Edgar Filing: ERICSSON LM TELEPHONE CO

6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

January 25, 2019

Commission File Number 000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Announcement of LM Ericsson Telephone Company, January 25, 2019 regarding “Fourth quarter and full-year report 2018”.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TELEFONAKTIEBOLAGET LM ERICSSON (publ)

By:		/s/ XAVIER DEDULLEN
		Xavier Dedullen
		Senior Vice President, Chief Legal Officer

By:		/s/ CARL MELLANDER
		Carl Mellander
		Senior Vice President, Chief Financial Officer

Date: January 25, 2019

LOGO

Fourth quarter and

full-year report 2018

Stockholm, January 25, 2019

Fourth quarter highlights

•

Sales as reported increased by 10% YoY and sales adjusted for comparable units and currency increased by 4%.

•

Networks sales adjusted for comparable units and currency grew by 6% YoY. Digital Services sales adjusted for comparable units and currency grew by 5% YoY.

•

Costs related to revised Business Support Systems (BSS) strategy of SEK -6.1 b., of which SEK -3.1 b. were restructuring charges, impacted Digital Services operating income in Q4.

•

Gross margin was 25.7% (21.6%). Gross margin, excluding restructuring charges and other costs related to revised BSS strategy, improved to 36.3%, supported by cost reductions, the ramp-up of Ericsson Radio System (ERS) and the contract review in Managed Services.

•

Operating margin was -2.9% (-33.3%). Operating margin, excluding restructuring charges and other costs related to revised BSS strategy, was 8.7%.

•

Networks operating margin excluding restructuring charges was 17.5% (8.6%). The increase was driven by cost reductions, the ERS ramp-up and reversal of provisions for impairment losses on trade receivables, partly offset by increased investments in R&D.

•

Digital Services operating income, excluding restructuring charges and costs related to revised BSS strategy, was SEK -0.6 b.

•

Managed Services operating margin excluding restructuring charges increased to 5.2% (-13.0%). The review of all 42 low-performing customer contracts has been completed.

Full-year highlights

•

Sales as reported increased by 3% and sales adjusted for comparable units and currency increased by 1%, with Networks growing by 3% – the first year of organic growth for Ericsson since 2013.

•

Gross margin was 32.3% (23.3%). Gross margin excluding restructuring charges improved to 35.2% (25.9%), supported by cost reductions, the ramp-up of Ericsson Radio System (ERS) and the review of managed services contracts.

•

Operating income was SEK 1.2 (-34.7) b. Operating income excluding restructuring charges was SEK 9.3 (-26.2) b. driven by higher gross margin and sales as well as lower operating expenses.

•

Cash flow from operating activities was SEK 9.3 (9.6) b. Free cash flow excluding M&A amounted to SEK 4.3 (4.8) b. Net cash at year-end was SEK 35.9 (34.7) b.

•

The Board of Directors will propose a dividend for 2018 of SEK 1.00 (1.00) per share to the AGM.


SEK b.	Q4 2018			Q4 2017			YoY change			Q3 2018			QoQ change			Full-year 2018			Full-year 2017			Full-year change
Net sales		63.8			57.9			10	%		53.8			19	%		210.8			205.4			3	%
Sales growth adj. for comparable units and currency		—			—			4	%		—			19	%		—			—			1	%
Gross margin		25.7	%		21.6	%		—			36.5	%		—			32.3	%		23.3	%		—
Operating income (loss)		-1.9			-19.3			—			3.2			-157	%		1.2			-34.7			—
Operating margin		-2.9	%		-33.3	%		—			6.0	%		—			0.6	%		-16.9	%		—
Net income (loss)		-6.5			-18.5			—			2.7			—			-6.3			-32.4			—
EPS diluted, SEK		-1.99			-5.63			—			0.83			—			-1.98			-9.94			—
EPS (non-IFRS), SEK ¹⁾		-0.77			-1.09			—			1.03			-175	%		0.27			-3.24			—
Cash flow from operating activities		4.3			11.2			-62	%		2.0			110	%		9.3			9.6			-3	%
Free cash flow excluding M&A ²⁾		3.0			10.2			-71	%		0.7			—			4.3			4.8			-12	%
Net cash, end of period		35.9			34.7			4	%		32.0			12	%		35.9			34.7			4	%
Gross margin excluding restructuring charges		32.0	%		25.1	%		—			36.9	%		—			35.2	%		25.9	%		—
Operating income (loss) excluding restructuring charges		2.6			-16.9			—			3.8			-33	%		9.3			-26.2			-135	%
Operating margin excluding restructuring charges		4.0	%		-29.1	%		—			7.0	%		—			4.4	%		-12.8	%		—

¹⁾	EPS diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges. Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

²⁾	Free cash flow excluding M&A: See Alternative Performance Measures (APM) at the end of the report.

Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.



1 Ericsson \| Fourth Quarter and Full-Year Report 2018

CEO comments

Our focused strategy has yielded clear results. Ericsson is today a stronger company. Increased investments in R&D for future growth, managed services contract reviews, combined with efficient cost control have proven to be successful, with improved competitiveness and profitability as a result. As the industry moves to 5G and IoT, we will now take the next step, focusing on profitable growth in a selective and disciplined way.

Sales have gradually improved during 2018, resulting in full-year organic sales growth¹) for the first time since 2013. This is partly due to an improved market, but also driven by market share gains in Networks as a result of a more competitive radio product portfolio. In parallel, gross margins²) have improved across all segments, with full-year gross margin²) of 35% (26%) and operating margin²) of 4% (-13%).

Segment Networks had another strong quarter with high business activity across multiple regions. Networks organic sales¹) increased by 6% YoY, positively impacted by a recovering RAN market as well as strong performance in the product portfolio. Growth was partly due to a higher than anticipated activity level in North America driven by increased 5G demand among the US operators. Networks gross margin²) improved to 41% (35%) YoY, mainly due to improved hardware margins driven by the successful shift to Ericsson Radio System (ERS). Strategic contracts and 5G field trials had a negative impact on operating margin in the quarter. R&D investments continued to grow in the quarter, but are now expected to flatten out.

In Managed Services, gross margin²) improved to 12% (-5%) YoY, supported by efficiency gains and customer contract reviews. We have now addressed all 42 targeted contracts, resulting in an annualized profit improvement of SEK 0.9 b. During the year, we have increased our investments in automation, analytics and AI.

We continue to execute on our plan to turn the Digital Services business around. Focus has been on stabilizing top line, modernizing the portfolio and taking costs out. In Digital Services there has been solid progress in most portfolio areas. Underlying operating expenses³) in 2018 were SEK 2.6 b. lower than in 2017. However, the Business Support Systems (BSS) area has not shown satisfactory progress and we are now in the process of reshaping the business. To speed up restructuring of the BSS business, additional measures were communicated on January 10, 2019. These measures include provisions and restructuring charges of SEK -6.1 b.,

which were taken in Q4. The reshaped strategy will set Digital Services on a stronger path to achieve the 2020 financial targets. Organic sales¹) in Digital Services grew by 5% YoY, driven by Cloud Core and OSS. Gross margin²), adjusted for above mentioned provisions, improved to 38%. Operating income, excluding restructuring charges and other costs related to revised BSS strategy, was SEK -0.6 b. in the quarter.

In segment Emerging Business and Other, we invest in initiatives that aim to scale and help create future business for Ericsson. We manage Emerging Business initiatives for growth case by case, based on positive net present value (NPV), within 2022 Group targets. Organic segment sales¹) grew by 1% YoY and operating income2) was SEK -1.5 (-7.6) b. Sales growth and operating income2) in the segment, excluding the media business, was 60% and SEK -0.9 (-0.8) b. respectively.

Free cash flow excluding M&A in 2018 was lower than in 2017, primarily due to the return to growth and strong sales development at the end of the fourth quarter. In addition, sale of trade receivables was further reduced. The Board will propose a dividend of SEK 1.00 (1.00) per share to the AGM.

As previously disclosed, we are voluntarily cooperating with an investigation into Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA). The discussions with US authorities continue and we will provide updates as appropriate.

Our R&D investments over the past two years have secured a highly competitive and industry-leading offering. We will continue to invest in 5G, automation and AI to create both customer and shareholder value. Even though costs related to strategic contracts and 5G field trials will impact margins short term, they will help reaching our targets for 2020 and 2022 as well as strengthen our business in the long term.

Börje Ekholm

President and CEO

1)	Organic sales growth: Sales adjusted for comparable units and currency

2)	Excluding restructuring charges

3)	Excluding net impact from amortization and capitalization of development expenses, as well as of intangible assets, risk provisions and write-downs.

Planning assumptions going forward

Market related

•

The Radio Access Network (RAN) equipment market is estimated to increase by 2% for full-year 2019 with 2% CAGR for 2018-2023. (Source: Dell’Oro.)

Currency exposure

•

Rule of thumb: A weakening by 10% of USD to SEK would have a negative impact of approximately -5% on net sales and approximately -1 percentage point on operating margin.

Ericsson related

•

5-year average sales seasonality between Q4 and Q1 is -26%.

•

The baseline for the current IPR licensing contract portfolio is approximately SEK 8 b. on an annual basis.

•

Strategic contracts in Networks, with initially lower margins, taken to strengthen the market position, will continue to have a negative impact on gross margin. The costs may vary between quarters, without jeopardizing 2020 financial targets.

•

Costs for 5G field trials mainly in Networks will continue in 2019.

•

R&D expenses are expected to flatten out, starting in Q1.

•

Operating expenses typically decrease between Q4 and Q1 due to seasonality.

•

Restructuring charges for full-year 2019 are estimated to be SEK -3 to -5 b.

•

Cost reductions and efficiency improvements will continue in Digital Services aiming to significantly reduce losses in 2019.

•

The planned divestment of MediaKind is ongoing: 2018 financials Media Solutions business (MediaKind incl. transaction-related costs etc): Net sales 2018: SEK 2.7 b. and Q4: SEK 0.7 b., operating income excl. restructuring charges 2018: SEK -1.7 b. and Q4: SEK -0.5 b.

•

The estimated net impact of amortization and capitalization of development expenses and of recognition and deferral of hardware costs will be approximately SEK -1 b. for 2019, compared with SEK -2.6 b. in 2018.



2 Ericsson \| Fourth Quarter and Full-Year Report 2018		CEO comments

Financial highlights


SEK b.	Q4 2018			Q4 2017			YoY change			Q3 2018			QoQ change			Full-year 2018			Full-year 2017			Full-year change
Net sales		63.8			57.9			10	%		53.8			19	%		210.8			205.4			3	%
Sales growth adj. for comparable units and currency		—			—			4	%		—			19	%		—			—			1	%
Gross income		16.4			12.5			31	%		19.6			-17	%		68.2			47.9			42	%
Gross margin (%)		25.7	%		21.6	%		—			36.5	%		—			32.3	%		23.3	%		—
Research and development (R&D) expenses		-10.7			-9.9			7	%		-9.4			14	%		-38.9			-37.9			3	%
Selling and administrative expenses		-7.7			-8.2			-7	%		-6.6			16	%		-27.5			-29.0			-5	%
Impairment losses on trade receivables		0.4			-0.7			—			-0.4			—			-0.4			-3.6			—
Other operating income and expenses		-0.3			-12.9			-98	%		0.0			—			-0.2			-12.1			—
Operating income (loss)		-1.9			-19.3			-90	%		3.2			-157	%		1.2			-34.7			—
Operating margin (%)		-2.9	%		-33.3	%		—			6.0	%		—			0.6	%		-16.9	%		—
Financial net		-0.7			-0.5			38	%		-0.6			12	%		-2.7			-1.2			123	%
Taxes		-3.9			1.3			—			0.1			—			-4.8			3.5			—
Net income (loss)		-6.5			-18.5			-65	%		2.7			—			-6.3			-32.4			—
Restructuring charges		-4.4			-2.4			82	%		-0.6			—			-8.0			-8.5			—
Gross income excluding restructuring charges		20.4			14.6			40	%		19.8			3	%		74.1			53.2			39	%
Gross margin excluding restructuring charges		32.0	%		25.1	%		—			36.9	%		—			35.2	%		25.9	%		—
R&D expenses excluding restructuring charges		-10.4			-10.1			3	%		-9.2			14	%		-37.6			-35.6			6	%
SG&A expenses excluding restructuring charges		-7.6			-7.7			-2	%		-6.5			17	%		-26.7			-28.1			—
Operating income (loss) excl. restructuring charges		2.6			-16.9			—			3.8			-33	%		9.3			-26.2			—
Operating margin excluding restructuring charges		4.0	%		-29.1	%		—			7.0	%		—			4.4	%		-12.8	%		—

FOURTH QUARTER COMMENTS

Costs related to revised Business Support Systems (BSS) strategy

Provisions of SEK -6.1 b. were made in the quarter to reshape the Business Support Systems (BSS) strategy in Digital Services. The impact on cost of sales was SEK -5.9 b., of which SEK -3.1 b. were restructuring charges, and the impact on R&D expenses was SEK -0.2 b. (write-down of capitalized development expenses). For more information see Other information on page 18.

Net sales

Sales increased by 10% YoY. Sales adjusted for comparable units and currency increased by 4% YoY, mainly driven by sales growth in Networks and Digital Services. Networks sales adjusted for comparable units and currency increased by 6% YoY, driven by sales growth in North America, Europe and Latin America as well as in North East Asia. Digital Services sales adjusted for comparable units and currency increased by 5% YoY, mainly due to increased sales in North East Asia and North America. Managed Services sales adjusted for comparable units and currency declined by -5% YoY, mainly as a result of exited non-strategic contracts. Sales adjusted for comparable units and currency in Emerging Business and Other increased by 1% YoY, driven by growth in iconectiv.

Sequentially, sales and sales adjusted for comparable units and currency both increased by 19%, supported by sales growth of 45% in Digital Services. Networks sales adjusted for comparable units and currency grew by 16% .

IPR licensing revenues

IPR licensing revenues were flat YoY and QoQ at SEK 2.1 b.

Gross margin

Gross margin increased to 25.7% (21.6%). Gross margin excluding restructuring charges increased to 32.0% (25.1%), mainly driven by improvements in Networks and Managed Services partly offset by costs related to revised BSS strategy. Gross margin excluding total restructuring charges and other costs for revised BSS strategy was 36.3%. Cost reductions, ramp-up of Ericsson Radio System (ERS) product platform and good progress in customer contract reviews in Managed Services had a positive impact on gross margin YoY.

Write-down of assets, as well as provisions and adjustments related to certain customer projects had a significant negative impact on gross margin in 2017.

Sequentially, gross margin decreased to 25.7% from 36.5%. Gross margin excluding restructuring charges declined to 32.0% from 36.9%, mainly due to costs related to revised BSS strategy impacting cost of sales negatively.

Operating expenses

R&D expenses were SEK -10.7 (-9.9) b. R&D expenses excluding restructuring charges increased to SEK -10.4 (-10.1) b., due to increased 4G and 5G investments in Networks. The increase was partly offset by reductions in Digital Services.

Sequentially, R&D expenses increased, mainly due to seasonality.

Selling and administrative (SG&A) expenses decreased to SEK -7.7 (-8.2) b. SG&A expenses excluding restructuring charges decreased to SEK -7.6 (-7.7) b. YoY, with cost reductions of SEK 0.6 b. partly offset by increased costs for customer 5G field trials.

Sequentially, SG&A excluding restructuring charges increased due to seasonality and higher provisions for variable compensation, partly offset by reduced costs related to revaluation of customer financing.

Impairment losses on trade receivables were positive at SEK 0.4 (-0.7) b. following reversals of earlier provisions due to customer payments. Impairment losses on trade receivables were SEK -0.4 b. in Q3 2018. As of 2018, impairment testing is made using a methodology where country and customer risks are continuously assessed.

Other operating income and expenses

Other operating income and expenses were SEK -0.3 (-12.9) b. due to costs to reset the Edge Gravity (offering for edge computing) business in segment Emerging Business and Other. Write-down of assets had a significant negative impact on other operating income and expenses in 2017. There were no other operating income and expenses in Q3.



3 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial highlights

Consequences of technology and portfolio shifts

Due to technology and portfolio shifts, the Company is reducing the capitalization of development expenses for product platforms and software releases as well as the deferral of hardware costs. As a consequence, higher amortization than capitalization of development expenses and higher recognition than deferral of hardware costs have a negative impact on operating income. The amounts related to capitalized software releases were fully amortized in 2017.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs


SEK b.	Q4 2018		Q4 2017		Q3 2018		FY 2018		FY 2017
Cost of sales		-0.2		-0.8		-0.2		-0.9		-2.6
R&D expenses		-0.6		-0.6		-0.5		-1.7		-0.3

Total impact		-0.7		-1.4		-0.7		-2.6		-2.9

Restructuring charges

Restructuring charges increased to SEK -4.4 (-2.4) b. YoY of which the main part, SEK -3.1 b., is costs related to revised BSS strategy. Restructuring charges in Q3 2018 were SEK -0.6 b.

Operating income and margin

Operating income (loss) was reduced to SEK -1.9 (-19.3) b. YoY. Operating income excluding restructuring charges improved to SEK 2.6 (-16.9) b. Improved gross margin, increased net sales and reversal of provisions for impairment losses on trade receivables had a positive impact YoY. The net impact of amortization and capitalization of development expenses and of recognition and deferral of hardware costs was SEK -0.7(-1.4) b.

Write-down of assets as well as provisions and adjustments related to certain customer projects had a significant impact on the 2017 operating expenses.

Operating income and operating margin excluding restructuring charges and other costs for revised BSS strategy were SEK 5.5 b. and 8.7% respectively.

Operating income declined sequentially to SEK -1.9 b. from SEK 3.2 b. Operating income excluding restructuring charges declined to SEK 2.6 b. from SEK 3.8 b. Negative effects from costs related to revised BSS strategy and seasonally higher operating expenses were partly offset by higher sales and reversal of provisions for impairment losses on trade receivables.

Financial net

Financial net declined to SEK -0.7 (-0.5) b. mainly due to negative effects of interest rate revaluation. The revaluation and realization effects of foreign exchange forecast hedging were SEK -0.1 (-0.1) b. In Q3 2018 there were no such effects.

Taxes

Taxes amounted to SEK -3.9 (1.3) b., negatively impacted by impairment of withholding tax assets and non-deductable expenses.

LOGO

Net income (loss) and EPS

Net income and EPS diluted increased YoY, as a consequence of the improved operating income. Sequentially, net income and EPS diluted decreased due to costs related to revised BSS strategy and increased tax costs.

Employees

The number of employees on Dec 31, 2018, was 95,359, a net increase of 860 employees in the quarter. The employee increase in the quarter is mainly in R&D.

Focused strategy execution

The following four measures are indicators of the progress of strategy execution.


Area	Activity	Status Q4 2018
Networks	Transition to new Ericsson Radio System	The transition is now successfully completed with 87% accumulated for full-year 2018 (2017: 61%) and 93% in Q4 2018 (ERS radio unit deliveries out of total radio unit deliveries).

Digital Services	• Growth in sales of new product portfolio	• Net sales full-year 2018: +4%

	• Addressing critical customer contracts	• Out of 45 contracts identified, in total 23 have been addressed (4 in Q418 isolated)

Managed Services	Addressing low-performing customer contracts	The review of all 42 contracts identified (2 in Q418 isolated) has been completed resulting in an annualized profit improvement of SEK 0.9 b. (Q3 2018: SEK 0.9 b.)



4 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial highlights

FULL-YEAR COMMENTS

Net sales

Sales increased by SEK 5.5 b. or 3% to SEK 210.8 (205.4) b. Networks sales increased by SEK 6.3 b. (5%), Digital Services sales decreased by SEK -0.7 b. (-2%), Managed Services sales decreased by SEK -0.7 b. (-3%) and Emerging Business and Other sales increased by SEK 0.5 b. (7%).

The sales increase in Networks was mainly driven by higher demand for radio access network (RAN) equipment. Networks sales growth adjusted for comparable units and currency was 3%. This should be compared with the Dell’Oro estimate that the RAN equipment market would increase by 2% for full-year 2018.

The sales decrease in segment Digital Services was due to lower sales in legacy products. The sales decline in Managed Services was mainly a result of exit of low-performing and non-strategic contracts. The sales increase in segment Emerging Business and Other was driven by growth in iconectiv business due to the multi-year number portability contract in the United States.

In the geographical dimension, sales grew in North America and in Europe and Latin America.

Sales adjusted for comparable units and currency increased by 1%. The sales mix by commodity was: software 21% (21%), hardware 37% (35%) and services 42% (44%).

IPR licensing revenues

IPR licensing revenues decreased to SEK 8.0 (8.3) b. The baseline for the current IPR licensing contract portfolio is approximately SEK 8 b. on an annual basis.

Gross margin

Gross margin increased to 32.3% (23.3%) with improved margins in hardware and services mainly driven by cost reductions, ramp-up of Ericsson Radio System product platform and good progress in the review of low-performing managed services contracts. A reduced share of services sales had a positive impact on gross margin. Restructuring charges included in the gross margin increased to SEK -5.9 (-5.2) b. Costs of SEK -5.9 b., of which SEK -3.1 b. were restructuring charges, impacted gross margin in Digital Services.

Due to technology and portfolio shifts, the company has since 2017 reduced the capitalization of development expenses and the deferral of hardware costs, which had a net impact on gross income of SEK -0.9 (-2.6) b. Write-down of assets, as well as provisions and adjustments related to certain customer projects had a significant negative impact on gross margin in 2017.

Operating expenses

Operating expenses decreased to SEK -66.8 (-70.6) b. with SG&A expenses of SEK -27.5 (-29.0) b., R&D expenses of SEK -38.9 (-37.9) b. and impairment losses on trade receivables of SEK -0.4 (-3.6) b. Restructuring charges included in operating expenses were SEK -2.1 (-3.3) b.

R&D expenses increased due to increased investments in R&D for Networks. The increase was partly offset by R&D reductions in Digital Services. Higher amortized than capitalized development expenses had a negative effect on R&D expenses of SEK -1.7 (-0.3) b.

SG&A expenses were reduced as a result of cost reduction activities. The reduction was more than offset by higher provisions for variable compensation, increased costs related to revaluation of customer financing and increased costs for 5G trials.

Other operating income and expenses

Other operating income and expenses was SEK -0.2 (-12.1) b. In 2017, write-down of intangible assets had a significant negative impact on other operating expenses.

Restructuring charges

Restructuring charges amounted to SEK -8.0 (-8.5) b., which was higher than the earlier estimate of SEK -5 to -7 b. The restructuring charges in 2018 mainly relate to the cost-reduction program announced in 2017 and costs related to revised BSS strategy. Total restructuring charges for 2019 are estimated to be SEK -3 to -5 b.

Operating income and margin

Operating income improved to SEK 1.2 (-34.7) b. Higher gross margin and sales and lower operating expenses had a positive impact. Higher amortization than capitalization of development expenses and higher recognition than deferral of hardware costs impacted operating income by SEK -2.6 (-2.9) b. Write-down of assets, as well as provisions and adjustments related to certain customer projects had a significant negative impact on operating income in 2017. Operating margin was 0.6% (-16.9%). Operating margin excluding restructuring charges of SEK -8.0 (-8.5 ) b. was 4.4% (-12.8%).

Financial net

The financial net decreased to SEK -2.7 (-1.2) b., mainly due to increased negative effects of foreign exchange revaluation, negative currency hedge effects and reduced interest rates. The currency hedge effects, which derive from the hedge loan balance in USD, impacted financial net by SEK -0.5 (0.5) b. The SEK weakened against the USD between December 31, 2017 (SEK/USD rate 8.20) and December 31, 2018 (SEK/USD rate 8.94).

Taxes

Taxes were SEK -4.8 (3.5) b., negatively impacted by impairment of withholding tax assets in Sweden mainly as a result of provisions related to revised BSS strategy. In addition, non-deductible expenses, withholding tax expenses outside of Sweden and revaluation of tax assets due to a change in Swedish corporate tax rate impacted tax costs negatively.

Net income and EPS

Net income improved to SEK -6.3 (-32.4) b. driven by higher operating income partly offset by a negative financial net and increased tax costs. EPS diluted was SEK -1.98 (-9.94) and EPS (non-IFRS) was SEK 0.27 (-3.24).

Employees

The number of employees on December 31, 2018 was 95,359, a reduction of 5,376 employees compared with Dec 31, 2017.

The employee reduction was mainly in services as a consequence of the cost-reduction program. The number of R&D employees has increased by more than 1,100 in 2018.



5 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial highlights

Market area sales


	Fourth quarter 2018										Change
SEK b.	Networks		Digital Services		Managed Services		Emerging Busi- ness and Other		Total		YoY			QoQ
South East Asia, Oceania and India		6.1		1.3		0.9		0.0		8.2		5	%		3	%
North East Asia		5.5		2.5		0.4		0.0		8.4		30	%		45	%
North America		14.0		2.8		1.2		0.0		18.0		23	%		21	%
Europe and Latin America		10.5		4.3		3.4		0.1		18.2		8	%		23	%
Middle East and Africa		3.6		1.8		1.0		0.0		6.5		-14	%		14	%
Other ¹⁾		1.9		0.4		0.0		2.1		4.4		2	%		-3	%

Total		41.6		13.0		6.9		2.3		63.8		10	%		19	%

¹⁾	Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other

FOURTH QUARTER COMMENTS

South East Asia, Oceania and India

Sales increased YoY, primarily in Managed Services where a new contract was won in 2018. Network sales increased slightly YoY, mainly in South East Asia. Digital Services sales declined YoY due to timing of project deliveries.

North East Asia

Sales increased YoY. In Mainland China, Network sales increased with continued deployment of Narrowband IoT. Digital Services sales also increased with signing of a telecom core contract that had been delayed from previous quarters. Sales in Japan remained flat while operators plan for 5G. Large scale field trials for 5G continue in Mainland China and Japan.

North America

Networks and Digital Services sales increased YoY, primarily driven by investments in 5G readiness and expansions across all major customers. Managed Services sales grew YoY, driven by strong variable sales in large customer contracts.

Europe and Latin America

Sales increased YoY, driven by growth in Latin America and parts of Europe. Managed Services sales declined YoY as a consequence of addressed non-strategic contracts.

Middle East and Africa

Sales declined YoY. Networks sales declined due to timing of investments and monetary restrictions in certain markets. Digital Services sales declined due to timing of project milestones. Managed services sales were stable YoY.

Other

Sales increased slightly YoY, mainly driven by growth in iconectiv (part of segment Emerging Business and Other). IPR licensing revenues amounted to SEK 2.1 (2.1) b.


	Full-year 2018										Change
SEK b.	Networks		Digital Services		Managed Services		Emerging Business and Other		Total		YoY
South East Asia, Oceania and India		21.3		4.8		3.4		0.0		29.6		-6	%
North East Asia		15.9		4.8		1.5		0.1		22.3		-5	%
North America		46.5		8.4		3.7		0.1		58.6		13	%
Europe and Latin America		34.4		12.3		13.2		0.3		60.3		6	%
Middle East and Africa		13.3		6.3		4.0		0.0		23.6		-5	%
Other ¹⁾		7.2		1.4		0.0		7.9		16.5		-1	%

Total		138.6		38.1		25.8		8.4		210.8		3	%

¹⁾	Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other

FULL-YEAR COMMENTS

South East Asia, Oceania and India

Sales declined, mainly due to timing of major projects in Vietnam and India. Managed services sales grew slightly mainly due to a new contract, while sales in Digital Services remained flat.

North East Asia

Sales declined due to reduced operator investments in LTE whilst the operators plan for 5G.

North America

Networks sales increased, primarily driven by investments in 5G readiness across all major customers. Digital Services sales increased as operators digitalize operations and improve customer experience to prepare for 5G. Managed Services sales grew, driven by higher variable sales in large customer contracts.

Europe and Latin America

The strong growth in Networks sales in Latin America and parts of Europe was partly offset by lower sales in Managed Services due to exit of non-strategic contracts.

Middle East and Africa

Sales declined slightly. Networks sales declined due to monetary restrictions in certain markets, Digital Services declined due to timing of project milestones while Managed Services sales were flat.

Other

Sales declined slightly. IPR licensing revenues amounted to SEK 8.0 (8.3) b.



6 Ericsson \| Fourth Quarter and Full-Year Report 2018		Market area sales

Segment results

Networks


SEK b.	Q4 2018			Q4 2017			YoY change			Q3 2018			QoQ change			Full-year 2018			Full-year 2017			Full-year change
Net sales		41.6			37.1			12	%		35.9			16	%		138.6			132.3			5	%
Of which products		29.8			25.4			17	%		25.3			18	%		96.9			90.3			7	%
Of which IPR licensing revenues		1.8			1.7			2	%		1.8			0	%		6.5			6.8			-4	%
Of which services		11.8			11.7			1	%		10.6			12	%		41.6			42.0			-1	%
Sales growth adjusted for comparable units and currency		—			—			6	%		—			16	%		—			—			3	%
Gross income		16.6			11.8			40	%		14.8			12	%		55.2			43.4			27	%
Gross margin		39.9	%		32.0	%		—			41.3	%		—			39.8	%		32.8	%		—
Operating income		6.9			1.9			—			5.7			21	%		19.4			10.5			86	%
Operating margin		16.5	%		5.2	%		—			15.7	%		—			14.0	%		7.9	%		—
Restructuring charges		-0.4			-1.3			—			-0.1			—			-1.8			-4.8			—
Gross income excl. restructuring charges		17.1			12.9			32	%		14.9			15	%		56.5			46.6			21	%
Gross margin excl. restructuring charges		41.0	%		34.8	%		—			41.5	%		—			40.8	%		35.2	%		—
Operating income excl. restructuring charges		7.3			3.2			127	%		5.8			26	%		21.2			15.3			39	%
Operating margin excl. restructuring charges		17.5	%		8.6	%		—			16.1	%		—			15.3	%		11.6	%		—

FOURTH QUARTER COMMENTS

Net sales

Sales increased by 12% YoY and sales adjusted for comparable units and currency increased by 6%. The increase is mainly due to strong growth in North America, Europe and Latin America as well as in North East Asia, driven by investments in 5G readiness and LTE networks.

Sales increased by 16% QoQ and sales adjusted for comparable units and currency also increased by 16%. The sequential sales growth was slightly lower than normal seasonality mainly due to lower sales in India. Sales in North America were higher than anticipated and driven by large hardware deliveries.

Gross margin

Gross margin increased to 39.9% (32.0%) YoY. Gross margin excluding restructuring charges increased to 41.0% (34.8%) due to improved margins in hardware and services as well as lower negative impact of higher recognition than deferral of hardware cost. In addition, the share of hardware sales increased whereas the share of services sales decreased, which impacted gross margin positively YoY.

Provisions and adjustments related to certain customer projects had a negative impact on gross margin in 2017.

Gross margin decreased to 39.9% from 41.3% QoQ. Gross margin excluding restructuring charges decreased to 41.0% from 41.5% QoQ. The decrease was due to hardware sales with initially lower margins, related to new strategic contracts taken to strengthen the market position. A lower share of services sales had a positive impact on gross margin QoQ.

Operating income and margin

Operating income increased to SEK 6.9 (1.9) b. YoY and operating margin improved to 16.5% (5.2%). Operating income excluding restructuring charges was SEK 7.3 (3.2) b. and the corresponding operating margin was 17.5% (8.6%). The improvement was mainly driven by higher gross margin and sales. Operating margin was positively impacted by reversal of provisions for impairment losses on trade receivables of SEK 0.3 (-0.6) b. in the quarter.

Operating income increased to SEK 6.9 b. from SEK 5.7 b. QoQ and operating margin increased to 16.5% from 15.7%. Operating income excluding restructuring charges increased to SEK 7.3 b. from SEK 5.8 b. and operating margin excluding restructuring charges increased to 17.5% from 16.1%. The improvement was driven by higher sales.

Provisions and adjustments related to certain customer projects as well as write-down of assets had a negative impact on operating income in 2017.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs


SEK b.	Q4 2018		Q4 2017		Q3 2018		FY 2018		FY 2017
Cost of Sales		-0.1		-0.5		-0.1		-0.7		-1.5
R&D expenses		0.1		-0.1		0.0		0.4		0.0

Total impact		0.0		-0.6		-0.1		-0.3		-1.5

FULL-YEAR COMMENTS

Net sales

Sales increased by 5% YoY to SEK 138.6 (132.3) b. Sales adjusted for comparable units and currency increased by 3%. The sales increase was due to sales growth in North America and in Europe and Latin America, driven by telecom operator investments in 5G readiness and LTE networks. The Networks share of IPR licensing revenues was SEK 6.5 (6.8) b.

Gross margin

Gross income increased to SEK 55.2 (43.4) b. and gross margin increased to 39.8% (32.8%). Gross margin increased across all areas, mainly due to improved margins in hardware and a higher share of hardware sales at the expense of services sales. The impact on gross margin of higher recognition than deferral of hardware costs was SEK -0.7 (-1.5) b. In 2017 the gross margin was negatively impacted by provisions and customer project adjustments.



7 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Networks

Operating income and margin

Operating income increased to SEK 19.4 (10.5) b. due to lower restructuring charges as well as higher sales and gross margin. The increase was partly offset by increased operating expenses. Operating expenses increased mainly due to higher investments in R&D to strengthened technology leadership. Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs was SEK -0.3 (-1.5) b. Restructuring charges were SEK -1.8 (-4.8) b. Operating margin increased to 14.0% (7.9%).

Strategy execution

As presented at the 2018 Capital Markets Day, the target for Networks is to generate an operating margin between 15%-17% (excluding restructuring charges) by 2020.

Four important ongoing strategic activities are to:

•

invest in R&D to safeguard a leading portfolio and cost leadership

•

fully transition the radio unit deliveries to Ericsson Radio System (ERS) for increased competitiveness

•

continue to make savings in service delivery

•

selectively gain market share based on technology and cost competitiveness.

The ERS, which was introduced to the market in 2015, has proven to be competitive as well as creating a strong market position. The ERS is now fully transitioned and it accounted for 93% of total radio unit deliveries in the fourth quarter and 87% for full-year 2018.

By year-end 2018 Ericsson had announced 10 commercial 5G deals and had 42 ongoing 5G trials. The market share of Ericsson RAN equipment has increased to 29.4% for the first nine months of 2018 compared with 28.2% for the same period in 2017, according to Dell’Oro’s report from November 2018.



8 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Networks

Digital Services


SEK b.	Q4 2018			Q4 2017			YoY change			Q3 2018			QoQ change			Full-year 2018			Full-year 2017			Full-year change
Net sales		13.0			11.8			10	%		9.0			45	%		38.1			38.8			-2	%
Of which products		7.5			6.5			16	%		4.6			63	%		20.5			21.0			-3	%
Of which IPR licensing revenues		0.4			0.4			2	%		0.4			1	%		1.4			1.5			-4	%
Of which services		5.5			5.4			3	%		4.4			26	%		17.6			17.7			-1	%
Sales growth adjusted for comparable units and currency		—			—			5	%		—			45	%		—			—			-4	%
Gross income		-1.2			1.1			—			3.2			-139	%		8.3			4.7			77	%
Gross margin		-9.5	%		9.4	%		—			35.7	%		—			21.8	%		12.1	%		—
Operating income (loss)		-7.1			-12.3			—			-1.8			—			-13.9			-27.3			—
Operating margin		-54.5	%		-103.8	%		—			-19.9	%		—			-36.4	%		-70.4	%		—
Restructuring charges		-3.5			-0.7			—			-0.4			—			-5.4			-2.5			—
Gross income excl. restructuring charges		2.1			1.7			23	%		3.3			-36	%		12.3			6.0			106	%
Gross margin excl. restructuring charges		16.4	%		14.6	%		—			36.9	%		—			32.4	%		15.4	%		—
Operating income (loss) excl. restructuring charges		-3.5			-11.6			—			-1.4			148	%		-8.5			-24.8			—
Operating margin excl. restructuring charges		-27.2	%		-98.0	%		—			-15.9	%		—			-22.3	%		-63.9	%		—

FOURTH QUARTER COMMENTS

Net sales

Sales increased by 10% YoY driven by strong sales of 5G-ready Cloud Core and OSS solutions in North East Asia and North America. Sales in the new product portfolio increased by 31% partly offset by continued decline in sales of the legacy product portfolio. The interest in Ericsson’s 5G-ready and cloud-native products remains strong with several signed contracts in the quarter. Sales adjusted for comparable units and currency increased by 5% YoY.

Sales increased by 45% QoQ, driven by seasonality and strong sales in Cloud Core and OSS in North East Asia and North America.

Gross margin

Gross margin decreased to -9.5% (9.4%) YoY, impacted by the above provisions.

Cost reductions and efficiency improvements had a significant impact on gross margin YoY. Gross margin excluding restructuring charges and other costs related to revised BSS strategy was 37.5%.

Gross margin declined to -9.5% from 35.7% QoQ, due to costs related to revised BSS strategy.

Operating income (loss)

Operating income was SEK -7.1 (-12.3) b. and was impacted by costs related to revised BSS strategy. Operating income excluding restructuring charges and other costs related to revised BSS strategy was SEK -0.6 b. Cost reductions in both cost of sales and in operating expenses had a significant positive impact on operating income YoY. R&D expenses, excluding restructuring charges and excluding the net impact from amortized and capitalized development expenses, decreased by SEK 0.8 b. YoY. Total operating expenses excluding restructuring charges as a percentage of sales decreased by more than 10 percentage points compared with Q4 2017.

Operating income in Q4 2017 was negatively impacted by significant write-down of assets as well as provisions and customer project adjustments.

Operating income decreased to SEK -7.1 b. from SEK -1.8 b. QoQ, due to the BSS provisions of SEK -6.1 b. in the quarter. Operating income, excluding other costs related to revised BSS strategy and excluding total restructuring charges, improved to SEK -0.6 b. from SEK -1.4 b. QoQ, driven by increased sales, partly offset by seasonally higher operating expenses.

Net impact from amortization and capitalization of development expenses


SEK b.	Q4 2018		Q4 2017		Q3 2018		FY 2018		FY 2017
Cost of Sales		0.0		-0.3		0.0		0.0		-1.1
R&D expenses		.-0.6		-0.4		-0.4		-1.8		-0.2

Total impact		-0.6		-0.7		-0.4		-1.8		-1.3



9 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Digital Services

FULL-YEAR COMMENTS

Net sales

Sales decreased by -2% YoY. Sales in BSS declined by -11% while sales in OSS and Cloud Core grew YoY, driven by demand for the 5G-ready portfolio. Sales adjusted for comparable units and currency decreased by -4% YoY.

Gross margin

Gross margin increased YoY as a result of continuous work on service delivery efficiency. Gross margin was negatively impacted by costs related to revised BSS strategy, while cost reductions had a significant positive impact.

Gross margin was negatively impacted by significant write-down of assets as well as provisions and customer project adjustments in 2017.

Operating income (loss)

Operating income improved to SEK -13.9 (-27.3) b. Full-year operating income was SEK-5.5 b., excluding restructuring charges of SEK-5.4 b. and excluding SEK-3.0 b. for other costs related to revised BSS strategy. This is a significant improvement compared with 2017, with profit improvements across all key portfolio areas. Most of the losses in 2018 are in BSS, and additional strategic actions to materially reduce the losses already in 2019 were announced in January 2019.

Write-down of assets as well as provisions and customer project adjustments had a significant negative impact on income in 2017. Cost reductions had a significant impact on gross margin and operating expenses compared with 2017.

Strategy execution

Top priority for Digital Services is to turn the segment into a profitable business, targeting low single-digit positive operating margin by 2020 (excluding restructuring charges). In 2018, the losses in the segment were significantly reduced, mainly through increased efficiency and reduced costs.

While new ways of working are improving R&D efficiency, investments in the portfolio of 5G-ready and cloud-native products will continue in order to defend the current market position and prepare Digital Services for future profitable growth. Hence the continued turnaround is performed in four strategic dimensions: customers, portfolio, commercial and operational. Key actions are to:

•

Grow sales in line with the market development supported by a virtualized and 5G-ready portfolio, focusing on the installed base and large customers that are early 5G adopters.

•

Maintain a disciplined management of a focused portfolio that is optimized for business impact, with focused investments in cloud-native and automation technology.

•

Keep a strong commercial governance and discipline to maximize software value and avoid high-risk projects, such as large transformation deals.

•

Continue to improve operational efficiency across R&D, SG&A and service delivery.

A key activity for the turnaround of Digital Services business is to complete, renegotiate or exit 45 identified critical and non-strategic customer contracts. A total of 23 contracts had been addressed at year-end and the plan is to complete an additional 25% of the 45 contracts in 2019. To reduce commercial risk and margin dilution, expert-team reviews of the performance of existing projects and reviews of scope and terms & conditions of new customer contracts, have been established.

The sales shift towards the new portfolio continues. Rolling 12 months sales of the new portfolio increased by 4%.

In January 2019, additional strategic measures for the BSS business were announced. The planned measures aim to materially contribute to reduce losses in BSS and Digital Services already in 2019, and de-risk the plan for Digital Services to reach the 2020 financial target.



10 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Digital Services

Managed Services


	Q4			Q4			YoY			Q3			QoQ			Full- year			Full- year			Full- year
SEK b.	2018			2017			change			2018			change			2018			2017			change
Net sales		6.9			6.9			0	%		6.5			6	%		25.8			26.5			-3	%
Sales growth adjusted for comparable units and currency		—			—			-5	%		—			7	%		—			—			-5	%
Gross income (loss)		0.8			-0.7			—			0.8			-3	%		2.9			-1.6			—
Gross margin		11.4	%		-10.0	%		—			12.5	%		—			11.2	%		-5.9	%		—
Operating income (loss)		0.3			-1.3			—			0.4			-30	%		1.1			-4.1			—
Operating margin		4.1	%		-18.5	%		—			6.3	%		—			4.2	%		-15.4	%		—
Restructuring charges		-0.1			-0.4			—			0.0			—			-0.3			-0.7			—
Gross income (loss) excl. restructuring charges		0.9			-0.4			—			0.8			2	%		3.1			-1.0			—
Gross margin excl. restructuring charges		12.4	%		-5.3	%		—			12.9	%		—			12.2	%		-3.6	%		—
Operating income (loss) excl. restructuring charges		0.4			-0.9			—			0.4			-20	%		1.4			-3.4			—
Operating margin excl. restructuring charges		5.2	%		-13.0	%		—			6.8	%		—			5.3	%		-12.9	%		—

FOURTH QUARTER COMMENTS

Net sales

Sales were flat YoY. Sales adjusted for comparable units and currency decreased by -5% YoY as a result of customer contract exits.

Sales increased by 6% QoQ. The increase was driven by growth across all service areas.

Sales adjusted for comparable units and currency increased by 7% QoQ.

Gross margin

Gross margin increased to 11.4% (-10.0%) YoY. Gross margin excluding restructuring charges increased to 12.4% (-5.3%) mainly as a results of customer contract reviews and efficiency measures.

Write-down of assets as well as provisions and customer project adjustments had a significant negative impact on gross margin in 2017.

Gross margin decreased to 11.4% from 12.5% QoQ. Gross margin excluding restructuring charges decreased to 12.4% from 12.9% QoQ.

Operating income and margin

Operating income increased to SEK 0.3 (-1.3) b. YoY. Operating income excluding restructuring charges improved to SEK 0.4 (-0.9) b. due to higher gross margin.

Sequentially, operating margin excluding restructuring charges decreased to 5.2% from 6.8%. The decrease was driven by seasonally higher operating expenses.

FULL-YEAR COMMENTS

Net sales

Sales decreased by -3% YoY. Sales adjusted for comparable units and currency decreased by -5% YoY, as a result of contract exits, partly offset by sales growth in Managed Services IT.

Gross margin

Gross margin increased YoY to 11.2% (-5.9%). Gross margin excluding restructuring charges increased to 12.2% (-3.6%) mainly as a result of customer contract reviews and efficiency measures.

Write-down of assets as well as provisions and customer project adjustments had a significant negative impact on gross margin in 2017.

Operating income

Operating income increased to SEK 1.1 (-4.1) b. YoY. Operating income excluding restructuring charges improved to SEK 1.4 (-3.4) b. due to higher gross margin.

Restructuring charges amounted to SEK -0.3 (-0.7) b.

Strategy execution

Managed Services has introduced AI solutions which are patented and trialed in several customer engagements. The initial AI solutions already allow Ericsson to address network complexity and move network operations from being reactive to incidents, to becoming proactive – automatically identifying, proposing actions or even fixing the faults before they degrade network service quality. Further investments will be made in automation, analytics and AI-driven offerings to support 5G, IoT and cloud.

As presented at the 2018 Capital Markets Day, the ambition for Managed Services is to improve operating margin to 5%-8% (excluding restructuring charges) in 2020. In order to focus the business and improve profitability, 42 managed services contracts have been identified for exit, renegotiation or transformation. At year-end 2018, all 42 contracts had been addressed, resulting in an annualized profit improvement of approximately SEK 0.9 b. Net sales reduction from contract exits is expected to be SEK 4b. at the end of 2019, compared to the 2016 base line.



11 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Managed Services

Emerging Business and Other (includes Emerging Business, iconectiv, Red Bee Media and Media Solutions)


	Q4			Q4			YoY			Q3			QoQ			Full year			Full year			Full year
SEK b.	2018			2017			change			2018			change			2018			2017			change
Net sales		2.3			2.1			9	%		2.4			-6	%		8.4			7.9			7	%
Sales growth adjusted for comparable units and currency		—			—			1	%		—			-6	%		—			—			3	%
Gross income		0.2			0.2			-13	%		0.8			-73	%		1.8			1.4			34	%
Gross margin		9.3	%		11.7	%		—			32.3	%		—			21.9	%		17.5	%		—
Operating income (loss)		-1.9			-7.7			—			-1.0			83	%		-5.4			-13.8			—
Operating margin		-83.3	%		-368.0	%		—			-42.9	%		—			-64.5	%		-175.7	%		—
Restructuring charges		-0.4			-0.1			—			0.0			—			-0.6			-0.5			22	%
Gross income excl. restructuring charges		0.4			0.3			32	%		0.8			-50	%		2.1			1.6			36	%
Gross margin excl. restructuring charges		17.1	%		14.1	%		—			32.3	%		—			25.4	%		19.9	%		—
Operating income (loss) excl. restructuring charges		-1.5			-7.6			—			-1.0			52	%		-4.8			-13.3			—
Operating margin excl. restructuring charges		-67.1	%		-363.1	%		—			-41.5	%		—			-57.4	%		-169.6	%		—

FOURTH QUARTER COMMENTS Net sales

Sales increased by 9% YoY. Sales adjusted for comparable units and currency increased by 1% YoY. Sales excluding the media businesses increased by 60%, driven by iconectiv. Sales in the media businesses (Media Solutions and Red Bee Media) declined to SEK 1.3 (1.4) b.

Sales decreased by -6% QoQ. Sales adjusted for comparable units and currency also decreased by -6% QoQ mainly due to reduced sales in the media businesses. The decrease was partly offset by growth in Emerging Business.

Gross margin

Gross margin decreased to 9.3% (11.7%) YoY. Gross margin excluding restructuring charges increased to 17.1% (14.1%). Write-down of assets had a significant negative impact on gross margin in Q4 2017.

Gross margin decreased to 9.3% from 32.3% QoQ, mainly as a consequence of reduced margins in the media businesses partly due to a one-time project cost of SEK -0.1 b. In addition, gross margin was negatively impacted by increased customization costs related to strategic contracts in Emerging Business.

Operating income (loss)

Operating income improved to SEK -1.9 (-7.7) b. YoY. Operating income excluding restructuring charges improved to SEK -1.5 (-7.6) b.

Q4 2018 (Q4 2017) financials, SEK b. excluding restructuring


	Media Solutions			Red Bee Media			Emerging Business, iconectiv and common costs			Segment Total
Net Sales		0.7 (0.8	)		0.6 (0.7	)		1.0 (0.6	)		2.3 (2.1	)
Op. Income		-0.5 (-6.0	)		-0.1 (-0.8	)		-0.9 (-0.8	)		-1.5 (-7.6	)

Media Solutions = MediaKind including transaction-related costs etc Write-down of assets had a significant negative impact on operating income in Q4 2017.

Media Solutions operating income was impacted by one-time project costs of SEK -0.1 b. and SEK -0.1 b. in costs related to the planned divestment of MediaKind.

While the iconectiv business continued to deliver solid profitable results, operating income in Emerging Business declined YoY negatively impacted by increased investments as well as costs of SEK -0.4 b. of which SEK -0.1 b. in restructuring charges for resetting the Edge Gravity business. The resetting allows for a leaner set-up of content delivery and for accelerated efforts in Edge Compute.

Sequentially, operating income declined to SEK -1.9 b. from SEK -1.0 b. Operating income excluding restructuring charges declined to SEK -1.5 b. from SEK -1.0 b. impacted by lower gross margin and by costs for resetting the Edge Gravity business.

Net impact from amortization and capitalization of development expenses


SEK b.	Q4 2018		Q4 2017		Q3 2018		FY 2018		FY 2017
Cost of Sales		-0.1		0.0		-0.1		-0.2		0.0
R&D expenses		-0.1		-0.1		0.0		-0.2		-0.1

Total impact		-0.1		-0.1		-0.1		-0.4		-0.1

FULL-YEAR COMMENTS Net sales

Sales increased by 7% YoY. Sales adjusted for comparable units and currency increased by 3% YoY, driven by growth in the iconectiv business through a multi-year number portability contract in the United States. Sales in Emerging Business grew by more than 25% YoY. Media Solutions sales declined by -14% due to lower sales in the legacy portfolio. Red Bee Media sales declined by -4% YoY due to renegotiations and changes in scope of contracts.

Gross margin

Gross margin increased. Write-down of assets had a significant negative impact on gross margin in 2017.



12 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Emerging Business and Other

Operating income (loss)

Full-year financials for 2018 (2017) , SEK b. excluding restructuring


							Emerging Business,
	Media						iconectiv and
	Solutions			Red Bee Media			common costs			Segment Total
Net Sales		2.7	(3.2)		2.3	(2.4)		3.4	(2.3)		8.4	(7.9)
Op. Income		-1.7	(-8.9)		-0.3	(-1.8)		-2.8	(-2.7)		-4.8	(-13.3)

Cost reductions had a positive impact on Media Solutions operating income, partly offset by reduced sales and costs of SEK -0.3 b. related to the planned transaction with One Equity Partners. Write-down of assets had a significant negative impact on Media Solutions income in 2017.

Operational efficiencies and cost reductions had a positive impact on Red Bee Media income, while reduced sales impacted negatively. Write-down of assets had a significant negative impact on Red Bee Media income in 2017.

Losses increased due to costs of SEK -0.4 b., of which SEK -0.1 b. in restructuring charges, for resetting the Edge Gravity business and increased investments in new areas such as IoT and Emodo. The growth in iconectiv business had a positive impact on operating income.

Strategy execution

The target for Emerging Business and Other in 2020 is to reach a break-even operating income (excluding restructuring charges) with a net sales ambition of SEK 5-7 b., given the current portfolio and strategy for the areas.

Selective investments will continue in Emerging Business in order to build a position and grow sales in new areas. Parts of the portfolio are still in an early phase, with focus on generating sales and scale the business. Emerging business sales grew by more than 25% in 2018, but do not yet cover required investments, resulting in a negative bottom line.

For Red Bee Media, the target remains to achieve a sustainable profitable business by continuing to develop and manage the business as an independent and focused media services entity within Ericsson.

The planned divestment of MediaKind is ongoing. The demand for MediaKind’s portfolio continues to be stable across the global customer base. Actions taken during 2018 are expected to result in improved sales and cost structures during second half 2019.



13 Ericsson \| Fourth Quarter and Full-Year Report 2018		Segment results \| Emerging Business and Other

Cash flow


	Q4		Q4		Q3		Full-year		Full-year
SEK b.	2018		2017		2018		2018		2017
Net income reconciled to cash		-0.1		-4.0		2.9		1.6		-13.1
Changes in operating net assets		4.4		15.2		-0.9		7.8		22.7
Cash flow from operating activities		4.3		11.2		2.0		9.3		9.6
Cash flow from investing activities		-2.2		-3.8		-1.7		-4.1		-16.1
Cash flow from financing activities		-0.6		2.1		0.3		-4.1		5.5
Effect of exchange rate changes on cash		0.8		0.2		-1.6		1.4		-0.1
Net change in cash and cash equivalents		2.3		9.7		-1.0		2.5		-1.1
Free cash flow excluding M&A		3.0		10.2		0.7		4.3		4.8
Free cash flow		3.0		10.1		0.3		3.0		5.1

FOURTH QUARTER COMMENTS

Operating activities

Net income reconciled to cash was SEK -0.1 (-4.0) b. Large provisions in Q4 impacted net income negatively. Cash flow from operating activities was SEK 4.3 (11.2) b. due to changes in operating net assets, including the increased provisions. Trade receivables increased on the back of the increased business activity in the quarter. Sale of trade receivables continued to trend downwards and decreased YoY. Quarterly cash flows may vary as the business develops. Cash outlays related to provisions were SEK -1.4 (-2.2) b., of which cash outlays related to restructuring charges were SEK -0.7 (-1.2) b. in the quarter.

Investing activities

Cash flow from investing activities was SEK -2.2 (-3.8) b. Investments in M&A were SEK 0.0 (-0.1) b. Cash flow from investments in property, plant and equipment was SEK -1.1 (-1.1) b. and from capitalized development expenses SEK -0.2 (-0.1) b.

Financing activities

Cash flow from financing activities was SEK -0.6 (2.1) b. due to a reduction in borrowings.

Free cash flow

Free cash flow was SEK 3.0 (10.1) b. generated by positive cash flow from operating activities and limited investing activities. The decrease in free cash flow YoY was due to higher business activity than last year with decreased cash flow from operating activities. In 2017, new credits were raised generating significant cash flow from financing activities.

Free cash flow excluding M&A was SEK 3.0 (10.2) b.

FULL-YEAR COMMENTS

Operating activities

Cash flow from operating activities reached SEK 9.3 (9.6) b. Working capital efficiency has improved as a result of a strong focus on cash flow. The business growth in 2018 and high delivery and invoicing volumes towards the end of the year led to some build-up of trade receivables, to be collected in the coming periods. Inventory and trade payables also increased to meet customer demand in a growing market. The combined working capital KPI improved to 89 (102) days. The ambition is to maintain working capital efficiency and thereby effectively convert income to cash. Cash outlays related to provisions were SEK -6.9 (-8.2) b., of which cash outlays related to restructuring charges were SEK -4.1 (-5.3) b.


Working capital KPIs, number of days	Jan-Dec 2018		Jan-Dec 2017
+Sales outstanding (target: <90)		91		96
+Inventory (target: <65)		70		66
-Payable (target: >60)		72		60
Combined working capital		89		102

Investing activities

Cash flow from investing activities was SEK -4.1 (-16.1) b., impacted by investments and sale of property, plant and equipment with a net effect of SEK -3.6 (-2.9) b. and investments in M&A of SEK -1.3 (0.3) b. In addition, product development decreased by SEK -0.9 (-1.4) b. due to reduced capitalization of product platform development following technology shifts.

Financing activities

Cash flow from financing activities was SEK -4.1 (5.5) b. Dividends of SEK 3.4 (3.4) b. were paid out.

Free cash flow

The focus on free cash flow and release of working capital, in combination with limited investing activities, resulted in free cash flow of SEK 3.0 (5.1) b. and in free cash flow excluding M&A of SEK 4.3 (4.8) b.



14 Ericsson \| Fourth Quarter and Full-Year Report 2018		Cash flow

Financial position


	Dec 31			Dec 31			Sep 30
SEK b.	2018			2017			2018
+ Cash and cash equivalents		38.4			35.9			36.1
+ Interest-bearing securities, current		6.6			6.7			6.6
+ Interest-bearing securities, non-current		24.0			25.1			23.0

Gross cash		69.0			67.7			65.7

– Borrowings, current		2.3			2.5			2.5
– Borrowings, non-current		30.9			30.5			31.2

Net cash		35.9			34.7			32.0

Equity		87.8			97.6			96.0
Total assets		268.8			259.9			264.8
Capital turnover (times)		1.4			1.2			1.3
Return on capital employed (%)		0.6	%		-20.6	%		2.6	%
Equity ratio (%)		32.7	%		37.5	%		36.2	%
Return on equity (%)		-7.1	%		-28.1	%		0.0	%

FOURTH QUARTER COMMENTS

Gross cash increased by SEK 3.3 b. and net cash increased by SEK 3.9 b. in the quarter, as a result of the positive free cash flow. Gross cash was SEK 69.0 b. and net cash was SEK 35.9 b.

Liability for post-employments benefits increased in the quarter, to SEK 28.7 b. from SEK 25.5 b., due to lower interest rates in Sweden.

FULL-YEAR COMMENTS

Gross cash increased to SEK 69.0 (67.7) b. and net cash increased to SEK 35.9 (34.7) b.

Liability for post-employments benefits increased by SEK 3.7 b. mainly due to decreased discount rates and normal service costs. The Swedish defined benefit obligation (DBO) has been calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the liability for post-employment benefits would have been approximately SEK 9.5 b. lower as of Dec 31, 2018.

The average maturity of long-term borrowings as of Dec 31, 2018, was 3.4 years, a decrease from 4.4 years 12 months earlier.

LOGO

Ericsson has an unutilized Revolving Credit Facility of USD 2.0 b. The facility will expire in 2022.

In 2018, Ericsson signed a credit facility agreement of EUR 250 million with the European Investment Bank (EIB). The credit facility is undrawn and will mature five years after disbursement.

Moody’s changed their outlook on Ericsson’s long-term rating from negative to stable. The rating of Ba2 was unchanged.

The capital efficiency improved during the year and the capital turnover reached 1.4 (1.2) times.



15 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial position

Parent Company

Income after financial items was SEK 5.8 (-2.0) b. Impairment of investments in subsidiaries has decreased to SEK 1.2 (9.0) b, which was the main contributor to the increase in Income after financial items.

At the end of the year, gross cash (cash, cash equivalents, short-term investments and interest-bearing securities non-current) amounted to SEK 58.1 (50.3) b.

The Parent Company has during the quarter recognized dividends from subsidiaries of SEK 3.2 (5.2) b.

There has been a decrease of intercompany lending of SEK 10.4 b. and intercompany borrowing of SEK 1.9 b. during the fourth quarter.

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 3,346,918 shares from treasury stock were sold or distributed to employees during the fourth quarter. The holding of treasury stock on December 31, 2018, was 37,057,039 Class B shares.



16 Ericsson \| Fourth Quarter and Full-Year Report 2018		Parent Company

Dividend, AGM and Annual Report

Dividend proposal

The Board of Directors will propose to the Annual General Meeting to resolve on a dividend of SEK 1.00 (1.00) per share, representing some SEK 3.3 (3.3) b., and March 29, 2019, as the record date for payment of dividend. The dividend reflects this year’s earnings and balance sheet structure, as well as coming years’ business plans and expected economic development.

Ericsson Annual General Meeting

The Annual General Meeting of shareholders will be held on March 27, 2019, 15.00 (CET) at Kistamässan, Kista/Stockholm, Sweden.

Annual Report

The annual report will be made available on the Ericsson website www.ericsson.com and at the Ericsson headquarters, Torshamnsgatan 21, Kista, Stockholm, Sweden, in the last week of February.



17 Ericsson \| Fourth Quarter and Full-Year Report 2018		Dividend, AGM and Annual Report

Other information

Ericsson Capital Markets Day 2018

On November 8, 2018, Ericsson held its Capital Markets Day giving an overview of its turnaround, strategy and plans for future growth as well as details about its business segments and the market trends. Further, the presentations included updated net sales ambitions for 2020 and financial targets for 2020 and 2022.

SEC and DOJ inquiries

As previously disclosed, Ericsson has been voluntarily cooperating since 2013 with an investigation by the United States Securities and Exchange Commission (SEC) and, since 2015, with an investigation by the United States Department of Justice (DOJ) into Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA). The discussions with these authorities continue. While the length of these discussions cannot be determined, the company’s previous assessment, that the resolution of these matters will likely result in monetary and other measures, the magnitude of which at this time cannot be reliably estimated but may be material, remains. Ericsson continues its efforts to improve on its compliance program.

POST-CLOSING EVENTS

Provisions in fourth quarter related to reshaping BSS business

On January 10, 2019, Ericsson announced that the focus on simplifying and stabilizing the business has resulted in stronger gross margins and a stabilizing topline. While there has been solid progress in most portfolio areas, the Business Support Systems area in segment Digital Services is not showing satisfactory progress, jeopardizing the segment Digital Services overall profitability target for 2020.

The company’s past strategy has not been successful. It included pursuing large transformation projects based on pre-integrated solutions and development of a next-generation BSS platform. Consequently, at the Capital Markets Day on Nov. 8, 2018, Ericsson presented a revised BSS strategy, with increased investments in the established platform and a refocus of the next-generation BSS platform to fulfilling existing customer commitments only.

The company has now decided to pursue additional measures to speed up the restructuring of the BSS business. Provisions for the cost of executing on these measures, together with necessary contract loss provisions, negatively impacted operating income by SEK 6.1 b. in Q4, 2018, mainly impacting gross margin. SEK 3.1 b. of this amount is treated as restructuring charges. Further restructuring charges, estimated to be SEK 1.5 b, are anticipated for 2019. The vast majority of the provision amount will impact cash flow, starting in 2019 and continuing over several years.

Ericsson announced changes to Executive Team

On January 16, 2019, Ericsson announced that Helena Norrman, Senior Vice President, Chief Marketing and Communications Officer and Head of Marketing and Corporate Relations, has decided to leave Ericsson to pursue opportunities outside the company. Helena Norrman has been with the company since 1998 and has served on Ericsson’s Executive Team since 2010. Helena will leave her position effective no later than June 30, 2019.



18 Ericsson \| Fourth Quarter and Full-Year Report 2018		Other information

Risk factors

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2017. Risk factors and uncertainties in focus short term for the Parent Company and the Ericsson Group include, but are not limited to:

•

Potential negative effects on operators’ willingness to invest in network development due to uncertainty in the financial markets and a weak economic business environment, or reduced consumer telecom spending, or increased pressure on Ericsson to provide financing, or delayed auctions of spectrum

•

Intense competition from existing competitors as well as new entrants, including IT companies entering the telecommunications market, which could have a material adverse effect on the results

•

Uncertainty regarding the financial stability of suppliers, for example due to lack of financing

•

Effects on gross margins and/or working capital of the business mix in the Networks segment between capacity sales and new coverage build-outs

•

Effects on gross margins of the business mix including new network build-outs and new managed services or digital transformation deals with initial transition costs

•

Effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. with postponed investments and intensified price competition as a consequence

•

New and ongoing partnerships which may not be successful and expose us to future costs

•

Changes in foreign exchange rates, in particular USD

•

Political unrest and uncertainty and geopolitical uncertainty in certain markets, including escalating trade disputes and sanctions and uncertainties relating to Brexit, with potential effects such as increased supply costs, limitations to the free movement of goods and services, professional staff and cross-border data

•

Effects on production and sales from restrictions with respect to timely and adequate supply of materials, components and production capacity and other vital services on competitive terms

•

No guarantees that strategy execution, specific restructuring or cost-savings initiatives, profitability restoring efforts and/or organizational changes will be sufficient, successful or executed in time to deliver any improvements in earnings

•

Cybersecurity incidents, which may have a material negative impact

•

Rapidly changing technologies and the ways these are brought to the market, which could be disruptive to the business

•

Ericsson is subject to risks associated with the development and implementation of new solutions or technologies under existing customer contracts. The Company may not be successful or incur delays in developing or implementing such solutions or technologies, which could result in damage claims and loss of customers which may have an adverse impact on liquidity and results of operations.

Ericsson monitors the compliance with all relevant trade regulations and trade embargoes applicable to dealings with customers operating in countries where there are trade restrictions or trade restrictions are discussed.

Ericsson strives to operate globally in accordance with Group policies and directives for business ethics and conduct and has a dedicated ethics and compliance program. However, in some of the countries where the Company operates, corruption risks can be high and compliance failure could have a material adverse impact on our business, financial condition and brand.

Ericsson is voluntarily cooperating with investigations by the United States Securities and Exchange Commission and the United States Department of Justice regarding its compliance with the U.S. Foreign Corrupt Practices Act. The Company continues to cooperate with the SEC and DOJ and is engaged in discussions with them to find a resolution. While the length of these discussions cannot be determined, based on the facts that the Company has shared with the authorities, Ericsson believes that the resolution of these matters will likely result in monetary and other measures, the magnitude of which cannot be estimated currently but may be material. Potential future cash outflows are currently not capable of being reliably estimated. Accordingly, no provisions have been recorded for such potential exposure.

Stockholm, January 25, 2019

Telefonaktiebolaget LM Ericsson

Börje Ekholm, President and CEO Org.

no. 556016-0680

Date for next report: April 17, 2019



19 Ericsson \| Fourth Quarter and Full-Year Report 2018		Risk factors

Auditors’ Review Report

Introduction

We have reviewed the condensed interim financial information (interim report) of Telefonaktiebolaget LM Ericsson (publ.) as of December 31, 2018, and the twelve months period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity.

A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm, January 25, 2019

PricewaterhouseCoopers AB

Bo Hjalmarsson

Authorized Public Accountant

Auditor in Charge

Johan Engstam

Authorized Public Accountant



20 Ericsson \| Fourth Quarter and Full-Year Report 2018		Auditors’ Review Report

Editor’s note

Press briefing and live webcast

Ericsson invites media, investors and analysts to conference calls on January 25, 2019; one starting at 09.00 (CET) and the other at 14.00 (CET).

Live audio webcasts of the conference calls as well as supporting slides will be available at:

www.ericsson.com/investors and

www.ericsson.com/press

Replay of the conference calls will be available approximately one hour after each call has ended and will remain available for seven days.

For further information, please contact:

Carl Mellander Senior Vice President, Chief Financial Officer

Phone: +46 10 713 89 70

E-mail: investor.relations@ericsson.com or

media.relations@ericsson.com

Helena Norrman, Senior Vice President, Chief Marketing and

Communications Officer

Phone: +46 10 719 34 72

E-mail: investor.relations@ericsson.com or

media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson

Org. number: 556016-0680

Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com

Investors

Peter Nyquist, Vice President,

Head of Investor Relations

Phone: +46 10 714 64 99, +46 70 575 29 06

E-mail: peter.nyquist@ericsson.com

Stefan Jelvin, Director,

Investor Relations

Phone: +46 10 714 20 39, +46 70 986 02 27

E-mail: stefan.jelvin@ericsson.com

Åsa Konnbjer, Director,

Investor Relations

Phone: +46 10 713 39 28, +46 73 082 59 28

E-mail: asa.konnbjer@ericsson.com

Rikard Tunedal, Director,

Investor Relations

Phone: +46 10 714 54 00, +46 761 005 400

E-mail: rikard.tunedal@ericsson.com

Media

Ola Rembe, Vice President,

Head of External Communications

Phone: +46 10 719 97 27, +46 73 024 48 73

E-mail: media.relations@ericsson.com

Corporate Communications

Phone: +46 10 719 69 92

E-mail: media.relations@ericsson.com



21 Ericsson \| Fourth Quarter and Full-Year Report 2018		Editor’s note

Forward-looking statements

This report includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, including, in particular the following:

•

Our goals, strategies, planning assumptions and operational or financial performance expectations

•

Industry trends, future characteristics and development of the markets in which we operate

•

Our future liquidity, capital resources, capital expenditures, cost savings and profitability

•

The expected demand for our existing and new products and services as well as plans to launch new products and services including research and development expenditures

•

The ability to deliver on future plans and to realize potential for future growth

•

The expected operational or financial performance of strategic cooperation activities and joint ventures

•

The time until acquired entities and businesses will be integrated and accretive to income

•

Technology and industry trends including the regulatory and standardization environment in which we operate, competition and our customer structure.

The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,” “might,” “continue,” or, in each case, their negative or variations, and similar words or expressions are used to identify forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

We caution investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond our control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2017.

These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.



22 Ericsson \| Fourth Quarter and Full-Year Report 2018		Forward-looking statements

Financial statements

and other information


Contents

Financial statements
24		Consolidated income statement
24		Statement of comprehensive income (loss)
25		Consolidated balance sheet
26		Consolidated statement of cash flows
27		Consolidated statement of changes in equity
27		Consolidated income statement – isolated quarters
28		Consolidated statement of cash flows – isolated quarters
29		Parent Company income statement
29		Parent Company statement of comprehensive income (loss)
30		Parent Company balance sheet

Additional information
31		Accounting policies
34		Segment reporting
35		Net sales by segment by quarter
36		Sales growth adjusted for comparable units and currency
36		Gross income (loss) and gross margin by segment by quarter
37		Operating income (loss) and operating margin by segment by quarter
38		EBITA and EBITA margin by segment by quarter
39		Net sales by market area by quarter
40		Top 5 countries in sales
40		Net sales by market area by segment
41		IPR licensing revenues by segment by quarter
41		Provisions
42		Information on investments
43		Other information
43		Number of employees

Items excluding restructuring charges
44		Restructuring charges by function
44		Restructuring charges by segment
45		Gross income (loss) and gross margin excluding restructuring charges by segment
46		Operating income (loss) and operating margin excluding restructuring charges by segment

Alternative performance measures
47		Sales growth adjusted for comparable units and currency
48		Items excluding restructuring charges
50		EBITA and EBITA margin
50		Cash conversion
50		Gross cash and net cash, end of period
51		Capital employed
51		Capital turnover
52		Return on capital employed
52		Equity ratio
52		Return on equity
53		Earnings (loss) per share (non-IFRS)
53		Free cash flow and free cash flow excluding M&A



23 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements and other information

Financial statements

Consolidated income statement


	Oct-Dec									Jan-Dec
SEK million	2018			2017			Change			2018			2017			Change
Net sales		63,809			57,881			10	%		210,838			205,378			3	%
Cost of sales		-47,430			-45,365			5	%		-142,638			-157,451			-9	%

Gross income		16,379			12,516			31	%		68,200			47,927			42	%

Gross margin (%)		25.7	%		21.6	%					32.3	%		23.3	%
Research and development expenses		-10,665			-9,938			7	%		-38,909			-37,887			3	%
Selling and administrative expenses		-7,685			-8,245			-7	%		-27,519			-29,027			-5	%
Impairment losses on trade receivables ¹⁾		386			-680			-157	%		-420			-3,649			-88	%

Operating expenses		-17,964			-18,863			-5	%		-66,848			-70,563			-5	%

Other operating income and expenses ¹⁾		-294			-12,926						-168			-12,131
Shares in earnings of JV and associated companies		27			-5						58			24

Operating income (loss)		-1,852			-19,278			-90	%		1,242			-34,743			-104	%

Financial income		-294			-124						-316			-372
Financial expenses		-421			-394						-2,389			-843

Income after financial items		-2,567			-19,796			-87	%		-1,463			-35,958			-96	%

Taxes		-3,930			1,303			-402	%		-4,813			3,525			-237	%

Net income (loss)		-6,497			-18,493			-65	%		-6,276			-32,433			-81	%

Net income (loss) attributable to:
Stockholders of the Parent Company		-6,553			-18,476						-6,530			-32,576
Non-controlling interests		56			-17						254			143
Other information
Average number of shares, basic (million)		3,296			3,283						3,291			3,277
Earnings (loss) per share, basic (SEK) ²⁾		-1.99			-5.63						-1.98			-9.94
Earnings (loss) per share, diluted (SEK) ³⁾		-1.99			-5.63						-1.98			-9.94

¹⁾	Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.

²⁾	Based on net income (loss) attributable to stockholders of the Parent Company.

³⁾	Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Statement of comprehensive income (loss)


	Oct-Dec				Jan-Dec
SEK million	2018		2017		2018		2017
Net income (loss)		-6,497		-18,493		-6,276		-32,433

Other comprehensive income (loss)
Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans incl. asset ceiling		-2,950		2,616		-2,453		970
Revaluation of borrowings due to change in credit risk		433		—		207		—
Tax on items that will not be reclassified to profit or loss		555		-764		285		-547
Items that may be reclassified to profit or loss
Available-for-sale financial assets
Gains/losses arising during the period		—		-10		—		68
Reclassification adjustments on gains/losses included in profit or loss		—		—		—		5
Revaluation of other investments in shares and participations
Fair value remeasurement		—		102		—		99
Changes in cumulative translation adjustments		243		1,145		2,047		-3,378
Share of other comprehensive income on JV and associated companies		-1		7		14		—
Tax on items that may be reclassified to profit or loss		—		1		—		-16

Total other comprehensive income (loss), net of tax		-1,720		3,097		100		-2,799

Total comprehensive income (loss)		-8,217		-15,396		-6,176		-35,232

Total comprehensive income (loss) attributable to:
Stockholders of the Parent Company		-8,277		-15,418		-6,470		-35,357
Non-controlling interest		60		22		294		125



24 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Consolidated balance sheet


SEK million	Dec 31 2018		Sep 30 2018		Dec 31 2017
ASSETS
Non-current assets
Intangible assets
Capitalized development expenses		4,237		4,918		4,593
Goodwill		30,035		30,514		27,815
Intellectual property rights, brands and other intangible assets		3,474		3,493		4,148
Property, plant and equipment		12,849		12,810		12,857
Financial assets
Equity in JV and associated companies		611		625		624
Other investments in shares and participations		1,515		1,572		1,279
Customer finance, non-current		1,180		780		2,178
Interest-bearing securities, non-current		23,982		23,014		25,105
Other financial assets, non-current		6,559		6,254		5,897
Deferred tax assets		23,152		24,648		21,963

		107,594		108,628		106,459

Current assets
Inventories		29,255		30,635		25,547
Contract assets		13,178		14,794		13,120
Trade receivables		51,172		41,456		48,105
Customer finance, current		1,704		1,240		1,753
Other current receivables		20,844		25,446		22,301
Interest-bearing securities, current		6,625		6,591		6,713
Cash and cash equivalents		38,389		36,058		35,884

		161,167		156,220		153,423

Total assets		268,761		264,848		259,882

EQUITY AND LIABILITIES
Equity
Stockholders’ equity		86,978		95,087		96,935
Non-controlling interest in equity of subsidiaries		792		866		636

		87,770		95,953		97,571

Non-current liabilities
Post-employment benefits		28,720		25,475		25,009
Provisions, non-current		5,471		3,420		3,596
Deferred tax liabilities		670		1,274		901
Borrowings, non-current		30,870		31,187		30,500
Other non-current liabilities		4,346		4,456		2,776

		70,077		65,812		62,782

Current liabilities
Provisions, current		10,537		5,275		6,283
Borrowings, current		2,255		2,463		2,545
Contract liabilities		29,348		30,108		29,076
Trade payables		29,883		28,914		26,320
Other current liabilities		38,891		36,323		35,305

		110,914		103,083		99,529

Total equity and liabilities		268,761		264,848		259,882

Of which interest-bearing liabilities		33,125		33,650		33,045
Assets pledged as collateral		5,681		5,768		5,215
Contingent liabilities ¹⁾		1,638		1,490		1,561

¹⁾

Contingent liabilities does not include any amounts related to investigation by the SEC and the DOJ about Ericsson’s compliance with the U.S Foreign Corrupt Practices Act (FCPA). For information about the investigation by the SEC and the DOJ, please refer to “Other information” on page 18 of this report.



25 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Consolidated statement of cash flows


	Oct-Dec				Jan-Dec
SEK million	2018		2017		2018		2017
Operating activities
Net income (loss)		-6,497		-18,493		-6,276		-32,433
Adjustments to reconcile net income to cash
Taxes		3,590		-1,803		-1,897		-9,064
Earnings/dividends in JV and associated companies		-36		-2		-23		56
Depreciation, amortization and impairment losses		2,469		16,118		8,318		27,892
Other		376		179		1,432		440

Net income reconciled to cash		-98		-4,001		1,554		-13,109

Changes in operating net assets
Inventories		1,689		8,356		-4,807		4,719
Customer finance, current and non-current		-863		36		1,085		798
Trade receivables and contract assets		-7,521		-2,246		-2,047		1,379
Trade payables		829		2,565		2,436		1,886
Provisions and post-employment benefits		7,330		412		6,696		4,755
Contract liabilities		-1,112		2,700		-808		5,024
Other operating assets and liabilities, net		4,033		3,337		5,233		4,149

		4,385		15,160		7,788		22,710

Cash flow from operating activities		4,287		11,159		9,342		9,601
Investing activities
Investments in property, plant and equipment		-1,080		-1,105		-3,975		-3,877
Sales of property, plant and equipment		57		898		334		1,016
Acquisitions/divestments of subsidiaries and other operations, net		20		-107		-1,285		276
Product development		-195		-138		-925		-1,444
Other investing activities		-96		-573		-523		-463
Interest-bearing securities		-910		-2,772		2,242		-11,578

Cash flow from investing activities		-2,204		-3,797		-4,132		-16,070

Cash flow before financing activities		2,083		7,362		5,210		-6,469
Financing activities
Dividends paid		-134		-1		-3,425		-3,424
Other financing activities		-429		2,073		-652		8,902

Cash flow from financing activities		-563		2,072		-4,077		5,478

Effect of exchange rate changes on cash		811		240		1,372		-91
Net change in cash and cash equivalents		2,331		9,674		2,505		-1,082
Cash and cash equivalents, beginning of period		36,058		26,210		35,884		36,966

Cash and cash equivalents, end of period		38,389		35,884		38,389		35,884



26 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Consolidated statement of changes in equity


	Jan-Dec
SEK million	2018		2017
Opening balance ¹⁾		97,571		135,257
Opening balance adjustment due to IFRS 9		-983		—

Adjusted opening balance		96,588		135,257

Total comprehensive income (loss)		-6,176		-35,232
Sale/repurchase of own shares		107		-5
Stock issue (net)		—		15
Long-term variable compensation plans		677		885
Dividends paid		-3,425		-3,424
Transactions with non-controlling interests		-1		75

Closing balance		87,770		97,571

¹⁾	The opening balance adjustment for IFRS 15 on initial application date (January 1, 2016) was SEK -4,353 million. Opening balances of 2017 and 2018 have been restated for IFRS 15.

Consolidated income statement - isolated quarters


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net sales		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803
Cost of sales		-47,430			-34,180			-32,475			-28,553			-45,365			-36,132			-35,652			-40,302

Gross income		16,379			19,630			17,333			14,858			12,516			13,281			14,629			7,501

Gross margin (%)		25.7	%		36.5	%		34.8	%		34.2	%		21.6	%		26.9	%		29.1	%		15.7	%
Research and development expenses		-10,665			-9,388			-9,783			-9,073			-9,938			-10,519			-8,364			-9,066
Selling and administrative expenses		-7,685			-6,625			-7,053			-6,156			-8,245			-5,741			-6,818			-8,223
Impairment losses on trade receivables ¹⁾		386			-409			-369			-28			-680			-1,094			-235			-1,640

Operating expenses		-17,964			-16,422			-17,205			-15,257			-18,863			-17,354			-15,417			-18,929

Other operating income and expenses		-294			31			11			84			-12,926	²⁾		415			239			141
Shares in earnings of JV and associated companies		27			2			26			3			-5			6			12			11

Operating income (loss)		-1,852			3,241			165			-312			-19,278			-3,652			-537			-11,276

Financial income		-294			-225			275			-72			-124			-139			-27			-82
Financial expenses		-421			-414			-1,085			-469			-394			-182			83			-350

Income after financial items		-2,567			2,602			-645			-853			-19,796			-3,973			-481			-11,708

Taxes		-3,930			146			-1,157			128			1,303			516			24			1,682

Net income (loss)		-6,497			2,748			-1,802			-725			-18,493			-3,457			-457			-10,026

Net income (loss) attributable to:
Stockholders of the Parent Company		-6,553			2,745			-1,885			-837			-18,476			-3,561			-471			-10,068
Non-controlling interests		56			3			83			112			-17			104			14			42
Other information
Average number of shares, basic (million)		3,296			3,293			3,290			3,286			3,283			3,279			3,275			3,272
Earnings (loss) per share, basic (SEK) ³⁾		-1.99			0.84			-0.58			-0.25			-5.63			-1.09			-0.14			-3.08
Earnings (loss) per share, diluted (SEK) ⁴⁾		-1.99			0.83			-0.58			-0.25			-5.63			-1.09			-0.14			-3.08

¹⁾	Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.

²⁾	Includes write-down of goodwill of SEK -13.0 billion.

³⁾	Based on net income (loss) attributable to stockholders of the Parent Company.

⁴⁾	Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.



27 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Consolidated statement of cash flows - isolated quarters


	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Operating activities
Net income (loss)		-6,497		2,748		-1,802		-725		-18,493		-3,457		-457		-10,026
Adjustments to reconcile net income to cash
Taxes		3,590		-2,101		-1,071		-2,315		-1,803		-1,323		-1,826		-4,112
Earnings/dividends in JV and associated companies		-36		28		-19		4		-2		73		-8		-7
Depreciation, amortization and impairment losses		2,469		1,893		2,065		1,891		16,118		4,146		2,197		5,431
Other		376		348		568		140		179		-218		-48		527

Net income reconciled to cash		-98		2,916		-259		-1,005		-4,001		-779		-142		-8,187

Changes in operating net assets
Inventories		1,689		-1,773		-1,910		-2,813		8,356		1,061		-1,492		-3,206
Customer finance, current and non-current		-863		1,001		547		400		36		456		1,140		-834
Trade receivables and contract assets		-7,521		-3,503		1,661		7,316		-2,246		623		184		2,818
Trade payables		829		953		1,252		-598		2,565		-1,061		19		363
Provisions and post-employment benefits		7,330		-265		478		-847		412		-608		315		4,636
Contract liabilities		-1,112		-220		-233		757		2,700		-1,910		-573		4,807
Other operating assets and liabilities, net		4,033		2,931		-94		-1,637		3,337		2,200		550		-1,938

		4,385		-876		1,701		2,578		15,160		761		143		6,646

Cash flow from operating activities		4,287		2,040		1,442		1,573		11,159		-18		1		-1,541

Investing activities
Investments in property, plant and equipment		-1,080		-1,088		-951		-856		-1,105		-739		-1,018		-1,015
Sales of property, plant and equipment		57		102		52		123		898		12		37		69
Acquisitions/divestments of subsidiaries and other operations, net		20		-425		-431		-449		-107		371		9		3
Product development		-195		-151		-325		-254		-138		-126		-315		-865
Other investing activities		-96		-190		-398		161		-573		42		-42		110
Interest-bearing securities		-910		30		3,656		-534		-2,772		3,756		-676		-11,886

Cash flow from investing activities		-2,204		-1,722		1,603		-1,809		-3,797		3,316		-2,005		-13,584

Cash flow before financing activities		2,083		318		3,045		-236		7,362		3,298		-2,004		-15,125

Financing activities
Dividends paid		-134		-2		-3,289		—		-1		-145		-3,274		-4
Other financing activities		-429		254		-383		-94		2,073		1,563		-5,636		10,902

Cash flow from financing activities		-563		252		-3,672		-94		2,072		1,418		-8,910		10,898

Effect of exchange rate changes on cash		811		-1,562		980		1,143		240		48		-594		215
Net change in cash and cash equivalents		2,331		-992		353		813		9,674		4,764		-11,508		-4,012

Cash and cash equivalents, beginning of period		36,058		37,050		36,697		35,884		26,210		21,446		32,954		36,966

Cash and cash equivalents, end of period		38,389		36,058		37,050		36,697		35,884		26,210		21,446		32,954



28 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Parent Company income statement


	Oct-Dec				Jan-Dec
SEK million	2018		2017		2018		2017
Net sales		—		—		—		—
Cost of sales		—		—		—		—
Gross income		—		—		—		—
Operating expenses		-301		-434		-1,686		-1,294
Other operating income and expenses		958		-131		2,111		1,616

Operating income		657		-565		425		322

Financial net		1,853		-4,050		5,340		-2,297

Income after financial items		2,510		-4,615		5,765		-1,975

Transfers to (-) / from untaxed reserves		-1,535		-120		-1,535		-120
Taxes		220		95		-36		-53

Net income (loss)		1,195		-4,640		4,194		-2,148

Parent company statement of comprehensive income (loss)


	Oct-Dec				Jan-Dec
SEK million	2018		2017		2018		2017
Net income (loss)		1,195		-4,640		4,194		-2,148
Revaluation of borrowings due to change in credit risk		-251		—		91		—
Tax on items that will not be reclassified to profit or loss		56		—		-19		—
Available-for-sale financial assets
Gains/losses arising during the period		—		-10		—		68
Reclassification adjustments on gains/losses included in profit or loss		—		—		—		5
Revaluation of other investments in shares and participations
Fair value remeasurement		—		102		—		102
Tax on items that may be reclassified to profit or loss		—		4		—		-14

Total other comprehensive income, net of tax		-195		96		72		161

Total comprehensive income (loss)		1,000		-4,544		4,266		-1,987



29 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Parent company balance sheet


	Dec 31		Dec 31
SEK million	2018		2017
ASSETS
Fixed assets
Intangible assets		139		329
Tangible assets		259		346
Financial assets ¹⁾²⁾		109,177		119,896

		109,575		120,571

Current assets
Inventories		—		1
Receivables ²⁾		38,760		41,173
Short-term investments		6,268		6,446
Cash and cash equivalents		27,850		18,715

		72,878		66,335

Total assets		182,453		186,906

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES
Equity
Restricted equity		48,164		48,164
Non-restricted equity ²⁾		40,752		39,578

		88,916		87,742

Provisions		86		602
Non-current liabilities ²⁾		62,581		60,623
Current liabilities		30,870		37,939

Total stockholders’ equity, provisions and liabilities		182,453		186,906

¹⁾Of which interest-bearing securities, non-current		23,982		25,105

²⁾The following 2018 opening balances have been adjusted due to IFRS 9: financial assets increased by SEK 8 million, receivables decreased by SEK -4 million, non-restricted equity decreased by SEK -28 million, and non-current liabilities increased by SEK 31 million.



30 Ericsson \| Fourth Quarter and Full-Year Report 2018		Financial statements

Additional information

Accounting policies

The group

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2017 and should be read in conjunction with that annual report, with exception for the accounting policies described below.

New standards as from January 1, 2018

Two new IFRS standards are effective as from January 1, 2018, IFRS 9 “Financial instruments” and IFRS 15 “Revenue from Customer Contracts”.

Presentation in the financial statements

For IFRS 15 the Company has adopted the full retrospective method for transition, which mean that prior year comparatives have been restated and equity has been adjusted at the initial application date (January 1, 2016). The Company has applied IFRS 9 retrospectively on the required effective date, January 1, 2018. The 2018 opening balances have been adjusted, but the previous periods have not been restated.

Based on the new requirements under IFRS 15, contract assets and contract liabilities have been added as new lines in the consolidated balance sheet and statement of cash flow. Previously, contract assets were reported as trade receivables and contract liabilities were reported as deferred revenue and as advances from customers within other current liabilities. Due to IFRS 9, impairment losses on trade receivables are reported on a separate line in the consolidated income statement. Previously, these losses have been reported as Selling and administrative expenses. In the statement of comprehensive income, a new line has been added for revaluation of borrowings due to changes in credit risk. A new line has been added to the consolidated statement of equity showing the adjustment to the opening balance.

The prior periods financial statements and key ratios presented in this quarterly report have been restated to reflect adoption of these new standards.

Accounting policy - IFRS 9 “Financial instruments”

Financial assets

The Company classifies its financial assets in the following categories: at amortized cost, at fair value through other comprehensive income (FVOCI), and at fair value through profit or loss (FVTPL). The classification depends on the characteristics of the asset and the business model in which it is held.

Financial assets at amortized cost

Financial assets are classified as amortized cost if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is to hold financial assets in order to collect contractual cash flows. These assets are subsequently measured at amortized cost using the effective interest method, minus impairment allowances.

Financial assets at fair value through other comprehensive income (FVOCI)

Assets are classified as FVOCI if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. These assets are subsequently measured at fair value with changes in fair value recognized in other comprehensive income (OCI), except for effective interest, impairment gains and losses and foreign exchange gains and losses recognized in the income statement. Upon derecognition, the cumulative gain or loss in OCI is reclassified to the income statement.

Financial assets at fair value through profit or loss (FVTPL)

All financial assets that are not classified as either amortized cost or FVOCI are classified as FVTPL. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the near term. Derivatives are classified as held for trading, unless they are designated as hedging instruments for the purpose of hedge accounting. Assets held for trading are classified as current assets. Debt instruments classified as FVTPL, but not held for trading, are classified on the balance sheet based on their maturity date (i.e. those with a maturity longer than one year are classified as non-current). Investments in shares and participations are classified as FVTPL and classified as non-current financial assets.

Gains or losses arising from changes in the fair values of the “Financial assets at fair value through profit or loss” category (excluding derivatives and customer financing) are presented in the income statement within Financial income in the period in which they arise. Gains and losses on derivatives are presented in the income statement either as Cost of sales, Other operating income, Financial income or Financial expense, depending on the intent with the transaction. Gains and losses on customer financing are presented in the income statement as Selling expenses.

Impairment in relation to financial assets

At each balance sheet date, financial assets classified as either amortized cost or FVOCI and contract assets are assessed for impairment based on Expected Credit Losses (ECL). Allowances for trade receivables and contract assets are always equal to lifetime ECL. The loss is recognized in the income statement. When there is no reasonable expectation of collection, the asset is written off.

Borrowings

Borrowings by the Parent Company are designated FVTPL because they are managed and evaluated on a fair value basis. Changes in fair value are recognized in the income statement, except for changes in fair value due to change in credit risk which are recognized in Other comprehensive income.



31 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Summary of changes to classification of financial assets and financial liabilities


Type of asset	IAS 39 classification	IFRS 9 classification	Reason for IFRS 9 classification
Cash equivalents, interest-bearing securities, and derivatives (held for trading)	FVTPL	FVTPL	Held for trading portfolios are classified as FVTPL (no change).

Cash equivalents (not held for trading)	Loans and receivables	Amortized cost	These assets are held to collect contractual cash flows.

Interest-bearing securities (not held for trading)	Available-for-sale	FVTPL	These assets are not held for trading but are managed and evaluated on a fair value basis.

Trade receivables	Loans and receivables	FVOCI	Trade receivables are managed in a business model whose objective is achieved through both collection of contractual cash flows and selling of assets.

Customer financing	Loans and receivables	FVTPL	Customer finance assets are managed in a business model with the objective to realize cash flows through the sale of assets.

Investments in shares and participations (equity instruments)	Available-for-sale	FVTPL	This is an accounting policy choice under IFRS 9.

Borrowings by parent company	Amortized cost	Designated FVTPL	These borrowings are managed and evaluated on a fair value basis.

Fair value hedging and fair value hedge accounting

Fair value hedge accounting is no longer applied as of January 1, 2018.

Financial guarantees

Financial guarantee contracts are initially recognized at fair value (i.e., usually the fee received). Subsequently, these contracts are measured at the higher of:

•

The expected credit losses.

•

The recognized contractual fee less cumulative amortization when amortized over the guarantee period, using the straight-line-method.

Accounting policy - IFRS 15 “Revenue from Contracts with Customers”

IFRS 15, “Revenue from Contracts with Customers” establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer.

The following paragraphs describes the types of contracts, when performance obligations are satisfied, and the timing of revenue recognition. They also describe the normal payment terms associated with such contracts and the resulting impact on the balance sheet over the duration of the contracts. The vast majority of Ericsson’s business is for the sale of standard products and services.

Standard products and services

Products and services are classified as standard solutions if they do not require significant installation and integration services to be delivered. Installation and integration services are generally completed within a short period of time, from the delivery of the related products. These products and services are viewed as separate distinct performance obligations. This type of customer contract is usually signed as a frame agreement and the customer issues individual purchase orders to commit to purchases of products and services over the duration of the agreement.

Revenue for standard products shall be recognized when control over the equipment is transferred to the customer at a point in time. This assessment shall be viewed from a customer’s perspective considering indicators such as transfer of titles and risks, customer acceptance, physical possession, and billing rights. For hardware sales, transfer of control is usually deemed to occur when the equipment arrives at the customer site and for software sales, when the licenses are made available to the customer. Contractual terms may vary, therefore judgment will be applied when assessing the indicators of transfer of control. Revenue for installation and integration services is recognized upon completion of the service.

Transaction prices under these contracts are mostly billed upon delivery of the hardware or software, and completion of installation services, although a proportion may be billed upon formal acceptance of the related installation services. This will result in a contract asset for the proportion of the transaction price that is not yet billed.

Revenue for recurring services such as customer support and managed services is recognized as the services are delivered, generally pro-rata over time. Transaction prices under these contracts are billed over time, often on a quarterly basis. Contract liabilities or receivables may arise depending on whether the quarterly billing is in advance or in arrears.

Contract for standard products and services applies to business in all segments.

Customized solution

Some products and services are sold together as part of a customized solution to the customer. This type of contract requires significant installation and integration services to be delivered within the solution, normally over a period of more than 1 year. These products and services are viewed together as a combined performance obligation. This type of contract is usually sold as a firm contract in which the scope of the solution and obligations of both parties are clearly defined for the duration of the contract.



32 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Revenue for the combined performance obligation shall be recognized over time if progress of completion can be reliably measured and enforceable right to payment exists over the duration of the contract. The progress of completion is estimated by reference to the output delivered such as achievement of contract milestones and customer acceptance. This method is considered appropriate as it reflects the nature of the customized solution and how integration service is delivered in these projects. Formal acceptance term is considered a key indicator of transfer of control for a customized solution and shall therefore be obtained prior to recognizing revenue. If the criteria above are not met, then all revenue shall be recognized upon the completion of the customized solution, when final acceptance is provided by the customer.

Transaction price under these contracts are represented by progress payments or billing milestones as defined in the contracts. In most cases, revenue recognized is limited to the progress payments or unconditional billing milestones over the duration of the contract, therefore no contract asset or contract liability arises on these contracts. In some contracts, revenue may be recognized in advance of billing milestones if enforceable payment rights exist at all times over the contract duration. This will result in a contract asset balance until billing milestones are reached.

Contract for customized solution applies to the Business Support Systems (BSS) business within the segment Digital Services and the Media Solutions business within the segment Emerging Business and Other.

Intellectual Property Rights (IPR)

This type of contract relates to the patent and licensing business. The Company has assessed that the nature of its IPR contracts is such that they provide customers a license with the right to access Ericsson intellectual properties over time, therefore revenue shall be recognized over the duration of the contract. Royalty revenue based on sales or usage is recognized when the sales and usage occurs.

The transaction price on these contracts is usually structured as a royalty fee based on sales or usage over the period, measured on a quarterly basis. This results in a receivable balance if the billing is performed the following quarter after measurement. Some contracts include lump sum amounts, payable either up front at commencement or on an annual basis. This results in a contract liability balance if payment is in advance of revenue, as revenue is recognized over time.

As described in Note C3 “Segment Information” of the Annual Report 2017, revenue from IPR licensing contracts are allocated to the segments Networks and Digital Services.

Impact of IFRS 9 and IFRS 15 on balance sheet items


	As reported at 31.12 2017		IFRS 15 restatement		Restated balance at 31.12.2017		IFRS 9 adjustment		Adjusted balance at 1.1.2018
ASSETS
Non-current assets
Deferred tax assets		21,228		735		21,963		288		22,251
Current assets
Inventories		24,960		587		25,547		—		25,547
Contract assets		—		13,120		13,120		—		13,120
Trade receivables		63,210		-15,105		48,105		-1,240		46,865
EQUITY AND LIABILITIES
Equity
Stockholder’s equity		99,540		-2,605		96,935		-983		95,952
Non-current liabilities
Borrowings, non-current		30,500		—		30,500		31		30,531
Current liabilities
Provisions		6,350		-67		6,283		—		6,283
Contract liabilities		—		29,076		29,076		—		29,076
Other current liabilities		62,370		-27,065		35,305		—		35,305

IFRS 16 - Leases

In January 2016, IASB issued a new lease standard, IFRS 16, that will replace IAS 17 Leases and the related interpretations IFRIC 4, SIC-15 and SIC-27. The definition of a lease is amended which impacts the accounting both from a lessee and lessor perspective. The new standard includes more specific guidance on if and when leasing is embedded in a service contract.

Accounting for lessees

The standard requires assets and liabilities arising from all leases, with some exceptions, to be recognized on the balance sheet. This model reflects that, at the start of a lease, the lessee always obtains the right to use an asset for a period of time and has an obligation to

pay for that right. The main types of assets leased by the Company are, in the order of materiality, real estate, IT-equipment and vehicles. Vehicles are mainly used under service contracts.

Accounting for lessors

The accounting for lessors will be based on the same classification as of an operating or finance lease under IAS 17. This means that if the Company, as a lessor, substantially retains the ownership rights and obligations of the asset, then the lease is classified as an operating lease. On the contrary, the lease is classified as a finance lease if the ownership rights and obligations of the asset are transferred to the lessee.



33 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Impact at transition

The standard is effective for annual periods beginning on or after January 1, 2019. The Company will apply the new standard as from January 1, 2019. At transition, the Company will apply the practical expedient under IFRS 16 to not reassess whether a contract is, or contains, a lease. Therefore, the Company will apply the standard to contracts previously identified as leases, or as containing a lease under IAS 17 and IFRIC 4.

The Company will elect to implement the standard using the cumulative catch-up method, with the cumulative effect being adjusted to the opening retained earnings balance at transition date. There will be no restated information presented for previous years.

At transition, the Company, as a lessee, will recognize lease liabilities for leases previously classified as operating leases. The weighted average incremental borrowing rate to be applied to lease liabilities recognized in the balance sheet at the transition date is estimated to 5.4%. Right-of-use assets will for most contracts be recognized based on the amount equal to the related lease liability. For some larger real estate contracts right-of-use assets are recognized as if IFRS 16 had been applied since the commencement date, however, using the incremental borrowing rate as per the effective date. The asset value for these contracts is estimated to be SEK 0.3 billion lower than the related liabilities. It is this difference that causes the reduction of equity as per transition date.

The Company will also apply the following practical expedients when applying IFRS 16 at transition date:

•

The IAS 37 onerous lease contract measurement for the operating leases existing as per the effective date. This expedient will be applied as a substitute for the measurement of impairment for the related right-of-use as assets. Impairment testing will be applied going-forward.

•

Exclusion of initial direct costs from the measurement of the right-to-use asset at the date of initial recognition.

The Company does not expect material impact on lessor accounting at transition.

A new classification in the income statement will be made. Under IFRS 16, as a lessee, the finance cost is reported under finance costs while under operating leases they were embedded in the lease expenses, either as costs of sales or operating expenses.

The timing of the cash flows will not be impacted. The reported amortization of lease liabilities will, however, be reported as from effective date as financing cash flows and not operating cash flows as prior to 2019. The impact of this reclassification is in 2019 estimated to be SEK 2.0 billion.

Estimated opening balance sheet impact of IFRS 16 (discounted)


SEK billion	IFRS 16 adjustment
Right of use assets		9.1
Impairment provision reclassification		0.8
Lease liabilities current		-2.2
Lease liabilities non-current		-8.3
Equity		0.3
Other reclassification of balance sheet accounts due to IFRS 16		0.3

The estimated increase of right-of-use assets is SEK 9.1 billion presented in PP&E. This will increase the total asset value by 3%.

The previous impairment provisions for real estate have been reclassified as right-of-use asset allowances. There is no impact on the income statement.

Segment reporting

Changes applied in Q1 2018

As of Q1 2018, sales related to 3PP routing business are reported in Networks (earlier Digital Services). Comparative periods have been restated to reflect this change. In Q1 2018, these sales were SEK 151 (160) million.

Changes applied in Q2 2018

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solution (BSS) was moved between segments Managed Services and Digital Services, with increased sales in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b (positive for Managed Services, negative for Digital Services). Historical data has been restated to reflect the organizational change.



34 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Net sales by segment by quarter


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		41,641			35,934			32,393			28,602			37,077			31,871			31,699			31,638
Of which Products		29,803			25,336			22,319			19,473			25,404			21,734			21,281			21,858
Of which Services		11,838			10,598			10,074			9,129			11,673			10,137			10,418			9,780
Digital Services		13,007			8,987			8,833			7,262			11,820			8,930			9,901			8,101
Of which Products		7,462			4,582			4,467			3,947			6,452			4,859			5,370			4,327
Of which Services		5,545			4,405			4,366			3,315			5,368			4,071			4,531			3,774
Managed Services		6,881			6,465			6,528			5,896			6,898			6,618			6,673			6,283
Emerging Business and Other		2,280			2,424			2,054			1,651			2,086			1,994			2,008			1,781

Total		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803


	2018												2017
Sequential change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		16	%		11	%		13	%		-23	%		16	%		1	%		0	%		—
Of which Products		18	%		14	%		15	%		-23	%		17	%		2	%		-3	%		—
Of which Services		12	%		5	%		10	%		-22	%		15	%		-3	%		7	%		—
Digital Services		45	%		2	%		22	%		-39	%		32	%		-10	%		22	%		—
Of which Products		63	%		3	%		13	%		-39	%		33	%		-10	%		24	%		—
Of which Services		26	%		1	%		32	%		-38	%		32	%		-10	%		20	%		—
Managed Services		6	%		-1	%		11	%		-15	%		4	%		-1	%		6	%		—
Emerging Business and Other		-6	%		18	%		24	%		-21	%		5	%		-1	%		13	%		—

Total		19	%		8	%		15	%		-25	%		17	%		-2	%		5	%		—


	2018												2017
Year over year change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		12	%		13	%		2	%		-10	%		—			—			—			—
Of which Products		17	%		17	%		5	%		-11	%		—			—			—			—
Of which Services		1	%		5	%		-3	%		-7	%		—			—			—			—
Digital Services		10	%		1	%		-11	%		-10	%		—			—			—			—
Of which Products		16	%		-6	%		-17	%		-9	%		—			—			—			—
Of which Services		3	%		8	%		-4	%		-12	%		—			—			—			—
Managed Services		0	%		-2	%		-2	%		-6	%		—			—			—			—
Emerging Business and Other		9	%		22	%		2	%		-7	%		—			—			—			—

Total		10	%		9	%		-1	%		-9	%		—			—			—			—


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		138,570			96,929			60,995			28,602			132,285			95,208			63,337			31,638
Of which Products		96,931			67,128			41,792			19,473			90,277			64,873			43,139			21,858
Of which Services		41,639			29,801			19,203			9,129			42,008			30,335			20,198			9,780
Digital Services		38,089			25,082			16,095			7,262			38,752			26,932			18,002			8,101
Of which Products		20,458			12,996			8,414			3,947			21,008			14,556			9,697			4,327
Of which Services		17,631			12,086			7,681			3,315			17,744			12,376			8,305			3,774
Managed Services		25,770			18,889			12,424			5,896			26,472			19,574			12,956			6,283
Emerging Business and Other		8,409			6,129			3,705			1,651			7,869			5,783			3,789			1,781

Total		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803


	2018												2017
Year over year change, percent	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		5	%		2	%		-4	%		-10	%		-6	%		—			—			—
Of which Products		7	%		3	%		-3	%		-11	%		-4	%		—			—			—
Of which Services		-1	%		-2	%		-5	%		-7	%		-8	%		—			—			—
Digital Services		-2	%		-7	%		-11	%		-10	%		-9	%		—			—			—
Of which Products		-3	%		-11	%		-13	%		-9	%		-10	%		—			—			—
Of which Services		-1	%		-2	%		-8	%		-12	%		-8	%		—			—			—
Managed Services		-3	%		-3	%		-4	%		-6	%		-8	%		—			—			—
Emerging Business and Other		7	%		6	%		-2	%		-7	%		-9	%		—			—			—

Total		3	%		0	%		-5	%		-9	%		-7	%		—			—			—



35 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Sales growth adjusted for comparable units and currency*


	2018												2017
Sequential change, percent	Q4			Q3			Q2			Q1			Q4		Q3		Q2		Q1
Networks		16	%		9	%		7	%		-22	%		—		—		—		—
Digital Services		45	%		0	%		16	%		-38	%		—		—		—		—
Managed Services		7	%		-1	%		6	%		-11	%		—		—		—		—
Emerging Business and Other		-6	%		15	%		18	%		-20	%		—		—		—		—

Total		19	%		7	%		9	%		-24	%		—		—		—		—


	2018												2017
Isolated quarter, year over year change, percent	Q4			Q3			Q2			Q1			Q4		Q3		Q2		Q1
Networks		6	%		5	%		2	%		-2	%		—		—		—		—
Digital Services		5	%		-6	%		-12	%		-3	%		—		—		—		—
Managed Services		-5	%		-8	%		-3	%		-4	%		—		—		—		—
Emerging Business and Other		1	%		11	%		1	%		-2	%		—		—		—		—

Total		4	%		1	%		-1	%		-2	%		—		—		—		—


	2018												2017
Year to date, year over year change, percent	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Networks		3	%		2	%		0	%		-2	%		—		—		—		—
Digital Services		-4	%		-7	%		-8	%		-3	%		—		—		—		—
Managed Services		-5	%		-5	%		-3	%		-4	%		—		—		—		—
Emerging Business and Other		3	%		3	%		-1	%		-2	%		—		—		—		—

Total		1	%		-1	%		-2	%		-2	%		—		—		—		—

*	Sales growth adjusted for comparable units and currency has not been restated for 2017.

Gross income (loss) and gross margin by segment by quarter


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		16,626			14,835			12,565			11,127			11,849			10,654			10,894			10,031
Digital Services		-1,240			3,208			3,458			2,892			1,113			2,620			3,289			-2,324
Managed Services		781			805			809			491			-691			-360			19			-542
Emerging Business and Other		212			782			501			348			245			367			427			336

Total		16,379			19,630			17,333			14,858			12,516			13,281			14,629			7,501


	2018												2017
Isolated quarters, As percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		39.9	%		41.3	%		38.8	%		38.9	%		32.0	%		33.4	%		34.4	%		31.7	%
Digital Services		-9.5	%		35.7	%		39.1	%		39.8	%		9.4	%		29.3	%		33.2	%		-28.7	%
Managed Services		11.4	%		12.5	%		12.4	%		8.3	%		-10.0	%		-5.4	%		0.3	%		-8.6	%
Emerging Business and Other		9.3	%		32.3	%		24.4	%		21.1	%		11.7	%		18.4	%		21.3	%		18.9	%

Total		25.7	%		36.5	%		34.8	%		34.2	%		21.6	%		26.9	%		29.1	%		15.7	%


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		55,153			38,527			23,692			11,127			43,428			31,579			20,925			10,031
Digital Services		8,318			9,558			6,350			2,892			4,698			3,585			965			-2,324
Managed Services		2,886			2,105			1,300			491			-1,574			-883			-523			-542
Emerging Business and Other		1,843			1,631			849			348			1,375			1,130			763			336

Total		68,200			51,821			32,191			14,858			47,927			35,411			22,130			7,501


	2018												2017
Year to date, As percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		39.8	%		39.7	%		38.8	%		38.9	%		32.8	%		33.2	%		33.0	%		31.7	%
Digital Services		21.8	%		38.1	%		39.5	%		39.8	%		12.1	%		13.3	%		5.4	%		-28.7	%
Managed Services		11.2	%		11.1	%		10.5	%		8.3	%		-5.9	%		-4.5	%		-4.0	%		-8.6	%
Emerging Business and Other		21.9	%		26.6	%		22.9	%		21.1	%		17.5	%		19.5	%		20.1	%		18.9	%

Total		32.3	%		35.2	%		34.5	%		34.2	%		23.3	%		24.0	%		22.6	%		15.7	%



36 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Operating income (loss) and operating margin by segment by quarter


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		6,850			5,656			3,544			3,371			1,945			2,375			3,424			2,711
Digital Services		-7,087			-1,784			-2,374			-2,607			-12,271			-3,770			-2,237			-9,004
Managed Services		285			409			299			100			-1,275			-727			-258			-1,829
Emerging Business and Other		-1,900			-1,040			-1,304			-1,176			-7,677			-1,530			-1,466			-3,154

Total		-1,852			3,241			165			-312			-19,278			-3,652			-537			-11,276


	2018												2017
Isolated quarters, As percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		16.5	%		15.7	%		10.9	%		11.8	%		5.2	%		7.5	%		10.8	%		8.6	%
Digital Services		-54.5	%		-19.9	%		-26.9	%		-35.9	%		-103.8	%		-42.2	%		-22.6	%		-111.1	%
Managed Services		4.1	%		6.3	%		4.6	%		1.7	%		-18.5	%		-11.0	%		-3.9	%		-29.1	%
Emerging Business and Other		-83.3	%		-42.9	%		-63.5	%		-71.2	%		-368.0	%		-76.7	%		-73.0	%		-177.1	%

Total		-2.9	%		6.0	%		0.3	%		-0.7	%		-33.3	%		-7.4	%		-1.1	%		-23.6	%


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		19,421			12,571			6,915			3,371			10,455			8,510			6,135			2,711
Digital Services		-13,852			-6,765			-4,981			-2,607			-27,282			-15,011			-11,241			-9,004
Managed Services		1,093			808			399			100			-4,089			-2,814			-2,087			-1,829
Emerging Business and Other		-5,420			-3,520			-2,480			-1,176			-13,827			-6,150			-4,620			-3,154

Total		1,242			3,094			-147			-312			-34,743			-15,465			-11,813			-11,276


	2018												2017
Year to date As percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		14.0	%		13.0	%		11.3	%		11.8	%		7.9	%		8.9	%		9.7	%		8.6	%
Digital Services		-36.4	%		-27.0	%		-30.9	%		-35.9	%		-70.4	%		-55.7	%		-62.4	%		-111.1	%
Managed Services		4.2	%		4.3	%		3.2	%		1.7	%		-15.4	%		-14.4	%		-16.1	%		-29.1	%
Emerging Business and Other		-64.5	%		-57.4	%		-66.9	%		-71.2	%		-175.7	%		-106.3	%		-121.9	%		-177.1	%

Total		0.6	%		2.1	%		-0.2	%		-0.7	%		-16.9	%		-10.5	%		-12.0	%		-23.6	%



37 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

EBITA and EBITA margin by segment by quarter


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		6,916			5,722			3,618			3,461			2,032			2,460			3,509			2,892
Digital Services		-6,911			-1,608			-2,204			-2,443			-4,890			-3,577			-2,034			-8,246
Managed Services		288			411			303			105			-1,268			-726			-259			-1,825
Emerging Business and Other		-1,524			-940			-1,202			-1,088			-1,199			-1,430			-1,308			-2,222

Total		-1,231			3,585			515			35			-5,325			-3,273			-92			-9,401


	2018												2017
Isolated quarters As percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		16.6	%		15.9	%		11.2	%		12.1	%		5.5	%		7.7	%		11.1	%		9.1	%
Digital Services		-53.1	%		-17.9	%		-25.0	%		-33.6	%		-41.4	%		-40.1	%		-20.5	%		-101.8	%
Managed Services		4.2	%		6.4	%		4.6	%		1.8	%		-18.4	%		-11.0	%		-3.9	%		-29.0	%
Emerging Business and Other		-66.8	%		-38.8	%		-58.5	%		-65.9	%		-57.5	%		-71.7	%		-65.1	%		-124.8	%

Total		-1.9	%		6.7	%		1.0	%		0.1	%		-9.2	%		-6.6	%		-0.2	%		-19.7	%


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		19,717			12,801			7,079			3,461			10,893			8,861			6,401			2,892
Digital Services		-13,166			-6,255			-4,647			-2,443			-18,747			-13,857			-10,280			-8,246
Managed Services		1,107			819			408			105			-4,078			-2,810			-2,084			-1,825
Emerging Business and Other		-4,754			-3,230			-2,290			-1,088			-6,159			-4,960			-3,530			-2,222

Total		2,904			4,135			550			35			-18,091			-12,766			-9,493			-9,401


	2018												2017
Year to date As a percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		14.2	%		13.2	%		11.6	%		12.1	%		8.2	%		9.3	%		10.1	%		9.1	%
Digital Services		-34.6	%		-24.9	%		-28.9	%		-33.6	%		-48.4	%		-51.5	%		-57.1	%		-101.8	%
Managed Services		4.3	%		4.3	%		3.3	%		1.8	%		-15.4	%		-14.4	%		-16.1	%		-29.0	%
Emerging Business and Other		-56.5	%		-52.7	%		-61.8	%		-65.9	%		-78.3	%		-85.8	%		-93.2	%		-124.8	%

Total		1.4	%		2.8	%		0.6	%		0.1	%		-8.8	%		-8.7	%		-9.7	%		-19.7	%



38 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Net sales by market area by quarter


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
South East Asia, Oceania and India		8,244			7,985			6,981			6,379			7,844			7,858			7,234			8,410
North East Asia		8,387			5,773			4,764			3,385			6,465			5,653			5,901			5,564
North America		17,999			14,933			14,337			11,317			14,685			12,319			12,970			12,027
Europe and Latin America ¹⁾²⁾		18,221			14,816			14,174			13,061			16,939			13,430			14,231			12,201
Middle East and Africa		6,516			5,722			5,626			5,765			7,581			6,297			5,731			5,356
Other ¹⁾²⁾		4,442			4,581			3,926			3,504			4,367			3,856			4,214			4,245

Total		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803

¹⁾Of which in Sweden		375			429			596			915			872			660			785			1,017
²⁾Of which in EU		10,319			8,481			8,619			8,522			10,822			8,635			8,687			8,328

	2018												2017
Sequential change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
South East Asia, Oceania and India		3	%		14	%		9	%		-19	%		0	%		9	%		-14	%		—
North East Asia		45	%		21	%		41	%		-48	%		14	%		-4	%		6	%		—
North America		21	%		4	%		27	%		-23	%		19	%		-5	%		8	%		—
Europe and Latin America ¹⁾²⁾		23	%		5	%		9	%		-23	%		26	%		-6	%		17	%		—
Middle East and Africa		14	%		2	%		-2	%		-24	%		20	%		10	%		7	%		—
Other ¹⁾²⁾		-3	%		17	%		12	%		-20	%		13	%		-8	%		-1	%		—

Total		19	%		8	%		15	%		-25	%		17	%		-2	%		5	%		—

¹⁾Of which in Sweden		-13	%		-28	%		-35	%		5	%		32	%		-16	%		-23	%		—
²⁾Of which in EU		22	%		-2	%		1	%		-21	%		25	%		-1	%		4	%		—

	2018												2017
Year-over-year change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
South East Asia, Oceania and India		5	%		2	%		-3	%		-24	%		—			—			—			—
North East Asia		30	%		2	%		-19	%		-39	%		—			—			—			—
North America		23	%		21	%		11	%		-6	%		—			—			—			—
Europe and Latin America ¹⁾²⁾		8	%		10	%		0	%		7	%		—			—			—			—
Middle East and Africa		-14	%		-9	%		-2	%		8	%		—			—			—			—
Other ¹⁾²⁾		2	%		19	%		-7	%		-17	%		—			—			—			—

Total		10	%		9	%		-1	%		-9	%		—			—			—			—

¹⁾Of which in Sweden		-57	%		-35	%		-24	%		-10	%		—			—			—			—
²⁾Of which in EU		-5	%		-2	%		-1	%		2	%		—			—			—			—

	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
South East Asia, Oceania and India		29,589			21,345			13,360			6,379			31,346			23,502			15,644			8,410
North East Asia		22,309			13,922			8,149			3,385			23,583			17,118			11,465			5,564
North America		58,586			40,587			25,654			11,317			52,001			37,316			24,997			12,027
Europe and Latin America ¹⁾²⁾		60,272			42,051			27,235			13,061			56,801			39,862			26,432			12,201
Middle East and Africa		23,629			17,113			11,391			5,765			24,965			17,384			11,087			5,356
Other ¹⁾²⁾		16,453			12,011			7,430			3,504			16,682			12,315			8,459			4,245

Total		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803

¹⁾Of which in Sweden		2,315			1,940			1,511			915			3,334			2,462			1,802			1,017
²⁾Of which in EU		35,941			25,622			17,141			8,522			36,472			25,650			17,015			8,328

	2018												2017
Year to date, year-over-year change, percent	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
South East Asia, Oceania and India		-6	%		-9	%		-15	%		-24	%		0	%		—			—			—
North East Asia		-5	%		-19	%		-29	%		-39	%		-13	%		—			—			—
North America		13	%		9	%		3	%		-6	%		1	%		—			—			—
Europe and Latin America ¹⁾²⁾		6	%		5	%		3	%		7	%		-9	%		—			—			—
Middle East and Africa		-5	%		-2	%		3	%		8	%		-9	%		—			—			—
Other ¹⁾²⁾		-1	%		-2	%		-12	%		-17	%		-18	%		—			—			—

Total		3	%		0	%		-5	%		-9	%		-7	%		—			—			—

¹⁾Of which in Sweden		-31	%		-21	%		-16	%		-10	%		-1	%		—			—			—
²⁾Of which in EU		-1	%		0	%		1	%		2	%		-6	%		—			—			—



39 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Top 5 countries in sales


	Q4						Jan-Dec
Country Percentage of Net sales	2018			2017			2018			2017
United States		30	%		26	%		29	%		27	%
China		9	%		7	%		7	%		7	%
India		3	%		4	%		4	%		5	%
Australia		3	%		3	%		4	%		3	%
Japan		4	%		4	%		3	%		4	%

Net sales by market area by segment


	Q4 2018															Jan-Dec 2018
SEK million	Networks			Digital Services			Managed Services			Emerging Business and Other			Total			Networks			Digital Services			Managed Services			Emerging Business and Other			Total
South East Asia, Oceania and India		6,097			1,250			870			27			8,244			21,337			4,824			3,388			40			29,589
North East Asia		5,495			2,491			383			18			8,387			15,915			4,849			1,465			80			22,309
North America		13,985			2,770			1,220			24			17,999			46,452			8,358			3,680			96			58,586
Europe and Latin America		10,486			4,280			3,362			93			18,221			34,413			12,339			13,207			313			60,272
Middle East and Africa		3,638			1,829			1,046			3			6,516			13,300			6,284			4,030			15			23,629
Other		1,940			387			—			2,115			4,442			7,153			1,435			—			7,865			16,453

Total		41,641			13,007			6,881			2,280			63,809			138,570			38,089			25,770			8,409			210,838

Share of total		65	%		20	%		11	%		4	%		100	%		66	%		18	%		12	%		4	%		100	%


	Q4 2018
Sequential change, percent	Networks			Digital Services			Managed Services			Emerging Business and Other			Total
South East Asia, Oceania and India		5	%		-2	%		-1	%		800	%		3	%
North East Asia		20	%		199	%		17	%		-40	%		45	%
North America		19	%		32	%		17	%		4	%		21	%
Europe and Latin America		20	%		50	%		6	%		27	%		23	%
Middle East and Africa		16	%		19	%		0	%		—			14	%
Other		2	%		1	%		—			-8	%		-3	%

Total		16	%		45	%		6	%		-6	%		19	%


	Q4 2018															Jan-Dec 2018
Year over year change, percent	Networks			Digital Services			Managed Services			Emerging Business and Other			Total			Networks			Digital Services			Managed Services			Emerging Business and Other			Total
South East Asia, Oceania and India		3	%		-3	%		35	%		440	%		5	%		-9	%		1	%		5	%		400	%		-6	%
North East Asia		28	%		57	%		-33	%		500	%		30	%		-2	%		-11	%		-22	%		471	%		-5	%
North America		18	%		33	%		85	%		-35	%		23	%		14	%		4	%		15	%		-16	%		13	%
Europe and Latin America		18	%		8	%		-15	%		2	%		8	%		14	%		2	%		-7	%		12	%		6	%
Middle East and Africa		-13	%		-22	%		0	%		-86	%		-14	%		-6	%		-8	%		0	%		-67	%		-5	%
Other		2	%		-28	%		—			10	%		2	%		-7	%		-8	%		—			6	%		-1	%

Total		12	%		10	%		0	%		9	%		10	%		5	%		-2	%		-3	%		7	%		3	%



40 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

IPR licensing revenues by segment by quarter


	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Networks		1,759		1,755		1,486		1,522		1,731		1,640		1,670		1,724
Digital Services		387		385		326		334		380		360		366		379

Total		2,146		2,140		1,812		1,856		2,111		2,000		2,036		2,103


	2018								2017
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Networks		6,522		4,763		3,008		1,522		6,765		5,034		3,394		1,724
Digital Services		1,432		1,045		660		334		1,485		1,105		745		379

Total		7,954		5,808		3,668		1,856		8,250		6,139		4,139		2,103


Provisions

	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Opening balance		8,695		9,534		9,030		9,879		9,514		10,357		10,514		6,320
Additions		8,930		1,491		1,974		1,315		2,769		1,942		1,403		6,365
Utilization/Cash out		-1,436		-1,774		-1,486		-2,216		-2,186		-2,626		-1,324		-2,085
Of which restructuring		-656		-1,236		-832		-1,424		-1,204		-1,461		-1,075		-1,586
Reversal of excess amounts		-290		-127		-191		-117		-199		-32		-65		-66
Reclassification, translation difference and other		109		-429		207		169		-19		-127		-171		-20

Closing balance		16,008		8,695		9,534		9,030		9,879		9,514		10,357		10,514

Of which restructuring		6,438		2,960		4,029		3,524		4,043		3,458		4,003		4,059

	2018								2017
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Opening balance		9,879		9,879		9,879		9,879		6,320		6,320		6,320		6,320
Additions		13,710		4,780		3,289		1,315		12,479		9,710		7,768		6,365
Utilization/Cash out		-6,912		-5,476		-3,702		-2,216		-8,221		-6,035		-3,409		-2,085
Of which restructuring		-4,148		-3,492		-2,256		-1,424		-5,326		-4,122		-2,661		-1,586
Reversal of excess amounts		-725		-435		-308		-117		-362		-163		-131		-66
Reclassification, translation difference and other		56		-53		376		169		-337		-318		-191		-20

Closing balance		16,008		8,695		9,534		9,030		9,879		9,514		10,357		10,514

Of which restructuring		6,438		2,960		4,029		3,524		4,043		3,458		4,003		4,059



41 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Information on investments

Investments in assets subject to depreciation, amortization, impairment and write-downs


	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Additions
Property, plant and equipment		1,080		1,088		951		856		1,105		739		1,018		1,015
Capitalized development expenses		195		151		325		254		138		126		315		865
IPR, brands and other intangible assets		27		—		1		—		315		1		19		1

Total		1,302		1,239		1,277		1,100		1,558		866		1,352		1,881

Depreciation, amortization and impairment losses
Property, plant and equipment		965		870		1,080		928		1,284		2,894		1,061		1,075
Capitalized development expenses		884		678		635		616		881		874		690		2,481
Goodwill, IPR, brands and other intangible assets		620		345		350		347		13,953		378		446		1,875

Total		2,469		1,893		2,065		1,891		16,118		4,146		2,197		5,431


	2018								2017
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Additions
Property, plant and equipment		3,975		2,895		1,807		856		3,877		2,772		2,033		1,015
Capitalized development expenses		925		730		579		254		1,444		1,306		1,180		865
IPR, brands and other intangible assets		28		1		1		—		336		21		20		1

Total		4,928		3,626		2,387		1,110		5,657		4,099		3,233		1,881

Depreciation, amortization and impairment losses
Property, plant and equipment		3,843		2,878		2,008		928		6,314		5,030		2,136		1,075
Capitalized development expenses		2,813		1,929		1,251		616		4,926		4,045		3,171		2,481
Goodwill, IPR, brands and other intangible assets		1,662		1,042		697		347		16,652		2,699		2,321		1,875

Total		8,318		5,849		3,956		1,891		27,892		11,774		7,628		5,431



42 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Other information


	Oct-Dec						Jan-Dec
SEK million	2018			2017			2018			2017
Number of shares and earnings per share
Number of shares, end of period (million)		3,334			3,334			3,334			3,334
Of which class A-shares (million)		262			262			262			262
Of which class B-shares (million)		3,072			3,072			3,072			3,072
Number of treasury shares, end of period (million)		37			50			37			50
Number of shares outstanding, basic, end of period (million)		3,297			3,284			3,297			3,284
Numbers of shares outstanding, diluted, end of period (million)		3,323			3,324			3,323			3,324
Average number of treasury shares (million)		38			52			43			56
Average number of shares outstanding, basic (million)		3,296			3,283			3,291			3,277
Average number of shares outstanding, diluted (million) ¹⁾		3,322			3,322			3,318			3,317
Earnings (loss) per share, basic (SEK)		-1.99			-5.63			-1.98			-9.94
Earnings (loss) per share, diluted (SEK) ¹⁾		-1.99			-5.63			-1.98			-9.94
Earnings (loss) per share (Non-IFRS), diluted (SEK) ²⁾		-0.77			-1.09			0.27			-3.24
Ratios
Days sales outstanding		—			—			91			96
Inventory turnover days		58			59			70			66
Payable days		57			50			72			60
Alternative Performance Measures (APMs)
Equity ratio (%)		—			—			32.7	%		37.5	%
Return on equity (%)		-28.8	%		-70.7	%		-7.1	%		-28.1	%
Return on capital employed (%)		-5.6	%		-47.6	%		0.6	%		-20.6	%
Capital turnover (times)		1.7			1.4			1.4			1.2
Free cash flow		2,993			10,134			2,968			5,109
Cash conversion (%)		-4,374.5	%		-278.9	%		601.2	%		-73.2	%
Exchange rates used in the consolidation
SEK/EUR- closing rate		—			—			10.25			9.83
SEK/USD- closing rate		—			—			8.94			8.20

Other
Market area inventory, end of period		16,505			14,480			16,505			14,480
Export sales from Sweden		38,974			24,166			109,969			87,463

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

²⁾	Excluding amortizations and write-downs of acquired intangibles and restructuring charges.

Number of employees


	2018								2017
End of period	Dec 31		Sep 30		Jun 30		Mar 31		Dec 31		Sep 30		Jun 30		Mar 31
South East Asia, Oceania and India		23,959		23,607		23,516		23,623		24,495		26,396		26,748		27,221
North East Asia		12,788		12,495		12,303		12,321		12,456		12,945		12,972		12,962
North America		9,727		9,459		9,510		9,798		10,009		10,665		11,073		11,253
Europe and Latin America ¹⁾		44,621		44,695		45,743		47,528		49,231		50,832		53,173		54,194
Middle East and Africa		4,264		4,243		4,188		4,311		4,544		5,014		5,161		5,268

Total		95,359		94,499		95,260		97,581		100,735		105,852		109,127		110,898

¹⁾Of which in Sweden		12,502		12,679		13,431		13,763		13,864		14,195		14,483		14,712



43 Ericsson \| Fourth Quarter and Full-Year Report 2018		Additional information

Items excluding restructuring charges

Restructuring charges by function


	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Cost of sales		-4,054		-204		-937		-743		-2,038		-817		-927		-1,460
Research and development expenses		-251		-214		-502		-326		147		-1,896		-344		-214
Selling and administrative expenses		-106		-134		-441		-103		-534		-106		-243		-69

Total		-4,411		-552		-1,880		-1,172		-2,425		-2,819		-1,514		-1,743


	2018								2017
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Cost of sales		-5,938		-1,884		-1,680		-743		-5,242		-3,204		-2,387		-1,460
Research and development expenses		-1,293		-1,042		-828		-326		-2,307		-2,454		-558		-214
Selling and administrative expenses		-784		-678		-544		-103		-952		-418		-312		-69

Total		-8,015		-3,604		-3,052		-1,172		-8,501		-6,076		-3,257		-1,743

Restructuring charges by segment

2018

2017

Isolated quarters, SEK million

Networks

-425

-128

-749

-479

-1,260

-1,409

-816

-1,343

of which cost of sales

-439

-63

-469

-415

-1,052

-430

-512

-1,153

of which operating expenses

-65

-280

-64

-208

-979

-304

-190

Digital Services

-3,545

-358

-882

-581

-686

-1,103

-454

-270

of which cost of sales

-3,369

-111

-303

-226

-609

-241

-242

-195

of which operating expenses

-176

-247

-579

-355

-77

-862

-212

-75

Managed Services

-70

-32

-123

-51

-376

-99

-115

-85

of which cost of sales

-69

-28

-103

-48

-326

-94

-113

-83

of which operating expenses

-1

-4

-20

-3

-50

-5

-2

Emerging Business and Other

-371

-34

-126

-61

-103

-208

-129

-45

of which cost of sales

-177

-2

-62

-54

-51

-52

-60

-29

of which operating expenses

-194

-32

-64

-7

-52

-156

-69

-16

Total

-4,411

-552

-1,880

-1,172

-2,425

-2,819

-1,514

-1,743

2018

2017

Year to date, SEK million

Jan-Dec

Jan-Sep

Jan-Jun

Jan-Mar

Jan-Dec

Jan-Sep

Jan-Jun

Jan-Mar

Networks

-1,781

-1,356

-1,228

-479

-4,828

-3,568

-2,159

-1,343

of which cost of sales

-1,386

-947

-884

-415

-3,147

-2,095

-1,665

-1,153

of which operating expenses

-395

-409

-344

-64

-1,681

-1,473

-494

-190

Digital Services

-5,366

-1,821

-1,463

-581

-2,513

-1,827

-724

-270

of which cost of sales

-4,009

-640

-529

-226

-1,287

-678

-437

-195

of which operating expenses

-1,357

-1,181

-934

-355

-1,226

-1,149

-287

-75

Managed Services

-276

-206

-174

-51

-675

-299

-200

-85

of which cost of sales

-248

-179

-151

-48

-616

-290

-196

-83

of which operating expenses

-28

-27

-23

-3

-59

-9

-4

-2

Emerging Business and Other

-592

-221

-187

-61

-485

-382

-174

-45

of which cost of sales

-295

-118

-116

-54

-192

-141

-89

-29

of which operating expenses

-297

-103

-71

-7

-293

-241

-85

-16

Total

-8,015

-3,604

-3,052

-1,172

-8,501

-6,076

-3,257

-1,743



44 Ericsson \| Fourth Quarter and Full-Year Report 2018		Items excluding restructuring charges

Gross income (loss) and gross margin excluding restructuring charges by segment


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		17,065			14,898			13,034			11,542			12,901			11,084			11,406			11,184
Digital Services		2,129			3,319			3,761			3,118			1,723			2,860			3,531			-2,129
Managed Services		850			833			912			539			-365			-266			132			-459
Emerging Business and Other		389			784			563			402			295			420			488			364

Total		20,433			19,834			18,270			15,601			14,554			14,098			15,557			8,960


	2018												2017
Isolated quarters, As percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		41.0	%		41.5	%		40.2	%		40.4	%		34.8	%		34.8	%		36.0	%		35.3	%
Digital Services		16.4	%		36.9	%		42.6	%		42.9	%		14.6	%		32.0	%		35.7	%		-26.3	%
Managed Services		12.4	%		12.9	%		14.0	%		9.1	%		-5.3	%		-4.0	%		2.0	%		-7.3	%
Emerging Business and Other		17.1	%		32.3	%		27.4	%		24.3	%		14.1	%		21.1	%		24.3	%		20.4	%

Total		32.0	%		36.9	%		36.7	%		35.9	%		25.1	%		28.5	%		30.9	%		18.7	%


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		56,539			39,474			24,576			11,542			46,575			33,674			22,590			11,184
Digital Services		12,327			10,198			6,879			3,118			5,985			4,262			1,402			-2,129
Managed Services		3,134			2,284			1,451			539			-958			-593			-327			-459
Emerging Business and Other		2,138			1,749			965			402			1,567			1,272			852			364

Total		74,138			53,705			33,871			15,601			53,169			38,615			24,517			8,960


	2018												2017
Year to date, As percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		40.8	%		40.7	%		40.3	%		40.4	%		35.2	%		35.4	%		35.7	%		35.3	%
Digital Services		32.4	%		40.7	%		42.7	%		42.9	%		15.4	%		15.8	%		7.8	%		-26.3	%
Managed Services		12.2	%		12.1	%		11.7	%		9.1	%		-3.6	%		-3.0	%		-2.5	%		-7.3	%
Emerging Business and Other		25.4	%		28.5	%		26.0	%		24.3	%		19.9	%		22.0	%		22.5	%		20.4	%

Total		35.2	%		36.5	%		36.3	%		35.9	%		25.9	%		26.2	%		25.0	%		18.7	%



45 Ericsson \| Fourth Quarter and Full-Year Report 2018		Items excluding restructuring charges

Operating income (loss) and operating margin excluding restructuring charges by segment


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		7,275			5,784			4,293			3,850			3,205			3,784			4,240			4,054
Digital Services		-3,542			-1,426			-1,492			-2,026			-11,585			-2,668			-1,783			-8,734
Managed Services		355			441			422			151			-898			-628			-143			-1,744
Emerging Business and Other		-1,529			-1,006			-1,178			-1,115			-7,575			-1,321			-1,337			-3,109

Total		2,559			3,793			2,045			860			-16,853			-833			977			-9,533


	2018												2017
Isolated quarters, As percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		17.5	%		16.1	%		13.3	%		13.5	%		8.6	%		11.9	%		13.4	%		12.8	%
Digital Services		-27.2	%		-15.9	%		-16.9	%		-27.9	%		-98.0	%		-29.9	%		-18.0	%		-107.8	%
Managed Services		5.2	%		6.8	%		6.5	%		2.6	%		-13.0	%		-9.5	%		-2.1	%		-27.8	%
Emerging Business and Other		-67.1	%		-41.5	%		-57.4	%		-67.5	%		-363.1	%		-66.2	%		-66.6	%		-174.6	%

Total		4.0	%		7.0	%		4.1	%		2.0	%		-29.1	%		-1.7	%		1.9	%		-19.9	%


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		21,202			13,927			8,143			3,850			15,283			12,078			8,294			4,054
Digital Services		-8,486			-4,944			-3,518			-2,026			-24,770			-13,185			-10,517			-8,734
Managed Services		1,369			1,014			573			151			-3,413			-2,515			-1,887			-1,744
Emerging Business and Other		-4,828			-3,299			-2,293			-1,115			-13,342			-5,767			-4,446			-3,109

Total		9,257			6,698			2,905			860			-26,242			-9,389			-8,556			-9,533


	2018												2017
Year to date, As percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		15.3	%		14.4	%		13.4	%		13.5	%		11.6	%		12.7	%		13.1	%		12.8	%
Digital Services		-22.3	%		-19.7	%		-21.9	%		-27.9	%		-63.9	%		-49.0	%		-58.4	%		-107.8	%
Managed Services		5.3	%		5.4	%		4.6	%		2.6	%		-12.9	%		-12.8	%		-14.6	%		-27.8	%
Emerging Business and Other		-57.4	%		-53.8	%		-61.9	%		-67.5	%		-169.6	%		-99.7	%		-117.3	%		-174.6	%

Total		4.4	%		4.6	%		3.1	%		2.0	%		-12.8	%		-6.4	%		-8.7	%		-19.9	%



46 Ericsson \| Fourth Quarter and Full-Year Report 2018		Items excluding restructuring charges

Alternative performance measures

This section includes a reconciliation of certain Alternative Performance Measures (APMs) to the most directly reconcilable line items in the financial statements. The presentation of APMs has limitations as analytical tools and should not be considered in isolation or as a substitute for related financial measures prepared in accordance with IFRS.

APMs are presented to enhance an investor’s evaluation of ongoing operating results, to aid in forecasting future periods and to facilitate meaningful comparison of results between periods.

Management uses these APMs to, among other things, evaluate ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of certain performance-based compensation.

The APMs presented in this report may differ from similarly titled measures used by other companies.

For additional information, see Alternative Performance Measures in the Ericsson Annual Report 2017.

Sales growth adjusted for comparable units and currency

Sales growth adjusted for the impact of acquisitions and divestments as well as the effects of foreign currency fluctuations.


	2018												2017
Isolated quarter, sequential change	Q4			Q3			Q2			Q1			Q4		Q3		Q2		Q1
Reported net sales		63,809			53,810			49,808			43,411			—		—		—		—
Acquired/divested business		—			—			—			—			—		—		—		—
Net FX impact		41			-752			-2,460			423			—		—		—		—
Comparable net sales, excluding FX impact		63,850			53,058			47,348			43,834			—		—		—		—
Sales growth adjusted for comparable units and currency (%)		19	%		7	%		9	%		-24	%		—		—		—		—

	2018												2017
Isolated quarter, year over year change	Q4			Q3			Q2			Q1			Q4		Q3		Q2		Q1
Reported net sales		63,809			53,810			49,808			43,411			—		—		—		—
Acquired/divested business		—			—			—			—			—		—		—		—
Net FX impact		-3,549			-3,748			-263			3,328			—		—		—		—
Comparable net sales, excluding FX impact		60,260			50,062			49,545			46,739			—		—		—		—
Sales growth adjusted for comparable units and currency (%)		4	%		1	%		-1	%		-2	%		—		—		—		—

	2018												2017
Year to date, year over year change	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Reported net sales		210,838			147,029			93,219			43,411			—		—		—		—
Acquired/divested business		—			—			—			—			—		—		—		—
Net FX impact		-4,232			-683			3,065			3,328			—		—		—		—
Comparable net sales, excluding FX impact		206,606			146,346			96,284			46,739			—		—		—		—
Sales growth adjusted for comparable units and currency (%)		1	%		-1	%		-2	%		-2	%		—		—		—		—



47 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures

Items excluding restructuring charges

Gross income, operating expenses, and operating income (loss) are presented excluding restructuring charges and, for certain measures, as a percentage of net sales.


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Gross income		16,379			19,630			17,333			14,858			12,516			13,281			14,629			7,501
Net sales		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803
Gross margin (%)		25.7	%		36.5	%		34.8	%		34.2	%		21.6	%		26.9	%		29.1	%		15.7	%
Gross income		16,379			19,630			17,333			14,858			12,516			13,281			14,629			7,501
Restructuring charges included in cost of sales		4,054			204			937			743			2,038			817			927			1,460
Gross income, excluding restructuring charges		20,433			19,834			18,270			15,601			14,554			14,098			15,556			8,961
Net sales		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803
Gross margin, excluding restructuring charges (%)		32.0	%		36.9	%		36.7	%		35.9	%		25.1	%		28.5	%		30.9	%		18.7	%
Operating expenses		-17,964			-16,422			-17,205			-15,257			-18,863			-17,354			-15,417			-18,929
Restructuring charges included in R&D expenses		251			214			502			326			-147			1,896			344			214
Restructuring charges included in selling and administrative expenses		106			134			441			103			534			106			243			69
Operating expenses, excluding restructuring charges		-17,607			-16,074			-16,262			-14,828			-18,476			-15,352			-14,830			-18,646
Operating income (loss)		-1,852			3,241			165			-312			-19,278			-3,652			-537			-11,276
Net sales		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803
Operating margin (%)		-2.9	%		6.0	%		0.3	%		-0.7	%		-33.3	%		-7.4	%		-1.1	%		-23.6	%
Operating income (loss)		-1,852			3,241			165			-312			-19,278			-3,652			-537			-11,276
Total restructuring charges		4,411			552			1,880			1,172			2,425			2,819			1,514			1,743
Operating income (loss), excluding restructuring charges		2,559			3,793			2,045			860			-16,853			-833			977			-9,533
Net sales		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803
Operating margin, excluding restructuring charges (%)		4.0	%		7.0	%		4.1	%		2.0	%		-29.1	%		-1.7	%		1.9	%		-19.9	%



48 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures

Items excluding restructuring charges (continued)


	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Gross income		68,200			51,821			32,191			14,858			47,927			35,411			22,130			7,501
Net sales		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803
Gross margin (%)		32.3	%		35.2	%		34.5	%		34.2	%		23.3	%		24.0	%		22.6	%		15.7	%
Gross income		68,200			51,821			32,191			14,858			47,927			35,411			22,130			7,501
Restructuring charges included in cost of sales		5,938			1,884			1,680			743			5,242			3,204			2,387			1,460
Gross income, excluding restructuring charges		74,138			53,705			33,871			15,601			53,169			38,615			24,517			8,961
Net sales		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803
Gross margin, excluding restructuring charges (%)		35.2	%		36.5	%		36.3	%		35.9	%		25.9	%		26.2	%		25.0	%		18.7	%
Operating expenses		-66,848			-48,884			-32,462			-15,257			-70,563			-51,700			-34,346			-18,929
Restructuring charges included in R&D expenses		1,293			1,042			828			326			2,307			2,454			558			214
Restructuring charges included in selling and administrative expenses		784			678			544			103			952			418			312			69
Operating expenses, excluding restructuring charges		-64,771			-47,164			-31,090			-14,828			-67,304			-48,828			-33,476			-18,646
Operating income (loss)		1,242			3,094			-147			-312			-34,743			-15,465			-11,813			-11,276
Net sales		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803
Operating margin (%)		0.6	%		2.1	%		-0.2	%		-0.7	%		-16.9	%		-10.5	%		-12.0	%		-23.6	%
Operating income (loss)		1,242			3,094			-147			-312			-34,743			-15,465			-11,813			-11,276
Total restructuring charges		8,015			3,604			3,052			1,172			8,501			6,076			3,257			1,743
Operating income (loss), excluding restructuring charges		9,257			6,698			2,905			860			-26,242			-9,389			-8,556			-9,533
Net sales		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803
Operating margin, excluding restructuring charges (%)		4.4	%		4.6	%		3.1	%		2.0	%		-12.8	%		-6.4	%		-8.7	%		-19.9	%



49 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures

EBITA and EBITA margin

Earnings (loss) before interest, taxes, amortization and write-downs of acquired intangibles, also expressed as a percentage of net sales.


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net income (loss)		-6,497			2,748			-1,802			-725			-18,493			-3,457			-457			-10,026
Taxes		3,930			-146			1,157			-128			-1,303			-516			-24			-1,682
Financial income and expenses		715			639			810			541			518			321			-56			432
Amortization and write-downs of acquired intangibles		621			344			350			347			13,953			379			445			1,875
EBITA		-1,231			3,585			515			35			-5,325			-3,273			-92			-9,401
Net sales		63,809			53,810			49,808			43,411			57,881			49,413			50,281			47,803
EBITA margin (%)		-1.9	%		6.7	%		1.0	%		0.1	%		-9.2	%		-6.6	%		-0.2	%		-19.7	%

	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Net income (loss)		-6,276			221			-2,527			-725			-32,433			-13,940			-10,483			-10,026
Taxes		4,813			883			1,029			-128			-3,525			-2,222			-1,706			-1,682
Financial income and expenses		2,705			1,990			1,351			541			1,215			697			376			432
Amortization and write-downs of acquired intangibles		1,662			1,041			697			347			16,652			2,699			2,320			1,875
EBITA		2,904			4,135			550			35			-18,091			-12,766			-9,493			-9,401
Net sales		210,838			147,029			93,219			43,411			205,378			147,497			98,084			47,803
EBITA margin (%)		1.4	%		2.8	%		0.6	%		0.1	%		-8.8	%		-8.7	%		-9.7	%		-19.7	%

Cash conversion

Cash flow from operating activities divided by the sum of net income (loss) and adjustments to reconcile net income to cash, expressed as a percentage.


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net income (loss)		-6,497			2,748			-1,802			-725			-18,493			-3,457			-457			-10,026
Net income reconciled to cash		-98			2,916			-259			-1,005			-4,001			-779			-142			-8,187
Cash flow from operating activities		4,287			2,040			1,442			1,573			11,159			-18			1			-1,541
Cash conversion (%)		-4374.5	%		70.0	%		-556.8	%		-156.5	%		-278.9	%		2.3	%		-0.7	%		18.8	%

	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Net income (loss)		-6,276			221			-2,527			-725			-32,433			-13,940			-10,483			-10,026
Net income reconciled to cash		1,554			1,652			-1,264			-1,005			-13,109			-9,108			-8,329			-8,187
Cash flow from operating activities		9,342			5,055			3,015			1,573			9,601			-1,558			-1,540			-1,541
Cash conversion (%)		601.2	%		306.0	%		-238.5	%		-156.5	%		-73.2	%		17.1	%		18.5	%		18.8	%

Gross cash and net cash, end of period

Gross cash: Cash and cash equivalents plus interest-bearing securities (current and non-current).

Net cash: Cash and cash equivalents plus interest-bearing securities (current and non-current) less interest-bearing liabilities (which include: non-current borrowings and current borrowings).


	2018								2017
SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Cash and cash equivalents		38,389		36,058		37,049		36,697		35,884		26,210		21,446		32,954
+ Interest-bearing securities, current		6,625		6,591		8,304		5,453		6,713		6,526		10,754		13,548
+ Interest-bearing securities, non-current		23,982		23,014		21,501		27,104		25,105		22,405		22,122		19,124
Gross cash, end of period		68,996		65,663		66,854		69,254		67,702		55,141		54,322		65,626
- Borrowings, current		2,255		2,463		2,642		2,554		2,545		3,004		3,230		9,514
- Borrowings, non-current		30,870		31,187		31,131		31,134		30,500		28,039		27,100		27,823
Net cash, end of period		35,871		32,013		33,081		35,566		34,657		24,098		23,992		28,289



50 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures

Capital employed

Total assets less non-interest-bearing provisions and liabilities.


	2018								2017
SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Total assets		268,761		264,848		265,322		260,681		259,882		267,239		275,160		291,976

Non-interest-bearing provisions and liabilities
Provisions, non-current		5,471		3,420		2,819		2,597		3,596		3,930		4,794		4,867
Deferred tax liabilities		670		1,274		1,332		1,325		901		1,736		1,838		1,888
Other non-current liabilities		4,346		4,456		4,549		2,792		2,776		2,563		2,602		2,699
Provisions, current		10,537		5,275		6,715		6,435		6,283		5,584		5,563		5,647
Contract liabilities		29,348		30,108		30,959		30,391		29,076		26,185		28,657		29,930
Trade payables		29,883		28,914		28,563		26,453		26,320		23,559		25,266		26,077
Other current liabilities		38,891		36,323		35,746		37,888		35,305		33,395		32,599		37,323
Capital employed		149,615		155,078		154,639		152,800		155,625		170,287		173,841		183,545

Capital turnover

Annualized net sales divided by average capital employed.


	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Net sales		63,809		53,810		49,808		43,411		57,881		49,413		50,281		47,803
Annualized net sales		255,236		215,240		199,232		173,644		231,524		197,652		201,124		191,212
Average capital employed
Capital employed at beginning of period		155,078		154,639		152,800		155,625		170,287		173,841		183,545		185,667
Capital employed at end of period		149,615		155,078		154,639		152,800		155,625		170,287		173,841		183,545
Average capital employed		152,347		154,859		153,720		154,213		162,956		172,064		178,693		184,606
Capital turnover (times)		1.7		1.4		1.3		1.1		1.4		1.1		1.1		1.0

	2018								2017
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Net sales		210,838		147,029		93,219		43,411		205,378		147,497		98,084		47,803
Annualized net sales		210,838		196,039		186,438		173,644		205,378		196,663		196,168		191,212
Average capital employed
Capital employed at beginning of period		155,625		155,625		155,625		155,625		185,667		185,667		185,667		185,667
Capital employed at end of period		149,615		155,078		154,639		152,800		155,625		170,287		173,841		183,545
Average capital employed		152,620		155,352		155,132		154,213		170,646		177,977		179,754		184,606
Capital turnover (times)		1.4		1.3		1.2		1.1		1.2		1.1		1.1		1.0



51 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures

Return on capital employed

The annualized total of operating income (loss) plus financial income as a percentage of average capital employed.


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Operating income (loss)		-1,852			3,241			165			-312			-19,278			-3,652			-537			-11,276
Financial income		-294			-225			275			-72			-124			-139			-27			-82
Annualized operating income (loss) + financial income		-8,584			12,064			1,760			-1,536			-77,608			-15,164			-2,256			-45,432
Average capital employed
Capital employed at beginning of period		155,078			154,639			152,800			155,625			170,287			173,841			183,545			185,667
Capital employed at end of period		149,615			155,078			154,639			152,800			155,625			170,287			173,841			183,545
Average capital employed		152,347			154,859			153,720			154,213			162,956			172,064			178,693			184,606
Return on capital employed (%)		-5.6	%		7.8	%		1.1	%		-1.0	%		-47.6	%		-8.8	%		-1.3	%		-24.6	%

	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Operating income (loss)		1,242			3,094			-147			-312			-34,743			-15,465			-11,813			-11,276
Financial income		-316			-22			203			-72			-372			-248			-109			-82
Annualized operating income (loss) + financial income		926			4,096			112			-1,536			-35,115			-20,951			-23,844			-45,432
Average capital employed
Capital employed at beginning of period		155,625			155,625			155,625			155,625			185,667			185,667			185,667			185,667
Capital employed at end of period		149,615			155,078			154,639			152,800			155,625			170,287			173,841			183,545
Average capital employed		152,620			155,352			155,132			154,213			170,646			177,977			179,754			184,606
Return on capital employed (%)		0.6	%		2.6	%		0.1	%		-1.0	%		-20.6	%		-11.8	%		-13.3	%		-24.6	%

Equity ratio

Equity, expressed as a percentage of total assets.


	2018												2017
SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total equity		87,770			95,953			93,560			93,466			97,571			112,710			119,887			122,434
Total assets		268,761			264,848			265,322			260,681			259,882			267,239			275,160			291,976
Equity ratio (%)		32.7	%		36.2	%		35.3	%		35.9	%		37.5	%		42.2	%		43.6	%		41.9	%

Return on equity

Annualized net income (loss) attributable to stockholders of the Parent Company as a percentage of average Stockholders’ equity.


	2018												2017
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net income (loss) attributable to stockholders of the parent company		-6,553			2,745			-1,885			-837			-18,476			-3,561			-471			-10,068
Annualized		-26,212			10,980			-7,540			-3,348			-73,904			-14,244			-1,884			-40,272
Average stockholders’ equity
Stockholders’ equity, beginning of period		95,087			92,689			92,703			96,935			112,095			119,177			121,698			134,582
Stockholders’ equity, end of period		86,978			95,087			92,689			92,703			96,935			112,095			119,177			121,698
Average stockholders’ equity		91,033			93,888			92,696			94,819			104,515			115,636			120,438			128,140
Return on equity (%)		-28.8	%		11.7	%		-8.1	%		-3.5	%		-70.7	%		-12.3	%		-1.6	%		-31.4	%

	2018												2017
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Net income (loss) attributable to stockholders of the parent company		-6,530			23			-2,722			-837			-32,576			-14,100			-10,539			-10,068
Annualized		-6,530			31			-5,444			-3,348			-32,576			-18,800			-21,078			-40,272
Average stockholders’ equity
Stockholders’ equity, beginning of period		96,935			96,935			96,935			96,935			134,582			134,582			134,582			134,582
Stockholders’ equity, end of period		86,978			95,087			92,689			92,703			96,935			112,095			119,177			121,698
Average stockholders’ equity		91,957			96,011			94,812			94,819			115,759			123,339			126,880			128,140
Return on equity (%)		-7.1	%		0.0	%		-5.7	%		-3.5	%		-28.1	%		-15.2	%		-16.6	%		-31.4	%



52 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures

Earnings (loss) per share (non-IFRS)

Earnings (loss) per share, diluted, excluding amortizations and write-down of acquired intangible assets and excluding restructuring charges.


	2018								2017
Isolated quarters, SEK	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Earnings (loss) per share, diluted		-1.99		0.83		-0.58		-0.25		-5.63		-1.09		-0.14		-3.08
Restructuring charges		1.06		0.12		0.41		0.30		0.37		0.73		0.38		0.46
Amortization and write-downs of acquired intangibles		0.16		0.08		0.08		0.06		4.17		0.07		0.09		0.43
Earnings (loss) per share (non-IFRS)		-0.77		1.03		-0.09		0.11		-1.09		-0.29		0.33		-2.19

	2018								2017
Year to date, SEK	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Earnings (loss) per share, diluted		-1.98		0.01		-0.83		-0.25		-9.94		-4.31		-3.22		-3.08
Restructuring charges		1.88		0.82		0.71		0.30		1.93		1.57		0.84		0.46
Amortization and write-downs of acquired intangibles		0.37		0.21		0.14		0.06		4.77		0.59		0.52		0.43
Earnings (loss) per share (non-IFRS)		0.27		1.04		0.02		0.11		-3.24		-2.15		-1.86		-2.19

Free cash flow and free cash flow excluding M&A

Free cash flow: Cash flow from operating activities less net capital expenditures and other investments.

Free cash flow excluding M&A: Cash flow from operating activities less net capital expenditures and other investments (excluding M&A).


	2018								2017
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Cash flow from operating activities		4,287		2,040		1,442		1,573		11,159		-18		1		-1,541
Net capital expenditures and other investments (excluding M&A)
Investments in property, plant and equipment		-1,080		-1,088		-951		-856		-1,105		-739		-1,018		-1,015
Sales of property, plant and equipment		57		102		52		123		898		12		37		69
Product development		-195		-151		-325		-254		-138		-126		-315		-865
Other investing activities		-96		-190		-398		161		-573		42		-42		110
Free cash flow excluding M&A		2,973		713		-180		747		10,241		-829		-1,337		-3,242
Acquisitions/divestments of subsidiaries and other operations, net		20		-425		-431		-449		-107		371		9		3
Free cash flow		2,993		288		-611		298		10,134		-458		-1,328		-3,239

	2018								2017
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Cash flow from operating activities		9,342		5,055		3,015		1,573		9,601		-1,558		-1,540		-1,541
Net capital expenditures and other investments (excluding M&A)
Investments in property, plant and equipment		-3,975		-2,895		-1,807		-856		-3,877		-2,772		-2,033		-1,015
Sales of property, plant and equipment		334		277		175		123		1,016		118		106		69
Product development		-925		-730		-579		-254		-1,444		-1,306		-1,180		-865
Other investing activities		-523		-427		-237		161		-463		110		68		110
Free cash flow excluding M&A		4,253		1,280		567		747		4,833		-5,408		-4,579		-3,242
Acquisitions/divestments of subsidiaries and other operations, net		-1,285		-1,305		-880		-449		276		383		12		3
Free cash flow		2,968		-25		-313		298		5,109		-5,025		-4,567		-3,239



53 Ericsson \| Fourth Quarter and Full-Year Report 2018		Alternative performance measures