Telefonaktiebolaget LM Ericsson (ERIC) 2002 Q1 法說會逐字稿

Ladies and gentlemen, please continue to stand by -- your conference call will begin momentarily.

Once again, please continue to stand by and thank you for your patience.

Ladies and gentlemen, thank you for standing by.

Welcome to Ericsson's Analysts' and Media conference call for their first quarter report 2002.

To view the visual aids for this call, please log on to www.ericsson.com/press or investors.

During the presentation all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer-session.

At that time if you have a question, please press the one followed by the four on your telephone.

As a reminder, this conference is being recorded Monday, April 22nd, 2002.

Mr. Gary Pinkham, Vice President Investor Relations will now open the conference.

Please go ahead, sir.

Hello and welcome to our conference call.

Before we get started I'd like to remind you all that there will be forward-looking statements in the management discussion as well as in the answers to some of our questions.

As you know, the actual results may be materially different so please read the report carefully and especially the Safe Harbor Statement to really appreciate these risks and uncertainties.

Now I'd like to hand over the call to Kurt Hellstrom, President and CEO of Ericsson.

Thank you, Gary, and good afternoon, ladies and gentlemen.

I will give you a quick summary together with Sten Fornell and then we'll open up for questions.

As expected this past quarter was very challenging.

Our results were at level that we anticipated three months ago, but the market continues to be uncertain.

However, we have expanded our positioning of core businesses during this difficult period.

Now with our purposed rights offering, we will achieve the financial strength to benefit

our competitive position.

I'll get back to this in a few minutes.

Here are the key points from our report.

We have grown our market share in GSM.

Like all suppliers in this industry, we are experiencing a sales decrease, but our sales in GSM, and CDMA declined less than the market.

Our order intake in Mobile Systems was up 11 percent from last quarter, and Sony Ericsson has reached break-even.

At the same time our new mobile platforms business is gaining speed.

This shows the success of our new hand set strategy.

We are also adjusting our market view.

We see that many operators have recently lowered their investment plans further.

As our sales will be lower than anticipated, we do not plan to return to profitability until some point in 2003, even with ongoing progressive cost cutting.

Only three months ago, there was a general anticipation that the systems market would improve during the second half of this year.

However, many operators have recently announced reduced investment plans.

We now believe that market conditions will remain weak well into next year.

The mobile systems market is now expected to be down by more than 10 percent this year, compared to our previous estimates of flat to down 10 percent.

The wide line systems market is expected to continue to shrink during 2002.

Additional circuit switching is expected to decline by about 40 percent.

Wide line infrastructure demand is expected to be especially weak in Latin American and Western Europe.

As regards to

growth, we expect between 175 and 215 new subscribers during 2002.

This is a growth of 18 to 23 percent, which is close to our previous estimates of 20 to 25 percent.

We expect around 400 million phones to be shipped this year.

The growth drivers will be the

phones with colored screens and multi-media capabilities.

In our fourth quarter report we stated that sales of our mobile systems were expected to be at least in line with the market development of both plans were down 10 percent during 2002.

We also stated an objective of an operating margin over five percent for the full year even if necessary

as much as 10 percent compared to 2001.

With our revised view of the outlook for the markets, we now expect to make a loss this year.

With ongoing cost cutting we plan to manage the business return to positive income before taxes at some point in 2003.

During 2001 we carried out company-wide cost reductions.

There are now yielding 20 billion

savings on an annual basis.

We continue to realign our operation.

We will further reduce our cost base by 10 billion

at the end of this year and by an additional

10 billion next year.

At the end of 2003 out cost base will be 40 billion lower than at the beginning of 2001.

We are also focusing our operations to capture a number of new opportunities in the marketplace.

We see a growing demand for integrated wireless and wire line solutions.

Our customers want to achieve common service platforms and transport networks.

This trend is true both for the operators that pursue a combined wire line -- wireless strategy and for the operators that offer pure mobile services.

To attract these opportunities we are now merging mobile systems with market service networks.

We also see an increasing demand for our services offering where we support our customers in running their networks and reducing their costs.

We are the world's largest service business for operators.

Now we are expanding this business to also include the areas

,

and traditional wire line switches.

This change will enable us to capitalize on our large installed base in these businesses and to reduce our costs.

In spite of the current turbulence in our environment, we believe that our competitive position in wireless systems has never been stronger.

We have the leading market positions in both 2.0 G, 2.5 G, and 3.0 G mobile systems.

With our strong drive for efficiency and the unique market position, we believe that we will emerge from this down turn with an even stronger competitive position.

However, to do this we also need a robust financial position.

With the purposed offering , we will raise approximately 30 billion SEK.

This capital injection will give us the financial strength to fully leverage our strong competitive advantage.

At the same time, we will also have a robust financial position with increase security if poor market conditions continue or deteriorate further.

We will communicate the exact terms of this offering later.

Now, Sten Fornell, is going to give you more detail on our financials.

Thank you.

Thank you, Kurt, and good afternoon everybody.

I will today, of course, give you some more background for the proposed rights offering.

But first a brief wrap-up of our financial performance in the first quarter.

The

is keeping up well in relation to competition.

However, the lower volume arrived at the lower end of our guidance.

Our efficiency program, initiated last year, is now successfully concluded.

And

sense, we will go on and further adapt our cost base faster and more comprehensively.

strong focus on more orders.

And I will come back to cost measures in a few moments.

Our total order intake,

by 5 percent sequentially and per system it was up 10 percent.

The increase, however, was below expectations.

The weakness in Latin America and Western Europe continues to impact us negatively.

We had a sharp reduction in sales, compared to the first last year.

Cautioned investing

still prevails.

But the decline in wide line continues to be the steepest.

And this is reflecting a really weak demand for circuit switching equipment.

Our services business continues to grow and now represents 24 percent of total sales.

Also in

of emerging markets

as well as in central and eastern Europe.

Ericsson, our joint venture has achieved a

and this is a big step forwarded compared to the losses in previous periods -- very encouraging.

The recent launches of products and, hence, our business

quickly and effectively begins to establish a strong identity and a strong brand.

Now

on the high end and then we gradually increased in volume in other segments.

We will increase our market share.

This operation now has a significant reduced risk exposure -- is much lower capacity calls. and going forward focuses on a sustainable financial development and

Ericsson is to be profitable for the

year.

Cash flow is

very high up on our list of priorities.

Our cash flow was negative 4.1 in the first quarter.

As you know, levers may fluctuate quarter by quarter and the

excess capacity burdens the cash flow.

And here comes part of the explanation.

Collection of receivables proved to be challenging during the quarter especially in Latin America.

DSO -- days sales outstanding -- back below 90 days during the year.

Inventory

in the first quarter were substantially lower than in the fourth quarter and for

we are now building inventories for invoicing later in the year.

And then some words about customer financing.

We are now consolidating all our finance companies as the new Swedish GAAP new accounting rules.

This has not effected our risk exposure as we have consistently included the amount guaranteed by us in our exposure.

The full consolidation gives, however, more transparency and our balance sheet has only been modestly inflated.

You can further details about this in an appendix on our Web site.

Our policy here is unchanged.

We are selective, we are cautious and we maintain our control of the exposure.

Before we discuss the outlook, I would like to spend a few moments on our environment.

key for our planning.

No doubt our business belongs to the future.

However, the picture outside today has been accentuated during the past few weeks mostly when it comes to the sentiment in the financial markets and this is impacting our customers

extent.

And the financial situation in our industry is pretty complex.

During the last four years, the telecom industry has borrowed an astonishing 1.3 trillion US dollars, bonds and bank loans included, and

operate this.

A comprehensive restructuring and consolidation among the operators is now approaching.

Near term applying some restrictions on investments.

But we believe that our main customers and ourselves, will come out of this restructuring even stronger.

Needless to say, it is extremely difficult to make forecast in this environment.

We can control our cost and now we are adjusting in line with our new market outlook.

This chart here summarizes all cost reduction initiative and the anticipated financial impact.

The initiative including of the pooling and finance envisions a program all targeting a lower cost base

annually.

Meaning that it could lower expenses as well as reduce capacity cost in production and

.

The cost associated with these improvements, is from the beginning of this year taken on an ongoing basis.

And we have estimated the cost this year to be slightly higher than the corresponding savings.

That is now would be a big portion

has been already covered with you already.

Please also see the appendix describing the method.

In this challenging planning environment, and due to the proposed rights issue announced today, we are and we need to be very cautious with all our guidance.

And please have that in mind when you read our outlook.

we strongly believe in our industry and that this industry offers outstanding long term growth opportunities.

But right now all of us have a tough time.

Eventually when the market picks up we want to be in the best

operationally and financially in

be able to capitalize on our strong market position.

And in the meantime we want to manage our financial risks prudently in the best interest of our shareholders, customers and employees.

And then, finally, some words about how we determined the size of the proposed

increase.

are down 40 percent.

And at the same time maintain a strong payment

.

consideration we arrived at 30 billion

.

And, again, this will enable us to be well prepared to take advantage when the market picks up.

And by that, I hand over to

.

Thank you, Sten.

And, Operator, we're now ready to take questions.

Thank you.

Ladies and gentlemen, we will now begin the question-and-answer-session.

If you have a question and have dialed a North America phone number, you will need to press the one, four on your telephone.

If you have dialed a European phone number, you will need to press the star, one on your telephone.

You will hear a three-toned prompt to acknowledge your request.

If you are using a speakerphone, please pick up your handset before entering your request.

As always, please limit yourself to one question at a time and please keep your questions at a broad level, as we do not have enough time to get into the details.

Plenty of detailed information is provided in the report.

Ericsson's investor relations and media relations teams will be happy to discuss further details with you after the call.

Once again, if you do have a question at this time and have dialed a North American phone number, please press the one, four.

If you have dialed a European phone number, please press the star, one on your telephone.

One moment, please, for the first question.

, Banc of America Securities, please go ahead with your question.

OK -- thanks.

Guys, I want to understand a little bit about -- it sounds like visibility is pretty tough out there but do you have a sense for what kind of seasonality we should expect with

spending this year?

Hello,

.

I think -- in all honesty I think it's very difficult to talk about the seasonality these days.

I take as an example last year.

Normally we got the seasonally with a weight

filter some what stronger second quarter, again a somewhat weaker third quarter, and then have a real spurt at the end of the year that has been the pattern for many, many years.

Last year was the first year that

experience where we had a weaker second half of the year compare to the first half of the year.

And due to the situation as Kurt has been describing the situation, I would say that there is no such a thing as seasonality or a normality as this point in time.

But that is just part of this challenging planning environment that we talk about out there.

Got you.

OK.

I just want to, I guess the order throughout the 11 percent sequentially for mobile infrastructure was that , does that suggest a return to, you know, an up June, or is there some may a lump associated with that?

OK.

I think we, I can really give a name.

We want give any guidance on that.

So we take it quarter by quarter.

And going to show what happens.

OK.

Thank you.

,

.

Please go ahead with your question.

Thanks.

I believe you spoke a bit about 3D revenue being in inventory.

Could you give us some kind of indication as what levels of work in progress, or however you are booking it, how that 3G or

inventory looks on your balance sheet?

Thanks.

.

We are basically are recognizing revenue along a prudent principle.

We are recognizing the revenue when it is on a completed contract and

and when it comes to the various

first generation contract, they can be somewhat longer, so there will be some build up of inventory during the year.

But that doesn't

any major impact.

We have got a lot of other programs,

here.

And when it comes to the impact of all that

generation for the

.

Let me ask for your understanding.

We have said so far, that third generation sales this year will be in the order of 10 percent

on system sales.

And going back again to the market picture that could have been describing.

They say now it will be a little bit less than that.

So even in the reduction in the overall market you're also reducing it as a percentage of sales so there has been a pretty substantial departure in your

expectations?

That's the consequence -- the consequence of our saying approximately 10 percent. that is the consequence -- you're right.

OK -- thank you.

with Bear Stearns, please go ahead with your question.

Thank you -- good morning.

In terms -- in the past you mentioned last quarter that there is growing pricing environment.

I was curious going forward -- when you talk about losses for the rest of the year could you give us some sense how much of that is coming from lower revenue expectations versus a change in increases in the pricing environment especially given that we in the last few weeks heard from a number of carriers saying that they've been able to renegotiate some better deals.

It would help us to model how much you have flexibility improving margins over the next few quarters.

Well, basically I think the answer is that they are -- it is volume basically what is talked about here.

As a big industrial company, of course we are very volume sensitive here.

And to illustrate that I use the

our capacity cost -- our fixed cost in the shorter term.

They are accounting for it being 45 and 50 percent.

All our costs -- the consequence then when volumes are dropping we are still keeping the same costs in the short term.

So our income as well as our operating model is, of course, very much hurt by that.

And then, of course, you're right -- going along some lower volumes and a lower market expectation as we still have the same competition in the short term there is a little bit more of

competition.

But overall it is a volume issue because it is about volume.

And when volume is dropping it is impossible for us to adjust the call space immediately.

That requires some lead time.

So as you start recognizing 3G revenues, will that change at all margins one way or another?

Well, basically, what we theorize now is more of a gradual introduction of third generations.

So, then the answer is there will be no major impact.

We are continuously rationalizing and so there will be a smaller impact compared to the situation.

But we had to introduce a lot third generation at the same time.

Thank you.

We will now go to the U.K. for questions.

Question made from Mr.

with

.

Go ahead, sir.

Thanks very much.

Kurt and Sten, can you comment on what's going to happen with the range of other operations in the group, defense, cable, micro electronics, optics, et cetera?

And whether those have a place in the next 18 months within Ericsson or you regard those as non-core now?

And second, can you comment on whither the services business, which you mention is now 24 percent of sales, and must be mostly selling time and

people, its that a profitable business?

And how far away is that, might that be from being profitable if it is not?

Thank you.

And first of all, this is Kurt Hellstrom, the

that you mentioned defense, cable, micro electronics, they are not, I mean they are not what we consider to be core businesses in Ericsson.

And we have disclosed earlier, that we are looking for solutions in that respect and like in micro electronics, we are

to find an industrial solution that will guarantee that this is a developing in a healthy way.

And also that it guaranteed that there is something to rely on when it comes the supply of micro electronics for us and the need within the group.

And this goes for all these businesses, you mentioned.

And then when it comes to the services business, it's a profitable business.

It 's a growing business.

And we are actually the largest of its services business company in the telecommunication industry today and this is profitable and growing business for us.

And really fitting very well into our core business.

Is this services business some thing you might break out separately for people to see in future reports, in terms of margins, and sales?

We will always try to be transparent and make life easier for you.

There has been an organizational change here today that is reflecting the growing importance of services as well as a combination of wireless and wire line.

So let's say for the time being

considered to make a change. but I don't exclude that going over it we can consider to make some changes there.

And at Ericsson there is more and more systems and servcies.

Does that answer your question

?

Yes, thank you.

Thank you, sir. and the next question comes from

of

.

Please go ahead, sir.

Yes -- thank you.

Regarding the 30 billion proposed

issue here.

Could you please be more specific on the use of those receipts?

And, for example, what will you do with them on day one?

Will you put it on your bank account, so to speak, or will you start immediately repaying expensive debts?

And, secondly, return to profitability in '03 -- could you please share with us some of your assumptions there regarding your quarterly sales levels or alternatively what kind of market outlook you have for '03?

Thank you.

We're many questions when it comes to what we'll do with the money.

I think we have outlined here before that this is not primarily about liquidity in the sense.

As Kurt has been explaining, this is about our strength and financially and capitalizing on the possibilities to -- of

turning up and participate proactively in a restructuring.

When it comes to the balance sheet I think we have outlined in some cases here today that when this amount of money -- the 30 billion -- will be in our bank account.

We even have a situation where our

ratio is going up 31 percent up to 38.

And that is still below my target here -- our target of 40 percent.

And that is due to the fact that immediately after that we have

money in cash.

And what we will do immediately is, of course, that we will -- we will repay some debts there and we will then restore

at the level of 43 percent.

And that is exactly the kind of balance sheet that people like to have and to take us through this tough time and be well prepared

turning up here.

So we are definitely in need of this strengthening in order for us to be strong all over here -- as strong as anybody.

part of the question was that related to?

Next year.

I just get a feeling of the you are referring to reaching profitability next year sometime could shed some light over the maybe assumptions there, I mean in rough terms, forecasting a significant drop in sales as well, for example?

Thank you.

I think overall, if I don't say

, what we are saying here is that it is difficult for us to provide forecast and consequently be comfortable with forecast for next year.

What we can do is to try to match all the time the top line in our cost

.

And that is basically what we are saying today, that any forecasting, when it comes to top line next year, no.

We will not go into that.

OK.

Thanks.

Our next question comes from Mr.

,

.

Please go ahead, sir.

Hi, could you perhaps tell us whither or not the big American contracts for the

orders yet now?

And also if you could say something on how much renegotiation cost

have effected these quarter's results?

And where you expect that to go, going forward?

Well, when it comes to the US contract, that you referred to as you remember that

was announced they are more

nature and then they are on a gradual basis,

orders and are booked on a more current basis.

The answer is that they are coming into our orders more on a current basis.

And what was the second part of your question?

.

Re-negotiating capacity with

and funds and systems?

Had a negative impact on your operating performance this quarter and do you anticipate that reducing

going forward?

I remember it had an impact last quarter, on funds in particular.

No, I think when it comes to if you are referring to the end of last year in the fourth quarter, we had an agreement with

when it comes to the phone business that we took care of some over capacity.

As for this year, they are completely taken of care of that and so the impact is positive.

Thank you.

Thank you sir, we now return to the Untied States.

Thank you.

, Lehman Brothers.

Please go ahead with your question.

Thank you.

I had a question for Sten and then maybe a question for Kurt.

Sten, could you just outline how you think your cost -- the second round of cost cutting programs may impact your goals for the total headcount of the organization and how do you see that changing in the next 24 months?

And for Kurt -- do you see your market share -- how do you see that market share or what's the target for that as you exit the year?

And how -- could you talk a little about how operator's plans with respect to 3G may have changed to focus on their

or

application development?

Thank you.

employee

the most important thing for us is to return to profit and bring down cost.

And does not tie up ourselves so much when it comes to targeting a specific level of employees.

But basically to simplify we are saying that the different methods that we integrated into our

for this year comprised in cost savings of 10 billion.

people.

And now with the new methods that we'll be taking

there is a

to take further measures, again, in the order of

.

And it's about 10,000 people.

So basically

we entered into this year with 85,000 employees and at the end of 2003 we are heading toward 65,000.

OK.

Regarding the market shares I think it was a number of questions in that but we are stating and assuming or at least we know that we are taking gradually market share.

We can see that among other things from

developing compared to competition.

But we have in the -- in the -- in the

piece it's including -- it's small incremental growth we could say in -- because the market is quite locked up with -- between the suppliers today.

When it's -- we know that we have a higher market share when we're talking about the

than what we have in

.

And when we talked about

, I mean we can't estimate our market share and we estimate it to be pretty high.

At the same time, its, the market is not such that it's really very easy or sometimes not even sensible to try to figure out the market share because the contracts are very different among the suppliers.

And I didn't understand the other ...

It seems Kurt, that there is a little change in the focus of the operators to get greater traction amongst the GPRS networks and on the development of MNS over the roll out of broad WCMA network.

So I was just wondering if you would comment on that?

I can give a few comments on it.

I think that the MNS and that have a pretty high focus.

And we are working closely with a number of operators to bring that to the market.

That is a lot of things that have to be timed in that respect, but we have the solutions for the networks and there are hand sets available and there are certain applications and it has to fit together and we are not really there yet, but it's a big focus on that among certain operators.

One last thing.

It looks like you have change in the management of your wireless infrastructure division with the departure of

.

Could you just give us some background on that and how you see that going forward?

Thank you.

We have for quite sometime talked about the

multi-services network system is really the core network.

They provide the engine solutions, but these solutions and the elements of that solution are the same as we are providing for our second and third generation networks in the future.

So we are a convergence of core networks and we are taking the consequence of that because it is the same customer, many of the same customers, looking for an integrated solution and we put it together.

And then we have taken off the traditional narrow band switching.

We have brought with us the PDMA solutions, then we have Japanese ones, the PDC.

And what we can say about this ¾ I don't say they are ¾ I would say they are in the more mature phase, in the latter phase of the product cycle and this is more a supporting ¾ less and less new developments in these and its more handling them so to say, in the declining phases of the product life cycle.

And that is also very much fits into the services ....

Thank you.

, Deutsche Bank Securities, please go ahead with your question.

Can you give us a sense of the timing of

deployments in terms of broad based deployments?

Are you seeing that getting pushed out?

Is that more of an '04 event now?

And also, secondly, you talked about the consolidation of the carrier space.

Do you see a need for a consolidation of the equipment vendor space as well and how would you fit into that?

Thank you.

Well, the timing of -- I feel -- insist that third generation of wideband

is happening and we have

systems and services in operation in Japan.

We have others coming on in Europe this year.

We don't expect it to be perfect from the beginning.

It's going to be a struggle to bring this into

operation.

But it is happening.

And it is happening more or less as we have thought.

And there are also players in the field that are more interested to see this happening

and some others that are pretty strong and operating in many markets.

And they will certainly push this.

And then there are others who might be more interested to see it delayed.

But as an average of these different pushes it will -- it is moving along and I think it is up to percentages that we have been expecting . . .

Restructuring

.

And then when we cancel the restructuring of the market obviously we see a correction in the telecommunications market from the last five -- six years of quite unusual growth.

And it's been -- there are many reasons why this is not the normal trend.

And now we are back towards the growth trends that are more typical of the telecommunications business.

That means also that there have been some excess capacity built up over the years in the business and we are now seeing that this excess capacity is cut away and no doubt there will be some opportunities to restructure this business.

That's one of the reasons why we think that the strong financial position of Ericsson is a good prerequisite for being able to participate in the restructuring if something interesting turns up.

And among the operators we also believe as we have said for a long time there will be a restructuring and I think the

deal is the typical sign that this is going ¾ is happening ¾ this is going to happen for sometime and it's going to spread and involve many more

in this process.

Thank you.

,

.

Please go ahead with your question.

As you look out across ¾ you are obviously seeing considerable weakness in Latin America ¾ what other segments of the world that appear to be holding up, what is your view point there, in particular in North America and China for capital spending in infrastructure over the rest of the year?

While we know that North America is

toward the U.S. is holding up pretty well and that is because we have two or three operators that are investing in coverage and in

.

I am talking about Cingular and AT&T Wireless and to some degree Voice Stream.

We see weaknesses in Latin America.

It's not the same picture all over.

But it's from Mexico, it's pretty strong still.

And Brazil, which a big market, it is filled with a lot of problems and questions marks.

And we have south of Latin America, it's , you can imagine yourself.

In Europe, that's a big issue with the operators there with their inability really to invest because of their debt burdens and I could go back through all the reasons for that concern, but I think you know that.

Middle East, Africa, even Eastern Europe, we see a reasonable growth, but it is unfortunately from a small base.

And then we have Asia, where we have China still holding very well.

And so far this year, the statistics we have shows that China is moving, steaming along more or less as it did last year.

What we may not -- we do not expect this strong growth in China because we expect it stay on a high level.

Then we have down turns visible, very visible in Japan.

But we have on the other hand, a new emerging markets and in particular India seems to be coming on pretty well now.

That is more or less the picture around the world.

Do you expect a significant change in the next few quarters or more of the same?

We don't see any -- I expect it to continue more or less this way.

We don't see any way -- any signs that this is significantly going to improve.

It's more of the same I would expect.

Next question, please?

We will now return to the U.K. for questions.

Thank you.

Our next question comes from

with CFSB.

Please go ahead, sir.

Hi -- yes.

Thank you.

How confident are you that the 30 billion rise offering is sufficient I guess especially since you have very low visibility and no profits for 2003?

And then, secondly, what cash flow are you assuming from disposables on net working capital to insure that you won't have to be raising the size of the rise offering?

Thanks.

Well, when it comes to the rise offering we are determined to see that this is successfully concluded.

That is the ambition to this issue -- no doubt to that.

When it comes to the possible diversity of

we have only the comment that in due time we will come back every quarter.

OK -- just one follow up.

Does your restructuring charge include any write off or accounts receivable or is there a chance of further restructuring charges down the road for either headcount or receivables?

Basically at the year it is at this point in time it is primarily

related.

Most of this has gone through so much restructuring we have taken out the

inventories and so on.

Part of what we're doing now is also to review broader portfolios.

So to some extent that would also be asset related

restructuring charges in the order of two billion

.

OK.

And what percentage of your employee reduction will come from Sweden?

Well, we are not so specific but we are saying that this is impacting every corner of Ericsson as we talk about continuous improvement.

So some type of indication you get by taking this a last precaution

.

OK -- thank you very much.

Thank you, sir.

And the next question comes from

with

.

Yes -- hello.

Thank you very much.

Could you maybe shed some light on your payment schedules for bonds and bank debt, please?

I haven't got all these details on my head ...

I am most interested in the years 2002 and 2003?

But you are not interested in ...

No, I think it is sufficient if you can talk us through the schedule for 2002 and 2003.

Well, the issue bonds last year, and in the order of 2 billion Euros, so that is there.

And as I said before when this issue was brought up, when this

concluded we use part of it in order to review our different loans that will primarily go into the short term part.

first repay that.

though review our long-term loans.

There is for example a convertible that we issued a couple of years ago and that is due in , next year.

But basically without having all these on the top of my head, we have got a pretty good flexibility when it come to structure our balance sheet in such as way so that we get the strong balance sheet.

Meaning that we don't have that much of debt here.

We have also for example, we have got pension liabilities that are arranged in a specific way, not just in Sweden.

And these have been more costly for different reasons that lately.

They are in the order of some eight billion.

By doing this now, we also get the possibility to repay these.

So there is pretty much as flexibility here.

OK.

Thank you.

Thank you sir.

We move now to Miss

with Morgan Stanley.

Yes, thank you.

Couple of questions.

First on the improvement we saw in your gross margin, which I think you explained to reduce excess capacity.

Could you be a little bit more explicit about that and say if relates to a particular area of operations?

Because obviously on the whole, you still have excess capacity.

That's the first one.

The second one is just to try and get a little bit more information on the restructuring in terms of the job cuts -- whether these are largely going to show up as savings in cost of sales or whether they'll be sales and operating expenses?

And what you're actually looking for as you try to

work out which people are gong to disappear and what your priorities are?

specific questions here when it comes to our gross margin.

To wrap up our gross margin was down in the first quarter quite much compared to the first quarter of last year.

And that was basically due to the excess capacity as the volumes are down that much.

And that is at the same time an improvement in the first quarter compared with the last quarter in 2001.

Then you have to bear in mind that also what to remember when we reported our fourth quarter we referred to a couple specific reasons why we had consistently lower gross margins in the fourth quarter such as, for example, that we had

cost for our mobile phones.

Why not having

?

So it is up

.

And when we resourced with that we have got less of excess capacity.

That is because of a reflection of the measures that we are taking.

So there is a little bit of an improvement.

But it comes to -- let me also say that when it comes to gross margin it's a little bit like cash flow that it can jump up a little bit in such a short period as the quarter

.

When it comes to your question then exactly where would we see these improvements?

We'll see them on the cost side or we'll see them on the margin side.

And more broadly, again, as we are finding in this volatile environment with real challenges

you can say if you end up in a situation with lower volume all of your parameters will be hurt.

That is what

in our phone business a year ago.

So it's your gross margin as well as your

percentage of sales so now less

are going down.

And

historically pick up again it will be the other way around.

And if I was to divide exactly where you will

, the one or the other, I think that is the major portion of what we are talking about

we expect down side.

But I prefer to talk about the, our fixed cost in a broad sense.

And I estimate them to in the order of 45 to 50 percent of the total cost base.

You had a third question as well.

Was that so?

No, I think that was it.

But maybe just to that 45 to 50 percent you just talked about, is that, that do you think stay unchanged or do aim to reduce that at all?

all this initiative that they are running the intention is to make us slimmer.

And I would not exclude what we have been trying to tell you here when it comes to our phone business, is that we have transferred a lot of the fixed cost base over to variable cost.

Right now we have only the joint venture, 4,000 people.

And you remember that we had at the peak here, in our own phone business as many as 18,000.

And there are, other than myself, that would be some type corresponding development also for the

business that we will have a somewhat bigger variable cost base and a somewhat smaller fixed cost base, going forward.

OK.

That's very helpful.

Thank you.

Thank you.

We have a question now from Mr.

of

Salomon Smith Barney.

Please go ahead sir.

Thank you.

Could you say anything on the split between the wireless and the wide line businesses in the first quarter?

And in terms of profitability?

Clearly, the wide line business had a much more dramatic fall in volumes.

Could you comment on whiter the systems business on its own was in the black in the period?

And a related question, are there any areas within the wide line portfolio that may not be core as you go through the change in structure between those two units?

The answer to your question is easy to answer because is no.

I mean what

if we have come to the conclusion that it not good to disclose sales and orders when it comes to mobile and fixed and we don't go into profitability.

And what was announced today is also good evidence of that because they are more and more into the

and at the end of the day,

how you arbitrarily allocate cost and expenses between the two.

Of course also along the discussion that we have had, we said here that the circuit switching business is going radically down and consequently to end up in the shorter term with a lot of excess capacity and consequently you end up with troublesome parameters when it comes to profitability gross margin as well as operating margins as the more general comments here.

Then you can distinguish here between

.

We also have got within this business our successful migration business, which is doing well from a market point of view and also from a profit point of view.

But I've been

into breaking this up for you.

OK -- thank you.

One last question, Operator.

Our next question comes from

from Piper Jaffray.

Please go ahead.

Hi.

I won the lottery with the last question.

Two questions.

First, edge shipments -- could you comment on the current level of edge products shipping and what you expect to happen in the balance of 2002?

And then second question -- phones -- you took your guidance down from -- to a range of 400 to 420.

But in your comments just earlier, Kurt, you said 400.

Do you mean by that to emphasize the lower end of that 400 to 420?

Thank you

Well, to start with the second part -- it was exactly what we tend to lean towards the lower end of the range that we have indicated.

And that is based on our feeling about the market at least statistics that we have been able to gather so far.

replacement if lower than anticipated.

Then when it comes to edge shipment -- in the

shipments and for instance, North America that is included but we haven't started really any significant shipments or

.

Then do you anticipate to begin some meaningful shipments of edge during 2002?

It depends on what you mean by meaningful.

There could be

that are meaningful but I trust you mean in quantity volume and that, I would say, is not meaningful.

All right -- thank you.

OK, Operator -- so that was the last call.

All right, sir.

Doe you have any concluding comments?

No.

Thank you very much for coming in today.

Thank you, ladies and gentlemen, that does conclude the conference for today.

Again, we thank you for your participation and ask that you please disconnect your line at this time.