Ericsson Annual Report 2004

← All annual reports

FY2004 Annual Report · Ericsson

Loading PDF…

ANNUAL REPORT 2004

Contents

CEO letter ____________________________________3

Operational Review_____________________________4

Five Year Summary _____________________________8

Share Information _____________________________10

Letter from the Chairman ______________________15

Board of Directors’ Report (audited) _____________16

Financial Statements (audited)__________________27

Notes to the Financial Statements (audited) _______35

Auditors’ Report ______________________________84

Information on the Company____________________85

Corporate Governance ________________________97

Forward-looking Statements___________________106

Risk Factors ________________________________107

Shareholder Information ______________________112

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4
E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

1
1

C E O L E T T E R

Letter from the President and Chief Executive Officer

Dear Fellow Shareholder,

A year ago we declared: “We’ve turned the corner.” This year,
I can truly say that Ericsson has moved forward.

The telecommunications industry’s confidence has returned
and our market is expanding again. Our customers are buying
more equipment to increase network capacity and introduce
new services. This market rebound, combined with changes at
Ericsson and the hard work of everyone in the company, fueled
our solid performance. Sales rose by  percent and our
margins returned to healthy levels.

Our challenge now is to secure an enduring competitive
advantage in a profoundly changed market. The balance in the
market has shifted from being technology driven to consumer
driven. Ericsson’s strategy for success has five crucial elements:
• Refining our long-term vision
• Reinforcing the importance of meeting customers’ needs
• Improving our ways of working
• Focusing on consumer-driven technology leadership
• Launching new products and services for operators

Members of the management team will talk about these
elements in more detail later in this review. Before they do, I
would like to discuss two important themes – Operational
Excellence, and the profound changes unfolding in our market.

Operational Excellence goes far beyond efficiency and

productivity. It also entails how we think about our customers
and ourselves. In my view, highly satisfied customers,
empowered employees and best-in-class margins are key
indicators of Operational Excellence. Over the last year, we
have made good progress against these criteria, but we know
that sustaining this progress is a challenge.

We have evaluated what our customers and our employees

think about the changes we are making. The results are
encouraging. We are now ranked as leaders not only in
products and services, but also in image, loyalty and –
importantly – in recommendation. This means that we are
more likely to be recommended by customers than any of our
competitors are. Measured as a percentage of sales,we have
reduced our selling expenses by  percent over the last two
years – a dramatic improvement. Having said that, I believe
we must become even better at listening and responding faster
to our customers’ needs.

Similarly, our employees were more closely involved in our

strategic planningin  than ever before and they made a
great contribution. One result is that employees now have a
much clearer sense of the mission ahead, which has made their
work more productive and more rewarding. Recent employee
satisfaction surveys support this assessment.

profit margins are a key indicator for shareholders. Our
ambition is to produce best-in-class profit margins and this
year we generated the best operating margins ever.

Operational Excellence means we are becoming a sharper,
more responsive company. This is vital for success in today’s
telecoms market, where the consumer is king. Technology
remains important, but success is achieved by meeting
consumers’ needs, not by developing technologies in search of
a market. Consumers expect better, more affordable and easier
to use services which enable them to communicate anywhere,
anytime – in any way they choose. This is what drives
investment by our customers and our job is to ensure that they
can competitively offer such services.

I believe that Ericsson has a winning proposition here with
our longstanding end-to-end strategy. In other words, we are a
one-stop shop offering the full range of telecoms products and
services. The combination of mobile broadband networks and
mobile devices using Internet technology is compelling:
consumers get access to a wide range of services that are more
sophisticated, less expensive and simpler to use. With
increasingly complex mobile devices and applications
interacting within the networks, our customers realize the
importance of havingall the elements developed in close
collaboration, thoroughly tested and based on open standards.

We intend therefore to be the prime driver in an all-

communicating world where mobility and ease of use are the
main attractions for consumers. We have come far in
completing the first phase of this vision. There are . billion
mobile subscriptions in the world and almost  million of
them are connected via Ericsson technology. Now it’s time to
expand this by bringing mobile broadband to existing users
while making mobile voice communications available and
affordable for the rest of the world’s population. By focusing
on both new services and expanded coverage, we will create
fresh growth areas for operators and ourselves.

With restructuring and downsizing behind us, spirits are
up throughout the company. Our business is growing again,
with end-to-end solutions as a central differentiator. We have
leading technology bolstered by one of the industry’s largest
research and development programs. We have our global
brand name and pole position with the world’s leading
operators. And we have a clear strategy for profitable
expansion as well as development of Operational Excellence.
All in all, it’s a strong foundation on which to build. I
invite you to read on as other senior managers discuss our
progress and strategy for continued success.

With best regards,

Financial results also point to significant progress in

achieving Operational Excellence. In addition to net income,

Carl-Henric Svanberg
President and Chief Executive Officer

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

O P E R A T I O N A L O V E R V I E W

Operational Overview

From Torbjörn Nilsson, Head of Group Function Strategy and
Product Management:

REFINING OUR LONG-TERM VISION
Our vision is to help create a world where people can
communicate with each other regardless of where they are or
which telecommunications technology they use.

I think it’s fair to say that we have completed the first
phase of that vision. For the over  percent of the world’s
population who carry a mobile phone, communication has
become a personal thing. You address a person, not a place.
For those people, the second phase is to get broadband into
their pocket. The second phase is also about making
telecommunications simple and more affordable, delivering on
the promise to make telecoms available to everyone.

Broadband access is definitely becoming mobile, and with
that we see new areas of growth for operators. High capacity
G mobile systems enable people to access the Internet and
other information at speeds similar to that of wireline
connections in homes and offices, but with the added
advantage that you can do it on the move. We now enjoy
easier handling of e-mail and other office applications using
our mobile devices, and – even more important – we see the
introduction of true mobile multimedia. With the
development of mobile broadband services, mobile TV may
soon become a very important service for mobile operators.
Voice, data and video over fixed and mobile connections
will ultimately be handled by the same kind of technology.
The maturity of IP has created a surge in demand for unified
solutions. There are clear benefits for both consumers and
operators: convenience and a cost efficient combination of
voice, text, pictures and video services give users a richer
experience, and create new revenue streams for the operators.
IMS is the standard that will help both wireline and mobile

operators move to all-IP networks. Ericsson is a major
contributor to this standard and has a leading position in the
market for IMS-based solutions.

The convergence to IMS and all-IP puts us in a strong

position. We provide broadband to homes and offices through
our Ethernet Broadband Access portfolio. We provide
broadband to mobile devices through G and High Speed
Downlink Packet Access (HSDPA). Whether you are at home,
in your office or traveling, we are there, managing the
complexity so that communications can be simple and
seamless.

It may sound strange that the drive for simplicity for the
user makes everything more complex for the operators and for
ourselves. But just look at mobile phones. They are becoming
digital Swiss Army knives that might include a regular phone,
e-mail, radio, mp-player, PDA, GPS-positioning, game
console, camera, television or credit card.

It’s a great challenge to make all these functions work
together as a whole. Only a few companies can do this. Our
handset platform licensing business is one of our ways of
ensuring that we can make services work, all the way from one
person to another, regardless of what device they are using and
which network they are with.

New services, new devices, new ways of communicating
with each other: service and network convergence is creating a
dynamic telecoms market. When it comes to broadband and
mobile communications, this is just the beginning.

From Bert Nordberg, Head of Group Function Sales and
Marketing:

REINFORCING THE IMPORTANCE OF MEETING
CUSTOMERS’ NEEDS
My job was created in  and my mission was to strengthen
our market position while reducing sales and marketing costs.
We have reduced our selling expenses by  percent over the
last two years. And despite spending less money on selling, in
 we increased sales by  percent, and maintained or
increased our share in all of our key markets.

We achieved these figures because we invested time and
money in a painstaking overhaul of our entire sales process.
We implemented a new incentive system anda new sales
training program, creating a better structured, more
motivated and more effective sales force. All of our sales teams
can now provide customers with immediate knowledge of the
entire Ericsson portfolio of products and solutions. Our new
Web-based automatic ordering system further increases the
speed and efficiency of the sales process.

How are customers responding to all this? They tell me
they’re seeing a whole new Ericsson. We don’t just try to sell
what we have off the shelves, they say; we listen carefully and
work to meet their requirements for solutions.

The ten largest operators represent almost  percent of
world-wide operator revenue, and every one of the top ten is
an Ericsson customer. With further consolidation taking place
amongst operators, it is a strategic priority to ensure that we
meet the needs of these customers.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

In  we identified several significant new business

opportunities. For example, many markets with good
potential for growth are held back because they have dispersed
or low-income populations, which increases the costs involved
in the initial launch of services. We introduced our Expander
solution to address this. Expander came about because we
listened to the words of a high-ranking telecoms official in a
developing country. He said to me: “You probably don’t
realize how important telecoms are to rural areas. A village
that is connected exists; an unconnected village doesn’t exist.
This is a common opinion among the governments in the
developing world. Connected versus not connected is
becoming as serious as educated versus uneducated, or rich
versus poor.”

With the number of mobile phone users in the world
approaching two billion, we asked ourselves: ‘‘How can
Ericsson provide services to the rest of the world’s
population?’’ We started by looking at scaled-down solutions.
But we soon realized that people in these areas need the same
services as everyone else. So we analyzed the real costs involved
in building a mobile network. Typically, base stations
represent less than  percent of an operator’s total cost for a
cell site. Land, construction, maintenance and so on make up
the other  percent. We searched for ways to reduce the 
percent, and came up with a combination of existing Ericsson
base station and antenna technology that gives far better
coverage using fewer sites. This is Expander.

Expander provides operators with a more cost effective way

to introduce voice and data services in areas where you have
few subscribers. Once established, the network can be
developed to meet changing patterns of demand, just like any
other network. By lowering the initial investment required to
launch services we are increasing the potential for sales of our
equipment and services in the future.

This is Operational Excellence in practice. It’s about

thinking ahead and taking into account our customers’ whole
business – not just the bits that we provide.

O P E R A T I O N A L O V E R V I E W

From Marita Hellberg, Head of Group Function Human
Resources and Organization:

IMPROVING OUR WAYS OF WORKING
When I accepted the challenge of heading up Human
Resources for Ericsson in September , the company was
nearing the completion of the most extensive restructuring in
its  year history. Naturally, it was with a sense of great
relief that, in , we could leave the ordeal of the severe
cutbacks behind us. After such dramatic changes, we had to
assess what needed to be done going forward and how to do it
in such a way as to ensure we stay on the right course.

Ericsson’s fundamental business strategy has remained solid

for years. But while the essence of the strategy may stay the
same, how we implement it and turn our ideas into actions
must evolve in response to market developments.

In  we involved our employees in discussions about

strategy, and their views helped to shape our strategic
priorities. These priorities were defined at our Global
Management Conference in , and within weeks of the
conference the current thinking of management had been
communicated throughout the entire company. This is the
first time that Ericsson has involved so many employees in the
strategy process.

We know that to be competitive we must inspire and
enable our people to contribute as much as they can. That
means they must feel they’re part of something special.
Culture will defeat strategy every time so, in parallel with the
strategy work, we also reinforced our core values and ways of
working through a major program of employee workshops.
Our values and working methods are now a real priority for
managers. By discussing matters openly we are shaping a
strong culture that will help us to achieve our business goals.
We also carried out an extensive analysis of competence in

, and an employee satisfaction survey. Nine out of ten
employees contributed to the survey. The results – and my
own experiences of talking to people here – underline the
motivation and loyalty of our people in the midst of so much
change. Spirits are up as everybody feels that the company is
on the move again.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

O P E R A T I O N A L O V E R V I E W

From Håkan Eriksson, Head of Research and Development:

Technology leadership is vital for us. By contributing

effective solutions based on emerging standards we can
influence the standardization process and file for patents at an
early stage. We have one of the industry’s largest portfolios of
granted patents – , with another , pending.
Controlling patents and leading the standardization process
gives us a head start in product development, and this is one
reason why we command the largest market share in G and
G infrastructure equipment.

We also develop and license the technology platforms used
inside handsets. These platforms integrate the complete inner
workings of the handset, such as software and chipset design.
In a world of increased complexity, with more advanced
technologies and service applications, our focus on making
everything from base stations to handsets work together is key
to our customers.

This strategy has worked. Today, our mobile platforms
business holds a  percent market share of WCDMA handsets
and there is excellent potential for growth. The success of our
Sony Ericsson joint venture also demonstrates how our
approach has created value.

But there is an even more important reason why our end-
to-end strategy is right. While communications technologies
and standards are increasingly complex, customers require
complete working solutions. Our expertise ensures that our
products and services work seamlessly with other suppliers’
hardware and software. This means that a network can
function properly – and interact with other networks –
despite the vast array of equipment and standards employed.
In other words, operators and handset manufacturers know
that buying from Ericsson minimizes potential
interoperability issues, reducing cost, time-to-market and
risk.

This ability to work across a wide range of technologies is

an invaluable asset for Ericsson.

FOCUSING ON CUSTOMER-DRIVEN TECHNOLOGY
LEADERSHIP
My challenge has been to strengthen our technology
leadership while getting more from our R&D organization,
despite the radical scale-backs of recent years. Although we
have streamlined our approach, with fewer centers and
employees, our commitment to R&D has never wavered.
Almost a third of our employees are involved in this area, and
we remain a leading contributor to the most important
technologies in mobile communications, such as GSM, GPRS,
EDGE, WCDMA and CDMA standards. But these days, it’s not
just about creating technology, it’s about how to apply it to
meet our customers’ needs better than any of our competitors.
Music-to-the mobile, M-USE, is a good example of a customer-
driven solution.

Clearly, strengthening our R&D is no easy task, so I’m very

happy to report that our commitment to Operational
Excellence has enabled us to make real improvements this
year. We are now much more precise about the management
of development projects. We are offering customers
significantly more advanced products and platforms, while
providing the assurance that they will be delivered on time,
and reach their performance specifications faster than before.
This is not about transporting a box from the factory to the
customer; it’s about developing, installing, testing and
enhancing a technically complex solution made up of evolving
technologies. And getting that solution to deliver revenue-
generating services for our customer – on time and on budget.
To really understand the scale of our challenge you must
consider the complexity of the business we are in. Ericsson
thrives on technology leadership, and we are in the middle of
a major transition, from G to G. A challenge in itself, this
profound change in technology coincided with the recent
market crisis, and the resulting turbulence really has made it
tough for operators and suppliers.

These have been difficult times, but we have focused on
learning from our experiences and making ourselves stronger.
In , for example, we consolidated our position as world
leaders in radio technology by setting an industry speed
record in High Speed Downlink Packet Access (HSDPA). This
technology enables a subscriber to download files to a G
mobile device at speeds comparable to an office wireline
connection. HSDPA is a major breakthrough that will change
the way we think about G. Videos, music and web pages can
be downloaded in seconds, and even high quality mobile TV is
possible.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

O P E R A T I O N A L O V E R V I E W

Hans Vestberg: Global Services has over , Ericsson
employees out there working alongside customers, and in
many respects these people are the day-to-day eyes, ears and
voices of Ericsson. How we meet customers’ needs is vital to
our success, whether it’s integrating a new radio base station,
solving an intricate network-planning problem or managing
an entire network. Operators all over the world are
increasingly considering different forms of outsourcing. Our
managed services offering enables operators to reduce cost,
focus on customer care and new business, while trusting us to
manage their network. Through our current managed services
contracts, excluding hosting, we now manage networks that
together serve more than  million subscribers worldwide.
This makes us the market leader in managed services.

A market leader cannot stay still, however, and in  we

were the first to introduce managed capacity and hosting
services to the market. These are an evolution of our managed
services offering, and were developed at our customers’
request.

Managed capacity means that we operate a network
according to the ‘pay-as-you grow’ principle. We provide
capacity when and where it is needed. Operators then pay
accordingly, reducing the need for large up-front investments.
In  we signed a landmark managed capacity deal with
Bharti, one of India’s leading operators.

With hosting, we own and operate servers and platforms on

which, for instance, multimedia and messaging services are
stored. This flexible, on-demand model suits operators that
want to quickly introduce mobile services, such as picture
messaging, music and games downloads, video, or try out new
services. We announced  hosting contracts in .

We track our performance carefully, and I am very pleased

with the way we have improved this year. On average we
improved the response time  percent for some ,
customer service requests, ranging from general consultations
to more complex issues. These requests come from our
customers – operators that together serve over  million
subscribers.

From Björn Olsson, Head of Business Unit Systems
and Hans Vestberg, Head of Business Unit Global Services:

LAUNCHING NEW PRODUCTS AND SERVICES
FOR OPERATORS
Björn Olsson: Ericsson’s business success is to a large extent
built on our ability to provide complete systems solutions to
our customers. They expect new services to be fast to
introduce and their networks more efficient to operate while
evolving towards all-IP.

Our new service delivery solutions greatly reduce the time

required for launching consumer services down to just one
week. Improving speed-to-market supports revenue growth
and improves operators’ competitiveness. The base for these
solutions is our market-leading position in multimedia
messaging, charging, subscriber databases and systems
integration.

Softswitching is an important development. This

technology can radically improve the efficiency in operating
mobile and fixed networks, and introduces IP into the telecom
network. Using our softswitching solutions, operators can
halve the number of core network sites and reduce the need for
transmission capacity. We have implemented our softswitch
solutions in more than  mobile and fixed networks.

Consumers want convenience, so the introduction of IP into

telecommunications networks is good news for them. The
standardized system for IP multimedia services, IMS, will
ensure high levels of quality and reliability in IP-based
services. Two examples are IP Telephony and Combinational
Services, which enable consumers to share images, videos, etc,
while having a conversation. Ericsson has signed  IMS
contracts for fixed and mobile systems, making us one of the
market leaders in IMS.

This year we also pursued opportunities in the fast-growing

market for home broadband connections. The Triple Play
trend, where operators offer telephony, TV and Internet
services from the same wall-socket using digital subscriber
line (DSL) technology, has added momentum. Our Ethernet
DSL offering makes Triple Play possible, and we are one of the
top suppliers of this solution.

The majority of our customers operate both mobile and
fixed networks. We believe there will be very few operators
providing mobile or fixed services only, so we have maintained
our commitment to both areas. We are being rewarded for this
approach, as customers seek suppliers able to integrate their
fixed and mobile networks into one network based on IP. This
puts us right where we want to be – providing solutions at the
heart of the convergence towards all-IP networks.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

F I V E - Y E A R S U M M A R Y

Five-year Summary

SEK million

Net sales
Operating income

– operating margin

Financial net
Net income

Year-end position
Total assets
Net assets
Working capital
Capital employed
Tangible assets
Stockholders’ equity
Minority interests
Interest-bearing provisions and liabilities

Other information
Earnings per share, diluted, SEK 3) 4)

– in accordance with US GAAP, diluted 3) 4)

Cash dividends per share, SEK
Stockholders’ equity (SEK per share)
Earnings per share, basic, SEK 3)
Number of shares (in millions)

– outstanding, at end of period
– average, basic 3)
– average, diluted 3)

Additions to tangible assets
Depreciation on tangible assets
R&D and other technical expenses 2)
– as percentage of net sales 2)

Ratios
Return on equity
Return on capital employed
Equity ratio
Debt-equity ratio
Current ratio
Capital turnover
Inventory turnover
Accounts receivable turnover
Return on sales
Payment readiness

– as percentage of net sales

Net cash

Statistical data, year-end
Orders booked, net
Number of employees

– Worldwide
– Of which in Sweden

2004

2003

2002 5)

2001 5)6)

2000 5)6)

131,972
28,938
21,9%
–540
19,024

183,040
78,356
70,494
111,999
5,845
77,299
1,057
33,643

1.20
0.91
0.25 1)
4.88
1.20

15,832
15,829
15,859
2,452
2,434
20,420
15.5%

27.6%
29.4%
42.8%
0.4
3.0
1.2
5.7
4.1
24.6%
81,447
61.7%
42,911

117,738
–11,239
–9.5%
–864
–10,844

182,372
62,780
58,873
108,989
6,505
60,481
2,299
46,209

–0.69
–0.68
0
3.82
–0.69

15,826
15,823
15,841
3,493
3,753
28,553
24.3%

–16.2%
–5.9%
34.4%
0.7
1.6
1.0
6.1
3.4
–6.2%
75,309
64.0%
26,998

145,773
–21,299
–14.6%
–1,536
–19,013

209,113
76,076
73,026
137,539
9,964
73,607
2,469
61,463

–1.51
–1.58
0
4.65
–1.51

15,820
12,573
12,684
2,738
5,514
33,455
23.0%

–26.7%
–11.3%
36.4%
0.8
1.7
1.0
5.1
3.0
–11.7%
66,306
45.5%
4,751

231,839
–27,380
–11.8%
–1,744
–21,264

257,521
72,240
104,998
162,119
16,641
68,587
3,653
89,879

–1.94
–2.27
0
8.67
–1.94

7,909
10,950
11,072
8,726
6,486
46,640
20.1%

–26.5%
–14.3%
28.1%
1.2
1.7
1.5
4.8
3.4
–9.7%
60,239
26.0%
–20,955

273,569
30,828
11.3%
–1,189
21,018

263,282
94,587
97,261
154,014
23,104
91,686
2,901
59,427

1.91
2.12
0.36
11.59
1.93

7,909
10,896
11,100
12,643
10,040
41,921
15.3%

26.1%
24.8%
35.9%
0.6
1.6
2.0
5.0
3.8
12.6%
23,567
8.6%
–23,657

132,959

113,000

128,351

221,477

292,344

50,534
21,296

51,583
24,408

64,621
30,241

85,198
37,328

105,129
42,431

1) For 2004, as proposed by the Board of Directors.
2) 2000 adjusted to exclude research and development costs regarding customer orders included in cost of sales.
3) 2000–2001 adjusted for stock dividend element of stock issue.
4) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.
5) 2002 restated for changed accounting principles. 2001 and 2000 have not been restated as the information is not readily available.
6) Restated for changed accounting principles in Sweden 2002 regarding consolidation of companies according to RR 1.

E R I C S S O N A N N U A L R E P O R T 2 0 0 4

F I V E - Y E A R S U M M A R Y

US GAAP
SEK million, unless otherwise stated

Net sales
Net income after cumulative effect of accounting change
Earnings per share, basic, after cumulative effect
of accounting change (SEK per share)3) 4)
Earnings per share, diluted, after cumulative effect
of accounting change, diluted (SEK per share)3) 5)
Total assets
Stockholders’ equity
Capital stock
Number of shares (in millions):

– average, basic3)
– average, diluted3)

2004 2)

2003 2)

2002 2)

2001 1) 2)

20001)

131,972
14,386

117,738
–10,597

145,773
–19,918

231,839
–24,403

273,569
23,393

0.91

–0.67

–1.58

–2.23

2.15

0.91
192,863
84,369
16,132

15,829
15,855

–0.68
195,611
69,963
16,132

15,823
15,831

–1.58
226,480
83,203
15,974

12,573
12,684

–2.27
282,207
77,801
8,066

10,950
11,057

2.12
291,013
109,217
7,910

10,896
11,017

1) Upon adaption of SFAS142 on January 1, 2002, Ericsson ceased

3) 2000–2001 adjusted for stock dividend element of stock issue.

amortization of all goodwill for US GAAP reporting purposes. Amortization
expense on goodwill on a US GAAP basis for the years ended December 31,
2001 and 2000 was SEK 1,123 million and SEK 761 million, respectively.

2) Effective October 1, 2001, Sony Ericsson Mobile Communications assumed
substantially all of the operations of the Phones segment. As of this date, 50
percent of the results of the Sony Ericsson joint venture are reported under
“Share in earnings of joint ventures and associated companies” pursuant to
equity accounting principles. Retained Phones operations are reported under
“Other operations”.

4) Earnings per share, basic, are calculated by dividing net income, after
cumulative effect of accounting change, by average number of shares
outstanding, basic.

5) Diluted earnings (loss) per share are calculated by dividing net income (loss),
after cumulative effect of accounting change, by the sum of the average
number of shares outstanding plus all additional shares that would have been
outstanding if all convertible debentures were converted and stock options
were exercised. Potential ordinary shares are not considered when their
conversion to ordinary shares would increase earnings per share.

Working capital: Current assets less current non-interest-
bearing provisions and liabilities.

Capital employed: Capital employed is defined as total assets
less non-interest-bearing provisions and liabilities.

Earnings per share: See Notes to the Financial Statements – Note
, “Accounting Policies”, for information of principles for
calculation of earnings per share. For earnings per share in
accordance with US GAAP, see Notes to the Financial Statements
– Note , “Reconciliation to Accounting Policies Generally
Accepted in the United States”.

Equity ratio: Defined as the total of stockholders’ equity and
minority interest in equity of consolidated subsidiaries,
expressed as a percentage of total assets.

Debt-equity ratio: Defined as total interest-bearing provisions
and liabilities divided by the total of stockholders’ equity and
minority interest in equity of consolidated subsidiaries.

Current ratio: Current assets divided by the sum of current
provisions and liabilities.

Capital turnover: Net sales divided by average capital
employed.

Cash dividends per share: Defined as dividends paid divided
by average number of shares, basic.

Inventory turnover: Cost of sales divided by average inventory.

Stockholders’ equity (SEK per share): Defined as
Stockholders’ equity divided by the number of shares
outstanding.

Return on equity: Defined as Net income expressed as a
percentage of average adjusted Stockholders’ equity (based on
the amounts at January  and December ).

Return on capital employed: Defined as the total of
Operating income plus Financial income as a percentage of
average capital employed (based on the amounts at January 
and December ).

Accounts receivable turnover: Net sales divided by average
accounts receivable.

Return on sales: Operating income plus Financial income
expressed as a percentage of net sales.

Payment readiness: Defined as cash and short-term
investments less short-term borrowings plus long-term unused
credit commitments. Payment readiness is also shown as a
percentage of net sales.

Net cash: Defined as cash and bank plus short-term cash
investments less interest-bearing provisions and liabilities.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

S H A R E I N F O R M A T I O N

Share Information

Stock exchange trading
Ericsson’s Class A and Class B shares are traded on
Stockholmsbörsen (Stockholm Stock Exchange), and the Class
B shares are also traded on the London Stock Exchange.
In the United States, the Class B shares are traded on
NASDAQ in the form of American Depositary Shares (ADS)
evidenced by American Depositary Receipts (ADR) under the
symbol ERICY. Each ADS represents  Class B shares.

Approximately  () billion shares were traded in ,
of which about  (.) percent were traded on Stockholms-
börsen, about  (.) percent on NASDAQ, and about  (.)
percent on the London Stock Exchange.

At an Extraordinary General Meeting on August , ,

it was decided to increase the voting power of the Class B
shares from / of a vote to / of a vote. The voting
power of the Class A shares remain unchanged at  vote. (For
more information, see the Board of Directors’ Report.)

Ericsson rejoined the DJ Euro Stoxx  list on September
, , and on December , , we also rejoined the
NASDAQ 100 index.

Share price trend
During , Ericsson’s total market value increased by about
 percent to approximately SEK  billion (SEK  billion
in ). The OMX index on Stockholmsbörsen increased by
 percent, the NASDAQ telecom index increased by
approximately  percent and the NASDAQ composite index
increased by approximately  percent in . The Ericsson
share increased by approximately  percent on NASDAQ.

Share capital
As of December , , Ericsson’s share capital was SEK
,,, (,,,) represented by ,,,
shares. The par value of each share is SEK .. As of
December , , the shares were divided into ,,,
(,,) Class A shares, each carrying one vote, and
,,, (,,,) Class B shares, each carrying
one-tenth of a vote. As of December , , Ericsson held
,, of its Class B shares.

No Class C shares, each carrying one-thousandth of a vote,

are outstanding.

Share trend, Stockholm Stock Exchange, 2003–2004

Share turnover (million shares)

B shares SEK
OMX index

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2003

2004

Source: Svensk Börsinformation

10 E R I C S S O N – A N N U A L R E P O R T 2 0 0 3

NASDAQ
London
Stockholm

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Share data

Earnings per share, diluted (SEK)2)
P/E ratio, Class B shares
Dividend (SEK)1)

1) For 2004 as proposed by the Board of Directors
2) 2000–2001 adjusted for stock dividend element of stock issue

Share prices on Stockholmsbörsen
(SEK)

Class A at last day of trading
Class A high for year (April 21, 2004)
Class A low for year (Jan. 2, 2004)
Class B at last day of trading
Class B high for year (April 20, 2004)
Class B low for year (Jan. 2, 2004)

S H A R E I N F O R M A T I O N

2002

–1.51
–
0

2002

8.60
42.89
3.80
6.10
44.78
2.96

2001

–1.94
–
0

2001

42.25
91.00
23.98
41.35
88.11
23.18

2000

1.91
40
0.36

2000

88.17
169.72
75.83
78.00
166.83
72.94

2004

1.20
17
0.25

2004

21.70
26.10
14.00
21.20
24.50
12.70

2003

–0.69
–
0

2003

13.90
16.80
5.55
12.90
14.60
4.11

Offer and listing details
Host market NASDAQ ADS Prices
The tables below state the high and low sales prices quoted for
our ADSs on NASDAQ for the last five years. The NASDAQ
quotations represent prices between dealers, not including
retail mark-ups, markdowns or commissions, and do not
necessarily represent actual transactions.

Principal trading market Stockholmsbörsen (Stockholm
Stock Exchange) Share prices.
The tables below state the high and low sales prices for our
Class A and Class B shares as reported by Stockholmsbörsen
for the last five years. The equity securities listed on the A-list
of Stockholmsbörsen’s Official Price List of Shares currently
comprise the shares of  companies. Trading on the exchange

generally continues until : p.m. each business day. In
addition to official trading on the exchange, there is also
trading off the exchange during official trading hours and also
after : p.m. Trading on the exchange tends to involve a
higher percentage of retail clients, while trading off the
exchange often involves larger Swedish institutions, banks
arbitrating between the Swedish market and foreign markets,
and foreign buyers and sellers purchasing shares from or
selling shares to Swedish institutions.

The exchange publishes a daily Official Price List of Shares

which includes the volume of recorded transactions in each
listed stock, together with the prices of the highest and lowest
recorded trades of the day. The Official Price List of Shares
reflects price and volume information for trades completed by
the members.

Annual high and low market prices
The annual high and low market prices on these markets were as follows:

NASDAQ
USD per ADS1)

Period

2000

2001

2002

2003

2004

High

190.04

97.50

43.33

18.85

34.57

Low

74.92

22.03

3.40

5.20

17.93

High

169.72

91.00

42.89

16.80

26.10

Low

75.83

23.98

3.80

5.55

14.00

SEK per Class B share
Low

High

166.83

88.11

44.78

14.60

24.50

72.94

23.18

2.96

4.11

12.70

SEK per Class A share

STOCKHOLMSBÖRSEN

Share market prices prior to August 8, 2002, have been adjusted for the stock dividend element of the stock issue.
1) One ADS = 10 Class B shares. (Prior to October 23, 2002, one ADS = one Class B share. Share prices have been adjusted accordingly.)

E R I C S S O N – A N N U A L R E P O R T 2 0 0 3 11

S H A R E I N F O R M A T I O N

Quarterly high and low market prices
The table below states for each quarter of  and  high and low sales prices.

Period

2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2004
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

1) One ADS = 10 Class B shares

NASDAQ
USD per ADS1)

SEK per Class A share

STOCKHOLMSBÖRSEN

High

Low

High

Low

SEK per Class B share
Low

High

10.24
11.95
17.50
18.85

31.41
32.32
31.37
34.57

5.20
6.29
10.29
14.47

17.93
24.72
23.18
27.76

11.10
10.60
16.80
16.20

25.10
26.10
24.50
24.10

5.55
6.90
9.70
12.80

14.00
20.50
19.50
20.70

9.10
9.30
14.60
14.50

23.50
24.50
23.20
23.80

4.11
5.25
8.35
11.00

12.70
19.10
17.40
19.80

Monthly high and low market prices
The table below states high and low sales prices for the last six months (August  to January ).

Month

August 2004
September 2004
October 2004
November 2004
December 2004
January 2005

1) One ADS = 10 Class B shares

Changes in capital stock 2000–2004

2000 Bonus issue
2000
Split
2000 Conversions
2001 Conversions
2001 New issue (Class C shares)
2002 Conversions
2002 New issue (Class B shares)
2003 New issue (Class C shares)
2003 December 31
2004 December 31

NASDAQ
USD per ADS1)

High

27.62
31.37
32.82
33.87
34.57
32.49

Low

23.18
26.05
27.76
29.21
31.03
28.01

STOCKHOLMSBÖRSEN

SEK per Class A share

High

22.60
23.40
24.10
23.50
23.50
22.40

Low

19.50
20.40
20.70
21.10
21.50
20.00

SEK per Class B share
Low

High

20.70
23.20
23.80
23.20
23.10
22.00

17.40
19.30
19.80
20.40
20.80
19.60

4:1

1:1

Number of shares

Capital stock

–
5,883,316,821
69,880,270
168,395
155,000,000
560
7,908,754,111
158,000,000
16,132,258,678
16,132,258,678

2,941,658,410
–
75,830,899
168,395
155,000,000
560
7,908,754,111
158,000,000
16,132,258,678
16,132.258.678

12 E R I C S S O N A N N U A L R E P O R T 2 0 0 4

Shareholders
As of December , , we had , shareholders
registered at VPC (the Swedish Securities Register Center).
According to information provided by Citibank, there were
,, ADSs outstanding as of December ,  and
, registered holders of such ADS. A significant number of
the ADSs are held of record by banks, brokers and/or nominees
for the account of their customers. As of December , ,
this level is represented by , accounts.

According to information known to us, approximately 
() percent of our Class A and Class B shares at year-end 
were owned by Swedish and international institutions.

Ten largest
countries, capital:

Sweden
United States
United Kingdom
Luxembourg
Switzerland
Germany
Norway
France
Belgium
Denmark
Other countries

Source: SIS Ägarservice AB

S H A R E I N F O R M A T I O N

As of December 31,

2004

53.7%
26.9%
4.7%
4.1%
1.7%
1.2%
1.0%
0.9%
0.9%
0.8%
4.1%

2003

56.1%
23.8%
4.5%
4.0%
2.3%
1.9%
0.9%
1.2%
1.5%
0.8%
3.0%

The following table sets forth, as of December , , share
information with respect to our largest shareholders registered
at VPC, the Swedish Securities Register Center, known by us,
ranked by percentage of voting rights:

Largest shareholders by voting rights, December 31, 2004

Identity of
person or group1)

Investor AB
AB Industrivärden
Svenska Handelsbankens Pensionsstiftelse
Livförsäkrings AB Skandia
Pensionskassan SHB Försäkringsförening
Robur Fonder
AMF Pension
Gamla Livförsäkringsaktiebolaget SEB-Trygg
SHB/SPP fonder
Nordea Fonder
Tredje AP-fonden
Första AP-fonden
Fjärde AP-Fonden
SEB fonder
Alecta
Svenska Handelsbankens Personalstiftelse
Oktogonen, Stiftelsen
EB Stiftelsen, Skandinaviska Enskilda Banken
Svenska Handelsbanken
Astoria i Linköping

Foreign owners 2)

of which Fidelity Funds

Others

Total

Number of
Class A shares

Percentage of
total Class A
shares

Number of Percentage of
total Class B
shares

Class B
shares

Voting
rights, Percentage
of capital

percent

513,320,192
372,000,000
83,903,000
58,960,986
63,360,000
6,690,973
4,763,682
27,923,095
3,142,274
3,419,614
12,245,095
7,472,938
2,872,755
3,530,210
2,484,915
20,000,000
12,903,000
5,179,200
2,931,500
1,440,000

23,774,261
–

39.22
28.42
6.41
4.51
4.84
0.51
0.36
2.13
0.24
0.26
0.94
0.57
0.22
0.27
0.19
1.53
0.99
0.39
0.22
0.11

297,073,324
–
–
74,093,181
–
393,056,151
318,236,318
58,236,405
257,261,739
244,273,043
144,271,862
173,281,311
194,019,545
185,824,740
185,442,985
–
–
7,679,200
3,658,592
2,566,612

1.82
–

7,434,524,245
819,164,919

76,462,228

5.85

4,849,979,507

1,308,779,918

100% 14,823,478,760

2.00
–
–
0.50
–
2.65
2.15
0.39
1.74
1.64
0.97
1.17
1.32
1.25
1.25
–
–
0.05
0.02
0.00

50.15
5.52

32.75

100%

19.46
13.33
3.01
2.38
2.27
1.62
1.33
1.22
1.05
1.01
0.97
0.90
0.81
0.80
0.75
0.72
0.46
0.21
0.12
0.06

27.48
2.93

20.04

100%

5.02
2.31
0.52
0.82
0.39
2.50
2.00
0.53
1.61
1.54
0.97
1.12
1.22
1.17
1.16
0.12
0.08
0.08
0.04
0.02

46.23
5.08

30.55

100%

1) Sources: SIS Ägarservice AB and VPC AB, December 31, 2004

Including Nats Cumco as Nominee: 1,576,621,014 Class B shares.

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 13

S H A R E I N F O R M A T I O N

The following table indicates changes in holdings of the Class A
and Class B shares, respectively, held by major shareholders and
percent of voting rights, as of December , ,  and
.

Person or group

Investor AB
AB Industrivärden
Svenska Handelsbankens Pensionsstiftelse
Livförsäkrings AB Skandia
Pensionskassan SHB Försäkringsförening
Svenska Handelsbankens Personalstiftelse
Oktogonen, Stiftelsen
Robur Fonder
AMF Pension
Gamla Livförsäkringsaktiebolaget SEB-Trygg
SHB/SPP Fonder
Nordea Fonder
Tredje AP-fonden
Första AP-fonden
Fjärde AP-fonden
SEB fonder
EB Stiftelsen, Skandinaviska Enskilda Banken
Svenska Handelsbanken
Astoria i Linköping
Alecta

2004
Class A Class B
shares,
shares,
percent percent

Voting
rights,
percent

2003
Class A Class B
shares,
shares,
percent
percent

2002

Voting
rights,
percent

Class A Class B
shares,
shares,
percent percent

Voting
rights,
percent

39.22
28.42
6.41
4.51
4.84
1.53
0.99
0.51
0.36
2.13
0.24
0.26
0.94
0.57
0.22
0.27
0.39
0.22
0.11
0.19

2.00
–
–
0.50
–
–
–
2.65
2.15
0.39
1.74
1.64
0.97
1.17
1.32
1.25
0.05
0.02
0.00
1.25

19.46
13.33
3.01
2.38
2.27
0.72
0.46
1.62
1.33
1.22
1.05
1.01
0.97
0.90
0.81
0.80
0.21
0.12
0.06
0.75

39.11
28.34
7.38
4.53
4.83
1.52
–
0.00
–
1.98
0.14
–
0.77
0.33
–
0.04
1.19
0.39
–
–

3.58
1.15
0.23
1.09
0.20
0.06
–
3.09
–
0.77
1.71
–
1.03
1.31
–
1.52
0.02
0.05
–
–

38.29
27.72
7.21
4.45
4.72
1.49
–
0.07
–
1.95
0.17
–
0.78
0.36
–
0.08
1.16
0.38
–
–

2.12
–

39.11
28.34
5.41
5.02
4.83
1.52
1.98
–
–
1.98
–
–
0.29
0.33
0.33
0.08
1.19
0.22
0.11
–

3.93
1.41
0.23
1.67
0.21
0.07
0.08
–
–
0.89
–
–
1.36
1.41
1.64
1.62
0.06
0.06
0.02
–

38.31
27.73
5.29
4.95
4.72
1.49
1.92
–
–
1.95
–
–
0.31
0.36
0.36
0.12
1.16
0.22
0.11
–

0.99
–

40.51
–

1.88
–

Foreign owners

of which Fidelity funds

1.82
–

50.15
5.52

27.48
2.93

1.09
–

45.74
–

Others

Total

5.85

32.75

20.04

8.36

38.45

9.05

8.27

44.83

9.12

100.00 100.00

100.00

100.00 100.00

100.00

Source: SIS Ägarservice AB and VPC AB, December 31, 2004.

We do not know of any arrangements that might result in a change of the control of the Company. As of December , , the
total number of voting securities of the Company owned by officers and directors as a group was:

Officers and directors as a group (27 persons)

6,080

17,586,280

0.1

For individual holdings, see “Corporate Governance”.

Number of
Class A shares

Number of
Class B shares

Voting rights,
percent

14 E R I C S S O N A N N U A L R E P O R T 2 0 0 4

L E T T E R F R O M T H E C H A I R M A N O F T H E B O A R D

Letter from the Chairman of the Board

Dear Shareholder,
Ericsson’s solid results for  reaffirmed the value and
effectiveness of our restructuring strategy. We delivered
strong operating profit, healthy operating cash flow and our
sales growth more than offset the weakness of the U.S. dollar –
reinforcing our global market leadership.

The Ericsson share price performed well during  –
outperforming most stock market indexes. We also returned
to several blue chip stock indexes, including DJ Euro STOXX
 and the NASDAQ .

Over the last several years, we have strengthened Ericsson,
operationally and financially, and we have emerged from the
market downturn with the strongest financial position in our
history. Now, our ambition is to return value to shareholders
in the most sustainable way.

Retaining a strong balance sheet is of primary importance.

Our solid financial position enables us to pay down debt,
make strategic investments and, for the first time since ,
we are proposing that we pay a dividend to our shareholders.
It has also allowed us to successfully manage our way through
the challenging environment that we have experienced in
recent years.

To help protect shareholder value, we are committed to
meeting the highest standards of corporate governance. We
are confident that we have adequate management controls and
we continuously seek ways to make them better. During
, the difference in voting rights between the Class A and

Class B shares was significantly reduced. We are participating
in various industry forums to help further strengthen
corporate governance practices including the NASDAQ Issuers
Affairs Committee. We are also in the process of
implementing the applicable requirements of the Sarbanes-
Oxley Act.

As a valued shareholder, you are part owner of an
extraordinary company, with solid assets, a world-class
reputation and some of the best employees in our industry.
We have a number of strategic advantages in many areas, from
our competitive cost structure and technological expertise to
our industry-leading operational scale and customer base. It is
a great honor for me to serve as your Chairman. I thank you
for your continued support.

I would also like to acknowledge the contributions of my
fellow board members in setting our strategies and policies.
Of course, a good strategy is effective only when properly
implemented. For that, I would like to congratulate the
management team and all employees for their ongoing
commitment to operational excellence. This year’s excellent
results are a credit to you all.

Sincerely yours,

Michael Treschow
Chairman of the Board

Highlights – 2004

(SEK million)

Net sales
Gross margin as a percentage of net sales
Total operating expenses

as a percentage of net sales

Share in earnings of JV and associated companies
Other operating revenues and costs
Operating income

operating margin

Income after financial items
Net Income
Earnings per share (SEK)
Employees

of which in Sweden

2004

131,972
46%
–37,105
28%
2,318
2,617
28,938
22%
28,398
19,024
1.20
50,534
21,296

2003 1)

2002 1)

117,738
37%
–40,037
34%
–252
1,886
5,224
4%
4,360
–10,844
–0.69
51,583
24,408

145,773
32%
–56,109
38%
–1,450
1,084
–9,337
–6%
–10,873
–19,013
–1.51
64,621
30,241

1) 2002 and 2003 excluding restructuring charges, except for the measures Net Income and Earnings per share.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 15

B O A R D O F D I R E C T O R S ’ R E P O R T

Board of Directors’ Report

The Board of Directors’ Report contains discussion and
analysis of the financial statements for earnings, balance sheet
and cash flow. In addition to this and other information on
past performance, the report includes “forward-looking
statements” about future market conditions, strategies and
anticipated results. Such statements are based on assumptions
and estimates, and are subject to risks and uncertainties.
Actual results could differ materially from those described or
indicated by such forward-looking statements. For further
discussion, please see “Forward-looking Statements”.

The terms “Ericsson”, “Group”, “the Company”, “us”,
“we”, “our” or similar all refer to Telefonaktiebolaget LM
Ericsson, the Parent Company and its subsidiary companies.
To facilitate comparisons of operating results, we have
excluded restructuring charges for years  and ,
except for the measures Net Income, Earnings per share and
Payable days. There were no restructuring charges during
.

SUMMARY
Ericsson’s  performance was characterized by recovery,
profitable growth and increased market share with good
progress in strategically important areas. We believe that a
flexible platform for value creation has now been firmly
established. The success of our restructuring efforts and focus
on operational excellence are evidenced by the solid results in
. In addition to improving our operational efficiency
beyond what was originally envisioned in , an increased
cost awareness has been instilled within all parts of the Group.
With the restoration of a healthy operating margin and
strong cash flow from operations, we have increased our cash
position and repaid a significant portion of our long-term
debt ahead of maturity. Our ambition is to maintain the
performance levels delivered this year in order to continue
generating best-in-class margins.

Our leadership in GSM and WCDMA is reinforced with a
number of key business wins in strategic markets. Ericsson
Mobile Platforms is now a supplier to  of the top mobile
phone brands representing approximately  percent UMTS
(G/WCDMA) market share. We have also shown good progress
in our professional services business where we have built a
leading position in managed services and hosting. Going
forward, we believe the company is very well positioned for
sustainable performance with competitive profitability.

16 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

MARKET ENVIRONMENT AND TREND
INFORMATION
After several years of decline, operator spending on mobile
network infrastructure equipment rebounded during .
The market growth was driven by subscriber additions in
developing markets and deployment of G networks, mainly
in Western Europe as well as in parts of Asia. There was also a
temporary surge of investments in most markets as many
operators strived to catch up from under-investing during the
market downturn. Following the extraordinarily strong
growth in , we expect the mobile systems market,
measured in USD, to increase slightly during .

Pricing trends remained similar to previous years, in
particular regarding strategic pricing necessary to win
contracts with new customers and/or new markets. Currency
exchange effects, mainly related to a weaker USD, also
negatively affected our sales.

Operator consolidation is a key trend in several markets. In

North America, operator consolidation caused a temporary
slowdown in GSM/EDGE investments while the companies
involved underwent their merger process. In Latin America,
where significant operator consolidation has already taken
place, we experienced strong growth, especially from operators
expanding their GSM coverage and capacity. In both regions,
we have been able to improve our already strong market
position due to our longstanding relationships with the
consolidating companies.

The largest mobile operator in the US has now committed
to deploy WCDMA with plans for nationwide coverage by year-
end . China is broadly expected to announce their G
plans sometime during  with volume deployments likely
to start during . Even when including the US and China,
the footprint of WCDMA is still less than one half of GSM’s.
This implies not only good growth opportunities for WCDMA
but also continued near-term volume deployment of GSM,
especially in developing markets.

Within fixed networks, we believe operator spending was

flat to slightly up in  compared with . However,
many operators are contemplating a conversion to an all-IP
broadband environment. This would enable more efficient
handling of voice, data and image based communications as
well as a platform for converged services. Ericsson already has
a solid starting position as we offer broadband for mobile and
fixed networks, IP Multimedia Subsystem (IMS) based service
networks and unique systems integration competence. These
are the three key aspects that network operators need to
address in order to converge their fixed and mobile services.
Several operators have already started such an upgrade process
and others are expected to follow. This development could
stimulate fixed network capital expenditures over the next
several years.

In addition to network management and systems
integration services, the opportunity to supply managed
capacity and hosting services to network operators is
increasing. We expect this trend to continue as operators
realize the competitive advantages that are made possible
when several operators share capacity and operating costs.
Smaller operators especially benefit by gaining access to
service capabilities and content far beyond what they could
normally afford while at the same time lowering their risks
and improving their time to market.

GOALS AND STRATEGY
Our goal is to be the preferred business partner to our
customers, especially to the world’s leading network operators.
In doing so, we strive to be the market and technological
leader by offering end-to-end solutions mainly related to
network infrastructure, network management and other
service offerings. Our products and services fit into the core
and access parts of networks as well as into the increasingly
important service layer. In addition, with our mobile platform
products and through our Sony Ericsson joint venture for
mobile handsets, we extend the scope of our operations for
complete end-to-end solutions.

Our strategy is to:

• Lead market development through innovation and

technological leadership;

B O A R D O F D I R E C T O R S ’ R E P O R T

Sales development
Based on our reported sales combined with the publicly
reported and estimated sales for our main competitors, we
estimate that the mobile systems market grew approximately
 percent in USD terms during . During this period, our
mobile systems sales increased by  percent at constant
exchange rates.

Margin development
Our ambition is to deliver best-in-class profit margins. The
Company has generated a record level operating margin
during .

Research and development
A robust R&D program is key to our competitiveness and
future success. With most of our R&D invested in mobile
communications network infrastructure, our program is one of
the largest in the industry. Even though total R&D spending
has been significantly reduced over the last several years, we
have maintained a high investment level in the strategically
important areas of broadband access, core networking and
service layer. During the same time, we have reduced the
number of design platforms within our product portfolio,
which has facilitated a higher level of product commonality
for improved R&D efficiency.

• Leverage our economies of scale to develop superior

R&D program

products and services and thereby offer our customers
competitive advantages; and

• Establish operational excellence as a basis for sustainable

and best-in-class operating margins.

PROGRESS RELATIVE TO GOALS
Strong subscriber growth in emerging markets combined
with catch-up spending on GSM has fueled a rebound in the
mobile systems market during , driving double-digit
growth and high profit margins. While the sharp market
recovery provided the fuel for the strong performance, it
would not have been possible without the restructuring
measures that were undertaken during – to position
the company for the eventual market rebound.

We made good progress on our ongoing financial targets of:

• Increasing sales at least in line with the market growth;
• Delivering best-in-class operating margins;
• Generating positive cash flow before financing;
• Restoring our credit ratings to Investment Grade.

2004

2003

2002

Expenditures (SEK billion)
As percent of sales
Employees within R&D at December 31
Patents

21.8

20.9

26.4
15.8% 18.5% 18.1%
20,500
16,500
16,000
12,000
15,000
16,000

Cash flow development
Return on Capital Employed (ROCE) was over  percent
compared with a negative  percent in . Even with the
strong sales growth this year, most of the working capital
efficiency targets were exceeded in . However, efforts to
further improve capital efficiency will continue, especially
within inventories.

Days Sales Outstanding (DSO)
Inventory Turnover (ITO)
Payable Days 1)
Cash flow before financing
activities (SEK billion)

Target

2004

2003

2002

<90
>5.5
>45

75
5.7
46

79
6.1
37

92
5.1
40

Positive

17.7

19.5

–7.1

1) Payable days: Accounts payable divided by Cost of sales and multiplied by

90 days.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 17

Sales in Other Operations increased by  percent to SEK
. billion with most business units showing improvements,
especially Mobile Platforms and Power Modules. Sales in
Enterprise Systems were essentially flat. To strengthen
Enterprise opportunities, we have introduced applications that
bridge the enterprise and public mobile worlds and are now
offering custom-made solutions that suit the unique demands
of individual companies and operators.

Gross margin and operating expenses
The significantly improved gross margin reflects the benefits
of the cost reduction measures, higher volumes with better
capacity utilization and a favorable product mix.

While sales increased by  percent, operating expenses

were reduced from SEK . billion, adjusted to exclude
restructuring charges, in  to SEK . billion. Efficiency
improved, with operating expenses measured as a percentage
of net sales decreasing from . percent in  to .
percent in . The net effect of risk provisions and credit
losses for customer financing affecting operating expenses
amounted to SEK –. (–.) billion.

Other Income Statement items
Share in earnings of joint ventures and associated companies
improved sharply by SEK . billion mainly due to a strong
contribution from Sony Ericsson. The financial performance of
Sony Ericsson improved dramatically, improving our share in
earnings from a loss of SEK –. billion excluding
restructuring costs last year to a profit of SEK . billion this
year.

Other operating revenues increased by  percent, mainly

as a result of license fees from WCDMA related intellectual
property rights.

Continued positive cash flow and repayment of debt
improved the financial net from SEK –. billion in  to
SEK –. billion.

Income after financial items was SEK . (.) billion, an

improvement of SEK . billion on a sales increase of SEK
. billion, confirming the success of our cost reduction
measures.

Net income improved to SEK . (–.) billion and
diluted earnings per share improved to SEK . (–.).
Diluted earnings per share according to US GAAP were SEK
. (–.).

B O A R D O F D I R E C T O R S ’ R E P O R T

Credit ratings
Although Moody’s as well as Standard & Poor’s (S&P) credit
rating agencies have raised Ericsson’s credit ratings during
, at year-end their ratings were still below what is
considered to be investment grade i.e. Baa for Moody’s and
BBB– for S&P.

Ericsson credit ratings year end 2002–2004

Investment
grade

2004

2003

2002

Moody’s
Standard & Poor’s

Baa3
BBB-

Ba2
BB+

B1
BB

Ba2
BB

FINANCIAL RESULTS

Orders and sales
Order intake increased sharply during the year, resulting in a
book-to-bill ratio of slightly above one for the full year. The
increase in orders was driven by particularly strong
development in Latin America, Europe, Middle East and
Africa as well as parts of Asia. Our largest market, the United
States, was down significantly due to a temporary disruption
from the merger process involving two of our largest
customers. We expect a resumption of more normal levels of
investments in the US once their merger integration is
completed. A stronger SEK also negatively affected order value
when translated from local currencies.

Sales growth within the GSM/WCDMA track was

approximately  percent mainly due to a strong increase in
demand for GSM in almost all markets. Although from a much
smaller base, WCDMA equipment and associated network
rollout services also showed good sales growth with a more
than  percent increase from SEK . billion in  to SEK
. billion in .

Within fixed networks, we were awarded a number of

contracts for broadband access, softswitch and packet
switching products, but this was not sufficient to offset the
continued sharp decline for circuit switching equipment.
Although the business is currently much reduced from prior
levels, we are optimistic regarding growth opportunities for
public Ethernet access and converged networks.

The business development and portfolio build-up within
Professional Services continued to be favorable. Sales increased
 percent in local currencies and now represent  percent of
Systems sales. Particularly encouraging was the development
for hosted and managed services where we have been awarded
a significant number of contracts.

18 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

B O A R D O F D I R E C T O R S ’ R E P O R T

PARTNERSHIPS AND JOINT VENTURES,
ACQUISITIONS/DIVESTITURES
Mobile communications networks are becoming increasingly
complex and many new types of services will continue to be
launched. Since handsets are an important part of the
realization of new services, it is important for Ericsson as a
systems supplier to also participate in the mobile phone
market. With our : mobile phone joint venture with
SONY Corporation, we are able to offer complete end-to-end
solutions that combine mobile handsets, network
infrastructure and services. The Sony Ericsson Mobile
Communications (SEMC) joint venture is included in our
Phones segment. Their results are accounted for under the
equity method with no sales included in Ericsson’s financial
statements.

During , Sony Ericsson Mobile Communications AB
reported sharply increased unit shipments and sales. The cost
reduction actions that were initiated during  have been
successfully completed and contributed to the positive results.
With a product portfolio that is geared mostly towards mid
and high-end models along with a lower cost base, our
ambition for the JV is to create continued profitable growth.
In the second quarter of , SEMC increased its equity
stake in Beijing Ericsson Putian Communications Company
Ltd. to  percent. The name of the facility has been changed
to Beijing SE Putian Mobile Communications Co. Ltd. (BMC).
BMC operations have been consolidated into SEMC since the
second quarter, which has had a relatively minor positive
effect on their results.

For more information on our transactions with SEMC,
please also see Notes to the Financial Statements – Note ,
“Related Party Transactions”.

In the second quarter of , we made a public offer to
purchase shares of Ericsson S.p.A. in Italy and have increased
our ownership from  percent to  percent. By that we
exceeded  percent ownership, which according to Italian
regulations requires us to launch a Residual Public Offer for
the remaining . percent of the shares outstanding. This offer
will be launched during the first quarter of . When
completed, Ericsson S.p.A. will be delisted from the Milan
Stock Exchange.

No other significant acquisitions or divestments were made

during .

Balance Sheet and Cash Flow
The capital usage and cash position improved during .
Total assets were SEK  () billion. Excluding increased
cash and cash equivalents of SEK . billion, total assets were
reduced by  percent. The largest items contributing to the
improvements were lower customer financing and deferred tax
assets.

SEK . billion of long-term debt was repaid. Liabilities
and provisions were reduced despite the effect of a SEK .
billion increase for new pension accounting rules.

Net cash developed favorably, with the excess of cash over
debt increasing from SEK . billion to SEK . billion. This
year’s strong profit increased equity to SEK . (.) billion
and the equity ratio improved to . (.) percent.

The extended restructuring programs initiated in early
 were completed ahead of schedule and have delivered
more than the targeted cost reductions. Although there were
no restructuring charges in , cash outlays in  related
to restructuring were SEK –. (–.) billion.

Cash flow before financing activities was positive by SEK
. (.) billion, driven mainly by the improved income.

Capital expenditures
The following table sets forth a breakdown of our annual
capital expenditures during the four years ended December ,
:

(SEK billion)

2004

2003

2002

2001

Capital expenditures
of which Sweden

2.5
1.1

1.8
1.1

2.7
1.2

8.7
3.8

Through downsizing and outsourcing we have been able to
significantly reduce our capital expenditures from the higher
levels of . Capital expenditures in  were mainly for
investments in test equipment used to develop, manufacture
and deploy systems products. We do not expec our capital
expenditures to be significantly different in . We
continuously monitor our capital expenditures and evaluate
whether adjustments to our budget are necessary in light of
market conditions and other economic factors.

Off Balance Sheet items
Customer financing credits of SEK . (.) billion issued by
third parties and guaranteed by Ericsson were outstanding as
per December , . Please also see Notes to the Financial
Statements – Note , “Financial Risk Management and
Financial Instruments”, and Note , “Reconciliation to
Accounting Principles Generally Accepted in the United
States”.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 19

B O A R D O F D I R E C T O R S ’ R E P O R T

Material contracts and contractual obligations
Other than contracts entered in the ordinary course of
business, we do not have any material contracts. The
Company has in the ordinary course of business primary
contractual obligations as per the table below. Purchase
obligations are related to outsourced manufacturing, R&D and
IS/IT operations and for components for our own
manufacturing.

Contractual Obligations

(SEK million)

Total

Payment due by period
<1 year 1-3 years 3-5 years >5 years

Long-term debt 1)
Capital lease
obligations 2)
Operating leases
Other long-term
liabilities
Purchase
obligations 3)
Commitments
for customer
financing 1)

20,949

764

9,210

6,163

4,812

2,727
12,346

272
2,337

454
3,583

340
2,607

1,661
3,819

1,856

426

124

1,229

7,129

–

2,195

1,691

504

–

Total

47,202

12,270

14,177

9,234

11,521

1) See also Notes to the Financial Statements – Note 22, “Financial Risk

Management and Financial Instruments”.

2) See also Notes to the Financial Statements – Note 28, “Leasing”.
3) The amounts of purchase obligations are gross, before deduction of any

related provisions.

Critical accounting policies and estimates
The preparation of financial statements and application of
accounting policies often involve management’s judgment or
the use of estimates and assumptions deemed to be reasonable
and prudent. However, other results may be derived using
different assumptions or estimates. Following are the
accounting policies subject to such estimates or assumptions
that we believe have the most significant impact on our
reported results and financial position.

Revenue recognition
A substantial part of our sales is generated from construction-
type contracts to supply network equipment configured
according to customer specifications. Managerial judgment is
applied, among other aspects, regarding contractual
performance, estimated total contract costs, degree of
completion and conformance with acceptance criteria to define
the amounts of revenue to be recognized. The large number of
supply contracts that we are a party to generally balances the
uncertainty that may be associated with any single contract.

Inventory valuation
Inventories are valued at the lower of cost or market value.
Total inventory reserves as of December ,  amount to
SEK . (.) billion or  () percent of gross inventory.

20 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Deferred taxes
Deferred tax assets are recognized for temporary differences
between reported and taxable income and for unutilized tax
loss carry-forwards. The largest amounts of tax loss carry-
forwards are in Sweden, with an indefinite period of
utilization. The valuation of tax loss carry-forwards and our
ability to utilize unused tax losses is based upon our estimates
of future taxable income in different tax jurisdictions and
involves assumptions regarding the deductibility of costs not
yet subject to taxation.

At December , , the value of unutilized tax loss carry

forwards amounted to sek . (.) billion. The estimated
tax loss carry-forwards are reported as assets.

Capitalized development costs
Development costs for products that will be sold, leased or
otherwise marketed as well as those intended for internal use
are capitalized. The starting point for capitalization is based
upon management’s judgement that the technological and
economical feasibility can be confirmed, usually when a
product development project has reached a defined milestone
according to an established project management model.
Amortization of capitalized equipment begins when the
product is available for general use with impairment testing
performed annually.

Provisions
Valuation of receivables and exposures in customer financing
We monitor the financial stability of our customers and the
environment in which they operate to judge their guarantees
and the likelihood that we can get paid for individual
receivables. Most of our customers have good creditworthiness
and the impact of individual receivables is therefore limited
when consolidated. Total allowances for doubtful accounts as
of December ,  were SEK . (.) billion or  ()
percent of our gross accounts receivable.

Customer financing credits have higher risk than trade
receivables because customers requiring financing typically
have weaker balance sheets and less liquidity. We regularly
assess the credit risk and make appropriate provisions for
outstanding customer financing credits and third party credits
under our guarantee. Provisions for customer financing as of
December ,  amounted to  () percent of gross
exposure.

Product warranties
Reserves for product warranties are based on historic failure
rates as well as assumptions on estimated failure rates for new
products and costs to remedy the various types of faults
predicted. Total reserves for customer warranties as of
December ,  amount to SEK . (.) billion.

Pension and other post-employment benefits
Accounting for the costs of defined benefit pensions and other
applicable retirement benefits is based on actuarial valuations,
relying on key assumptions for discount rates, expected return
on plan assets, future salary increases, turnover rates and
mortality tables. The discount rate assumptions, in turn, are
based on rates for high quality fixed income investments with
durations similar to our pension plans and considers long-
term historical returns, allocation of assets and estimates of
future long-term investment returns. At December , ,
provisions for pensions and other post-employment benefits
amounted to SEK . (.) billion with pension obligations
reported as provisions on the balance sheet.

Other provisions
A significant part of other provisions is related to contractual
obligations and penalties with most of the rest for risks
associated with patent and other litigations as well as changes
in techniques and markets. At December , , Other
provisions amounted to SEK . (.) billion.

FINANCIAL RISK MANAGEMENT
We have an established policy governing the Group’s financial
risk management, which is carried out by the Treasury
function and supervised by the Board of Directors’ Finance
Committee. Please see the Corporate Governance chapter for
more information about our corporate governance and the
responsibilities of the Finance Committee.

For further information on our objectives, policies and
strategies for financial risk management please see Notes to
the Financial Statements – Note , “Interest-Bearing
Liabilities” and Note , “Financial Risk Management and
Financial Instruments”.

Foreign exchange risks
With significant revenues, costs, assets and liabilities in
currencies other than SEK, Ericsson has a net exposure to a
number of currencies. The duration of this exposure is also
considerable, as many contracts have long lead times between
order and delivery. Assuming our foreign exchange exposure
remained the same, a  percent plus/minus isolated change in
the USD/SEK exchange rate would affect income by SEK .
billion before any hedging effects. We manage this exposure
through a variety of hedging activities covering on average the
forthcoming – months.

During , due to the stronger SEK, primarily vs. USD and

related currencies such as Saudia Arabian Riyal and Chinese
Renminbi, foreign exchange losses of SEK . billion net were
recognized.

B O A R D O F D I R E C T O R S ’ R E P O R T

The net results of foreign subsidiaries and the values of
such foreign investments are also exposed to exchange rate
fluctuations that can affect the income statement and
consolidated balance sheet when translated into SEK.
Translation effects of investments in companies affecting the
income statement were negative SEK  million net. Hedging
benefits fully offset these losses. The translation differences
reported within equity on the balance sheet were, net of
hedging, SEK –. billion.

Interest rate risks
Ericsson is exposed to interest rate risk through market value
fluctuations of certain balance sheet items and through
changes in interest expenses and income. Assuming our net
cash position remained at SEK . billion and our interest-
bearing provisions and liabilities remained at SEK . billion,
a sustained change in interest rates of plus/minus .
percentage points would have an annual impact on the
financial net of approximately SEK  million.

Credit risk in trade receivables
Extended payment terms for trade credits are regularly
reviewed with provisions made to cover any expected losses.
Trade receivables amounted to SEK . (.) billion less
provisions of SEK . (.) billion at year-end. Credit losses
have historically been low mainly because our customer base
largely consists of well established and financially sound
network operators.

Customer finance risk
Our gross exposure to customer finance, on and off balance
sheet, has been continuously reduced since . In most of
our customer financing agreements, we maintain security
interests, normally in the form of pledges of equipment,
certain of customers’ shares or pledges of their shares. To cover
the remaining risk exposure, provisions are made as part of
selling expenses. These provisions as a percentage of gross
exposure reflect the higher risk in a smaller and less
geographically diversified portfolio of customer credits. At
year-end ,  percent of our gross exposure was related to
Latin America. The remaining exposure is mainly related to
Europe, Middle East and Africa. The net effect on operating
expenses during  from risk provisions and credit losses
amounted to SEK –. (–.) billion.

Please see “Notes to the Financial Statements – Note ,
“Financial Risk Management and Financial Instruments” for
more information regarding customer financing.

Financial credit risk
Financial instruments carry an element of risk in that
counterparts may be unable to fulfill their payment
obligations. During , no credit losses were incurred from
such investments. All derivative transactions are covered by
ISDA Master agreements to reduce the credit risk.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 21

B O A R D O F D I R E C T O R S ’ R E P O R T

Liquidity and refinancing risk
Cash and cash equivalents increased by SEK . billion to SEK
. (.) billion during  mainly due to positive cash
flow. We expect our strong cash position to satisfy any short-
term liquidity requirements and therefore we have cancelled
our  committed credit facility of USD . billion and
repurchased outstanding bonds of SEK . billion.

During , there have been no material defaults in the
payment of principle or interest, or any other material default
relating to the indebtedness of Ericsson or any of its
significant subsidiaries.

Despite our currently below investment grade credit

ratings, we have been able to amend the terms and conditions
of the USD  billion revolving credit facility to reflect the
company's improved performance. In addition to better
pricing, the amended facility does not have any requirement
for collateral or an availability test as required under the
previous agreement.

CORPORATE SOCIAL RESPONSIBILITY
Effective management of social, environmental and
geopolitical issues can help to assure an enduring capability
for value creation and competitive advantage. We are
committed to being a responsible member of the global
society and to the communities in which we operate. Ericsson
supports the UN Global Compact and its ten guiding
principles. We see these principles as a prerequisite for sound,
long-term business. These are also guiding principles in our
work and inspire us to find new ways to deploy our products
and services, including in developing countries. In this spirit
we continued with our Supplier Code of Conduct program, in
close cooperation with local Ericsson organizations. During
 we had our main focus on China establishing local
management of ethical issues in the supply chain, including
Code of Conduct Auditors. During  Ericsson, as a
member of the Global Compact, initiated the first socio-
economic investigation in a developing country proving the
need for mobile telephony as a catalyst for rural economic
growth. This was made together with United Nations
Development Program (UNDP) and the Swedish Foreign aid
organization SIDA.

In , Ericsson was again included in the FTSEGood and
the Dow Jones Sustainability Indexes. Additional information
about our corporate social responsibility is available on our web
site at: www.ericsson.com/about/responsibility.

We encourage and empower our employees to make a
positive contribution to society. Their contributions are of
many kinds, determined by our employees according to local
needs. They may, for example, be in the fields of health care,
social and humanitarian aid, scholarships and other
educational support, art and culture, the environment,
children’s welfare as well as many other charitable activities.
We have provided a cornerstone donation of USD .

22 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

million to the John F. Kennedy School of Government at
Harvard University to help establish a newly endowed
Professorship in Global Leadership & Public Policy in
memory of Anna Lindh, former Foreign Minister of Sweden.

Ericsson Response
Ericsson Response is our global initiative to rapidly provide
specialist volunteers and communications equipment
anywhere in the world in response to human suffering caused
by disasters. Ericsson Response assists the disaster relief
operations of the United Nations Development Program, the
Office for the Coordination of Humanitarian Affairs (OCHA)
and the International Federation of Red Cross and Red
Crescent Societies (IFRC).

Following is a limited summary of Ericsson Response

disaster relief activities during :
• Helping to establish a new Pan American Disaster Response

center, which supports IFRC, operations in Central
America, the Caribbean and Latin America.

• Supporting the relief operations of IFRC, the Dominican

Red Cross and Télécoms Sans Frontières (TSF) following the
extensive damage from several hurricanes, floods and
mudslides in the Caribbean.

• Sending volunteers to Sudan to help support agencies such
as the UN Office for the Coordination of Humanitarian
Affairs, the World Food Program (WFP) and the Swedish
Rescue Services Agency (SRSA) regarding the humanitarian
crisis in that country.

• Supporting relief efforts in Southeast Asia after a series of

tsunamis devastated coastal regions in the area. We are also
aiding in reconstruction work in these disaster areas.

Environment
We continuously improve the environmental performance of
our products, services and operations and strive to meet or
exceed legal and other requirements to protect the
environment.

Key areas of progress during 2004 include:

• Improvements in nearly every environmental indicator

tracked. In particular, our overall energy consumption and
carbon dioxide generation, measured per produced capacity,
have been significantly reduced.

• Remained on schedule to meet the requirements of the EU
directive on waste electrical and electronic equipment
(WEEE).

• Expanded our worldwide Ecology Management recycling

program for our customers’ phased-out equipment.
• Continued to fund independent research of health and

safety issues.

Corporate Governance
Although our internal rules for governance and other
important rules for managing our business activities have long
been established through corporate steering policies and
directives, we have adapted our work procedure in line with
developments in Sweden and the US regarding reporting,
disclosure and other requirements for listed companies on the
Stockholmsbörsen, London Stock Exchange and NASDAQ as
well as changes in legislation, such as the US Sarbanes-Oxley
Act.

During , actions to further strengthen our corporate

governance included:
• Communication of a Code of Business Ethics and Conduct
that essentially summarizes the most important of our rules
to all employees, directors and officers throughout the
Group. There have been no amendments or waivers to the
Code of Business Ethics and Conduct for any Director or
member of our Management.

• Initiation of a project to comply with relevant sections of

the Sarbanes-Oxley Act. Implementation should be
completed by the end of .

Board Compensation
Members of the Board, who are not employees of the
Company, have not received any compensation other than the
fees paid for Board duties as outlined in Notes to the Financial
Statements – Note , “Information Regarding Employees,
Members of the Board of Directors and Management”.
Members and Deputy Members of the Board, who are
employees, i.e. the  and the Employee representatives,
have not received any remuneration or benefits other than
their normal employee entitlements, with the exception of a
small fee paid to the employee representatives on the Board
for each meeting attended.

Executive Compensation
The remuneration committee continues to be mindful of the
debates around the world on executive salaries and benefits.
Based on the results of an independent review by our external
auditors into all aspects of authorization, compliance and
control of senior executive compensation, we are confident
that current policies and practices at Ericsson are under proper
control.

For the Group Management team, the maximum level of
variable salary as a short term incentive has been reduced from
 percent to  percent of base salary from . This
change is compensated in two steps, implying for  an
increase of  percent of fixed salary. In addition, the employee
stock purchase plan has been enhanced as a long term
incentive to allow investments of up to . percent of fixed
salary. The previous version of the plan allowed a maximum
investment of the lower of . percent of salary or SEK ,
per year. For management and key contributors, an
acceleration feature has been added where multiple shares, up

B O A R D O F D I R E C T O R S ’ R E P O R T

to a maximum of six, may be awarded for each share
purchased if certain performance targets are met over a three-
year period.

As of December , , there were no loans outstanding
from, and no guarantees issued to or assumed by the Company
for the benefit of any member of the Board of Directors or
senior management.

Employees
Every year we conduct an employee satisfaction survey to
assess our Human Capital Index and employee empowerment.
In  over  percent of our employees participated in this
survey. While there is still considerable room for
improvements, the results showed a continued upward trend
in almost all indicators with organizational efficiency and
leadership showing the largest increases. Not surprising
considering the turmoil within the company the last several
years due to restructuring and downsizing, the employee
empowerment index indicated some employee frustration and
alienation. Action plans are in place to improve these areas
during .

Employee headcount was reduced by , to ,.

During the year, , employees departed while , joined
the company. The departures were mostly related to sales and
adminstration while the additions were mostly to support our
growing services business. Please also see Notes to the
Financial Statements – Note , “Information regarding
employees, members of the Board of Directors and
Management”.

LEGAL AND TAX PROCEEDINGS
As many other companies in the telecommunications industry,
we are named a defendant in a number of class actions in the
United States where plaintiffs allege that adverse health effects
could be associated with the use of mobile phones. Together
with the majority of the industry, Ericsson has been named a
defendant in six such lawsuits. The court has dismissed five of
these cases. Plaintiffs have appealed the decisions.

From  to the beginning of , Swedish fiscal

authorities disallowed, for corporate income tax purposes, the
Parent Company and the subsidiary companies Ericsson
Telecom AB and Ericsson Radio Systems AB (renamed
Ericsson AB) deductions for commission payments via external
service companies to agents in certain countries. The increase
in corporate income taxes for all group companies have been
provisioned for. The decisions covering the income year 
have been appealed.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 23

B O A R D O F D I R E C T O R S ’ R E P O R T

BOARD WORK
Board of Directors
The Board of Directors is elected yearly at the Annual General
Meeting for the period until the end of the next Annual
General Meeting. More information regarding the Board Of
Directors and its members as well as the Board and its
committee activities can be found in the Corporate
Governance chapter.

Board changes 2004
At the Annual General Meeting on April , , Nancy
McKinstry succeeded Peter Sutherland as member of the
Board. Lena Torell has informed that she declines to be re-
elected as member of the Board at the Annual General
Meeting .

Board work during 2004
In , seven Board meetings were held. The work of the
Board is subject to an established work procedure that defines
the distribution of work between the Board and its three
committees (Audit, Finance and Remuneration) and between
the Board and the President. The work procedure is evaluated
each year and revised when deemed appropriate. The
Chairman has had individual discussions with each member
regarding the work procedure and the evaluation of the Board
work. In addition, all board members have answered a written
questionnaire. The other members of the board evaluated the
work of the Chairman, as well as the President and Chief
Executive Officer.

Certain Board actions and decisions during :

• Amended the work procedure of the Board in order to take
into account organizational changes within the Group and
new NASDAQ rules regarding related party transactions.
• Determined that each of the shareholder elected members

of the audit committee qualify as Audit Committee
financial expert pursuant to the applicable attributes under
the final rules of the Sarbanes-Oxley Act.

• The external auditors presented their observations from

their audit of our annual report as well as their reviews of
interim reports and their assessment of our internal
controls and procedures.

• Initiated a project to further strengthen internal controls

and procedures to comply with applicable requirements of
the U.S. Sarbanes-Oxley Act.

• Resolved to apply the newly developed Swedish Code on

Corporate Governance when it becomes effective.

• Resolved to establish and capitalize a Swedish pension trust
fund to cover pension obligations under the Swedish ITP
plan.

Audit Committee
The Audit Committee had eight meetings in  and
reviewed the financial reporting, the scope and execution of
audits performed, the independence of the external auditors,
the internal audit function and audit fees as well as the
progress of the conversion to IFRS reporting. The committee
together with the external auditors reviewed each interim
report prior to publishing. The committee has continuously
followed the development of the rules and regulations of the
Sarbanes-Oxley Act and the Company’s implementation. The
committee has endorsed a strategy regarding non-audit
services and has approved certain services under such pre-
approval procedures. The committee has discussed the
requirement for audit committee financial experts and has
resolved to the Board to decide on the matter. An external
expert advisor, Mr. Peter Markborn, has been engaged to assist
and advise the committee. A procedure for confidential
submission by employees of violations of laws or regulations
(and in particular in relation to accounting, internal
accounting controls, auditing matters, or any deceptive
financial practices) was implemented during .

Finance Committee
The Finance Committee held ten meetings during the year.
The committee resolved issues regarding restructuring of
customer credits and trade receivables, guarantees, credit
facility agreements, acquisitions, refinancing of Ericsson’s
existing credit commitments, the financing strategy and
pension liabilities. The committee prepared for resolution by
the Board proposals for conditional shareholders’
contributions to subsidiaries, proposals with respect to a
public tender in Italy and certain acquisitions as well as a
proposal to establish a Swedish pension trust. The Finance
Committee also monitored the financial risk exposure and risk
limits and reviewed the reporting to the committee in this
respect.

Remuneration Committee
The Remuneration Committee held nine meetings during the
year. The committee reviewed and prepared for the Board a
proposal for a Long-Term Incentive Plan, which was resolved
by the  Annual General Meeting. The committee
approved certain remuneration packages for the CEO, the
members of the Group Management Team and new direct
reports to the CEO. The Chairman of the committee was
authorized to make an appropriate engagement arrangement
with an independent remuneration expert, Mr. Gerrit
Aronson. The committee also reviewed proposals for salaries
and incentive pay for .

24 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

PARENT COMPANY
The Parent Company business consists mainly of corporate
management and holding company functions. It also includes
activities performed on a commission basis by Ericsson
Treasury Services AB and Ericsson Credit AB regarding
internal banking and customer credit management. The
commission agreement with Ericsson Treasury Services AB has
been cancelled as per January , , and the internal
banking activities have been transferred to the Parent
Company.

The Parent Company is the owner of the majority of

intellectual property rights and manages the patent portfolio,
including patent applications, licensing and cross licensing of
patents and defending of patents in litigations.

The Parent Company has  () branch and representative

offices. In total, the Group has  () branch and
representative offices.

Net sales for the year amounted to SEK . (.) billion and

income after financial items was SEK . (.) billion.

Major changes in the Parent Company’s financial position

for the year include decreased investments in subsidiary
companies of SEK . billion (see Notes to the Financial
Statements – Note , “Financial Assets”). Current and long-
term commercial and financial receivables from subsidiary
companies increased by SEK . billion. Current and long-
term liabilities to subsidiary companies increased by SEK .
billion and notes and bond loans, including short-term
portions, have decreased by SEK . billion. At year-end, cash
and short-term cash investments amounted to SEK . (.)
billion.

In accordance with the conditions of the Stock Purchase
Plans and Option Plans for Ericsson employees, ,,
shares from treasury stock were sold or distributed to
employees during the year. The nominal value of theses shares
is SEK . million, representing less than one percent of
capital stock, and compensation received amounts to SEK 
million. The holding of treasury stock at December , 
was ,, Class B shares. The nominal value of these
shares is SEK . million, representing  percent of capital
stock, and related acquisition cost amounts to SEK .
million.

Change of voting Rights
At an Extraordinary General Meeting held on August ,
, the shareholders decided to change the difference in
voting rights between Class A and Class B shares as proposed
by a group of large shareholders. Following the change each
Class A share confers one vote and each Class B share confers
one tenth of a vote. The shareholders also decided to
implement a conversion clause into the Articles of Association
entailing that one Class B share could be converted to one
Class A share during the period September  – December ,
 by holders of special conversion rights. Conversion
rights were thereafter issued to the Class A shareholders. The

B O A R D O F D I R E C T O R S ’ R E P O R T

conversion rights were traded at the Stockholmsbörsen
between September  and December , . At the end of
the conversion period . percent of the conversion rights
had been used to convert B-shares to A-shares. The remaining
conversion rights have expired.

At year end , the  largest shareholders represented
. percent of the capital and controlled . percent of the
votes. Prior to the change in voting rights, the  largest
shareholders represented . percent of the capital and
controlled . percent of the votes.

POST CLOSING EVENTS
The Swedish Pension Trust established in December ,
was funded in January  with SEK . billion of cash and
cash equivalents. The amount transferred covers and prepays a
portion of our obligations under the Swedish ITP defined
benefits pension plan.

Effective February , , the Ericsson Board of Directors

has appointed Hans Vestberg as Executive Vice President in
the Ericsson Group. Hans Vestberg is head of Business Unit
Global Services.

On February , , Standard and Poor’s (S&P) raised
their credit rating of Ericsson to investment grade of BBB–,
and on March , , Moody’s upgraded their rating from
Ba to Ba, one level below investment grade.

CHANGED ACCOUNTING PRINCIPLES
WITH THE CONVERSION TO IFRS
From the first quarter of , we will start reporting
financial results according to International Financial
Reporting Standards (IFRS) as required when the European
Union’s Council of Ministers adopted the so-called IAS 
in June of . This regulation requires all exchange-listed
companies within the EU to prepare and issue consolidated
financial statements in accordance with IFRS.

Prior to January , , we have prepared our consolidated

financial statements in accordance with Swedish GAAP.
Because Swedish GAAP, in recent years, has been adapted to
IFRS to a high degree and as the rules for first time adopters
allows certain exemptions from full retrospective
restatements, the transition from Swedish GAAP to IFRS is
expected to have a relatively limited effect on our financial
statements. Furthermore, we believe the conversion to IFRS
will align our reporting more closely with US GAAP. The
most significant differences between our results reported in
Swedish GAAP and IFRS, net of taxes, for  include:
• Retrospective capitalization of development costs and

amortization of such costs (IAS ) will decrease net income
for  by approximately SEK . billion.

• Cessation of goodwill amortization (IFRS  and IAS ) will

increase our reported operating profit for  by
approximately SEK . billion.

• The fair value of outstanding employee share options

(IFRS ) and the recognition of costs for such share-based

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 25

B O A R D O F D I R E C T O R S ’ R E P O R T

employee compensation will reduce our operating profit by
approximately SEK . billion in .

• Recognition of financial instruments at fair value on the

balance sheet (IAS ) through equity affected the opening
balance as of January , , by the addition of SEK .
billion in assets, SEK . billion in liabilities and SEK .
billion in equity, net of deferred tax. The effect in the
opening balance of valuing Other Investments at fair value
as of January , , was approximately SEK . billion in
assets and SEK . billion in equity, net of deferred tax.
• A new definition of cash and cash equivalents (IAS ) that
includes only highly liquid investments, with original
maturity of three months or less, will lower our cash
position compared with that previously reported under
Swedish GAAP. However, our liquidity, i.e. payment
readiness, will not be affected and net cash will continue to
significantly exceed interest-bearing liabilities and
provisions.

In total, the conversion to IFRS will have a net effect of
approximately SEK –. billion on Net income for  and
SEK . billion on equity for January , , including the
effect of IAS . These estimates could change since the IFRS
rules may be changed during .

PROPOSED DISPOSITION OF EARNINGS
The Board of Directors proposes that a dividend of SEK .
per share is paid to shareholders duly registered on the Record
date of April , , and that the Company retains the
remaining part of non-restricted equity. The Class B treasury
shares held by the Parent Company are not entitled to receive
a dividend.

Assuming that no treasury shares remain within the

Company on the Record date, the Board of Directors propose
that earnings be distributed as follows:

Amount to be paid to the shareholders
Amount to be retained
by the Parent Company

SEK ,,,

SEK ,10,,

Total non-restricted equity
of the Parent Company

SEK ,13,,

Stockholm February , 
Telefonaktiebolaget LM Ericsson (publ)
Org. no. -

Arne Mårtensson
Deputy chairman

Michael Treschow
Chairman

Marcus Wallenberg
Deputy chairman

Nancy McKinstry

Peter L. Bonfield

Eckhard Pfeiffer

Sverker Martin-Löf

Lena Torell

Per Lindh

Torbjörn Nyman

Carl-Henric Svanberg
President and CEO

Jan Hedlund

26 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

CONSOLIDATED INCOME STATEMENT

Years ended December 31, SEK million

Net sales
Cost of sales
Gross margin

Research and development and other technical expenses
Selling expenses
Administrative expenses
Total operating expenses

Share in earnings of joint ventures
and associated companies
Other operating revenues and costs
Operating income

Financial income
Financial expenses

Income after financial items

Income taxes for the year
Minority interest

Net income

Average number of shares, basic (million)
Average number of shares, diluted (million)
Earnings per share, basic (SEK)
Earnings per share, diluted (SEK)

The following measures are reported excluding restructuring charges
in 2003 and 2002 specified in Note 3 “Restructuring Costs”
Gross margin

– as percentage of net sales

Operating expenses
Operating margin
Income after financial items

1) Restated for changed accounting principles in 2003.

Notes

2, 4

F I N A N C I A L S T A T E M E N T S

2004

131,972
–70,864
61,108

–20,861
–9,693
–6,551
–37,105

2,318
2,617
28,938

3,541
–4,081

28,398

–9,077
–297

19,024

15,829
15,859
1.20
1.20

61,108
46.3%
–37,105
21.9%
28,398

2003

117,738
–78,901
38,837

–27,136
–15,115
–8,762
–51,013

–604
1,541
–11,239

3,995
–4,859

20021)

145,773
–104,224
41,549

–30,510
–21,896
–9,995
–62,401

–1,220
773
–21,299

4,253
–5,789

–12,103

–22,835

1,460
–201

4,165
–343

–10,844

–19,013

15,823
15,841
–0.69
–0.69

43,627
37.1%
–40,037
4.4%
4,360

12,573
12,684
–1.51
–1.51

47,138
32.3%
–56,109
–6.4%
–10,873

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 27

F I N A N C I A L S T A T E M E N T S

CONSOLIDATED BALANCE SHEET

December 31, SEK million

Assets
Fixed assets
Intangible assets

Capitalized development expenses
Goodwill
Other intangible assets

Tangible assets
Financial assets

Equity in joint ventures and associated companies
Other investments in shares and participations
Long-term customer financing
Deferred tax assets
Other long-term financial assets

Current assets
Inventories
Receivables

Accounts receivable – trade
Short-term customer financing
Other receivables
Short-term cash investments
Cash and bank

Total assets

Stockholders’ equity, provisions and liabilities
Stockholders’ equity

Capital stock
Reserves not available for distribution

Restricted equity

Retained earnings
Net income

Non-restricted equity

Minority interest in consolidated subsidiaries

Provisions
Pensions
Deferred tax liabilites
Other provisions

Long-term liabilities
Notes and bond loans
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

Total stockholders’ equity, provisions and liabilities 1)

Assets pledged as collateral
Contingent liabilities

Notes

10, 28, 29

21, 22

2004

2003

4,343
5,324
748
5,845

4,150
543
2,150
21,815
1,236

46,154

4,784
5,739
687
6,505

2,970
433
3,027
27,130
1,342

52,617

14,003

10,965

32,644
1,446
12,239
64,350
12,204

136,886

183,040

16,132
40,170

56,302

1,973
19,024

20,997

77,299

1,057

10,087
421
24,778

35,286

19,844
1,993
1,856

23,693

781
938
3,390
10,988
1,686
27,922

45,705

31,886
979
12,718
56,622
16,585

129,755

182,372

16,132
40,298

56,430

14,895
–10,844

4,051

60,481

2,299

8,005
462
27,601

36,068

26,312
2,383
1,077

29,772

7,262
2,247
3,297
8,895
1,943
30,108

53,752

183,040

182,372

7,985
1,014

8,023
2,691

1) Of which total interest-bearing provisions and liabilities 33,643 (46,209), of which long-term 31,924 (36,700).

28 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

CONSOLIDATED STATEMENT OF CASH FLOWS

Years ended December 31, SEK million

Notes

2004

2003

2002

F I N A N C I A L S T A T E M E N T S

OPERATIONS
Net income

Adjustments to reconcile net income to cash
Depreciation, amortization and write-downs on tangible assets,
intangible assets and other operating long-term receivables
Taxes
Write-downs on other investments and capital gains(–)/losses on sale
of fixed assets excluding customer financing, net
Other non-cash items

Changes in operating net assets
Inventories
Customer financing, short-term and long-term
Accounts receivable – trade
Provisions and pensions
Other operating assets and liabilities, net

Cash flow from operating activities

INVESTMENTS
Investments in tangible assets
Sales of tangible assets
Acquisitions/sales of shares and other investments, net
Capitalization of development expenses
Net change in capital contributed by minority
Other

Cash flow from investing activities

Cash flow before financing activities

FINANCING
Changes in current liabilities to financial institutions, net
Proceeds from issuance of other long-term debt
Repayment of long-term debt
Stock issue
Sale/repurchase of own stock
Dividends paid

Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

19,024

–10,844

–19,013

4,797
5,228

–121
–899

–3,432
–65
–1,403
–1,990
1,340

22,479

–2,452
358
–1,549
–1,146
71
–70

–4,788

8,395
–2,352

924
–580

2,286
7,999
4,131
5,810
7,098

6,537
–9,171

721
81

8,599
–2,140
9,839
3,576
–9,117

22,867

–10,088

–1,806
1,510
–818
–2,359
1
60

–3,412

–2,738
2,977
2,703
–3,442
503
2,981

2,984

17,691

19,455

–7,104

–1,502
870
–13,649
–
15
–292

–14,558

214

3,347

–854
32
–10,904
158
–150
–206

–11,924

–538

6,993

–17,168
540
–6,072
28,940
2
–645

5,597

–1,203

–2,710

Cash and cash equivalents, beginning of period

73,207

66,214

68,924

Cash and cash equivalents, end of period

76,554

73,207

66,214

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 29

F I N A N C I A L S T A T E M E N T S

CONSOLIDATED STOCKHOLDERS’ EQUITY

Years ended December 31, SEK million

Opening Balance
Effect of changed accounting principle 1)

Opening balance in accordance with new accounting principle

Stock issue, net
Sale of own stock
Stock purchase and stock option plans
Repurchase of own stock
Changes in cumulative translation effects due to changes
in foreign currency exchange rates
Adjustment of accrued cost for stock issue 2002
Net income

Closing balance

1) Restated due to change in accounting principle RR 29/IAS 19.

2004

60,481
–1,275

59,206

–
15
159
–

–1,107
2
19,024

77,299

2003

73,607
–

73,607

158
8
151
–158

–2,444
3
–10,844

60,481

2002

68,587
–

68,587

28,940
2
12
–

–4,921
–
–19,013

73,607

30 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

PARENT COMPANY INCOME STATEMENT

Years ended December 31, SEK million

Net sales
Cost of sales

Gross margin

Research and development and other technical expenses
Selling expenses
Administrative expenses

Total operating expenses

Other operating revenues and costs

Operating income

Financial income
Financial expenses

Income after financial items

Transfers to (–)/from untaxed reserves

Changes in depreciation in excess of plan
Changes in other untaxed reserves

Income taxes for the year

Net income

1) 2002 restated according to URA 7, Group contributions and shareholders’ contribution.

F I N A N C I A L S T A T E M E N T S

2004

2,598
–2,238

360

–8
–613
–981

–1,602

2,890

1,648

11,008
–5,251

7,405

53
1,137

1,190

–1,435

7,160

2003

1,645
–1,278

367

–15
–1,539
–2,920

–4,474

2,408

–1,699

9,177
–6,019

1,459

–40
–

–40

–169

1,250

2002 1)

2,017
–2,358

–341

–37
–3,099
–1,345

–4,481

2,769

–2,053

12,997
–8,620

2,324

20
1,977

1,997

–1,639

2,682

Notes

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 31

F I N A N C I A L S T A T E M E N T S

PARENT COMPANY BALANCE SHEET

December 31, SEK million

Notes

2004

2003

Assets
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments

Subsidiaries
Joint ventures and associated companies
Other investments

Receivables from subsidiaries
Long-term customer financing
Deferred tax assets
Other long-term financial assets

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

Stockholders’ equity, provisions and liabilities
Stockholders’ equity
Capital stock
Share premium reserve
Revaluation reserve
Statutory reserve

Restricted equity

Retained earnings
Net income

Non-restricted equity

Untaxed reserves

Provisions
Pensions
Other provisions

Long-term liabilities
Notes and bond loans
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

Total stockholders’ equity, provisions and liabilities

Assets pledged as collateral

Contingent liabilities

32 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

9
10, 28, 29

11, 12
11, 12
11
15
11
7
11

15
16

19
20

21
21
15

24
15

40
344

62
505

48,860
4,474
12
48,535
1,964
2,527
451

58,991
4,507
17
34,046
2,023
1,646
476

107,207

102,273

194
683
15,667
8,203
63,924
7,772

96,483

84
1,568
22,835
6,523
55,820
12,573

99,406

203,690

201,679

16,132
24,731
20
6,741

47,624

8,979
7,160

16,139

63,763

939

861
2,195

3,056

19,844
116
33,840
106

53,906

699
322
–
175
77,600
–
3,230

82,026

16,132
24,729
20
6,741

47,622

12,385
1,250

13,635

61,257

2,129

848
3,183

4,031

26,312
290
31,911
63

58,576

5,905
1,746
2
230
57,606
149
10,048

75,686

203,690

201,679

807

7,025

698

10,517

PARENT COMPANY STATEMENT OF CASH FLOWS

Years ended December 31, SEK million

OPERATIONS
Net income

Notes

2004

2003

2002 1)

7,160

1,250

2,682

F I N A N C I A L S T A T E M E N T S

Adjustments to reconcile net income to cash
Depreciation and amortization
Taxes
Write-downs and capital gains (–)/losses on sale of fixed assets, net
Additions to/withdrawals from (–) untaxed reserves
Unsettled dividends

Changes in operating net assets
Inventories
Customer financing, short-term and long-term
Accounts receivable–trade
Provisions and pensions
Other operating assets and liabilities, net

Cash flow from operating activities

INVESTMENTS
Investments in tangible assets
Sales of tangible assets
Acquisitions/sales of shares and other investments, net
Lending, net
Other

Cash flow from investing activities

Cash flow before financing activities

FINANCING
Changes in current liabilities to financial institutions, net
Changes in current liabilities to subsidiaries
Proceeds from issuance of other long-term debt
Repayment of long-term debt
Stock issue
Sale/repurchase of own stock
Settled contributions from/to (–)subsidiaries
Other

Cash flow from financing activities

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

133
1,177
1,009
–1,190
–

–37
1,137
495
–975
–3,756

5,153

–50
70
9,136
–5,536
1,446

5,066

152
150
1,479
40
–196

–1
6,335
61
445
5,010

14,725

–653
23
–2,135
9,726
1,809

8,770

49
1,595
3,792
–1,997
–3,108

–
–6,164
1,399
–1,469
2,749

–472

–2
7
–1,275
–6,503
–2,219

–9,992

10,219

23,495

–10,464

–1,478
6,852
450
–12,263
–
15
–492
–

–6,916

3,303

68,393

71,696

1,930
–1,420
342
–15,083
158
–150
–163
–31

–14,417

9,078

59,315

68,393

–293
–3,666
232
–4,641
28,940
2
477
–287

20,764

10,300

49,015

59,315

1) 2002 restated according to URA 7, Group contributions and shareholders’ contribution, and including all taxes in Adjustments to reconcile net income to cash.

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 33

F I N A N C I A L S T A T E M E N T S

PARENT COMPANY STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended December 31, SEK million

Opening balance
Stock issue, net
Sale of own stock
Stock purchase and stock option plans
Repurchase of own stock
Adjustment of accrued costs for stock issue 2002
Contributions from/to subsidiaries
Tax on contributions
Net income

Closing balance

1) Restated according to URA 7, Group contributions and shareholders’ contribution.

2004

61,257
–
15
27
–
2
–6,525
1,827
7,160

63,763

2003

61,862
158
8
3
–158
3
–2,305
436
1,250

61,257

2002 1)

31,810
28,940
2
–
–
–
–2,183
611
2,682

61,862

34 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Notes to the Financial Statements

CONTENTS

Accounting Policies __________________________________________________________________________36
1.
Segment Information ________________________________________________________________________44
2.
Restructuring Costs __________________________________________________________________________47
3.
Revenues __________________________________________________________________________________47
4.
Other Operating Revenues and Costs __________________________________________________________48
5.
Financial Income and Expenses ________________________________________________________________48
6.
Income Taxes for the Year ____________________________________________________________________49
7.
Earnings per Share __________________________________________________________________________51
8.
Intangible Assets ____________________________________________________________________________51
9.
10. Tangible Assets
____________________________________________________________________________53
11. Financial Assets ____________________________________________________________________________55
Investments ________________________________________________________________________________57
12.
13.
Inventories __________________________________________________________________________________59
14. Accounts Receivable – Trade __________________________________________________________________59
15. Receivables and Payables – Subsidiary companies ______________________________________________59
16. Other Receivables ____________________________________________________________________________59
17. Stockholders’ Equity__________________________________________________________________________60
18. Untaxed Reserves __________________________________________________________________________61
19. Pensions____________________________________________________________________________________62
20. Other Provisions ____________________________________________________________________________64
21.
Interest-bearing Provisions and Liabilities ________________________________________________________65
22. Financial Risk Management and Financial Instruments ____________________________________________66
23. Other Current Liabilities ______________________________________________________________________70
24. Accounts and Notes Payable – Trade____________________________________________________________70
25. Assets Pledged as Collateral __________________________________________________________________70
26. Contingent Liabilities__________________________________________________________________________70
27. Statement of Cash Flows ______________________________________________________________________70
28. Leasing ____________________________________________________________________________________71
29. Tax Assessment Values in Sweden ______________________________________________________________72
30. Special Information Regarding the Parent Company ______________________________________________72
31.
Information Regarding Employees, Members of the Board of Directors and Management ________________72
32. Related Party Transactions ____________________________________________________________________78
33. Fees to Auditors ____________________________________________________________________________78
34. Reconciliation to Accounting Principles Generally Accepted in the United States ______________________79

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 35

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

1 ACCOUNTING POLICIES
The consolidated financial statements of Telefonaktiebolaget
LM Ericsson, the Parent Company and its subsidiary companies
(“the Company”) are prepared in accordance with accounting
principles generally accepted in Sweden, applying all applicable
standards (RR) and interpretations (URA) issued by the Swedish
Financial Accounting Standards Council (Redovisningsrådet)
and the Annual Accounts Act. These accounting principles
differ in certain respects from generally accepted accounting
principles in the United States (US GAAP). For a description of
major differences, with respect to Ericsson’s financial
statements, see Note , “Reconciliation to Accounting
Policies Generally Accepted in the United States”.

In  the following standards were adopted:

RR 29 – Employee benefits
The effect of this standard is a change in timing of pension
costs compared to previous Swedish GAAP, so that pension
costs for future salary increases are estimated and recognized
during the time of service. The effect of the adoption of RR 
at January , , has been charged to stockholders’ equity
while the effect of RR  from that date has been charged to
income.

The Parent Company has not adopted RR  in relation to

accounting for pensions.

URA 43 – Accounting for special payroll tax and tax on
investment returns
As from  we have adopted, only at group level, URA 
Accounting for special payroll tax and tax on investment
returns. At the adoption of RR  the effect of URA  has been
accounted for as a charge to stockholders’ equity. The effect of
URA  has been charged to income in .

Revenue recognition
Sales are recorded net of value added taxes, goods returned,
trade discounts and rebates. Revenue is recognized with
reference to all significant contractual terms when the product
or service has been delivered, when the fee is fixed and
determinable and when collection is reasonably assured.

We do not generally provide extended payment terms but
may provide customer financing in construction-type contracts.
We offer a comprehensive portfolio of telecommunication
and data communication systems and services covering a range
of technologies. The majority of our products and services are
sold as parts of contracts including several items. The nature of
the products and services being sold, and the contractual terms
taken as a whole, determine the appropriate revenue
recognition method. The contracts are of three main types:
• delivery-type
• construction-type
• contracts for various types of services, for example managed

services contracts for several years

Large customer frame agreements may include different types
of undertakings and may result in a mix of construction-type
contracts, delivery-type contracts and service contracts.

Different revenue recognition methods are applied based on

the solutions provided to our customers, the nature and
sophistication of the technology involved and the contract
conditions in each case. Specific contractual performance and
acceptance criteria impact the timing and amounts of revenue
recognized.

Revenues from construction-type contracts are generally
recognized using the percentage-of-completion method. The
degree of completion is measured using either the milestone
output method or, to a very limited extent, the cost-to-cost
method. The terms of construction-type contracts generally
define milestones for progress billing to the customer, which
also well reflect the degree of completion of the contract.

Revenues from contracts associated with new technology are
not recognized until specified functionality has been achieved,
customer acceptance has been obtained and other contractual
terms have been satisfied. The profitability of contracts is
periodically assessed and adjusted, if necessary, based on
changes in circumstances. Provisions for losses are made when
such losses become known.

For delivery-type contracts that have multiple elements,

revenue is allocated to each element based on relative fair
values. If there are undelivered elements essential to the
functionality of the delivered elements, or, if fair values are not
available for all elements, we defer the recognition of revenue
until all elements essential to the functionality have been
delivered or fair values exist for the undelivered elements.

36 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Revenue for period service contracts and managed services

contracts is recognized pro rata over the contract period.
Revenue for training, consulting, engineering, installation and
similar services is generally recognized when the services are
performed.

Mobile platform license revenues are included in reported
Net Sales and contracted based on the number of handsets or
components produced by the customer. Revenue is recognized
when the customer production has occured.

For sales between consolidated companies we apply arm’s

length pricing.

Capitalized development costs
Costs incurred for development of products to be sold, leased or
otherwise marketed or that are intended for internal use are
capitalized, only at the group level, as from when technological
and economical feasibility have been established until the
product is available for sale or use.

Capitalized costs include direct labor and related overhead.
Amortization of capitalized development costs begins when the
product is available for general release. Amortization is made
on a product or platform basis according to the straight-line
method over periods not exceeding five years. Research and
development costs directly related to orders from customers are
accounted for as a part of cost of sales. Other research and
development costs are charged to expense as incurred.

Capitalized development costs are subject to regular
assessment of recoverability based on anticipated future
revenues and changes in technologies. Unamortized capitalized
development costs determined to be in excess of net realizable
value are expensed immediately.

Share-based employee compensation
Stock option plans
Since the employee’s strike price is equal to the market price at
grant date, no compensation cost is recognized for any of our
current stock option plans. When the options are exercised,
however, social security charges are to be paid in certain
countries on the value of the employee benefit; generally based
on the difference between the market price of the share and the
strike price. During the vesting period, i.e. the period during
which the employees have to fulfill vesting requirements,
estimated costs for such social security charges are accrued. In
some plans, these costs are reduced by income from related
hedging arrangements.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Stock purchase plans
For stock purchase plans, a compensation cost is recognized
during the vesting period, based on the market price of the
share at the employee’s investment date. In the balance sheet
the corresponding amounts are accounted for as equity. Vesting
conditions effect the number of shares that will match.
Compensation expenses are based on estimates of the number of
shares that will match at the end of vesting period. When
shares are matched, social security charges are to be paid in
certain countries on the value of the employee benefit. The
employee benefit is generally based on the market value of the
shares at the matching date. During the vesting period,
preliminary social security charges are accrued.

Government grants
Government grants are recognized when there is a reasonable
assurance of compliance with conditions attached to the grants
and that the grants will be received.

For Ericsson, government grants are linked to performing of

research or development work or to subsidized capital
expenditures as governmental stimulus to employment or
investments in a certain country or region. Overall amounts are
not significant. Government grants are normally reported as
reductions of development cost or cost of sales or reductions of
capital expenditure, depending on their nature.

Borrowing costs
The Company does not capitalize any borrowing costs,
including borrowing cost related to financing of construction of
tangible assets.

Earnings per share
Basic earnings per share are calculated by dividing net income
by the average number of shares outstanding during the year.
Diluted earnings per share are calculated by dividing an

adjusted net income by the sum of the average number of
shares outstanding plus all additional shares that would have
been outstanding if all convertible debentures were converted
and stock options were exercised (potential ordinary shares).
Net income is adjusted by reversal of interest expense for
convertible debentures net of tax.

Potential ordinary shares are treated as dilutive when, and
only when, their conversion to ordinary shares decrease earnings
per share.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 37

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Principles of consolidation
The consolidated financial statements include the accounts of the
Parent Company and all subsidiary companies. Subsidiary
companies are all companies in which Ericsson has an ownership
and directly or indirectly, including effective potential voting
rights, has a voting majority or by agreement has control or
retains the majority of the residual or ownership risk of the
entity. Inter-company transactions have been eliminated.

Elimination of unrealized profits in inventory is made in full

without consideration of minority interests.

Goodwill
Goodwill resulting from acquisitions of subsidiary and
associated companies is amortized according to individual
assessment of each item’s estimated economic life, resulting in
amortization periods of up to  years. Goodwill in foreign
investments is remeasured at year-end exchange rates.
Depending on the nature of the acquisition, goodwill
amortization is reported under “Research and development and
other technical expenses”, “Selling expenses” or
‘‘Administrative expenses”.

The consolidated financial statements have been prepared in

Goodwill resulting from acquisitions is tested annually for

accordance with the purchase method, whereby consolidated
stockholders’ equity includes equity in subsidiary companies
and associated companies earned only after their acquisition.
The Parent Company income includes dividends received
from subsidiary companies and other inter-company revenues
and costs, which are eliminated in the consolidated accounts.

Associated companies and joint ventures
Investments in associated companies, including joint ventures,
where voting stock interest including effective potential voting
rights is at least  percent but not more than  percent, or
where a corresponding influence is obtained through
agreement, are accounted for according to the equity method.
Ericsson’s share of income is reported in item “Share in earnings
of joint ventures and associated companies”, included in
Operating Income. Taxes are included in item “Income taxes”.
Unrealized internal profits in inventory in associated companies
purchased from subsidiary companies are eliminated in the
consolidated accounts in proportion to ownership. Investments
in associated companies are shown at equity after adjustments
for unrealized inter-company profits and un-amortized
goodwill (see Goodwill below).

Undistributed earnings of associated companies included in

consolidated restricted equity are reported as “Equity
proportion reserve”, as detailed in Note , “Stockholders’
Equity”.

All other equity instruments are accounted for as Other
investments and carried at the lower of acquisition cost or fair
value.

impairment and if there is an indication of potential
impairment.

Translation of financial statements in foreign currency
For most subsidiary companies, joint ventures and associated
companies, the local currency is the currency in which the
companies primarily generate and expend cash, and is thus
considered their functional (business) currency. Their financial
statements plus goodwill related to such companies, if any, are
translated to SEK using the current method, with translation
adjustments reported directly in consolidated stockholders’
equity. When a company accounted for in accordance with
these principles is sold, accumulated translation adjustments
are included in consolidated income.

Financial statements of companies with finance activities and

other companies, having such close relations with the Swedish
operations that their functional currency is considered to be SEK,
are remeasured using the monetary method. Adjustments from
remeasurement of financial statements of these companies are
included in consolidated income. (See Note , “Stockholders’
Equity”.)

For a limited number of companies, the functional currency

is another than the local currency. These companies are
translated in two steps. In the first step, remeasurement is
made into the functional currency and resulting exchange rate
gains/losses are reported in income . In the second step, from
the functional currency to SEK, the financial statements are
translated using the current method. The remeasurement
method gives a more fair view of these financial statements
than a translation directly to SEK, since these companies
operate in de facto USD- or EUR-based economies.

38 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

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. Effects of hedging are, in the income
statement, reported together with the hedged item. The net
difference between foreign exchange gains/losses on operating
transactions and gains/losses on hedging through foreign
exchange derivatives are included in cost of goods sold. 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

subsidiary companies are reported directly to consolidated
stockholders’ equity, net of tax effects.

Cash investments, derivative financial instruments and
fair value estimation of financial instruments
Short-term cash investments in the consolidated accounts are
valued at the lower of acquisition cost plus accrued interest and
fair value. In the Parent Company, short-term cash
investments, interest and “foreign exchange” related derivatives
are valued at the lower of acquisition cost plus accrued interest
and fair value.

Derivative financial instruments are used to hedge foreign
exchange and interest rate risks. Foreign exchange derivatives
hedging items on the balance sheet are valued at fair value to
offset the changed value of hedged items. Foreign exchange
derivatives hedging forecasted transactions are not carried on
the balance sheet. Derivatives not fulfilling the requirements
for hedge accounting are valued at the lower of cost and fair
value. Premium/discount on currency forward contracts is
amortized during time to maturity. Interest rate-related
derivatives linked to specific investments or loans, or which are
applied to hedge interest rate positions are valued in the same
manner as the hedged position.

Gains and losses from derivatives in the Parent Company are

reported net as other financial income/expenses. In the
consolidated accounts, gains and losses on operational hedges
are reported in the same manner as the underlying position.
Interest rate-related derivatives and foreign exchange

derivatives are in the consolidated accounts valued according to
the lower of acquisition cost and fair value, determined on a
portfolio basis.

Financial assets and liabilities are offset and reported net in
the balance sheet when there is a legally enforceable right for
setoff and there is intent to settle on a net basis or to realize the
asset and settle the liability simultaneously.

When calculating the fair values of financial instruments
official rates or quoted market prices are used. If official rates or
market prices are not available, valuations have been made by
discounting the expected future cash flows at prevailing
interest rates. When calculating fair values of short-term

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

investments, changes in credit spreads are included. Ericsson’s
listed debt instruments (outstanding notes and bond loans) are
valued at amortized cost.

Intangible and tangible fixed assets
Intangible and tangible fixed assets are stated at cost less
accumulated amortization/depreciation/write-down. Tangible
assets are stated with net value of revaluations.

Annual depreciation is reported as plan depreciation,

generally using the straight-line method, with estimated useful
lives of, in general,  years on buildings,  years on land
improvements,  to  years on machinery and equipment, and
up to  years on rental equipment. Intangible assets excluding
goodwill are amortized over a period of maximum  years. See
Goodwill above for amortization of goodwill. Amortization and
depreciation is included in “Cost of Sales” and in the respective
functional operating expenses.

Costs for development of products to be sold, leased or
otherwise marketed or developed or obtained for internal use
are capitalized as intangible assets when technological
feasibility has been established and when future economic
benefits can be demonstrated. As technological feasibility often
cannot be established until late in each project, the capitalized
portion of total development costs is limited. Other
development costs are charged to the income statement as
incurred. See also “Capitalized development costs”.

Impairment tests of tangible and intangible fixed assets,
including goodwill, are performed on a regular basis whenever
there is an indication of possible impairment. However,
intangible assets not yet available for use are tested annually.
The carrying values of fixed assets, including goodwill related
to those assets, are not considered to be recoverable when the
expected discounted cash flows from those assets are less than
their carrying values. An impairment loss is determined based
on the amount by which the carrying value exceeds the fair
value of those assets. Losses on fixed assets to be disposed of, are
determined in a similar manner, taking into account the selling
price reduced by the costs of disposal. Provisions are made for
expected costs for restoration of land or buildings due to
environmental obligations or obligations in leasing contracts.

Leasing
Leasing when the company is the lessee
Finance leasing contracts are capitalized and reported as
tangible assets and as other current liabilities and other long-
term liabilities. Operating lease contracts are not capitalized.

Leasing when the company is the lessor
Leasing contracts with the company as a lessor are classified as
financial leases, when the majority of risks and rewards are
transferred to the lessee, and otherwise as operating leases, for
example when sub-leasing parts of leased properties.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 39

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Deferred taxes
Deferred tax assets attributable to temporary differences
between the book values of assets and liabilities and their tax
values, and also deferred tax receivables attributable to
unutilized tax loss carry-forwards, are reported to the extent
that it is probable that future taxable profits will be available
against which the tax losses can be utilized.

The valuation of deferred tax assets involves assumptions
regarding the deductibility of costs not yet subject to taxation
and regarding sufficient future taxable income to enable
utilization of unused tax losses in different tax jurisdictions. All
deferred tax assets are subject to annual review of possible
utilization. The largest amounts of tax loss carry-forwards are in
Sweden, with indefinite period of utilization.

The accumulated deferred tax asset/liability is remeasured

regularly by applying the current tax rate in each country.
Adjustments of deferred tax assets/liabilities attributable to
changes in tax rates are included in current year income.

Receivables and customer financing
Receivables are reported at anticipated net realizable value.
Sales of trade receivables and customer financing credits are
reflected as a reduction of receivables in the balance sheet and
the proceeds received are included in “Cash flows from
operating activities”.

For sale of receivables with recourse, provisions are recorded

for estimated value of recourse liabilities. The excess of the
recourse obligation over the recorded provision is included in
contingent liabilities.

We provide financing to certain customers in connection
with significant sales of network infrastructure equipment.
Financing may include funding for the direct purchase of our
products and services or, in exceptional cases, for working
capital purposes. We assess the collectibility of our receivables
for purposes of initial revenue recognition and to record
receivables at anticipated realizable value. In instances where
we have sold credits with recourse or where we have exposure
related to guarantees to third parties for customer financing, we
have reported the extent of our exposure as contingent
liabilities. We accrue risk provisions based on our assessment of
the risks relating to these contingent liabilities, and contingent
liabilities are reported net of such provisions.

40 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Inventories
Inventories are valued at the lower of cost or market on a first-
in, first-out (FIFO) basis.

Risks of obsolescence has been valued by estimating market

value based on future customer demand and changes in
technology and customer acceptance of new products.

Provisions
Provisions are recognized when we have a present legal or
constructive obligation as a result of past events and when it is
likely that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated.

Our provisions mainly relate to warranty commitments,

restructuring, estimated obligations for patent and other
litigations, contractual discounts and penalties of uncertain
timing or amount, potential supplier and subcontractor claims
and unresolved Income Tax and VAT/GST issues.

Pensions and other post-employment benefits
Pensions are classified either as defined contribution plans or
defined benefit plans. Under a defined benefit plan it is the
company’s obligation to provide agreed benefits to current and
former employees. The related actuarial and investment risks
fall on the company, while under a defined contribution plan
the company’s obligation is limited to agreed amounts that the
company has to contribute to an insurance company.

Ericsson adopted RR  Employee Benefits in . When

applying RR , defined benefit plans in all subsidiary
companies within Ericsson are accounted for using the same
actuarial method. In the financial reporting for Ericsson before
, such plans have been accounted for in accordance with
local rules and principles in each country.

The present value of the defined benefit obligation for

current and former employees is calculated using the Projected
Credit Unit Method. The calculations are based upon actuarial
assumptions and are as a minimum prepared annually.
Actuarial assumptions are the company’s best estimate of the
variables that determine the cost of providing the benefits.
When using actuarial assumptions it is possible that the actual
result differ from the assumed result. These differences are
actuarial gains and losses. They are for example caused by
unexpectedly high or low rates of employee turnover, salary
changes, the effect of changes in the discount rate and
differences between actual return on plan assets and the
expected return on plan assets. Actuarial gains and losses are
amortized over the employees average remaining service period
if the gains/losses exceed the greater of  percent of the present
value of the defined benefit obligation or  percent of the fair
value of plan assets at the beginning of period (the corridor).
The accounting for defined contribution plans has not been
affected by the adoption of RR  in .

The adoption of RR  increased the provision for pensions
by SEK . billion and decreased the equity by SEK –. billion,
net of tax.

In the Parent Company the ITP pension plan is accounted for

in accordance with FAR .

Statement of cash flows
Foreign subsidiary companies’ transactions are translated at the
average exchange rate during the period. Subsidiary companies
purchased and/or sold, net of cash acquired/sold, are reported as
cash flow from investment activities and do not affect reported
cash flow from operations.

Cash and cash equivalents consist of cash, bank and short-

term investments. Included are all highly liquid financial
instruments which are easily converted to cash and
insignificantly affected by changes in value and used by our
treasury function for cash management purposes.

Segment reporting
Our three operating segments are defined based on customers
served and inter-dependency of products and services provided.
Financial information is provided to the Board based on these
three segments:
• Systems, addressing operators of mobile and fixed line public

telephone networks.

• Phones, addressing distributors of mobile handsets to end

users. Financial information for this segment consists of our
share in earnings of Sony Ericsson.

• Other operations, which consists of a number of different
operations with different types of customers. Included
operations are: Microwave Systems, Network Technologies,
Enterprise Systems, Mobile Platform Technology, Power
Modules and other.

The operating segments operate in five main geographical
areas, () Western Europe, () Central and Eastern Europe,
Middle East and Africa, () Asia Pacific, () North America and
() Latin America.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

New accounting standards 2005
From , Ericsson will report according to International
Financial Reporting Standards (IFRS). The implementation of
IFRS has been prepared in an internal project. The IFRS
standards regarding capitalization of development costs,
business combinations, share-based payments and financial
instruments are expected to have the most significant impact
on the financial position and result.

IAS 38 – Intangible assets
When adopting the Swedish accounting standard RR 
Intangible assets in , the standard was implemented
prospectively, i.e. no restatement was allowed, whereas IAS 
Intangible assets shall be implemented retrospectively. The
capitalization according to Swedish GAAP during –
has been the same as per IFRS. Retrospective application will
lead to an increase in the opening balance of intangible assets as
of January , , due to capitalized development costs in
years prior to , and increased amortizations on such assets
during  and onwards. The opening balance for  will
be equal to the closing balance according to US GAAP per
December , , since capitalization of development costs
has been made for US GAAP purposes historically. Due to the
restatement to IFRS, intangible assets will increase by SEK ,
million, deferred tax assets will decrease by SEK , million
and equity will increase by SEK , million respectively. As a
result amortization for  will increase by SEK , million
under IFRS.

IFRS 3 – Business combinations including goodwill
Rules applying to reporting of business combinations (IFRS )
will result in changes in reporting of acquisitions of companies.
A more detailed purchase price allocation is to be made, in
which fair value is also assigned to acquired intangible assets,
such as customer relations, brands and patents. Goodwill arises
when the purchase price exceeds the fair value of acquired net
assets. Goodwill arising from acquisitions is no longer
amortized but instead subject to impairment review; both
annually and when there are indicators that the carrying value
may not be recoverable.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 41

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

In Ericsson’s reporting during , acquisitions carried out
in  will be accounted for in accordance with the new rules.
There will be no adjustments for acquisitions prior to the
transition date, January , . The value of goodwill will be
frozen at January , , and amortization reported under
Swedish GAAP for  will be reversed in IFRS restatements.
For Ericsson, the new standard will result in an increase in

reported operating profit for  of SEK  million. No
difference in reported earnings will arise as a result of
acquisitions carried out in .

IFRS 2 – Share-based Payments
Ericsson has chosen not to apply IFRS  to equity instruments
granted before November , . For one employee option
program, granted after November , , and not yet vested
by January , , Ericsson recognizes a charge to income
representing the fair value at grant date of the outstanding
employee options. The fair value of the options was calculated
using an option-pricing model. The total costs are recognized
during the vesting period ( years). The impact on operating
profit is a charge of SEK  million in  and estimated to
SEK  million in .

For other programs there are no material differences.

IAS 32 and 39 – Financial Instruments and Hedging
IAS  and  are standards that deal with disclosure,
presentation, recognition and measurement of financial
instruments. These standards are applied from January , .
A major effect is that derivatives will be recognized at fair
value on the balance sheet. Subsequent changes in fair value of
derivatives are recognized in the income statement, unless the
derivative is a hedging instrument in (i) a cash flow hedge or
(ii) a hedge of a net investment in a foreign operation. In those
cases, the effective portion of fair value changes of the derivative
will be recognized in equity until the hedged transaction affects
the income statement, at which moment the accumulated
deferred amount in equity is recycled to the income statement.

For derivatives assigned as (iii) fair value hedges, fair value

changes on both the derivative and the hedged item,
attributable to the hedged risk, will be recognized in the
income statement and offset each other to the extent the hedge
is effective.

The opening balance January , , was affected by
SEK , million in assets, SEK , million in liabilities and
SEK , million in equity net of deferred tax as a result of
accounting for derivatives at fair value.

Other investments are under Swedish GAAP reported at the
lower of acquisition cost or fair value. Those investments will
be reported at fair value under IAS , and since they will be
classified as Available-for-sale under IAS , changes in the fair
value will be recognized directly in equity, unless an
impairment is determined. For investments in quoted
companies, fair values are determined based on share prices at
the balance sheet date and for non-quoted investments, fair
values are estimated.

The effect in the opening balance January , , was an
increase of SEK  million in assets and an increase of SEK 
million in the equity, net of deferred tax.

IAS 19 – Employee Benefits
Ericsson reports pensions and similar benefits according to IFRS
(IAS ), which is similar to RR  that was implemented from
January , . The effect of adoption of IAS  is therefore not
considered a transition effect. The reporting of pensions for
Ericsson will continue to be in accordance with URA 
awaiting further guidance.

The restatement for RR  resulted in an increased pension
liability, reduced equity and increased deferred tax assets in the
opening balance of  under Swedish GAAP. The effect of
implementing RR  was communicated in the first quarter
interim report . After taking into account the tax effects,
the impact on stockholders’ equity was a charge of SEK ,
million. Actuarial gains and losses were recognized in the
opening balance. No other impact will occur according to
IAS .

42 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Summary of transition effects:
The preliminary effects of the adoption of IFRS on the
consolidated balance sheet, equity and income statement are
shown in the tables below. The effects of IAS  are only
included in the opening balance for , since no restate of
prior periods will be made.

Summarized reconciliation of consolidated net profit:

(SEK million)

Net income under Swedish GAAP
IFRS adjustments

Amortization of capitalized development costs
Reversed amortization of Goodwill 1)
Share-based payments 2)
Deferred taxes on IFRS adjustments

Total IFRS adjustments

Net income under IFRS

2004

19,024

–2,660
475
–45
745

–1,485

17,539

1) Including the effect of share in earnings of JV and associated companies due to

reversed amortization of goodwill.

2) The net effect in equity is zero.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Impact of IFRS on the Statement of Cash Flows
According to IAS  “Cash Flow”, Ericsson will define cash and
cash equivalents to include only short-term highly liquid
investments with remaining maturity at acquisition date of
three months or less. Under Swedish praxis, a broader
interpretation was earlier made, where also readily marketable
securities designated for liquidity management purposes only
and with a low risk for value changes and with a maturity
exceeding three months were included. The restated statements
of cash flow for  and the opening balance for the Ericsson
group according to IAS  will therefore reflect cash and cash
equivalents that are different to those previously reported under
Swedish GAAP.

(SEK million)

January 1, 2004 December 31, 2004

Cash and cash equivalents
under Swedish GAAP
Less: amounts with maturity
exceeding three months
Cash and cash equivalents
under IFRS

73,207

76,554

–20,092

–46,142

53,115

30,412

Summarized reconciliation of consolidated balance sheet and equity:

(SEK million)

Assets

January 1, 2004
Minority
interest,
provisions
and
Equity liabilities

December 31, 2004
Minority
interest,
provisions
and
Equity liabilities

Assets

January 1, 2005 (IAS 39)
Minority
interest,
provisions
and
Equity liabilities

Assets

Swedish GAAP 1)
IFRS adjustments
Minority interest
Capitalization of development costs
Goodwill 2)
IAS 39 Financial instruments
Deferred taxes on IFRS adjustments

182,977

59,206 123,771

183,040 77,299 105,741

186,186

81,502 104,684

–
6,408
–
–
–1,794

2,299
4,614
–
–
–

-2,299
–
–
–
–

–
3,748
447
–
–1,049

1,057
2,699

447 3)
–
–

–1,057
–
–
–
–

–
–
–
3,967
–77

–
–
–
1,489
–

–
–
–
1,952
449

Total IFRS adjustments

4,614

6,913

–2,299

3,146

4,203

–1,057

3,890

1,489

2,401

IFRS

Equity ratio, Swedish GAAP 1)
Equity ratio, IFRS

187,591

66,119 121,472

186,186 81,502 104,684

190,076

82,991 107,085

–
–

33.6%
35.2%

–
–

42.8%
43.8%

–
–

43.8%
43.7%

Including the effect of changed accounting principle in 2004, RR 29. Figures for January 1, 2005, restated in accordance with IFRS.
Including the effect of share in earnings of JV and associated companies due to reversed amortization of goodwill.

3) Reversed amortization of goodwill, including CTA, is included in the equity.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 43

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

2 SEGMENT INFORMATION

Business segments
2004

Orders booked
Inter segment orders

Total Orders Booked

Net sales
Inter segment sales

Total Net Sales

Share in earnings of JV and associated companies

Operating Income

Financial income
Financial expenses

Income after financial items

Taxes
Minority interest

Net Income

Segment assets 1) 2)
Associates

Total Assets

Segment liabilities 3) 4)

Total Liabilities

Systems

Phones

Other Operations

Unallocated

Eliminations

Group

123,568
1,403

124,971

121,549
1,348

122,897

25,345

–
–

–

–
–

–

2,143

–
–

25,345

2,143

–
–

25,345

2,143

62,783
961

63,744

54,728

–
3,092

3,092

–

9,391
987

10,378

10,423
966

11,389

1,469

–
–

1,469

–
–

1,469

9,452
97

9,549

6,627

–
–

–

–
–

–

–19

3,541
–4,081

–559

–9,077
–297

–9,933

106,655
–

106,655

43,329

–
–2,390

–2,390

–
–2,314

–2,314

–

–
–

–

–
–

–

–
–

–

132,959
–

132,959

131,972
–

131,972

2,318

28,938

3,541
–4,081

28,398

–9,077
–297

19,024

178,890
4,150

183,040

104,684

1) Segment assets include tangible assets, intangible assets, short and long term customer financing, accounts receivable, inventory, prepaid

expenses, accrued revenues and other current assets.

2) Unallocated assets include mainly cash, short term investments and deferred tax assets.
3) Segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
4) Unallocated liabilities include accrued interests, tax liabilities and interest-bearing provisions and liabilities.

Other segment items
Tangible and intangible assets

Additions/capitalization
Depreciation
Amortization
Write-downs

Number of employees

Operating income
Income after financial items
Restructuring costs, net 1)
Operating income
Operating margin (%)
Income after financial items

3,881
2,223
2,275
22
45,500

25,345
–
–
25,345
21%
–

–
–
–
–
–

2,143
–
–
2,143
–
–

399
210
42
–
5,034

1,469
–
–
1,469
13%
–

–
1
–11
35
–

–19
–
–
–19
–
–

–
–
–
–
–

–
–
–
–
–
–

4,280
2,434
2,306
57
50,534

28,938
28,398
–
28,938
22%
28,398

In 2004 no restructuring costs were recognized. The item is included for comparability.

Geographical segments

2004

Western Europe

– of which Sweden

Eastern Europe, Middle East and Africa
Asia Pacific

– of which China

North America

– of which United states

Latin America
Total

– of which EU

44 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Net
sales

40,542
6,180
32,929
28,552
12,298
15,471
13,984
14,478
131,972

42,366

Orders
booked

40,311
4,769
32,522
31,362
12,987
13,083
11,769
15,681
132,959

42,413

Additions/
capitalization
of tangible and
intangible assets

Number
of employees

3,554
2,851
83
230
130
320
165
93
4,280

3,603

32,930
21,296
3,423
7,493
2,897
4,139
2,156
2,549
50,534

33,625

Total
assets

145,440
125,306
3,874
14,278
7,018
9,366
8,874
10,082
183,040

145,436

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Systems

Phones

Other Operations

Unallocated

Eliminations

Group

Business segments
2003

Orders booked
Inter segment orders

Total Orders Booked

Net sales
Inter segment sales

Total Net Sales

Share in earnings of JV and associated companies

Operating Income

Financial income
Financial expenses

104,694
748

105,442

107,995
671

108,666

125

–6,163

–
–

–

–
–

–

–521

–
–

8,306
886

9,192

9,743
836

10,579

–3,511

–
–

Income after financial items

–6,163

–521

–3,511

Taxes
Minority interest

Net Income

Segment assets 1) 2)
Associates

Total Assets

Segment liabilities 3) 4)

Total Liabilities

–
–

–6,163

–521

–3,511

65,478
563

66,041

58,536

–
1,752

1,752

–

6,649
491

7,140

7,610

–
–

–

–
–

–

–273

–1,044

3,995
–4,859

–1,908

1,460
–201

–649

107,275
164

107,439

53,446

–
–1,634

–1,634

–
–1,507

–1,507

–

–
–

–

–
–

–

–
–

–

113,000
–

113,000

117,738
–

117,738

–604

–11,239

3,995
–4,859

–12,103

1,460
–201

–10,844

179,402
2,970

182,372

119,592

1) Segment assets include tangible assets, intangible assets, short and long term customer financing, accounts receivable, inventory, prepaid

expenses, accrued revenues and other current assets.

2) Unallocated assets include cash, short term investments and deferred tax assets.
3) Segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
4) Unallocated liabilities include accrued interests, tax liabilities and interest-bearing provisions and liabilities.

Other segment items
Tangible and intangible assets

Additions/capitalization
Depreciation
Amortization
Write-downs

Number of employees

Operating income
Income after financial items
Restructuring costs, net
Operating income 1)
Operating margin (%) 1)
Income after financial items 1)

1) Exluding restructuring charges.

Geographical segments

2003

Western Europe

– of which Sweden

Eastern Europe, Middle East and Africa
Asia Pacific

– of which China

North America

– of which United states

Latin America
Total

– of which EU 1)

1) Restated due to new members in EU as of May, 2004.

6,348
3,028
1,807
1,126
45,176

–6,163
–
–12,809
6,646
6.1%
–

Net
sales

36,096
5,868
26,747
27,343
10,473
17,627
16,357
9,925
117,738

38,143

–
–
–
–
–

–521
–
–338
–183
–
–

373
699
666
337
6,110

–3,511
–
–3,064
–447
–4.2%
–

8
26
107
–
297

–1,044
–
–252
–792
–
–

–757
–
–
–
–

–
–
–
–
–
–

5,972
3,753
2,579
1,463
51,583

–11,239
–12,103
–16,463
5,224
4.4%
4,360

Orders
booked

30,909
4,417
23,258
29,514
12,701
20,237
18,971
9,082
113,000
33,532

Additions/
capitalization
of tangible and
intangible assets

Number
of employees

5,204
4,849
60
96
67
505
301
107
5,972
5,242

36,227
24,408
2,152
6,468
2,850
4,460
2,581
2,276
51,583
36,608

Total
assets

143,749
121,832
4,177
14,847
7,625
10,398
9,876
9,201
182,372
143,681

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 45

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Systems

Phones

Other Operations

Unallocated

Eliminations

Group

Business segments
2002

Orders booked
Inter segment orders

Total Orders Booked

Net sales
Inter segment sales

Total Net Sales

Share in earnings of JV and associated companies

Operating Income

Financial income
Financial expenses

114,177
1,164

115,341

130,842
1,113

131,955

161

–12,497

–
–

–

–
–

–

–1,331

–
–

14,174
1,210

15,384

14,931
1,270

16,201

–45

–5,846

–
–

Income after financial items

–12,497

–1,331

–5,846

Taxes
Minority interest

Net Income

Segment assets 1) 2)
Associates

Total Assets

Segment liabilities 3) 4)

Total Liabilities

–
–

–12,497

–1,331

–5,846

88,121
693

88,814

53,435

–
799

799

–

9,048
531

9,579

9,470

–
–

–

–
–

–

–5

–1,625

4,253
–5,789

–3,161

4,165
–343

661

110,109
–188

109,921

70,132

–
–2,374

–2,374

–
–2,383

–2,383

–

–
–

–

–
–

–

–
–

–

128,351
–

128,351

145,773
–

145,773

–1,220

–21,299

4,253
–5,789

–22,835

4,165
–343

–19,013

207,278
1,835

209,113

133,037

1) Segment assets include tangible assets, intangible assets, short and long term customer financing, accounts receivable, inventory, prepaid

expenses, accrued revenues and other current assets.

Other segment item
Tangible and intangible assets

Additions/capitalization
Depreciation
Amortization
Write-downs

Number of employees

Operating income
Income after financial items
Restructuring costs, net
Operating income 1)
Operating margin (%) 1)
Income after financial items 1)

1) Exluding restructuring charges.

Geographical segments

2002

Western Europe

– of which Sweden

Eastern Europe, Middle East and Africa
Asia Pacific

– of which China

North America

– of which United states

Latin America
Total

– of which EU 1)

1) Restated due to new members in EU as of May, 2004.

46 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

5,896
4,877
1,049
–612
56,590

–12,497
–
–10,441
–2,056
–1.6%
–

–
–
–
–
–

–1,331
–
–
–1,331
–
–

553
597
221
–
7,646

–5,846
–
–1,438
–4,408
–27.2%
–

32
135
365
–
385

–1,625
–
–83
–1,542
–
–

–30
–95
–
–
–

–
–
–
–
–
–

6,451
5,514
1,635
–612
64,621

–21,299
–22,835
–11,962
–9,337
–6.4%
–10,873

Net
sales

46,165
8,303
27,959
35,905
12,559
23,068
22,036
12,676
145,773

47,199

Orders
booked

37,553
7,620
27,895
30,451
10,852
22,877
21,673
9,575
128,351
37,687

Additions/
capitalization
of tangible and
intangible assets

Number
of employees

5,601
4,908
92
294
151
392
357
72
6,451
5,585

45,251
30,241
2,449
7,771
3,034
6,328
4,562
2,822
64,621
45,590

Total
assets

161,725
130,572
5,256
16,391
6,189
14,201
13,633
11,540
209,113
161,696

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Net Sales
Parent Company

Western Europe 1) 2)
Eastern Europe, Middle East & Africa
Asia Pacific
North America
Latin America

Total

1) Of which Sweden
2) Of which EU

2004

54
2,530
–
–
14

2,598

54
54

2003

1
1,403
–
–
241

1,645

1
1

2002

–
1,715
–
–
302

2,017

–
–

Parent Company sales are mainly related to business segment Systems.

4 REVENUES
The majority of Ericsson’s products and services are sold as
parts of contracts including several items. The nature of the
products and services being sold, and the contractual terms
taken as a whole, determine the appropriate revenue
recognition method. The contracts are of three main types:

Consolidated

Equipment sales

Of which:
– Construction-type contracts 1) 2)
– Delivery-type contracts 1) 2)

Service sales
Royalties

Total

Capital gains, license fees and
other operating revenues
Interest income
Dividends

2004

2003

2002

110,985

98,726 125,112

56,012
54,973
19,301
1,686

73,165
25,561
18,458
554

–
–
19,493
1,168

131,972 117,738 145,773

3,128
3,346
8

2,645
3,913
7

1,928
3,592
83

1) Figures for 2002 not available.
2)

In 2003 multiple-elements contracts were reported within construction-type
contracts. In 2004 this type of contracts have been reported as delivery-
type.

See Note 1, “Accounting Policies”, Revenue recognition for
more information about the different types of contracts.

3 RESTRUCTURING COSTS

Restructuring

2004

2003

2002

Restructuring charges
Asset write-downs
Employee redundancy 1)
Unused real estate
Other

Total

Of which

Cost of sales
Research and development
Selling expenses
Administrative expenses
Other operating revenue and costs
Share in earnings of JV
and associated companies

Total

Restructuring in Statement of cash flows
Charges in Net income, net
Share in earnings of JV
and associated companies
Write-downs
Provisions made
Provisions utilized

Total cash flow effect

–
–
–
–

–

–
–
–
–
–

–

3,966
7,728
3,883
886

1,074
10,556
562
–230

16,463

11,962

4,790
5,361
3,150
2,465
345

5,589
4,124
1,474
694
311

352

–230

16,463

11,962

–16,463 –11,962

–
–
–
–5,651

352
3,966
10,835
–9,146

–
1,074
7,195
–6,593

–5,651 –10,456 –10,286

1) Number of employees at December 31, 2004 were 50,534 (51,583 in 2003

and 64,621 in 2002)

Key measurements, excluding
restructuring charges

Net sales
Gross margin

– as percentage of net sales

Operating expenses

– as percentage of net sales

Share in earnings of joint
ventures and associated companies
Other operating
revenue and costs
Operating income
Operating margin (%)

Financial net
Income after financial items

2004 1)

2003

2002

131,972 117,738 145,773
47,138
43,627
61,108
46.3% 37.1% 32.3%
–37,105 –40,037 –56,109
28.1% 34.0% 38.5%

2,318

–252

–1,450

2,617
28,938
21.9%

–540
28,398

1,084
1,886
5,224
–9,337
4.4% –6.4%

–1,536
–864
4,360 –10,873

1) No restructuring charges reported during 2004.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 47

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

5 OTHER OPERATING REVENUES AND COSTS

Parent Company

2004

2003

2002

Consolidated

2004

2003

2002 1)

Gains on sales of intangible
and tangible assets
Losses on sales of intangible
and tangible assets
Capital losses on tangible assets
related to restructuring
Gains on sales of investments
and operations
Losses on sales of investments
and operations

Sub-total

Commissions, license fees and
other operating revenues

Total

1) Restated for changed accounting principles.

111

213

166

–229

–28

–251

–

–345

–311

510

493

267

–273

119

2,498

2,617

–731

–398

–593

–722

1,939

1,496

1,541

773

Parent Company

2004

2003

2002

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

Total

2,920

2,441

2,770

–30

–33

–1

2,890

2,408

2,769

6 FINANCIAL INCOME AND EXPENSES

Consolidated

2004

2003

2002

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

Total

Financial Expenses
Interest expenses
and similar profit/loss items

Financial Net

354

470

1,049

3,187

3,541

3,525

3,995

3,204

4,253

–4,081

–4,859

–5,789

–540

–864

–1,536

The Group’s interest expenses on pension liabilities are
included in the interest expenses shown above.

Financial Income
Result from participations
in subsidiary companies

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

Dividends
Net gains on sales

Other interest income and
similar profit/loss items

Subsidiary companies
Other 1)

Total

6,378
146

1,565
36

5,077
20

120
34

–
2

93
–

4
153

48
–

58
24

1,093
3,235

2,629
4,697

3,346
4,424

11,008

9,177

12,997

1) Of the total amount, SEK 0 million in 2004, SEK 1,384 million in 2003 and
SEK 2,161 million in 2002 is attributable to hedge of net investments in
foreign subsidiary companies.

Parent Company

2004

2003

2002

Financial Expenses
Losses on sales of participations
in subsidiary companies
Write-down of investments
in subsidiary companies
Write-down of investments
in associated companies
Write-down of participations
in other companies
Interest expenses and
similar profit/loss items:
Subsidiary companies
Other

Other financial expenses

Total

Financial Net

–295

–21

–

–861

–1,526

–3,800

–

–5

–86

–35

–2

–1,178
–2,896
–16

–1,680
–2,693
–11

–2,399
–2,370
–14

–5,251

–6,019

–8,620

5,757

3,158

4,377

Parent Company’s interest expenses on pension liabilities are
included in the interest expenses shown above.

48 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

7 INCOME TAXES FOR THE YEAR

Income Statement
The following items are included in Income taxes for the year:

Current income taxes for the year
Current income taxes related to prior years
Deferred income/expense (–) taxes related to temporary differences
Share of taxes in joint ventures and associated companies

Income taxes for the year

2004

–2,324
–637
–5,382
–734

–9,077

Consolidated
2003

2002

–1,613
–240
3,138
175

–2,579
–1,456
7,996
204

1,460

4,165

Parent Company
2003

2002

–738
205
364
–

–169

–799
–493
–347
–

–1,639

2004

–2,316
–
881
–

–1,435

Deferred tax income and expenses
The amounts of deferred tax income and expenses are shown in the following table:

Deferred tax income
Deferred tax expenses

Deferred taxes income/expense, net

2004

3,082
–8,464

–5,382

Consolidated
2003

2002

6,414
–3,276

10,269
–2,273

3,138

7,996

Parent Company
2003

2002

551
–187

364

29
–376

–347

2004

1,180
–299

881

Consolidated
Deferred income taxes relate to tax loss carryforwards of
SEK , million (SEK , million in , SEK ,
million in ) and to certain provisions.

Deferred tax expenses SEK , million out of SEK ,

million refer to utilization of tax loss carry forwards. The
remaining refer to reversals of temporary differences regarding
certain provisions for mainly restructuring and warranty
commitments.

Parent Company
Deferred income taxes refer to loss carry forwards and reserve
for doubtful receivables. Deferred tax expenses refer mainly to
reversal of temporary differences regarding provisions for
customer financing commitments and provision for
restructuring costs.

A reconciliation between actual tax income (–expense) for
the year and the theoretical tax income (–expense) that would
arise when applying statutory tax rate in Sweden,  percent on
income before taxes, is shown in the table:

Income before taxes

Tax rate in Sweden (28%)
Effect of foreign tax rates
Current income taxes related to prior years
Tax effect of expenses that are non-deductible for tax purpose
Tax effect of income that are non-taxable for tax purpose
Tax effect of changes in tax rates
Tax effect related to write-downs of investments in subsidiary companies
Tax effect of tax losses carryforwards, net

Income taxes for the year

Consolidated
Tax effect of expenses that are non-deductible include
amortization of goodwill, certain costs related to customer
financing and other non-tax deductible expenses.

Consolidated
2003

2002

2004

28,398

–12,103

–22,835

–7,951
–286
–637
–1,031
855
–18
–
–9

–9,077

3,389
–438
–240
–1,457
556
3
–
–353

6,393
39
–1,456
–1,091
365
–21
–
–64

1,460

4,165

Parent Company
2003

2002

1,419

–397
–
205
–659
1,143
–
–461
–

4,321

–1,210
–
–493
–584
1,712
–
–1,064
–

–169

–1,639

2004

8,595

–2,407
–
–
–597
1,810
–
–241
–

–1,435

Parent Company
Tax effect of expenses that are non-deductible refer mainly to
costs related to customer financing, foreign taxes and net losses
on sales of shares.

Tax effect of income that is non-taxable refers mainly to

dividends.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 49

Investments in subsidiary companies, joint ventures and
associated companies
Due to losses in certain subsidiary companies, the book value of
certain investments in those subsidiary companies, joint
ventures and associated companies are less than the tax value of
these investments. Since deferred tax assets have been reported
with respect also to losses in these companies, and due to the
uncertainty as to which deductions can be realized in the
future, no additional deferred tax assets are reported.

Tax loss carryforwards
Deferred tax assets regarding unutilized tax loss carryforwards
are reported to the extent that realization of the related tax
benefit through the future taxable profits is probable also when
considering the period during which these can be utilized, as
described below.

At December , , these unutilized tax loss

carryforwards amounted to SEK , million. The tax effect
of these tax loss carryforwards are reported as assets.

The final years in which these loss carryforwards can be

utilized are shown in the following table:

Year of expiration

Consolidated Parent Company
2004

2004

2005
2006
2007
2008
2009
2010 or later

Total

649
105
157
25
78
33,132

34,146

–
–
–
–
–
3,828

3,828

Tax effects reported directly to stockholders’ equity
Tax effects reported directly to stockholders’ equity amount to
SEK  million (SEK  million , SEK  million ),
the amount reported is related to hedges of net investments.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Balance sheet
Deferred tax assets and liabilities
Tax effects of temporary differences including unutilized tax
loss carryforwards have resulted in deferred tax assets and
liabilities as follows:

Consolidated Parent Company
2004
2003

2004

2003

Deferred tax assets
Deferred tax liabilities

21,815
421

27,130
462

2,527
–

1,646
–

Consolidated
Deferred tax assets relate to tax loss carryforwards and
temporary differences due to certain provisions. We estimate
that approximately one third of the total deferred tax assets will
be recovered within  months. Deferred tax assets regarding
tax loss carryforwards amount to SEK , million (SEK ,
million in ).

Deferred tax asset are amounts recognized in countries where

we expect to be able to generate corresponding taxable income
in the future to benefit from tax reductions. The significant tax
loss carryforwards are related to countries with long or indefinite
periods of utilization, mainly Sweden and the U.S. Of the total
deferred tax assets for tax loss carryforwards, SEK , million,
SEK , million will expire  or later, of which SEK ,
million relate to Sweden with indefinite time of utilization.

With our current strong financial position and profitability
during , we have been able to use part of our deferred tax
assets during the year, and we are convinced that Ericsson will
be able to generate sufficient income in the coming years to
utilize these deferred tax assets.

Parent Company
Deferred tax assets refer mainly to tax loss carryforwards, costs
related to customer financing and provisions for restructuring
costs.

50 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

8 EARNINGS PER SHARE

Consolidated

Net income
Average number of shares, basic (millions)

Earnings per share, basic

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

Net income after full conversion
Average number of shares after full conversion and exercise of stock
options (million)

Earnings per share, diluted

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

2004

19,024
15,829

1.20

19,024
–

19,024

15,859

1.20

2003

–10,844
15,823

–0.69

–10,844
105

–10,739

15,841

2002

–19,013
12,573

–1.51

–19,013
219

–18,794

12,684

–0.69 1)

–1.51 1)

1) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

9 INTANGIBLE ASSETS

Consolidated 2004

Capitalized
development
costs, to be
sold

Capitalized
acquired
development
costs, for
internal use

Capitalized
internal
development

Capitalized
costs, for development

internal use

costs, total Goodwill

Licenses
trademarks
and similar
rights

Patents and
acquired
Other
research intangible
assets,
total

and develop-
ment

Accumulated acquisition costs
Opening balance
Acquisitions/capitalization
Balances regarding acquired
and sold companies
Sales/disposals
Translation difference for the year

Closing balance

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

5,123
1,138

–
–302
–

5,959

–823
–1,311

–
302
–

405
5

–
–
–

410

–97
–137

–
–
–

273
3

–
–
–

276

–66
–92

–
–
–

5,801
1,146

11,508
370

–
–302
–

–
1
–545

6,645

11,334

1,287
262

122
–646
–3

1,022

–986
–1,540

–5,496
–453

–1,231
–271

–
302
–

–
15
166

Closing balance

–1,832

–234

–158

–2,224

–5,768

Accumulated write-downs
Opening balance
Write-downs for the year
Translation difference for the year

Closing balance

Net carrying value

–31
–47
–

–78

–
–
–

–

–
–
–

–

–31
–47
–

–78

–273
–
31

–242

4,049

176

118

4,343

5,324

121

–37
636
2

–901

–
–
–

–

1,084
50

–
–14
–2

1,118

–438
–42

–
3
–

2,371
312

122
–660
–5

2,140

–1,669
–313

–37
639
2

–477

–1,378

–15
–
1

–14

627

–15
–
1

–14

748

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 51

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Consolidated 2003

Capitalized
development
costs, to be
sold

Capitalized
acquired
development
costs, for
internal use

Capitalized
internal
development

Capitalized
costs, for development

internal use

costs, total Goodwill

Licenses
trademarks
and similar
rights

Patents and
acquired
Other
research intangible
assets,
total

and develop-
ment

Accumulated acquisition costs
Opening balance
Acquisitions/capitalization
Balances regarding acquired
and sold companies
Sales/disposals
Translation difference for the year

Closing balance

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

Closing balance

Accumulated write-downs
Opening balance
Write-downs for the year
Sales/disposals
Translation difference for the year

Closing balance

Net carrying value

3,074
2,049

–
–
–

5,123

–223
–600

–
–
–

–823

–
–31
–
–

–31

220
185

–
–
–

405

–11
–86

–
–
–

–97

–
–
–
–

–

148
125

–
–
–

273

–8
–58

–
–
–

3,442
2,359

12,934
–

–
–
–

–19
–
–1,407

1,319
53

–
–69
–16

1,102
67

–
–67
–18

5,801

11,508

1,287

1,084

2,421
120

–
–136
–34

2,371

–242
–744

–4,331
–1,636

–1,220
–60

–376
–139

–1,596
–199

–
–
–

–5
–
476

–
36
13

–
62
15

–
98
28

–66

–986

–5,496

–1,231

–438

–1,669

–
–
–
–

–

–
–31
–
–

–31

–
–305
–
32

–273

–4
–
4
–

–

–15
–1
2
–1

–15

631

–19
–1
6
–1

–15

687

4,269

308

207

4,784

5,739

Patents, licenses, trademarks and similar rights

Parent Company

2004

2003

Accumulated acquisition costs
Opening balance
Acquisitions

Closing balance

Accumulated amortization
Opening balance
Amortization for the year

Closing balance

Net carrying value

222
–

222

–160
–22

–182

216
6

222

–137
–23

–160

52 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

10 TANGIBLE ASSETS

Consolidated 2004

Accumulated acquisition costs
Opening balance
Additions
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 revaluation, net
Opening balance
Translation difference for the year

Closing balance

Accumulated write-downs, net
Opening balance
Write-downs for the year
Balances regarding acquired and sold companies
Sales/disposals/reversals of write-downs
Reclassifications
Translation difference for the year

Closing balance

Net carrying value

Parent Company 2004

Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance
Depreciation for the year
Sales/disposals
Reclassifications

Closing balance

Net carrying value

Land and
buildings

Machinery
and other
technical
assets

Other
equipment,
tools and
installations

Construction
in process
and advance
payments

2,854
51
–23
–100
–4
–153

2,625

–485
–226
16
66
7
39

–583

34
–2

–505
–10
–
–
–
33

–482

1,592

5,829
267
–625
–332
243
–76

5,306

–4,590
–463
467
268
–122
66

–4,374

–
–

–

–229
–
81
–
–
–

–148

784

16,190
1,699
293
–2,363
15
–484

15,350

–12,294
–1,745
–74
2,102
115
244

–11,652

–
–

–

–585
–
28
25
–
–

–532

3,166

286
435
–14
–142
–254
–8

303

–
–
–
–
–
–

–

–
–

–

–
–
–
–
–
–

–

303

Land and
buildings

Machinery
and other
technical
assets

Other
equipment,
tools and
installations

Construction
in process
and advance
payments

23
–
–
–

–
–
–
–2

–2

–
–
–
–

–

–
–
–
–

–

559
6
–49
6

522

–167
–111
32
2

–244

278

90
44
–83
–6

–
–
–
–

–

Total

25,159
2,452
–369
–2,937
–
–721

23,584

–17,369
–2,434
409
2,436
–
349

–16,609

34
–2

–1,319
–10
109
25
–
33

–1,162

5,845

Total

672
50
–132
–

590

–167
–111
32
–

–246

344

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 53

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Consolidated 2003

Accumulated acquisition costs
Opening balance
Additions
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 revaluation, net
Opening balance
Sales/disposals
Translation difference for the year

Closing balance

Accumulated write-downs, net
Opening balance
Write-downs for the year
Sales/disposals/reversals of write-downs
Reclassifications
Translation difference for the year

Closing balance

Net carrying value

Land and
buildings 1)

Machinery
and other
technical
assets

Other
equipment,
tools and
installations

Construction
in process
and advance
payments

1,945
1,741
–163
–624
36
–81

2,854

–766
–104
66
305
–18
32

–485

36
–1
–1

–4
–500
–
–
–1

–505

1,898

10,170
313
63
–2,094
–2,287
–336

5,829

–6,998
–887
–119
1,519
1,655
240

–4,590

–
–
–

–

–179
–131
60
4
17

–229

1,010

20,080
1,202
129
–7,183
2,619
–657

16,190

–14,523
–2,762
–69
6,202
–1,637
495

–12,294

–
–
–

–

–102
–495
8
–4
8

–585

3,311

305
237
–8
138
–368
–18

286

–
–
–
–
–
–

–

–
–
–

–

–
–
–
–
–

–

286

Total

32,500
3,493
21
–9,763
–
–1,092

25,159

–22,287
–3,753
–122
8,026
–
767

–17,369

36
–1
–1

–285
–1,126
68
–
24

–1,319

6,505

1) Due to reassessments of the nature of leases, according to the present interpretation of Swedish GAAP/IFRS, financial leases of SEK 1,687 million have been

reflected in the balance sheet as tangible assets and long-term liabilities.

Parent Company 2003

Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance
Depreciation for the year
Sales/disposals

Closing balance

Net carrying value

Land and
buildings

Machinery
and other
technical
assets

Other
equipment,
tools and
installations

Construction
in process
and advance
payments

23
–
–
–

–
–
–

–

–
–
–
–

–

–
–
–

–

69
455
–72
107

559

–54
–130
17

–167

392

–
198
–1
–107

–
–
–

–

Total

92
653
–73
–

672

–54
–130
17

–167

505

54 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

11 FINANCIAL ASSETS

Equity in joint ventures and associated
companies

Consolidated

Opening balance
Effect of changed accounting principle, RR 29

Opening balance in accordance with new accounting principle
Share in earnings
Taxes
Translation difference for the year
Dividends
Capital contributions
Reclassification
Sales

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Joint ventures
2003

2004

1,753
–40

1,713
2,143
–701
–63
–
–
–
–

3,092

799
–

799
–593
199
–36
–
1,384
–
–

1,753

Associated companies

Total

2004

1,217
–

1,217
175
–33
–52
–97
7
47
–206

1,058

2003

1,036
–

1,036
–11
–24
–64
–150
7
447
–24

1,217

2004

2,970
–40

2,930
2,318
–734
–115
–97
7
47
–206

4,150

2003

1,835
–

1,835
–604
175
–100
–150
1,391
447
–24

2,970

Closing balance
Goodwill, net, amounts to SEK  million (SEK  million in ).

Dividends received from companies accounted for under the equity method were SEK  million in  and SEK  million in

.

Share of assets, liabilities and income in joint venture,
Sony Ericsson Mobile Communications

Share of assets, liabilities and income in associated
company, Ericsson Nikola Tesla d.d.

Consolidated

Fixed assets
Current assets
Provisions
Long-term liabilities
Current liabilities

Net assets

Net sales
Income after financial items
Income taxes for the year
Minority interest
Net income

Assets pledged as collateral
Contingent liabilities

Parent Company

Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Write-downs
Sales

Closing balance

1,056
9,883
1,214
259
6,374

3,092

29,754
2,217
–701
–74
1,442

Consolidated

Fixed assets
Current assets
Provisions
Long-term liabilities
Current liabilities

Net assets

Net sales
Income after financial items
Income taxes for the year
Minority interest
Net income

10
–

Assets pledged as collateral
Contingent liabilities

174
802
7
10
222

737

925
149
–17
–
132

–
–

Subsidiary companies
2003

2004

Joint ventures
2003

2004

Associated companies
2003

2004

58,991
4,443
–7,162
–861
–6,551

48,860

50,600
1
10,512
–1,526
–596

58,991

4,136
–
–
–
–

4,136

2,752
1,384
–
–
–

4,136

371
–
3
–
–36

338

458
–
–
–86
–1

371

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 55

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Other financial assets

Consolidated

Accumulated acquisition costs
Opening balance
Additions
Sales/repayments/deductions
Reclassifications
Translation difference for the year

Closing balance

Accumulated write-downs/allowances
Opening balance
Write-downs/allowances for the year
Sales/repayments/deductions
Reclassifications
Translation difference for the year

Closing balance

Net carrying value

Other investments in shares
and participations
2003

2004

Long-term customer

financing 1)

2004

2003

Other long-term
financial assets
2004
2003

2,308
161
–22
–52
–77

2,318

–1,875
44
3
–
53

–1,775 2)

3,144
41
–529
–197
–151

2,308

–901
–1,150
305
–233
104

–1,875

7,950
1,460
–2,234
–2,478
–368

4,330

–4,923
–656
1,115
2,221
63

19,203
2,879
–12,686
–748
–698

7,950

–6,920
–2,313
3,631
660
19

–2,180 3)

–4,923 3)

543 4)

433 4)

2,150

3,027

2,138
611
–410
–
–27

2,312

–796
–293
–
–
13

–1,076

1,236

2,305
507
–581
–
–93

2,138

–173
–642
–
–
19

–796

1,342

1) From time to time, customer financing amounts may include equity instruments or equity-related instruments in our customers due to reconstruction activities of
troubled debt. This is a result of that we sometimes receive such instruments as security for our receivable. Our policy is to sell such instruments as soon as
feasible. Reclassification due to consolidation in accordance to URA 20.

2) Write-downs include reversals of write-downs of SEK 80 million, treated as other operationg revenues and costs in the income statement.

3) Write-downs are included in Selling expenses due to the close relation to operations.

4) Market value per December 31, 2004, for listed shares was SEK 234 (373) million with a net carrying value of SEK 80 (83) million.

Parent Company

Accumulated acquisition costs
Opening balance
Additions
Sales/repayments/deductions
Reclassifications
Translation difference for the year

Closing balance

Accumulated write-downs/allowances
Opening balance
Write-downs/allowances for the year
Sales/repayments/deductions
Reclassifications
Translation difference for the year

Closing balance

Net carrying value

Other investments in shares
and participations
2003

2004

20
–
–2
–
–

–3
–5
2
–
–

–6

41
4
–25
–
–

–2
–2
1
–
–

–3

Long-term customer

financing1)
2003

2004

5,593
1,315
–738
–147
–117

5,906

–3,570
–547
109
4
62

–3,942

1,964

12,818
2,123
–9,054
–
–294

5,593

–3,719
–1,901
2,050
–
–

–3,570

2,023

Other long-term
financial assets
2004
2003

476
205
–228
–
–2

451

–
–
–
–
–

–

214
309
–37
–
–10

476

–
–
–
–
–

–

451

476

56 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

12 INVESTMENTS
The following listing shows certain shareholdings owned
directly and indirectly by the Parent Company as of December
, . A complete listing of shareholdings, prepared in
accordance with the Swedish Annual Accounts Act and filed

with the Swedish Companies Registration Office
(Bolagsverket), may be obtained upon request to:
Telefonaktiebolaget LM Ericsson, External & Management
Information, SE-  Stockholm, Sweden.

Shares owned directly by the Parent Company

Type Company

Reg. No.

Domicile

Percentage
of ownership

Par value
in local
currency,
million

Carrying
value,
SEK m.

I
I
I
II
I
I
II
II
I
I
I
II

Subsidiary companies
Ericsson AB
I
Ericsson Shared Services AB
I
Ericsson Shared Services Väst AB
I
Ericsson Business Innovation AB
I
Ericsson Enterprise AB
I
Ericsson Microwave Systems AB
I
Ericsson Sverige AB
I
SRA Communication AB
II
AB Aulis
II
LM Ericsson Holding AB
II
Ericsson Gämsta AB
III
Ericsson Treasury Services AB
III
Ericsson Credit AB
III
Ericsson Project Finance AB
III
Other (Sweden)
Ericsson Austria GmbH
Ericsson Danmark A/S
Oy LM Ericsson Ab
Ericsson Participations France SAS
Ericsson GmbH
Ericsson Hungary Ltd.
LM Ericsson Holdings Ltd.
Ericsson S.p.A. 1)
Ericsson A/S
Ericsson Corporatio AO
Ericsson AG
Ericsson Holding Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
Cía Ericsson S.A.C.I.
Teleindustria Ericsson S.A.
Other (United States, Latin America)
Teleric Pty Ltd.
Ericsson Ltd.
Ericsson (China) Company Ltd.
Nanjing Ericsson Panda Communication Co. Ltd.
Ericsson India Private Ltd.
Ericsson (Malaysia) Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other countries (the rest of the world)
Total

II
I
I
I
I
I
I
I
I

II
I
I

556056-6258
556251-3266
556577-9799
556128-5924
556090-3212
556028-1627
556329-5657
556018-0191
556030-9899
556381-7666
556381-7609
556329-5673
556326-0552
556058-5936

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

United States
Argentina
Mexico

Australia
China
China
China
India
Malaysia
Singapore
Taiwan
Thailand

Joint ventures and associated companies
I
I

Sony Ericsson Mobile Communications AB
Ericsson Nikola Tesla d.d.
Other
Total

556615-6658

Sweden
Croatia

100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100

72 2)

100
100
100
100
–
100

95 3)

100
–
100
100
100

25 4)

100
70
100
80
49 5)
–

50
49
–

50
361
100
–
360
30
100
47
14
105
162
1
5
469
–
4
90
13
22
20
1,301
2
10
156
5
–
74
–
–
5
n/a
–
20
2
50
5
725
2
–
240
90
–
–

50
196
–
–

20,638
7,216
1,381
683
335
151
102
145
6
130
324
2
5
567
1,275
664
216
195
485
342
120
14
105
194
5
–
757
222
9,516
10
1,549
628
100
2
369
37
147
4
1
19
17
182
48,860

4,136
330
8
4,474

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 57

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

12 INVESTMENTS (CONTINUED)

Shares owned by subsidiary companies

Type Company

Reg. No.

Domicile

Percentage
of ownership

Subsidiary companies
I
II
III
I
I
I
II
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

Ericsson Network Technologies AB
Ericsson Cables Holding AB
AB LM Ericsson Finans
Ericsson France SAS
LM Ericsson Ltd.
Ericsson Telecommunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson Nederland B.V.
Ericsson Telecommunicatie B.V.
Ericsson España S.A.
Ericsson Telekomunikasyon A.S.
Ericsson Ltd.
Ericsson Canada Inc.
Ericsson Inc.
Ericsson NetQual Inc.
Ericsson Wireless Communications Inc.
Ericsson IP Infrastructure Inc.
Ericsson Amplified Technologies Inc.
Ericsson Telecommunicações S.A.
Ericsson Servicos de Telecomunicações Ltda.
Ericsson Telecom S.A. de C.V.
Ericsson Australia Pty. Ltd.
Nippon Ericsson K.K.
Ericsson Consumer Products Asia Pacific Pte Ltd.

Key to type of company

I Manufacturing, distribution and development companies
II Holding companies
III Finance companies

556000-0365
556044-9489
556008-8550

Sweden
Sweden
Sweden
France
Ireland
Italy
The Netherlands
The Netherlands
The Netherlands
Spain
Turkey
United Kingdom
Canada
United States
United States
United States
United States
United States
Brazil
Brazil
Mexico
Australia
Japan
Singapore

100
100
100
100
100
93
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

1) The subsidiary Ericsson S.p.A. is listed on the Milan stock exchange in Italy. Ericsson’s

share of the market value as per December 31, 2004, was SEK 7,470 million.
2) Through subsidiary holdings, total holdings amount to 93% of Ericsson S.p.A.
3) Through subsidiary holdings, total holdings amount to 100% of Cia Ericsson S.A.C.I.
4) Through subsidiary holdings, total holdings amount to 51% of Nanjing Ericsson Panda

Communication Co. Ltd.

5) Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.

58 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

15 RECEIVABLES AND PAYABLES
– SUBSIDIARY COMPANIES

Parent Company

Long-term Receivables 1)
Financial receivables
Current Receivables
Commercial receivables
Financial receivables

Total

Long-term Liabilities 1)
Financial liabilities
Current Liabilities
Commercial liabilities
Financial liabilities

Total

2004

2003

48,535 34,046

874

1,478
14,793 21,357

15,667 22,835

33,840 31,911

89
77,515 57,517

77,600 57,606

Including non interest-bearing receivables and liabilities, net, amounting to
SEK –21,940 million (SEK 15,317 million in 2003). Interest-free transactions
involving current receivables and liabilities may also arise at times.

16 OTHER RECEIVABLES

Consolidated Parent Company
2004
2003

2004

2003

Receivables from associated
companies and joint ventures
Prepaid expenses
Accrued revenues
Advance payments to suppliers
Other

115
1,072
1,349
393
9,310

239
1,639
1,782
399
8,659

24
543
893
–
6,743

–
623
683
–
5,217

Total

12,239

12,718

8,203

6,523

13 INVENTORIES

Consolidated Parent Company
2004
2003

2004

2003

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

Inventories, net

5,557

4,332

232

245

3,720
7,278
–2,784

271
9,275
–3,158

14,003

10,965

–

20
20
–

–

–
3
–

Reported amounts are net of obsolescence reserves by SEK ,
million (SEK , million ).

Movements in obsolescence reserves

Opening balance
Additions
Utilized
Translation difference for the year

Closing balance

3,658
533
–976
–69

3,146

Of the total obsolescence reserve, a large portion is due to slow-
moving items related to phased-out products, where Ericsson
still has contractual commitments to be able to supply spare
parts during a number of years. To satisfy such commitments,
some inventories are set aside when products with long life
cycles in use are phased out.

Of net inventories, SEK  million are valued at net

realizable value.

Contract work in progress includes amounts related to
construction type contracts as well as other contracts with
ongoing work in progress.

14 ACCOUNTS RECEIVABLE – TRADE

Consolidated Parent Company
2004
2003

2004

2003

Trade receivables excluding
associated companies
Provision for impairment
of receivables

Trade receivables, net
Trade receivables from
associated companies
and joint ventures

Total

33,906

33,725

444

347

–1,782

–2,051

32,124

31,674

–275

169

–275

520

212

32,644

31,886

194

Retention receivables recognized as revenues were SEK ,
million at December ,  (SEK , million in ).
Days sales outstanding are  in  ( in ).

In the Parent Company, allowances for doubtful accounts
include amounts for estimated losses based on commercial risk
evaluations.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 59

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

17 STOCKHOLDERS’ EQUITY
Capital stock 2004
Capital stock at December , , consisted of the following:

Dividend proposal
The Board of Directors will propose to the Annual General
Meeting a dividend of SEK , per share.

Parent Company

Number
of shares

Aggregate
par value

Class A shares (par value SEK 1.00)
Class B shares (par value SEK 1.00)

1,308,779,918
14,823,478,760

16,132,258,678

1,309
14,823

16,132

Cumulative translation adjustments

Opening balance
Changes in cumulative translation adjustments

Closing balance

–5,395
–1,107

–6,502

The capital stock of the Company is divided into two classes:
Class A shares (par value SEK .) and Class B shares (par value
SEK .). 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 tenth of one vote per share.

In accordance with the decision by the extraordinary general

meeting on August , , the process of changing the
difference in voting rights between A and B shares has been
finalized. As a result the number of A shares has increased, and
the number of B shares has decreased, by ,, shares
during .

The total number of treasury shares at December , , is
,, (,, in ) Class B shares, corresponding
to a negative amount in consolidated Non-restricted equity of
SEK – million (SEK – million in ). The decrease in
the number of treasury shares is due to delivery and sale of
shares in relation to the Stock Purchase Plans and the Stock
Option Plans.

Changes in cumulative translation adjustments include changes
regarding recalculation of goodwill in local currency of
SEK – million (SEK – million in ), net gain/loss (–)
from hedging of investments in foreign subsidiary companies of
SEK – million (SEK , million in ) and
SEK . million (SEK . million in ) of realized
gains/losses (–), net from sold/liquidated companies.

Currency gains/losses resulting from translation of financial

statements of integrated companies are included in the
following items in the consolidated income statement:

Cost of sales
Financial income
Taxes

Total

Of which hedged

2004

–24
–11
–

–35

2003

–68
–139
–4

–211

211

2002

–45
–198
3

–240

240

Changes in stockholders’ equity

Consolidated 2004

January 1, 2004
Effect of changed accounting principle 1)

Opening balance in accordance with
new accounting principle
Sale of own shares
Stock purchase and stock option plans
Transfer between non-restricted
and restricted reserves
Changes in cumulative translation adjustments
due to changes in foreign currency exchange rates
Adjustment of cost for stock issue 2002
Net income 2004

Capital
stock

16,132
–

16,132
–
–

–

–
–
–

December 31, 2004

16,132

1) Restated due to change of accounting principle RR 29/IAS 19.

Equity
proportion
reserve

Other
restricted
reserves

Total
restricted
equity

658
–

658
–
–

–51

–
–
–

607

39,640
–

39,640
–
–

1,030

–1,107
–
–

39,563

56,430
–

56,430
–
–

979

–1,107
–
–

56,302

Non-
restricted
equity

4,051
–1,275

2,776
15
159

–979

–
2
19,024

20,997 2)

Total

60,481
–1,275

59,206
15
159

–

–1,107
2
19,024

77,299

2) Of retained earnings, SEK 7 million will be appropriated to reserves not available for distribution, in accordance with the proposals of the respective companies’
boards of directors. 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, in some instances, such transfers of earnings may be limited by currency restrictions. Consolidated unrestricted retained earnings are
translated at the year-end exchange rate. Cumulative translation adjustments have been distributed among unrestricted and restricted stockholders’ equity.

60 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Total

73,607
158
–158
8
151

–
3
–2,444
–10,844

60,481

Total

68,587
28,940
12
2

–
–4,921
–19,013

73,607

Total

61,257
15
27

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Consolidated 2003

January 1, 2003
Stock issue
Repurchase of own stock
Sale of own stock
Stock purchase and stock option plans
Transfer between non-restricted
and restricted reserves
Adjustment of accrued cost for stock issue 2002
Changes in cumulative translation adjustments
Net income 2003

December 31, 2003

Consolidated 2002

January 1, 2002
Stock issue
Stock purchase plan
Sale of own stock
Transfer between non-restricted
and restricted reserves
Changes in cumulative translation adjustments
Net income 2002

December 31, 2002

Capital
stock

15,974
158
–
–
–

–
–
–
–

16,132

Capital
stock

8,066
7,908
–
–

–
–
–

15,974

Equity
proportion
reserve

Other
restricted
reserves

Total
restricted
equity

Non-
restricted
equity

672
–
–
–
–

–14
–
–
–

658

39,278
–
–
–
–

2,806
–
–2,444
–

39,640

55,924
158
–
–
–

2,792
–
–2,444
–

56,430

17,683
–
–158
8
151

–2,792
3
–
–10,844

4,051

Equity
proportion
reserve

Other
restricted
reserves

Total
restricted
equity

Non-
restricted
equity

491
–
–
–

181
–
–

672

29,102
21,032
–
–

–5,935
–4,921
–

39,278

37,659
28,940
–
–

–5,754
–4,921
–

55,924

30,928
–
12
2

5,754
–
–19,013

17,683

Share Revalua-

Capital
stock

premium

reserve 1)

tion Statutory
reserve

reserve

Total
restricted
equity

Disposi-
tion
reserve

Other
retained
earnings

Non-
restricted
equity

Parent Company

January 1, 2004
Sale of own stock
Stock purchase and stock option plans
Adjustment of accrued costs
for stock issue 2002
Contributions from/to (–)
subsidiary companies
Tax on contributions
Net income 2004

16,132
–
–

24,729
–
–

–

–
–
–

20
–
–

–

–
–
–

6,741
–
–

47,622
–
–

100
–
–

13,535
15
27

13,635
15
27

–

–
–
–

–

–
–
–

–

–6,525
1,827
7,160

16,039

–6,525
1,827
7,160

16,139

63,763

December 31, 2004

16,132

24,731

6,741

47,624

100

1) 1996 and prior years’ share premium are included in Statutory reserve.

18 UNTAXED RESERVES

Parent Company

Accumulated depreciation in excess of plan
Intangible assets
Tangible assets

Total accumulated depreciation in excess of plan

Other untaxed reserves
Reserve for doubtful receivables
Income deferral reserve

Total other untaxed reserves

Total untaxed reserves

Jan. 1

Withdrawals

Dec. 31

17
48

1,290
774

2,064

2,129

–1
–52

–53

–363
–774

–1,137

–1,190

16
–4

927
–

927

939

Swedish GAAP and tax regulations require a company to report certain differences between the tax basis and book value as an untaxed reserve in the balance sheet
of the stand-alone financial statements. Changes to these reserves are reported as an addition to, or withdrawal from, untaxed reserves in the income statement.

Changes in other untaxed reserves in the Parent Company in 2003 consisted of: withdrawals from reserve for doubtful receivables, SEK 0 million (SEK 1,977 million
in 2002). Deferred tax liability on untaxed reserves, not accounted for in deferred taxes, amounts to SEK 263 million in 2004 (SEK 596 million in 2003 and SEK 585
million in 2002).

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 61

Financial Accounting Standards Council’s interpretations
committee defined this plan as a multi-employer defined
benefit plan. Ericsson did not have access to information from
Alecta that would have made it possible for this plan to be
reported as a benefit plan. Therefore, the plan has been
reported for the fiscal year  as a defined contribution
plan. Ericsson has established a Swedish pension trust for the
purpose of funding the pension liabilities under the Swedish
ITP plan. Cash or cash equivalents of SEK , million were
transferred into the trust in January .

The main part of total provisions for pensions and similar
benefits amounting to SEK , million, are attributable to
the Swedish pension plans, of which SEK , million (SEK
, million in ) are liabilities to Pensionsregistrerings-
institutet (PRI). The Parent Company’s pension liabilities
include an obligation in the amount of SEK  million (SEK
 million in ) in accordance with an agreement with
PRI.

The following table summarizes the total pension cost for the
Group:

Total annual
pension cost

Pension cost for defined
benefit plans
Pension cost for post-
employment medical benefits
Pension cost for defined
contributions plans

Total

Sweden

US Other

Total

686

–93

153

817

–

1,014

1,700

–

–97

–144

–

183

336

1,100

1,963

The following tables disclose information about defined
benefit plans for Ericsson and summarizes changes in the
benefit obligation, the plan assets and the funded status of
defined benefit plans and postretirement benefit plans as well
as key assumptions.

Annual pension
cost DB-plans

Service cost
Interest cost
Expected return on plan
assets
Amortization of unrecog-
nized past service cost
Curtailment cost

Net pension cost
for the period

Sweden

306
380

53
152

US Other

Total

82
153

170
118

611
803

–

–
–

–134

–108

–128

–370

–
–

–
–173

6
–14

6
–187

686

–46

152

863

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

19 PENSIONS
The Ericsson Group participates in local pension plans in
countries in which we operate. There are principally two types
of pension plans:
• Defined contribution plans, where the Company’s only

obligation is to pay fixed pension premiums into a separate
entity (a fund or insurance company) on behalf of the
employee. No provision for pensions is recognized in the
balance sheet.

• Defined benefit plans, where the Company’s undertaking is
to provide pension benefits that the employees will receive
on retirement, usually dependent on one or more factors
such as age, years of service and compensation. Defined
benefit plans may be funded or unfunded and can therefore
be managed in two ways:
– by setting up a trust to manage the company’s

contributions to the plan, in which case the liability
recognized in the balance sheet is the net of the benefit
obligation and the fair value of plan assets

– the total benefit obligation is recognized as a liability on

the balance sheet with no assigned plan assets. This
method is currently used in Sweden and subject to
insurance with Försäkringsbolaget Pensionsgaranti (FPG),
which is covered by Swedish law on safeguarding of
pension commitments.

Ericsson adopted RR  Employee Benefits in . When
applying RR , defined benefit plans in all the subsidiary
companies within Ericsson are accounted for using the same
actuarial method. In the financial reporting for Ericsson before
, such plans have been recognized using local rules and
principles in each country.

The present value of the defined obligation for current and

former employees is calculated using the Projected Credit
Unit Method. The calculations are based upon actuarial
assumptions and are prepared annually, as a minimum.

The accounting for defined contribution plans has not been

affected by the adoption of RR  in .

In the Ericsson Group, most companies have defined

contribution plans and therefore no pension provisions on the
balance sheet. In a dozen countries other than Sweden, the
subsidiary companies have defined benefit plans with trust
funds, and recognize the net of accumulated benefit
obligations and plan assets as provisions.

In Sweden, the total pension benefits are a mixed solution,
with some parts being defined contribution plans and others
defined benefit plans. Defined contribution plans are for
example plans as death and disability. Some parts of early-
retirement plans are also arranged as defined contribution
plans. Defined benefit plans are for example the Swedish ITP
(Industrins och handelns tilläggspension) pension plan. In
 the full liability is recognized on the balance sheet. The
ITP plan includes a collective family pension, which Ericsson
finances through insurance with Alecta. The Swedish

62 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Change in Defined
Benefit Obligation, DBO

DBO, beginning of the year
Service cost
Interest cost
Employee contributions
Pension payments
Actuarial gain/loss (–/+) 1)
Settlement cost
Curtailment cost
Other
Translation difference
for the year

Sweden

US Other

Total

6,921 2,794 2,511 2,256 14,482
82
611
153
803
–
38
–189
–365
186
1,084
–
–35
–173
–187
22
45

306
380
–
–71
654
–
–
–

53
152
28
–45
87
–
–
–

170
118
10
–60
157
–35
–14
23

–

–51

–230

–87

–368

DBO, end of the year

8,190 3,018 2,362 2,538 16,108

1) Actuarial gains and losses for each plan are recognized when the

accumulated amount exceeds the corridor. The income or expenses are then
recognized over the expected average remaining service period of the
employees.

The Group participates in a number of post-employment
medical benefit schemes, principally in the U.S. The method
of accounting, the assumptions and the frequency of
valuations are similar to those used for defined benefit
schemes. Post-employment medical benefit schemes are
therefore included in the figures above.

Change in Plan Assets

Sweden

US Other

Total

Fair value of Plan Assets
beginning of the year
Actual return on plan assets
Employer contributions
Employee contributions
Pension payments by fund/
insurance company
Settlement cost
Other
Translation difference
for the year

Fair value of Plan Assets,
end of year

–
–
–
–

–
–
–

–

1,846 1,361
125
203
–

164
57
28

2,059
227
158
10

–45
–
–

–132
–
–

–53
–32
50

5,266
516
418
38

–230
–32
50

–36

–140

–86

–262

2,014 1,417

2,333

5,764

Accrued/Prepaid
pension cost

Funded status of the plan
Unrecognized actuarial
gain/loss (–/+)
Unrecognized past service cost

Accrued/Prepaid pension
cost (–/+)

Sweden

US Other

Total

–8,190 –1,004

–945

–205 –10,344

654
–

55
–

174
–

16
70

899
70

–7,536

–949

–771

–119 –9,375

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Amount recognized
in the consolidated
balance sheet

Accrued/Prepaid pension cost
(–/+) beginning of the year
Annual pension cost
Benefits paid directly
by company
Employer contributions
Other
Translation difference
for the year

Accrued/Prepaid pension
cost (–/+), end of year

Sweden

US Other

Total

–6,921
–686

–949 –1,151
47

–71

–115 –9,136
–153
–863

71
–
–

–

–
57
–

78
203
–22

7
158
–9

156
418
–31

–7

–7,536

–949

–771

–119 –9,375

The following table summarizes the total provisions for
pensions for Ericsson. Provisions for pensions also include
similar employee benefits.

Provisions for pensions
and similar benefits

Provision for post-
employment benefits
Other employee benefits

Total

Sweden

US Other

Total

7,536
94

7,630

949
–

949

771
–

771

119
618

9,375
712

737 10,087

The principal actuarial assumptions used were as follows:

(percent)

Sweden

Other

Discount rate
Expected return on plan assets
Future salary increases

5.0% 5.3% 6.0% 5.0%–6.5%
7.0% 8.0% 4.7%–7.0%
3.0% 4.0% 4.5% 3.0%–4.0%

n/a

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 63

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

20 OTHER PROVISIONS

Consolidated 2004

Opening balance
Additions
Costs incurred
Reversal of excess amounts
Reclassification

Translation difference for the year

Closing balance

Consolidated 2003

Opening balance
Additions
Costs incurred
Reversal of excess amounts
Balances regarding acquired and sold companies
Reclassification

Translation difference for the year

Closing balance

Parent Company 2004

Opening balance
Additions
Costs incurred
Reversal of excess amounts

Closing balance

Parent Company 2003

Opening balance
Additions
Costs incurred

Closing balance

Warranty
commitments

Restruc-
turing

Customer
financing

4,736
4,202
–2,656
–
172

–30

6,424

9,115
661
–5,651
–274
–238

–15

3,598

296
228
–62
–191
–

–

271

Warranty
commitments

Restruc-
turing

Customer
financing

3,554
4,706
–3,105
–329
–3
40

–127

4,736

7,535
10,835
–9,146
–66
5
178

–226

9,115

178
198
–47
–21
–
–8

–4

296

Warranty
commitments

Restruc-
turing

Customer
financing

–
1
–
–

1,465
357
–588
–127

1,107

1,431
103
–593
–463

478

Warranty
commitments

Restruc-
turing

Customer
financing

–
–
–

–

63
1,748
–346

1,465

2,228
660
–1,457

1,431

Other

13,454
7,971
–5,012
–1,867
341

–402

14,485

Other

8,579
13,030
–7,028
–884
–3
424

–664

13,454

Other

287
477
–155
–

609

Other

139
287
–139

287

Total other
provisions

27,601
13,062
–13,381
–2,332
275

–447

24,778

Total other
provisions

19,846
28,769
–19,326
–1,300
–1
634

–1,021

27,601

Total other
provisions

3,183
938
–1,336
–590

2,195

Total other
provisions

2,430
2,695
–1,942

3,183

Warranty commitments
Warranty provisions include both provisions for faulty products
and statistical errors. The best estimate is based on sales,
contractual warranty periods and historical failure data of
products sold. The actual utilization for  was SEK .
billion, compared to the expected SEK . billion. The expected
utilization of warranty provisions during year  is SEK .
billion.

Restructuring
Restructuring provisions amounting to SEK . billion were
utilized during  compared to the expected SEK . billion.
No further restructuring programs were initiated in .
However, additional restructuring provisions related to the
restructuring activities in  amounted to SEK . billion and
were charged to operations in .

Remaining restructuring provisions are mostly related to
unutilized leased real estate. The majority of these leases will
expire in between one and five years, and the last one in year
. The value of the real estate commitments are calculated
based on the net present value of the future lease payments minus
the forcasted sublease revenues. The expected utilization of
restructuring provisions during  is SEK  billion.

Customer financing
Total provisions for off-balance sheet customer financing is the
sum of all individual provisions for each risk. The individual
provisions are based on a specific evaluation of each risk
exposure.

64 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Other
Other provisions include estimated obligations related to
patent and other litigations, contractual discounts and penalties
of uncertain timing or amount, provisions for potential supplier
or subcontractor claims and/or disputes, as well as provisions
for Income Tax and VAT/GST unresolved issues and estimated
losses on construction-type contracts. The actual utilization for
 was SEK  billion, compared to the expected SEK  billion.
This was due to that SEK  billion were delayed and SEK 
billion were reversed. However, the reversals were almost fully
offset by additions to provisions made in previous years.
The expected utilization in  is SEK  billion.

21 INTEREST-BEARING PROVISIONS

AND LIABILITIES

Ericsson’s outstanding interest-bearing provisions and
liabilities were SEK . billion as of December , .

Interest-bearing provisions and liabilities

Notes and bond loans

Issued-
mature

1999-2009
2001-2006
2001-2006
2001-2008
2001-2005
2001-2005
2001-2005
2001-2005
2003-2010
2004-2012

Total

Book
value
Coupon Currency (SEK m.)

Maturity
date
(YY-MM-DD)

Nominal

483
15

6.500%
FRN
1,000 1) 6.375%
226 1) 7.375%
FRN
150
6.500%
215
6.400%
50
6.300%
236
471 2) 6.750%
FRN
450

USD
USD
EUR
GBP
SEK
SEK
SEK
SEK
EUR
SEK

3,193
99
8,996
2,869
150
215
50
236
4,237
450

20,495

09-05-20
06-03-15
06-05-31
08-06-05
05-07-12
05-08-08
05-08-22
05-08-24
10-11-28
12-12-07

1) The EUR 1000 million and GBP 226 million bonds have interest rates linked
to the Company’s credit rating. The interest will increase/decrease 0.25
percent per annum for each rating notch change per rating agency (Moody’s
and Standard & Poor’s). The interest rate applicable to these bonds can not
be less than the initial interest rates in the loan agreements.

2) The EUR 471 million bond is callable after 2007.

Current liabilities to
financial institutions
Current maturities of
long term debt 1)

Total current interest-
bearing provisions
and liabilities

Notes and bond loans
Liabilities to financial
institutions
Pensions 2)
Total long-term interest-
bearing provisions and
liabilities

Total interest-bearing
provisions and liabilities

Consolidated Parent Company
2004
2003

2004

2003

938

2,247

322

1,746

781

7,262

699

5,905

1,719

9,509

1,021

7,651

19,844

26,312

19,844 26,312

1,993
10,087

2,383
8,005

116
861

290
848

All outstanding notes and bond loans are issued by the Parent
Company under its Euro Medium Term Note program. Bonds
issued at fixed interest rate are swapped to floating interest rate
using interest rate swaps, resulting in a weighted average
interest rate of . percent at December , .

In  Ericsson redeemed and cancelled bond loans with a

total nominal value of SEK . billion, generating a financial
expense of SEK  million.

Notes and bond loans redeemed and cancelled during 2004

31,924

36,700

20,821 27,450

Bond

33,643

46,209

21,842 35,101

6.375% EMTN 31 May 2006
6.900% EMTN 18 July 2005
6.400% EMTN 22 August 2005
6.300% EMTN 24 August 2005

Including note and bond loans of SEK 651 million 2004 and SEK 5,856
million 2003.

2) Consolidated pensions are recognized according to IAS 19/RR 29.

Redeemed Remaining
& cancelled outstanding
(nominal)

(nominal)

566
300
300
64

1,000
–
50
236

Currency

EUR m.
SEK m.
SEK m.
SEK m.

Liabilities to financial institutions, interest rate by currency

Maturing >1<5 years
Interest
rate (%)

Nominal

Maturing >5 years
Interest
rate (%)

Nominal

54
398
327
46

825

1.1%
2.7%
8.4%
0.0%

–

122
111
930
5

1,168

0.8%
2.4%
7.8%
0.0%

–

EUR
SEK
USD
Other currencies

Total

Current liabilities to financial institutions are mainly
denominated in EUR, RMB and SEK and have a weighted
average maturity of . years. Current maturities of long-term
debt (excl. current maturities of notes and bond loans) are
mainly denominated in CAD and EUR and have a weighted
average maturity of . years.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 65

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

22 FINANCIAL RISK MANAGEMENT AND

FINANCIAL INSTRUMENTS

Financial Risk Management
Ericsson’s financial risk management is governed by a policy
approved by the Board of Directors. The Finance Committee of
the Board of Directors is responsible for approving certain
matters regarding investments, loans, guarantees and customer
financing commitments and is continuously monitoring the
exposure to financial risks.

The Board of Directors has established risk limits for
exposures to foreign exchange and interest rate risks. The
market risk mandate of SEK  million is based on a five
percent change in foreign exchange rates and a one-percentage
point change in interest rates of the total position.

Ericsson has a treasury function with the principal role to
ensure that appropriate financing is in place through loans and
committed credit facilities, to actively manage the Group’s
liquidity as well as financial assets and liabilities, and to
manage and control financial risk exposures in a manner
consistent with underlying business risks and financial policies.
Hedging activities and cash management are, largely,
centralized to the internal bank in Stockholm.

Ericsson also has a customer finance function with the main

objective to find suitable third-party financing solutions for
customers and to minimize recourse to Ericsson. To the extent
customer loans are not provided directly by banks, the
consolidated subsidiary Ericsson Credit AB provides or
guarantees vendor credits. The customer finance function
monitors the exposure from outstanding vendor credits and
credit commitments.

Ericsson classifies financial risks as:

• foreign exchange risk
• interest rate risk
• credit risk
• liquidity and re-financing risk
• market price risk in own and other listed equity

instruments.

Foreign exchange risk
Ericsson has significant revenues, costs, assets and liabilities in
currencies other than SEK, which result in a substantial foreign
exchange rate exposure in the income statement, balance sheet
and cash flows. When managing foreign exchange risk,
Ericsson distinguishes between two types of exposure:
transaction and translation exposure.

Transaction exposure
An analysis of Ericsson’s transaction exposures for  shows
the following net exposures by currency:

Estimated net exposures by currency

(SEK billion)

USD and related currencies
EUR
GBP
JPY

2004

38
9
2
1

A change in the exchange rate of +/–  percent between SEK
and USD, and related currencies, would have an annualized
impact on the operating income by SEK . billion before tax
any hedging effects.

Foreign exchange risk is as far as possible carried by Swedish

group companies. Sales to foreign subsidiary companies are
normally made in their functional currency. In order to limit
the exposure to exchange fluctuations on future revenue or
expenditure, committed and forecasted future sales and
purchases in major currencies were during  hedged, on
average, for the coming  months. Trade receivables and
payables in foreign currencies are generally fully hedged.

Currency forward contracts are primarily used for hedging
future revenues and expenditures. Such forward contracts are
designated as cash flow hedges.

Other foreign exchange exposures, arising from for example

customer financing and having interest-bearing assets or
liabilities in foreign currencies, are hedged through offsetting
balances or derivatives.

During , due to the stronger SEK, primarily vs. USD and
related currencies such as SAR and RMB, foreign exchange losses
of SEK . billion net were recognized, after hedging effects.
As of December , , outstanding foreign exchange
derivatives, hedging transaction exposures, had a net positive
market value of SEK . (.) billion. The positive market value
corresponds to net losses on underlying future sales and
purchases, at year-end exchange rates, compared to the
exchange rates prevailing when the commitments and forecasts
were made. Subject to further changes in exchange rates, these
derivatives will affect the income statement during  when
the underlying transactions occur.

Translation exposure
Ericsson has many subsidiary companies operating outside
Sweden. The net results in foreign subsidiary companies and
the value of such foreign investments are exposed to exchange
rate fluctuations, which affect the consolidated income
statement and balance sheet when translated to SEK.

66 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Translation exposure in foreign subsidiary companies is
hedged according to the following policy established by the
Board of Directors:
• Net monetary assets in companies translated using the
temporal method, for which translation effects in
investments affect the income statement, is fully hedged.
Foreign exchange losses were SEK  million net, which was
fully offset by hedging gains.

• Equity in companies translated using the current method,

for which translation effects are reported directly in
stockholders’ equity is hedged up to  percent in selected
companies. The translation differences reported in equity
during  were negative, SEK . billion, including
hedging losses of SEK  million.

Interest Rate Risk
Ericsson is exposed to interest rate risk through market value
fluctuations in certain balance sheet items and through changes
in interest expenses and revenues. The net cash position was
SEK . (.) billion at the end of , consisting of cash
and bank, and short-term cash investments of SEK . (.)
billion and interest-bearing provisions and liabilities of SEK
. (.) billion. Outstanding customer financing credits, net
of provisions, were SEK . (.) billion.

Ericsson’s aim is to avoid risk in the form of (i) a mismatch

between fixed and floating interest rates in interest-bearing
balance sheet items and (ii) significant fixed interest rate
exposure in Ericsson’s net cash position. As of December ,
,  () percent of Ericsson’s interest-bearing provisions
and liabilities and  () percent of Ericsson’s interest-bearing
assets had floating interest rates, i.e. interest periods of less than
 months.

When managing the interest rate exposure Ericsson uses

derivative instruments, such as interest rate swaps.

Ericsson’s interest net and cash flows are exposed to interest

rate fluctuations. A sustained change in interest rates of
+/– . percentage points would, with the current net cash
position, have an annual impact on the interest net of SEK 
million.

Credit Risk
Credit risk is divided into three categories: credit risk in trade
receivables, customer finance risk and financial credit risk.

Credit risk in trade receivables
Trade receivables amounted to SEK . (.) billion as of
December , . Provisions for expected losses are regularly
assessed and amounted to SEK . (.) billion as of December
, . Ericsson’s credit losses have, however, historically
been low. The amounts of trade receivables follow closely the
distribution of Ericsson’s sales and do not include any major
concentrations of credit risk by customer or by geography.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Customer finance risk
We have credit approval procedures where all major customer
finance contracts are subject to approval by the Finance
Committee of the Board of Directors.

As of December , , Ericsson’s total outstanding

exposure relating to customer finance credits was SEK . (.)
billion. As of that date, Ericsson also had unutilized credit
commitments of SEK . (.) billion. The outstanding
customer loans and financial guarantees relate to infrastructure
projects in different geographic markets and to a large number
of customers. As of December , , of a total of 
customer loans originated by or guaranteed by Ericsson, the six
largest customer finance arrangements represented  percent
of the total credit exposure. Security arrangements for customer
credits normally include pledges of equipment, pledges of
certain of the borrowers assets and, occaisionally, pledges of
shares in the operating company. Restructuring efforts for cases
of troubled debt may lead to temporary holdings of such equity
interests.

The table below summarizes Ericsson’s outstanding
customer finance credits as of December , –.

Outstanding customer finance credits

(SEK billion)

2004

2003

2002

On-balance sheet credits
Off-balance sheet credits

Total credits
Accrued interest
Less third-party risk coverage

Ericsson’s risk exposure
On-balance sheet credits, net value
Reclassifications 1)
On-balance sheet credits,
net book value

Credit commitments for
customer financing

8.4
0.6

9.0
0.2
–0.3

8.9
3.7
–0.1

10.6
2.0

12.6
0.1
–0.4

12.3
4.0
–

21.1
1.5

22.6
0.2
–1.0

21.8
14.0
–

3.6

4.0

14.0

2.2

6.1

14.0

1) Reclassification due to consolidation in accordance with URA 20.

Of Ericsson’s total outstanding customer finance credit
exposure as of December , ,  percent related to Latin
America,  percent to Western Europe,  percent to Eastern
Europe, Middle East & Africa,  percent to North America and
 percent to Asia Pacific.

As of December , ,  percent of Ericsson’s total
outstanding customer finance was in respect of G networks
and the remainder was in respect of G and .G networks.
The net effect of risk provisions and credit losses for

customer financing affecting operating expenses amounted to
SEK . billion in , SEK . billion in  and SEK .
billion in . In ,  and , Ericsson incurred
credit losses of SEK . billion, SEK . billion and SEK .
billion respectively.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 67

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Financial credit risk
Financial instruments carry an element of risk in that
counterparts may be unable to fulfill their payment obligations.
This exposure arises in the investments of cash and cash
equivalents and from derivative positions with positive
unrealized result against banks and other counterparties.

Ericsson mitigates these risks by investing cash primarily in

well rated commercial papers, treasury bills and floating rate
notes with short-term ratings of at least A-/P- and long-term
ratings of at least A-/A and in liquidity funds holding a rating
of at least A. Separate credit limits are assigned to each
counterpart in order to minimize risk concentration. All
derivative transactions are covered by ISDA netting agreements
to reduce the credit risk. No credit losses were incurred during
, neither on external investments nor on derivative
positions.

Liquidity Risk
Liquidity risk is that Ericsson is unable to meet its short-term
payment obligations due to insufficient or illiquid cash
reserves.

Re-financing risk
Re-financing risk is the risk that Ericsson is unable to refinance
outstanding debt at reasonable terms and conditions, or at all,
at a given point in time.

Repayment schedule of long-term debt

Current
maturities
of long
term debt

Notes
and bonds
(non-current)

Liabilities
to financial
institutions
(non-current)

0.8
–
–
–
–
–

0.8

–
9.1
–
2.8
3.2
4.7

19.8

–
0.3
0.2
0.1
0.2
1.2

2.0

Total

0.8
9.4
0.2
2.9
3.4
5.9

22.6

(SEK billion)

2005
2006
2007
2008
2009
2010+

Total

Debt financing is mainly carried out through borrowing in the
Swedish and international debt capital markets.

Bank financing is used for certain subsidiary funding and to

obtain committed credit facilities.

Ericsson maintains sufficient liquidity through centralized

Funding programs

Parent Company
Euro Medium Term Note program
(USD m.)
Euro Commercial Paper program
(USD m.) 1)
Swedish Commercial Paper program
(SEK m.)
Long-term Committed Credit facility
(USD m.)
Shot-term Committed Credit facilities
(SEK m.)

Other Group Companies
Short-term Committed Credit facilities
(SEK m.)

Amount Utilized Unutilized

5,000

2,366

2,634

1,500

5,000

1,000

170

–

1,500

5,000

1,000

170

–

1) Currently unavailable due to sub-investment grade rating.

The USD  billion committed credit facility has interest rates
linked to our credit rating as well as certain financial covenants.
As of December , , Ericsson fulfilled these covenants.

The USD . billion committed credit facility was cancelled

by Ericsson in December .

In August, , Moody’s upgraded Ericsson’s long-term

credit rating to Ba with a positive outlook. In November,
, Standard & Poor’s upgraded Ericsson’s long-term credit
rating to BB+ and changed the outlook to positive. Ericsson’s
current ratings are sub-investment grade.

cash management, investments in highly liquid interest-
bearing securities, and by having sufficient committed credit
lines in place to meet potential funding needs. The current cash
position is deemed to satisfy all short-term liquidity
requirements.

During , cash and bank, and cash investments increased

by SEK . billion to SEK . billion mainly due to positive
cash flow, which was partly offset by repayment of long-term
debt and repurchase of outstanding bonds.

Cash and Cash Equivalents

Remaining time to maturity

< 3
months

< 1

> 5
1–5
year years years

2004

2003

–

–
–
–
–
–

–

4.0

4.1

9.6
8.8
37.2
8.4
3.7

71.7

12.2
7.6
28.7
7.4
8.4

68.4

4.9

4.8

76.6

73.2

(SEK billion)

Parent Company
Bank deposits
Type of issuer/counterpart
Governments
Banks
Corporations
Mortgage institutes
Liquidity funds

4.0

–

3.5
1.4

9.5
4.7
29.8 35.8
4.7
3.7

1.0
3.7

0.1
4.1
1.4
3.7
–

9.3

Total Parent Company

43.4 62.4

Other Group companies
(mainly bank deposits)

Total Group

4.7

4.9

–

48.1 67.3

9.3

68 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Financial instruments excluded from the tables, such as trade
receivables and payables are carried at fair value. When a
market price is not readily available and there is insignificant
interest rate exposure affecting the value, the carrying value is
considered to represent a reasonable estimate of a fair value.

Market Price Risk in Own Shares and Other Listed Equity
Investments
Risk related to our own share price
Ericsson is exposed to the development of its own share price
through stock option and stock purchase plans for employees.
The obligation to deliver shares under these plans is covered by
holding Ericsson Class B shares as treasury stock and warrants
for issuance of new Ericsson Class B shares. An increase in the
share price will result in social security charges, which
represents a risk to both income and cash flow. The income
statement exposure in one of the option programs is hedged
through the purchase of call options. The cash flow exposure is
fully hedged through the holding of Ericsson Class B shares in
treasury to be sold to generate funds to cover also social security
payments, and through the purchase of call options on Ericsson
Class B shares.

Risk related to the prices of listed equity investments
Through investments in equity of listed companies Ericsson is
exposed to market value fluctuations of such instruments. Such
investments, however, constitute a very limited part of
Ericsson’s financial assets and the exposure is deemed
insignificant.

Financial Instruments Carried at other than Fair Value
In the following tables, carrying amounts and fair values of
financial instruments, that are carried in the financial
statements at other than fair values, are presented. For
valuation principles, please see Notes to the Financial
Statements – Note 1, “Accounting policies”.

Financial Instruments Carried at other than Fair Value

Consolidated
(SEK billion)

Cash and Bank, and
Cash Investments

Current maturities of
long term debt
Notes and bonds

Parent Company
(SEK billion)

Cash and Bank, and
Cash Investments

Current maturities of
long term debt
Notes and bonds

Carrying amount

Fair value

2004

2003

2004

2003

76.6

0.8
19.8

20.6

73.2

7.3
26.3

33.6

76.6

0.8
21.6

22.4

73.5

7.3
27.6

34.9

Carrying amount

Fair value

2004

2003

2004

2003

71.7

0.7
19.8

20.5

68.4

7.2
26.3

33.5

71.7

0.7
21.6

22.3

68.8

7.3
27.6

34.9

Carrying amounts and fair values of derivatives

Consolidated
(SEK billion)

Carrying

Fair value

amount Positive Negative

Net

Forward foreign exchange
contracts
Other financial foreign
exchange derivatives
Interest rate swaps
Other financial interest
rate derivatives

Total

2.3

0.1
0.6

0.0

3.0

6.3

0.1
1.5

0.0

7.9

2.4

3.9

0.0
0.0

0.0

2.4

0.1
1.5

0.0

5.5

Parent Company
(SEK billion)

Carrying

Fair value

amount Positive Negative

Net

Forward foreign exchange
contracts
Other financial foreign
exchange derivatives
Interest rate swaps
Other financial interest
rate derivatives

Total

3.9

0.1
0.6

0.0

4.6

6.3

0.1
1.5

0.0

7.9

2.4

3.9

0.0
0.0

0.0

2.4

0.1
1.5

0.0

5.5

Only external derivatives are included in the tables. internal derivatives are
reported as current financial receivables or liabilities in Note 15, Receivables and
payables – subsidiary companies.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 69

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

23 OTHER CURRENT LIABILITIES

26 CONTINGENT LIABILITIES

Consolidated Parent Company
2003 1)
2004

2004

2003

Consolidated Parent Company
2004
2003

2004

2003

Liabilities to associated
companies
Accrued interest
Accrued expenses

of which employee related
of which supplier invoices
not received
other accrued expenses

Deferred revenues
Other current liabilities

7
846
18,292
6,224

5
1,302
20,336 2)

–

7,834
4,234
2,929
5,848

–
–
1,377
7,088

7
798
410
203

–
207
254
1,761

6
1,198
470
197

–
273
290
8,084

Total

27,922

30,108

3,230 10,048

1) Other short-term liabilities for the Parent company include liabilities to

subsidiary companies of SEK 7,071 million in 2003.

2) Figures for 2003 are not available, however, a large part of accrued expenses

are employee related.

24 ACCOUNTS AND NOTES PAYABLE – TRADE

Consolidated Parent Company
2004
2003

2004

2003

Accounts and notes payable
excluding associated
companies and joint ventures
Payables to associated
companies and joint ventures

Total

10,935

8,420

175

230

475

10,988

8,895

–

175

–

230

25 ASSETS PLEDGED AS COLLATERAL

Consolidated Parent Company
2004
2003

2004

2003

Real estate mortgages
Chattel mortgages
Bank deposits

Total

–
7,209
776

7,985

49
6,960
1,014

8,023

–
460
347

807

–
460
238

698

Chattel mortgages are collaterals for the Swedish Ericsson
companies’ pension commitments. Bank deposits are collaterals
related to legal disputes of SEK  million in  (SEK 
million in ) and collateral for subsidiary financing SEK 
million in  (SEK  million in ).

Of the Parent Company’s assets pledged as collateral, the
chattel mortgage is collateral for pension commitments. The
major item in bank deposits is for the internal bank’s (Ericsson
Treasury Services Aktiebolag) clearing and settlement
commitments SEK  million in  (SEK  million in
).

70 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Guarantees for customer financing
Other contingent liabilities

348
666

Total

1,014

1,667
1,024

2,691

64
6,961

1,524
8,993

7,025

10,517

Guarantees for customer financing relate to such arrangements,
where Ericsson is the guarantor for customers’ payment
obligations under credit facilities. A lender under these credit
facilities is normally a bank, which thus is the beneficiary of the
Ericsson guarantee, covering the entire or part of the
outstanding principal amount and accrued interest. The
guarantees for customer finance are shown above at their net
value (i.e. after provisions).

Other contingent liabilities assumed by Ericsson include
guarantees of loans to other companies SEK  million in 
(  in ).

Other contingent liabilities assumed by the Parent

Company include pension commitments SEK , million in
 (SEK , million in ), and subsidiary companies
borrowing from financial institutions SEK  million in 
(SEK , million in ).

In accordance with standard industry practice, Ericsson

enters into Commercial Contract Guarantees related to
contracts for the supply of telecommunication equipment and
services. Total amount for  was SEK , million (SEK
, million in ). Potential payments due under these
bonds are related to Ericsson’s performance under applicable
contracts. Of the outstanding are SEK  million issued to
guarantee the performance of a third party.

27 STATEMENT OF CASH FLOWS

Consolidated
Interest paid in  was SEK , million (SEK , million
in , SEK , million in ) and interest received was
SEK , million (SEK , million in , SEK ,
million in ). Income taxes paid were SEK , million
(SEK  million in , SEK , million in ).

Included in Other non-cash items under “Adjustments to

reconcile net income to cash” are undistributed earnings of
associated companies and joint ventures and minority interest
in net income.

A non-cash transaction under “Cash flow from operating

activities” is the net increase in pension liabilities with a
positive effect of SEK  million (SEK  million in ,
SEK  million in ). For more information regarding the
disposition of cash and cash equivalents and unutilized credit
commitments, see Note  – “Financial Risk Management and
Financial Instruments”.

Cash restricted due to currency restrictions or other legal
restrictions in certain countries amounts to SEK , million
(SEK , million in ) .

Acquisitions/sales of shares and other investments
Consolidated

2004

2003

Purchase price for acquired
subsidiary companies
Other acquisitions/capital contributions
Sales

Acquisitions/sales, net

–39
–1,739
229

–1,549

–
–1,432
614

–818

The purchase consideration in cash or cash equivalents for other
acquisition was SEK ‒, million (SEK , million in ).
Of the consideration received for disposals SEK  million (SEK
 million in ) were in the form of cash or cash equivalents.
The cash or cash equivalents in the balance sheets of sold
subsidiary companies were SEK  million (SEK  million in
).

Further, the cash and cash equivalents in the balance sheets
of acquired subsidiary companies were SEK  million (no cash
and cash equivalents were acquired in ).

Line item “Depreciation, amortization and write-downs of

tangible, intangible and other operating long-term
receivables” in the Consolidated Statement of Cash Flow
includes a write-down of SEK  million in  related to
other operating long-term receivables. No write-downs were
recognized in  in regard to operating long-term
receivables.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

SEK , million in ). Income taxes paid were SEK 
million (SEK  million in , SEK  million in ).

Major non-cash items in Investments are:
Acquisitions/sales of other investments, net, SEK ,

million in , SEK , million in .

28 LEASING
Leasing obligations
Assets under financial leases, recorded as tangible assets, consist of:

Financial leases

Acquisition costs
Land and buildings
Machinery
Other equipment

Accumulated depreciation/write-downs
Land and buildings
Machinery
Other equipment

2004

2003

1,459
–
3

1,462

–269
–
–1

–270

1,687
–
1

1,688

–500
–
–

–500

Net carrying value

1,192

1,188

As of December , , future minimum lease payment
obligations for leases were distributed as follows:

Consolidated

Tangible assets
Other fixed assets
Current assets
Cash

Total assets

Pensions and other provisions
Long-term liabilities
Current liabilities

Total liabilities

Acquired
subsidiary
companies

Sold
subsidiary
companies

149
167
625
33

974

–
279
600

879

–
166
10
10

186

–
128
3

131

Consolidated

2005
2006
2007
2008
2009
2010 and later

Total

Future finance charges 1)

Present value of finance
lease liabilities

Financial Operating
leases

leases

272
244
210
193
147
1,661

2,727

–1,056

2,337
1,976
1,607
1,394
1,213
3,819

12,346

–

1,671

12,346

The Group acquired Audiolog, a small French company
specializing in system integration in the area of network
management. In addition, we acquired Enditel, a major service
supplier to Spanish network operators and enterprises to
support and manage service contract in Spain. The aquired
assets and liabilities from these acquisitions comprise the major
part of the amounts shown in the above table.

During the year, Ericsson increased its ownership in the
Italian subsidiary company Ericsson S.p.A, listed on the Milan
stock exchange, by . percent through a public offer. The
Group’s total ownership as of December ,  was .
percent.

Parent Company
Interest paid in  was SEK , million (SEK ,
million in , SEK , million in ) and interest
received was SEK , million (SEK , million in ,

1) Average effective interest rate on lease payables is 7,36 percent.
Expenses in  for leasing of assets were SEK , million
(SEK , million in  and SEK , million in ), of
which variable expenses were SEK  million (SEK  million in
 and SEK  million in ).

Most of the Company’s lease agreements contain no
contingent payables. In the few cases they occur it relates to
payables for heating, linked to the oil price index. Most of the
leases of facilities contain terms of renewal giving the right to
prolong the agreement in question for a predefined period of
time. All of the financial leases of facilities contain purchase
options. Only a very limited number of the Company’s lease
agreements contain restrictions on stockholders’ equity or other
means of finance, the major agreement contains a restriction
stating that the Parent Company must maintain a stockholders’
equity of at least SEK  billion.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 71

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

At December , , future payment obligations for leases

29 TAX ASSESSMENT VALUES IN SWEDEN

for the Parent Company were distributed as follows:

Parent Company

2005
2006
2007
2008
2009
2010 and later

Financial
leases

Operating
leases

Land and land improvements

Buildings

Total

–
–
–
–
–
–

–

1,499
1,362
1,123
960
809
2,213

7,966

Consolidated Parent Company
2004
2003

2004

2003

235

295

247

317

–

30 SPECIAL INFORMATION REGARDING

THE PARENT COMPANY

Sales of the Parent Company in  were SEK , million
(SEK , million in ). Exports accounted for  percent
in  ( percent in ). No consolidated companies
were customers of the Parent Company’s sales in  or ,
while  percent ( percent in ) of the Company’s total
purchases of goods and services were from such companies.

The Parent Company has guaranteed up to SEK . million

for loans obtained by employees.

31 INFORMATION REGARDING EMPLOYEES,

MEMBERS OF THE BOARD OF DIRECTORS
AND MANAGEMENT

Average number of employees

Consolidated

Men Women

2004
Total

Men Women

2003
Total

Western Europe 1) 2) 24,764
Eastern Europe,
Middle East
and Africa 2)
North America
Latin America
Asia Pacific

2,291
3,406
2,015
6,624

7,978 32,742 29,300

9,851 39,151

733
1,116
469
2,346

3,024
4,522
2,484
8,970

2,482
3,855
2,128
4,514

844
1,370
522
2,316

3,326
5,225
2,650
6,830

Total

39,100 12,642 51,742 42,279 14,903 57,182

1) Of which Sweden 15,048
2) Of which EU
25,039

5,384 20,432 19,182
7,057 26,239
8,118 33,157 29,517 10,054 39,571

Within the group of the 150 most senior executives the distribution between
females and males is 13 percent and 87 percent respectively.

Parent Company

Men Women

2004
Total

Men Women

196

170

366

259

251

2003
Total

510

–
–
–
–
–
–

–

82
68
42
38
27
55

312

Western Europe 1) 2)
Eastern Europe,
Middle East and
Africa
Latin America

Total

1) Of which Sweden
2) Of which EU

492
–

688

196
196

21
–

191

170
170

513
–

879

366
366

697
18

974

259
259

33
6

730
24

290

1,264

251
251

510
510

Leasing income
Leasing income mainly relates to income from sublease of
property. Some consolidated companies also lease equipment,
mainly telephone exchanges, to customers. These leasing
contracts vary in length from  to  years.

At December , , future minimum payment

receivables were distributed as follows:

Consolidated

2005
2006
2007
2008
2009
2010 and later

Total

Unearned financial income 1)

Uncollectible lease payments

Net investments in financial leases

Sales-type and Operating
leases

Financial leases

2
2
2
2
–
–

–1

–7 2)

–

163
136
75
63
47
73

557

N/A

1) Effective interest rate on lease receivables is 5.00 percent.
2) Equipment leased to customers reflected on the balance sheet as customer

financing.

Leasing income in  was SEK  million (SEK  million
in  and SEK  million in ).

Sales-type and Operating
leases

Financial leases

Parent Company

2005
2006
2007
2008
2009
2010 and later

The Parent Company’s operating lease income is mainly
income from sublease of property.

72 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Number of employees, consolidated

Employees by region

As per December 31,
2002
2003

2004

Western Europe 1) 2)
Eastern Europe, Middle East and Africa 2)
North America
Latin America
Asia Pacific

32,930
3,423
4,139
2,549
7,493

36,227
2,152
4,460
2,276
6,468

45,251
2,449
6,328
2,822
7,771

Total

1) Of which Sweden
2) Of which EU

Employees per segment

Systems
Other operations
Unallocated

Total

50,534

51,583

64,621

21,296
33,625

24,408
36,608

30,241
45,590

As per December 31,
2002
2003

2004

45,500
5,034
–

45,176
6,110
297

51,390
12,846
385

50,534

51,583

64,621

The majority of our employees in Sweden belong to the
following trade unions: Sif (the Swedish Union of Salaried
Employees), the Swedish Association of Graduate Engineers,
the Swedish Union of Industrial Supervisors and the Swedish
Metal Worker’s Union. Many of our employees located outside
Sweden, in particular those located in other European
countries, also belong to trade unions. Central and industry-
wide agreements on wages and salaries in Sweden were
renegotiated in March  for a period of three years. Ericsson
believes that our relations with these unions and our employees
in general are good.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Absence due to illness

Parent Company
(percent of working hours)

Absence due to illness for men
Absence due to illness for women
Employees up to 30 years old
Employees 30–49 years old
Employees 50 years or older

2004

2003

1%
2%
–%
1%
1%

1%
2%
–%
1%
3%

Long-term absence due to illness 1)

0.4%

0.3%

1) Defined as absence during a consecutive period of time of 60 days or more.

Remuneration
Wages and salaries and social security expenses

Consolidated Parent Company
2004
2003

2004

2003

Wages and salaries
Social security expenses
Of which pension costs

23,858
8,498
1,181

24,829
11,435
967

453
311
214

769
656
521

Wages and salaries per geographical area

Consolidated Parent Company
2004
2003

2004

2003

Western Europe 1) 2)
Eastern Europe, Middle
East and Africa 2)
North America 3)
Latin America
Asia Pacific

Total

16,231

17,297

854
3,158
784
2,831

879
3,718
861
2,074

23,858

24,829

314

139
–
–
–

453

533

224
–
12
–

769

1) Of which Sweden
533
2) Of which EU
533
3) Of which United States
–
Remuneration in foreign currency has been translated to  at
average exchange rates for the year.

9,923
16,095
1,926

11,206
17,140
2,702

314
314
–

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 73

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Compensation policies and remuneration to the Board
of Directors, the President and CEO and the Group
Management
The following information covers the remuneration for the
Board of Directors, the President and CEO and the Group
Management as required by applicable laws, rules and
recommendations.

Members of the Board of Directors

Board
member
fee

Com-
mittee
fee

Emp-
loyee
repre-
senta-
tive

(SEK)

Gender

male 2,500,000

200,000

male

500,000

100,000

male
female

500,000
500,000

100,000
100,000

female

500,000

100,000

male

500,000

200,000

male

500,000

300,000

male

500,000

200,000

Board member
Michael
Treschow
Arne
Mårtensson
Marcus
Wallenberg
Lena Torell
Nancy
McKinstry
Peter L.
Bonfield
Sverker
Martin-Löf
Eckhard
Pfeiffer
Carl-Henric
Svanberg
Monica
Bergström
Göran
Engström
Anna
Guldstrand
Jan Hedlund
Per Lindh
Arne Löfving
Torbjörn
Nyman
Åke
Svenmarck

Total

male

female

male

female
male
male
male

male

–

–
–
–
–

–

– 9,000

9,000

– 3,000

3,000

700
700

– 6,000
9,000
9,000
– 9,000

6,000
9,700
9,700
9,000

500 6,000

6,500

200

4,000

4,200

6,000,000 1,302,100 55,000

7,357,100

Social security fees

Total

2,405,772

9,762,872

Comments to the table
• The Chairman of the Board received a Board fee of SEK

,,. The Chairman also received SEK , for
each Board committee he was serving on.

• The other Directors appointed by the Annual General

Meeting received a fee of SEK , each. In addition,
each Director serving on a Board committee has received a
fee of SEK , for each committee. However, the
Chairman of the Audit Committee received a fee of SEK
, and the other two members of the Audit
Committee received a fee of SEK , each.
• Members of the Board, who are not employees of the

74 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Company, have not received any compensation other than
the fees paid for Board duties.

• 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 , per attended meeting was paid to each employee
representative on the Board. Further, employee
representatives being also members of a committee of the
Board received a fee of SEK  for each committee meeting.

The President and CEO and the Group Management

Total

Salary and benefits (SEK)

The

The Group
President Management

Total

2,700,000

600,000

600,000
600,000

600,000

700,000

800,000

700,000

Salary
Variable pay earned
2003 and paid 2004
Other benefits

12,683,945

42,381,231

55,065,176

9,600,000 22,540,897
14,846,614

43,818

32,140,897
14,890,432

Total received

22,327,763

79,768,742 102,096,505

Provisions for
variable pay earned
2004 to be paid 2005

7,560,000 19,038,156

26,598,156

Pensions and social
security fees (SEK)

The

The Group
President Management

Total

Pension premiums
Social security fees

5,850,000
8,034,955

20,491,000
29,238,248

26,341,000
37,273,202

–

Total pension and social
security fees

13,884,955

49,729,248

63,614,202

–

–
–

–

Comments to the tables
• The Group Management included the following persons:
Karl-Henrik Sundström, Carl Olof Blomqvist, Marita
Hellberg, Torbjörn Nilsson, Bert Nordberg, Henry Sténson,
Joakim Westh (from December , ), Håkan Eriksson,
Mats Granryd, Kurt Jofs, Björn Olsson and Hans Vestberg.
During the year, the Group Management also included Per-
Arne Sandström (until July , ) and Per Tjernberg
(until October , ), who are included in the table
above.

• For Per-Arne Sandström and Per Tjernberg Other benefits
include severance pay of totally SEK ,,. As no other
component of other benefits was significant, these are not
reported separately.

• For the President and CEO, the above pension premium

includes a fee of SEK ,,, corresponding to  percent
of his pensionable salary above  base amounts, for a
premium based old age pension.

• Included in Pension premiums are changes of commitments
made to the President and CEO and the Group Management
for benefit based temporary disability and survival’s pensions
until retirement age. The Company’s commitments per
December , , under IAS /RR  amounted to SEK
,, for the President and CEO and SEK ,, for
the Group Management.

Notice and severance pay
For the President and CEO and the current Group Management
the following applies:

The mutual notice period is  months. Upon termination of

employment by the Company, severance pay amounting to a
maximum of  months fixed salary is paid. Notice of
termination given by the employee due to significant structural
changes or other events occurred that, in a determining
manner, affect the content of work or the condition for the
position, is equated with notice of termination served by the
company. The severance pay is reduced by  percent of the
salary or corresponding compensation which the employee
would be entitled to from another employer or from own or
other business during the period severance is paid from
Ericsson.

Compensation overview
No major shifts in compensation policy were made during
. While the Remuneration Committee continues to be
mindful of the debates around the world on pay and benefits to
executives, it is confident that current policies and practices at
Ericsson are fair to all stakeholders and under proper control.
As the results at Ericsson improve and the telecom sector as a
whole rebounds from recession, the Remuneration Committee
will track carefully recruitment and retention trends to ensure
that compensation remains competitive.

Fixed salary
Ericsson continues to track fixed salary at around the median of
relevant local markets for senior executives while maintaining a
balancing interest in international pay levels in the industry.
The applied level is set using comparative salary survey data
from several recognized independent consultants both in local
markets and internationally. Actual increases for individuals are
based on a combination of market movement, performance and
potential.

Variable pay
From  Ericsson reduced the proportion of variable pay for
the most senior executives in Sweden from a maximum of 
percent to  percent of the fixed salary. This was to reflect the
practices within the Swedish market. Nevertheless Ericsson
remains committed to the principles of performance based pay
for meeting set targets. And, together with the fixed salary, the
total target pay to senior executives (fixed plus target variable)
should be around the upper quartile of the target pay market
for talent.

In , the variable target level for the Group

Management, including the President and CEO, was  percent
with a maximum of  percent. Targets themselves varied for
each individual but consisted of a range of financial and
operational measures. All were quantifiable and linked directly
to the overall business plan of the Company as approved by the
Ericsson Board. Since  was a year with a strong growth in

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

most cases targets, particularly financial ones, were exceeded.

Long-term incentive
At the Annual general Meeting in  a new long-term
incentive plan was approved and which is based on the existing
all employee stock purchase plan. The new scheme requires
participants to invest in Ericsson shares up to a maximum of .
percent of gross salary, hold the shares for three years and
remain with the Company during that time. At the end of
three years each share purchased will be matched by the
Company with up to six additional ones for the  most senior
executives, including the President and CEO and the Group
Management Team, and up to  additional ones for up to 
executives. These additional shares are not guaranteed. Certain
earnings growth targets must be met over the  years to
determine the exact match and the Board retains the right to
intervene if rewards from the scheme are likely to be
disproportionate to the underlying results of the business.

This scheme was launched mid year and take up has been
very encouraging. By choosing to invest their own money up
front the senior management is demonstrating its confidence in
the future prospects of Ericsson.

Pension
Ericsson’s policy regarding pension is to follow the competitive
practice in the home country.

For the President and CEO and the Group Management a
premium based plan is applied. The pensionable salary consists
of the annual fixed salary and the target level of the variable
pay.

For old age pensions, the company pays on salary portions

in excess of  base amounts a percentage of the executive’s
pensionable salary, between  and  percent per year. For the
Group Management, the pension age is normally  years and
premiums are paid up to the retirement age. From  years, the
old age pension includes the ITP plan.

The President and CEO is included in the ITP plan.

According to the premium based plan, Ericsson pays for the
President and CEO an annual pension contribution of  percent
of the pensionable salary above  base amounts. The President
and CEO has the right to retire at  years of age.

Benefits
As with pensions, Ericsson follows the competitive practice of
the home country with respect to benefits. Plan designs vary
widely around the world according to the taxation and legal
framework in different countries.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 75

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Employee Share Ownership
Stock Incentive Plans
Stock Purchase Plans
Under the Stock Purchase Plans, employees can save up to .
percent of the gross salary, for purchase of B shares at Stock-
holmsbörsen or ADRs at Nasdaq (contribution shares). If the
purchased contribution shares are retained by the employee for
three years after the investment and employment with the
Ericsson Group continues during that time, the employee will
be matched with a corresponding number of B shares or ADRs
free of consideration. Employees in  countries participate in
the plan.

The below table shows the periods for employees’ purchase

of shares (contribution period) and participation details.

Plan

Contribution
period

Number of
participants
at launch

Take-up
rate - % of
all employees

Stock Purchase
Plan 2001
Stock Purchase
plan 2003 1st year
Stock Purchase
plan 2003 2nd year

February 2002 –
October 2002
August 2003 –
July 2004
August 2004 –
July 2005

27,000

11,000

15,000

36 %

22 %

30 %

Enhanced Stock Purchase Plan - LTI 2004
In August , two enhanced programs under the Stock
Purchase Plan, the Key Contributor Program and the
Performance Matching Program were launched for the second
-month investment period of the Stock Purchase Plan .
Under the Key Contributor Program, , employees were

offered to obtain one extra matching share in addition to the
ordinary one matching share for each contribution share
purchased during the period.

Under the Performance Matching Program  ( + )
executives were offered to obtain up to four or six extra shares
(performance matching shares) in addition to the ordinary one
matching share for each contribution share purchased during
the period. The performance matching is subject to the
fulfillment of a performance target. The performance target is
average annual EPS growth during the period from July 
up to and including June . If the annual average EPS
growth is less than or equal to  percent there will be no
performance matching ( shares) and if the annual average EPS
growth is at or above  percent, there will be maximum
performance matching ( or  shares). Any intermediate figure
will be calculated on a linear basis.

Stock Option Plans

Plan

Grant/Expiry date

Strike price
(SEK)

Vesting period
from Grant date

1999 Stock Option Plan

1 March 00/28 Feb 07

128.00

Millennium Stock Option Plan

17 Jan 00/18 Jan 07

93.80

Stock Option Plan 2001
– May Grant

Stock Option Plan 2001
– November Grant

14 May 01/14 May 08

30.50

19 Nov 01/19 Nov 08

25.70

Stock Option Plan 2002

11 Nov 02/11 Nov 09

7.80

30% after 3 years,
40% after 4 years,
30% after 5 years

1/3 after 1 year,
1/3 after 2 years,
1/3 after 3 years

Number of Number of
participants participants

at grant

end 2004

1,800

1,126

8,000

3,120

15,000

9,013

900

674

12,800

10,561

76 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

If all options outstanding as of December , , were
exercised, all shares allocated for future matching under the
Stock Purchase Plan were transferred, and shares designated to
cover social security costs and payments were disposed of as a
result of the exercise and the matching, approximately 
million Class B shares would be issued and approximately 
million Class B shares, held as treasury stock, would be
transferred. The total, approximately  million Class B shares,
corresponds to . percent of the total number of shares
outstanding, , million.

The below table shows the number of shares allocated for
each plan (options and matching rights) and changes during
.

Shares for all Stock Incentive Plans
All plans, except the Millennium Option Plan, are funded with
treasury stock. The Millennium Stock Option Plan is based on
warrants, i.e. options entitling the holders to subscribe for B
shares. The warrants are held by subsidiary companies to
Telefonaktiebolaget L M Ericsson, which companies have
granted options to their employees. Treasury stock for the 
Option Plan was repurchased in  on Stockholmsbörsen.
Treasury stock for all remaining plans have been issued in a
directed cash issue of Class C shares at nominal amount of SEK
, purchased under a public offering at SEK  per share plus a
premium corresponding to the subscribers’ financing costs and
converted to B shares.

For all plans, additional shares and warrants have been
allocated for social security. For the Millennium Stock Option
Plan, the warrants designated for social security have been
exchanged for a call option issued by a bank in order to hedge
income against potential social security costs. For all other
plans, treasury stock are sold on Stockholmsbörsen to cover the
social security payments when arising due to exercise of options
or matching of shares. During , , shares were sold at
an average price of SEK ..

Plan (million shares)

1999 Stock Option Plan
Millennium Stock Option Plan
Stock Option Plan 2001– May Grant
Stock Option Plan 2001– Nov Grant
Stock Option Plan 2002
Stock Purchase Plan 2001
Stock Purchase Plan 2003 and LTI 2004

Originally
designated 1)

1.4
71.6
44.9
2.6
53.9
28.0
151.7

1) Adjusted for split, bonus issue and rights offering when applicable.
2) Presuming maximum performance matching under LTI 2004.

Out-

Exer-
cised/

standing Granted matched Forfeited
during
2004

beginning
of 2004

during
2004

0.9
37.2
30.1
1.8
47.0
21.9
3.8

–
–
–
–
–
–
13.5

–
–
–
–
3.3
1.8
0.5

0.0
3.0
2.2
0.2
2.3
0.4
0.3

Out-
Expired standing
end of
2004

during
2004

–
–
–
–
–
–
–

0.9
34.2
27.9
1.6
41.4
19.7
16.5 2)

Number
of
options
exercis-
able

0.6
34.2
27.9
1.6
27.6
–
–

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 77

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

32 RELATED PARTY TRANSACTIONS
During , various transactions were executed pursuant to
contracts based on terms customary in the industry and
negotiated on an arm’s length basis.

Sony Ericsson Mobile Communications AB (SEMC)
In October , SEMC was organized as a joint venture
between Sony Corporation and Ericsson, and a substantial
portion of Ericsson’s handset operations was sold to SEMC. As
part of the formation of the joint venture, contracts were
entered into between Ericsson and SEMC.
Major transactions are as follows:

• Sales. Ericsson records sales regarding mobile phone platform

design and Shared Services. Shared Services were mainly
provided in .

• Royalty. Both owners of SEMC, Sony Corporation and

Ericsson, receive royalties for SEMC’s usage of trademarks and
intellectual property rights.

• Purchases. Ericsson purchases mobile phones from SEMC to
support contracts with a number of customers for mobile
systems which also include limited quantities of phones.

• Ericsson and Sony Corporation each made a shareholder

contribution to SEMC in .

• In the second quarter of , SEMC increased its equity

stake in Beijing Ericsson Putian Communications Company
Ltd. to  percent. The name of the facility has been
changed to Beijing SE Putian Mobile Communications Co.
Ltd. (BMC). BMC operations have been consolidated into
SEMC since the second quarter, which has had a relatively
minor positive effect on their results.

Related party transactions
Sales
Royalty
Purchases

Related party balances
Receivables
Liabilities

2004

2003

725
7
254

130
29

756
56
340

100
28

Other related parties
Ericsson continued cooperation with Ericsson’s owners Investor
AB and AB Industrivärden in the venture capital vehicle
Ericsson Venture Partners.

33 FEES TO AUDITORS

Consolidated

2004
Audit fees
Audit related fees
Tax services fees
Other fees

2003
Audit fees
Audit related fees
Tax services fees
Other fees

Price-
waterhouse-
Coopers

KPMG

Others

Total

57
10
31
–

50
1
46
4

6
6
2
–

6
4
2
–

101

1
–
–
–

1
–
–
1

64
16
33
–

113

57
5
48
5

115

Related party transactions
Sales
Royalty
Purchases
Shareholder contribution

Related party balances
Receivables
Liabilities
Contingent liabilities

2004

2003

1,532 2,494
501
611
547 1,390
– 1,384

142
16
–

192
447
–

Audit related fees in  refer to fees for consultations on
financial accounting, consultation in connection with
conversion to International Financial Reporting Standards
(IFRS), services related to issue of reports in connection with the
public cash offer related to the listed Italian subsidiary
company and due diligence related to acquisitions.

Tax services fees comprise: general expatriate services,
VAT refund services and Corporate tax compliance work.

Audit fees to other auditors consist of local statutory audits

for minor companies.

Ericsson Nikola Tesla d.d.
Ericsson Nikola Tesla d.d. is a joint stock company for
manufacturing of telecommunications systems and equipment
and an associated member of the Ericsson Group. Ericsson
holds . percent of the shares.

Major transactions are as follows:

• Sales. Ericsson Nikola Tesla d.d. purchases

telecommunication equipment from Ericsson.

• Royalty. Ericsson receives royalties for Ericsson Nikola Tesla
d.d.’s usage of trademarks and intellectual property rights.
• Purchases. Ericsson is purchasing development resources from

Ericsson Nikola Tesla d.d..

Parent
Company

2004
Audit fees
Audit related fees
Tax services fees
Other fees

2003
Audit fees
Audit related fees
Tax services fees
Other fees

Price-
waterhouse-
Coopers

KPMG

Others

Total

24
5
2
–

11
–
13
–

1
–
–
–

1
1
–
–

–
–
–
–

–

–
–
–
–

–

25
5
2
–

12
1
13
–

78 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

34 RECONCILIATION TO ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED
IN THE UNITED STATES

As a reporting company with the US Securities and Exchange
Commission, the Company is required to reconcile certain
financial information to US GAAP. For additional information
required by foreign registrants, please refer to our annual report
form -F, filed with the US Securities and Exchange
Commission.

The principal differences between Swedish GAAP and US

GAAP that affect our net income (loss), as well as our
stockholders’ equity, relate to the treatment of capitalization of
development expenses, provisions for restructuring, pension
costs, hedge accounting, and goodwill.

New US GAAP standards
In , the following FASB standards and pronouncements
relevant to Ericsson were adopted:
• FIN R, Consolidation of Variable Interest Entities, an

interpretation of ARB . (The original FIN  was partially
adopted in  in accordance with the revised transition
rules.)

The following FASB standards and pronouncement will be
adopted in :
• SFAS R Share Based Payments
• SFAS  Inventory Costs

Significant differences between Swedish GAAP and US
GAAP
Capitalization of development costs
Prior to , and in accordance with Swedish accounting
principles, software development costs were charged against
income when incurred. In , the Company adopted RR ,
“Intangible assets”. Consequently, intangible assets arising
from internal development have been recognized when the
intangible asset can be demonstrated to have technical
feasibility and future economic benefits.

The Company applies US GAAP SFAS  “Accounting for the

Cost of Computer Software to be Sold, Leased or Otherwise
Marketed” and SOP -, “Accounting for the costs of Computer
Software Developed or Obtained for Internal use”. According
to SFAS, development costs are capitalized after the product
involved has reached a certain degree of technological
feasibility. Capitalization ceases and amortization begins when
the product is ready for its intended use. The Company has
adopted an amortization period for capitalized development
cost of three to five years.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

The Company’s capitalization of development costs under
Swedish GAAP include all development that meets recognition
criteria. Under US GAAP only software costs are capitalized.
Amortization amounts are higher in US GAAP since restating of
prior years, for effects of RR , was not allowed according to
Swedish GAAP.

Development costs relating to products to be sold,
before taxes

2004
Net

US adjust- Swedish

Swedish
GAAP

GAAP ment

GAAP GAAP

2003
Net
US adjust-
ment

Opening balance
Additions
Amortizations
Write-downs 1)

4,269 10,547
6,278
1,061
1,138
–77
–1,311 –3,779 –2,468
–61

–108

–47

2,851 13,927 11,076
2,049
2,049
–
–600 –4,723 –4,123
–706
–675

–31

Closing balance

4,049

7,721

3,672

4,269 10,547

6,278

1) Write-down is made subject to impairment test regarding future revenue for

capitalized products.

Development costs relating to products for internal use,
before taxes

Swedish
GAAP

515
8
–229
–

294

Opening balance
Additions
Amortizations
Write-downs 1)

Closing balance

GAAP ment

646
8
–360
–

294

131
–
–131
–

–

2004
Net

US adjust- Swedish

2003
Net
US adjust-
ment

GAAP GAAP

349
310
–144
–

515

835
310
–433
–66

646

486
–
–289
–66

131

1) Write-down is made subject to impairment test regarding future revenue for

capitalized products.

Capital discount on convertible debentures
In accordance with Swedish accounting principles, the
/ convertible debenture loan and its nominal interest
payments were valued at present value, based on market
interest rate. The difference from the nominal amount, the
capital discount, was credited directly to equity. In accordance
with US GAAP, convertible debenture loans are reported as
liabilities at nominal value. When calculating income and
equity in accordance with US GAAP, the effects of the capital
discount are reversed. The loan matured on June , , and
has no impact on US GAAP from .

Restructuring costs
The rules for providing for restructuring and onerous contracts
differ between US GAAP and Swedish GAAP. As a result,
restructuring costs that did not meet the requirements under
US GAAP in year  have in  qualified, reducing the
US GAAP net income.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 79

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Pensions
Ericsson adopted RR , Employee Benefits in  which is
similar to IAS , Employee Benefits. At adoption of RR ,
actuarial gains and losses were recognized in the opening
balance. The effect on stockholders’ equity was a charge of SEK
–, million, net of tax.

For US GAAP, the Company adopted SFAS , “Employer’s
Accounting for Pensions” in . The different transition dates
for accounting of defined benefit plans between US GAAP and
Swedish GAAP impact the balances booked as unrecognized
actuarial gains and losses, which impact reported pension
liabilities and costs. Different transition dates and additional
minimum pension liability according to US GAAP are the main
differences for Ericsson between Swedish and US GAAP for
accounting of defined benefit plans.

Pension premium refund
In , Alecta (former SPP), a Swedish insurance company,
announced a refund of pension premiums paid, of which a
portion was refunded during the year. In accordance with
Swedish accounting practice, the total refund was credited to
income. In accordance with US GAAP, only the amount Alecta
actually paid was credited to income.

During  the Company received the remaining part not

refunded in  and .

credited to income, if the rent to be paid is in par with market
price. In accordance with US GAAP, the part of the gain
exceeding present value of future lease payments is credited to
income when occurred. The remaining part is distributed
during the lease period.

Hedge accounting
The Company adopted SFAS , ‘‘Accounting for Derivative
Instruments and Hedging Activities’’, as amended, on January
, , for calculating income and equity according to
US GAAP. SFAS  requires recognition of all derivatives as either
assets or liabilities measured at fair value.

Cash flow hedges
Under SFAS  for qualifying derivatives designated as a cash
flow hedge the gain or loss is reported in other comprehensive
income and affects net income first when the hedged exposure
also affects income. The ineffective portion of the gain or loss
affects net income immediately.

According to Swedish accounting practice, foreign exchange

derivatives, which are used to hedge forecasted cash flows
regarding sales and purchases, are accounted for as hedges.
Consequently, they are valued in a manner reflecting the
accounting for the hedged position and are not valued at
market.

Sale-leaseback of property
During  and , the Company sold property, which was
leased back to subsidiary companies and reported as an
operating lease. In Sweden, the gain on sale of property is

Fair value hedges
Ericsson uses interest rate derivative instruments to hedge the
interest rate risk of the Group’s borrowings. Under Swedish
GAAP, Ericsson uses the synthetic method, where all hedged

Provisions for pensions according to US GAAP
Weighted-average actuarial assumptions as of December 31

In percent

Discount rates
Expected rates of future salary increases
Expected investment return

In SEK million

Accumulated Benefit Obligation
Estimated future salary increases

Projected Benefit Obligation
Fair value of plan assets

Funded status
Unrecognized prior service cost
Unrecognized actuarial loss, net
Unrecognized net asset at initial application of SFAS 87

Pension Provision as per US GAAP
Additional minimum pension liability

Total Pension Provision as per US GAAP

Sweden

5,0%
3,0%
–

Sweden

6,402
1,788

8,190
–

–8,190
–599
1,764
–

–7,025
–

–7,025

2004
Other

5,4%
3,8%
6,8%

2004
Other

6,830
1,088

7,918
5,764

–2,154
166
1,278
–44

–754
–648

–1,402

Sweden

5.5%
3.0%
–

Sweden 1)

5,372
1,549

6,921
–

–6,921
–649
1,149
–

–6,421
–

–6,421

2003
Other

5.6%
3.5%
7.0%

2003
Other

6,232
1,329

7,561
5,266

–2,295
64
1,215
–48

–1,064
–268

–1,332

Total

13,232
2,876

16,108
5,764

–10,344
–433
3,042
–44

–7,779
–648

–8,427

Total

11,604
2,878

14,482
5,266

–9,216
–585
2,364
–48

–7,485
–268

–7,753

1) During 2003 SEK 3.5 billion of the Swedish pension obligation has been settled. As an effect SEK 0.6 billion of the unrealized actuarial loss was recognized

under US GAAP.

80 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

borrowings are treated as having floating rates and therefore
valued at amortized cost. The value of the derivatives is
recognized as gains/losses when the hedged interest expenses
are recognized.

In accordance with US GAAP, all outstanding derivative
instruments are valued at fair value. The profits and losses that
thereby arise are included in net income. The Groups’ hedges of
financial exposure qualify for hedge accounting under
US GAAP. In those cases the hedged item is valued at fair value
regarding the risk and period being hedged. The effect is
included in net income, offsetting the fair value adjustment on
derivatives to the extent the hedges are effective.

Amortization of goodwill
Under Swedish GAAP, goodwill is amortized over its estimated
useful life.

According to SFAS  goodwill is not subject to

amortization subsequent to the date of adoption. Goodwill is
tested for impairment at least annually. No need for
impairment was identified in . The amortization of
goodwill made according to Swedish GAAP is reversed under US
GAAP.

Unrealized gains and losses on securities available-for-sale
In accordance with Swedish accounting principles investments
are valued at lower of cost and market. Under US GAAP,
securities available for sale that have readily determinable fair
values are measured at fair value in accordance with SFAS 
“Accounting for Certain Investments in Debt and Equity
Securities”. Unrealized gains and unrealized temporary losses
are included in Other comprehensive income. Other than
temporary unrealized losses are charged to income.

Other
Revaluation of assets
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 US GAAP. Depreciation charges relating to such items
have been reversed to income.

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 US GAAP,
and depreciated as the assets concerned are used.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Provision for social security cost on stock based compensation
Under Swedish GAAP, the Company accrues social security costs
on stock based compensation during the vesting period.
Provisions are adjusted for movements in share price. Under US
GAAP, no social security cost is recorded until the options are
exercised or matching of shares takes place.

FIN 45
FIN  requires a liability to be recognized at the time a
company issues a guarantee for the fair value of the obligations
assumed under certain guarantee agreements. The provisions
for initial recognition and measurement of guarantee
agreements are effective on a prospective basis for guarantees
that are issued or modified after December , .

In accordance with Swedish accounting principles, a liability
should be recognized to the extent a company expects a loss and
economic outflow of resources as a result of the guarantee
commitment. No need for adjustment for FIN  was identified
in .

Three main areas fall within FIN  for Ericsson:

• Product Warranties – see Note , “Other Provisions”.
• Performance Guarantees for Third Party: contractual

guarantees (performance bonds) for third party performance,
mostly subcontractors, range from one to three years. The
maximum potential amount of future payments under the
guarantees calculated at fair value per December ,  is
SEK  million. Historically such guarantees have only been
drawn in rare cases, and there is no indication of changes in
the future. Therefore, any liability incurred due to
contractual guarantees is considered not material and no
provisions have been made.

• Inventory Guarantees: Inventory guarantees where Ericsson
guarantees supplier coverage of inventory related costs due
to no usage and incurrence (obsolescence). Inventory
guarantees with suppliers including obsolete material are
fully provisioned.

FIN 46R
FIN R addresses the consolidation of entities for which control
is achieved through means other than through voting rights or
agreements (“variable interest entities” or “VIE”) by clarifying
the application of Accounting Research Bulletin No. ,
“Consolidated Financial Statements” to certain entities in
which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties.

FIN R provides guidance on how to determine when and
which business enterprise (the “primary beneficiary”) should
consolidate the VIE. In addition, FIN R requires that both the
primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. The
transition rules required Variable Interest Entities created after
January , , where Ericsson was the primary beneficiary to

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 81

Comprehensive Income
Comprehensive income includes net income and other changes
in equity, except those resulting from transactions with owners.

2004

2003

2002

14,386 –10,597 –19,918

–1,015

–3,525

–6,160

47
1,010
–232

202
–329
160

–157

–
–838
1,501

–107
2,057
1,869

234
101
–279

–199
–71
–1,024

–2,806

–3,635

14,229 –13,403 –23,553

2004

2003

2002

77,299

60,481

73,607

949
–
–
3,147
–1,028
1,604

3,672
–
88

411
195

–299
–
–
2,700
–1,381
3,509

440
–
–179
1,064
–2,063
2,744

6,278
131
1,442

11,076
486
217

291
158

–314
146

–1,968

–3,347

–4,021

84,369

69,963

83,203

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

be consolidated in  consolidated financial statements.
There were no such entities identified.

As a result of adopting FIN R, the impact on total assets

are SEK . billion with no equity effect. Since it is already
consolidated according to Swedish GAAP there is no GAAP
difference.

Deferred Income Taxes
Deferred tax is calculated on US GAAP adjustments, and the
US GAAP balance sheet reflects the gross recognition of deferred
tax assets and liabilities.

Adjustment of Net Income, Comprehensive Income, Equity
and Balance Sheet Items
Application of US GAAP as described above would have had the
following effects on consolidated net income. In arriving at the
individual items increasing or decreasing reported net income,
consideration has been given to the effect of minority interests.

Net income in accordance
with US GAAP

Other comprehensive income
Translation adjustments
Translation adjustments for sold/
liquidated companies
Net gain on cash flow hedges
Hedging for investments
Unrealized gains and losses on
securities available-for-sale
Pensions
Deferred income taxes

Total other comprehensive income

Comprehensive income in
accordance with US GAAP

Adjustment of Net Income

Adjustment of Stockholders’ Equity

Equity as reported per Swedish GAAP
US GAAP adjustments before taxes:
Pensions
Pension premium refund
Capital discount on convertible debentures
Goodwill
Sale-leaseback
Hedging
Capitalization of development costs

to be sold
for internal use
Restructuring costs
Unrealized gains and losses on
available-for-sale securities
Other
Deferred tax effect of US GAAP
adjustments

Stockholders' equity in
accordance with US GAAP

Net income as reported
per Swedish GAAP
US GAAP adjustments before taxes:
Pensions
Pension premium refund
Capital discount on convertible debentures
Goodwill amortization
Sale-leaseback
Hedging
Capitalization of development
costs for products

to be sold
for internal use
Restructuring costs
Unrealized gains and losses on
available-for-sale securities
Other
Tax effect of US GAAP adjustments

Net income in accordance
with US GAAP

Earnings per share
in accordance with US GAAP
Earnings per share
per US GAAP, basic
Earnings per share
per US GAAP, diluted
Average number of shares,
basic per US GAAP (million)
Average number of shares, diluted
per US GAAP (million)

2004

2003

2002

19,024 –10,844 –19,013

–245
–
–
475
352
–2,915

–840
–
179
1,636
682
1,603

412
47
124
1,064
113
2,884

–2,606
–131
–1,354

–4,798
–355
1,225

–4,018
–922
–1,240

–82
37
1,831

370
12
533

–370
35
966

14,386 –10,597 –19,918

0.91

–0.68

–1.58

0.91

–0.68 1) –1.58 1)

15,829

15,823 12,573

15,855

15,831 12,684

1) Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

82 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Balance Sheet
Balance sheet items according to Swedish GAAP and US GAAP:

Swedish GAAP

Dec. 31 Dec. 31 Dec. 31
2004

2004

2003

US GAAP
Dec. 31
2003

Intangible assets
Tangible assets
Financial assets
Current assets

Total assets

Stockholders’ equity
Minority interests
Provisions
Long term liabilities
Current liabilities

10,415
5,845
29,894

11,210
6,505
34,902
136,886 129,755

17,234
5,896
30,305
139,428

20,319
5,426
35,193
134,672

183,040 182,372

192,863

195,609

77,299
1,057
35,286
23,693
45,705

60,481
2,299
36,068
29,772
53,752

84,369
1,057
36,304
24,629
46,504

69,963
2,299
39,731
29,493
54,124

Total stockholders’ equity,
provisions and liabilities

183,040 182,372

192,863

195,609

Statement of Cash Flows
The Company follows SFAS  when preparing the Statement
of Cash Flows, except that it defines cash and cash equivalents
as highly liquid funds that are easily converted to cash and are
insignificantly affected by changes in value. Cash and cash
equivalents in accordance with SFAS  have an initial maturity
at the time of acquisition of  months or less. Applying this
definition would imply making the following adjustments of
reported cash, with the offsetting difference reflected in cash
flow from investing activities in the Statement of Cash Flows:

Consolidated

2004

2003

2002

Short term cash investments,
cash and bank, as reported
Adjustment for items
not compliant with US GAAP

Cash and cash equivalents
as per US GAAP

76,554

73,207

66,214

–46,142 –20,092 –28,069

30,412

53,115

38,145

Share Based Compensation
Up until , the Company, as permitted under SFAS 
“Accounting for Stock Based Compensation”, applied
Accounting Principles Board Opinion  (APB ) and related
interpretations in accounting for its stock option plans under
US GAAP. No compensation expense has been reflected in the
consolidated income statement as no compensation expense
arises when the strike price of the employee’s stock options
equals the market value of the underlying stock at grant date,
as in the case of all options granted to Ericsson’s employees.

The Company has during  adopted SFAS 

“Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. ”. The
adoption method chosen is the “Prospective method”. This
method states that the recognition provisions shall be applied
to all employee awards granted, modified, or settled after the
beginning of the fiscal year in which the recognition provisions
are first applied. As the Company has had no changes to it’s

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

current stock option plans nor any new stock option plans
started after implementing SFAS  there will be no effect to
the income. Neither has any difference been identified in
accounting for the stock purchase plans, except for accounting
of the social security costs. Please refer to section above.
As the Company has applied the APB  model in

accounting for both stock option and stock purchase plans, the
Stock Purchase Plans have been expensed in the income
statement according to both Swedish and US GAAP. In
accordance with APB  the costs are based on the intrinsic
value at investment date and accrued during the vesting period.

If the Company had chosen to adopt the optional

recognition provisions of SFAS  for its stock option plans,
net income (loss) and earnings (loss) per share in accordance
with US GAAP would have been changed to the amounts
indicated below:

Consolidated

2004

2003

2002

Net income
Net income per US GAAP
Adjustment for recognitions
of provisions per SFAS123
Net income, adjusted, per US GAAP

Earnings per share, diluted
Earnings per share per US GAAP
Earnings per share, adjusted,
per US GAAP

14,386 –10,597 –19,918

–80

–233
14,306 –10,830 –20,319

–401 1)

0.91

–0.68 2)

–1.58 2)

0.90

–0.69 2)

–1.62 2)

1) The figure for 2002 has been corrected, due to a clerical error.
2) Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

The fair value of each option grant is estimated on the date of
the grant, using the Black & Scholes’ option pricing model
with the following weighted-average assumptions:

Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life of option (in years)

2004 1)

2003 1)

2002

N/A
N/A
N/A
N/A

0.6%
43.1%
5.4%
5.4

1) No option programs were initiated during 2003 and 2004.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 83

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

Auditors’ Report

To the Annual 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
Telefonaktiebolaget LM Ericsson (publ) for the year .
These accounts and the administration of the company and the
application of the Annual Accounts Act when preparing the
annual accounts and the consolidated accounts 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 reasonable
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 and significant
estimates made by the board of directors and the managing
director when preparing the annual accounts and consolidated

accounts 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’s and the
group’s financial position and results of operations in
accordance with generally accepted accounting principles in
Sweden. The Board of Directors’ Report is consistent with the
other parts of the annual accounts and the consolidated
accounts.

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 for the
parent company be dealt with in accordance with the proposal
in the Board of Directors’ Report and that the members of the
board of directors and the managing director be discharged
from liability for the financial year.

Stockholm, February , 

Bo Hjalmarsson
Authorized Public Accountant
PricewaterhouseCoopers AB

Peter Clemedtson
Authorized Public Accountant
PricewaterhouseCoopers AB

Thomas Thiel
Authorized Public Accountant

84 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Information on the Company

GENERAL
Telefonaktiebolaget LM Ericsson (publ) is a limited liability
company organized under the Swedish Companies Act. The
terms “Ericsson”, “the Company”, “the Group”, “us”, “we”,
“our” all refer to Telefonaktiebolaget LM Ericsson, the Parent
Company and its subsidiaries. The company was incorporated
on August , , as a result of a merger between AB LM
Ericsson & Co. and Stockholms Allmänna Telefon AB. Our
Class A and B shares are traded on Stockholmsbörsen (the
Stockholm Stock Exchange). Our Class B shares are also traded
on the London Stock Exchange (LSE). In the United States, our
American Depository Shares (ADS), each representing 
underlying Class B shares, are traded on NASDAQ.

Our registered address is Telefonaktiebolaget LM Ericsson,
SE–  Stockholm, Sweden; our headquarters are located at
Torshamnsgatan , Kista, Sweden. Our telephone number in
Sweden is +   .

In the United States, our agent is Ericsson Inc., Vice
President Legal Affairs,  Legacy Drive, Plano, Texas
. Telephone number in the US is +   . Our
web site is www.ericsson.com. Please note that information on
our web site does not form part of this document.

DOCUMENTS ON DISPLAY
We file annual reports and other information (normally in
Swedish only) for certain domestic legal entities with
Bolagsverket (Swedish Companies Registration Office) pursuant
to Swedish rules and regulations. You may order any of these
reports from their web site at www.bolagsverket.se. If you access
these reports, please be aware that the information included may
not be indicative of our published results in all aspects. Only
consolidated amounts for the group totals are included in our
reports.

We also file annual reports and other information with the
Securities and Exchange Commission (SEC) in the United States
pursuant to the rules and regulations that apply to foreign
private issuers. Electronic access to these documents may be
obtained from the SEC’s website at
www.sec.gov/edgar/searchedgar/webuser.htm where they are
stored in the EDGAR database. You may read and copy any of
these reports at the SEC’s public reference facilities at  Fifth
Street, N.W., Washington, D.C.  or obtain them by mail
upon payment of their prescribed rates. For further
information, you can call the SEC at +   .

I N F O R M A T I O N O N T H E C O M P A N Y
I N F O R M A T I O N O N T H E C O M P A N Y
I N F O R M A T I O N O N T H E C O M P A N Y
I N F O R M A T I O N O N T H E C O M P A N Y

HISTORY AND DEVELOPMENT
Our origins date back to  when Lars Magnus Ericsson
opened a small workshop in Stockholm to repair telegraph
instruments. That same year in the United States, Alexander
Graham Bell filed a patent application for the telephone. Lars
Magnus Ericsson soon recognized the great potential of voice
based telecommunications and realized that the technology
could be improved. He started to develop and sell his own
telephone equipment and within a few years reached an
agreement to supply telephones and switchboards to Sweden’s
first telecom operator. Stockholm soon had the highest
telephone density in the world.

Today, Ericsson is a leading provider of telecommunications

equipment and related services to mobile and fixed network
operators globally. Over , networks in  countries utilize
our network equipment and we are one of the few companies
worldwide that can offer end-to-end solutions for all major
mobile communication standards.

We invest heavily in R&D and actively promote standardiza-

tion and open systems. As a result, we have a long history of
innovation and the pioneering of next generation technologies
for more efficient and better quality telecommunications.

Telegraph to telephone

Milestones

 Manual switching to automatic switching

Electro-mechanical to computer control
 Analog switching to digital switching



 Narrowband circuit to broadband packet switching

G narrowband to G wideband mobile technology
 Commercialization of CDMA
 Mass commercial launch of WCDMA G networks in

Fixed communications to mobile communications
G analog to G digital mobile technology
Integration of voice and data in mobile networks

Western Europe

Also reflecting our ongoing commitment to technological
leadership, we have one of the industry’s most comprehensive
intellectual property portfolio containing over , patents
with an additional , patent applications pending approval
by various patent authorities.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 85
E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 85
E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 85
E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 85

I N F O R M A T I O N O N T H E C O M P A N Y

Our vision – how we see the world
We believe in an “all communicating” world: voice, data and
images, conveniently communicated anywhere and anytime,
increasing both quality of life and productivity while enabling
a more resource-efficient world.

Our mission – what we aim to accomplish
We are shaping the future of broadband mobile
communications through continuous technological leadership.
We strive to be the prime innovator of our industry, driving the
future of advanced communication and helping our customers
to be the most powerful communication companies in the
world.

Core values – how we act
Professionalism, respect and perseverance are the foundation of
the Ericsson culture, guiding us in our daily work, both in how
we relate to people and how we conduct our business.

Results – how we measure our performance
We measure three fundamental metrics: customer satisfaction,
employee satisfaction and financial returns. We believe that
highly satisfied customers, empowered employees and best in
class operating margins help to assure an enduring capability
for value creation and competitive advantage.

BUSINESS OVERVIEW
We supply the network equipment and services that enable
telecommunications. We also provide our customers with
services for network operations and revenue generation.
Through our Sony Ericsson Mobile Communications joint
venture we offer a range of mobile devices, including those
supporting multimedia applications and other personal
communication services. In addition, the Company has
products for special applications within defense systems,
enterprise, cables, mobile platforms and power modules.

Primary business offerings
Mobile systems
We are the market leader with approximately  percent global
share of the addressable market, i.e. open non-proprietary
standards. Our claim of market leadership in mobile systems is
based on our reported sales and how they relate to the publicly
reported and estimated mobile system sales of our main
competitors. Statements from industry and financial analysts
also support our estimates. We have an even higher share
within GSM/WCDMA. We offer all G mobile standards as well
as the three primary G standards – WCDMA, EDGE and
CDMA for next generation mobile networks. Our end-to-
end solutions offer operators a smooth network migration to
G. Products include radio base stations, core network
infrastructure and the increasingly important service layer.
Mobile network equipment and associated network rollout
services account for more than two thirds of our sales.

Wireline systems
We are a supplier of broadband multi-service communications
equipment and services mainly to fixed network operators in
Latin America and Europe. By successfully addressing three key
operator needs: modernization and expansion of the fixed
telephony networks; introduction of IP-based revenue
generating services; and cost-efficient rollout of high capacity
broadband networks with service differentiation, we have been
able to secure a strong position in voice over packet, soft
switching and public Ethernet access.

Transmission and transport
A well-planned and efficient transport network is key for
bringing services to market quickly and cost effectively. We
offer a complete, end-to-end portfolio of transmission and
transport equipment for mobile, fixed and other types of
networks. Microwave and optical solutions are important parts
of our G, G and multi-service networks offerings. We are the
largest supplier of microwave radio links in the world. Sales of
transmission and transport products are accounted for within
either mobile networks or fixed networks depending on which
type of operator is involved.

86 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

I N F O R M A T I O N O N T H E C O M P A N Y

Customers
We are broadly supplying equipment and services to almost all
major network operators globally. However, we derive most of
our sales from large, multi-year network build-out agreements
with a limited number of significant customers. Out of a
customer base of more than  network operators, the ten
largest customers account for approximately  percent of our
net sales while the  largest customers account for
approximately  percent of our net sales. Our largest customer
accounted for approximately  percent of sales during .
For more information, see “Risk Factors – Risks Associated

with the Industry and Market Conditions”.

Competitors
In our Systems segment, we compete mainly with large and
well-established communication equipment suppliers.
Although competition varies depending on the products,
services and geographical regions, our most significant
competitors in wireless communication include Alcatel,
Lucent, Motorola, Nokia, Nortel and Siemens. With respect to
wireline communications equipment, the competition is also
highly concentrated and includes, among others, Alcatel, Cisco,
Lucent, Nortel and Siemens. We also compete with numerous
local and regional manufacturers and providers of
communication equipment and services. We believe the most
important competitive factors in this industry include existing
customer relationships, the ability to cost-effectively upgrade
or migrate an installed base, technological innovation, product
design, compatibility of products with industry standards, and
the capability for end-to-end systems integration.

Competition in Professional Services not only includes many

of our traditional systems competitors but also a number of
large companies from other industry sectors such as IS/IT
including IBM, EDS, Accenture and electronics manufacturing
services companies such as Flextronics as well as a number of
smaller but specialized companies operating on a local or
regional basis. As this segment grows, we expect to see
additional competitors emerge, possibly including some
network operators attempting to expand into new segments.
In our Other Operations segment, our competitors vary
widely depending on the product or service being offered. We
face significant competition with regard to substantially all of
these products and services.

Service layer
The service layer is where applications and end-user services are
enabled and managed. The service layer is becoming more
important with new services that combine voice, data and
images. Ericsson has a leading complete service-layer portfolio
with products, solutions and services for both fixed and mobile
network operators. We have a particularly strong position
within pre-paid, billing, intelligent networks and mobile-
multimedia services (MMS). Mobility World is an Ericsson
initiative that develops content and applications together with
industry-wide partners. Sales of Service Layer products are
accounted for within either mobile networks or fixed networks
depending on which type of operator is involved.

Services
Our services portfolio includes expertise in consulting, systems
integration, managed services, network deployment and
optimization, education and technical support services. With
over , dedicated Global Services professionals on the
ground in  countries, our services sales (including network
rollout) account for approximately one quarter of our Systems
net sales. We offer some of the most comprehensive managed
services capabilities within the telecom industry, covering
management of day-to-day operations of a customer’s network,
sometimes including a managed capacity service for an efficient
network build out and on-demand capacity, as well as hosting
of applications and content management. The combination of
our local expertise, global technology leadership, business
understanding, strong delivery capabilities and extensive
experience in managing multi-vendor networks, makes
Ericsson a leading provider of services to network operators.
Our Global Services business unit includes both network

rollout and professional services. Sales of network rollout
services represent approximately  percent of net sales and are
consolidated within either mobile networks or fixed networks
depending on which type of operator is involved while
professional services represents  percent of sales and are
reported separately.

Mobile Phones
Sony Ericsson Mobile Communications (Sony Ericsson) delivers
leading-edge mobile phones and other mobile communication
devices. The / joint venture combines the mobile
communications expertise of Ericsson with the consumer
electronics and content expertise of SONY Corporation and
forms an essential part of our end-to-end capability for mobile
multimedia services. Sales for Sony Ericsson are not included in
our reported sales while their operating results are reported
according to the equity method under “Share in earnings of
joint ventures and associated companies” in the income
statement.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 87

I N F O R M A T I O N O N T H E C O M P A N Y

Within the Phones segment, the primary competitors

Our strategy calls for us to:

include Nokia, Motorola, Samsung and Siemens plus a number
of other companies such as LG Electronics, Sharp and NEC.
Competition is intensifying with consumer electronic
companies, especially those based in Asia, making significant
market share gains. We believe that our mobile phone joint
venture with Japan’s SONY Corporation creates a distinctive
competitive position.

For more information, see “Risk Factors – Risks Associated

with the Industry and Market Conditions”.

Suppliers
We manufacture and assemble a large portion of our products
in-house, however, over half of our module production is
outsourced to a group of electronics manufacturing services
companies including Elcoteq, Flextronics, Sanmina-SCI and
Solectron. We also purchase customized and standardized
equipment, components and services from several global
providers as well as from numerous local and regional suppliers.
A number of our suppliers design and manufacture highly
specialized and customized components for our end-to-end
solutions as well as individual nodes. We generally negotiate
global supply agreements with our primary suppliers, but we
are not dependent on any one supplier for the provision of
standardized equipment or components. Since we try to avoid
single source supply situations, we do not believe that any
single supplier is material to our aggregated business.

Sony Ericsson also outsources a significant part of their

production of mobile handsets to Flextronics and other contract
manufacturers.

For more information, see “Risk Factors – Risks Associated

with the Industry and Market Conditions”.

BUSINESS STRATEGY AND LONG-TERM GOALS
Our overall goal is to be the preferred business partner to our
customers, especially to the world’s leading network operators.
In doing so, we strive to be the market and technology leader
by offering end-to-end solutions mainly related to network
infrastructure, network management and other service
offerings.

We are a major supplier to most of the world’s leading
mobile network operators and many of the world’s leading
fixed-line operators. We believe that our ability to offer end-to-
end solutions – systems, applications, services and core handset
technology – together with our in-depth knowledge of
consumer requirements, make us well positioned to assist
network operators with their network development and
operations. We are already a market leader in network systems
integration and managed services. Through increased activities
in professional services and service layer products, we aim for
increased sales in these growing segments.

• Lead market development through innovation and

technological leadership;

• Leverage our economies of scale to develop superior products
and services and thereby offer our customers competitive
advantages; and

• Establish operational excellence as a basis for sustainable and

best in class operating margins.

Innovation is an important element of our corporate culture
and is key to our competitiveness and future success. We have a
long tradition of developing innovative communication
technologies, including technologies that help to establish
industry standards. For example, we helped pioneer the
development of industry-wide wireless technology standards
such as GSM, GPRS, EDGE, CDMA, WCDMA, HSDPA and
Bluetooth.

We work closely with our customers to understand their
businesses and technology needs and provide tailored solutions
to help them fulfill their business objectives. We believe that
our ability to meet the diverse technology needs of our
customers with high value-added solutions has been
instrumental in our being chosen as a provider of wireless
communications equipment to the world’s  largest mobile
network operators.

We will continue to devote significant resources to
developing end-to-end communications solutions that will
stimulate network deployments for geographic coverage as well
as traffic capacity and thereby drive demand for our products
and services.

Our expertise and experience in all major telecommuni-
cation standards along with our proven track record for quality
and innovation have allowed us to develop our business on a
global basis. We have significant sales in all of the largest
geographic markets for telecommunications with no individual
country accounting for more than  percent of sales.

We believe that our global presence and the economies of

scale associated with market share leadership give us
competitive advantages. We are utilizing our strong
international presence and core competence in mobile and fixed
communications to expand into growth areas such as service
applications and managed services. We also use our global
reach to develop alliances with suppliers and manufacturers in
order to increase our combined effectiveness.

We will continue to improve our internal processes and
support systems to drive operational excellence as a competitive
advantage. In addition, we continue to develop and maintain
high levels of competence in our employees to secure our
leading market position and to stay at the forefront of
technology development.

88 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

BUSINESS SEGMENTS
To best reflect our business focus and to facilitate comparability
with our peers, we consolidate the results of our operations into
three business segments:
. Systems consisting of a three-pronged business approach:
Mobile Networks, Fixed Networks and Professional
Services;

. Phones through the / joint venture with SONY; and
. Other Operations which comprise a number of small
businesses including Microwave Systems (Defense),
Enterprise Systems, Network Technologies (Cables), Mobile
Platforms and Power Modules.

Although we have  market units, we group orders and sales
into five large geographic regions: Western Europe, Central and
Eastern Europe, Middle East and Africa (CEMA), Asia Pacific,
North America and Latin America.

2004 Sales by Region and Segment

SEK billion

Systems

percent share
Other Operations
percent share

Total

percent share

Western
Europe CEMA1) Pacific America America Total

North

Latin

Asia

34.0
28%
6.5
63%

40.5
31%

31.5
26%
1.4
14%

32.9
25%

27.1
22%
1.4
13%

28.6
21%

14.8
12%
0.7
7%

15.5
12%

14.1 121.5
12%
0.4
3%

10.4

14.5 132.0
11%

1) Central and Eastern Europe, Middle East and Africa.

Note: due to rounding, all rows and columns may not add up exactly to the
totals.

Please also see “Notes to the Financial Statements – Note ,
Segment Information.”

I N F O R M A T I O N O N T H E C O M P A N Y

Seasonality
Our quarterly sales, income and cash flow from operations are
seasonal in nature and generally lowest in the first quarter of
the year and highest in the fourth quarter. This is mainly a
result of the seasonal purchase patterns of network operators.
Although demonstrating a strong seasonal pattern historically,
our seasonal sales variances have not conformed to the longer-
term pattern during the market downturn starting in  and
subsequent recovery during . The table below illustrates
the long term average seasonal effect on sales for the period
 through .

15-year average seasonality

First
quarter

Second
quarter

Third
quarter

Fourth
quarter

Sequential Change
Share of annual sales

–27%
21%

17%
24%

–6%
23%

39%
31%

Compared to the  year historical pattern, the seasonality over
the last three years has generally been less pronounced with a
more equal distribution of sales between quarters. The table
below illustrates the average seasonal effect on sales for the
years ,  and .

Most recent 3-year average seasonality

First
quarter

Second
quarter

Third
quarter

Fourth
quarter

Sequential Change
Share of annual sales

–30%
23%

9%
25%

–5%
24%

20%
28%

Systems Segment
Mobile Networks
We provide mobile systems solutions to network operators that
enable reliable, efficient and cost effective wireless networking.
Our systems offerings include radio base stations, base station
and radio network controllers, mobile switching centers,
service application nodes and other nodes for billing and
operations support.

Each generation of wireless technology is associated with a
group of international standards for wireless communications
networks. Transitioning from one generation to the next, such
as from G to G, requires network operators, equipment
suppliers and mobile handset manufacturers to adopt new and
emerging technology standards. We believe that the migration
from voice services and basic mobile multimedia services to
mobile broadband is the primary technological shift facing
wireless network operators today.

Our expertise in all G standards and our role in developing

G standards allow us to offer mobile telecommunications
systems that incorporate any of the major G, .G and G
mobile technology standards. As a result, we are able to offer
tailored solutions to a network operator, regardless of the
existing network standard used.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 89

Fixed Networks
We have a long history in fixed-line networking with an
installed base of access and transit lines equivalent to 
million lines or approximately  percent global market share
of the installed base. We supply fixed network operators with
systems solutions that allow them to upgrade their legacy
networks to more efficiently handle a mix of voice, data, video
and Internet traffic.

Fixed network operators are moving from single-service
networks toward broadband packet-switched multi-service
networks that have the ability to simultaneously handle
multiple services, such as voice, data and images. Migration to
an all IP-based packet-switched network is a necessary step in
order to combine broadband Internet, voice and image traffic
into one multi-service network.

Our solution for such multi-service networks utilizes layered

softswitch service and control architecture, combined with
broadband access and core network routing and transmission
elements. Organizing a network into layers isolates the
different functions, i.e., access, core network and services to
facilitate easier migration to an all IP environment. Due to our
leadership in next generation mobile networks, we are able to
leverage our IP-based multimedia subsystem (IMS) developed
for G networks for next generation fixed network applications.
IMS is an open service layer platform that hosts IP based services
such as Voice over IP (VoIP), push-to-talk, etc. Since our IMS
solution is common for both fixed and mobile networks,
converged services can be transparently provided independent
of the type of access.

Similar to our mobile network offering, we offer a suite of

network services and applications that enable network
operators to provide a range of services such as free-phone,
virtual private network and other applications as well as
billing.

Professional Services
Services play an increasingly important role in our business. As
part of our Global Services business, we offer a comprehensive
range of professional services to support operators with the
planning, implementation and operation of their networks.
These services accounted for  percent of our net sales in 
and include support, advisory, integration and managed
services. Our Services organization has technical knowledge to
support multi-vendor fixed and mobile networks as well as all
major mobile network standards. In addition, we provide
network rollout services as part of our network equipment
offerings.

I N F O R M A T I O N O N T H E C O M P A N Y

We offer a complete portfolio of radio base stations ranging
from small pico cells (i.e., small cells in a mobile network that
boost capacity and coverage within buildings) to high capacity
macro cell applications. Radio base stations provide access and
interconnection between mobile handsets and the mobile
network. Our installed base of GSM radio base stations
represents more than one third of all GSM radio base stations in
service globally. A central feature of our G GSM radio base
stations and base station controllers is their ability to be
upgraded on a cost-effective basis to enable .G GPRS and G
EDGE transmissions. Similarly, our WCDMA base stations can be
upgraded to HSDPA.

Other important elements of radio access networks are the

controllers for radio base station and radio access networks,
which manage the traffic between the radio base stations and
core networks. In G, base station controllers, in conjunction
with mobile switching centers, effect call handovers between
radio base stations as subscribers move between cell sites while
engaged in a voice call or data transmission. Similarly, in G
networks, a radio network controller effects call handover in
conjunction with mobility server nodes within the service layer.
The core network nodes interconnect radio access networks

with other parts of the network. Many of our core network
switching systems, controllers for base stations and radio
networks are built from common platforms. Like our radio base
station products, our mobile switching products have industry-
leading scalability and capacity.

We are also a leading supplier of microwave radio links that
can be used to backhaul the traffic between radio base stations
and base station controllers as well as between base station
controllers and mobile switching centers. Wireless backhauling
(i.e., transporting data and voice from a network access point to
a central switching point in mobile systems) with microwave
radio links reduces the need for the operator to lease
transmission capacity from fixed network operators, resulting
in significant cost savings for the wireless operator. A new
generation of microwave transmission systems is now being
introduced with expanded capacity to support the increased
traffic demands of mobile Internet and G, as well as to serve
the market for wireless broadband access to fixed networks.
Our mobile systems offerings extend beyond assisting
network operators in upgrading their network functionality.
We also offer a suite of Mobile Internet services and
applications that enable network operators and content
providers to bring multi-media messaging, personalization,
information, entertainment, location-based and m-commerce
services to consumers. We have also established Ericsson
Mobility World, a global network of regional centers and local
web-based facilities. This open industry-wide initiative is a
growing network of more than , registered technology
professionals from a diverse base of companies, working in
partnership toward successfully implementing the Mobile
Internet.

90 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Network operators are reducing operating expenditures by
optimizing the operation and maintenance of their networks.
As a result, many network operators are increasingly
outsourcing network design, operations and maintenance
activities. This trend also gives rise to new business models
such as managed capacity, where an operator buys coverage,
capacity and network performance, or hosted services, where
companies like Ericsson provides the network and/or service
capability according to agreed service levels. Under such
business models, operators gain flexibility in capital employed,
resources and time to market – all with an assured quality of
service.

Other Operations
In addition to the areas previously described, Ericsson’s
operations include microwave (defense) systems, enterprise
systems, network technology (cables), mobile platforms and
power modules. Although important, these business units are
relatively small compared to those consolidated within
Systems. Sales of these units are consolidated within Other
Operations and in total amount to  percent of net sales, with
no single unit representing more than  percent.

ORGANIZATION
Our operational organization is built around a structure of
centralized business units responsible for the delivery of
products and services to decentralized market units that are
responsible for local sales and customer support. A number of
group functions are used to perform tasks pertaining to certain
Group-wide matters that are not naturally suitable for a specific
operational unit.

Governance
A significant amount of authority and responsibility is assigned
to the management of our various operating units for tasks
pertaining to daily operations. Governance of our operating
units is made through steering boards whose members are
representatives of the Group Management Team, the Extended
Management Team and the management of the particular
operating unit.

For more information regarding our corporate governance,

please see “Corporate Governance” or visit our web site
www.ericsson.com/investors/governance.

Changes in organization and management
Several organizational changes were made during  to
promote a simpler structure with more efficient operations and
fewer organizational layers.
The changes include:

• The  regional market units now report directly to the
Group Management Team replacing a market area
organization. For external reporting purposes, we continue
to group the orders and sales of the Market Units into five
larger geographic regions.

I N F O R M A T I O N O N T H E C O M P A N Y

• Within the Systems segment, the Mobile Systems business
unit was split into a Systems business unit and an Access
business unit. The Systems segment’s other three business
units (Mobile Systems CDMA, Transmission and Transport
Networks and Global Services) remained unchanged.

• A new group function, Sales and Marketing, was established

to maximize profitable growth and further develop a
professional sales culture within the company. In
conjunction with this change, Group Function Marketing
and Strategic Business Development was changed to Group
Function Strategy and Product Management.

• Multi-Country Accounts (MCA) were introduced as an

extension of the current Customer Account structure. It is
designed to serve large operators with smaller geographical
coverage than the Global Customer Accounts (GCA).
• A new Group Function, Operational Excellence, is being

established that will incorporate Group Function Sourcing
and Group Function Supply, currently part of Business Unit
Access and Group Operational Development, which is
currently part of Group Function Finance. In conjunction
with this change, responsibility for IT will be transferred to
Group Function Finance and the separate Group Function IT
and Sourcing has been eliminated.

• As of January , , the unit responsible for Radio

Network Development within R&D will be split and moved
into two business units. The part that works with
GSM/WCDMA will be integrated into Business Unit Access
while the part that works with CDMA will be integrated into
Business Unit Mobile Systems CDMA.

• Effective January , , a new Market Unit called Greater
China will be established. Taiwan, which is currently part of
Market Unit North East Asia, will be grouped with
mainland China, Hong Kong and Macau, which currently
make up Market Unit China.

During , the following changes in the group management
team were made:
• After the successful completion of the restructuring
programs Per-Arne Sandström, First Executive Vice
President and Deputy CEO, has retired.

• Kurt Jofs, head of business unit Access, Björn Olsson head of
business unit Systems, and Bert Nordberg, head of group
function Sales and Marketing, were all appointed as
executive vice presidents.

• Per Tjernberg, Chief Information Officer and head of group
function IT and Sourcing decided to leave the company after
the dissolution of his group function described above.
• Joakim Westh joined the group management team as head
of the new group function Operational Excellence also
described above.

• Mats Olsson currently head of Market Unit China, has been
appointed to head the new market unit Greater China.

Please see “Notes to the Financial Statements – Note ,

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 91

I N F O R M A T I O N O N T H E C O M P A N Y

Information Regarding Employees, Members of the Board of
Directors and Management” for more information about
management.

Business units within the Systems segment
Access
Our Access business unit’s main role is to continuously
strengthen our global leadership in G & G radio access
networks by offering innovative and cost-effective solutions
that provide best in class performance. Business unit Access’
responsibility covers a wide spectrum of activities, from
product development to production to customer delivery.
Business unit Access is our largest business unit and has
operations in Sweden (Stockholm, Nynäshamn, Kumla and
Gävle), Brazil, China and India.

Systems
Business unit Systems is a leading supplier of end-to-end
telecom grade network systems and multimedia services. Our
offerings include mobile core and fixed network solutions and
service layer. We work as a business partner with our customers
to better understand their business objectives and provide
tailored solutions to fulfill their business requirements. As a
key player in the evolution to an all-IP telecom world, we are
leading the convergence of fixed and mobile networks and
services.

Mobile Systems CDMA
The primary task of our CDMA business unit is to create end-to-
end solutions for CDMA operators that consist of radio access,
core network and service layer products that offer best in class
performance. Our CDMA business unit’s responsibility covers a
wide spectrum of activities, from product development to
marketing and customer delivery. This business unit has
operations in the United States (San Diego, Ca. and Boulder,
Co.), Canada, China and Brazil.

Transmission and Transport Networks
The transmission and transport networks business unit
provides microwave transmission and broadband digital
subscriber line, which are essential elements of Ericsson’s end-
to-end solutions. These products are based on open standards
and often chosen by operators that also utilize other vendor’s
network equipment. The unit’s operations in Borås, Sweden,
include the largest microwave production plant in the world as
well as a customer distribution center for all transmission and
transport products. The transmission and transport business
unit operates in Sweden, Norway and Italy.

Global Services
Global Services helps operators to strengthen their
competitiveness by offering a complete range of advisory,
integration, managed and support services that addresses a
major part of their network operations. In addition, network
rollout services are often included as part of our network
equipment offering. The business unit is represented in 
countries with , people mainly based within the local
Market Units.

Business units within the segment Other Operations
This segment principally consists of a number of operations
deemed too small to be reported as separate segments. Other
operations include Microwave Systems (defense), Enterprise
Systems, Network Technologies (cables), Mobile Platforms,
Power Modules and a few very small units.

Ericsson Microwave Systems
Our Microwave Systems (defense systems) unit supplies
advanced airborne, terrestrial and marine radar systems.
Versions of Ericsson defense systems are operational in Sweden
and more than  other countries.

Ericsson Enterprise Systems
Enterprise Systems provides communications systems and
services that enable businesses, public entities and educational
institutions to have seamless access to applications and services
across multiple locations. We focus on providing solutions for
Voice over IP (VoIP) based PBX, wireless local area networks
(WLAN), and Mobile Intranet solutions.

Ericsson Network Technologies
Our Network Technologies (cables) unit provides a full range of
solutions that integrate copper and optical cables and power
networks. A large portion of net sales from our Network
Technologies group is attributable to inter-segment sales.

Ericsson Mobile Platforms
Ericsson Mobile Platforms offers end-to-end interoperability
tested platforms for GSM/GPRS, EDGE and WCDMA. This
enables application portability, stability and security along
with state-of-the-art power consumption and physical size. The
product offerings are based on our comprehensive intellectual
property portfolio and include: reference design, platform
software, ASIC designs and development boards, development
tools, training, support and documentation. By licensing our
technology and platforms, third party mobile handset and
wireless device manufacturers can launch new products faster
with limited R&D investments and lower technology risks,
allowing them to focus more on product differentiation such as
applications, industrial design, distribution and branding.

92 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Ericsson Power Modules
Ericsson Power Modules is a leading supplier of DC/DC
converters and DC/DC regulators mainly to the communications
industry, for advanced applications such as multiplexers,
switches, routers and radio base stations. In addition, the levels
of technology, ruggedness and reliability of Ericsson Power
Modules products mean that they often provide excellent
solutions for other demanding applications in medical,
avionics, computing, military, space, and industrial market
sectors. Manufacturing is carried out at facilities in Kalmar,
Sweden, and in Shanghai, China.

Research & Development
A robust R&D program is key to our competitiveness and
future success. We invested SEK . billion in R&D during
, which represents over  percent of sales. The majority of
our R&D is invested in mobile communications network
infrastructure. Even though total R&D spending has been
significantly reduced over the last several years, we have
maintained a high investment level in the strategically
important areas of broadband access, core networking and
service layer.

Our R&D organization develops world-class products and
performs world-leading research on behalf of the business units.
About , employees in  countries worldwide are
working with R&D in an organization consisting of group
functions, development units and Ericsson Research.

Ericsson Research conducts applied research in various
strategic areas to provide Ericsson with system concepts,
technology, and methodology to help secure our long term,
strategic position. World-class innovations are achieved
through cooperation within Ericsson and with a variety of
partners including customers, universities and research
institutes. Ericsson Research operates in Sweden, Finland,
Japan, Canada, China, Germany, Hungary and the United
States.

Please see “Risk Factors – Strategic and Operational Risks”
and “Board of Directors’ Report – Research and Development”
for more information regarding product and technology
development.

I N F O R M A T I O N O N T H E C O M P A N Y

Sales and Marketing
We use our own sales organization to market and sell our
systems and services to customers in over  countries via a
worldwide sales and support network consisting of  market
units. Each market unit represents either a single country or a
group of countries, depending on the extent of our business
activities in that region. The majority of these market units
operate through local subsidiaries that are present in each
country. We use our local presence to help our customers
achieve greater efficiencies and gain access to recognized world-
class support resources wherever they operate.

The market units utilize the product expertise of the central

business units within the Systems segment in tailoring and
integrating our products for delivery to customers. The market
units are also responsible for after-sales support and rely in
particular on the Global Services business unit in fulfilling this
function.

Businesses in our Other Operations segment market their
products and services through their own specialized direct and
indirect sales channels. On occasion, these specialized sales and
marketing teams work with our market units in certain
markets or when dealing with large customers with whom we
have a relationship.

Ericsson Group Functions
Group Function responsibilities include the formulation of the
Group’s strategy, business control, resource allocation and risk
management. In addition, Group Functions are also responsible
for the consolidation and reporting of financial performance,
communications with various stakeholders including
employees, investors, press and media, as well as administration
of a number of Group-wide issues. Other important Group-
wide matters such as Human Resources, Legal and Corporate
Social Responsibility are managed by Group Functions in
conjunction with a network of experts from various parts of the
company.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 93

I N F O R M A T I O N O N T H E C O M P A N Y

Phones – Sony Ericsson Mobile Communications
In October , we formed Sony Ericsson Mobile
Communications as a / joint venture with SONY
Corporation. The partnership with SONY leverages our
knowledge of mobile telecommunications technologies and
their expertise in consumer electronic devices and multimedia
technology. Sony Ericsson provides a full range of mobile
handsets and also allows us to provide end-to-end solutions to
our customers. Sony Ericsson is responsible for product design
and development, as well as marketing, sales, distribution and
customer services. About one third of Sony Ericsson handsets
are produced at their factory in China. The remaining two
thirds of production is more or less equally split between
contract (EMS) manufacturers and other device (ODM)
manufacturers at locations in several countries in Asia, Latin
America and Europe. Sony Ericsson’s global management is
based in London, has R&D centers in Sweden, Japan, China, US
and UK.

INTELLECTUAL PROPERTY AND LICENSING
Through many years of involvement in the development of new
technologies, we have built up a considerable portfolio of
intellectual property rights relating to telecommunications
technologies, especially mobile communications. As of
December , , we held over , (,) patents
worldwide, including a substantial number of patents essential
to the G/.G standards of GSM, TDMA and CDMA, as well as
numerous patents essential to G standards, including WCDMA,
HSDPA, CDMA and EDGE. We also hold important patents
for many other areas, e.g. Voice over IP (VoIP), ATM, WAP,
WLAN, mobile platforms and Bluetooth. Furthermore, we have
applied for an additional , patents that are pending
approval and we hold a number of trademarks around the
world.

Our intellectual property rights are valuable business assets.

We license these rights to many other companies including
equipment suppliers, handset manufacturers and wireless
applications developers, in return of royalty payments and/or
access to additional intellectual property rights. Sometimes, we
acquire rights via licenses to utilize intellectual property rights
of third parties. We believe that we have access to all related
patents that are material to our business in part or in whole.
For more information, see “Risk Factors – Strategic and

Operational Risks”.

PROPERTY, PLANT AND EQUIPMENT
During  and , we disposed of the majority of the real
estate properties that we owned. We believe the properties we
now occupy are suitable for our present needs in most locations,
but due to restructuring and reduced headcount, we have
certain amounts of excess space, which we are working to
reduce. As of December , , no land, buildings,
machinery or equipment were pledged as collateral for
outstanding indebtedness.

Manufacturing and assembly
Our Systems manufacturing consists of two basic production
activities, module and node. We have  significant
manufacturing and assembly locations worldwide with a total
of approximately , square meters of floor space. We lease
all of these facilities except one in China and one in Brazil.

The Systems segment consumes more than two-thirds of the

total floor space with cables and power modules consuming
most of the rest. In addition, we outsource a significant amount
of systems module production to several electronic
manufacturing service (EMS) companies, who have major sites
in Sweden, Poland, Estonia, and Hungary as well as several
locations in China. In Sweden, the majority of the floor space
within our production facilities is used for module production
with the balance mostly used for systems node assembly and
testing. Including the EMS production, approximately –
percent of Systems module production and – percent of
Systems node production is performed in Sweden.

We intend to continue to outsource module production
where adequate manufacturing capacity and expertise are
available on favorable terms. Such outsourcing of the major
part of module manufacturing provides us greater flexibility to
adapt to economic and market changes. However, the timing
and level of outsourcing is a balance between short-term
demand and longer-term flexibility. Therefore, we also plan to
normally use our own production capabilities to absorb
temporary changes in volumes.

We manage our own production capacity on a global basis
by allocating production to sites where capacity is available and
costs are competitive. At year-end , our overall utilization
was close to  percent as we continuously adjust our
production capacity to meet expected demand.

The table below summarizes our manufacturing and
assembly facilities as well as the total square meters of floor
space at year-end.

94 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Manufacturing and assembly facilities

2004

2003

2002

Sites Sq Meters

Sites Sq Meters Sites Sq Meters

Country
Sweden
Brazil
China
USA
Other

Total

10
1
3
0
0

277,415
15,840
15,200
0
0

308,455

10
1
3
0
0

310,000
22,100
9,500
0
0

341,600

11
1
3
3
1

327,000
22,100
9,500
14,400
6,600

379,600

During , a new , square meter facility in Jaipur,
India, will start systems node assembly.

During , our approximately , square meter
production facility in Nynäshamn, Sweden, will be closed.
The production will be absorbed by other Swedish sites.

Sources and availability of materials
We purchase raw materials, electronic components, ready-
made products and services from a significant number of
domestic and foreign suppliers. Variations in market prices for
copper, aluminum, steel, silicon, precious metals, plastics and
other raw materials have a very limited effect on our total cost
of goods sold. Our purchases mainly consist of electronic
components as well as ready-made products and services. To a
limited extent, we are involved in the production of certain
components such as power modules and cables, which are used
in our systems products as well as sold externally to other
equipment manufacturers.

Based on our most recent sourcing agreements, the increase

in oil prices during  did not have a material impact on
the costs or affected the availability of the electronic
components or ready-made products and services that we
require. To the extent possible, we rely on alternative supply
sources for the purchased elements of our products to avoid
sole source situations and to secure sufficient supply at
competitive prices. Assuming there will only be a slight
increase in market demand, we do not foresee any supply
constraints to meet our expected production requirements
during .

HUMAN RESOURCES
We believe that every employee should be treated with the
same respect and dignity. We value the rich diversity and
creative potential of people with differing backgrounds and
abilities. A culture of equal opportunities in which personal
success depends on personal merit and performance is
encouraged throughout our operations.

We have three core values: Professionalism, Respect and
Perseverance. These values form the foundation of how we
operate our business. Our core values define how employees
treat each other, our customers and our business partners and
therefore they define our culture. Characteristics of our culture
are exhibited by a passion to win; employee diversity, honesty,
trust and support for each other; integrity and high ethical

I N F O R M A T I O N O N T H E C O M P A N Y

standards; and leadership by example at all levels. We believe
the best way to further develop our business is to remain
accountable to ourselves and to our customers.

We maintain an open management style that involves our
employees in both daily decisions that affect them as well as
longer term matters. We are fully committed to keeping all
employees informed about the implications of major business
changes and other relevant matters. Key business priorities are
communicated throughout the organization and form part of
the basis for employee compensation and incentive plans.
Details of these plans appear in “Notes to the Financial
Statements – Note , Information Regarding Employees,
Members of the Board of Directors and Management”. We also
have constructive relationships with a variety of trade unions
including formal recognition and active dialogue where
appropriate.

Employees by gender and age at year end 2004

Female

Male

Under 25 years old
26-40 years old
41-55 years old
Over 55 years old

Percent of total

369
8,141
3,421
522

25%

1,120
23,936
11,412
1,613

75%

100%

Percent
of total

3%
64%
29%
4%

Employees by region at year end

Western Europe

Of which Sweden

Asia Pacific
North America
Latin America
Central Eastern Europe,
Middle East and Africa

Total

Employees allocated to CoS and Opex

Cost of Sales
Operating Expenses

Total

2004

2003

2002

32,930
21,296
7,493
4,139
2,549

36,227
24,408
6,468
4,460
2,276

45,251
30,241
7,771
6,328
2,822

3,423

2,152

2,449

50,534

51,583

64,621

2004

2003

2002

19,234
31,300

15,414
36,169

18,606
46,015

50,534

51,583

64,621

CORPORATE SOCIAL RESPONSIBILITY

We aim to establish and maintain high standards of corporate
social responsibility wherever we operate. A cross-functional
committee oversees our activities in this area. Policies and
directives relating to corporate responsibility are maintained
and widely communicated within the organization. In ,
Ericsson was again included in the FTSEGood and the Dow
Jones Sustainability Indexes.

A Sustainability Report is published during the second

quarter of each year. Also see our web site at
www.ericsson.com/about/responsibility.shtml for more
information including economic, social and environmental

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 95

I N F O R M A T I O N O N T H E C O M P A N Y

aspects of our strategy and business activities. Information on
our web site does not form part of this document.

We are subject to certain environmental, health and safety
laws and regulations that affect our operations, facilities and
products in each of the jurisdictions in which we operate. We
strive to comply with environmental requirements and to
provide workplaces for our employees that are safe,
environmentally sound, and that will not adversely affect the
health or environment of the communities in which we operate.
We believe that we are in compliance with all material
environmental and health safety laws and regulations required
by our operations and business activities.

PARENT COMPANY OPERATIONS
The business of the parent company, Telefonaktiebolaget LM
Ericsson, consists mainly of corporate management and holding
company functions. Parent company operations also include
internal banking and customer credit management activities
performed by Ericsson Treasury Services AB and Ericsson Credit
AB. As of December , , our parent company had branch
and representative offices in  countries and had approximately
 employees.

SUBSIDIARIES AND ASSOCIATED COMPANIES
For a listing of our significant subsidiaries, please see Notes to
the Financial Statements – “Note , Investments”.

In addition to our joint venture with Sony, we are engaged
in a number of other joint ventures, cooperation arrangements
and venture capital initiatives.

Please see “Risk Factors – Risks Associated with our

Business” for more information regarding risks associated with
joint ventures, strategic alliances and third party agreements.

96 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Corporate Governance

INTRODUCTION
We are committed to meeting the highest standards of
corporate governance. Our internal rules for ethical behavior
and other important rules for business conduct have since long
been established for all directors, officers and employees
through our group steering policies and directives. We believe
our management controls and procedures generally are in line
with global best practices, although we continuously seek ways
to make our corporate governance even more effective and
reliable.

Our continued adherence to high international standards of
corporate governance and maintaining Ericsson’s reputation for
good corporate citizenship and integrity requires the ongoing
support and commitment of all of our employees. Our Code of
Business Ethics and Conduct summarizes the policies and
directives which we expect all directors, managers and
employees of the Ericsson group to follow. The fundamental
purpose of the Code is to reaffirm our commitment to the
values of good corporate citizenship and integrity.

The Code of Business Ethics and Conduct, which has been
translated to more than twenty languages and communicated
to all employees around the globe, has contributed to a higher
awareness of the importance of high ethical standards.

All employees, managers and directors are required to
periodically review the Code of Business Ethics and Conduct
and must acknowledge that they have understood and agree to
comply with the principles outlined therein. Our Code of
Business Ethics and Conduct satisfies the applicable
requirements of NASDAQ and the US Securities and Exchange
Commission (“SEC”) pursuant to the Sarbanes-Oxley Act of
. The Code can be found at:
http://www.ericsson.com/about/code_business_ethics/

We comply with the listing requirements of the stock
exchanges we are listed on, that is Stockholmsbörsen, the
London Stock Exchange and NASDAQ. We also satisfy the
applicable NASDAQ corporate governance requirements,
subject to a few exceptions, which principally reflect legal
requirements in Sweden. These exceptions have been granted
by NASDAQ and are explained under “NASDAQ Corporate
Governance Exemptions”. We also comply with the applicable
requirements of the Sarbanes-Oxley Act; including the
certification of our Annual Report on the SEC’s Form -F by
the Chief Executive Officer and Chief Financial Officer.
On December , , the Swedish Code Group

(Sw. Kodgruppen) presented its final proposal for a Swedish
Code on Corporate Governance. The Code is expected to
become effective on July , , in any case with respect to
larger listed companies.

C O R P O R A T E G O V E R N A N C E

The Board has resolved that the Company will apply the

Code from the day it becomes effective.

MEETINGS WITH THE SHAREHOLDERS
In accordance with the Swedish Companies Act and Ericsson’s
Articles of Association, shareholders who exercise their voting
rights at the Annual General Meeting determine the
composition of the Board of Directors and all other issues voted
on at the General Meetings of Shareholders.

At General Meetings of Shareholders each Class A-share
carries one vote, each Class B-share one tenth of one vote and
each Class C-share one thousandth of one vote.

The Annual General Meeting shall be held within six

months after the end of the financial year and is normally held
at the end of March or beginning of April. In accordance with
the Articles of Association, the General Meetings of
Shareholders are held in Stockholm.

A shareholder may attend and vote at the Meeting in person
or by proxy. Proxies are not valid for more than a year from the
date of issuance. We publish notices to attend Annual and
Extraordinary Meetings. In such notices we provide
information about the agenda for the meeting as well as
information on how to notify us of attendance.

Under the Swedish Companies Act, resolutions are normally

passed by simple majority. However, the Act requires special
quorums and majorities in certain cases. A shareholder may cast
the full number of votes represented by the holder’s shares.
The Annual General Meeting offers shareholders the

opportunity to raise questions regarding the Company and the
results of the year under review. The members of the Board of
Directors, the executive management as well as the external
auditors are normally all present to answer such questions.

Shareholders and other interested parties may communicate
directly with the Board of Directors or executive management
independent of the Annual General Meeting. All
communications should be in writing directed to the Board of
Directors’ Secretariat. The sender should indicate in the address
whether the communication is intended for the entire Board,
an individual Director or any of the management team
members.

NOMINATION COMMITTEE
The main task of the Nomination Committee is to propose
candidates for election to the Board of Directors. The
Nomination Committee also prepares proposals concerning
Directors’ fees, which are presented at the Annual General
Meeting for resolution, and presented in“Notes to the Financial
Statements – Note , Information Regarding Employees,
Members of the Board of Directors and Management”.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 97

C O R P O R A T E G O V E R N A N C E

Members
The Nomination Committee, elected by the Annual General
Meeting, consists of Anders Nyrén (Chairman of the
Committee), Industrivärden, Bengt Belfrage, Nordea Fonder,
Christer Elmehagen, AMF Pension, Björn Svedberg, Investor,
and Michael Treschow (Chairman of the Board of Ericsson)

Remuneration
The Committee has not received any remuneration.

BOARD OF DIRECTORS
General
According to our Articles of Association, the Board of Directors
shall consist of a minimum of five directors and a maximum of
twelve directors, with no more than six deputies. The directors
shall be elected each year at the Annual General Meeting for
the period up to and including the following Annual General
Meeting. A director may serve any number of consecutive
terms.

In addition, under Swedish law, unions have a right to

appoint three directors and their deputies to the Ericsson Board
of Directors.

The Board of Directors is ultimately responsible for the

organization of the company and the management of the
company’s operations. The President/CEO is charged with the
day-to-day management of the company in accordance with
guidelines and instructions provided by the Board of Directors.
According to the Swedish Companies Act, a member of the
Board of Directors and the President/CEO may not participate
in decisions regarding agreements between the individual
concerned and the company. Nor may such member participate
in decisions regarding agreements between the company and
third parties where the individual concerned has a material
interest in the matter, which may conflict with the interests of
the company, or as to agreements between the company and a
legal entity which the individual concerned may represent,
either individually or together with any other person. The
Audit Committee has, further, implemented a procedure for
the approval of related party transactions in accordance with
NASDAQ’s corporate governance rules.

The Annual General Meeting decides on compensation for

the Directors of the Board.

Board work
The Board of Directors has established its work procedure in
accordance with the requirements of the Swedish Companies
Act. It has been developed to comply with reporting, disclosure
and other requirements on listed companies by
Stockholmsbörsen, the London Stock Exchange, NASDAQ and
the US Securities and Exchange Commission.

The Board schedules at least six meetings each year. Training

sessions as well as site visits are scheduled in order to enhance
the Directors’ knowledge of the company.

The Board meets with the external auditors on a regular
basis. The auditors present their observations from the audit of
the annual report as well as their reviews of interim reports and
internal controls.

The work of the Board and its Committees during  is

described in more detail in the Board of Directors’ Report.

Work Procedure
The Board designates, through the work procedure, how
various tasks will be distributed among the Board and its
committees as well as between the Board, its committees and
the President. This work procedure is reviewed and adopted by
the Board whenever necessary, but at least once a year. The
work of the committees is principally of a preparatory
character, i.e. the committees prepare matters for final
resolution by the Board. However, the Board has authorized
each committee to decide on certain issues in limited areas and
may also provide extended authorization to a committee to
decide on specific matters.

Committees of the Board
The Board of Directors currently has three committees, i.e. the
Audit, Finance and Remuneration Committees. The Board
appoints Committee members from among its members.

The Audit Committee
The Audit Committee assists the Board in monitoring the
integrity of the financial statements, the compliance with legal
and regulatory requirements, the qualification, independence
and performance of our external auditors and the effectiveness
of our systems of internal controls for financial reporting.

The Audit Committee is primarily responsible for reviewing

annual and interim financial reports, overseeing the external
audit process, including audit fees and the internal audit
function, and resolving matters arising during the course of
audits. However, the Audit Committee does not itself perform
audit work.

Pursuant to the Board’s work procedure, the Audit
Committee reviews the audited financial statements with
management and the external auditors, including conformity
with generally accepted accounting principles. The Audit
Committee also reviews with management the reasonableness
of significant estimates and judgments made in preparing the
financial statements, as well as the quality of the disclosures in
the financial statements. In addition, the Audit Committee
reviews matters and reservations arising from audits performed.
The Audit Committee has also implemented approval
procedures for audit and non-audit services performed by
external auditors in order to safeguard the auditors’
independence from the management and the company. Further
details about these procedures are provided under “Audit

98 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Committee Pre-approved policies and Procedures”.

During the year, the Committee meets for a strategic

C O R P O R A T E G O V E R N A N C E

The Audit Committee has also implemented a pre-approval
process for transactions with related parties and a procedure for
the reporting of suspected violations of, for example, laws,
regulations or our Code of Business Ethics and Conduct; a so
called whistle-blower procedure.

The Audit Committee is authorized to engage and

determine funding for independent counsel and other advisors
to the Committee. Membership during  included Sverker
Martin-Löf, Chairman of the Committee, Sir Peter L. Bonfield,
Jan Hedlund and Eckhard Pfeiffer.

Members of the Audit Committee must be independent
from the operational management, financially literate and
familiar with the accounting practices of an international
company comparable to Ericsson. At least one member must
have accounting or financial management expertise. The Board
of Directors has determined that each Sverker Martin-Löf, Sir
Peter L. Bonfield and Eckhard Pfeiffer satisfy these
requirements.

The Finance Committee
The Finance Committee is primarily responsible for handling
matters regarding acquisitions and divestments, capital
contributions to companies inside and outside the Ericsson
group, raising of loans, issuances of guarantees and similar
undertakings and approvals of financing support to customers,
as well as continuously monitoring the group’s financial risk
exposure. The Finance Committee consists of four members
appointed by the Board from among its members. Membership
during  included Marcus Wallenberg, Chairman of the
Committee, Arne Mårtensson, Michael Treschow and Torbjörn
Nyman.

The Remuneration Committee
The Remuneration Committee is primarily responsible for
reviewing and preparing proposals of salary and other
remuneration, including retirement compensation, to the CEO,
the Executive Vice Presidents, and other officers reporting
directly to the CEO. These proposals are thereafter presented to
the Board for resolution. In addition, the Committee is
responsible for strategies and general guidelines with respect to
employee compensation, including incentive plans and
retirement compensation

At the beginning of each year, the Committee approves any

short-term incentive payments to be made from the previous
year’s plan and prepares for resolution by the Board any long-
term incentive plan prior to being presented at a meeting of
shareholders.

compensation review with representatives of the company. The
Committee members consider trends in compensation,
legislative changes, disclosure rules and the general global
environment surrounding executive pay. The outcome is to
agree on the direction Ericsson will follow so that program
designs and pay policies all align with the business situation.
The Committee schedules a meeting in October each year,
entirely dedicated to long-term incentive plans to be presented
to the shareholders the following year.

At the end of the year, the Committee reviews salary survey
data to approve any increase of base pay for the following year
for executives. Increases, if any, are effective from the following
January. The Remuneration Committee also prepares for
resolution by the Board the short-term incentive targets for the
following year.

The Remuneration Committee consists of four members

appointed by the Board from among its members. Peter
Sutherland was the Chairman of the Committee until the
Annual General Meeting , at which he was replaced by
Michael Treschow. Nancy McKinstry has been a member since
the Annual General Meeting . In addition, Lena Torell and
Per Lindh served on the Committee.

Remuneration of the Board
The Annual General Meeting of shareholders resolved on April
, , that directors’ fees in the total amount of maximum
SEK  million should be distributed by the Board of Directors
among its members elected by the Annual General Meeting
not being employees of the company. Out of the SEK  million,
SEK . million has been utilized. For the distribution of this
amount amongst the members of the Board, please be referred
to “Notes to the Financial Statements – Note , Information
Regarding Employees, Members of the Board of Directors and
Management”.

Review/self-evaluation
The Chairman of the Board has discussions with each member
of the Board in order to evaluate the performance of the Board.
The Board, exclusive of the Chairman, evaluates the
performance of the Chairman and the entire Board evaluates
the work of the President/CEO.

MEMBERS OF THE BOARD
Our Board of Directors consists of nine Directors elected by the
shareholders at the Annual General Meeting for the period
until the close of the next Annual General Meeting, and three
employee representatives, each with a deputy, appointed by the
respective trade union. The Chairman is elected by the Board
from among its members. The President/CEO of the company
may be elected Director, as is the case at present. However, the
Swedish Companies Act prohibits the President of a public
company to be elected chairman of the Board.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 99

C O R P O R A T E G O V E R N A N C E

The Directors participate, with very few exceptions, in all of
the Board of Directors’ meetings and are, to the extent possible,
also present at the General Meetings of Shareholders.

Michael Treschow, Director (since 2002)
Chairman of the Board of Directors. Chairman of the
Remuneration Committee and member of the Finance
Committee. Chairman of the Board of Directors of Electrolux
and Member of the Board of Directors of ABB and B-Business
Partners. Chairman of the Confederation of Swedish Enterprise.

Arne Mårtensson, Director (since 2003)
Econ. Dr h.c. Deputy Chairman of the Board of Directors and
member of the Finance Committee. Chairman of the Board of
Directors of Handelsbanken. Member of the Board of Directors
of Holmen, Industrivärden, Sandvik, Skanska and V&S Vin &
Sprit. Chairman of the Advisory Board of Stockholm School of
Economics. Member of the Swedish Industry and the
Commerce Stock Exchange Committee and the International
Business Council of the World Economic Forum.

Marcus Wallenberg Director (since 1996)
Deputy Chairman of the Board of Directors and Chairman of
the Finance Committee. President of Investor. Deputy
Chairman of Saab and SEB. Member of the Board of Directors of
AstraZeneca, Investor, Scania, Stora Enso and the Foundation of
Knut and Alice Wallenberg.

Sir Peter L. Bonfield, CBE, FREng Director (since 2002)
Member of the Audit Committee. Senior Non-Executive
Director of the Board of Directors of AstraZeneca, Member of
the Board of Directors of Mentor Graphics and T.S.M.C.

Member of the International Advisory Board of Citigroup and
of the Sony Corporation Advisory Board. Non-Executive
Director of the Corporate Board of the Department for
Constitutional Affairs. Vice President of the British Quality
Foundation.

Sverker Martin-Löf, Director (since 1993)
Chairman of the Audit Committee. Chairman of the Board of
Directors of SCA, SSAB and Skanska. Member of the Board of
Directors of Handelsbanken, Industrivärden and the
Confederation of Swedish Enterprise.

Eckhard Pfeiffer, Director (since 2000)
Member of the Audit Committee. Chairman of the Board of
Directors of Intershop Communications. Member of the Board
of Directors of General Motors, IFCO Systems and Syntek
Capital. Member of the Advisory Board of Deutsche Bank.

Nancy McKinstry, Director (since 2004)
Member of the Remuneration Committee. CEO/Chairman of
the Executive Board of Wolters Kluwer nv. Member of the
Board of Directors of MortgageIT, Inc. Member of the Advisory
Council of the University of Rhode Island. Member of the
Advisory Council of ABN AMRO Holding nv.

Carl-Henric Svanberg, Director (since 2003)
President and CEO of Telefonaktiebolaget LM Ericsson.
Member of the Board of Directors of Assa Abloy and Hexagon.

Lena Torell, Director (since 2002)
Doctor of Physics. Professor. Member of the Remuneration
Committee. President of the Royal Swedish Academy of

Board of Directors

Name

Michael Treschow
Arne Mårtensson 1)
Marcus Wallenberg 1)
Peter L. Bonfield
Sverker Martin-Löf 1)
Eckhard Pfeiffer
Nancy McKinstry
Carl-Henric Svanberg
Lena Torell
Jan Hedlund
Per Lindh
Torbjörn Nyman
Monica Bergström
Anna Guldstrand 2)
Arne Löfving

Member
since

Age

Position

Number of
Class A shares

Number of
Class B shares

Options 2)

2002
2003
1996
2002
1993
2000
2004
2003
2002
1994
1995
2004
1998
2004
2003

61
53
48
60
61
63
45
52
58
58
47
43
44
40
51

Chairman
Deputy Chairman
Deputy Chairman
Director
Director
Director
Director
Director & CEO
Director
Employee Representative
Employee Representative
Employee Representative
Deputy Employee Representative
Deputy Employee Representative
Deputy Employee Representative

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

770,000
13,400
704,000
–
52,000
3,040
–
15,584,490
50,000
875
249
3,010
900
2,428
5,326

–
–
–
–
–
–
–
–
–
–
–
–
–
900
–

1) Arne Mårtensson and Sverker Martin-Löf are also Directors of Industrivärden. Marcus Wallenberg is President and Director of Investor.

Investor and Industrivärden are Ericsson’s two largest shareholders, based on voting rights.

2) Number of Class B shares assuming full exercise of options under applicable plan.

100 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Engineering Science. Member of the Board of Directors of
Gambro, Micronic Laser Systems, Imego, Ireco Holding,
Mistra and the European Council of Applied Sciences and
Engineering. Lena Torell has declined re-election at the Annual
General Meeting of Shareholders .

Jan Hedlund, Director (since 1994)
Member of the Audit Committee. Employee representative.

Per Lindh, Director (since 1995)
Member of the Remuneration Committee. Employee
representative.

Torbjörn Nyman, Director (since 2004)
Member of the Finance Committee. Employee representative.

Monica Bergström, Deputy Director (since 1998)
Employee representative.

Anna Guldstrand, Deputy Director (since 2004)
Employee Representative

Arne Löfving, Deputy Director (since 2003)
Employee representative.

Carl-Henric Svanberg is the only Director who holds an
operational management position at Ericsson. No Director has
been elected pursuant to an arrangement or understanding with
any major shareholder, customer, supplier or other person.

C O R P O R A T E G O V E R N A N C E

COMPANY MANAGEMENT
The Managing Director and Chief Executive Officer
– Operational Management
The Board of Directors appoints the President, the Chief
Executive Officer and Executive Vice Presidents. Management
of day-to-day operations is the responsibility of the Chief
Executive Officer and the Group Management Team consisting
of, apart from the Chief Executive Officer, the Chief Financial
Officer, the heads of Group Functions, Chief Technical Officer
& head of Research & Development and the heads of Business
Units Access, Systems, Mobile Systems CDMA and Global
Services.

Information about the Compensation policy is described in

Note .

Carl-Henric Svanberg
Master of Science degree, Linköping Institute of Technology,
Sweden, and Bachelor of Science degree in Business
Administration, Uppsala University, Sweden.

President & Chief Executive Officer and member of the
Board of Directors (since April ). Prior to assuming this
position, Carl-Henric Svanberg was the President and Chief
Executive Officer of the Assa Abloy Group. Member of the
Board of Directors of Assa Abloy and Hexagon.

Karl-Henrik Sundström
Bachelor degree in Finance, Uppsala University and Advanced
Management Program, Harvard Business School.

Executive Vice President and Chief Financial Officer and
head of Group Function Finance (since April ). Prior to
assuming this position, Karl-Henrik Sundström was head of
Business Unit Global Services.

Group Management Team

Name

Carl-Henric Svanberg
Karl-Henrik Sundström

Kurt Jofs

Bert Nordberg

Björn Olsson

Carl Olof Blomqvist
Joakim Westh
Marita Hellberg

Mats Granryd
Torbjörn Nilsson

Henry Sténson
Håkan Eriksson

Hans Vestberg

Appointed
year

Age

Position

Class
A shares

Class
B shares

Options 1) 2)

2003
2003

2004

1999
2004
2003

2004
1998

2002
2004

2003

52
44

53
43
49

42
51

49
43

President & CEO
Executive Vice President & CFO and Head of
Group Function Finance
Executive Vice President and Head of Business
Unit Access
Executive Vice President and Head of
Group Function Sales & Marketing
Executive Vice President and Head of Business
Unit Systems
Head of Group Function Legal Affairs
Head of Group Function Operational Excellence
Head of Group Function Human Resources
& Organization
Head of Business Unit CDMA
Head of Group Function Strategy &
Product Management
Head of Group Function Communications
Head of Research & Development and
Chief Technology Officer
Head of Business Unit Global Services

–
–

–

6,080
-
–

–
–

–

15,584,490
7,581

–
328,814

203,446

–

14,407

367,248

12,545

343,835

14,961
100,000
26,530

7,534
51,364

11,965
2,332

322,096

–

135,952
571,923

100,000
283,308

9,897

143,763

1) Aggregate number of Class B shares assuming full exercise of options under applicable plans.

2) No options were granted during 2004.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 101

C O R P O R A T E G O V E R N A N C E

Kurt Jofs
Master of Science degree, Royal Institute of Technology in
Stockholm, Sweden.

Executive Vice President and general manager Business Unit

Access (since January ). Prior to assuming this position
Kurt Jofs has held senior management positions in, among
others, Linjebuss and ABB Ventilation Products. Board member
of ATEA and Chairman of the Board of Peoples Travel Group.

Bert Nordberg
Bachelor degree in Electronic Engineering, Malmö, and
Engineer in the Marines, Berga and university courses in
International Management, Marketing and Finance, Insead
University, France.

Executive Vice President and head of Group Function Sales

& Marketing (since January ). Prior to assuming this
position, Bert Nordberg was head of Business Unit Systems.

Björn Olsson
Master of Science degree in Industrial Engineering and
Management, Linköping Institute of Technology, Sweden.

Executive Vice President and general manager Business Unit
Systems (January ). Prior to assuming this position, Björn
Olsson was Chief Information Officer.

Marita Hellberg
Bachelor degree, University of Stockholm, Sweden, and
Advanced Management Program, Cedep, France.

Senior Vice President and head of Group Function Human

Resources & Organization (since September ). Prior to
assuming this position, Marita Hellberg was Senior Vice
President of Human Resources of NCC Group.

Torbjörn Nilsson
Master of Science degree, Lund’s University and Master of
Business Administration, University of Stockholm.

Senior Vice President (since October ) and head of
Group Function Strategy & Product Management. Prior to
assuming this position, Torbjörn Nilsson was head of Group
Function Marketing & Strategic Business Development.

Henry Sténson
Studied law, sociology and political science, Linköping
University, Sweden, and at the Swedish War Academy,
Karlberg, Stockholm.

Senior Vice President and head of Group Function
Communications (since May ). Prior to assuming this
position, Henry Sténson was head of SAS Group
Communication, SAS AB.

Carl Olof Blomqvist
Bachelor’s degree MLL, University of Uppsala, Sweden.

Senior Vice President and general counsel and head of Group
Function Legal Affairs (since May ). Prior to assuming this
position, Carl Olof Blomqvist was a partner of Mannheimer
Swartling law firm.

Hans Vestberg
Bachelor of Business Administration degree, University of
Uppsala, Sweden.

Senior Vice President and general manager Business Unit
Global Services (since January ). Prior to assuming this
position, Hans Vestberg was head of Market Unit Mexico.

Håkan Eriksson
Master of Science degree in Electrical Engineering, Linköping
Institute of Technology, Sweden.

Senior Vice President and Chief Technology Officer and
general manager Research & Development (since January
). Prior to assuming this position, Håkan Eriksson was
Vice President & general manager Research & Development.

Mats Granryd
Master of Science degree, Royal Institute of Technology,
Stockholm, Sweden.

Senior Vice President and general manager Business Unit

Mobile Systems CDMA (since February ). Prior to
assuming this position Mats Granryd was head of Core Unit
Supply. Board member of Sitel, Algeria (a non-consolidated
joint venture, of which Ericsson owns  percent).

Joakim Westh
Master’s degree of science, Royal Institute of Technology,
Stockholm, Sweden and Master of Science degree within
Aeronautics & Astronautics, MIT, Boston, USA.

Senior Vice President and head of Group Function
Operational Excellence (since December ). Prior to
assuming this position, Joakim Westh was head of J. Westh
Företagsutveckling AB. Chairman of the Board of Directors of
Absolent AB and member of the Board of Directors of VKR
Holding A/S.

In addition to the Group Management Team, there is an
Extended Management Team consisting of the officers of the
Group Management Team and:
• Cesare Avenía, Vice President and general manager Market
Unit Italy and global customer account executive Telecom
Italia;

• Sivert Bergman, Vice President and general manager Business

Unit Transmission & Transport Networks;

• Rory Buckley, Vice President and general manager Market

Unit North East Asia;

102 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

• Ragnar Bäck, chairman of the Market Units within the

Central Europe, Middle East & Africa (CEMA) regions and
acting head of Market Unit Central Europe;

• Jan Campbell, Vice President and general manager Market

Unit India & Sri Lanka;

• Sandeep Chennakeshu, President Ericsson Mobile Platforms

AB;

• Mats Dahlin, Vice President & general manager Business

Unit Enterprise;

• Jef Keustermans, Vice President and general manager Market

Unit Northern Europe;

• Kinson Loo, Vice President and global customer account

executive Hutchison;

• Ingemar Naeve, Vice President and general manager Market

Unit Iberia and global customer account executive
Telefónica;

• Anders Olin, Vice President and global customer account

executive Vodafone;

• Mats Olsson, Vice President and general manager Market

Unit China;

• Torbjörn Possne, Vice President and global customer account

executive Deutsche Telekom;

• Angel Ruiz, Vice President and general manager Market

Unit North America;

• Kristian Teär, Vice President and general manager Market

Unit South East Asia; and

• Gerhard Weise, Vice President and general manager Market

Unit Mexico.

During , the officers below were members of the Group
Management Team of the company:

Per-Arne Sandström
Former First Executive Vice President and deputy CEO.
Per-Arne Sandström left the company on July , .

Per Tjernberg
Former Senior Vice President and head of Group Function IS/IT
& Sourcing. Per Tjernberg left the company on October ,
.

No member of the Extended Management Team has any
business activities which compete with or in any other way
negatively affect Ericsson’s business, and no member of the
Extended Management Team has been appointed on account of
any arrangement or understanding with any major shareholder,
customer, supplier or other person.

C O R P O R A T E G O V E R N A N C E

Operational Units
Our operational organization is built around a structure of
development units, responsible for the development of new
products and services. Further, there are centralized business
units responsible for the provision of products and services to
decentralized market units that are responsible for sales,
marketing and customer support. A significant amount of
authority and responsibility is assigned to the management of
our various operating units for tasks pertaining to daily
operations. Governance of our operating units is carried out by
steering committees, which members are representatives of the
Group Management Team, the Extended Management Team
and the management of the particular operating unit.

Group Functions
A number of Group Functions are used to perform tasks
pertaining to certain group-wide matters that are not naturally
referable to a specific operational unit. These responsibilities
include the formulation of the Group’s strategy, business
control, resource allocation and risk management. In addition,
Group Functions are also responsible for the consolidation and
reporting of financial performance, legal issues,
communications with the investment community and
administration of a number of Group-wide issues. Other
important Group-wide matters such as Corporate Social
Responsibility are managed by Group Functions in conjunction
with a network of experts from various parts of the Company.
The heads of Communications, Finance, Human Resources

and Organization, Operational Excellence, Legal Affairs,
Strategy & Product Management, and Sales & Marketing,
along with the staff of these functions comprise the Group
Functions of the company.

AUDITORS
In Swedish companies, the external, independent auditors are
elected by the shareholders at the Annual General Meeting for
a period of four years. The auditors report to the shareholders at
Shareholders’ Meetings.

To ensure that the Board of Directors’ information and
control requirements are fulfilled, the auditors report to the
Board regarding the planning, scope and content of the annual
audit. The auditors then examine the year-end financial
statements and report findings including an assessment of the
accuracy, completeness of the accounts as well as adherence to
appropriate accounting procedures and principles. In addition,
the auditors, at least annually, provide information to the Board
about assignments performed in addition to auditing services,
the consideration paid for such services and other circumstances
of relevance for determining the auditor’s independence.

All our quarterly reports are subject to limited review by our

auditors.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 103

C O R P O R A T E G O V E R N A N C E

Statutory auditors
Peter Clemedtson
Authorized Public Accountant, PricewaterhouseCoopers
Elected  (as successor for the remaining mandate period of
Carl-Eric Bohlin) until .
Audit services performed in other large companies such as:
OMX, SinterCast, Electrolux, Medivir, KMT, SEB, Gambro

Bo Hjalmarsson
Authorized Public Accountant, PricewaterhouseCoopers
Elected  until .
Audit services performed in other large companies such as:
Sony Ericsson, OMX, portfolio companies to EQT.

Thomas Thiel
Authorized Public Accountant, KPMG
Elected  until .
Audit services performed in other large companies such as:
Handelsbanken, Holmen, Swedish Match, Folksam, Peab.

Deputy auditors
Jeanette Skoglund
Authorized Public Accountant, PricewaterhouseCoopers
Elected  until .
Audit services performed in several large foreign subsidiaries of
global companies.

Robert Barnden
Authorized Public Accountant, PricewaterhouseCoopers
Elected  (as successor for the remaining mandate period of
Peter Clemedtson) until .
Audit services performed in other large companies such as:
SCA, Seco Tools, Nobia, VSM Group, AcandoFrontec

Stefan Holmström
Authorized Public Accountant, KPMG
Elected  until .
Audit services performed in other large companies such as:
Atlas Copco, Länsförsäkringar, Swedish Meat, Posten, V&S Vin
& Sprit.

Fees paid to external auditors
Ericsson paid the fees (including expenses) listed in the table in
Note  for both audit-related and non-audit related services.
The Audit Committee will review and pre-approve any non-
audit services to be performed by the external auditors, in order
to assure that the provision of such services does not impair the
auditors’ independence.

Audit Committee Pre-approval Policies and Procedures
The Audit Committee has particular responsibility for
preparing recommendations or proposals for resolution on the
performance of, and level of the audit fee payable to, the
external auditors. The Audit Committee reviews the scope and

execution of audits performed (external and internal) and
analyzes the result of and the costs for such audits.

Our Audit Committee has established pre-approval policies
and procedures for non-audit services performed by the external
auditors. Under these policies and procedures, proposed non-
audit services either (i) may be pre-approved by the Audit
Committee without consideration of specific case-by-case
services (“general pre-approval”); or (ii) require the specific pre-
approval of the Audit Committee (“specific pre-approval”). Tax,
transaction, risk management, corporate finance and attestation
and accounting services have received a general pre-approval of
the Audit Committee, provided that the estimated fee level for
the project does not exceed SEK  million. All other audit,
audit-related, tax and other services must receive specific pre-
approval. The Audit Committee has delegated specific pre-
approval authority to the Audit Committee Chairman for
proposed services with an estimated fee level not exceeding SEK
. million per project. The Chairman reports any pre-approval
decisions to the Audit Committee at its next scheduled
meeting. Pre-approval authority may not be delegated to
management. The policies and procedures also include a list of
prohibited non-audit services.

Applications to provide services that require specific

approval by the Audit Committee must be made by an auditor.
Such an application shall be submitted to the CFO and if
supported by the CFO, submitted by the CFO to the Audit
Committee for final approval.

Disclosure Controls and Procedures
Ericsson maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed
pursuant to the Securities Exchange Act of , its listing
agreement with Stockholmsbörsen and the on-going listing
requirements of the London Stock Exchange and Nasdaq is
recorded, processed, summarized and reported within the time
periods specified, and that such information is accumulated and
communicated to the management, including the CEO and CFO,
as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Also, we have investments in certain
entities that we do not control or manage. Accordingly, our
disclosure controls and procedures with respect to such entities
are necessarily substantially more limited than those we
maintain with respect to our subsidiaries.

We have carried out an evaluation, under the supervision
and with the participation of management, including our CEO
and CFO, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period
covered by this annual report. Based on the foregoing, our CEO

104 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

C O R P O R A T E G O V E R N A N C E

and CFO concluded that our disclosure controls and procedures
were effective at the reasonable assurance level.

There have been no significant changes in our internal controls

or in other factors that could significantly affect our internal
controls subsequent to the date we completed our evaluation.

Our Disclosure Policies
The purpose of our financial disclosure policies is to help
achieve a fair market value for Ericsson shares through
transparent, informative and consistent communications with
the investment community on a fair and equal basis. Our aim is
to communicate our strategy and results in such a way that
shareholders and potential investors can gain sufficient
understanding of how our company works, our operational
performance, what our prospects are and the risks that we face
that these opportunities may not be realized.

Prior to the adoption of the amendment, NASDAQ’s

Marketplace Rules provided that foreign private issuers may,
upon application, be exempt from certain of its corporate
government requirements when these requirements were
contrary to the laws, rules or regulations, or generally accepted
business practices of the issuer’s home jurisdiction.

Ericsson has received (and is entitled to continue to rely
thereon under the recently adopted amendment) exemptions
from NASDAQ’s corporate governance requirements under the
Marketplace Rules as follows:
• from the requirement that the majority of the Board consist

of, and that each of the Audit and Remuneration
Committees consist solely of, independent directors, in order
to allow for the required participation of employee
representatives on the Board and each committee thereof as
mandated by Swedish law;

To continue to achieve these goals, we apply the following

• from the requirement that an issuer’s director nominees be

principles in our financial reporting and disclosure:
• Transparency: our disclosure is designed to enhance

understanding of the economic drivers and operational
performance of our business, in order to build trust and
credibility

• Consistency: we aim to ensure that our disclosure is consistent
and comparable within each reporting period and between
reporting periods

• Simplicity: we try to disclose information in as simple a

manner as possible consistent with allowing readers to gain
the appropriate level of understanding of our business
operations and performance

• Relevance: we aim to avoid information overload by focusing
our disclosure on what is relevant to Ericsson’s stakeholders,
or as required by regulation or listing agreements

• Timely: we utilize well established disclosure controls and
procedures to ensure that all disclosures are complete,
accurate and performed on a timely basis

• Fair and equal: we publish all material information via press
release to ensure simultaneous dissemination to all market
participants

• Best practice: we strive to ensure that our disclosure is in line

with industry norms, and if possible lead the way to
improved best in class standards.

Our website (www.ericsson.com/investors) includes
comprehensive information about Ericsson, including an
archive of our annual and interim quarterly reports, on-
demand-access to recent news and copies of presentations that
senior management have given at industry conferences.

Nasdaq Corporate Governance Exemptions
Pursuant to a recently adopted amendment to NASDAQ’s
Marketplace Rules, foreign private issuers such as Ericsson may
follow home country practice in lieu of certain of NASDAQ’s
corporate governance requirements without seeking a formal
exemption from NASDAQ.

selected, or recommended for the Board’s selection, by either
a majority of independent directors or a nomination
committee comprised solely of independent directors, in
order to allow for the fact that: () under Swedish law,
shareholders (not the Board) have the authority to nominate
directors for election to the Board; and () in line with
common market practice among Swedish public companies,
Ericsson’s Nomination Committee is elected by
shareholders; and

• from the requirement that the independent directors of the
Board have regularly scheduled meetings at which only
independent directors are present (“executive sessions”), in
order to allow for the fact that under Swedish law: ()
employee representatives on the Board have the right to
participate in all Board and Board committee meetings; and
() decisions may not be made by the Board unless, where
possible, all of the directors have had the opportunity to
participate and have received satisfactory information in
order to reach a decision.

In addition, with respect to the requirements of NASDAQ’s
Marketplace Rules relating to quorums, Ericsson relies on the
exemption allowed by the recent amendment. NASDAQ requires
that an issuer provide, as specified in the issuer’s bylaws, for a
quorum for any meeting of the holders of its common stock,
such quorum to be not less than . percent of the outstanding
shares of the issuer’s voting common stock. This is contrary to
Swedish law followed by Ericsson under which: () meetings of
shareholders are convened in accordance with the rules of the
Swedish Company Act and the articles of association of the
issuer; and () the quorum requirements for any specific
meeting of shareholders differs based on the subject matter to
be decided upon at the meeting.

E R I C S S O N – A N N U A L R E P O R T 2 0 0 4 105

F O R W A R D - L O O K I N G S T A T E M E N T S

Forward-looking Statements

This Annual Report includes “forward-looking statements”
about future market conditions, operations and results.
Expressions such as “believe”, “expect”, “anticipate”, “intend”,
“may”, “could”, “plan” and similar words are intended to help
identify forward-looking statements. Forward-looking
statements may be found throughout this document, but in
particular in the sections captioned “CEO Letter and
Operational Review”, “Board of Directors’ Report” and
“Information on the Company” and include, statements
regarding:
• our goals, strategies and performance expectations;
• the markets we currently or soon intend to address;
• our liquidity, capital resources, capital expenditures and

our credit ratings;

• the expected demand for our existing as well as new

products and services;

• our joint venture and strategic cooperation activities;
• technology and industry trends including competition and

our customer structure, and

• our plans for new products and services including research

and development expenditures.

Although we believe that the expectations reflected in such
statements are reasonable, we cannot assure you that these
expectations will materialize. Because forward-looking
statements are based on assumptions and estimates, and are
subject to risks and uncertainties, actual results could differ
materially from those described or implied herein. Important
factors that could affect whether and to what extent any of our
forward-looking statements materialize include, but are not
limited to:
• our ability to respond to changes in the

telecommunications market and general market conditions
in a cost effective and timely manner ;

• developments in political, economic and regulatory fields
in the markets in which we operate, including allegations
of health risks from electromagnetic fields and cost of radio
licenses for our customers;

• effectiveness of our strategies and their execution including

partnerships, acquisitions and divestitures;

• financial risks include foreign exchange rate changes,

interest rate changes, changes in tax liabilities, credit risks
in relation to counterparties, customer defaults under
significant customer financing arrangements and risks of
confiscation of assets in foreign countries;

• reduction in the number of customers due to e.g. mergers,
and the negative business consequences of a loss of, or
significant decline in, our business with a major customer;

• impact of changes in product demand, price erosion,
competition from existing or new competitors or new
technology and the risk that our products and services may
not sell at the rates or levels we anticipate;

• our ability to develop commercially viable products,
systems and services, to acquire licenses of necessary
technology, to protect our intellectual property rights
through patents and trademarks and to defend them
against infringement, and results of patent litigation;
• supply constraints, including component or production
capacity shortages, suppliers’ abilities to cost effectively
deliver quality products on time and in sufficient volumes,
and risks related to concentration of proprietary or
outsourced production in a single facility or sole source
situations with a single vendor; and

• our ability to recruit and retain qualified management and

other key employees.

Certain of these risks and uncertainties are described further
in “Risk Factors.” We undertake no obligation to publicly
update or revise any forward-looking statements included in
this Annual Report, whether as a result of new information,
future events or otherwise, except as required by applicable
law or stock exchange regulation.

106 E R I C S S O N – A N N U A L R E P O R T 2 0 0 4

Risk Factors

You should carefully consider all the information in this annual
report and in particular the risks and uncertainties outlined
below. Any of the factors described below, or any other factors
discussed elsewhere in this report, could have a material
negative effect on our business, operational results, financial
condition, liquidity and/or our share price. Furthermore, our
operational results may have a greater variability than in the
past and we may have more difficulty in accurately predicting
future developments.

Risk associated with the industry and market
conditions
We conduct business throughout the world and are subject to
the effects of general global economic conditions as well as
conditions unique to a specific country and region. In
particular, we are affected most by the market conditions
within the telecommunications industry.

We are subject to political, economic and regulatory changes
in the various countries in which we operate all of which could
impact our operating results.
We conduct business in over  countries with a significant
proportion of our sales originating from developing markets in
Asia Pacific, Latin America, Eastern Europe, the Middle East
and Africa. We expect that sales to emerging markets will be
an increasing portion of total sales as developing nations and
regions around the world increase their investments in
telecommunications, especially for mobile communications.
We already have extensive operations in many of these
countries, which involve certain risks, including volatility in
gross domestic product, civil disturbances, economic and
political instability, nationalization of private assets and the
imposition of exchange controls.

Changes in regulatory requirements, tariffs and other trade

barriers, price or exchange controls or other governmental
policies in the countries in which we conduct business could
limit our operations and make the repatriation of profits
difficult. In addition, the uncertainty of the legal environment
in some regions could limit our ability to enforce our rights.

We are subject to the market conditions affecting the capital
and operating expenditures of our customers for equipment
and services making demand for our products and services
highly unpredictable.
Adverse economic conditions could cause network operators to
postpone investments or initiate other cost-cutting initiatives
to improve their financial position, which could result in
significantly reduced capital expenditures for network
infrastructure. Although the historical Compared annual
growth rate (CAGR) for telecommunications network
investments is – times global GDP, operator spending for

R I S K F A C T O R S
R I S K F A C T O R S

network equipment and associated rollout services declined
substantially from  through , before returning to
growth in . During this period of declining growth, our
business, operating results and share price suffered. We have
reduced costs and improved efficiency to restore profitability
and establish better flexibility to cost effectively accomodate
fluctuations in demand. However, if demand were to fall, or
were to be significantly weaker than expected, we may
experience further material adverse effects and may incur
operating losses in the future.

Our business essentially depends upon the continued growth
of mobile communications.
Most of our business depends on continued growth in mobile
communications in terms of both the number of subscriptions
as well as increased usage, which in turn requires the continued
deployment of our products by customers to meet this
increasing traffic demand. In particular, we are dependent on
operators in highly penetrated markets to successfully
introduce services that cause a substantial increase in usage for
both voice and data. In lower-income markets, we are, to a
certain extent, dependent on the availability of lower-cost
handsets in addition to affordable tariffs by operators to support
a continued increase of mobile subscribers. If operators are not
successful in their attempts to increase the number of
subscribers and/or stimulate increased usage, our business and
operational results could be materially adversely affected.

Changes in the regulatory environment for telecommunications
systems and services could negatively impact our business.
Telecommunications is a regulated industry and regulatory
changes affect both our customers and us. For example, changes
in regulation that impose more stringent, time-consuming or
costly planning, zoning requirements or building approvals
regarding the construction of base stations and other network
infrastructure could adversely affect the timing and costs of
new network construction or expansion and the commercial
launch and ultimate commercial success of these networks.
Similarly, tariff regulation that affects the pricing of new
services offered by operators could also affect their ability to
invest in network infrastructure, which in turn could affect the
sales of our systems and services.

License fees, environmental, health and safety, privacy and
other regulations may increase costs and restrict operations of
network operators and service providers. The indirect impact of
these changes in regulation could affect our business adversely
even though the specific regulations may not directly apply to
our products or us.

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 107
E R I C S S O N A N N U A L R E P O R T 2 0 0 4 107

We engage in customer financing, which exposes us to credit
and other risks relating to our customers’ businesses and
operations.
We expect demand for customer financing to continue,
especially from operators in emerging markets. We believe
customer financing is a competitive factor in obtaining
business and we sometimes provide financing to our customers,
or provide guarantees to banks or other third parties that
provide such financing. In addition, some of our customers
purchase products and services from us on deferred payment
terms. The risks associated with customer financing may be
significant, particularly in relation to network operators that do
not yet have an established revenue stream or have limited
experience or no proven track record. While we evaluate our
customer credits on a regular basis and make appropriate risk
provisions, if customers to which we have provided financing
encounter financial difficulties and are unable to make
payments, defaults could occur and could result in
restructuring of the financing arrangements and/or credit
losses. Such an event could have a material adverse effect on our
business, results of operations or financial condition.
For more information on our customer financing

arrangements, see “Notes to the Financial Statements – Note
, Financial Risk Management and Financial Instruments”.

Liability claims related to and public perception of the potential
health risks associated with electromagnetic fields could
negatively affect our business.
We are subject to claims that mobile handsets and other
telecommunications devices that generate electromagnetic
fields expose users to health risks. At present, a substantial
number of scientific studies conducted by various independent
research bodies have indicated that electromagnetic fields, at
levels within the limits prescribed by public health authority
safety standards and recommendations, cause no adverse effect
to human health. However, any perceived risk or new scientific
findings of adverse health effects of mobile communication
devices and equipment could adversely affect us through a
reduction in sales. Although we comply with all current safety
standards and recommendations regarding electromagnetic
fields, we cannot assure you that we will not become the
subject of product liability claims or be held liable for such
claims or be required to comply with future regulatory changes
that may have an adverse effect on our business. See also Board
of Directors’ Report – Legal and Tax proceedings.

R I S K F A C T O R S

Consolidation among network operators may increase our
dependence on a limited number of key customers.
The market for mobile network equipment is highly
concentrated, with the  largest operators representing more
than  percent of the total market. Network operators have
experienced significant consolidation, especially for companies
operating in different countries. This trend is expected to
continue while intra-country consolidation is likely to
accelerate as a result of competitive pressure.

If the combined companies operate in the same geographic
market, less network equipment and associated services may be
required. Another possible consequence of customer
consolidation is that it could cause a delay in their network
investments while they negotiate merger/acquisition
agreements, secure necessary approvals, or are constrained by
efforts to integrate the businesses. Moreover, fewer significant
customers will increase our reliance on key customers and, due
to the increased size of these companies, may negatively impact
our bargaining position and profit margins.

Consolidation among equipment and services suppliers may
lead to increased competition and a different competitive
landscape.
Industry consolidation among equipment suppliers could
potentially result in stronger competitors that are better able to
compete as end-to-end suppliers as well as competitors who are
more specialized in particular areas. Consolidation may also
result in competitors with greater resources, including
technical and engineering resources, than we have. This could
have a material adverse effect on our business, operating results,
and financial condition.

We operate in a highly competitive industry, which is subject to
price pressure and rapid technological change.
The markets for our products are highly competitive in terms
of pricing, functionality and service quality, the timing of
development and introduction of new products, customer
service and terms of financing. We face intense competition
from significant competitors. Our competitors may implement
new technologies before we do, allowing them to offer more
attractively priced or enhanced products, services or solutions
than we provide. Some of our competitors may have greater
resources in certain business segments or geographic markets
than we do. We may also encounter increased competition from
new market entrants, alternative technologies or alternative
telecommunications platforms. Our operating results
significantly depend on our ability to compete in this market
environment, in particular on our ability to adapt to political,
economic or regulatory changes, to introduce new products to
the market and to continuously enhance the functionality while
reducing the cost of new and existing products.

108 E R I C S S O N A N N U A L R E P O R T 2 0 0 4

Strategic and Operational Risks
Our business is subject to a wide variety of factors that impact
our strategies and operating results. Any of these factors could
have a material adverse impact on our operating results.
Furthermore, results of operations for any period may not
necessarily be indicative of results to be expected in future
periods. Consequently, our operating results may fluctuate
significantly from period to period and possibly more than they
have historically which may lead us to revise our estimates
and/or strategies more frequently than in the past.

Most of our business is derived from a limited number of
customers.
We derive most of our business from large, multi-year network
build-out agreements with a limited number of significant
customers. Although no single customer currently represents
more than  percent of sales, the loss of, or a reduced role with,
a key customer for any reason could have a significant adverse
impact on sales, profit and market share for an extended period.

Some long-term contracts expose us to risks of cost overruns
and extended payment terms.
We currently have certain long-term contracts under which the
prices are reduced during the life of the contract, according to a
pre-negotiated schedule. These long-term contracts are
typically awarded on a competitive bidding basis and the profit
margins on these contracts may vary from the original
estimates as a result of changes in estimated costs, productivity,
specifications or timing. In addition, these contracts frequently
include extended payment terms, which will require us to
recover costs incurred in performing these contracts over the
term of the contract. These contracts generally also provide for
penalties and termination rights in the event of our failure to
deliver on time or if our products do not perform. Should any
of these contracts become unprofitable or be terminated due to
any or several of these reasons, our operating results will be
negatively impacted.

We expend significant resources on product and technology
R&D which may not be successful in the market.
Developing new products or updating existing products and
solutions requires significant levels of financial and other
commitments to research and development, which may not
always result in success. We are also actively engaged in the
development of technology standards that we are incorporating
into our products and solutions. In order to be successful, those
standards must be accepted by relevant standardization bodies
and by the industry as a whole. Our sales and earnings may
suffer if we invest in developing technologies and technology
standards that do not function as expected, are not adopted in
the industry or are not accepted in the marketplace within the
timeframe we expect, or at all.

R I S K F A C T O R S

Please also see sections “Research and Development” in the
Board of Directors’ Report and “Research and Development” in
Information on the Company.

We enter into joint ventures, strategic alliances and third party
agreements to offer complementary products and services.
If our partnering arrangements fail to perform as expected,
whether as a result of having incorrectly assessed our needs or
the capabilities of our strategic partners, our ability to work
with these partners or otherwise, our ability to develop new
products and solutions may be constrained and this may harm
our competitive position in the market. Additionally, charges
relating to our portion of any losses from, or commitments to
contribute additional capital to, joint ventures may adversely
affect our financial condition or results of operations.

In the case of our joint venture with Sony Corporation, if the
joint venture is unsuccessful for any reason, we may not be able
to compete as successfully in the mobile systems market or at
all in the mobile handset market.

Our solutions may also require us to license third-party
technologies and successfully integrate such technologies with
our products. It may be necessary in the future to seek or renew
licenses relating to various aspects of these products. There can
be no assurance that the necessary licenses would be available
on acceptable terms, if at all. Moreover, the inclusion in our
products of software or other intellectual property licensed
from third parties on a non-exclusive basis could limit our
ability to protect our proprietary rights in our products.

Our products incorporate intellectual property rights (IPR)
developed by us that may be difficult to protect or may be
found to infringe on the rights of others.
While we have been issued a number of patents and other
patent applications are currently pending, there can be no
assurance that any of these patents will not be challenged,
invalidated, or circumvented, or that any rights granted under
these patents will in fact provide competitive advantages to us.
We utilize a combination of trade secrets, confidentiality
policies, non-disclosure and other contractual arrangements in
addition to relying on patent, copyright and trademark laws to
protect our intellectual property rights. However, these
measures may not be adequate to prevent or deter infringement
or other misappropriation. Moreover, we may not be able to
detect unauthorized use or take appropriate and timely steps to
establish and enforce our proprietary rights. In fact, existing
laws of some countries in which we conduct business may offer
only limited protection of our intellectual property rights, if at
all.

Many key aspects of networking technology are governed by

industry-wide standards, which are usable by all market
participants. As the number of market entrants as well as the
complexity of the technology increases, the possibility of
functional overlap and inadvertent infringement of intellectual
property rights also increases. Third parties have asserted, and

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 109

retaining such highly skilled personnel in the future, especially
in light of our recent workforce reductions and operational
restructuring.

Our current and historical operations are subject to a wide
range of environmental, health and safety regulations.
We are subject to certain environmental and health and safety
laws and regulations that affect our operations, facilities and
products in each of the jurisdictions in which we operate. We
believe that we are substantially in compliance with all
material environmental and health safety laws and regulations
related to our products, operations and business activities.
However, there is a risk that we may have to incur expenditures
to cover environmental and health liabilities, to maintain
compliance with current or future environmental and health
and safety laws and regulations or to undertake any necessary
remediation. It is difficult to reasonably estimate the future
impact of environmental matters, including potential liabilities
due to a number of factors especially the lengthy time intervals
often involved in resolving them.

As a result of operating globally, we have substantial foreign
exchange exposures.
With the majority of our cost base being Swedish krona (SEK)
denominated and a very large share of sales in currencies other
than SEK, and many subsidiaries outside Sweden, our foreign
exchange exposure is significant. Currency exchange rate
fluctuations, affect our consolidated balance sheet, cash flows
and income statement when translated to SEK. Our attempts to
reduce the effect of exchange rate fluctuations through a variety
of hedging activities may not be sufficient or successful,
resulting in an adverse impact on our financial results.

A stronger SEK exchange rate would generally have a

negative affect on our competitiveness compared to competitors
with costs denominated in other currencies.

Access to short and long term capital funding is influenced by
our credit ratings, operational performance as well as market
conditions.
Our access to short term funding is currently limited due to
sub-investment grade credit rating and may decrease or become
more expensive as a result of our operational and financial
condition and market conditions.

For a discussion of our access to short term funding see
“Notes to the Financial Statements – Note , Financial Risk
Management and Financial Instruments”.

R I S K F A C T O R S

in the future may assert, claims against us alleging that we
infringe their intellectual property rights. Defending such
claims may be expensive, time consuming and divert the efforts
of our management and/or technical personnel. As a result of
litigation, we could be required to pay damages and other
compensation, develop non-infringing products/technology or
enter into royalty or licensing agreements. However, we cannot
be certain that any such licenses, if available at all, will be
available to us on commercially reasonable terms.

Adverse resolution of litigation may harm our operating results
or financial condition.
We are a party to lawsuits in the normal course of our business.
Litigation can be expensive, lengthy and disruptive to normal
business operations. Moreover, the results of complex legal
proceedings are difficult to predict. An unfavorable resolution
of a particular lawsuit could have a material adverse effect on
our business, operating results, or financial condition.

For additional information regarding certain of the lawsuits

in which we are involved, see “Legal and Tax Proceedings,”
contained in the Board of Directors’ Report.

We rely on a limited number of component and electronic
manufacturing services suppliers for the majority of our
component supply and production.
Our ability to deliver according to market demands depends in
large part on obtaining timely and adequate supply of
materials, components and production capacity on competitive
terms. Failure by any of our suppliers could interrupt our
product supply and could significantly limit our sales and
increase our costs. If we fail to anticipate customer demand
properly, an over/undersupply of components and production
capacity could occur. In many cases, some of our competitors
also utilize the same contract manufacturers, and we could be
blocked from acquiring the needed components or increasing
capacity if they have purchased capacity ahead of us. This factor
could limit our ability to supply our customers or could
increase our costs. At the same time we commit to certain
capacity levels or component quantities, which, if unused, will
result in charges for unused capacity or scrapping costs.

We are dependent upon hiring and retaining highly qualified
employees.
While we have been forced to lay off a number of highly skilled
employees over the past few years, we believe that our future
success depends in large part on our continued ability to hire,
develop, motivate and retain engineers and other qualified
personnel needed to develop successful new products, support
our existing product range and provide services to our
customers. Competition for skilled personnel and highly
qualified managers in the telecommunications industry
remains intense. We are continuously developing our
compensation and benefit policies as well as other measures.
However, we may not be as successful at attracting and

110 E R I C S S O N A N N U A L R E P O R T 2 0 0 4

Our business has substantial cash requirements and we may
require additional sources of funds if our current sources are
unavailable or insufficient to satisfy these requirements.
If we do not generate sufficient amounts of capital to support
our operations, service our debt, continue our research and
development and customer financing programs or we can not
raise sufficient amounts of capital at the times and on the terms
required by us, our business will likely be adversely affected.
We cannot assure you that additional sources of funds will be
available or available on reasonable terms. Our access to short
term funding in the debt capital market is currently limited
due to our sub-investment grade rating.

Please also see Notes to the Financial Statements – Note ,

“Financial Risk Management and Financial Instruments”.

A significant failure of our information services/information
technology (IS/IT) operations or communications networks could
have a material adverse affect on our operations and results.
Our business operations rely on complex IS/IT operations and
communications networks which are vulnerable to damage or
disturbance from a variety of sources. Having outsourced a
significant portion of our IS/IT operations, we depend partly
on external companies security and reliability measures.
Regardless of protection measures, essentially all IS/IT systems
and communications networks are susceptible to disruption
from equipment failure, vandalism, computer viruses, security
breaches, natural disasters, power outages and other events.
Although we have experienced disruptions from computer
viruses, security breaches, power outages and equipment
failures in the past, our operations or results have not been
materially affected to date. We will continue to expend
significant resources to manage and try to mitigate these risks
and we may incur additional costs to remedy damage caused
by such disruptions, especially for computer viruses and
security breaches.

R I S K F A C T O R S

Risks associated with owning Ericsson shares
Our share price has been and may continue to be volatile.
Our share price has been volatile due in part to the high
volatility in the securities markets generally, and for
telecommunications and technology companies in particular, as
well as developments from quarter to quarter which impact our
financial results. Factors other than our financial results that
may affect our share price include but are not limited to
variations between our actual financial results and expectations
of financial analysts and investors as well as a result of
announcements by our customers, competitors or ourselves
regarding capital spending plans of network operators, financial
difficulties for network operators for whom we have provided
financing or with whom we have entered into material
contracts, awards of large supply agreements or contracts for
network roll-out. Additional factors include but are not limited
to: speculation in the press or investment community about the
level of business activity or perceived growth in the market for
mobile communications services and equipment; technical
problems, in particular those relating to the introduction and
viability of next generation network systems like 3G; potential
litigation involving ourselves or the markets in which we
operate. Even though we may not be directly involved,
announcements concerning bankruptcy or other similar
reorganization proceedings involving, or any investigations
into the accounting practices of, other telecommunications
companies may materially adversely affect our share price.

Currency fluctuations may adversely affect the trading prices of
our Class B shares and ADSs and the value of any distributions
we make thereon.
Because our shares are quoted in SEK on the Stockholm Stock
Exchange (our primary stock exchange) but on the NASDAQ
and London Stock Exchange in local currencies, i.e. USD and
British Pounds, fluctuations in exchange rates between the SEK
and currencies in which our Class B shares or ADSs are quoted
may affect the value of your investment. In addition, because
we pay cash dividends in Swedish kronor, fluctuations in
exchange rates may affect the value of distributions if
arrangements with your bank, broker or depositary, in the case
of ADSs, call for distributions to you in currencies other than
SEK.

E R I C S S O N A N N U A L R E P O R T 2 0 0 4 111

S H A R E H O L D E R I N F O R M A T I O N

Shareholder Information

The Annual General Meeting will take place at the Globe
Arena, Globentorget, Stockholm, at  p.m. on Wednesday,
April 6, 2005.

Only those shareholders, who have been entered into the
transcription of the share register as of Sunday, March , ,
kept by VPC AB (the Swedish Securities Register Centre) are
entitled to participate in the Meeting, provided notice of
attendance has been given to the Company. Since said date will
fall on a Sunday (Easter Sunday) shareholders must be
registered with VPC AB no later than at the end of bank hours
on Thursday, March , .

Shareholders, whose shares are registered in the name of a
nominee, must be entered temporarily into the share register
no later than Sunday, March , , in order to be entitled to
participate in the Meeting. The shareholder is requested to
inform the nominee well before Thursday, March , ,
when such registration must be effected. Please observe that
this procedure may also be applicable for shareholders who are
using a custody account with a bank and/or trading via the
Internet. The personal data that Ericsson receives with the
notice of attendance will be computer processed for the purpose
of the general meeting of shareholders  only.

Notice of attendance in the Annual General Meeting
In addition to the requirements listed above, shareholders shall
provide notice of attendance no later than  p.m. on Thursday,
March , ,
at the company’s web site www.ericsson.com/investors,
at telephone no.: +     between  a.m. and  p.m.,
at fax no.: +    , or by post to:
Telefonaktiebolaget LM Ericsson
Group Function Legal Affairs
Box 
SE–  Stockholm
Sweden

Proxy
Shareholders who are represented by proxy shall issue a power of
attorney for the representative. To a power of attorney issued by a
legal entity, a copy of the certificate of registration of the legal
entity shall be attached. The documents must not be older than
one year. In order to facilitate the registration at the Meeting,
powers of attorney in its original, certificates of registration and
other documents of authority should be sent to the Company at
the address above so as to be available by Tuesday, April , .

Dividend
The Board of Directors has decided to propose the Annual
General Meeting to resolve on a dividend of SEK . per share
for the year  and Monday, April ,  as record day for
dividend.

112 E R I C S S O N A N N U A L R E P O R T 2 0 0 4

Financial information from Ericsson
• Interim report January–March :

• Interim report January–June :

April , 

July , 

October , 

• Interim report January–September :

• Full year report January–December :

January/February, 

• Annual report and Form -F for the US market :

March, 

Annual reports and financial reports can be downloaded or
ordered on our web site: www.ericsson.com/investors or ordered
via e-mail or mail.
For printed publications, contact:
Pressdata AB
P.O. Box 
SE-  Stockholm
Sweden
Phone: +    
E-mail: annual.report@pressdata.se.

In the United States, Ericsson Transfer Agent Citibank:
Citibank Shareholder Services
Phone toll free: +   
E-mail: ericsson@shareholders-online.com
Ordering a hard copy of the Annual Report:
http://www.sccorp.com/annualreport/ericsson.htm
Phone toll free: +   

Contact information:
Investor Relations for Europe, Middle East,
Africa and AsiaPacific:
Telefonaktiebolaget LM Ericsson
SE-  Stockholm
Sweden
Telephone: +    
E-mail: investor.relations.se@ericsson.com

Investor Relations for the Americas:
Ericsson Inc.
 Park Avenue, th floor
New York, NY 
USA
Telephone: +   
E-mail: investor.relations@ericsson.com

Design and production: Paues Media, Stockholm
Printing: Fagerblads Frank AB, Preetz, Germany

ISSN 1100 - 8962

Telefonaktiebolaget LM Ericsson
Group Function Communications
SE-164 83 Stockholm

Printed on paper that meets international environmental standards; Munken
Lynx, especially produced for Ericsson, is Totally Chlorine Free (TCF).