InterDigital Inc (IDCC)

[nieves]

Ericsson Reports Positive Cash Flow and Continued Progress in Cost



RELATED SYMBOLS: (ERICD)

STOCKHOLM, Sweden, Feb 3, 2003 (BUSINESS WIRE) -- Ericsson(NASDAQ:ERICY):

-- Cash flow before financing SEK 1.6 b. -- Adjusted income before taxes SEK
-2.2 b. -- Order intake SEK 33.0 b.(a) -- GSM/WCDMA sales up 4% sequentially




Fourth quarter Twelve months
---------------------------------------
SEK b. 2002 2001 Change 2002 2001(2)Change
----------------------------------------------------------------------
Orders, net 30.7 39.9 -23% 128.4 201.8 -36%
- Systems 28.5 34.2 -17% 115.3 183.3 -37%
- Other operations 4.7 7.4 -37% 22.7 27.4 -17%
----------------------------------------------------------------------
Sales 36.7 58.5 -37% 145.8 210.8 -31%
- Systems 33.2 50.1 -34% 132.0 188.7 -30%
- Other operations 6.0 10.2 -41% 23.5 31.8 -26%
----------------------------------------------------------------------
Adjusted Operating Income(1) -2.3 -4.2 -12.5 -18.2
- Systems -0.3 0.4 -4.9 3.2
- Phones -0.3 -0.7 -1.3 -14.6
- Other operations -1.3 -3.2 -4.7 -5.1
- Unallocated -0.4 -0.7 -1.6 -1.7
----------------------------------------------------------------------
Adjusted Operating Margin(1) -6% -7% -9% -9%
- Systems -1% 1% -4% 2%
- Other operations -21% -32% -20% -16%
----------------------------------------------------------------------
Adjusted Income Before Taxes(1) -2.2 -5.1 -14.5 -21.1
Net Income -8.3 -3.5 -19.0 -21.3
Earnings per share, diluted
(SEK) -0.58 -0.31 -1.51 -1.94
Cash flow before financing
activities 1.6 19.9 -7.1 6.7
Number of employees 64,621 85,198
----------------------------------------------------------------------
(1) Adjusted for:
- Capital gain, Juniper - - - 5.5
- Non-operational capital
gains -0.3 0.2 - 0.3
- Restructuring costs,
net -6.3 - -12.0 -15.0
- Capitalization of
development expenses,
net 0.6 - 3.2 -

----------------------------------------------------------------------

(2) 2001 figures are restated for:
- Changed accounting principles in Sweden 2002 regarding
consolidation of companies with a controlling interest.
- Results from parts of Phones transferred to the joint venture
Sony Ericsson Mobile Communications, reported under Share in
earnings of JV and Associated Companies for the full year
2001.

(a) Gross order intake excluding cancellations



CEO COMMENTS

"Sales of GSM/WCDMA are up sequentially for the third quarter in a row and the
order intake in Europe, Middle East and Africa (EMEA) improved significantly
after a weak third quarter," says Kurt Hellstrom, President and CEO of Ericsson.

We improved Systems operating margins once again this quarter. Our position in
GSM/WCDMA remains solid and we are encouraged by our progress in CDMA2000 with
key wins in Asia and Latin America. Sony Ericsson's performance also improved in
the quarter and the joint venture expects to start reporting profit during 2003.

The strategy to expand our Systems business through increased sales of
professional services is proving successful. By capitalizing on our systems
know-how we have taken an early lead in this growing market segment. The
recurring nature of this business will make our revenue base more stable.

The sequential increase in sales and orders is more a factor of seasonality than
an indication of a market recovery. However, with orders and sales at expected
levels, good progress in our restructuring and positive cash flow, our fourth
quarter results indicate that our business is beginning to stabilize.

Our overriding objective is to return to profit at some point in 2003 and
improve cash flow. Our cost cutting is proceeding as planned with a significant
reduction of operating expenses already evident. We will intensify our efforts
to lower cost of sales to meet our gross margin target.

MARKET VIEW

There are now more than 1.1 billion mobile subscribers worldwide with
approximately 51 million new subscribers added during the fourth quarter. For
the full year we estimate about 190 million net subscriber additions, within our
forecast of 175-215 million. We believe that the number of mobile subscribers
remains on track to exceed 1.5 billion within three years with 165-180 million
net additions anticipated in 2003.

In line with the industry consensus and our previous estimate, we believe that
the mobile systems market declined about 20% to an estimated USD 42 b. during
2002. For 2003, we believe that the mobile systems market may decline by as much
as 10%.

The telecommunications market correction is ongoing. We expect the historical
correlation between operator capital expenditure (CAPEX) growth and revenue
growth to eventually resume. However, the current level of lower CAPEX spending
as a percentage of operator revenues will most likely remain.

An estimated 115 million mobile phones were sold through during the fourth
quarter bringing the total for the year to approximately 395 million units. This
compares with our full-year estimate of about 390 million units and
approximately 390 million in 2001. We believe that the total units sold through
during 2003 will be more than 430 million units.

The overall wireline systems market, which includes traditional
circuit-switching, broadband access, optical transmission and multi-service
networks, declined by over 30% during 2002 - in line with our estimate of a
decline significantly more than 20%.

Complementing the infrastructure market, there is also a large and growing
opportunity for providing services to network operators. Excluding network
rollout services, which are embedded within the Systems market, the available
market in 2003 for professional services is estimated to be more than USD 30 b.
with a compound annual growth rate (CAGR) of more than 10%. Professional
Services include systems integration, network operations outsourcing as well as
a range of other advisory and operational support services.

COST REDUCTIONS AND OPERATIONAL REALIGNMENT

In the fourth quarter our operating expense annual run rate excluding
restructuring costs was reduced to SEK 51 b. During the quarter we reduced our
headcount by 7,100 employees, bringing our year-end headcount to 64,600. We
remain on track to reach a SEK 38 b. run-rate for the fourth quarter 2003 and
expect to be less than 60,000 employees by year-end.

Reduced excess capacity costs as well as improvements in processes and product
design contributed to the stable gross margin level offsetting the negative
effects of an unfavorable product mix.

During the quarter, restructuring charges were SEK 6.3 b. of which SEK 5.8 b. is
related to redundancies. SEK 0.2 b. were related to the write-down of inventory
and fixed assets as well as other costs for establishing more flexible
operations. Of the SEK 28.6 b. planned restructuring costs SEK 5.5 b. remains.
Cash outlays in 2003 are expected to be approximately SEK 10.8 b.

OPERATIONAL AND FINANCIAL REVIEW SYSTEMS

Order intake in the quarter improved sequentially to SEK 30.8 b., mainly due to
seasonality. Compared to the fourth quarter last year, order intake declined by
10%. Cancellations of SEK 2.3 b. negatively affected orders booked. The Europe,
Middle East and Africa (EMEA) region showed strong improvement compared to the
previous quarter, while Latin America was down, partly due to order
cancellations but also weaker demand.

Table: Systems order development




(SEK b.) Q1 Q2 Q3 Q4
-----------------------------------------------
2001 62.8 51.0 35.3 34.2
2002 39.8 33.7 23.3 30.8
Change -37% -34% -34% -10%

Cancellations 2002 -2.1 -2.5 -5.4 -2.3
2002 Net 37.7 31.2 17.9 28.5
Change -40% -39% -49% -17%


Sales in the quarter were SEK 33.2 b., up SEK 2.6 b. compared to the third
quarter and down 34% compared to last year. Europe, Middle East and Africa
(EMEA) and North America increased sequentially, while Latin America and Asia
Pacific declined somewhat. The strongest parts of the Systems businesses were
GSM, CDMA and professional services.

Adjusted operating income for Systems was SEK -0.3 (0.4) b.. Excluding risk
provisions for customer financing of SEK 0.7 b. the result was SEK 0.4. b.,
compared to SEK 0.2 b. in the third quarter. Gross margin has kept up well and
operating expenses have gradually been reduced through our restructuring
activities.

As an extension of our System business, Global Services generated sales of SEK
9.5 b. in the quarter. Excluding products, which from 2003 are excluded from
services, sales of professional services grew 29% sequentially to SEK 5.7 b. and
now represent 17% of Systems sales.

Mobile Systems

Orders in the quarter for our GSM/WCDMA track increased 51% sequentially, mainly
driven by the Europe, Middle East and Africa (EMEA) region. Sales of GSM/WCDMA
grew 4% sequentially and declined only 14% for the full year, implying a
sustained strong market position. Full year sales of WCDMA equipment and
associated network rollout services represented 9% of Mobile Systems sales.

The sharp decline in TDMA and PDC systems continued and combined they now
account for less than 10% of mobile systems sales.

Multi-Service Networks

Orders and sales in the quarter increased sequentially by 9% and 28%
respectively, but declined compared to last year by 29% and 50%, primarily
driven by continued weak demand for traditional circuit-switching equipment,
although our ENGINE solution continues to develop favorably.

PHONES

Our 50% share of income from Sony Ericsson Mobile Communications is included in
"Earnings from Joint Ventures and Associated Companies."

Sony Ericsson Mobile Communications (SEMC)

The joint venture increased its shipments by 42% to 7.1 million units during the
quarter, mainly as a result of the expansion of their product portfolio. Our 50%
share of income before taxes in the quarter was SEK -0.3 b., compared to SEK
-0.5 b. in the third quarter and SEK -0.7 b. a year ago. As previously
announced, Ericsson and Sony will each invest EUR 150 million into the joint
venture during the first quarter of 2003.

OTHER OPERATIONS

After transferring a portion of our holdings in a Chinese subsidiary to Sony
Ericsson Mobile Communications, the company has become an associated company. As
a result, from this quarter phone operations in China are included in our
results as share in earnings of Joint Ventures and Associated Companies.

Other Operations now include the following commercial businesses: Defense
Systems, Network Technology, Enterprise Systems, the retained parts of
Microelectronics as well as the investment areas of Mobile Platforms and
Bluetooth.

Sales improved by 4% sequentially, driven by Defense Systems.

Compared to the third quarter, adjusted operating income in Other Operations was
flat. Positive effects from the divestiture of parts of Microelectronics and
profit from Defense Systems only partly offset losses in other units.

CONSOLIDATED ACCOUNTS

Income

Sales in the quarter were SEK 36.7 b., up 10% sequentially and down 37% compared
to the fourth quarter of 2001.

Gross margin remained stable, with a reduction of cost of goods sold and excess
capacity costs offsetting negative effects of an unfavorable product mix. The
seasonally adjusted operating expense run rate was SEK 51 b. for the quarter
excluding risk provisions of SEK 0.7 b. for customer financing. The run rate
also excludes the effects of capitalization of development expenses since they
currently affect comparability.

The capitalization of development costs was started in January 2002 to conform
to changes in Swedish GAAP. As no such costs were reported in previous years,
net capitalized amounts do not yet include a normal rate of depreciation of a
capitalized base. Therefore, the positive net effect of this is deducted when
reporting adjusted operating income and adjusted income before taxes.

Net capital losses were SEK 0.7 b. of which SEK 0.3 b. were related to
restructuring, and SEK 0.3 b. related to write-downs and sales of shares. Share
in earnings of associated companies was net zero, including the loss of SEK 0.3
b. in Sony Ericsson.

In the quarter, the net effect of changes in foreign currency exchange rates
compared to rates one year ago was SEK -0.1 b. The net effect in the first,
second and third quarters were SEK 0.4, 0.8 and 0.6 b., respectively and SEK 1.7
b. for the year.

Financial net improved by SEK 0.7 b., as a result of interest income on the
proceeds from the rights offering in September 2002.

Adjusted income before taxes, excluding restructuring costs, non-operational
capital gains and net effects of capitalization of development expenses, was SEK
-2.2 b. in the quarter. Income before taxes in the previous quarters of 2002
adjusted in the same manner was SEK -5.3, -3.3 and -3.7 b., respectively and for
the full year SEK -14.5 (-21.1) b..

Net income was negatively affected by SEK 2.5 b. as certain tax costs were
recognized in the quarter. Of these, SEK 0.8 b., relate to foreign withholding
taxes that were not deductible due to insufficient taxable income and SEK 1.4 b.
due to rulings by Swedish tax authorities disallowing deductions of capital
discounts on convertible debentures and other costs.

Full-year diluted earnings per share were SEK -1.51 (-1.94). Prior periods have
been adjusted for the stock dividend element of the stock issue.

Balance sheet and financing

The equity ratio was 37%, about the same level as last quarter, despite the loss
incurred during the fourth quarter. Total assets were reduced during the quarter
by SEK 28.9 b., of which SEK 8.2 b. is related to cash. Repayments of loans,
including the lease arrangement for test plant equipment from December 2001,
amounted to SEK 10.0 b..

Net debt improved in the quarter from SEK -5.2 b. to SEK -5.6 b. with total cash
continuing to exceed all interest bearing debts.

Lower purchase volumes and increased sales significantly reduced inventory
during the quarter, with inventory turnover (ITO) improving to 5.1 turns from
4.3 last quarter.

Our days sales outstanding (DSO) improved sequentially from 103 days to 91 days.
Even with the higher sales, we reduced accounts receivable by SEK 3.8 b.
compared with the third quarter.

Customer financing risk exposure was reduced by SEK 3.1 b. in the quarter. As
previously announced, the 2001 portfolio of customer credits was discontinued.
The credits, including Mobilcom, were taken back on the balance sheet and an
associated cash collateral released. Certain of these credits have subsequently
been sold in the market and the Mobilcom credits are to be replaced with France
Telecom convertible bonds.

Deferred tax assets at year-end were SEK 26.0 b., an increase of SEK 5.1 b.
during 2002. Deferred tax assets are related to countries with long or
indefinite periods of utilization.

Table: Customer financing risk exposure




Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
(SEK b.) 2001 2002 2002 2002 2002
----------------------------------------------------------------------
On-balance-sheet credits 18.7 16.8 16.6 18.9 21.1
Off-balance-sheet credits 12.8 12.9 11.5 6.8 1.5
----------------------------------------
Total credits 31.5 29.1 28.1 25.7 22.6
Less third party risk coverage -4.7 -1.4 -0.3 -0.8 -0.8
----------------------------------------
Ericsson risk exposure 26.8 27.7 27.8 24.9 21.8
========================================

On-balance-sheet credits,
net book value 14.8 12.7 12.4 12.7 14.0
Off-balance-sheet credits
recorded as contingent
liabilities 10.6 10.1 9.1 5.1 1.3
Financing commitments 31.2 28.1 25.3 14.0 14.0
----------------------------------------------------------------------


Cash flow

Cash flow before financing activities was positive by SEK 1.6 b. The main
contributing factors were reduced inventory and improved collection of
receivables. The SEK -2.8 b. effect from customer financing was mitigated by the
release of a cash collateral of SEK 1.2 b. for the 2001 Credit Portfolio.

With the discontinuance of pro forma reporting, capitalization of development
expenses of SEK 0.8 b. are now reported among investing activities rather than
as an item adjusting income.

Net income as well as items adjusting net income to cash was affected by the
increased tax costs in the quarter.

Adjusted for exceptional items, cash flow was SEK 5.2 b. in the quarter. These
items include the buyback of Mobilcom credits of SEK -4.1 b. and SEK 0.5 b. in
proceeds from the divestiture of certain R&D operations.

OUTLOOK

In our last report we indicated that our fourth quarter Mobile Systems sales
could decline more than the overall market due to our exposure to the sharply
declining TDMA and PDC markets. For 2003, we believe that we will maintain our
overall share of the mobile systems market with an increase in 3G sales partly
offsetting lower sales of TDMA and PDC.

While we believe that the worst of the market decline is behind us, the market
remains unpredictable. Normal seasonality will most likely prevail during the
first quarter and sequential sales will consequently be down.

We are planning to return to profit at some point in 2003 by lowering our costs
and adjusting to the prevailing market conditions.

PARENT COMPANY INFORMATION

The Parent Company business consists mainly of corporate management and holding
company functions. It also includes activities performed on a commission basis
by Ericsson Treasury Services AB and Ericsson Credit AB regarding internal
banking and customer credit management. The Parent Company has branch- and
representative offices in 16 (15) countries.

Net sales for the year amounted to SEK 2.0 (1.4) b. and income after financial
items was SEK 2.3 (-6.4) b. Write-downs of investments in subsidiaries have
affected income by SEK -3.8 (-19.0) b.

Major changes in the company's financial position for the year were:

-- Decreased current and long-term commercial and financial receivables from
subsidiaries of SEK 35.5 b. -- Increased short-term and long-term customer
financing of SEK 6.2 b. -- Increased investments in subsidiaries of SEK 6.1 b.

Short- and long-term internal borrowings decreased by SEK 37.2 b. Notes, bond
loans and convertible debentures, including short-term portion, decreased by SEK
5.4 b. Stockholders' equity has increased by SEK 30.1 b. and cash and short-term
cash investments have increased by SEK 10.3 b., mostly due to the rights issue
in September 2002. At year-end, cash and short-term cash investments amounted to
SEK 59.3 (49.0) b.

In accordance with the conditions of the Stock Purchase Plan for Ericsson
employees, 1,893,195 shares from treasury stock were distributed during the
fourth quarter to employees who left Ericsson. An additional 291,635 shares were
sold during the fourth quarter, in order to cover social security costs related
to the Stock Purchase Plan. The holding of treasury stock at December 31, 2002,
was 154,360,278 Class B shares.

DIVIDEND PROPOSAL

The Board of directors will propose to the Annual General Meeting that no
dividend is paid out for 2002.

ANNUAL REPORT

The annual report will be made available to shareholders at our head office at
Telefonplan, Stockholm, two weeks prior to the Annual General Meeting.

ANNUAL GENERAL MEETING OF SHAREHOLDERS

The Annual General Meeting of shareholders will be held on Tuesday, April 8,
2003, in Stockholm Globe Arena.

ACCOUNTING PRINCIPLES

This interim report has been prepared in accordance with the Swedish Financial
Accounting Standards Council's recommendation RR 20, Interim reports.

We have changed accounting principles since our latest annual report.

The following Swedish GAAP recommendations are now implemented:

RR 1:00, Consolidated financial statements

RR 15, Intangible assets

RR 16, Provisions, contingent liabilities and contingent assets

RR 17, Impairment of assets

RR 19, Discontinuing operations

RR 21, Borrowing costs

RR 23, Related party disclosures

The only material effects of these new standards relate to RR1:00, regarding
consolidation of controlled companies, and RR 15, regarding capitalization of
development costs.

According to RR1:00 we have consolidated as subsidiaries certain finance
companies previously accounted for under the equity method. We have restated
previous year in our primary statements.

According to RR 15, starting from January 1, 2002 we have capitalized certain
development costs. Stockholm, February 3, 2003

Kurt Hellstrom

President and CEO

Date for next report: April 28, 2003

Auditors' Report

We have reviewed the Fourth Quarter Report as of December 31, 2002, for
Telefonaktiebolaget LM Ericsson (publ). We conducted our review in accordance
with the recommendation issued by FAR. A review is limited primarily to
enquiries of company personnel and analytical procedures applied to financial
data and thus provides less assurance than an audit. We have not performed an
audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe
that the Fourth Quarter Report does not comply with the requirements for interim
reports in the Annual Accounts Act.

Stockholm, February 3, 2002

Carl-Eric Bohlin Olof Herolf Thomas Thiel Authorized Public Authorized Public
Authorized Public Accountant Accountant Accountant PricewaterhouseCoopers AB
PricewaterhouseCoopers AB

Safe Harbor Statement of Ericsson under the Private Securities Litigation Reform
Act of 1995;

All statements made or incorporated by reference in this release, other than
statements or characterizations of historical facts, are forward-looking
statements. These forward-looking statements are based on our current
expectations, estimates and projections about our industry, management's beliefs
and certain assumptions made by us. Forward-looking statements can often be
identified by words such as "anticipates", "expects", "intends", "plans",
"predicts", "believes", "seeks", "estimates", "may", "will", "should", "would",
"potential", "continue", and variations or negatives of these words, and
include, among others, statements regarding: (i) strategies, outlook and growth
prospects; (ii) positioning to deliver future plans and to realize potential for
future growth; (iii) liquidity and capital resources and expenditure, and our
credit ratings; (iv) growth in demand for our products and services; (v) our
joint venture activities; (vi) economic outlook and industry trends; (vii)
developments of our markets; (viii) the impact of regulatory initiatives; (ix)
research and development expenditures; (x) the strength of our competitors; (xi)
future cost savings; and (xii) plans to launch new products and services.

In addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. These forward-looking statements
speak only as of the date hereof and are based upon the information available to
us at this time. Such information is subject to change, and we will not
necessarily inform you of such changes. These statements are not guarantees of
future performance and are subject to risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors. Important factors that may cause such a difference for
Ericsson include, but are not limited to: (i) material adverse changes in the
markets in which we operate or in global economic conditions; (ii) increased
product and price competition; (iii) further reductions in capital expenditure
by network operators; (iv) the cost of technological innovation and increased
expenditure to improve quality of service; (v) significant changes in market
share for our principal products and services; (vi) foreign exchange rate
fluctuations; and (vii) the successful implementation of our business and
operational initiatives.

A glossary of all technical terms is available at: http://www.ericsson.com/about
and in the annual report.

To read the full report, please go to:
www.ericsson.com/investors/12month02-en.pdf


CONTACT: Ericsson, New York
Investors: Glenn Sapadin, 212/843-8435
[e-mail]
Media: Kathy Egan, 212/685-4030
[e-mail]


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-0-


KEYWORD: SWEDEN
INTERNATIONAL
EUROPE
SUBJECT CODE: TELECOMMUNICATIONS
HARDWARE COMPUTERS/ELECTRONICS
EARNINGS
SOURCE:
Ericsson

(Wall Street)





Daniel Nieves