the consolidated
accounts, the accounting records and the administration of
the board of directors and the managing director of Telefon-
aktiebolaget LM Ericsson (publ) for the year. These accounts
and the administration of the company are the responsibility
of the board of directors and the managing director. Our
responsibility is to express an opinion on the annual
accounts, the consolidated accounts and the administration
based on our audit.

We conducted our audit in accordance with generally
accepted auditing standards in Sweden. Those standards
require that we plan and perform the audit to obtain reason-
able assurance that the annual accounts and the consolidated
accounts are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the accounts. An audit also
includes assessing the accounting principles used and their
application by the board of directors and the managing
director, as well as evaluating the overall presentation of
information in the annual accounts and the consolidated

accounts. As a basis for our opinion concerning discharge
from liability, we examined significant decisions, actions
taken and circumstances of the company in order to be able
to determine the liability, if any, to the company of any
board member or the managing director. We also examined
whether any board member or the managing director has, in
any other way, acted in contravention of the Companies Act,
the Annual Accounts Act or the Articles of Association. We
believe that our audit provides a reasonable basis for our
opinion set out below.

The annual accounts and the consolidated accounts have
been prepared in accordance with the Annual Accounts Act
and, thereby, give a true and fair view of the company(cid:213)s and
the group(cid:213)s financial position and results of operations in
accordance with generally accepted accounting principles in
Sweden.

We recommend to the general meeting of shareholders
that the income statements and balance sheets of the parent
company and the group be adopted, that the profit of the
parent company be dealt with in accordance with the pro-
posal in the administration report and that the members of
the board of directors and the managing director be dis-
charged from liability for the financial year.

Stockholm, January 28, 2000

Carl-Eric Bohlin
Authorized Public Accountant
PricewaterhouseCoopers

Olof Herolf
Authorized Public Accountant
PricewaterhouseCoopers

Thomas Thiel
Authorized Public Accountant

6
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

MSEK

Results For The Year
Net sales
Operating margin 1)
Financial net
Income before taxes 1)

Year-End Position
Total assets 1)
Working capital
Capital employed
Tangible assets
Stockholders(cid:213) equity 1)

— after full conversion 1)

Interest-bearing provisions and liabilities

Other Information
Earnings per share, SEK 1) 3) 4) 5)

— in accordance with

U.S. GAAP, fully diluted 2) 3) 5)

Adjusted stockholders(cid:213) equity

per share after full conversion, SEK 1) 3) 5)

Cash dividends per share, SEK 3) 5)
Shares outstanding

— average (in thousands) 3) 5)

Additions to tangible assets
Depreciation
Research and development

— expenses
— as percent of net sales

Ratios
Return on equity, percent 1)
Return on capital employed, percent 1)
Equity ratio, percent 1)
Debt-equity ratio 1)
Current ratio

Statistical Data, Year-End
Backlog of orders
Number of employees

— Worldwide
— Sweden

TEN-YEAR SUMMARY

1999

1998

1997

1996

1995

215,403
17,590
—698
16,386

202,628
66,037
116,387
24,719
69,176
75,159
45,020

6.17

7.68

38
2.00 *

184,438
19,273
—237
18,210

167,456
52,978
92,637
22,516
63,112
69,353
27,474

6.66

7.87

35
2.00

167,740
18,757
48
17,218

147,440
53,095
80,165
19,225
52,624
59,490
23,146

6.08

6.53

30
1.75

124,266
10,758
412
10,152

112,152
36,180
61,411
17,754
40,456
42,269
17,545

98,780
8,164
58
7,615

90,832
29,394
51,566
15,521
34,263
36,353
15,554

3.64

2.92

4.08

3.56

22
1.25

20
0.88

1,954,291
9,085
6,532

1,950,225
8,965
5,545

1,938,742
7,237
5,422

1,919,084 1,769,384
6,457
3,614

7,188
4,216

28,330
13.2

25,189
13.7

20,906
12.5

17,467
14.1

15,093
15.3

18.3
19.0
35.2
0.6
1.6

22.5
24.9
38.9
0.4
1.6

25.7
29.9
38.7
0.4
1.7

19.0
22.4
39.1
0.4
1.5

18.9
20.7
39.6
0.4
1.6

83,976

78,990

77,499

63,401

48,401

103,290
44,040

103,667
44,979

100,774
45,360

93,949
43,896

84,513
42,022

* For 1999, proposed by the Board of Directors.

Working capital

1) 1991—1992 adjusted for change in accounting principles.

2) From 1991 adjustment is made for 1993 adoption of

Current assets less current non-interest-bearing pro-
visions and liabilities.

FAS106, Employers(cid:213) Accounting for Postretirement Benefits

Capital employed

Other Than Pensions and FAS109, Accounting for Income

Taxes.

Capital employed is defined as total assets less non-
interest-bearing provisions and liabilities.

3) 1990—1994 adjusted for stock issue and 4-for-1 stock split.

Earnings per share

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.

Earnings per share is based on average number of
shares per year after full conversion of convertible
debentures and after stock dividend element of
stock issue, i. e. dilution due to favorable stock issue
pricing. Net income according to the Income
Statement is adjusted by reversal of interest expense
for convertible debentures net of tax.

7
7

n
o
i
t
a
m
r
o
f
n

l
a
i
c
n
a
n

i
f

i
i
i

TEN-YEAR SUMMARY

1994

1993

1992

1991

1990

MSEK

82,554
6,553
—386
5,610

72,999
20,899
41,611
13,678
23,302
25,519
16,522

2.15

2.65

15
0.69

62,954
3,530
8
3,108

67,490
20,869
40,168
12,363
21,305
23,512
16,868

1.54

1.86

13
0.57

47,020
1,754
—204
1,241

56,637
20,063
35,842
11,093
17,720
18,349
16,321

0.28

0.76

11
0.44

45,793
2,282
—189
1,595

50,080
17,497
31,539
10,477
17,050
17,690
12,913

0.52

0.91

10
0.44

45,702
5,694
—163
4,855

47,167
16,965
27,906
9,058
16,753
17,398
9,366

1.71

1.98

10
0.44

1,737,530 1,716,272
3,805
2,651

5,137
3,004

1,648,528
3,847
2,193

1,646,992
3,583
1,863

1,642,976
3,448
1,572

13,407
16.2

10,924
17.4

7,377
15.7

7,054
15.4

4,901
10.7

17.7
18.2
34.4
0.7
1.5

14.5
12.9
34.5
0.7
1.6

2.8
9.6
34.5
0.8
1.6

5.3
12.0
38.1
0.7
1.7

20.4
25.9
39.3
0.5
1.7

45,671

45,296

38,050

28,777

30,415

Results For The Year
Net sales
Operating margin 1)
Financial net
Income before taxes 1)

Year-End Position
Total assets 1)
Working capital
Capital employed
Tangible assets
Stockholders(cid:213) equity 1)

— after full conversion 1)

Interest-bearing provisions and liabilities

Other Information
Earnings per share, SEK 1) 3) 4) 5)

— in accordance with

U.S. GAAP, fully diluted 2) 3) 5)

Adjusted stockholders(cid:213) equity
per share after full conversion SEK 1) 3) 5)
Cash dividends per share 3) 5)
Shares outstanding

— average (in thousands) 3) 5)

Additions to tangible assets
Depreciation
Research and development

— expenses
— as percent of net sales

Ratios
Return on equity, percent 1)
Return on capital employed, percent 1)
Equity ratio, percent 1)
Debt-equity ratio 1)
Current ratio

Statistical Data, Year-End
Backlog of orders
Number of employees

76,144
36,984

69,597
31,796

66,232
29,979

71,247
31,244

70,238
30,817

— Worldwide
— Sweden

For earnings per share accordance with u.s. gaap,
see Note 24 to the financial Statements.

Return on equity

Defined as net income expressed as a percentage of
average adjusted stockholders(cid:213) equity (based on the
amounts at January 1 and December 31). Year 1990
adjusted for increases resulting from a reduction in
the tax rates used when calculating the equity por-
tion of timing differences.

Equity ratio

Defined as the total of stockholder(cid:213)s equity and
minority 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(cid:213) equity
and minority interest in equity of consolidated sub-
sidiaries.

Return on capital employed

Current ratio

Defined as the total of operating margin plus finan-
cial income as a percentage of average capital
employed (based on the amounts at January 1 and
December 31).

Current assets divided by the sum of current provi-
sions and liabilities.

7 8

BOARD OF DIRECTORS AND PRESIDENT 1999

board of directors and president

deputy members

LARS RAMQVIST

KURT HELLSTR(cid:133)M

SVERKER MARTIN-L(cid:133)F

MONICA BERGSTR(cid:133)M

(1943*).
President (from July 7).
Shares held in Ericsson:

B 5,000.

Convertible debentures:
1997/2003: 145,347***.

Call options: 5,187.

G(cid:133)RAN ENGSTR(cid:133)M

(1948*).
Employee representative.
Member since 1994.
Shares held in Ericsson:

B 1,320.

Convertible debentures:
1993/2000: 6,250**.
1997/2003: 99,120***.

JAN HEDLUND

(1946*).
Employee representative.
Member since 1994.
Convertible debentures:
1997/2003: 75,520***.

G(cid:133)RAN LINDAHL

(1945*).
Honorary Doctor of
Technology.
President and CEO of
ABB Ltd. Member of the
Board of DuPont. Member
of the Salomon Smith
Barney International
Advisory Board.
Member since 1999.

PER LINDH

(1957*).
Employee representative.
Member since 1994.

(1938*).
Chairman and (as of
July 7) CEO. Doctor of
Philosophy. Honorary
Doctor of Technology.
Honorary Doctor of
Philosophy. Chairman of
the Boards of Skandia
and Volvo. Member of the
Boards of AstraZeneca
and SCA. Member of the
Royal Swedish Academy
of Sciences, the Royal
Swedish Academy of
Engineering Sciences and
the European Round Table
of Industrialists.
Member since 1990.
Shares held in Ericsson:

B 7,548.

Convertible debentures:

1997/2003: 145,347***.

TOM HEDELIUS

(1939*).
Deputy Chairman.
Honorary Doctor of
Economics.
Chairman of the Boards of
Handelsbanken, Bergman
& Beving, Svenska Le
Carbone and the Founda-
tion of Anders Sandrew.
Deputy Chairman of
Industriv(cid:138)rden. Member of
the Boards of Volvo and
SCA. Member of SAS
Assembly 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 of
Astra, AstraZeneca,
Investor, Scania, SEB,
Stora Enso, Volvo and the
Foundation of Knut and
Alice Wallenberg.
Member since 1996.
Shares held in Ericsson:

B 88,000.

(1943*).
President and CEO of
SCA. Member of the
Boards of the Federation
of Swedish Industries and
the Swedish Forest
Industries Ass.
Member since 1991.
Shares held in Ericsson:

B 2,000.

LARS-ERIC PETERSSON

(1950*).
President and CEO of
Skandia. Chairman of the
Boards of the National
Agency for Higher Educa-
tion, the Swedish Insur-
ance Federation and the
Swedish Coalition of Ser-
vice Industries. Member of
the Boards of Pohjola, the
Swedish Employers(cid:213) Con-
federation and the Federa-
tion of Swedish Industries.
Member since 1996.
Shares held in Ericsson:

B 1,000.

(Lars-Eric Petersson
resigned from the Board of
Directors in Januari 2000.

CLAS REUTERSKI(cid:133)LD

(1939*).
President and CEO of
Industriv(cid:138)rden. Member of
the Boards of Handels-
banken, SCA, Sandvik and
Skanska.
Member since 1994.
Shares held in Ericsson:

B 10,000.

PETER SUTHERLAND

(1946*).
Honorary Doctor. Chair-
man of the Board of
Goldman Sachs Inter-
national, Co-Chairman of
BP Amoco. Member of the
Boards of Investor, ABB
Ltd and the Foundation of
the World Economic
Forum.
Member since 1996.

(1961*).
Employee representative.
Member since 1998.
Convertible debentures:
1997/2003: 75,520***.

CHRISTER BINNING

(1946*).
Employee representative.
Member since 1994.
Convertible debentures:
1993/2000: 750**
1997/2003: 145,347***.

CHRISTER (cid:129)KERLIND

(1950*).
Employee representative.
Member since 1994.
Shares held in Ericsson:

B 88.

Convertible debentures:

1997/2003: 145,347***.

statutory auditors

CARL-ERIC BOHLIN

Authorized Public
Accountant,
PricewaterhouseCoopers.

OLOF HEROLF

Authorized Public
Accountant,
PricewaterhouseCoopers.

THOMAS THIEL

Authorized Public
Accountant.

deputy auditors

BO HJALMARSSON

Authorized Public
Accountant,
PricewaterhouseCoopers.

JEANETTE SKOGLUND

Authorized Public
Accountant,
PricewaterhouseCoopers.

STEFAN HOLMSTR(cid:133)M

Authorized Public
Accountant.

* Year of birth
** Conversion rate: SEK 36:10
SEK 236
*** Conversion rate:

BOARD OF DIRECTORS AND PRESIDENT 1999

7 9

Clas Reuterski(cid:154)ld
Clas Reuterski(cid:154)ld

Lars-Eric Petersson
Lars-Eric Petersson

Monica Bergstr(cid:154)m
Monica Bergstr(cid:154)m

G(cid:154)ran Lindahl
G(cid:154)ran Lindahl

Peter Sutherland
Peter Sutherland

G(cid:154)ran Engstr(cid:154)m
G(cid:154)ran Engstr(cid:154)m

Jan Hedlund
Jan Hedlund

Christer (cid:129)kerlind
Christer (cid:129)kerlind

Sverker Martin-L(cid:154)f
Sverker Martin-L(cid:154)f

Christer Binning
Christer Binning

Per Lindh
Per Lindh

Tom Hedelius
Tom Hedelius

Lars
Lars
Ramqvist
Ramqvist

Kurt
Kurt
Hellstr(cid:154)m
Hellstr(cid:154)m

Marcus Wallenberg
Marcus Wallenberg

8 0

CORPORATE EXECUTIVE TEAM

MATS DAHLIN
(1954)*
Executive Vice President,
Business Segment Net-
work Operators and Ser-
vice Providers.

B. Sc. Joined Ericsson in

1980. Senior positions in
the U.S. and Canada.
Regional manager for
mobile operations in Asia
Pacific. Marketing manager
for the American markets
and PCS operations. EVP,
Ericsson Radio Systems
and manager for GSM
Business Unit, 1997.
Shares held in Ericsson:

STEN FORNELL
(1948)*
Executive Vice President
and Chief Financial Officer.
B. Sc. (Econ.) Joined
Ericsson in 1982. Business
Area Controller, Ericsson
Information Systems. Vice
President Finance Control-
ling, Business Area Mobile
Systems. VP and Con-
troller, Business Segment
Network Operators.
Shares held in Ericsson:

B 44,000.

B 2,000.

BO DIMERT
(1943)*
Executive Vice President,
Market Area North Ameri-
ca.

M.B.A. VP Sales for IBM
in Sweden and President,
Digital Equipment
Corporation, Nordic,
before joining Ericsson in
1995, as VP, in charge of
Business Enterprise Net-
works. President, Ericsson
Inc. in the U.S., 1998.
Shares held in Ericsson:

B 4,400.

Convertible debentures:
1997/2003: 145,347.***

Call options: 1,618.

Call options: 2,593.

Call options: 2,910.

KURT HELLSTR(cid:133)M
(1943)*
As of July 7, President of
Ericsson.

M. Sc., and master

degree from the Stockholm
School of Economics.
Joined Ericsson in 1984.
Has held a number of
senior positions in mobile
telephony, with emphasis
on marketing and sales.
Named head of Business
Area Mobile Systems in
1990. Executive Vice Presi-
dent, Market Area Asia
Pacific in 1999.
Shares held in Ericsson:

B 5,000.

Convertible debentures:
1997/2003: 145,347.***

Call options: 5,187.

HAIJO PIETERSMA
(1953)*
Executive Vice President,
Business Segment Enter-
prise Solutions.

Native of the Nether-
lands. B. Sc. Has been
with Ericsson in various
positions in Sweden and
the Netherlands since
1978. President of local
company in the Nether-
lands, 1994.
Convertible debentures:
1997/2003: 145,347.***

Call options: 3,527.

JOHAN SIBERG
(1944)*
Executive Vice President,
Business Segment Con-
sumer Products.

M. Sc. and B. Sc.

(Econ.). Joined Ericsson in
1970. Production manager
in the Business Area Public
Telecommunications,
responsible for telecom
establishment in the U.S.
Head of Corporate Supply
and Distribution. Since
1994, head of Mobile
Phones and Terminals.
Shares held in Ericsson:

B 15,000.

Convertible debentures:
1997/2003: 145,347.***

Call options: 4,150.

KJELL S(cid:133)RME
(1939)*
Executive Vice President,
Market Area Asia Pacific.
B.Sc. Joined Ericsson in
1966. Head of Product
Management and
VP Systems Design, Public
Telecommunications. Head
of Network Systems Divi-
sion Ericsson, U.S. VP
Systems Design, Ericsson
Telecom. President Erics-
son Australia 1990—1999.
Shares held in Ericsson:

B 31,398.

Convertible debentures:

1997/2003: 145,347.***

Call options: 4,547.

SVEN-CHRISTER
NILSSON
(1944)*
President and Chief
Executive Officer up to
July 7.

CARL WILHELM ROS
(1941)*
Senior Executive Vice
President and Chief
Financial Officer up to
June 30.

CORPORATE EXECUTIVE TEAM

8 1

BENGT A. FORSSBERG
(1937)*
Executive Vice President,
Market Area Latin America.
B. Sc. Joined Ericsson in

BJ(cid:133)RN BOSTR(cid:133)M
(1947)*
Senior Vice President,
Supply and Information
Technology.

1960. Held various senior
positions in Portugal,
Egypt, Saudi Arabia,
Malaysia and the U.K.
Named SVP Corporate
Markets in 1996.
Shares held in Ericsson:

M. Sc. Joined Ericsson
in 1970. Has held various
positions in Sweden, Mexi-
co and Ireland. Named
head of Production in
Mobile Systems in 1989.
Shares held in Ericsson:

B 1,000.

B 300.

Convertible debentures:
1997/2003: 145,347.***

TORBJ(cid:133)RN NILSSON
(1953)*
Senior Vice President,
Marketing and Strategic
Business 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 in
Mobile Systems, 1992.
Shares held in Ericsson:

B 5,510.

Convertible debentures:
1993/2000: 8,950.**
1997/2003: 145,347.***

Call options: 2,801.

Call options: 1,660.

other senior
executives

STEPHAN ALMQVIST

Senior Vice President,
Corporate Audit and
Security.
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.

BRITT REIGO
(1943)*
Senior Vice President,
Human Resources and
Organization.

M. Sc. Joined Ericsson

in 1988 as Senior Vice
President Human
Resources and Organiza-
tion. Earlier, with SAS as
Director of Inflight Service,
with SSAB as Administra-
tive VP, and with SPP as
VP Personnel. Worked in
China in 1995, building up
local company(cid:213)s organiza-
tion.
Shares held in Ericsson:

B 3,000.

Convertible debentures:
1997/2003: 145,347.***

Call options: 3,112.

* Year within paren-

theses indicates date
of birth

** Conversion price:

SEK 36.10

*** Conversion price:

SEK 235

LARS A ST(cid:129)LBERG
(1940)*
Senior Vice President,
Communications.

M. B. A. Joined Ericsson

in 1989 following a long
career in the Swedish
Ministry of Foreign Affairs,
where he held a number of
diplomatic positions. VP
Corporate Markets. SVP
Information since 1996.
Convertible debentures:

1997/2003: 145,347.***

Call options: 2,178.

JAN WÄREBY
(1956)*
Executive Vice President,
Market Area Europe, Mid-
dle East and Africa.

M. Sc. Joined Ericsson
in 1980, in the transmission
business. Various senior
positions in Mobile Sys-
tems, including VP in Sales
and Marketing in Ericsson
Radio Systems U.S. and
EVP American Standard,
Ericsson Radio Systems,
1998.
Shares held in Ericsson:

B 1,940.

Convertible debentures:

1997/2003: 145,347.***

Call options: 2,481.

JAN UDDENFELDT
(1950)*
Senior Vice President,
Technology.

D. Tech., Hon. D. Tech.
Joined Ericsson in 1978.
Since 1985 has held senior
positions in research and
development of Mobile
Systems. Named VP Tech-
nology in Ericsson Radio
Systems and manager of
Mobile Systems(cid:213) world-
wide R&D operations in
1990.
Shares held in Ericsson:

B 208.

Convertible debentures:
1993/2000: 2,400.**
1997/2003: 145,347.***

Call options: 1,867.

8 2

T
This glossary has been prepared for a

broad group of readers who may not be
familiar with technical terms in this Annual
Report. However, brief definitions of these

terms cannot provide complete explanations.

adsl (Asymmetrical Digital Subscriber Line)

A method to increase transmission speed in a cop-
per cable. adsl facilitates the division of capacity
into a channel with higher speed to the subscriber,
typically for video transmission, and a channel with
significantly lower speed in the other direction.

amps (Advanced Mobile Phone System)

The original American standard specification for
analog systems. Used primarily in North Ameri-
ca, Latin America, Australia and parts of Russia
and Asia

d-amps (Digital Advanced Mobile Phone System)
Earlier designation of American standard for
digital mobile telephony used primarily in
North America, Latin America, Australia and
parts of Russia and Asia. Now known as tdma.
See also tdma and is-136.

edge

A technology that gives gsm and tdma similar
capacity to handle services for the third generation
of mobile telephony. Developed to enable the trans-
mission of large amounts of data at a high speed,
384 kilobits per second in mobile applications.

epoc

An operating system for mobile terminals, devel-
oped by Symbian (Ericsson joint-venture company
including Matsushita, Motorola, Nokia and Psion).

atm (Asynchronous Transfer Mode)

gprs (General Packet Radio Service)

A technology for broadband transmission of
voice, data and video transmission of telecom
signals 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 switched
connection to current requirements.

asf (Application Service Positioning)

A technology that facilitates downloading of
software of the Internet instead of purchasing the
program over the counter — against a fixed fee.

axe

An open architecture, Ericsson(cid:213)s communications
platform. A system for computer-controlled
digital exchanges that constitute the nodes in
large public telecommunications networks. The
basis for Ericsson(cid:213)s wireline and mobile systems.

Bluetooth

A radio technology developed by Ericsson and
other companies built around a new chip that
makes it possible to transmit signals over short
distances between telephones, computers and
other devices without the use of wires.

A packet-linked technology that enables high-
speed (115 kilobit per second) wireless Internet
and other data communications.

gsm (Global System for Mobile Communication)

Originally developed as a pan-European standard
for digital mobile telephony, gsm has become
the world(cid:213)s most widely used mobile system. It is
used on the 900 MHz and 1800 MHz frequencies
in Europe, Asia and Australia, and the MHz 1900
frequency in North America and Latin America.

imt-2000 (International Mobile Telecommunica-

tions)

Standard adopted by the itu for the third gener-
ation of mobile telephony. Actually a family of
five different specifications for the radio interface
in this new system generation.

ip (Internet Protocol)

The Internet protocol defines how information
travels between systems across the Internet.

is-95

A digital mobile telephony standard based on
cdma technology. See also cdma.

cdma (Code Division Multiple Access)

is-136

MP3 player, based on three volt
platform, to be attached to
mobile phone.

A technology for digital transmission of radio
signals between, for example, a mobile telephone
and a radio base station. In cdma, a frequency is
divided into a number of codes. See also is-95.

A digital mobile telephony standard based on
tdma technology. See also tdma and d-amps.

isp (Internet Service Provider)

A company specializing in offering end-users
access to the Internet. As a rule does not have
own communications network but functions as a
link between the user and the net operator.

itu (International Telecommunication Union)
A United Nations agency that deals with
telecommunications issues.

GLOSSARY

8 3

A standard for digital signal transmission within
transport networks.

3gpp (Third-generation Partnership Project)

A global cooperative project in which in which
standardization bodies in Europe, Japan, South
Korea and the United States as founders are coor-
dinating wcdma issues. See also wcdma.

tdma (Time Division Multiple Access)

A technology for digital transmission of radio
signals between, for example, a mobile phone and
a radio base station. In tdma, the frequency band
is split into a number of channels that are stacked
into short time units so that several calls can share
a single channel without interfering with one
another. tdma is also the name of a digital tech-
nology based on the is-136 standard. tdma is the
current designation for what was formerly known
as d-amps. See also is-136 and d-amps.

umts (Universal Mobile Telecommunications

System)

The name of the third-generation mobile phone
standard in Europe, standardized by etsi.

VoIP (Voice over Internet Protocol)

A technology for transmitting ordinary
telephone calls over the Internet using packet-
linked routes. Also called ip telephony.

wap (Wireless Application Protocol)

A free, unlicensed protocol for wireless commu-
nications that makes it possible to create
advanced telecommunications services and to
access Internet pages from a mobile telephone.
wap is the de facto standard that is supported by a
large number of suppliers.

Cordless Phone 260, cordless DECT-phone with built-in speaker and
digital answering machine.

lan (Local Area Network)

A small data network covering a limited area,
such as within a building or group of buildings.

lmds (Local Multipoint Distribution System)

American standard for high-speed transmission
of voice and data using so-called pmp (Point-to-
Multipoint) solutions. Used to provide wireless
broadband traffic to small and medium-size
companies or in apartment buildings.

pbx (Private Branch Exchange)

wcdma (Wideband Code Division Multiple

An exchange system used in companies and orga-
nizations to handle internal and external calls.

pcs (Personal Communications Services)

Collective term for American mobile telephone
services in the 1900 MHz frequency band.

pdc (Personal Digital Cellular)

A Japanese standard for digital mobile telephony
in the 800 MHz and 1500 MHz bands.

Access)

A technology for wideband digital radio commu-
nications of Internet, multimedia, video and
other capacity-demanding applications. wcdma,
developed by Ericsson and others, has been
selected for the third generation of mobile tele-
phone systems in Europe, Japan and the United
States. The technology is also the principal alter-
native being discussed in other parts of the
world, notably Asia.

Router

A data switch that handles connections between
different networks. A router identifies the
addresses on data passing through the switch,
determines which route the transmission should
take and collects data in so-called packets that
are then sent to their destinations.

sdh (Synchronous Digital Hierarchy)

wdm (Wavelength Division Multiplexing)

A new technology that uses optical signals on
different wavelengths to increase the capacity of
fiber optic networks in order to handle a number
of services simultaneously.

w-lan (Wireless-Local Area Network)

A wireless version of the lan. Provides access to
the lan even when the user is not in the office. ¥

8 4

ANNUAL GENERAL MEETING, REPORTING DATES 2000

T
S he annual general meeting will be

held in the Victoria Hall, Stockholm Inter-
national Fairs, Stockholm, at 5:00 p.m. on
Friday, March 31, 2000.

Shareholders intending to participate in the
Annual General Meeting must be entered as share-
holders in the share register maintained by vpc ab
(Swedish Securities Register Center) not later than
March 21, 2000.

A shareholder whose shares are registered in the

name of a trustee must temporarily be entered in
the share register not later than March 21, 2000, in
order to participate in the Meeting.

notice of participation
in the annual general meeting

In addition to the requirements listed above, share-
holders shall provide notice of attendance to:

Telefonaktiebolaget LM Ericsson
Corporate Legal Affairs
se-126 25 Stockholm, Sweden
Tel: +46 8 719 3444 or +46 8 719 4498
(between 10 a.m. and 4 p.m. daily),
fax: +46 8 719 9527 or
e-mail: bolagsstaemma@lme.ericsson.se
not later than Friday, March 24, 2000, 4 p.m.

change of address
Shareholders who have changed their name, mail-
ing address or account number should notify their
trustees as soon as possible, or vpc ab, Box 7822,
se-103 97 Stockholm, Sweden.

financial information from ericsson

April 28, 2000
Interim report January—March
July 21, 2000
Interim report January—June
Interim report Jan.—September October 20, 2000
January 26, 2001
Preliminary year-end report
March 2001
Annual report 2000
Annual Reports and interim reports are available
on request on the Internet:
www.ericsson.com/reports, or by contacting:
Telefonaktiebolaget LM Ericsson
se-126 25 Stockholm, Sweden
Telephone: +46 8 719 0000
Ericsson Inc.
100 Park Avenue, 27th floor
New York NY 10017, U.S.A.
Telephone: +1 212 685 4030
Information about Ericsson is available on the
Internet:
www.ericsson.com

proxy

investor relations

In order to attend and vote as proxy on behalf of a
shareholder at the Meeting, a power of attorney
must be presented to the Company, preferably at
the above address not later than March 30, 2000.

dividend and dividend payment

A resolution adopted by shareholders at the Annu-
al General Meeting will specify the date on which
the share register and related list of pledge holders
will be reconciled as the record day. The Board of
Directors and President have proposed April 5,
2000, as the record date. If the proposal is
approved, dividends are expected to be paid by
vpc ab to all registered shareholders on April 10,
2000.

Karin Almqvist Liwendahl
Director, Corporate Communications
Telefonaktiebolaget LM Ericsson
se-126 25 Stockholm
Telephone: +46 8 719 0000
Telefax: +46 8 719 1976
E-mail: karin.almqvist.liwendahl@lme.ericsson.se

Gary Pinkham
Vice President, Ericsson Inc.
100 Park Avenue, 27th floor
New York NY 10017, U.S.A.
Telephone: +1 212 685 4030
Telefax: +1 212 213 0159
E-mail: gary.pinkham@ericsson.com