LM Ericsson Telephone's CEO Hosts Capital Markets Day - Conference Call Transcript

| About: LM Ericsson (ERIC)

LM Ericsson Telephone Company (NASDAQ:ERIC)

Capital Markets Day

November 9, 2011 3:00 AM ET


Ase Lindskog – IR

Hans Vestberg – President and CEO

Jan Frykhammar – EVP and CFO and Head of Group Function Finance

Johan Wibergh – EVP and Head of Business Unit Networks

Rima Qureshi – SVP and Head of Business Unit CDMA Mobile Systems

Magnus Mandersson – EVP and Head of Business Unit Global Services

Per Borgklint – SVP and Head of Business Unit Multimedia

Gilles Delfassy – President and CEO, ST-Ericsson

Jan Wäreby – SVP and Head of Group Function Sales & Marketing


Alexandre Peterc – Exane/BNP Paribas

Tim Boddy – Goldman

Gareth Jenkins – UBS

Sandeep Deshpande – JP Morgan

Martin Nilsson – Handelsbanken

Richard Kramer – Arete Research

Andrew Gardiner – Barclays Capital

Odon De Laporte – Crédit Agricole Cheuvreux

Håkan Wranne – Swedbank

Janardan Menon – Liberum Capital

Guenther Hollfelder – Unicredit

Mats Nyström – SEB Enskilda

Session 1

Ase Lindskog

Good morning and welcome to Ericsson’s Capital Market Day 2011 and a special welcome to all of the guys who are listening into our webcast. Before welcoming the first speaker on the stage, I would like to run through some practicalities with you for today. You have today’s agenda in your printouts and on the screens as well.

You can see that our CEO and President, Hans Vestberg, will give two presentations today. The first one is about market and the strategy update and the second one then at the end of the day is about our IPR strategy and how intern to capitalize on our IPR’s portfolio. At about 11:10 we will have a leg stretcher with refreshments outside and we will start lunch at 12:45 approximately.

At 15:00 then we finish the presentation in this venue and we walk over to the Ericsson’s headquarters and the Ericsson’s studio and it’s just few minutes away so no long walk for you guys. And I will provide you with more details before finishing up here today.

We have WiFi in the room and you have the name of the network and the password on your tables. And we have always handed out feedback forms for you to fill in and your feedback is very valuable to us. So please make sure you fill it in and hand it in to us. And when handing in the feedback forms, you can take part in lottery and in this lottery you can for the very last time win Sony Ericsson mobile phone.

We have hosts here today and they are happy to support you in and entertaining and answer all your questions you have during the day. I am very happy now to welcome our President and CEO, Hans Vestberg. Welcome.

Hans Vestberg

Good morning, thank you everybody to join here in Kista, but also everybody on the webcast. You said couple of things about this capital markets days, many of you attended the capital markets day in May, we went through a lot of our visions and our strategy. Today we’re going to be a little bit more diving down in certain top pictures especially networks but also in OSS/BSS and services.

So I will go a little bit deeper on certain topics as we did a lot of overall strategy in May, but hopefully you will recognize yourself. I will talk a little bit about market development, I will also have a strategy updates fairly brief one, but of course we have done some changes as last time we met even after the quarter report, we’ve done some changes as we decided to sell our 50% stake in Sony Ericsson, that was announced some seven, eight days ago, at least week or more ago.

And then I will talk a little bit about market outlook and where we are. And as we always said I will come back later on and then talk about IPRs. So let me start by talk about market development, I am not sure if you remember this slide, but hopefully you do. These sort of five trends that we launched in the beginning of 2011, the five trends that we believe are the most important for the industry and the most important for Ericsson that impact our investments and prospects on the industry. Basically I started from the outside then go in starting with the everything goes mobile, mobile Internet, mobile broadband, machine-to-machine mobile cloud et cetera and then talking about the numerous new technical devices as well as more affordable smartphones and then taking it down and talking about one of the very important topics for the industry in order to get all the benefits from mobile broadband the asset fee and pricing and that has big impact on us. And then of course all that spurs a lot from organization both on networks and OSS/BSS.

And finally we have come to a moment where quality on broadband is the most important for our customers’ customer. Those were the five trends and I can – before we go interim and just a look a little bit on the them, I can say that they have been developing quite a lot these file, different type of trends and they are clearly impacting a lot how we invest in our R&D, everything from mobile infrastructure radio, IP, routers in order to enable these trends will continue, but also in our service portfolio and our OSS/BSS portfolio.

And as I said in the third quarter, shifting down at operators today with our customers, the main part of the time is spent on these topics and I would say the number one, number two, number three are probably the top today. And then after that it comes to a lot of discussion on efficiency. Transformation managed services and then lately a lot about the industry when it comes to IPRs, that these are the three main topics.

I will now go through a little bit where we are in four dimensions. First on the global level and then I will take them region-by-region. So first I am looking at smartphones because they have an impact on our business and the prospects of our business. Here we are mapping out high traffic smartphones subscriptions. So what is that? It would be an Android phone, it would be a Windows phone or it would be an iPhone or Apple phone. That are the ones that are using up to 10 times more data than any other phone and they are important for us to understand about the prospect of data growth and the usage of the networks.

By year end we estimate roughly 7% of the smartphone, we have all those type of smartphones will be all the total, 7%. So it’s still a small portion but of course if we go to North America and other markets, it’s much higher and in some markets we see the 60% to 80% of all new shipments of phones are smartphones so this is of course going fast. If you take the average data traffic worldwide, 75 megabyte per month, that’s on all types of devices, that’s where we see and of course all it would take to high traffic smartphone, it would be much higher. But you can see how it grows and that’s of course based on the 5.8 billion mobile subscriptions.

Mobile broadband as options, we have talked about that and we believe that year end somewhere 900 million broadband – mobile broadband subscriptions would be 15% of the subscriptions on that. Then we also talked about the transformation, what has happened in the technology, estimated more or less by year end, how will this spending this and I say hopefully you recognize yourself that the main part now is going on 3G, but still large portion on 2G investment and now we see 4G emerging as an investment, but if you take 3G and 2G to get there, that’s a significant portion or the main portion on the CapEx investment worldwide. So that is sort of a little bit proof on a global level, but of course on a local level or a region level, it’s very different and I will try now to go through the regions and give a flavor from where are they in this important trends. So starting with North America or the Americas of course this is the most advanced market, the most advanced market from smartphone penetration and the mobile data usage and adoption. And of course here we already now see tiered pricing coming out, operators are having different type of buckets, different type of call services in the data usage.

You can also see here that half of the net additions almost in the third quarter was coming from connected devices or machine-to-machine. So we already see here the machine-to-machine mobile cloud is happening very fast and of course here we also see a lot of LTE deployment, commercial networks out with very good speeds and high quality. We also talked about that we see a slowdown in Q2 and Q3 when it comes to North America and as I said that the Q3 report, it’s not the macro economy at this stage, it’s more about different stages of technology cycles as well as consolidation happening in market and I guess you know what I am talking about. That is taking down the investments a little bit at year-end earnings second and third quarter.

So then you can see also that we try to plot how the investments are in that region, 131 that is telling us that the main part of the investment in North America on the radio side is on 3G, 2G and 4Gs basically saying. Latin America, on the other hand, they continue to push our mobile broadband or fairly early out on the 3G, still it’s two times GSM or 2G and three times 3G. So it’s a little bit more 3G investments, still smartphone levels here low because they need to come down in price in order to penetrate later on (ph).

The mobile adoption is high because the fix broadband is fairly lower and the usage is then by definitely little bit lower due to the smartphone penetration, but we also see a lot of OSS/BSS transformation in Latin America due to they see this change and mobile broadband will be the enabler for broadband in the region.

Northern Europe and Central Asia is little bit hard to generalize on that region because it’s so many different countries. We have countries of the Nordics of course that are very advanced where more than 60%, 70% all the shipment owns phones right now in the market are smartphones. We have seven LTE networks in the Nordics launched and but when we go to the East Asia or Central Asia, we see of course much more about 3G right now and 3G deployment.

So if you average it out, we spend a little bit more in the – or the operate in these regions spend, little bit more in 3G, but still a lot on 2G and we are below average on both penetrational smartphones and adoption due to Central Asia more than the Nordics. Western Europe and Central Europe, which is of course the region where we see the most of the network modernization to get the Mediterranean.

Here is an ongoing modernization to meet the demand, fairly few LTE contracts I would say of course Germany is one of the markets where there is quite a lot of LTE. High level of mobile broadband penetration, high level of smartphones, here you can see the double spending on 3G conversions to 2G at the moment, they are spending twice amount and that shift happened quite a long time ago.

This region is also very focused on efficiency, taking down the cost by network sharing managers and many of the markets or many of all operates all most all to us important on the network. Mediterranean, this is a very flavored region as well because it includes the Mediterranean and South East Europe and as well as Northern Africa or course it’s a little bit different here. Here we have a total effect of the political unrest in some parts of the Northern Africa where is our spending level is very low and it’s mixed up-tick on the mobile broadband, very much in the region or Southeast Europe, it’s happening and here we see pricing happening as well from the global operators operating in the region.

And you can see that here we spend also quite a lot more money on 3G compared to 2G and the smartphone penetration is on average usage as well as adoption is high here and the reason is of course fixed broadband in general here is fairly low. Taking us to Africa, that will be below average on everything, still of course doing more 2G investments than the 3G investment, much more push for getting coverage on subscribers and smartphones, very low penetrational smartphones in this region and very much focus on efficiency to bring down the cost to make it affordable mobile broadband. And you can also see that many operators are now going to 3G, but again the majority of the subscribers on 2G, the majority of the phones are 2G.

Middle East, we’ve talked about the Middle East several times during the quarters, there we have the political unrest, we see delay in investments as well as the licensees are also delayed in these times, which is not strange given what’s happening in some of the markets. Anyhow mobile broadband is happening and they spend more money or more CapEx investment on 3G compared to 2G, but actually below average on all aspects usage adaptation as well as smartphone.

Last two regions, we have all three regions India. India has sort of come over the fist peak of 3G investments as we said and will now sort to come back when take it more easy as well as the regulatory environment is changing quite a lot in India some of you are following it. We have gotten the first TD-LTE contract in India as Spectrum was option there and we’re going to see more of those decisions coming further here.

3G rollouts happening but still more investment on 2G than 3G and here we see we’re below on all areas smartphones usage and adaptation, for the obvious reasons that the majority of all subscribers are on 2G, the first initial coverage on 3G has happened. South East Asia and Oceania mixed region of course Australia very advanced some others like seeing up as well, some other markets like Vietnam, Bangladesh still very much get (ph) on 2G.

Anyhow these regions spend more money on 3G than 2G. But in average the region is of course 2G dominated all handsets and all coverage on the subscription point of view, but investments are going 3G meaning that in the step when the price comes down we will see much more 3G adoption. Here there are no substitution for fixed broadband, it is going to be mobile broadband.

Finally China and North East Asia, where China doing still a lot of their investment in 2G and then where Korea and Japan doing 3G and 4G and still there is the highest investments on 3G but 2G is very big due to China and we are still 1 billion subscriptions in China, 952 million subscribers in China right now. So here of course we have a growing population going for mobile broadband and usage 100 million on 3G at the moment.

And they are of course in China as we talked about before the large scale TD-LTE trials are ongoing in China Mobile, very important for the next step will TE-LTE. That should give you a flavor more or less how the regions look thus different from the global and in regions of course smartphones are highly penetrated than others and that impact is quite a lot how the networks are, what the transformation are and what type of business we are doing.

So that summarizes when we stand and look forward, having all that trends behind us and looking how this will grow, we still stay with the same forecast on the data growth that by 2016, it will be increased tremendously, but that based on the trends that we see and where we are today and of course half of it will be from the smartphones and half of it will be from PCs when it comes to the data growth.

And we’ll come back to this as well when it comes to penetration we will go up to by 2016, 92% on the will be GSM coverage worldwide 92% population and we will go to 80% on 3G and 35% on LTE and LTE today is a very small portion of the subscribers. So there you will still see what is needed to grow there. And with this reaction of course on a trends on a trends that’s where we see what needs to be invested and happening the years to come.

Quick on a strategy updates, so this is our assets going into what we call the network society. The society where anything that benefits from being connected will be connected, we’re going to see other industries using the networks, we’re going to see transformative innovating using mobility and mobile broadband and this is our assets. We have done some changes in the assets, recent weeks and it’s that we’re substituting them, but we’ve as you know announced that we are divesting our share in Sony Ericsson and we also feel that the IPR and patents are a very important piece in our assets in the network society.

As you’re going to see even more companies manufacturers coming in through their network society, taking the benefits on the wireless and mobile broadband of course IPR and patents are going to be important because the whole industries based on share technology. So this is the ranking we have, has not changed since we met last time, the only thing I put in is of course we believe we are on patents, number one, number two. The difference here and I will come back afternoon is of course we have a defensive value of our IPRs as well, we need to remember that we have a large infrastructure sales that need to be protected and we need to have them protection from others that have invented as well so that’s why one or two weeks is where we sort of place ourselves.

Rationale for Sony Ericsson, we’ll not dwell too much on it, I guess some of you at least follow what represented a week ago, but of course what we see Sony Ericsson is that it has transformed to smartphone company, it’s a totally different business dynamic when it comes to smartphones and what is needed, it’s not an extension of a feature phone, as well as we are addressing the whole market out of 50 billion connected devices and it’s good timing from Sony, from Ericsson and Sony Ericsson to make this shift in order to get all the benefits that is all three parties wanted so that’s why we could concluded that for week ago.

At the same time IPRs become even more in the industry, we’re going to have 50 billion connected devices, we’re going to have new industries coming in, Ericsson has broad portfolio, not only in wireless that we want to capitalize on and that means that our IPR and patent strategy would be even more important the years to come, as I said I will come back to that later.

At the capital markets day, we discussed a lot how the Ericsson is going to grow in the future. We put them in three buckets and the majority of all growth should come from the first bucket, that’s the portfolio momentum, that’s where we believe it’s going to grow faster than the average in the market and where we have also very good position. Mobile broadband, I’ve talked about that Jan will come back and talk where we are and how we have succeeded recently, but definitely that is something where operator invest more than in other areas and we are very well placed.

And remember that’s not only the radio access, is the IP core, is the packet core, is the services, everything around it, that is important while talking about mobile broadband. Managed services, another area where we see growing importance has been very important for many years, we have a great position so far this year signed 47 new contracts or renewals. So that’s another area where we continue to grow.

OSS/BSS, Per will talk about that an area where we focused on especially about the changes in the marketplace where operators, how customers need to evolve their charging, their billing and how they capture information from the network and here of course we have depending acquisition Telcordia coming into a portfolio, but we have already now done some 15 significant transformation project in the OSS/BSS area.

So we are growing here and as you’ve seen in the quarter, that’s also where we have the growth in our sides (ph) coming from these three areas. Market share, we will come back a little bit later, where we’ve been focusing very much on the top cities and top markets because they are going to drive the main part of traffic, we of course won a lot of market share in the transformation that is ongoing and we are just working both with OpEx and CapEx possibilities.

Finally the last area of growth, which is the last two one or minor part of the growth, but still important market share and acquisitions. Basically all acquisitions are known to you what we’ve done, in which area we have done it and I’ll not dwell more on it, but it’s sort of that’s where we’re going to focus. Whole in portfolio which we need to acquire, new growth areas, enabling machine, enabling the mobile broadband like machine-to-machine or other areas that where we’re investing or partnership with Akamai, Motorola and we have done some divestments as well.

So that’s a short update, but the rest of all the team will come back and talk about each of them will dwell down and we have succeeded as well is just that we have a very high focus how we can grow, our growth levers and these are our growth levers for actually growing faster in a market. Market outlook, so I’ll come back to what we showed in May, the capital markets day in May about services and on infrastructure then when we announced at quarter, we talked about the markets for OSS/BSS so it’s same figures that we have, basically 3% to 5% on network infrastructure, 6% to 8% OSS/BSS, 6% to 8% CAGR on services.

What’s important to add there this does not reflect any huge or different macro economics outcomes, that’s too hard to handle. Long-term we of course believe that this is a growing business and important business. Short-term as I said in the third quarter, operator, we cannot exclude that operators become more cautious in this environment that is around us and also factors are not factored into this, but – targets remain of course and we rate them the four targets that we have outlined and that translate into the what the board decided to be our long-term targets, which are ambitious and tough, but we work with them and that’s how we geared all our business to the growth levers, our improvement on profitability and our cash conversion.

If I may rank on a high level, Jan Frykhammar will go on the more detail level, I think on the growth, we are doing well, profitability okayish, remember that we are comparing 2010 where we excluded all our structuring and in 2011 including them and these of course we’re comparing nine months with a full year. So on the cash conversion, we’re still far away from our target to have a conversional 70%, we own 25% of the nine months and it’s a tough targets for the full year and of course the growth is a little bit challenge, but we are still committed working hard to get to the 70%. That’s clear that we’re really striving to get there.

That sums it up for me and maybe not that many new things, but we believe the industry fundamentals remain strong, everything I went though in the mobile broadband and the service area are continuing OSS/BSS. We as a company are leveraging more and more our assets to be even stronger as a company in this area and focused a real execute well on that. That strategy execution is what we are now into to get the company to where we want to have it in the future, a much stronger company being the number one in the main areas, some of them we are number one and we need to extend the leadership and somewhere aspiring in.

And of course the whole set up with targets that we started with for two or three years ago with the four books model and long-term and short-term that have made us much more focus on how we need to drive a profitable growth but still doing a good cash generation. So all in all that’s how it remains. Thank you very much.

Ase Lindskog

Thank you, Hans. Before leaving the stage Hans, may I ask you just one question? When you’re running through our structure, you replaced Sony Ericsson with patents and licensing, does that indicate that you will change reporting and report patents and license I say segment going forward.

Hans Vestberg

The plan that we have is of course now we are lifting up IPR to be a important area and we will come back later on and do some new disclosures on our current revenues for IPRs. When it comes to how we’re going to report, if we’re going to change or something, we do this every year, meaning that of that if when – before we start reporting 2012, we come out what changes on disclosure want to have. So we are reviewing right now, how we’re going to change to focus, how we make a holistic strategy for IPRs, everything from the strategy execution organization et cetera to enable what we want to do. So we will come back to the reporting of it, but we will review with now in the whole process of lifting IPRs up.

Ase Lindskog

Okay. So you will come back on that later.

Hans Vestberg


Ase Lindskog

Thank you very much, Hans.

Hans Vestberg

Thank you

Ase Lindskog

Indeed. And now I am happy then to welcome our Chief Financial Officer, Jan Frykhammar.

Jan Frykhammar

Thank you. So there is no music here. Anyway, it’s great to be here, I feel extremely this is a big room, I hope we can create some intimacy despite the fact that it’s a great room, big room. Anyways I am supposed to be the detailed person today, unfortunately I think will be just sort to degree, so bear with me for the coming half hour, so we’re showing some more details.

If we start then with the financial performance of the company and what I tried to show here is three important dimensions, one is revenue, the other one is bottom line and the third one is cash conversion. On purple side I put the annualized or annual numbers and year-to-date numbers for 2011. And of course looking long-term at the potential of our company the annual view is a much better view than a quarterly view. So that’s a message in this from me to you, please look long-term at the trends.

If we look at the revenue growth, we can see that the growth in 2011 was really or has been really good. If we look in Swedish krona, it’s been 16% year-to-date and if we adjust then for FX and comparable units, it’s been 25% and it has been a growth, that has been driven by mobile broadband. We started to see already second half of 2010, growth driven by mobile broadband and as many of you follow us closely you know that we have been talking about this there is growth in the business, it is driven by mobile broadband and but we have had some currency headwinds on the top line.

But 2011, we really started to see then the impact also on in Swedish krona of this growth. If you then look at services, it’s been growing, if you’re looking constant currencies, but in the third quarter we also started to see a growth again in Swedish krona, which is good and it’s important for us because a lot of our business model is around combining technology leadership with service leadership and service leadership means a lot of resources close to customers delivering projects, creating good performances in customer networks. So services growth important, it is way of course to fund the local presence we have in the company.

We also saw and started to see some slow down in North America during the second quarter than in the networks business and Hans mentioned this before, it was even more visible in the third quarter as Hans said as well, it’s not – we can’t really say it’s because of macroeconomic uncertainty or impacts, it is really because of operators slowing down investments after quite many quarters of significant build outs. And I don’t think that’s something that is strange, I think is quite natural that after a period of big build outs you consolidate. Of course when we look forward the macroeconomic uncertainty is there, but if you look at numbers in the second and third quarter at least our conclusion is that there is nothing to do really with macroeconomic uncertainty, it’s more a natural behavior. When you have been building a lot, you decide to consolidate.

If we look at 2010 from a growth point of view, we had one region that added basically all growth and that was North America. It was a fantastic year in 2010 with growth rates over 100%. In this year we also during the first half year had a good contribution growth wise from North America, but we have started to see also significant contributions from China, North East Asia and now in the third quarter we have many regions growing. Latin America is one, we had a region Northern Europe and Central Asia contributed to a lot of growth and of course that’s proves our point that mobile broadband is the strong fundamental driver for investments, but it also saw that it this means when all regions are growing that we are building much more coverage. And that is also going into the margin, that is the main reason for the gross margin decline that we have seen in the third quarter and business mix shift is very important when it comes to understanding the dynamics of the gross margin.

If you look at the comparisons between here 2009 and 2010, the main reason for improvement between 2009 and 2010 is really improvements in Sony Ericsson. If you look core Ericsson, it’s been 2009 and 2010, it was flat from an operating margin point of view, so main reason for improvement Sony Ericsson. If we look at this year, we have had both joint ventures struggling a bit on the profitability side, which takes down to overall group profitability, but also we have seen the services business coming down from a profitability point of view, recovered in the third quarter, but beginning of the year Q1 and Q2 quite low profitability, driven then by modernization, rollout in India and also supply chain impacts.

If we take capital, you can see that we have had a couple of years of over 100% cash conversion. And why cash conversion is important for us is, of course, that we are very much a project company. We deliver big complicated projects and they tie up capital. We want to make sure that the reach to billing milestones fast, so that we can collect the cash. But being a project company in many respects means that we tie up capital. We have had a couple of years of about 100%, part of it of course correlated to top-line. So, when we have a mix that is more capacity and less share of turnkey projects, it has positive impact on our cash conversion. This year so far year-to-date 25% as Hans said. The main reason for this is of course top-line growth.

So, even though I’m not happy at all with it, it’s quite easy to explain, and it is timing. The second area of course that when the tsunami happened in Japan, we took firm mitigating actions to make sure that our supply capability would stay strong throughout this tough period. And we were successful in that strategy. It meant, however, that we started to build somewhat of a buffer stock and that now we’re gradually reducing. That also takes a bit of time. We are not worried about whether the stock is fresh or not because it’s RBS 6000. And that’s the future product and Johan will come back and talk more about that.

The second element is that since if you look at all the regions, now we have growth in many regions. And it is growth because of coverage and modernization. That means higher portion of projects and that ties up more capital. So, if you look at the disclosures, look at the regional inventories, the regional inventories is an indicator of projects and project activity. And you can see that element has increased and stayed quite high during the year. So, yes reflecting a bit on financial performance. If we then take the – and this was a slide that we introduced in May in New York. And what I want to do with this is that based on all the – we obviously read your report, we meet investors one on one and we get a lot of interaction via mail and so forth. If I try to summarize the top, if I may say so, concerns that you have and that you have basically compared to when we met last time in May, it’s on this list and may be some things of course that is not on this list, but this is trying to capture most of the concerns. And when we structure these days, this Capital Market Day we are trying to address most of these concerns.

It is not always going to be like this that you, that you like the answer that you may get, but we are trying to address the concerns. And this dialogue as (inaudible) mentioned is beginning is very important for us. If we start then with the first one technology and services leadership, I mean that is fundamental, that’s one of the most important fundamentals of our strategy. We are trying to create competitive advantage or in my life price premium. Thanks to the combination of what our products can do and the services leadership delivers. And hopefully then as a bundle. So, therefore this is very important and that is something that Johan and Magnus predominantly today will continue together. And at each Capital Market Day we will take different flavors of this. But it is really the core of our strategy.

North America, since we started to see some slowdown in the second quarter and also in the third quarter that has become more of a concern for many of you, perhaps especially so in the CDMA business. We know that the CDMA business will at some point decline. The timing of that decline is quite difficult to judge. The reason that we have invited Rima today is to try to shed some more light on how we look upon that and perhaps more importantly how we prepare the company to not become so impacted once this decline happens.

If you look at the margins, obviously having the Q3 margin development in mind, we have started to get some debates around gross margin again, and gross margin development. I just want make to clear that we have a firm belief in this market, in this business. We are in somewhat more of a project and hardware centric cycle. Our product, which Johan will describe more and more later in the afternoon, is we have quite an extensive hardware investment upfront. The main upside on our product comes by means of software and optimization and so forth of the product once it’s in the network. That is the rate, the monthly standard rate from Ericsson is different perhaps than many other competitors. And it’s absolutely different compared to 2G. 2G was so much more hardware centric business model through the life cycle.

As traffic grow which was airline we had to add more radios quite easy to model. A monthly standard radio NLT is hardware in the beginning and it stays there for many years and a lot of the upside comes from software, software features and selling to that particular radio. Of course, there will be improvements on the hardware as we go, but the bulk of the investment is now and that is what you see in the gross margin.

Working capital development, I’ll come back to that, it is top of our agenda. We need being a project company to have strong focus on this all the time, no doubt about it. On the other side, we also get a lot of questions what are you going to do with all your cash. And especially since the announcement last week of the divestment of our share of Sony Ericsson, we have gotten a lot of questions around proceeds and so forth. And of course it’s always okay to ask the questions.

Then if you look at ST Ericsson, we have gotten more and more questions around the timing of the turnaround of the joint venture and why do we really believe in this as a strategic investment area. So, we’ll try to cover most of these things today. Lately as well basically since the summer, we have started to get the same questions, as I guess, you ask many companies, and that is what are the possible impacts to your business due to macroeconomic uncertainty. And let me make one point clear that we do not at all try to be experts on macroeconomic developments. I’m sure that most people in this room are much more skilled than I am on that.

What we try to do is to listen to you and listen to experts and more importantly, and that’s our responsibility to adjust our company to be strong also in tough times. So, that’s why we track macroeconomic developments. And I will show a few examples later today on what type of leading indicators we look at and what type of measures that we already now have implemented or executed in order to prepare for tougher times. So I’ll come back to that.

All right, then we go to the agenda and it’s there in the detail pack and I’m here to discuss some of the things during the whole day and the evening as well. So, if you look at these things, financial management, capital management and risk management. I’m going to focus most of the time on the first section on the gross margin. And this slide I discussed in May when we met. It is there, it will be there because it’s so important to understand this when it comes to understanding both the potential of the gross margin in the future and also understand the evolution of the gross margin in the short-term.

If you look at the left-hand side of this slide, it’s the technology cycles. And as I said before the 2G technology cycle was more of hardware or along the cycle a little bit of software, but the ranges was more hardware over the whole cycle. When you look into HSPA and 3G, we started to get more balanced in terms of hardware and software over the cycle and then 4G and introduction of multi-standard radio which shift basically to the opposite compared to GSM. It is hardware, hardware is initial quite big, but then it’s much more software. So, it’s a different angle of settings and that also means that right now that we are in a hardware cycle. We have a bigger pressure on the gross margin because of that.

If you look at the initial phase, I think we have all discussed this. It is modification of installed base. It is in a few areas Greenfield, but in many cases we build coverage. These projects are open bidding. Every technology means much more competition, means pressure. We have more of projects in this cycle which means more capital tied up and overall lower margins. If you look at the expansion phase, and then I chose to call this expansion phase because there are a little bit flavors of the same dynamics. You can also intensify footprint that is really also coverage, but it is still with Ericsson gear and that is also higher margin. But capacity increase and expansion is there. These projects are easier. They are in our case with our base stations much more about unlocking software locks and it is much more around integration and other professional services like optimization. This cycle is a high margin business with lower capital tied up.

What we have been doing I mean it’s obvious that due to CDMA and HSPA expansions in the beginning of 2011, we had more of these type of projects capacity ones in the beginning of the year. Now as all regions are growing the dynamics have started to shift here.

If we look at this then what I wanted to with this slide is to show we have a passion for installed base. We know that we can make money out of the installed base. For us, one of the key strategies is to secure a strong footprint and keep that footprint. What we believe is that the initial phase, I’ve debated so many times. I’ve tried to split the sale mix here. One can always, there will always be one project that differs from this and so forth, but happy averages. So, more hardware, more NRO services. In some parts of the world the service element may be even as big as hardware because then we do civil works and we do real construction work, but there are also many projects where we don’t do civil works but it’s still much more hands on work on the site in this phase.

If you look at expansion phase, as I said before perhaps the software element on this slide is slightly underestimated, let’s see. But, it is more of software and professional services phase. The third area is really thanks to this footprint, if we perform we can sell other type of offerings. Few examples there, managed services that’s obvious. There is lots of synergies between network rollout and field services. It’s lot of synergies between hardware services and field services. So that’s what we’re trying to create synergies around. OSS/BSS that’s obvious. Some of the element management on OSS comes with installed base. The trend now is much more towards network management systems and then consulting and system integration. So, these three things here, basically if we look historically we think that we can generate during the life cycle of an installed base double the value of revenue using that installed base. So installed base is important for us. The minute you start to lose focus on that installed base, you will sooner or later end up with problems, just to be clear.

The outcome of the success here is of course I mean it’s obvious, right. I mean if you manage to win deals in areas where the traffic is more heavy like cities, suburban areas then it goes faster to get into the expansion phase. If you win business with customers that are more successful than others, the likelihood of you being able to make more money is obviously there. So, there is lots of bets that one have to make here. And overall if I look historically, it is not that often that the customer replaces an installed base, if the vendor performs. And performance then is very much – this is long-term relationships. They are 10, 15 years. You perform well in service delivery, you meet up to the portfolio demands and of course you’re competitive. Then I haven’t seen that many lost installed bases. There was a little bit of swap projects and things like that in the GSM base, but they were more easy to calculate because it was more hardware during the whole project. Now it’s software during the course of the project, okay. So, this very important for us as when we model opportunity and upside.

Then I know, I said I was going to be detailed. The network modernization slide it’s in the packet. I just want us to be having the same language both Johan and Magnus will come back and talk about modernization, but what I wanted to show, to put here on a piece of paper is some of the aspects or most of the aspects we look at when we enter into modernization project in Europe. And if we look at this slide, I mean it is really about replacing 2G and 3G footprint that has been there for 20 or almost 10 years depending on, if it’s 2g and 3G. It’s about modifying the size and it is about introducing new technology multi-standard radio. And of course these projects, the way we look upon these projects is that it is new footprint, it is new footprint for long period of time and for us as many of you may remember, I mean in the early 2000, 2001 we lost out in the 3G race in Europe because we did not have the balance sheet to be able to support customers with customer financing or project financing. I think we had at the peak some SEK33 billion in on balance sheet customer financing. Today we have some SEK4 billion.

We have a much stronger balance sheet today. We have not been able to regain back the market share we lost back in 2000 during these 10 years, probably thanks to great performing competitors. I don’t know, but it proves the case that installed base if you perform well is an important asset. And that is why the modernization opportunity for us is about building future opportunity in Europe and we’re gaining position in the market. If you look at the projects, all the projects that we have won, of course we have a list of target projects. As we say here, we think we have 180% of the targeted deals. Of those deals by Q4 all will be in execution.

In average these projects last for some 18 to 24 months. If we then – another important thing is that normally when we do business cases, we probably look at two year return cycle to be happy. These projects are tougher initially and you probably get to some five years return. Of course our mitigating actions that we are taking is there to try to reduce the gap, but realities that we are right now at least closer to the five year. Having said that, we still believe that this is an important investment for the future and we are aware of and we understand that it will create a gross margin pressure downwards initially. However, we are convinced that this is a good investment.

The final thing is also that I feel is important for you to know the most expensive modernization deals or perhaps not the free of charge hardware or the low margin network or cloud services, it is really when you replace your own footprint. It is when you go in, if you have a strong position on 2G and 3G and you are in capacity cycle there. And that then becomes part of a new modernization deal that is when it hurts modules.

Okay, detail slide, happy to discuss it over many cups of coffee today. Okay, we go to next detail slide. I said that was going to be a pain, I hope not. So, this is portfolio mix. This is another important aspect. This is a disclosure we make in each annual report, and it is really about we group all products in three different portfolio categories. One is services, one is software and one is hardware. And of course if you understand the gross margin, I mean services is lower margin business, but on the other hand it is not so much of R&D, so you can make good returns on lower gross margins. Software is really high margin business, it is not 100% margin and it’s not 50%, okay. But there is of course cost related to putting software in the networks of customers. There is type of role, type of cost and so forth. The big challenge with software is the R&D. The majority of R&D, and I’m sure Johan will be happy to answer questions around it. The majority of our R&D investment goes to software. So, software business and that’s visible in multimedia, that’s really about securing a certain volume. Once you have the volume, it should be high margin business, otherwise our model doesn’t work.

Hardware then, you can see here that that ratio of hardware has increased between 2009 and 2010. Software portion has gone down. So we have been a bit pressured on software. The reason for this between 2009 and 2010 is the reason that many of you have written about it in your report and that is the fact that voice driven investments came down, meaning that circuit switch core, HLRs, revenue management and so forth came down. And for us, that’s obviously very important to gain back, both thanks to capacity increases on footprint, but as well fourth generation IP, voice-over-LTE and so forth which are software centric businesses.

If we look at the trend down here, second-half trend we think that we have a positive momentum in services. We saw that in the third quarter. We think still that we will have some issues to improve the share of software this year and that the hardware elements will continue. And I think that’s obviously is little bit reflected in the gross margin in the third quarter.

Okay, we go the next detail slide. So, in the Q3 report we went through or I went through some of them and this is gross margin between Q2 and Q3 excluding restructuring charges, but it gives the same relations, I guess you know that. But if you look at these different reasons then we said business mix, modernization projects in Europe and increase in services share. What I did here was that I took the same explanations for the other quarters for you to get the feeling for how important these different parameters are when it comes to understanding the gross margin. I still think one should look at it on a full year basis. But it’s here because I know we to a certain degree live in this quarterly economy.

I also put a lot of very heavy statements on this slide, but I think it’s important that we together understand the long term opportunity and also understand some of the short term challenges. So, there is a shift from capacity to coverage. There is a growth momentum in services. We have a modernization project impact. It will be fully visible in Q4 and then we will live with it. The average duration of these projects is between 18 to 24 months and then another parameter to consider. That usually what happens in fourth quarter is that there is a lot of project completions. It’s a lot of network allowed which usually makes our fourth quarter little bit thinner on the gross margin side.

So, important slide, something to digest. If we take then the, having gone through all of these details, I wanted to show some light in the tunnel. And what I did with this slide is really to talk about market opportunity, so that’s, if you think about our long term business plan and what we have reflected in our long term objectives. These are things we consider. So, of course, we are betting heavily on mobile data growth and the need that will create for capacity investments.

We are also betting on that we will be the true service leader and we can create more scale opportunities in the service business. We are also focusing a lot on winning more software centric business. So, one of the most important things we have in front of us for next year is really to introduce this more service router and become the leader on fourth generation IP networking. That together with voice-over-LTE as well as mobile broadband prepaid charging, should hopefully over time improve the software trend and this is very, very important for us, obviously. Actions here is more what we do. I mean certain things we are betting on and we, of course, working with customers to create this market, actions are more tangible. So, you can read for yourselves. The global service delivery strategy is one very important thing. Marcus will go through some details on that.

Johan has been driving for the last four years a project to make sure that we have just a few platforms and a lot of common components. The main impact you have on cost of sales and manufacturing cost is that entry of the product. You can always try to squeeze suppliers and we are. We are good at it, but the main impact you get is when you put this product in and you start to modernize certain and so forth. We also, the secured price premium element is important. I mean that’s why this strategy is here. It’s not for PowerPoint; it’s for real. We want to make sure we have a price premium in the cases where customers does not appreciate what we deliver than it’s probably better to go for another customer because the combination of technology leadership and service leadership should generate a price premium. Customers that do not appreciate that may choose someone else.

Capitalizing on our IPR portfolio. That is something that Hans will talk about today. We think that this is going to an important opportunity for us, equally important as software, perhaps going forward. And then, of course, you know me, I’m on the modernization project every day. Each project leader has their own mitigation plans. We want the bridge to get from five-year close to two-year. But, I think it’s prudent to plan for slide worse impact short term. But, for heaven sake, this project last for long time. We have an opportunity to make them better by means of lowering curve, sourcing and so forth.

Okay, then we go to capital management, I will speed up a little bit. This is obviously one important slide. We have a strong net cash position. We have a strong equity ratio. We believe firmly and we know that the strong balance sheet generates business because it creates long-term sustainability. We have just discussed the fact that the installed base lives for a long time and customers ask for life or long-term support agreements that is twice the amount of time of the installed base. So, customers need strong partners.

Also, on the service side I can tell you that the strong balance sheet and a bright future is a very important argument to select Ericsson in front of other alternatives. We can also do opportunistic or very selective I would say M&As where we can take advantage of assets that are available in the market.

The third is also important I mean if we look about European modernization without a strong balance sheet, we could never have done that. So for us, maintaining a strong balance sheet, maintaining a strong net cash position is one of the key strategies to build future value.

Then, coming back to this, you will be bored of this slide but it is important that’s why I show it. Business mix and the impact on projects and this is actually a slide that we – I stole from 2007 or 2008 that Hans made I think or Carl-Henric Svanberg but is really about the different capital impact of being in a project cycle or not.

We take a break.

Ase Lindskog

So, we are ready to get started again then. It was the cameraman who fainted and he is okay now. So, please continue, Jan.

Jan Frykhammar

Okay. Thank you very much. So, if you look at the project and the impact of the capital tied up, the coverage type of projects means that we have more of milestone type of projects and very often hardware, software and services is bundled and that is why we are getting to higher or lower capital tied up in the project cycle.

If we look at working capital and this is then defined as operating assets, net assets less provisions and accrued expenses. It’s the internal definition we use to drive working capital improvements. You can see here that the trend is quite okay. This year we have flattened to staying around 29% also. A lot of it is of course is driven by growth. But, I think that working capital is something that we continue to improve and compare to the situation a few years ago, it’s a significant improvement.

The capital targets long-term, we still believe that these targets are possible to achieve and we keep them. We think they are important. If we then look at the same view of market opportunity and actions, of course getting faster into the expansion cycle on mobile data is important for future capital tied up. Managed services means less capital tied up. It’s a lower margin business model but from a return point of view it is very important to get done basically cash flow neutrality in this stage otherwise they don’t make sense. More software driven business models also drive less capital.

If we look at concrete actions, we have since 2008 been driving a change program internally creating an awareness companywide around capital, equity much so as profit and sales and that has been successful. Now days all project leaders, key accounts and so forth has a significant portion of their short-term and long-term variable pay tied to capital.

If we look at some examples. I don’t need to go through all of them but they are quite basic. Being a company of 100,000 plus employees being in 183 countries things takes time, this we believe are the right things and therefore we continue to focus on improving here because we think there are upsides related to the improvements.

So, then we go to risk management and what I wanted to show here is some of the learning that we gave from the last time we had some market uncertainty and if we look at the crisis back in 2008, we had impact but very limited impact and of course part of it had to do with customers had a fairly good performance and was not heavily impacted. In parts of the world they were but the majority of customers had stable performance.

We also as a leadership team took early actions to reduce cost and adjust to the economic environment. And then, which is very important with timing wise of our success in North America both when it comes to winning the manage service contract with Sprint, the timing of smartphone uptick in North America as well as the acquisition of CDMA. All of that played very well into our performance back in 2008.

If we look at what happened during the period, we believe that our competitive advantage, we manage to improve it during the period. We secured number one position as LTE provider in the U.S. and we acquired Nortel’s CDMA business.

If we look at today, we know by experience that if GDP growth starts to decline or worsen, it has an impact on operator and the market opportunity. Our challenge is of course to decide exactly where and how much that impact is. But, the statement is there for you to appreciate the fact that this is something we are working with on a daily basis.

If we look at some of the – we are building now our plan for 2012 and it continues for slightly longer horizon based on the earnings for 2008. Here, I wanted to show some leading indicators to give you both the global picture of things we look and as well the regional picture. You can read for yourself there are quite basic things. But, you need to gather them, you need to follow the trends and you need to understand how they in different parts of world may impact you as a company.

Message to you is we are looking at these things. We have leading indicators in place since 2008 and we continue to track these things on monthly basis. If you look at the right hand of this slide. So, we have base for next year. We have already now started to tighten governance that’s obvious. In tougher times it’s good to tighten up the governance. It has to do with projects. It has to do with credit approvals and so forth, that’s obvious things, but also to stay in a very close dialogue with customers and partners. Partners for me subcontractors, banks and so forth and we know that managing partners and getting partners to support you in your long-term business strategy in tough times is very important.

Proactive cost alignment, we have already started to implement measures in the company. So, we have started to put the brakes on. There are no dramatic cost cuts, but what we do is of course to work the basic things like recruitment, use of consultants, travelling all of these hygiene factors. So, if someone asks me, have you put the brakes on, yes we have.

If we look at continues planning, that is when you have certain triggers that may last for a longer-time. There might a recession in parts of the world which is important for our business that may last for two or three years. That’s when you need to make choices and if we see that that’s needed, that is when we will come back to you and of course advance impacted and communicate first.

Message here is base case, the plan in place. We are slowing in terms of spending. What we always will protect though is investment such as you technology and service leaderships. Everything else is up for grab. Okay.

Finally, I wanted to highlight the long-term variable plan, objectives as Hans stated as well. On the right hand side, four main key takeaways for me and that is that we have decided as a leadership team to build install base for the future despite the fact that it creates a gross margin pressure short-term.

We remain on our working capital targets. The cash conversion is very important for us. Business mix and growth create some short challenges. We have implemented already now, proactive measures for 2012. We have not implemented any contingences. We track and monitor that carefully. And we view our net cash position as a competitive advantage even more so in uncertain times.

Thank you very much.

Ase Lindskog

Thank you, Jan. A few quick questions. You talked about price premium, how big is that price premium.

Jan Frykhammar

Thank you for the question. No, I think that I cannot stand here and talk about the price premium. I think that would not be fair to customers nor competitors. But, I will not answer that. But, of course thought of the approved point is really in the both in top line and gross margin improvement. But, I think to sustain a price premium being a leader at this performance that’s obvious. It should be there.

Ase Lindskog

You talk and disclose about the mix between software, hardware and services on the annual basis. Is there any opportunity that you will start disclosing it on a quarterly basis?

Jan Frykhammar

I think we will create even more short-term focus on individual quarter’s gross margin development. Certain disclosures are on a annual basis because we want you to look at certain things on an annual basis. it may be so that we have the big completion of the hardware centric project in project in one and while there were all rates if you look at the full year, it’s more a trend line. As far as – my intent is to disclose this on an annual basis.

Ase Lindskog

Okay. And then finally, the working capital targets are unchanged but it use to be pretty difficult to reach. So, why do we keep them?

Jan Frykhammar

Because a strong financial position is key to our strategy and being a project company to have very tough working capital targets is part of focusing on operational excellence. So, we will keep those. We will not give up on the basic working capital targets. They are very important in driving like behavior for us.

Ase Lindskog

Okay. Thank you very much.

Jan Frykhammar

Thank you.

Ase Lindskog

And now we will and listen to some examples of true engineering art. Welcome Johan Wibergh, Head of Networks.

Johan Wibergh

Thank you. I am Johan Wibergh, I am Head of Networks and it’s really good to be here today. I brought some stuff with me. It’s not really a new base station. On September 29, 1981, what happened then? That was the when the first year the Nordic Mobile Telephone network in Sweden and this phone is from that time actually. It’s a very smart phone. It’s not a smartphone, it’s a smart phone. You can actually call with it. I don’t know if you want to try it. It still work but it’s – do you remember this, genuine phone.

To make this work you actually have to fill the whole stage with equipment to make it actually function. But, that’s not what I’m going to talk about today because this other type of smartphone that we will know about that we have both voice and data and do a lot of things. You need much less equipment to make that happen. So, that really what I’m going to be talking about today.

I think most of you probably attended this session in May in New York or watched it on the webcast. And then, I made a fairly holistic presentation of the network business. I went through what happens with the market, the size of the market what are the drivers, talking about cloud and applications and usage et cetera. I went through our strategy for the business session. I went through about voice, went through about mobile broadband, our market share in LTE, about 60% and why we are successful in gaining the business. And then, I went on talk to efficiency and product development and what we do that to be a competitive.

So, I think there is no meaning that I go back into this holistic presentation again. During the last several months, I’ve been getting a lot of questions from investors and analysts and from that I had picked and chosen two areas that I believe is more important and I’m going to go into depth and talk about these two things. So, this will not be holistic view. I will be focusing on the few key important things for being competitive and having a growing market.

But before that, let’s look on some network financials. So, this is the financial performance of the last several quarters and if you look then on Q3, you know that we were up 25% year-over-year on top line. If you look to first nine months this year, we are up 30%. So, top line has been growing fine. You should also note and if you’re looking on Q4 last year, it was extremely strong and that was due to supply shortages we had during 2010. So, we had to catch-up effect at the end of 2010.

The reason why we are growing a top line is because we are taking market share. Indications we have done is that we have basically taken some 4 percentage points in market share. We also then said that this growth is mainly driven by the demand for mobile broadband equipment. Even though there is still a big portion of GSM, it’s the growth in mobile broadband that’s driving this growth. With that said, let’s dig into this two topics and I am going to start by going into the market and talk about the growing market winning strategy changes.

This is almost the same slide I had in May. I changed one thing on this slide. This is then the outlook that we had in May, showing the size of the market and what we then said about the growth going forward. So, there is nothing change at all. It was $94 billion market overall and last year.

What I’ve updated on this slide is the market share that we estimate that we’ve grown from 32% up to 36% after the first half year. We also stated when we show this market and that the CAGR then was 6 to 8% that they will not be evenly distributed between the years and we know that we have had a good growth between 2010 and 2011.

What I’m going to do now is based on that data we showed in May, I’m going step down a little bit and talk about few other segments. So, this is not a new market. Outlook, it builds on the same data and the same assumptions but I’ve taken it a little bit further up to 2015 and always we have more uncertainty when you look further out but of course this is what we believe in and what we plan after. Stop now, don’t add all these numbers up, but they don’t add up to 94, I can tell you that at once. These are the few other key segments that I wanted to highlight so you don’t think why is this wrong?

Let me talk a little bit about each and every one of these segments. 3GPP RAN, we’ve talked all about GSM, HSPA and LTE et cetera. This is the segment where we aren’t clear either, $20 billion market in 2010. We expect the CAGR to be 11% and grow up to $33 billion in 2015. This is also segment that is undergoing a tremendous change due to technology but also due to competitive landscape, you know that some other competitors are in tricky situation and we had some new entries coming in. So, I’m going to talking a lot about this in a while. 3GPP Core is what is used for voice and data. It has more modest growth of 7%. It is still the segment where we are number one but it will grow from $5 billion to $7 billion.

CDMA, well Rima will come back to that after the break. It’s very natural that that’s a declining market, 15% in CAGR and of course then the U.S. market is earlier out in transitioning from CDMA to LTE.

Microwave another segment. This is used for back call of mobile networks. It’s a market of $5 billion. More modest growth of only 4%. We are the clear market leader with our products family called meaner link having more than 30% market share.

IP Edge, bigger market, $6 billion. Good growth rate, 8% up to 9 billion. This is today a small segment for us dominated by Cisco, Juniper. In May, I talked about product launch BSCS (ph) product, we are very proud about that. There is a session about that this afternoon. I had big expectation on what we can do in this segment.

And then, optical area. Big market, $13 billion, modest growth 4% up then to 16 billion and 2016. Here also we have the smaller market share. We have launched during last year and this year a new family for certain sub segment here. So, we worked on improving our position there. I’m very happy about the new portfolio, it has been selling well but we have more to prove in this segment.

So, if you look on the top two segments here now. It goes from 25 up to $40 billion. It’s a tremendous market to growth with. It’s also tremendous market as going through the change. I want to find out and show, why is it growing like this and what changes it’s going through and why will this make us an even bigger winner and increase our market share in this segment. Because our strategy builds up on that even in this quickly growing market that we will increase our market share.

So, let’s start talking about the market. I’ve showed this slide then also back in May. On the left hand side here you see the population of the world the 7 billion people or people who are living in metro, urban, suburban and rural areas. Today, 85% of the population is covered by GSM and that will grow until 2016, so, it will become 92%. What that means, if you look on land mass coverage, that it will go from 20 up to 30% land mass coverage. So, it is still very important.

It is 20 years since we launched GSM and it’s still the quickest growing standard. It’s about 36 million new subscribers every month on GSM. It almost a double the growth rate than what we have on 3G and that is due to the low prices on handsets.

Next area. HSPA, the most important technology for mobile broadband. It covers 35% of the populating back in 2010. We’ll grow up to 80% in 2016. This is the most important technology for mobile broadband. Why? It’s due to the prices on handsets. When you get handset prices to come down to levels like $50, $60 you really get to take off among the broad masses in the world and we are not there yet with really good smartphones in that price range. But, that is why HSPA is the most important standard for mobile broadband and not LTE.

And then LTE. We will grow from only 2% population coverage in 2010 up to 35%. LTE will grow up to 35% in just seven years. It took HSPA 10 years to get that point in time. So, the new standards are getting adapted much quicker.

So, this is then putting out the initial coverage and I often get questions from operators and Hans, he used to a lot of explanation about initial coverage and then talking about expansions and I used a lot of different words and based on the questions I get, they understand that maybe we are not doing good work job and really explaining what this mean.

I brought a friend with me here on stage. This is not r2d2 (ph), but it’s 6201. This is our latest generation of bay station, it’s from the series of RBS 6000. 6201 was called a macro base station. You put all equipment in here, this is an indoor configuration (inaudible) inside a building. There are other types, you can build a mobile network outside et cetera. But, this 6201 is used for indoor.

What do we have in it? Let’s look at it. Maybe you see the nice Ericsson sign here. The Ericsson sausages. If you open this one up, you see it’s fairly empty. We’ve only changed that during this presentation. Up here you have a power supply and then I put in an initial coverage configuration. I have two things in here. I have a GSM base band and I have radio modules. The GSM base band that’s where you run all the software for all the features that needs to be done and despite it’s been 20 years since we launched GSM, we’re still launching twice per year new software versions that our customers buy that we on there. We’ll just feel such a new development or features and functionality in the GSM network. You may not notice that as subscriber, but there are so many things being developed to enhance it. So, that’s the base band, very important.

The second piece are radios. That is what’s used to transmit and this radio here as three of those because you connect this base station through three cables on the roof where you have three antennas because you’d normally make three sectors from a base station. So, we have three antennas that are transmitting and there is a cable from each antenna coming down connecting up here. So, with three radios again it was called one carrier for three sectors. So, this is a very initial coverage installation. Price pressure typical to start off with.

This will typically of them maybe like 10 years overall standing out at the site but not being empty all the time. So, we will come back to this one soon. Don’t forget that.

Right, what happens then? Well, I think all of us have a heard a lot about voice and we can spend 30 minutes talking about this slide. There are so many things ongoing. But there are some fundamental differences on mobile networks whether its voice or its data and I need to walk that through to made you understanding of how will this – how will my 6201, how will that change as the metrics evolve.

So, in voice it’s very easy actually to make a voice network work either you have well working voice call or not. Sometimes you have some disturbances but basically the voice call works or not and the ease of KPIs for driving news. You talk about drop calls, call success rate et cetera that triggers upgrades in the network and every operator will be follow this and then they say, now its start to be too much drop calls. Drops calls is when you move around in the network and when you hand over from one base station to another you may drop the call usually because you are out of capacity. There was in voice very clear pattern usually around 4:00, 5:00 in the afternoon is the peak hour. You have the most amount of traffic in the network. And usually when you move around and even I move around in here there is probably no difference in the voice call quality, I hear it in the same way more or less. So, that’s voice.

Now, data is very, very different. The usage pattern is quite different. There is not normally a busy hour and if there will be busy hour, it might be 10:00 in the evening and maybe on Sunday evening. The customer awareness and the speed you get out of connection is very good, is very common. If you use Facebook, you need very little bandwidth to make it work. If you then try videos there and you don’t have good enough speed you immediately notice that on your handset. And different applications have very different requirements. One application may work fine on the phone and another one not at all when you’re standing at a certain place.

And then, if I asked to move over to the window suddenly all my applications are working and then I go back here to stay and suddenly some applications stopped working. And this is quite different behavior then between voice and data and especially the indoor coverage varies a lot but it also depends on how many in this room for instance that are using data at the same time. Of course we are sharing a common link of data streams and as many people are using it the piece I get become smaller and theses are affected by applications, cloud base services et cetera.

And of course the users, the consumers then to price costumers they notice this and we do care about our consumers feel how the networks are performing and we do a lot of studies around that. We do our own studies. We work together with operators. We analyze the traffic that go through the metric and trying understating what really happens and we do a lot of surveys. What I show up here I think is representative of the information we get.

These shows then what consumers think, what the customers think about the network and how they therefore act and chose. What’s important on this slide here is that four out of the five factors you see here are directly connected to the performance of the network and by changing the performance the customer will get the different perception and that’s also strange really. That is what using, if you’re using a mobile network. If the network performs well, you will notice that otherwise not.

There are so many things you can learn from our customers and we do that a lot. We try to learn so therefore we can design the products in a better way and we can design the networks in a better way so that overall performs better. This week we have launched our first traffic and market data report in preparation for this event and in the session this afternoon, you will already see the copy of it. Here we try to put together a lot of insights we have had from what is really happening in the networks, what will happen in the future and this is the basis as I said for our own design of our products.

I think many of you have heard about speed test of net. That’s one way of testing the performance of the network and then I tested outside earlier and I got around 7 megabytes. While Jan was talking, was testing inside and I got 5 megabyte which is still pretty good and the performance changes as we move around in the networks.

Now, the question then becomes why is data traffic growing and where will it grow in the world. Well, in this traffic and data report that we have given out looking on 2016 we believe then that 30% of the world’s population will generate 60% of the all the traffic on mobile networks in the world. This 30% of the population they will leave on 1% of the land mass in the world. So, this 1% land mass you will have 60% of all the traffic in the world. And of course then, you need to do a lot of capacity expansion for your equipment to handle that because there is a lot of demand. And Jan, he talked a lot about what does this mean and I thought and I can show what it’s really, what you have to do for that.

Let’s see what we can do. How do you do an expansion? Well this might be a little bit hard work here so I’ll take this one off. I bought an option on this one so you can push quote here. I have some stuff behind here that you couldn’t see. So, back again then remember what they had in here. This was the GSM base station, three radios. There was one carrier. This was on 1800 megahertz. So, let assume now that traffic has gone up here and need to expand within more capacity in here. What do I actually do physically and practically?

So, this is a radio unit on 1800 megahertz. One, two, three I am not done yet. So, these are three more one for each sector. So, it’s one more carrier now we have totally. But, then I also need to load software license keys. Of course there are capabilities here and you need to unlock the capabilities. So, you need to buy and download software license keys to make this happen. So, none other than a capacity expansion of this one. It’s a business with higher module because it’s more high value things I put in, unlocked existing features with software license keys. So this is something as higher profitability. And as I said, this base station could stand seven to 10 years in the site and during this timeframe we will twice per year release new softwares, the new features that they would buy to enable new features in the network and they will buy more expansions and even during this time period they might also be hardware, new hardware coming also. So, you would replace some of this hardware with new hardware that has even more functionality. So, this is a first thing of doing a capacity expansion when we talk about that. Right. We’ll close it for the time being. I leave my quote there because I’m not done yet.

As I said, if 60% of the traffic is going to be generated in the cities, is this the best way to always take care of that data. Now, it is not. In the cities you need to do more things and we call that HetNet because to achieve all that capacity it is not enough with the macro network. You need to do things more things.

Just so you understand this picture, the blue thing in the middle and that orange thing to see around that suppose to exemplify a macro coverage that orange thing to really be four, five kilometers away but everything will become orange. So, that’s why we are made it small as for exemplification. That’s the macro base station but this type of thing.

The smaller dots there in orange that is smaller daughter cells I put up. For those of you that saw the presentation in May, I brought on stage smaller radios and said this is what we use for building HetNets and that is what you have up there. And you add smaller things for adding more capacity. You add them in indoors. You had them on squares to give more capacity and then you take those smaller things and connect them with a fiber into that and then you get capacity fields in and more capacity in specific areas and that’s called heterogeneous networks and this is actually one of the first heterogeneous networks in the world, that’s up and running. This is actually a real live picture, we are running that here in Shista and we are doing that to really test all the functionality between the smaller cells and I would move those between the big macro cells and back and forth and how you optimize and make sure you get best performance. So, this is a way. So, this growth of traffic up to 60%, you know very well how to handle that and the good thing for us of course is that this add on business is a little bit of characteristic business towards a connection to the existing footprint.

I said that this market that was 25 billion and was growing up to 40 that was going through a tremendous change and Jan talked about that also about multi standard radio. So, I will try now to show what happens when you go multi standard radio and what we really mean about that. So, if you go back 20 years then when we started with GSM, you would have put out the GSM base station like – a two year base station just doing GSM. And then, 10 years ago when you started with 3G, you put another base station next to it, (inaudible) and of course at the same site, you had site that also with a back calling or tower equipment and a lot of other stuff.

And then of course when it comes to 4G, you could then put a third base station next to it. but then technology have changed and you come to multi-standard radio which means that you in the same one base station can put in all the standards and that I probably go through was a changed a completely the barriers to entry in the market, it changed it completely how you make money and the importance of footprint.

So, let me give an example of that. So, this is an example of how it could be. Houston (ph) operators we’ll take that geographical area and divided in one way or another. Here, I’ve done it in three ways; urban, suburban and rural. It could also be northern part of the country, middle part of the country and southern part of the country. Doesn’t really matter but there will be that in urban, suburban or rural. And then, when they stated with GSM they awarded urban area and suburban area to vendor A, and rural area went to vendor B then some years later on when they bought 3G, this operator made a new vendor decision and then decided on Vendor A for rural area. For suburban area vendor B and for rural area for vendor C and there were no connection between 2G and 3G. So, there were no problems to choose difference suppliers. There were no benefits, no really big connections.

But that is changing now right. Your multi-standard radio you need one base station that handles all standards. What basically means at the same site the base stations need to take care of all of these standards. So, in this case then on urban and suburban it becomes vendor A., in rural it become vendor B and vendor C losses the business and losses the contract with their customer.

So, we look up on how this practically done. So, I had GSM in here, 1800 megahertz two carriers. Shall we install HSPA here, my colleague things so? They’ve moved all things around like you have to look all the time. Base band on HSPA and then we need to also some radios if you’re going to run it on some frequencies. So, this is going to be European configuration. So, I will pick 2.1. Then, I need to load the software and software license keys on the base band and the software has a lot of different optional feature that you can buy. It’s a long, long list depending on how much smartphone features you want, what type of speed. If you want 7 megabytes or 14 or 21 or 42 et cetera. We do a lot of different features so we can charge more. So, they now have two standards in here, I think (inaudible). Okay, you want LTE also, right, okay. Is this LTE, base band for LTE. We put that in also.

The question then is what frequency should run LTE on. Well, in this case the operator has quite a lot of spectrum on 1800 megahertz but they were running GSM and they decide to take part of that spectrum for GSM and another part of that spectrum for LTE and then you look at the installed radios plus all these radios that are in here they are independent whether it is 2G, 3G or 4G. So, you just connect to LTE base band through the radios and then the software so intelligent of course you have to buy that feature and download that software license key, otherwise it doesn’t work. The software is so smart. So, it can actually take that 1800 megahertz and divide it. So, it will use part of it will be used to GSM and part of it will be used to LTE and it works straight off. So, that’s a lot of sale and that really the stuff you need to put in.

Now, this base station has GSM, WCDMA and LTE running on two different frequencies. What we need even more capacity. Mobile broadband is really taking off and they also want to have 900 megahertz. So, I am going to put that in. HSPA on 900 megahertz to get more capacity around those radios. My parents told me that if I didn’t get them another job I could always work in the bike repair place and repair bikes that is what they did when I was young. So, now I added 900 megahertz and of course I need to load the software keys down here because if you want to use more radios we charge extra for that. So, you download those software license keys down here. Now, it’s a full liquid. It’s extremely powerful the capacity here. I’ve done several expansion. If you remember I started just with GSM and one carrier, added one more carrier. I added HSPA on one frequency, added LTE and even more 900 megahertz frequency.

Is that all? Still some space left. Well, there is another strategy you can do. how you extend and embrace more business I said that before you put things like site router and (inaudible) outside. You see how different base stations you need to connect them together. But now, everything in here. So, actually what we’ve done is that we’ve made an IP router and here this is our best selling IP router. It’s used to be typical one our competitors products extended externally here because we (inaudible) embrace extend you can actually make it a site router that connects all these standards together and you put it in here.

This is of course much cheap before we operate and much more convenient to have it inside here but having separate external boxes. And for us it’s an increased business because we didn’t have this business before. But, this technology has changed. We starting to grab on the bigger piece of business and now you connect that router just to fiber cable or to the microwave antenna sitting on the roof. This is the way how you embrace and extend the business. Well, that I think come down for the time being.

So, I hope you’ve got the good feeling for what it means to do capacity expansion and what the multi-standard radio is. Just to summarize them, we do believe in a good market growth going forward and the user experience for mobile broadband really demands and drives for these investment. The modernization is really fundamental thing for us to grow our market share. When you have all the standards in there, you need to be good in all standards to compete. How many other competitors are really competitive on all these three standards and who do really have the scale to compete long-term in this. Not all our competitors today. This is a tremendous growth opportunity and you almost get like we’re going to take toll scenario at the site and the barriers to enter becomes harder.

If we not grow all mobile standards, you will not be chosen and lead us to competitive advantages because as Jan, we want to have price premium. We do not only want to win the deal, we not only to grow the market share but because we want the price premium and to get price premium you need to have some competitive advantages so what do we then have.

Well, we have a long-term development philosophy that will lead to technology leadership. It starts with early research and predevelopment that we then take to standardization and then we develop products that we bring to the market and that we operate either operators themselves are running them or we run them ourselves in our many services contract. We get that feedback. We improve the products. We bring it standardization and then it goes on and it has been quite successful. This I think is one of the success stories. This is RBS 6000. This has one of the biggest challenges and risks for the company to manage in the last several years. It has done standard our market position and reputation is built up on the predecessors of this base stations.

It’s build up on what was call RBS 2000 for GSM and RBS 3000 for 3G and with those products that are build our position and market share and during the last two years we’ve been replacing the complete portfolio with these new generation. We started with small initial volume shape in Q1, 2010 and during the last two years we’ve brought to the market not only this but LTE, about new features and functionality to GSM and HSPA both on this new technology and on the old technology. We’re going through severe supply disturbances including the earthquake and tsunami in Japan and we’ve had really aggressive competitors.

So, how have we done? Well, we have supplied RBS 6000 to more than 300 customers in all continents. We have released 38 radio units on all standards on 13 different frequency bands and it’s more than 300,000 complete nodes that have been shaped since Q1, 2010. We’ve been evaluated by most vendors in the world and how has it gone. We’ve increased our market share.

This is the most powerful base station that we have today in the market. Compare it to our previous generations, it includes all four standards and Rima will be come back to CDMA in this context. It has 20% better radio performance, full liquid that consumes 80% less power and every year it cut off another 10% in power consumption. It has doubled the time between failures and requires much less space. This is a success story for us. It’s the best performing product in the market.

So, why can it be that good and part of the reason behind it is this one. It’s my friend ULMA. ULMA is an ASIC. It’s an application specific integrated circuit. This is especially designed semiconductor that you can do for certain applications. The reason why you do them is that they give you superior performance because they are designed exactly for what you need. They need much less real estate when you put them on boards and they consume much less power and the building material, the production cost is significantly lower on this one compared to all other alternatives. But, they also have some drawbacks I can tell you. They are expensive to develop and they take a long lead time to develop them. So, not all companies can afford to do that. Of course you need really scale. But, we have scale and we can afford it. So, we use A6 a lot in most of our products and they give you a lot of advantages.

I have some more stuff here. You remember that I put in an LTE base band. Well, this is what the inside that box I put into base station. This is the heard of an LTE base station. This is our friend ULMA, you have four of those. You see how much empty space it is here and the space you can now see on this site that is because all the costly and normally the discreet logic you need to have, we have integrated into here and put a lot of software in here. Just to compare this, this ULMA has what is called 36 kernels that is how you can run and how many things in parallel. If you will compare that with latest PC, the latest processor from Intel has four kernels. This one has 36. You have 144. The reason why we’ve done it like this is that we have 30 years how you construct these type of products and we have design specific ASICs to be good on handling LTE and the challenges you have for LTE. With this you can cut production cost a lot. The amount of technology you put out here. The amount of faults you get here. But also, with a number of horsepower you have in here and we have not used all of it now, you have a lot of mileage to get out of this hard work for the coming years. That means we can add a lot of features without replacing hardware and we can earn money on that software.

So, what is the result of that? Well, let me show you this slide. This is very similar slide to what I showed you in May. What you see up here on the graph is the time it takes to download a 200 megabyte big file. The blue line is the time it takes with Ericsson, takes what is it 18, 19 seconds and the red and the yellow is from two of our competitors. It was measured in December 2010 with Ericsson and two other competitors on LTE networks here in Sweden. What you see on the Y-axis is how quickly it goes. So, you can see we are touching around 90 megabytes. Other competitors had a very sporadic performance because up and down not really consistent at all. But also in the Ericsson product, it was down a few times, it’s not really consistent on 90 megabytes. But, we showed anyway that we were clearly outperforming competitors here some 10, 15% better performance.

We went back in August this year and redid it. This is the new measurement. This is the old, this is new. You can see that we have improved somewhat. We are now taking almost 90 megabyte all the time or it’s up to 100 megabytes. You can see that red has become a little bit quicker in the download speed but also we have decreased the download the time it takes. But, we still have some 15% lead over this. The reason and there are so many things around it but this is extremely complex. The reason I bring all this up is that this technology is extremely complex. This is not at all commodity. If you want to perform really well, it is so complex. It requires very advanced people, we have around 1,000 people working on this board I showed you to make that perform well. If you want to make this perform really well, you need to invest that money but you give some tangible benefits and that gives us contracts and increased market share and that also creates a foundation for discussing premium pricing.

Another example is this one. This is from a major sports event. It’s in Europe. Let me explain what you see on this slide. So, on the X-axis you have time. You see something happens around 4 ‘o clock. On the going up you have traffic in yellow line that’s how you measure voice traffic and the right hand side you have what’s called RRC signaling. Have you heard about smartphone signaling, well that is what it is.

So, in this graph then, you see the dark blue that’s voice call. You see it increasing up to 4 ‘o clock and suddenly starts go down. So, I guess it’s a fruitful game starting then for the European soccer because after 45 minutes, you suddenly see that it starts to go up again. I assume it’s a fruitful game. And in that break you see that people are making a lot of phone calls and then when the second period starts, it drops again immediately.

At the same time, you see the red line that is your Android and iPhones that are signaling, they are talking to the network and you see more and more people gathering and during the whole game they are – the phones are signaling a lot and signaling doesn’t generate revenue for the operators but the light blue line that’s the payload traffic, that’s the data traffic that is what the operator get paid for. So, solid stable performance despite smart – and this network is overloaded that’s why the smartphone signaling goes up so much. The network is overloaded. It usually can crash. Many of our competitors have problems with the system crashes at this point in time. But the system here shows very stable performance, the light blue is stable. It continues to perform well and delivers all the payload traffic, maximum payload traffic. This is how a system should behave. This is how our system behaves and it really is an important factor for our customers.

Now, I talked a lot about radio time. That was on purpose. I will in coming Capital Markets Day step into other product areas that we have. I just wanted to say two words about this slide because you stick further into the network and you go into what’s called the core network for both voice and data, you have two types of equipment that either control plane equipment or data plane equipment. Control plane equipment is thing that controls our traffic goes in the network and data plane is what sends traffic through the network like routers for instance. It’s used to be that we had many different hardware and software platforms for implementing our products. What I show up here that is a change that we’ve done during the last years where we have migrated to common hardware and software platform strategy.

So, on the control plane side we have put many different applications on top of the same hardware giving tremendous benefits to us on cost side and customers who use it. and we done the same on the right hand side with the data plane. In one of the sessions this afternoon, Jan Häglund will be talking about the data plane products and what we’re doing in there and I will come back to this in coming Capital Market Days.

So, just trying to summarize our footprint and I believe this is a result of our long-term philosophy, what we’ve been investing in doing smart designs, well working, superior performance, high-quality products. I said in May that we were 70% bigger than number two. We are now up to 100% bigger in revenue to the second vendor in mobile networks.

Actually, if you measure software revenue, we are fifth biggest company in the world in the ICT industry measured on software revenues and even if I talked a lot about hardware, 80% of our people are working on software. And many future sales and features and functionalities of software, we’re sell into this environment. I’ve talked about that our market share has grown from 32 to some 36% which is an early indication for the first six months of this year. And then finally that we have not talked about before but if you remember I said that 1% of the landmass coverage will have 30% of the people and generate 60% of the traffic. Then it matters a little bit where you have the market share, that’s the answer. If want to have equipment but the traffic is going to grow. If you step into cities in the world, you think the top 100 cities measures by GDP will have 43% market share on that install base. So, we’re well positioned to take that growing business, that growing traffic volume and forget those profitable expansions in here whether it’s hardware or software.

So, then we’ve to summarize. I’ll be going through this today then and mobile broadband continues to drive. Network modernization is the purposeful strategy from us to increase our market share and footprint. It has some short-term drawbacks but we’re convinced this is the right strategy. I’ve gone through what happens, how you do expansions and the growth here and why we’ve taken even bigger piece of the market. And then, I went through some of our competitive advantages. And with that I am done. Thank you.

Ase Lindskog

Thank you, Johan Wibergh. Two quick questions to Johan and this fantastic box then, what’s the price of that?

Johan Wibergh

How much are you willing to pay? It depends a lot and that is we are very good on using different pricing models and…

Ase Lindskog

Okay and we don’t get into more details on that. Maybe you can elaborate a bit on the competitive situation and especially on price pressure in your area?

Johan Wibergh

What we’re seeing now is a disruption in the market with this all new technology being brought on board and it is costly to be competitive. You need to competitive on many standards and very high requirements on recent data and it will be challenging for all vendors to cope with the situation. I feel very good. We’ve been able to take market share. The feedback, the evaluation we have on customers on our technology has been great. I think it will be a challenge for some of our competitors to really stay in the race. It’s not an old thing, it has to be good. It doesn’t help if you’re great on LTE. You will not get the business anyway. You need to be as good on GSM and on3G and that’s the big problem. You need to be good at everything to be competitive.

Ase Lindskog

Okay. Thank you very much Johan.

Johan Wibergh

Thank you.

Session 2

Ase Lindskog

Ladies and gentlemen, welcome back after the break then. Good to see you here back again. We’ll wait a few seconds until is everyone is seated. Great, so, once again, welcome back.

And I’m very happy to welcome Rima Qureshi, Head of our CDMA business.

Rima Qureshi

Thank you. Hello. So, glad to be here. I was at the last Capital Markets Day in May of last year. And I talked to you about the CDMA Acquisition at the time as well as what we thought the market was going to be like. And we discussed a little bit also what we believed would be the strategy for the acquired CDMA business. So, a year and half later I would today like to talk to you about the market also how we have been doing on our strategy and then to discuss our plans going forward.

So, North American market share, majority of the business that we have with CDMA, very large majority is in North America. So, how have we been doing in the market? If you look at rolling four quarters and our performance, we have actually slightly increased our market share in comparison where we were a year ago. But that doesn’t really tell the complete picture. As we see, the market increasing slightly over the last four quarters, I think it’s important to remember really what’s being happening behind the scenes.

I guess one analogy is really we have been changing the engine in a plane as it’s being flying. The acquisition has been very good for us. It has been challenging to try to maintain the customer base, ensure that we upgrade the products ensure that we keep the people. And I can say, we have been extremely successful with this. It’s been a very good acquisition. It has been a very good integration. And I think the indication of that is what you see in the market share, not only did we maintain it but we slightly improved it.

So, we have made sure that our customers have remained satisfied. We have kept our employees, we have upgraded our products and I will take you through that a little bit. And also we have acquired a few more customers so, overall an excellent acquisition for Ericsson.

Let’s talk a little bit about the strategy. So, the strategy for the business is pretty straight forward, grow, expand and evolve. And this is the strategy we put forth when we did the acquisition. And let’s take a look at how we have been doing according to that strategy. On the grow part, where we grow with the installed base, we have growth in North America, we have been leveraging the data explosion that we see in North America. And we have been very much taking advantage of the explosion in data and the growth of the smartphones.

Expand into opportunities, non North American if you will, where we have been working closely with operators outside of North America on how they can deploy CDMA, CDMA 450 or other CDMA technologies. And really look at what kind of business models do you put in place for CDMA, whether it be machine to machine or fixed wireless access. This has been an interesting journey if you will.

And it is a very challenging market with disparate opportunities. So, we have been extremely careful in this part of the business. Because we have very large customers in North America and then we have smaller customers outside. So, we’ve been very, very selective on what that means in terms of commitments to products and also what kind of business cases that we see in non North America markets so, overall good but challenging market.

Evolve the customers with the Ericsson LTE solution. We have been delivering the customers to the Ericsson LTE solution, biggest customers being Verizon and Sprint. Sprint actually will be deploying our RBS 6000. And we have now secured that they will not only have the CDMA installed base but they will also be using the Ericsson LTE solution. And that is also very critical when we look at how we will move forward with CDMA and how we will ensure this migration. So, we have common CDMA LTE platforms, I’ll take you through a little bit what that looks like.

So, Johan talked about the RBS 6000 and how this is extremely crucial for Ericsson going forward and how successful we have been with this. And I am happy to say that we now also have CDMA as part of the RBS 6000. So, we will now have a multi-standard solution that also includes CDMA and this has been very key into development that we have done. We ensure common R&D, we ensure common supply, take advantage of the standard platforms that we have developed within Ericsson. So, let’s go back to the base station.

So, we looked at this. And if you notice, there is one slot that’s empty down below. And I think you know that Ericsson is very good in network rollout. I think this will probably be the first time that we will and upgrade done in heels.

So, now we have CDMA in the RBS 6000. And why is that important? If you look at where we are going with CDMA in the next phase of the lifecycle if you will, it’s going to be really about monetizing the investment, monetizing the installed base. But it’s also going to be about ensuring that we have longevity for the platform, lifecycle management and ensuring that it is as modernized as possible. So, this and very important inflection point, not only for 3G to 4G but also ensuring that we have a modernized CDMA network that will be out there for the next 10 years. So, it’s extremely crucial that we are part of the overall RBS 6000 family and the overall solution. And it ensures the profitability of the business going forward.

The other area that we have been working on very diligently on the R&D side is ensuring a smooth migration on the core. So, you have 1X today on the CDMA core network. And we are through software upgrades going to be enabling the operators to be able to move to voice over LTE. So, again, ensuring the smooth migration evolving the overall technology that we acquired into standard Ericsson platforms and ensuring that we address the inflection that the operators will be facing.

Let’s talk a little bit about the CDMA market and the dynamics that we’re seeing. We will see growth in the next five years in the CDMA subscriber base. But the rate of growth is going to be different than we see in the other technologies. And the majority of the growth will actually be coming outside of North America which is not necessarily the market that we are addressing.

We are going to see continuing investments in 3G in all markets, this is to ensure that we meet the demand on the smartphones, the capacity requirements that we talked about. And ensure that as we deploy 4G, we have the base 3G coverage and the capacity to address the needs that we have today.

At the same time, we see that the operators are beginning to sweat their assets if you will, taking the opportunity to try to keep the network without doing the upgrades. So, it is a little bit of a balancing act. You need the coverage but you want to maybe not make the investment and wait until you can make the investment on 4G. So, it’s a little bit of a fine balance that we have to watch very carefully.

So, what does this mean to our customers? In the short term to medium term, they are beginning to start thinking about investing in 4G, accelerating their 4G investments as well. But at the same time, they have to ensure that they have the coverage and the capacity on 3G. The majority of the traffic that we see is on 3G as we talked about, it is on HSPA, but it is also on 3G, on CDMA as well, very, very important that they address those capacity requirements as they build out the 4G. It’s very, very important for us to leverage that.

The other thing that we’re seeing which is extremely crucial is to ensure that you have flawless performance. This is a technology that has been around for a very long term, even though we are modernizing it, it is also crucial that this technology works without any issues. The requirements on quality on 3G are even higher than what we are seeing on 4G technology.

Midterm, it will move into sustaining. This is no surprise. This is what we have expected. If you will, it’s happened, maybe later than we expected. So, it will eventually happen. But in this phase, the networks will still remain. And they will still be in service as we talked about on the GSM side for a long time to come. So, how do you monetize that, how do you leverage that installed base, what can you do with the equipment and the installed base that you have as you offload your high data users to 4G? Machine to machine, other types of applications, we are working very, very closely with the customers to monetize and to look at the next phase of that 3G investment that they have made.

And then, I have a graph. So, it’s not really only CDMA, but it’s also really the intellection point, when does that crossover point happen? And what will be the key driver? So, there is no one real answer that I can give you to say it will happen on that date. Because it really depends, it will depend on a few key drivers. Some of those drivers are the availability and the affordability of LTE handsets and potentially some iconic devices that will make that switchover to LTE. It will be about Dual mode devices.

And how much traffic will those dual mode devices generate not only for LTE but on the 3G base. And it will be very much so about the incentives that the operators are going to be giving to their subscribers to move to LTE. So, as those rate plans change, that’s where the traffic will change as well.

So, what does that mean for the CDMA business? It means that we are changing our approach. We have changed our approach to be very much customer driven, very much focused on developing not feature speculatively that we believe that the operators may need but very, very closely monitoring what is it that they believe specifically will generate additional revenue on 3G, capacity coverage, requirements, quality requirements, modernization requirements, those are the type of areas that we will be focusing on in terms of where we put the money for R&D.

And we know the transition will happen. So, we are anticipating that transition. And these are examples of anticipation of that transition. It’s about making sure that we monetize it, when we know that there is going to be this shift, and there is going to be an investment, how can then we take the opportunity to also modernize what we know will remain in the network for a while to come. And how can we plan for the phase down when it eventually happens.

One thing that we want to ensure, as we know that this business evolves is that we remain profitable. We have been extremely successful in this acquisition. We have been extremely good in maintaining this transition during the integration. And we want to ensure as we enter into this next phase of the CDMA lifecycle that during this long tale which we will work with, that we will remain extremely profitable during that period of time as well. So, thank you.

Ase Lindskog

Thank you Rima. You said clearly that there will eventually come a time when the CDMA business will decline. And is it possible to elaborate on the time when that will eventually happen.

Rima Qureshi

The answer is easy, it depends. And it really depends on the operator. So, it depends on the geographical reason, and it depends on the realities that the operators are dealing with. In some respects you could say, our reality is a little bit easier to deal with because we have some very large customers in a specific geographical area. So, it will be different timings for different operators depending on the plans for those operators and the specific realities that they’re facing with. And we will adapt based on what we see coming from those operators. Best answer I could give.

Ase Lindskog

Thank you very much Rima. Thank you.

Rima Qureshi

Thank you.

Ase Lindskog

Ericsson has 50,000 services engineer. And I’m happy to introduce Magnus Mandersson, Head of Services will talk about the services business. Welcome Magnus.

Magnus Mandersson

Thank you very much. Thank you Rima, we did a fantastic job together I think in the first nine months. We’ve never added on as many carriers in cabinets as we did this year. We also rolled out tremendous amount of CDMA radio base station, fantastic anyhow.

What I think is running around in our customer’s mind is whether it’s going to be the big who beats the small or the fast beats the slow. But one thing is for sure, only the lowest cost provider will prevail. And I think this is the most important thing. And when we’re seeing all these changes out in the networks and the challenge is that our customers are having, they have a good partner in the Ericsson Services.

I think we have a fantastic foundation to leverage on the challenges we’re seeing out there, whether it’s technology or if it’s just business consultants. We have developed a scale we are sitting in 180 countries. We have a fantastic competent workforce over 50,000 people working with us. We’re also having a portfolio mix that is giving us a good foundation for take in the cycle (ph) of business. We can scale up when its network rollout and we can also hold out when it’s Manu-Services and support businesses.

And I think Hans and Johan expect quite a lot about their business models, I will do the same. I will talk about what’s happening out in the network modernization. I will also stay a little bit with how that has changed in the world overtime and what we can foresee going forward. We’ll talk a little bit about the Manu-Services scale as we’re having and how that model is taking around. And then, also the new opportunities we’re seeing in the OSS/BSS the business is changing and more customers are moving over today with our plans from voice. And then, how we have scaled up the business all-in-all.

But let’s start then with a little bit of what we have in the market trends. And as I touched upon in the beginning here, I think the global markets really, really gives a good advantage for our services. We’re seeing that the mobile broadband is exploding out in given parts of the world. And I think within the coming couple of years this will yet go in exponential explosion. What counts is of course, you’re seeing when you’re one sort of simplifies when going to this little nice body and saying, as to shifting and take a chord and then it’s done. It is a little bit more than that even though, it has become much-much more, simple than it was. And by the way, this fall, we have then stored more than 300,000 so far this year, which is of course in the norm, (inaudible) capacity.

What happens of course is that we go in the network modernization we’re also doing a lot of second wave tuning and optimization. And that is a service that we sell and talk about and really understand where it is. But that’s really the tuning of the whole radio and also all the back call. That is typically a higher margin business than the network rollout. But it’s a combined service so to speak.

We’re also doing a lot of proactive support which is a network planning part of the business. Johan spoke about the football game for instance, which is our customer is asking us, okay, we’re going to have a big event, it might be the Olympics or hockey game or the Super Bowl. Then we go in and under a proactive stab, on what’s going to happen in the traffic prediction. And load up to network so we can take whatever date that you would transfer through.

Then of course, we’re seeing that manual operate the system also were changed or changes the changes in seeing the voice going down dramatically, data coming up and consequently how do they cope with the complexity of that. Some is already sitting on subscale business. They need to do outsourcing around that. Other one, they need to do process consulting. And really monitor the network performance around it because the change is huge in the networks, you’re going from slightly sun setting parts of the GSM or CDMA and bringing up a lot of data. This is very, very rare complicated things.

On-site, yes, you pull in a couple of cards. But in the network such as, it’s a lot of engineering, a lot of planning, a lot of deciding, a lot of integration and implementation services. This is hours and hours and hours and we charge for everything. I think this is really a great business for us. And the complexity for sure will be greater as we go.

We’re also seeing then that of course in connection with this, the OSS/BSS changing dramatically. And the needs of having intelligent OSS, not only the element belongs to that has been delivered by the vendors but also a great OSS/BSS is taking care of so to say, vendor diagnostic systems.

In conjunction with us then going over from voice to data, and the need of having more and more new offerings, all of us sitting maybe with a smartphone this with connection with an iPad or a computer, we want to really obtain the smartest and the cheapest and the best offering out in the marketplace that BSS everything for a customer, this is even more complex. Here, I think we have a lot of good experience already today but a lot of business to take from.

I showed you this one in New York back in May at my birthday. And I think what we are talking about is a fairly stable market. We are generating on the addressable markets somewhere around $96 billion up to $105 billion as addressable market. We’re seeing then a cagier going in a couple of coming years somewhere around 6% to 8%, nothing has changed from that one. But what is important is that the growth is of course coming from the internal spending from the operator.

And as I believe at least, a lot of our operators need to take more services out from vendors as complexity is increasing. So, we are seeing that a good market is started moving over Ericsson. We are undisputable market leader of 11%, the nearest is far less, I think we have 40% greater footprint than the nearest which I would move in through here, I haven’t named them. Scale is everything in this business. But what is the characteristics is that it’s very fragmented. And two thirds of the businesses is actually coming from local service provider.

And as is Ericsson, we’re of course using these service providers as well when we’re doing that roll up. Because we’re focusing very much on the project offers itself. So, demand on – if we don’t have our Manu-Services contracts, it’s then taking out of these resources locally. But also on the systems integration, we are taking integrators out to this market. So, this is also approved for us to find good acquisitions to grow our own market. So, we have actually done a capital of that position over the year with HYC, we have that pride, we have that capital of other system integration companies that’s coming from the local service providers.

What’s good for us is of course is that we have basically everything globalized. We have, as we said last time when we met, we spent a lot of money in investment, in process methods and tools and consistently evolving that model. I will go through the delivery strategy later on but this is the key for us to prevail and out-compete our competitors.

And I think again, we are the undisputed number one and this I think also recognized by our customers. We’re coming very well out in our customer satisfaction index. And they’re very happy what they’re seeing, okay, we’re making mistakes as well as everybody else. But yes, the foundation that we’re having, these strong products as we’re seeing behind us, this is only radio, when you’re then coming out to routing products, core products BSS and OSS products. Then of course when you put all these systems together, this is very competent. I think that’s the reason why with a strong product foundation we can excel in services. So, it’s very much linked together and we’ll touch more about that now and we speak about the services business as yet.

Some of you will remember, if you remember, we met in New York, a lot of discussions where this was a change or structural or (inaudible) deep. Of course we saw that all the interruptions we had we delivered disturbances in supply chain based on the shortage of components back in the fall of 2010. And then the tsunami in the spring time here has given us a bit of disappointment. But we came back very strong in Q3. We’re again back on professional services in the mid teens in profitability, good growth with 13% double digit growth in local currencies.

We signed 14 new contracts in Manu-services. And adjust info in for local currencies, that’s 8% growth. And we did also six extensions. And again the extension is quite important for us. Remember this when we speak about the business model and the curve and how we make Manu-service. And then of course, we took four significant contracts in systems integration in the OSS/BSS in full transformation. So, this is coming more and more.

We’re also seeing a good growth then of course in the back water of the radio, the strong sales in radios. However, we’re faced with tough modernization contracts and consequently a little bit hampered on bottom line. But again, the whole machinery is scaled. So, of course with the dip we had in, we’re not getting components and products in Q1, is then picked up in Q2 and Q3.

We should also remember that last year we took the destruction below the line. This time, the whole 2011 that has been inside. And in the quarter, we had a 1% point that was hampered by that.

Okay. So, why could I be fairly bold in New York, I didn’t have this slide at that time. But we have had good growth in seven consecutive quarters in local currency. This is important for us that we keep this in mind. We have 200 people working for services in Sweden, and we have Swedish currency. It is a very local business. So, the rest of the 180 countries and 50,000 more people is invoicing in the local currencies most of them. So, that we’re growing the billing capabilities where the business, is more important to see and that gives us a good underlying business.

So, now is my time to be a little bit detailed. And I think this is important because it’s a little bit of history to speak about this. Some of us have already and when we began the 2000, the GSM and first licenses was given out. And remember, we had the 1G over there and then we have all the TDM networks, the amps and the NMTs. We’ve rolled over to GSM and that was the first time we standardized the business. Here that’s the first time in the world separate switches with BSCs and MSCs spilt with the BSCs on radios.

Typically at GSM 900, we had 16 different radio suppliers. We had about 10 different switch suppliers. And it was all the tradition was, very localized, many, you had Alcatel, we had Siemens, we had Nokia came in later though, but we had Ericsson, we had combination of Motorola and Siemens etcetera. But none of them really could scale. So, what happened was when, the coverage was built out the 900 manual the regulators gave out the 1800 licenses and that was given then typically to utilities. Like the literacy to water company went into the business. And out of that, start to roll out. It was the time when Nokia came in, you remember that. And Nokia scaled up here. They didn’t have any legacy, nor and very standardized product and grew fairly fast.

Then, we came into wideband CDMA and wideband CDMA if you didn’t have a good footprint on GSM, you could have really delivered by the CDMA. So, this reduction of 16 basically we’re down to 6 of them. And of course, that changed quite a lot on the footprint. And again, this is about the scale. So, how do you scale network rollout, how do you scale the support around it? So, I think it’s coming in, we have the advantage we’re having premier products on GSM, 900 and 1800 and also on 2100.

And when we speak about this little body then, it happens every now and then that the call breaks and then the man in the van has to go out and do a change, that’s part of the hardware support. It happens that the software piece is not collaborating as well as it should and that we need to support and due correction patches in the software. That’s also higher margin business.

But you should also remember, when we’re coming into the – to the site then, in the early days, we had in 900 we had basically an only antenna to start with to have coverage and there were three sectors. And then, you had three sectors, there different antennas in the tower. Then we had 1800 then you put on another antenna set. And then we put on 2100, a new antenna set. So, it’s not only you know, pulling in chords here, it’s also to take care of the sites. It increases tremendous in complexity how you do your element part in the notch and how do you tune the networks with all of these things. But also having people that basically renovating and keeping the (inaudible) in the site on a well predicted way with preventive maintenance as well as corrective maintenance.

And then, we are moving over to wideband as well as LT, we’re getting into a completely new set of driving the sites. Not only three antenna sets per frequency band you have four persecutor. And now you can think where do you have three sectors, five sectors or six sectors is an enormous business for us to climb the towers, fix in everything. And you know, in the 4G, you have the SON, self-organizing networks which basically fix in radio frequencies in between. And then 3G see my manual but here we did an acquisition, UNMSF to optimize that portion of the tuning and in December still completely manual. So, to have a lot people that consistently generating money is important for and that we have with this modernization.

So, consequently we have the people on ground. We’re leveraging on our software that we’re having in our OSS, we’re also leveraging on the everyday that we’re visiting the sites. The European modernization is of course a commercial tough part for us because part of this service is that is we’re taking care out on sites is out of scope for payment. And that’s typically done 18 to 24 months, and I think this is what you spoke very well about and as well year one.

So, this is typically how it looks like before, I know it’s a very messy slide. But if you look at that slide before you see the three different radios. It’s one radio three sector. You have multi vendor at site, I think Johan had up in the nice metric, so vendors was onsite our debt is not organized region by region. And then, how it looks like in the electronics afterwards, I should have had also it looks like onsite on the rooftops as well as on the towers, but I will have that next time.

Then let’s move over to Manu-services and why the Manu-services is having its dynamics as well. And here again scales everything. Very early on we’re being off, now for 15 years and doing Manu-services. And we’re really being able to scale on the local markets as well as on the global for the past five to seven years. And very early on of course you had the transition cost and you have, you know, the discount you’re giving to the customers that hampers the profitability.

And then secondly we’re having a transformation where we’re basically folding over everything that comes from where you’re working, to tool sets and simplification of processes. That cost quite a lot of money. But when you have over that hump you start to generate money. And here typically we’re not paying up any capital we’re yes losing a bit in the cash flow. Because if you look into the different phase, which you could see that we have taken so far 47 compress this year, that’s negative cash flow. And then if you remember last year, we took 56 that were under transformation. And then, if you think of how many hundreds of contracts we’re having that’s in full line business then you have the scale. And this is scale.

And we can continue to do scale, especially in the local markets because this margin of course if you don’t take over staff on field operations for instance, I don’t need even to take network rollout people from ASP or ASRs I can use these people that I’m having because we’re full scale on local market. So, I think this is important. And we’re very, very tough on the governance and of course we are running governance based on performance, on how we’re performing in the transition and the transformation that we’re very motivated and produce around this and then of course on the financials and the opportune to do officers around it.

And I think when you look into this picture you understand that we’re covering rate part of the world. It is not that easy for anyone to come into our markets and claim that they have scale, capability and competence when you have taken over 22,000 people from the operators. And half of the staff is already coming from the operators of the service staff. We have the same thinking, we have the same way of discussing, we meet the same question mark. I think this is the great thing with it. And of course, having 850 million subscribers and users like you and me, and with the same tools and the same simplified processes and with the same policies, that gives a far much shorter lead time and far much better quality. And this is what you’re asking. We’re coming back to that and again when we’re going into SSP BSS. But this is really what you and me is asking, you know, can I get a little bit better speed, if I pay more, can I get better speed, can I get a better service than the prepaid customer.

Of course the whole theme, we’re having out there, there are multi-vendor technology they are multi-vendor. And then of course we’re running everything out of platforms from four different global centers. And reality I think today we are more or less 80% of the Manu-service delivery platforms are sitting in Romania and India. And these two is – Romania is into a full efficiency gain now. So, even though it’s a little bit more expensive that per hour than India, I can tell you in efficiency there, they are there. So, it’s a fantastic investment we have done.

You can see this site as a long term investment, this is equally important for me as I think it is for Johan to have the best R&D engineers to have the best service delivery engineers. And these two are really in harmonize when it comes to how we are developing the products and how we’re taking it out to the marketplace. So, I think this platform is optimized for cost structures and quality. And we can grow greatly on it.

Then, if we look into the OSS/BSS, and here we think we’re attaching up on again a great market. When it comes to our products, of course as we’re talking more about that I will ask Frank to energize you around the great business we’re into there. As I said, we’re already in Q3 with for transformation on deals. And here we’re basically taking everything that’s a anomaly how we used to talk about one to many. But when it comes to OSS/BSS it’s many to one. Because our customers have had many OSS and elements that they need to move into one, to have many, many systems on dealing that needs to move into one in order to have the efficiency and really respond to Denise (ph) we’re having as end users.

And here typically we’re seeing a $20 billion market in services for us. And I think when it comes to the product side and two thirds of the total offering it services. Of course we’re pushing this like nobody else. We have 12,000 people working with us today. We are moving in, I would say the first quarters, first three quarters this year we have taken about 1,500 people in that is highly skilled on multi-vendor and multi-capable on technologies. So, this is next brewing chapter for services.

And again, I’m coming back to this time, what are we doing in consulting and integration. And remember then, this is not from a business standpoint, it’s 90 to 1. We deliver it out from 1 to many, I’m confusing I know. But again, as we have done now the investments in both in LHS, in Telcordia lately, we will have a very good product catalogue and footprint that we leave from. But when the consulting and SI team is coming in, they come from the service led business. So, we can do either or, we have taken over the whole prepaid and postpaid billing from a couple of customers but we do both R&Ds as well Tran services around it rationalize the business processes, getting down the lead times for putting our new towers in place as well as then, increase in the quality of work.

I think I touch upon our Manu world R&D global scale and global scale is everything. Then, yes, how we should extend our competitive advantage there. It’s all about us, it’s all about the people around us. And you got to have a very strong competence in the delivery organization. And of course we are doing everything we can to cheat this strong workforce of 50,000 plus to be the best on the marketplace. I wouldn’t say it’s easy but it helps when you’re having rate products. And you have the best R&D in the world to put next generation technology out. These two is lethal I think on the marketplace.

And I really, really, I’m very encouraged every day that I’m seeing what we’re doing and how we’re putting new technology in. But not only that how we’re actually evolving all the technology as we’ve done CDMA and GSM, and you got really to have the best people and they got to be fully aligned what’s happening in the networks. So, what we are doing of course is that to standardize everything we’re doing, packet-ize the services as we are packet zing this, we’re packet zing our service offerings.

And we’re consistently rationalizing our tools in a way we’re working. So tools harmonization here is important. And that’s the reason why we’re consistently investing in tools. And that’s the reason why we’re of course buying tools companies like Telcordia.

And then of course, I think the key is that to have a centralized delivery machine, with I will show you in the next slide, having four really global centers that’s centralized. And being able to reduced from end and delivering more from the backend in order to have a better replication of everything we’re doing as well as billing competence on one place is easier than build competence on others. And the cost structure will of course be completed different competitor odds. But you can never do it if you don’t have the scale. If you don’t have all these great 300 customers that is, consistently asking us for new challenges in products, then we can never bill this. So, I think this is important when you compare ourselves to others.

So, how do we do it? And again, we have come from, around now if you remember about many of you have followed us many years we’ve come from very localized to 23 to 24 global service delivery centers now down to still fairly localized but much less, 10 regional centers and then four global centers. And our aim is of course to continue to go the path down to remote this as much as we can. And as we’re seeing on the product side, a lot more can be done from remote, a lot of planned assigned engineering, integration, tuning optimization can be done from network operation centers.

So, and four days about to be scaled up, I think we can foresee that we have a better cost structure. And when we all optimize fully under 3G and 2G, we see this also differently. But that will never replace the physical hands on thing when the chord breaks down in the base station or on a router whatever it is. So, people on ground, local presence with a strong global backbone, that’s really what everything is all about in this business. And I think we’re doing, we’re supporting more than 2 billion end users in our systems, 850 million subscribers and users out in the world. Nobody is having that global presence as we are having.

We have a financial strength to take more deals as Johan explained. And I think the combination of great products, the ability to be product diagnostic and strong service deliver centers is the key for future. So, our takeaway systems as you are seeing, yes we are enjoying a fantastic ride under mobile data explosions. And this just gives us an even great opportunity to capitalize on that growth.

We spoke about the mobile broadband, the Manu-services offerings and also the opportunities we are seeing long-term on the OSS/BSS. And of course, that we are pioneered very early on capitalizing charging for our services both on the product near as well as on Manage and now we’re also seeing how we take this transformational service all the way along on the OSS/BSS.

The thing for us is to do very productive or customers near innovation continue to have the best competence on ground, and relentlessly working with cost control. That we give as a very good underlying business and extension of a profitable growth. Thank you very much.

Ase Lindskog

Thank you Magnus. Thank you very much indeed. You talked a lot about scale in your presentation. And I know we don’t talk about our price strategy, and so Johan and Jan stressed them. But scale, what advantages does, it give us in other parts of the business when we meet customers and so on. How important is it in a concrete customer negotiation situation.

Magnus Mandersson

That I think scale is everything. It’s everything if you have a product you got to have a manufacturing scale. You got to have development scale and you got to have, and an equally as we’re having them on delivery that we hand over to an organization that’s fully scaled locally, regionally and globally. So, if you don’t have that and as I tried to explain, all the ones that sorted, you can’t continue to run product diagnostic service business if you don’t have the scale from the products. So scale is everything. For us, scale is everything and we are there.

Ase Lindskog

Okay, thank you very much Magnus. Thank you.

Magnus Mandersson

Thanks so much.

Ase Lindskog

We have a new member in the Ericsson leadership team, new Head of our segment business unit Multimedia. Welcome Per Borgklint.

Per Borgklint

Thank you Ase, hi everyone. And I was not with you in New York as I joined Ericsson on June 7. I will start talking about a bit of the recap of Q3 and then I’ll move into talking about the OSS strategy and OSS market opportunity.

I need this flipper which is hidden here. So, Multimedia Q3, you could see that we were entering into positive results with an 11% EBITDA and 11% year-on-year growth, strong growth in segment, revenue management our prepaid systems, operates of all the solutions. We had a strong intake of new orders in charging and billing in one 19 orders in the quarter. We also had a very strong development in IPTV, Chungwa Telecom, 1 million subscriber Taiwanese IPTV network swap out.

So, OSS/BSS market opportunity, OSS and BSS is a large area, I will not go into any details, I will keep it on a fairly high level to make you understand the concept where we are, where we are heading and our ambitions within this year. Furthermore I will go into the strategy and say how we’re going to succeed and also elaborate a bit on how that is going to happen.

So, OSS and BSS, the orange side of the slide shows that OSS market, that’s the part that discloses to the network. The green part is the one which is showing BSS which is closest to the customer. BSS is about what we daily are doing in an network as a customer, you, me and I, always from using the systems, meaning, searching, billing, getting an invoice, making sure that when we go in and get the subscription that the services that we want to have is included that it is actually also possible for me to get in contact with the customer care, get the upgrades and find information about myself for myself care, homepages and so forth.

So CRM Systems, everything that we’re interacting with operator. The OSS side on the other hand is positioning of the subscriptions, of solutions actually making possible for us to get the services in the network that differs depending on if you are on 2G, 3G and 4G.

And if you look at this market, it is developing extremely fast. And Johan and Rima and all Magnus as well has been talking about this friend they have here. So, in these books you have 2G, 3G, 4G and CDMA, that’s a substantial number of different technologies having different type of terminals, different type of subscriptions. On top of that you’re adding additional functionality that requires specific solutions on the IT infrastructure environment that enable terminals but also solution for us as end user. But to actually get what we want from our subscription.

So, you saw here, it’s a human being. We were in the 2G, 3G world, then it was voice and SMS, moving in, this is an electrical meter reader, that’s M10, that’s when we’re moving from a traditional voice subscription to data, smart solutions for actually creating efficiency in verticals. This also requires additional system support to be able to enable this in the network but also enable this for the verticals like electrical, industry or energy industry or whatever it’s used for.

Going forward we will see this exploding into variation of terminals, video cameras being one for example, which is directly connected with the soft sim instead of a traditional sim, again a new provisioning which needs to be handled in the network might even be on a global scale, standardized from the supplier and producer of the video camera.

Furthermore, what is going to happen here is also of course that we’re going to say, see, completely different ways of developing and utilization of networks and how they are so to say, creating value in the overall different verticals that we are going to be deploying the services. And for example, if you take already today in Norway, when they’re fishing up the salmon in the feuds, these salmons are being measured full way from their going out for temperature, full way down to deliver to get the exact quality for being sure that they’re delivering that 10 customer in the south of France. So, it’s tracked in the truck from it’s coming up from the water, full way into the restaurant. This is a typical service and solution which will also need a different kind of support system.

So, what is OSS/BSS market size? So, first of all end user experience, that’s us, so we will require and need different kind of end user experiences depending on who we are, what we’re doing. For example, some of us might actually be looking a lot TV and radio, meaning that we would like to have a subscription which fits with our behavior. Some of us might only look at voice. How do this then actually being enabled?

Well, I think that we’ll see more and more personalized subscriptions, meaning that you actually won’t be able to, when you’re in the network moving from one area to another would be getting direct responses from your operators saying now it’s possible for you to upgrade your subscription. You can move into new subscription including video, because you’re looking a lot of video on your films, you should have our video subscription. Or I am somewhere in an area where the utilization of the network is lower and the operator wants me to actually, consume more. So, then they will push out the message, it’s possible for you to get more data for the same price. That is end user experience. But it can also be quality of service, it can also parental control, it can be several things that’s is required actually meet. And it will require us to adapt, the OSS and BSS systems to enable this.

Business efficiency, Magnus covered this. There is a lot of things that needs to be done in business efficiency, most OSS and BSS system is actually made up and planned not for 4G in the future and large scale of things which I had been talking about. They are done for a 2G voice and SMS which is the main part of the revenue the operator has. In the future, some 90% of all data will be video. So, then you’re moving completely shifting from the traditional. On top of that, you also have a completely new over the top solutions coming in from the side, competing with this traditional revenue, which also will mean that operator needs to adapt and have different systems and be able to support their customer needs.

Business efficiency is also about what Magnus was talking about getting the systems together. We might have several systems doing the same things, provisioning that takes five days. But when I go in and buy a video camera and I wanted to go online to get my clip into YouTube ASAP when I’m filming, then I don’t want you to take five days, I might accept five minutes. That requires also support system to be able to enable this and make it happen.

Business innovation, there is a lot about over the top solutions, things that are coming in, new features, handsets, new user cases, which needs to meet the demand of the customers. And it’s difficult to really maybe get a full picture of business innovation because it’s moving extremely fast. And things that were not existing yesterday might exist tomorrow. And they are also getting global in a way they did not in the past when you were in 2G GSM and voice.

So, that impacts the OSS and BSS market and it’s getting an crucial important part of the networks to be able to actually capitalize on the CapEx investments. So, here we can see that market size is some $35 billion that’s the external market where we are. On top of that, you have another $35 billion which is the internal spend of the operators in the OSS and BSS segment including own development and management and services. So, it’s a strong market with good growth 6% to 8% annual growth rate.

And, has characteristics that, looks like this. It’s a scattered marketplace. Some tall players have roughly to 55% of the total market. And the rest is actually spread. We have local companies, regional companies and global companies. What sticks out here is that you can see that Ericsson is in business intelligence, customer relationships management, billing and revenue management, service fulfillment and service assurance. So, we are having the full cycle around for both OSS and BSS. Our competitors are not there.

Worth mentioning is also that you can see that when you go globally, and locally we have both SI resources and SI capabilities globally as well as locally. Some of our competitors might SI companies or they might actually be software companies or a combination of both, in a local or in a global or regional presence.

This is a scattered market compared to the network side where you have few players, three, four and then going back in the history it was 15. And we have some hundreds of them on a global scale delivering OSS and BSS systems. So, it’s a different market game and a different place to feel to playing.

So, how are we going to work on our OSS and BSS strategy going forward? I’m going to cover that briefly here. So, we are strong in certain areas. But we’re having an ambition to grow and become number one or number two and really up the form to get with our customers delivering the best services together with bucks. One of the key areas which is traditionally in software companies is we’re going to do hard virtual for decoupling to make sure that we’re having building blocks that can easily been modules. You should actually view OSS/BSS as Lingo (ph), a Lingo of different kind of systems and solutions that you should be able to simply put together to solution to actually provide the end customers and the operators to monetize the network.

On top of that it needs to be cloudified. So, going from traditional software to software as a service in combination also with being able to offer it as one to one solution to an operator or a host of service so one to many, which then also changes the way of go to market.

Magnus talked a lot about the OSS and the BSS transformation deals that folks have been taking in transformation. Transformation sales is about moving in, in a legacy network where you see a lot of customers having old system for 2G and 3G, upgrading this, putting new systems in place to make it ready for the future. This is normally fairly long contracts they divide it by being software 20% to 25% consulting 10-15 remaining part service integration.

Product sales, is traditionally upgrades of systems, new software additional licenses and frequencies, short in times then, better margins and higher level of software being 70% to 90%.

So, what makes Ericsson competitive in this area? Ericsson has a holistic operative perspective, we understand the end to end solution. We understand how customers are using it and how these things actually apply to the competition. We have the true real time competence and possibility to act agile to actually be able to help the customer to adapt and move in this extremely fast changing world to make them able to monetize these changes.

Furthermore, we have a reflective engagement models with books being at. And global services networks and multimedia, which means that we have a holistic view also from other parts of this. And we have large installed base, 1.3 billion subscribers globally today is using and billing system or a rating solution from Ericsson.

Ericsson and Telcordia, and Hans mentioned this earlier Magnus mentioned several times, it is being close to Q4. This put us in a leading position in service requirement network optimization, service assurance, both fixed and mobile. And we have a good joint strong footprint.

Summary, so, US$35 billion market external, US$35 billion internal. We have ambitions. We are strong in certain areas we are going to develop others. We have some competitive advantages having in the holistic view understanding the full fledge of the operator needs, from service layers up to network layers seeing what that impacts the networks, what kind of solutions we require and also enable that for the end user. So, we’re aspiring to be having a strong position in this area. Thank you.

Ase Lindskog

Thank you very much Per. And you have come on board very quickly since you used all the internal abbreviations. Just to clarify the BUGS is Business Unit Global Services.

Per Borgklint

Exactly, Business Unit Global Service.

Ase Lindskog

So Per, you are Head of Business Unit Multimedia. But you didn’t talk about the multimedia strategy?

Per Borgklint

No, I did not. We are currently reworking that and we’re going to come back to that later on in a more detailed manner.

Ase Lindskog

So, we have something to look forward.

Per Borgklint


Ase Lindskog

Thank you very much.

Per Borgklint

Thank you.

Ase Lindskog

Thank you. So, we have now come up to lunch time. So lunch is served outside here. And we meet again at 1:30 in here, at 1:30. Enjoy your lunch. Thank you.

Session 3

Ase Lindskog

Ladies and gentlemen, welcome back. We are ready to get started now for the last session in this venue before moving to the Ericsson Studio. Welcome back.

I’m happy to welcome Gilles Delfassy, President and CEO of ST-Ericsson. Welcome Gilles.

Gilles Delfassy

Thank you, thank you very much. Hi, good afternoon. As you probably have heard, life at ST-Ericsson is interesting, always eventful and never boring. So, it is my pleasure today to briefly update you on where we are. And what we are trying to accomplish, so bear with me. Sorry for that slide, I didn’t have the choice, they made me, okay. I don’t know why but, anyway.

So, in a nutshell, let’s start with our journey. As you know the company was formed in 2009 and it was pretty challenging already. I mean, it was the merger of three very different companies with lot of redundancies, very different culture and focus and product portfolio, which was really more of a focus that future for in the rapidly disappearing market. So, not a lot of hope short-terms. So, basically 2009 was mostly dedicated to integration work not the most sexy part of life and a lot of structuring even less sexy of course.

2010 was the year of transformation, basically complete refocus, what we try to do is complete refocus the company towards completely new products, squarely aimed at smartphone and tablets with big difference compared with previous focus of the company. And basically we’ve seen the first signs of traction, the first winds in 2010.

And this year, 2011, is when we start reaping the benefits of all of these hard work, all of these efforts. We start delivering these exciting new products that we have been talking about for quite some time and basically starting to build our new business on these new foundations.

That is maybe a little conception so let’s give a couple of proof points. While, the first one is necessary but not very fun. I mean basically we have reduced the number of on these sites third quarter by 25% and believe me there is still a lot left. And we have reduced a number of employees which is always very sad by 24%. By the way we have reduced the customer, that’s in units and people. We have reduced the customer base by 26% so we have tried to take out more in high cost countries than in low cost countries obviously again, not necessary but of course not nice to do.

On the more offensive side, we have refocused our product as I was saying and actually we just passed a good milestone in third quarter of this year. For the first time, the majority of our sales was on new products as opposed to legacy old products, again that’s a good indication. And more importantly we have mentioned, we have publicly announced that we are engaged today with seven out of the top nine device manufacturers and that’s ranked, there are many ways to rank them but that’s counted by order of value. And actually out of these top seven, we have already disclosed four of them, HTC, Motorola, Nokia, and Samsung as being actively engaged with switches. Again, which warms our heart because that’s really how we think we are going to win.

All important financial updates, third quarter our last quarter showed some up-tick in revenue plus 7% quarter-on-quarter to $412 million. But obviously, we were getting losses at $194 million, our financial situation is still extremely challenging and not really acceptable. So, of course obviously, we are completely focused on improving the situation. We have announced in June a new cost reduction program which by the way I mentioned during the rest quarterly call that we are fully on track in executing it.

We have also taken measures to improve our working capital, we start to pay off, we have reduced our inventory for the first time in third quarter by a little bit less than $47 million exactly. So, of course even though as I mentioned during the call, we are because of lack of visibility and some important programs we are not yet able to give you precisely the time when we come back to profitability, be sure and please trust that this is our absolute number one focus and priority.

But again, the better signs, our product transition which is clearly the way we are going to dig ourselves out of this ditch is continuing to progress. I said the majority is new products, actually it was 45% in second quarter, 55% in third quarter. So again signs that light is coming at the end of the tornado.

So, that’s our past and our present, what about our future, where do we want to go? I already mentioned that but I would like to remind our three major vital goals vision for our future. The first one is we want to be a leader in smartphone and tablet platforms, platforms for smartphones and tablets, that’s our key focus. That’s where we believe the action and the money is.

And the second one is to drive innovation in mobile broadband basically what that means is doing very good high speed modems to allow the deployment of all of these new high speed multimedia, as well as data networks that of course will succeed today. And the last one is to enable not only cool, not only rich but affordable devices. Basically the smartphone today has been extremely successful but it’s still mostly a $500 device. If we want to reach 50,000 billion connected devices, we probably need to bring that point down and we are working on it, that’s what we mean here.

Let’s talk about the bad guys, and why do we believe that we can win. Actually the reason we believe we will win is that it takes a lot of competencies, capabilities together to again succeed in smartphone and in platforms for smartphones and tablets. And we actually at ST-Ericsson one of the, against one of the any two companies which is able to play in both key architectural in the smartphone market. If you, you know, that actually there are two schools of sorts, almost two religions with its (inaudible) on its side of both smartphone solutions, there is the speed architectural solution where you have separate application processor and modem. And there is the integrated school of thought, architecture with those basically, these two functions combine in the same piece of silicon.

And of course to combine that, you need to have the two pieces or which is very difficult. And actually if you look at that slide, you can see that again, ST-Ericsson is part of the very, very small group. I mean, with all the competencies we’re able to play in both sides of the market. And you see, that’s a lot of competitors seem to validate that this is a good approach because they’re trying to mimic that situation. You’ve seen that for example, a couple of companies which had only application process sales, offering to catch up now and to fill the gap by acquiring medium capabilities, I mean, even the all important Intel of process, you know, has acquired modem business of Ericsson (inaudible).

So, basically yeah, everybody seems to be in line with us that this is a good situation to be in. The only thing is that we have been here, it’s hard. We’ve been here in the last two years, I can assure you, it seems to as that it takes couple of years to be able to put, not only have them but to put together all of these capabilities for a good solution. So, of course we wish them luck while not to mention but we think it will take some time before all at the same level.

A couple of – while, what about another proof point for that competitiveness. While, I hope you noticed but a couple of weeks ago, we have announced our first full Nevafill solution. So, basically the first smartphones in the shrubs, which is using both of the application process and the modem solution from ST-Ericsson from us, that’s an HTC device, the HTC Sensation Z710T, because the phone’s version is for the China mobile operator for the CDMA market. and actually that smartphone which is great by the way of course is a great opportunity to do a real to compare ourselves, a real comparison, side by side comparison, I think we can say with the best.

Because it happens that there is another HTC Sensation Z710. The absolutely identical, same mechanics, same battery, same antenna, same everything except of course the chipsets. The first Z70 was using wider chipsets from the South California company that I cannot mention here.

And actually if you compare them side by side, almost to our surprise, what you can see here is and you know, to do that we have not invented benchmarks, we have just downloaded very common benchmarks which are typical and are available on the web. And if you can see on the slide, the first two benchmarks on CPU performance and you can see that we are better by between 10% and 30% depending on the benchmark.

And next on graphics performance which anyway is pretty important and really outperformed the other chipset, by a significant factor. The next one is on web browsing. And you know web browsing is fundamental for the user experience using the smartphone. And again we showed good results.

And the last one, here as we can see, we are much smaller than the other competitor, the other chipset but actually this one is a power consumption in the cost molar is better. So, again, here we could not dream of a better opportunity to compare what we are doing with what the best is doing. And actually we are not too upset with the result of that benchmarking comparison.

I mentioned that one of our goals was mobile broadband. And of course in terms of mobile broadband, as you know very well, this year is the year (inaudible). So, I want to remind you that here we have announced our innovative SIM modem solutions which of course has squarely ended doing very good LT solutions. And that’s the cell N74 android architectural. And why do I think it is pretty good, well you know typically traditionally when you do a new modem solutions for a new standard, you develop a new hardware blog, huge hardware blog to implement the new standout and the then you try to connect that with because of course you need to be that compatible with all these other standouts that were before. So you try to connect that to doing out and multiple interconnect with what was exists, with your formal chipsets.

And you know it started with GSM and then GPRS and then EDGE and then word bound CDMA and then HSPA so when you start to add another hardware layer on top of all that the life starts to be really complicated. And that’s in this case we have decided to take a new approach with – software centric implementation, basically using dedicated GSP call to do that. And we basically stuff not as an add-on as an – to add the new block, hardware block but basically as a completely integrated new architecture which again is probably the firsts of progress sign or at least a big step to the holy guide which is software design radio architecture.

Basically, even GSM and that architectural runs as a software module so what is the benefit of all that? Well, it is extremely flexible, it is extremely easy to do multimode and to add a feature or a new function. Basically, it is almost the equivalent of that magic box that we have seen before except it happens in one square centimeter piece of silicon. So you see I don’t need heels either to update that 74 android solution when there is a new standard or a new solution of this standard, for example LCD to LCD advanced will be just download of a new piece of software. Again, all of that is here for a reason, what are benefits visible by the customers because they are the only ones that count.

Well, no surprise it is always the usual, it is still the usual suspects, it is better cost, smaller cost, smaller footprint and lower power consumption. So again data traffic too easily believe a very strong asset for the company moving forward. And by the way I have hot news from the press I just realized yesterday at 11:00pm we published a press release to announce that the cell 74 android has won an honorary prize for innovation at the CS 2012 in that regards for those of you, I am sure the majority of you will be there. So we will get the prize for innovation in that category at CS, so pretty good development.

But of course, the best I would say almost the only way to measure our real time (ph) in the market today is by counting customer engagements. And here again I mentioned between now Westfield which is of course single chip what I call the single chip architectural before also which is our SIM modem architectural. As I mentioned we have active engagements with seven of the top nine OEM manufacturers. We could do some guess work here because they are all mentioned here in the pie chart by order of value but actually to make the work easier we have already mentioned those that are publicly disclosed. I have mentioned them 5 minutes ago if you remember.

We also mentioned that just that’s on this (ph) note that on 87 odd platform we have five top OEMs which are engaged with us, only two have been disclosed, two names, it’s Nokia and of course with HTC which the sensation device, HTC as well. So that’s two out of the five, so three to go. I hope that we will have more occasions to give you good news on the introduction of their products in the marketplace.

Another way to measure attraction is on public announcements and honestly last year we didn’t have much to talk about and this year all of that happens in the last what three quarters basically from our previous (ph) announcement in Barcelona mobile world congrats this year with and again the succession of new phones introduced with our solution and they are very noble, respectable, success phones, get the Samsung 21 megabyte 4G phones both in T Mobile configuration and for the AT&T Wireless Network, some key again it just be plus modules win of Ericsson using you know Ericsson the module division using of course our chipset at very important busy laptop manufacturers, of course, a couple of other smartphones like the Panasonic, the HTC Sensation as already mentioned.

The last one which was I guess important was the announcement that Nokia and Microsoft have selected our Nevafill technology to power their to be the android solution, we are the solution so far to power their Windows phone, smartphones for the future which of course has been noticed I guess by you, I hope. Well then what is our role in the Ericsson Ecosystem basically why am I here today, I hope there are many reasons but I am going to try to find a couple. And so that maybe I will ask you to imagine a world where there is, I mean you have seen all the day all of these brilliant technologies from Ericsson and network services, multimedia connected devices.

So imagine one second, a world where, for example Ericsson comes with a fantastic solutions on your standard and there is no chipset available so nobody can do a terminal with it or even worse God forbid there are chipsets available but the innovation in the chipset for terminals world is so contemplated that these people in chipset world decide that they don’t like that innovation, they don’t like that new standard, so they are not interested to develop a chipset for that and what do they say in the movie titles that any resemblance with actually situation would be purely coincidental, yeah sure.

For example, let’s imagine one second that big dominion chipset manufacturer is not interested with HSPA Plus 21 Megabyte, they decide to skip it. Well Ericsson is a 21 Megabyte solution operators want to deploy it and they cannot because there are no terminals. Again, we are here to help you. Imagine another solution that there is – system that the chipset vendors are not interested to support although it would be good for Ericsson if it was supported. Another total imaginary and coincidental situation, imagine that there is a dominion chipset vendor which is only interested with the profit margins and not with volume. So they have great technology for chipsets or terminals but they only want to sell them at 65% profit margin and therefore the smartphones cannot get below $700.

Again, as I mentioned it would probably be very difficult to find 50 billion connections in such a world. So again, don’t worry that imagination was just a nightmare the world is not like that. As Ericsson roll is among those to assure that innovation flows freely in this world, that there is not only one engine of innovation in the chipset market for terminals but several innovations engines and that again the world is better for everybody. And all these new exciting things that we have discussed today can happen without being blocked. Again, jus to conclude, these are my take away messages, first of all well we have done a couple of things but we are very conscious that we still have a lot of hard work to do especially on the financial side as I mentioned that I assure you we think about it day and night here.

But again, we have done a couple of things and we are progressing. We have introduced to a lot of people, not even my cousin, outside my family have called the best industry, the best holding up in the industry for smartphone and tablet platforms which should allow us to reach leadership in the fast growing market very soon. Again, that seems to have been noticed by customers, we are actively engaged with seven out of the top nine smartphone device makers. We are now introducing finally in the market, our exciting platforms again, we have been talking to you about a different android for two years now at it is the first time you can go to a shop and buy a smartphone a pretty cool and sexy smartphone based on this platform.

I told you we have a big role to play in the Ericsson Ecosystem or actually I would say in the smartphone ecosystem to allow innovation to develop mushroom freely and we are very serious about it and we are also very serious, we are very determined to win, we know it will be still a lot of hard work but we are playing to win here. Thank you. That’s what I wanted to mention.

Ase Lindskog

Thank you, Delf. You concluded by saying you are determined to win the competitor landscape has it become more aggressive lately or what do you say?

Gilles Delfassy

Yeah and they are also determined to win, that’s the problem. Unfortunately, they are not going to move away to leave us the place, no, absolutely. The energy, the competitive energy in this market has not slowed down at all especially because everybody is excited by this growing market, so there is all reasons that people are jumping in to it. But as I mentioned there will be much more candidates than people that we succeeded. And putting together all of these competencies and being able integrate them for real solution is people will find out it is really difficult. I want to mention just one point I mentioned the big religious debate between the participants of the split architecture and the signature architecture.

The patterns of the split architecture today are the majority and a lot of them are selling application process cells to split people. Unfortunately, if you look at that market there was interesting report published this week saying that the two biggest smartphone manufacturers which are following the split architecture are basically the Apple and Samsung. Both are developing their own internal vertically developed application processor. So these people that only have an application process where do they go?

They lost the two largest customers and they cannot play in the market because they don’t have the modem to do the modem architecture. So again, a lot of competitive turbulence but we believe that we have the right technology and right approach to succeed them.

Ase Lindskog

Thank you that’s very good to hear. Thank you Delfassy. So now we have come down to the final speaker in this part of the Capital Market Day and it is also the final speaker for our webcast viewers. And then when Hans has finalized his speech, then we will have a Q&A session here on stage then with all speakers. Welcome Hans.

Hans Vestberg

Thank you. As I promised before then I will come back to IPRs and how we view that strategy. I will through in the market, I will talk a little bit about our position and also about our strategy going forward. I start with this slide and this is of course the market opportunity, we haven’t talked that much about the network society today. And the network society is of course where we see anything benefit from being connected will be connected and when we see the over 90% of mobile coverage in the world and over 5 billion mobile broadband users by 2016, that is the network society where we are going to use the networks in a totally different way that were thought from beginning.

And that’s of course the opportunity also when we talk about IPR and assets or IPR assets because we are going to get in more and more players in this industry as we have seen in the last two years, just go back two years and think about who were the players in wireless and mobile broadband and playing in this industry, of course there are a lot of new ones that have come in there. And the reason is they see the network society, they see the 50 billion connected devices, they see the 5 billion mobile broadband users and that we are going to basically up to 2015, 2016 triple the amount of people on internet.

And in our case, that means that any company that will use a cellular technology they need to have a cross license with Ericsson given our position. So of course that is why IPR impact is so import and why we believe when we go in to the network society they will play an even more important role. So go through a little bit our portfolio, 27000 patterns, that’s what Ericsson has and we have patterns as you can see here in the whole ICT segment, not only in wireless that we are talking a lot about but here we have outlined some of them. If we talk about wireless of course we have the most essential pattern on 2G, 3G and 4G and of course that’s very important. The central pattern is of course defining the standard, defining the most critical patterns for actually making that technology to happen.

And we have for quite many years now establishing a licensing program with players in the industry. But it is important here to remember how that we are in both device patterns, optho patterns, application patterns, core and transport patterns and not only wireless. If you look how it works so far, it is of course the endless ecosystem of operators, handset vendors and device manufacturing infrastructure vendors. Those are the ones using today the wireless patterns, fairly few customers doing it. And there we have some 90 licenses that we event, basically everyone of size industry that is actually operating here. And what we see if of course the potential new entrance, new industries, new device manufacturers. We have seen estimates that somewhere maybe in 2015 it can be as much as two third of all consumer electronic products will have some type of connectivity in them.

Meaning that we are going to see so many more devices having connectivity in them and of course that’s the potential new entrance and that’s what we see in the industry. If you think about how we work here and I think this is a very important picture for us, everything starts with that we do actually 30 billion Swedish kronas rough numbers in R&D per year and we have done that for quite a long time, that creates of course innovation in both research and development where we take all our patterns. And secondly what we do with the research and development we are very active in standardization. There is a clear reason why it is 5.8 billion mobile subscriptions in the world. It is standardized, we use the same technologies across the border. We take the one GSM phone and you can basically travel to any country in the world, we share the technology.

It is very important in our industry because then we get what Jill talked about, Johan talked about we get all these users. But it is also based on the someone do the investment in R&D and somebody is very active in standardization and that’s what Ericsson is doing. And then of course we also have been working for quite a long time to see that our patterns both are accepted, approved but also that they are essential as report of the whole setup of standardization. And of course then that leads to that we get sort of revenue back on our investment as people use the technology, our company’s doing the technology based on what is called in our industry friend fee free fair interfere, fair, reasonable and not non-discriminatory setup, meaning that anyone wants to use the technology should be able to use it and it should be a fair and reasonable charge for it, that’s what this whole is based on, that you can do that.

But it is a cycle you cannot take out IPRs and say that’s something different. It comes from our investment in R&D and that we are active in standardization, that’s why we have the patterns. And that if you want to enter the industry and be part of the standardization and the main technologies you need to pay for it. And I think that has driven our whole industry and it will drive the industry into the next step which is network society which we think is very exciting. So if you look at our strategy and look a little bit in these numbers here are, we have usually disclosed IPRs but they have also included licenses from EMP etcetera in some mobile platforms.

What we have done here, we are taking out that and talking here, we have our IPR revenues and you can see that 2006 we started with 2 billion Swedish Kronas in revenues and we will go further back we would negative, basically paying for using patterns. And you can see we had a spike 2008 and that’s when we had one of on our pattern portfolio we had the sale which is not the typical way we do it, that’s how we have grown it very much focusing on wireless and seeing that we get, collect fair payment developing wireless patterns. We have a two folded area and this is also very important, one is of course enforce wireless and patterns with anyone using wireless connectivity. If it is device manufacture or gadget manufacture or infrastructure manufacturer that we need them for see if they are coming into this they need to see that they are actually having a patterns agreement with us.

Then of course what we have not done so far, we are not generating that much revenue from all other patterns, we are mainly drafting revenues and cross licenses from our wireless patterns that’s where we have the bulk of our revenue here. So one thing that we will work on is of course work with all the pattern and portfolio, all 27000. At the same time, we are going to get new customers coming into the base, not only the few handset manufacturers and the few infrastructure manufacturers, it is going to be others as well.

On the Flipside, we also need to remember if we would compare us to somebody else we have an infrastructure business that we need to protect as well, where many others that has taken part as well, that’s where we talk about the cross license. We have cross license meaning that you get license for me and that we give it to you and that’s a cross license.

In that whole scheme, we are a net receiver and that’s what you see on the SEK 4.6 billion in 2010, of net received, we received more than we protect. But remember Johan’s and Rima’s business, they are of course doing infrastructure business and need to have license with others. So the net amount of what our receiving is 4.6.

So if I then just make one slide on how we’ll look at our IPO strategy going forward. Yes, number one enforces the wireless potency that everybody is using the technology for connectivity and wireless, we are number one is paying. And it will be more coming in, so if you look at the base there, we’re going to increase the number of customers actually using in the network society. And here we need to work with all different device manufacturer, other industries that’s going to use our technology.

At the same time, we want to go up as well, see that their whole portfolio is capitalized, not only the wireless. It was absolutely right way because wireless has been predominant in the beginning and now we’re going to look into the other area. That means for us two things, first of all in the bucket where we have been and then where you would go up right now. It’s going to be few customers, a direct model. We make bilateral agreements like the 90 we have today, but we continue to do with other type of technologies and patents that we have as well.

But on the horizontal, of course, there we’re going to have innumerous different type of device manufacturers. And there we need to find new business models of course to see how we share our technology with them and they can actually do it fairly quickly. So we don’t stop the industry because we are very much into that, we want the 50 billion connected devices to happen. And we want all of them to use the standard technology, so we get down the cost, so everybody is in there. But we need to look into new type of business models when we’re going to work with so many different types of customers that we see in that marketplace. And that we will work with and we are starting to work as we speak.

So in essence, that is the strategy. We continue to walk up and use all the patent portfolios to get revenues. And we’re going to broaden it as the network society and the 50 billion connected devices are happening. And thirdly, see that everybody going into wireless really have a patent agreement with the Ericsson and the cross license.

That takes us back to a quick summary, shear technology approach is actually driving the wireless industry and that we believe is very, very good. We are sharing technology in this industry and we will continue to do so. Ericsson is the main contributor of patents in this industry we seek with 27,000 and we spend some SEK 30 billion a year in research and development and that is of course an effect that we can take patents and actually share technology.

All right, power strategy of course will be an asset in a network society where we’re going to have more players coming in into the industry and of course wireless will be extremely important. And our strategy then is going to be to continue to capitalize on this. We have done over the years come to a net receiving situation and we will now continue to walk up with all the 27,000 patents. And we will broaden horizontally see that everybody that wants to get in to do connected devices also can do it but also need to have a license with Ericsson. I think that’s what we really want to do and that’s what are thing that IPOs become so important going forward has been extreme important so far probably even more important going forward. Thank you very much.

Ase Lindskog

Thank you. The patent industry is characterized by litigations so what is your view on that Hans.

Hans Vestberg

Yeah, as we all read a lot of news and see there is a lot of litigation in the patent industry. You need to distinguish what type of litigation there are in the market. And I think that the main thought in using wireless technology is not much litigation at the moment. Of course there are some, but given the magnitude of the different enterprises companies using wireless technology very few. The main part of the litigation right now is of course very much attached to smartphones and user interfaces, not about how you take your phone going from one country to another handover smart intelligent way of using data in the phone etcetera. So I think one need to distinguish them. But anyhow there is also litigation of course using wireless technology, but is little bit less. What is now in the headlines is very much about user interfaces on the screen on the device.

Question-and-Answer Session

Ase Lindskog

Okay, that’s a good clarification. So we’re ready to start our Q&A session. So I would like to welcome all the presenters here on stage together with me on the horns. And it’s also possible for our webcast viewers them to ask questions, so I will bring the questions up also in this session here then. So we have a hostesses here with microphones, I do hope so, that can, it’s so dark here, you know, it’s really difficult for me to see where you are. So okay, we start here and then I will move over here to Per.

Unidentified Analyst

Okay, sure, (inaudible) from Morgan Stanley. Good afternoon. The first question I’m afraid is about gross margins again, is there a level which should be low, so low that basically it becomes unacceptable for you to work and you know with customers, will it be like 34%, 33%, 32%, 30% and given what you said in terms of timing with network rollouts in Q4, it sounds like Q4 gradually could be a bottom in terms of gross margins that’s my first question. My second question is, the chips look really good, but Qualcomm has got most of the design mix. So what’s missing, what’s missing is it a question of software, is it a question of your sales force not being aggressive enough, is it a question of brand not being sexy enough, or is it just a question of luck?

Hans Vestberg

Okay, I guess, I can start with the theoretical question if it’s a threshold – of course we are managing a profitable growth there. So, yes of course we managed that all the time. And I think what we try to do when I was looking at the papers I think already in the third quarter last year, we started to talk about modernization that will happen. So that was a way to tell, yes we’re managing this we knew about it will happen. But of course is always a balance and there are of course deals where we say no, where the gross margin is too bad. So with the market share that you want to show and that means that basically six deals out of ten, you lose because we have 36%, 37% market share. So yes, there are deals which we are saying no to because of what you are asking. But if there a certain number that we communicate, no it’s not, but we managed that and we understand it’s very important to have a healthy growth at the same time that we are doing the strategic gain on market share. Yeah, the second questions, while on the first question.

Ase Lindskog


Hans Vestberg

Okay. I think the Jan explained quite well, however, what we’re seeing in the short term on the gross margin, not to speculate on anything else. But you need to factor those in, in the fourth quarter where we are. But again we are here for a long term we’re doing the right things for the company to really be a strong company. And then of course I said we are come down in the gross margin right now for certain reasons. Those reasons are of course some of them prevailing for sure, that’s as we said. But now the important is for us to continue to work with that, but short term yes it’s going to be tougher as we said.

Jan Frykhammar

I think one clarification. I got several questions in the breaks here. If you take that gross margin slide there that has four bullets. The last bullet there we talk about that historically we see a fourth quarter gross margin that is lower than the other quarters and the purpose of that was if you look seasonality wise over several quarters. Historically fourth quarter is lower, it’s the purpose of the bullet is not to say that this will be historically low margins. It’s more a seasonality thing. We usually have a lot of product and features.

Hans Vestberg

Yeah. Do you want to talk?

Per Borgklint

Thank you for your question. No, I’m absolutely in the view to the fact that competing with Qualcomm is not to work in the park. I mean these guys are very competent. They have by the way twice as many as us. They are spending more than twice on the budget, we spend and I think we are spending a lot may be and some people think I’m spending much, too much. So, more importantly they have been added for ten years and they are, they are well trained, well on machine and they are introducing their probably fifth generation of smartphone solutions.

We are clearly in this very different situation. If you look at it we have been looking at it for two and half years but that’s what it takes to, that’s what it took us at least, but I think it will take the same to everybody to avail first full blown android solution stack, full stack running on the application processor. And that’s first effort is the most really the most difficulty in most of the effort. Then, I believe now let me tell you the reasons why I think we have a lot of hope.

First of all, I believe that now that we have released, it’s in the shops, it’s running I mean you can, you can play with it. I advise you to even put your finger and look at the how the icons are moving, it’s very fluid, it’s impressive. Now, we believe that, I believe that the rest of the road will be more in command than huge step function that we have accomplished And also so that’s the reason why I have a lot of hope. And also I will just say yeah, most of the design no most of the volume is with Qualcomm today no question, they have all of the volume. But in terms of designed wins we have seven out of nine and these are real programs important potentially very high volume. Now, the key is really to execute on them and we need to bring them to volume hump and we are working very hard on it. And that’s where we are today.

Ase Lindskog

OK, thank you Per.

Unidentified Analyst

Thank you. Hans you’ve been talking a lot of about patterns today and I was wondering if it’s just because it’s a very fashionable to pick at the moment or if you really pointing us towards like a break points you know on this part of the business, either in terms of industry. Do you think that we will see like much more opportunities on accelerated growth and opportunities and patterns revenues going forward also perhaps the breaking points in your own strategy and for instance how aggressive you are going to go after that sorts of revenues.

Hans Vestberg


Unidentified Analyst

And perhaps just one last thing on patents. Do you feel like, like as a well established part of this business, amongst handset manufacturers. Do you think there are gaps in who is paying you the right amount and who is not?

Hans Vestberg

Of course, I wouldn’t put it up if I didn’t believe it was a growth area. And I think that was the good asset and the market is also going there. So yes, we think so and we can also prove by the history where we have come from and where we are going and what I would say a very dedicating and good work in our patent organization. But again it correlates with our infrastructure business while so one cannot separate them totally.

Secondly, I think it is very important and because we’re asked a little bit about how aggressive we want to be. Remember also that we have our own portfolio to protect. So it is going to be a balance of it because it’s equally important that we have cross licensees for the products that we have ourselves as we get a fair amount of somebody using ours. Anyhow to tuti-tuti (ph) that means that we will be a net receiver. And more people coming into wireless will increase that possibility as well as part of the portfolio the 27,000 patents are nothing wide as there in other areas. And there we can capitalize more that we haven’t done.

Then the other complexity will come in with this of course is the amount of customers going to be many more, so far it has been fairly simple. It has been fairly few customers on handsets and infrastructure and then you can count them on the hand even though we have 90 agreements. But when the whole world is going to have a connectivity is going to be for models and that we need to think about how we do because we want it to happen at the same time we want to be sure that all the money that we have invested here and the patent we have, we get the fair share back on that. So, it’s going to be a balance of that one. But remember the old counts from that we’re actually are dedicating the research and development. And that we are pending some SEK 30 billion a year.

Ase Lindskog

Okay, then Alexandre here and if I can ask you to present yourself with your company so before asking a question.

Alexandre Peterc – Exane/BNP Paribas

Hi, this is Alexandre Peterc, Exane/BNP Paribas. I have just two questions. The first one is pertaining to mobile data traffic transits demonstrated by Vodafone yesterday that could becoming now more in line with the actual data revenue of operators. But the figure is quite low 19% I think it was what Vodafone reported. Do you see this is a one-off healthy adjustment or more worrying long-term trend for mobile data growth? And then secondly, just on the color of geographic growth, US was clearly leading the way in terms of top line growth for Ericsson that was backed by very healthy trends in the market with more broadband market penetration and so on. Can you perhaps tell us what will be the key engine for growth for example next year? Thanks a lot.

Jan Frykhammar

You wanted to do answering the question on the data growth from different operators. We know that Vodafone released yesterday some numbers and we’ve even read them up, you can answer Johan first.

Johan Wibergh

So I haven’t started in date this close, I was preparing for this event. So, by the weekend we are speaking if you look on the traffic and data report that we that you will receive this afternoon. I mean we say that the cagier for the coming five years is 60% that basic it means that you initial now it could double this year and I think they were around the type of range. We don’t see any reason why this will slow down yes more, more applications coming, more and more smartphones. And I also looked with anticipation for Nokia also will be in those eight phones that will continue us to drive it so. So, I see no difference due to rest affirm than what we have said. I think that’s quite good.

Jan Frykhammar

Yeah and it come back to little bit what I talked about as well that there is so difference from region to region, how high is the mobile broadband penetration how much smartphones into the market and how much door we really see in the market and all of that, that has to be factored in. And still on the worldwide basis, I just saw it’s fairly low values that have that. Then of course one operator can be any remarkable penetration higher and lower.

The second question, I think you asked about where you see the growth next year on going forward. I think will be a very simple answer I mean, I think that the three areas of portfolio momentum will prevail, mobile broadband and everything around that. And again I’m going to stress that’s not only the radio access. It’s also what you want including routing and all of that have own packet core into that as well as the services. And then of course Manu-service, Magnus spoke about it that trend is not going down. We see it’s spreading even more and finally what we are aspiring for one having big ambitions is in an OSS/BSS. We believe with a word of much more data, new ways of charging, the whole OSS and BSS needs to be transform and upgraded and that’s we see a good opportunity as well. So I think those three areas and then there are other those three are the main which we feel is the growth opportunities.

Ase Lindskog

Okay, I have two questions of we have a webcast down from Kai Korschelt, Deutsche Bank. The first one both of the questions is the same type. The first one is to Rima then, how does headcount in your division compare now versus when you were Nortel. And the second one from Kai is to Magnus is to recent services modern improvement sustainable. Who would you like to start?

Rima Qureshi


Magnus Mandersson

Fantastic, you know you gave me that chance. First of all, I don’t want to comment you know the future margins, but I think we have a modern as I try to explain versus set up by a very healthy mix of local and regional and global resource mix. And of course we have built that delivery mix purposely to deliver profitable growth, so that would be my answer.

Rima Qureshi

So the question on headcount, I think it’s hard to compare because the structure that we had when we took over our carrier networks is very different than the way that Ericsson has organized in business units and in regions, so that’s one aspect of it. The other aspect to consider is we’ve also acquired a joint venture, which wasn’t part of a carrier networks business that’s G&NT that also becomes part of the overall headcount.

The other thing, which we are trying to do as seamlessly as possible, which is where we talked about the migration and the evolution, which means that more and more of the people that we will be working, that are working on this are actually not only working on what was traditionally carrier networks, but they were working on CDMA as well as another technologies. So what we’ve done as we’ve taken the organization as we brought it in and we’ve structured it according to the Ericsson structure, which means in some cases they are working in the business units, in other cases they are working in the regions. And they are working according to the Ericsson model, which is you know a lot of cases more than just one technology.

Per Borgklint

And may be is to mention and support Magnus a little bit, one thing that we sometime tend to forget is how much efficiency work is done in service all the time. To move resources and see that we are as efficient as possible between local and global and that’s the way we create profitability in order to get the scale. And network rollout we have talked about there in their cycle because of the modernization. Professional services, you can follow yourself since 2003 has been in a band of 14% to 18% that’s where we are and we – I think the service team are doing a terrific job as a continued efficient work here.

Ase Lindskog

Okay, about Tim (inaudible).

Tim Boddy – Goldman

Thanks, it’s Tim Boddy at Goldman. A couple of questions if I may, when we look at network modernization, obviously we talk to you about an European context. But it feels like it’s also starting to spread to emerging markets. And is there a risk that we see whilst European modernization is a kind of now reaching a peak over the next 18 months, there’s been another way if this spreads.

Secondly, really focused on restructuring, I think we talked about an increase in costs discipline in the near term to prepare for potential macro pressures. Should we think about higher restructuring cost next year and this year? And then thirdly just to focus on cash returns. It feels that the message today is jam that is coming tomorrow not today. Is that also the case with dividends and buybacks, so you’re categorically saying we need you know billions of crowns of cash and there’s no increase return for shareholders in near term?

Hans Vestberg

I will take this time on all three of them and I will probably get have pass on my colleagues later on. The first when it comes to modernization, I take the big picture when I do it like this, I mean, it’s roughly 5 million radio base station installed the world, which 1 million of them are old radio based stations that is mainly, could be with vendors that doesn’t exists anymore or they can definitely not do what is required as you when I said. The main parts of those are in Europe because Europe was first started 2D and 3D. So that’s where the main part of modernization is going to happen. Then of course it can happen on the markets as well and is doing as well. But I think that is important for us when we talked about it already in Q3 last year that was an effort that was specific and clear from our strategy point of view to gain market share as we lost it all already in 2001 and 2002. So we tried to keep that to Europe. There of course modernization happening, but not to that extent given the size of it.

On the question on cost that Jan, talk about and he will probably fill in here. I think it’s important we see it in the base case that we talk about this is our order business, what we decided in 2011 that restructures including in our P&L in a bottom line is about the line, so that means that we run cost efficiency all the time and we will do so and do more tougher governance on all of that. And I think that’s for me it’s just a way that we need to be extremely disciplined in this world more than anything else.

And the last question on dividend, we go to the end of question, you went already but I think Jan explained what we think net cash is important for us strategy. And we have the normal routine with the board that before we come to the annual meeting, they review poor performers and looking about the cash needs for the future and then they decide the dividend that will happen this year and next year, so there is nothing in between. We have the normal cycle of discussion on dividend that is coming up a recommendation today, so there’s nothing different from that, but still net cash we believe is important for us. Anything you want to add Jan, Johan?

Jan Frykhammar

I cannot be that.

Ase Lindskog

Okay, we move on then to Gareth Jenkins.

Gareth Jenkins – UBS

Yeah, thanks. Gareth Jenkins from UBS, I’ve also got I fear if I could. Firstly I just wanted me mentioned normal immunity of the compound annual growth rates. Just as it pertains to CDMA, I think you know it’s been surprise the CDMA markets probably are 10%, 15% this year, annual target is for 15%, compound 313. Do you basically assume the next year and may be the year after we’ll see a fairly steep drop-off in the CDMA. Secondly, I just wondered on the OpEx side, Jan, what exactly just putting the brakes on main particular in regard to R&D next year. And then the last one just on pricing bring aside some single round impacts what the actual unit pricing is doing in terms of competition it’s down 10% to 15%?

Hans Vestberg

So, I’ll try to answer for CDMA, Rima tried, so I’ll go for another way. I think that first of all we all know that CDMA will come down as a technology and it will the investment levels will go down. But for us the most important is that we have to concentrate customer base in one region. And each customer will be little bit different depending on what Rima said, the up-tick on the phones etcetera, on CDMA and the acceleration to 4G. The most important for us I see is to be close to most customers, to be proactive to take decisions and manage this sort of downturn profitable.

On the other hand, the increase in volume will be on LT. So it’s more manage for us, but yes CDMA will come down. But we will handle it with our customer, I know that Rima is meeting those customers extremely frequent and discuss with him. And that’s the most important for us. We managed this and we should be able to manage this profitable and the tail will be long, but the investment level will come down.

Jan Frykhammar

Okay, on R & D so we have all along this year said that we have some areas that we put extra effort into this year. The first one is really to develop the base bound of CDMA in the RBS 6000, you saw see the proof points today. And other important area for extra effort this year has been to launch and secure the 4G or the next generation of 4G. The next generation IP portfolio and that we’ll hear much more about in the afternoon by Johan Wibergh. The third has been to really secure TDLT. And I think that I mean as you know Gareth we have our most important strategies is to secure technology dealership and service leadership. Having said that, we have also said that there are some extra areas this year, we will come back in the context of the fourth quarter report and to give guidance on the range for R&D for next year. This year it’s between $31 billion up to $33 billion.

Ase Lindskog

Okay, I have a question from a webcast viewer to Per Borgklint. What are the key actions you have taken in order to get multimedia back to profitability?

Per Borgklint

So if you look at it from a short term perspective, we are still in the planning phase for building up new strategy, so we have strong ambitions, we are still having some puffed walk (ph). And Johan also expressed we have a very high level of software sales in the third quarter, which pushed up the margins.

Ase Lindskog

Okay. A question from Didier Scemama at RBS to Johan, what would you operate to do after the cabinet is full and how can they add more capacity? And also then, could you confirm how many radio units you need in a base station per cell site, and also how many radio units can one baseband unit support?

Johan Wibergh

Oh, this is good. This will help me to make even more detailed presentation at the next Capital Market that to convince these guys. Now, it’s, there are several things you can do. First, we can put down the other cabinet and fill that up also if you have space of at the cell site. Then we are good on the innovations, I mean if we have showed the same cabinet two years from now, on that completely new stuff that you that can put in there that can do even more at the lower pace at assemble (ph) high price. So they’re going to be continuous innovation on that. And you can have six radio heads connected to one baseband typically. There are some more parameters into that, but I’ll say a good rule of thumb. And, how many radios, we have 12 radios full in that unit, was that the question?

Ase Lindskog

Yeah, yep.

Johan Wibergh

And this is only half sized cabinets, we actually have an even wider, bigger cabinet if you want double amount of equipments. Whatever amount you want, we can provide.

Ase Lindskog

That’s a good answer. Okay, we have more questions so this continue hear at the back and then we move forward here where we have Martin Nielson. I would like to also question them later.

Sandeep Deshpande – JP Morgan

Thank you. Sandeep Deshpande, JP Morgan. One question on the gross margin again. The question is, the question is you’re going to see over the next couple of years not a huge improvement in European CapEx spending associated with LT because that doesn’t happen till 2014 or so. So does this mean that we just continue with network modernization project which has a continuing multi-year impact on the gross margin and secondly the question is on the IPR you’re competitor in IPR licensing has been doing per unit licensing for instance in handsets for very long time your exit from Sony Ericsson does that allow you to move to that sort of model and what kind of royalty rates could you charge could there be different kinds of models that you would employee? Thank you.

Hans Vestberg

I think I would give you an easy answer on the second one and Jan will talk about the gross margin. When it comes to our IPR models it’s based on FRAND; fair, reasonable and non-discriminatory that’s the most important for us. What type of models we have in each and every of the 19 bilateral agreements is nothing that we disclose. But again remember that we have cross licenses, don’t forget that we also have our own business that are using patterns from other industries or from other vendors so that’s – so, it wouldn’t be fare to have any number or anything like that because it’s going to be your net not the gross because when cross licenses remaining.

Jan Frykhammar

Okay, so if I come back to the European modernization projects then so the projects they have an average contracted lifetime of between 18 to 24 months with presets scope both in terms of services and hardware and that’s what we have sold that’s in scope. If operators needs to invest in others areas that’s not included in these projects we also think as Hans mentioned when we went through the opportunities in Europe there are opportunities of course around OSS/BSS. There are opportunities from our services there are opportunities around the next generation IP portfolio.

Ase Lindskog

Okay, here and then we move over to the back here.

Martin Nilsson – Handelsbanken

Thank you Martin Nilsson from Handelsbanken. First of all thank you very much very informative capital market thing. A lot of numbers provided. Jan you mentioned 11 % CAGR for the rate of excess market and you also talked about 60% traffic growth for the coming in CAGR up until 2015 so and overall the (inaudible) has been off on this traffic growth and so on. Is it too simplified to believe that if the traffic growth CAGR would be 70 % rather than 60% up until 2015 that radio access number would have been 21 % instead of 11 % so could you sort of elaborate what is the really the correlation between underlying traffic growth and is it sort of one-to-one correlation or how should we sort of look up on these two now any percentage forecast of both. Thank you.

Jan Frykhammar

Good question. I am not really sure if I can give you a good enough also on that one and I can’t on top of my head really give you set of correlation. One of the session this afternoon, there is a guy called (inaudible) who is one of the people actually do this type of modeling and maybe he can give you more insights and what I can say is that first of all if we take the current forecast than we step back a few years and look what we did then think about the future. Future market has played in both when it comes to volumes of data and the corresponding CapEx. So, I think we have fairly good view on that. I can’t really say if it will be 21 or whatever so sorry for that. But ask something you may have views of it they probably because they are pretty good. The reason why we have a pretty good store on this, it has highly extreme with had under co-workers and they are really good on analyzing and modeling and thinking about these things you may have thought it.

Ase Lindskog

We talked about this one. That we’ll move here to the back.

Richard Kramer – Arete Research

Hi Richard Kramer from Arete. I got some simple questions for three of you guys, for Jan, can you explain what it is about the Ericsson model that you have such higher working capital as percentage of sales than any of our peers and NSN, ALU, Huawei or others for Magnus can you try to help us understand how it was that you lost more than a SEK1billion in network roll out in the first nine months. What was that money spent on and when do we start to recoup those sorts of losses. And for Hans, do you think you need to address somehow a video delivery market where cable certainly is very important and video delivery is very important. Is there something much more comprehensive that Ericsson needs to do in wire line where you’ve tried many times over the last decade without really making a progress? Thanks.

Jan Frykhammar

Great, great so first of all that I don’t know which numbers you look for NSN because as far as I know they don’t disclose except a balance sheet for Nokia Siemens Networks. They are obviously caught on Nokia and that’s the handset business with completely different ratios. I think if you look at Alcatel-Lucent, I think they are always in a completely different business it’s very much fixed network and services. We are in a business where we are building the future mobile broadband infrastructures and in many parts of the world this means a lot of site work and so forth and if this complicated end-to-end projects those tie up capital. Having said that we are working diligently to try to improve this each and every year I would not have the type of stretch to working capital objectives if I were have to with the current performance.

Magnus Mandersson

Well on the lower profit margins as we’re running in Q1, I think if you remember we had a component shortages which resulted in a capital of technologies were in short in our network roll out which meant that we have to prepared the sites, we had to do a triple, fourth time, fifth time visits to the site in order to complete the projects. It was very, very expensive and it was distributed delivery out of the network unit division. So we were handling quite a lot of resources out in the world now when everything is back on full scaling and we as I said on Q3, we see full what to say industrialized role out began.

Jan Frykhammar

On the video capabilities I’ll ask Per to comment a little bit what we have in there. I think that again yours on the general statement of course redo will be very important in the networks for sure and we are working of course with a lot of solutions in our networks everything from the core to the packet core and the routing solutions so handle with you if you need to buy something in that area I would say the following I think that we believe personal organic growth. I rather spend them on the R&D in a company and buying companies that has been the case.

There are also certain areas where we would definitely buy companies where for example CDMA was an obvious one to gain – we weaken in the marketplace or smaller holes in the portfolio like Telcordia et cetera. But so that would probably answer the question on the general level where we are focus and we think that the main part of the portfolio momentum is in mobile broadband managed services and OSS/BSS. We are number one in mobile broadband, number one in managed services. We’re aspiring to be it to be number one in OSS/ BSS. I think that’s the bulk of the business I really think that we can grow nicely with a good profit in. Per anything on video capabilities?

Per Borgklint

Well could just leverage shortly but we are addressing certain parts of the cable industry of course not completely. Still you would also say that lot of things actually are going convergent between what is happening in a mobile as well as in the fixed network so the broadcasting part is actually is an area where we are fairly strong and we see good developments as well and also in relation to customer interactions.

Ase Lindskog

Okay, we have another question here back then have a question and then a web question will go over here.

Andrew Gardiner – Barclays Capital

Thank you. Andrew Gardiner from Barclays Capital. I was interested a bit in perhaps how the pricing model may have changed. In some of Johan’s on slide you showed how they moved to multi standard radio and network modernization has resulted in share gains for you within the network whereas before the operator perhaps had more selection on a site by site basis so now once you got that locked in your road map secure in terms of the upgrade but by the same token the operator perhaps has less flexibility. Have they asked you for more visibility into future pricing for the various upgrades that are going to come forward and so how is that changed in terms of the pricing margin dynamic from where we used to be.

Johan Wibergh

That’s a little bit about the game every time you have big procurement. As was touch upon before and the reason why we have modernization in Europe now is because there both a lot of LTE procurements and we have a change of the installed footprint. And then you end up in any competitive bid discussion between seller and buyer and because we always reason that we have a P&L and we have market share and we have portfolio about business opportunities and these you can take and then they can be discussed between salary and buyer about terms and conditions pricing, was included and all etcetera.

And many operators are really good in procurement and I guess you can see that if you look on what the profit pulls out between the vendors and the operators because that becomes a strong competition in there. But of course also we have a lot of cards to play in these and help to handed out but these is how well you play this game out and how you handle the pricing and price models and avoiding caps and future upgrades and pricing et cetera is of course a part of the game and but it has been lifestyle for the last 20 years it’s nothing new and I think we have pretty good handling it but it’s – and it is quite normal.

Ase Lindskog

Okay, I have a web question and then we will move over here so from the web done its still Magnus. How sticky or the manage services contracts?

Magnus Mandersson

As you can see we have a very high renewal rate of in the renegotiations and I will say that more than 90% is renewed of what we have so stickiness is fairly high. But again it’s very much dependent when you are taking over responsibility of uplift in the network quality and I have a better performance of course that the performance is extremely important and we perform everyday and I think our customers are generally very happy with what we are doing.?

Ase Lindskog

Okay, we move over here then.

Odon De Laporte – Crédit Agricole Cheuvreux

This is Odon De Laporte with Crédit Agricole Cheuvreux. So you stated several times that scale is a critical asset in this industry yet this is something you missed in areas such as Y-O (ph) line axis, IPR optical transport. I understand your strategy in IP averaging but maybe could you talk about optical transport of Y-O line access. How do you intent to compete in these areas where you have weak scale?

Unidentified Company Speaker

So let me comment on that, I think it’s a great comment. So then when we are built out with strategy for these areas you really need to think about how do you grade scale and of course starting by having global presence and service leadership in the service organization worldwide that’s one piece in the past so. When it comes back to about what I will need to do when it comes on the product side is you need to create certain scale so for instance you take on the IP side as I show that talking about the date plane we have brought together several different products to run on the same platform so therefore you can create scale when it comes to the R&D cost you need to place on some of the common hardware and software and so then you can take that initial cost and divide that over many products and then get that more cost efficient.

Then we have done the same with software. We had been driving a work now that’s more than three-and-half years and you don’t see the full impact of it yet but we’ve been driving through because we done acquisitions before and had different product lines. And we have been driving a standard to introduce a course that component based architecture all across our products which means that the level reuse between products have highly increased. It can be stupid things like that door you see over there but we use to have savored the different doors and that saved 20 million annually just by using the same door.

If you should then go with the software, we have the same software. For instance in the optical transport we happen to have a big part of that software, it’s the same software as we have in our microwave products where we are number one in the market. So you need to find one or more ways how we create scale because if you have a smaller market otherwise you just going to lose money and faith. You need to find those things and if you can’t find those good reasons you better exit that business. So that’s what I’m going to do and then we’ve been executing on. I think we have a lot of things left still to prove in some of these areas where we have smaller market share and we have substandard profitability. But I’m working on fixing that and I hope I can leave up to that I’ve done that yet.

Ase Lindskog

So I have a question here and then we’ll move over there and then we’ll a question.

Håkan Wranne – Swedbank

Okay, Håkan Wranne with Swedbank. There hasn’t been a gross margin question for little while so here is one more and it’s the first one Jan’s slides were he has split down the gross margin decline between the quarters this year and we say that modernization that we talked a lot about accounts for one-fourth of that decline and the big part actually was coverage and capacity and that’s the kind of decline we usually experience between Q3 and Q4 rather than earlier in the year. Can you explain what happened in Q3 why capacity coverage capacity makes such big part of the explanation and how should we look at that going forward?

Jan Frykhammar

I think first of all coming back to looking at the disclosures we make. We make disclosures each and every quarter region by segment so you can track these things and I’m sure you do if you start to look at when we mentioned that there was a slowdown in North America in the second quarter and in the third quarter that obviously then translated into a slowdown in investment of HSPA and CDMA in North America. Also there was other countries that started to shift more from capacity type of investments more into building coverage on LTE. Korea could be one example. So, those kind of shifts we started to see in the second quarter and in the third quarter and also visible in the regional dimension you start to see significant growth in many regions in the network segment that are more in coverage phase.

How Q4 margin will look like, let’s come back to that in January report back I mean if we sure what we will report back on is that the descriptions or the reasons that we have in that slide meaning business mix, modernization and services. So, I’m not going to invent anything else. There is nothing else we can explain based on. So I think we have – we saw business mix shift in the third quarter. It’s clearly visible in the numbers. We have also been trying to tell you bit on some of the dynamics for Q4. I think we have done much more of explaining and describing then what we usually do. Now we will come back in January and report back to you how it became.

Ase Lindskog

We have a question over here and then we’ve move here.

Janardan Menon – Liberum Capital

It’s Janardan Menon from Liberum Capital. I’m just a bit surprised by the length of your period for network modernization of two years because these are projects which don’t have much construction element to it and effectively a replacement at establish sites. So the margin impact of that would that be studied all the way through those two years or is there a front loading you know from a hardware point of view on the margin effect and then is it fall off a bit towards the latter half of it.

Second question is actually on the U.S. market where you said that things are slowing down, but it’s not macroeconomic, but more related to the investment cycles and things like that. Does that imply that barring economic impacts you would expect revenues from the U.S. or CapEx spend in the U.S. to rise again to levels higher than what you have seen in the recent past or could the U.S. have a phenomenon like what Europe saw about 10 years ago when after the first 3G role out cycles you went through a much lower level of CapEx spending. Is that a possibility that we could see in U.S. market going forward?

Hans Vestberg

If I start with a U.S. market then, remember we will – the most important is the underlying market dynamics. Smartphone, usage, innovation that has all the time being what is defining finally our revenue and the spending of our customers. So that we need to understand that the market opportunities relies on that. At the same time we of course see that as you said we see a slowdown right now at (inaudible) it’s not just driven by the macro economy. It’s driven by consultation is driven by change from 3G to 4G et cetera.

If you look forward again, I think we have a very, very good position in North America and that’s very important and we are going to see how that plans out going forward. I think that the market, the market dynamics will define how the investment levels are going forward, but we all are on the very high level in North America when it comes turn over and market share and we are not loosing anymore market share at all. But, we’re going see how that market dynamic pace out and that will be the impact.

If we talk about the gross margin. I just correlate you said that they’re very lengthy network modernizations in Europe. If you come back and think about what happened in the beginning of the century when basically we did the 3G in Europe. They were very lengthy. So it’s nothing that is not normal that their lengthier modernization and remember this time is that you have live subscriber in the network and they do modernization on the live network means that you need to take down one radio base station and turn on another when you have live traffic and people in the network. For 10 years ago, when you didn’t have much on TV it was fairly fine to do it. Today, the window or maintenance and do that for Magnus, is counted in minutes per day, so of course that length drives it out.

Say something, Magnus.

Magnus Mandersson

Yes, let’s say something. So when we do it for traditional swap of electronics, a cabinet like that. That took the couple of days in the early days, when we took the first generation GSM out of the site. Today, we’re doing that in somewhere around 10 to 15 minutes. When it comes to the modernization, we’ve changed two technologies and adding on a third one. That takes typically up to three-to-four days. We’ve lot of third party. I’ve tried to explain that on my modernization slides. The third party products, we’re having third party resources coming in and we’re changing everything from the antennas sets right, all the way down to cabling, shelters, power gens and everything. It’s so much more than changing out electronics. That’s the reason why it’s a little bit more lengthy and we’re focusing on the urban parts of the network where we’ve the biggest growth.

Ase Lindskog

We have a question here and than a final requisite from over there.

Guenther Hollfelder – Unicredit

It’s Guenther Hollfelder with Unicredit. I had one for (inaudible), on concerning the windows 8 opportunity next year and also the press release with Nokia. So, are you confident that you will participate in the first generation of Windows 8 Phones summer next year or do you think your US competitor here will be first and the second generation then will be powered by your chips and also how confidence are you for your other customer like HTC and Samsung that you are also here, very early will also power some Windows 8 Phones. Thanks

Unidentified Company Representative

Yeah, I was actually to be clearly different we don’t know yet. We’re – what was important was to get endorsed as the 2nd the other chipset vendor for WP-8. We’re working on the timing now. It takes a lot of software booting and incidentally no hands because it requires the intervention of Microsoft obviously. So, we are trying to get in production as early as possible, I cannot tell you yet. If we’re going to reach the kind of timeframe that you mentioned on that but certainly we’re going to go as fast as we can. On your other question again, yes, obviously, we’re now part of the echo system of Microsoft WP-8. Obviously our first focus is certainly Nokia, but once we’re in WP-8. Once the software is plotted into our platform, so than we can consider to extend our business niche.

Ase Lindskog

And then last, over here – the last question.

Mats Nyström – SEB Enskilda

Yes, thank you very much. Mats Nyström from SEB Enskilda. I think, you all done a very job today explaining the rationale behind building footprint and answering the modernization projects in order to secure future growth and drive future software avenues that’s crystal clear. Yeah see in the press release of today stating that capacity increase in RBS 6000 is 1,000 % about previous generations and that perhaps some people may say that base stations today come so to speak fully loaded and all inclusive going forward. What does this imply for Ericsson’s future upgrade business compared with in the past? Thank you.

Jan Wäreby

Thank you for that, for that question. I had also launch discussions. I think we were a little bit unclear about at 1,000% what we mean extra. And there are many different ways how you can compare it. It’s a statement that we in our marketing against towards our customer so. For certain configurations, if you can fully equipped cabinets with all the capabilities you can come up after that you actually can achieve 1,000 % more capacity, 10 times the capacity. That is not what we include in these deals. If you then go back to this procurement and what this included or not. Of course, we always try to de-scope.

We don’t agree at all to put everything in it et cetera. We calculate on the full cost and revenue potentials et cetera in these deals to make sure deals make sense or not and if doesn’t make sense, we don’t step into them. So, we’ve that consideration for many, many years and we still do that. Taking consideration of our market share growth, we always think about that and then pick the deals that do make sense. As so I’m said, if we done a little bit less than 40 % market share mean we stepped away from six out of ten deals so, if deals are cost. Yeah not attractive then of course it’s doesn’t make sense for us to take them and then we say thank you, but no thank you.

Ase Lindskog

Okay, so thank you very much indeed thank you guys.

Mats Nyström – SEB Enskilda

Thank you.

Ase Lindskog

Many thanks for attending and listening to our managements presentations and now we say goodbye to our webcast viewers and listeners and just remainder that please fill in the feedback form sheets. As I said in the beginning, very valuable to us. We’ll now move to Ericsson’s headquarters and the Ericsson Studio and it’s just a few minutes’ walk from here and we have hostesses out here that will give you the direction. So bye for now and see you soon in the Ericsson Studio. Thank you.

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