Telefonaktiebolaget LM Ericsson (ERIC) 2003 Q2 法說會逐字稿

Good afternoon ladies and gentlemen.

Welcome to the Ericsson Analyst and Media Conference Call for the Q2 Report of 2003.

To view visual aids to this call, please log on to www.ericsson.com/pressorinvestor, all one word.

Ladies and gentlemen, when you would like to ask a question, please key 1 on your pushbutton phone.

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As a reminder, replay will be available one hour after today’s conference.

Mr. Gary Pinkham, Vice President Press Relations, will now open the call.

Thank you operator.

Hello everyone.

Welcome to our conference call.

With me here today are Carl-Henric Svanberg, President and CEO of Ericsson, Per-Arne Sandstrom, Deputy CEO, and Karl-Henrik Sundstrom, Chief Financial Officer.

We will be making forwarding-looking statements during the call today, and these statements are based on our current expectations and certain planning assumptions, which of course are subject to risk and uncertainties.

The actual results may differ materially due to factors mentioned in today’s press release, as well as those discussed in the conference call.

We encourage you to read about these risks and uncertainties in both our earnings reports as well as our annual report.

With that out of the way, I would like to hand over to Mr. Carl-Henric Svanberg for comments about our performance and plans going forward.

Good afternoon and good morning to you all.

Let me start this presentation of our second quarter by repeating the three arrows of our way to success that appeared in the conference call last time we spoke.

The first steps that we are focusing on [undecipherable] is to get back on profits and to reassure our overall strategic direction.

Then into the second stage of creating operational excellence, and then into the third stage of strengthening of our leadership.

I will comment on these as we go along a little bit.

Let me first comment a little bit overall on the next slide about the changing business environment.

That is more to the [undecipherable] picture, which is also a interpretation of the situation after having spent the last quarter, maybe most of my time, with perhaps 80% of our operators.

It is quite clear that, and I think we feel that in management and in this industry, that there is an increase of focus on user benefits.

I think in the 1990s, everybody was enthusiastic, everybody wanted technology, and so on.

Now it’s more focused on where do we see end-user benefits, what do our subscribers appreciate, and so on.

It’s also more focused, on the operators’ side, on financial performance to make sure that everything they do has a good financial return.

I think it is nothing dramatic in the sense, it’s only that we get the same type of environment in this business as we have in most other business in society.

Of course technology, yes, it is a very technology-driven business, but for a reason, for the right reason, when it drives the business forward.

What is also clear is that 3G is a reality.

There are in the world networks today about a million subscribers worldwide in [WBCDMA] networks.

More importantly, it is part of every operator’s planning.

Of course, 3G in many ways a no-brainer.

It means more than double capacity.

Of course, it is happening.

On top of that, all the services are made available, as we all know.

What is also interesting is that we see that data users are also the high volume voice consumers.

It is obvious that the more data a subscriber is interested to use, the higher voice consumer he comes to be.

I think most of us that are today frequent SMS users, for example, we wouldn’t choose today an operator that doesn’t provide SMS.

I think that is a driver among a lot of operators that are nervous they will fall behind here and that they will not be able to provide the services to such a high volume from voice consumers they wish to have.

In this segment, Ericsson is a clear number one.

We are suppliers to seven of nine launch networks in WCDMA.

But it is also interesting that EDGE is now becoming more and more in focus, and EDGE is a very natural step towards WCDMA.

And we will see also 3G launches being done in Canada, but also introducing the GSM networks into EDGE networks.

Another area that is growing in importance is the service business.

It is clear that operators are moving up the value chain, and there are so many business development opportunities for them closer to the subscriber, their subscribers where they need to focus.

As we get natural focus on the operations side, and this opens opportunities for us, not only to do more Professional Services work and contract work and pre-maintenance work, and also to even down to the networks.

In this particular business segment, Ericsson has a strong advantage over all our competitors because, not only do we have the largest market share in the world today, but our installed basis is stronger than everybody else, because we’ve been around for so long.

We have also a strong proven track record on dealing with other vendors' equipment.

Next slide is talking about established operational excellence and to become faster and to become more responsive.

This I think is a natural development after the very optimist ‘90s, and following the big upturn for Ericsson, and also the big downturn and restructuring that we are getting.

As we are going through the restructuring, it is now time to refocus performance, creating a clear organization, efficient organization with clear responsibilities, and so on.

There we can do a lot.

I think we are well endeavored with our competitors that enjoyed the same ride, but certainly we can improve a lot and we can do a better job for our operators.

We have also, in this context, reduced the staff at headquarters from 600 to 300, by 50%.

Not maybe so important a figure as such, in the whole context, but more to drive simplicity and make sure that corporate staff helps making life easier for the field, and introducing other activities and taking initiatives in harmony with the field.

There is also a focus on an improved supply chain management.

If you go maybe a few years back, maybe suppliers like us, we supplied new infrastructure and services, and once it was in order, it was launched to the market.

Today, it’s launched in the market already by the day the infrastructure is supposed to be in place, and everything is supposed to work in very timely way.

Operational excellence has come to stay, and we have lots of improvement opportunities here were we can be stronger.

When we move on to the next slide here and talk about restructuring well on track.

We are now past the point where operating expenses are reduced by over 50% from where we started at SEK88b.

We are now down to run a rate of SEK42b.

On top of that, we have successful cost of sales reduction work going on, which is also behind the fact that we are improving as much as 1% sequentially the gross margin here.

We also, as you are aware, took additional measures in Q1 where we announced reductions of another SEC SEK30b of costs, and that is well in progress and following the announced time plan.

If you then look at the two following slides so that you can see the Opex run rate, how it developed from when we started to today.

We are at SEK42b.

We are well on track to be at SEK38b, as we have said, at year end, and at SEK33b the following year.

If you then go to the next one, you see the headcount, where you can see that we are presently at 57.6 thousand and we’re heading towards the 47,000 by mid-year next year.

So, there we are well underway.

If we then turn from there to the quarter to highlight our sales figure at SEK27.6b, which is SEK1.7b up from Q1, and in line with what we said in the guidance after the first quarter, that we expected stronger sales in the second quarter.

We are seeing GSM WCDMA sales up 10% sequentially.

It’s also interesting to see that GSM as such, if we take out the currency differences, are in level with last year, actual taking in bookings in the second quarter last year.

WCDMA is now 13% of mobile network sales.

We have, in terms of book-to-bill, we above one, that is for the second consecutive quarter and that, of course, indicates that it is stabilizing trend.

Gross margin is up 1% from the 34.1, and now we’re up at 35.1, and that includes some negative effects from falling dollar versus the Swedish Crown, but we are seeing confident that we will be able, over time, to continue to improve that margin, although we still have some effect from the dollar coming through.

If we then take the next slide and we look at additional highlights.

Really good highlight here, I think is the result of all the cost factors.

Restructuring is at the adjusted income of the finance, that is before restructuring is now very close to break even.

It is at -0.2 and our commitment to the market to get into black figures during the Autumn at some point in time is becoming almost a very, very logical and likely that we will do so.

We will of course get to profit.

Positive cash flow for the quarter.

This is again very good news I think.

We have SEK5.1b of positive cash flow, of which SEK3b is coming from long time effects from sales of personal finance contracts.

Still not included in this SEK5b cash flow is the sales of the France Telecom bonds and some other related bonds, which were done late in the quarter.

The deals were closed late in the quarter and the payments are due in July now.

We are actually starting off Q3 supported by a SEK5b already at the beginning of the third quarter.

All of that, of course, contributes to a considerable strength and financial position where the net of financial assets and liabilities now amount to SEK11b.

If we then take a few words on Sony Ericsson.

Sony Ericsson have also taken restructuring measures, and they are now focusing on GSM and UMTS and Japanese standards.

That’s really the core of the business.

They are restructuring others, and they’re closing some other activities, which should improve their cost run rate to some SEK120b, but their [long] time charges are about SEK70b, which the majority was taken now second quarter.

We believe that Sony Ericsson management is committed to now show profits during the second half of the year, and to make sure that they do so, even if they don’t expand their volume.

On top of that, there are a number of interesting products coming on board.

If we then move on to the market outlook, which is unchanged from the first quarter, we are seeing a mobile system market that could decline by more than 10% this year in US Dollars.

That’s very much the outlook we still see.

We also see continued growth in the Professional Services market that I commented on before, so the outlook is very much unchanged.

This concludes my presentation, but looking at the summary picture here, we are creating a strong profitable company here, even should the market should remain weak as it is right now, and that has been the main purpose of what we do.

We’ve a strong cash flow and a strong financial performance.

We can conclude that the financial crisis is now behind us.

We can also conclude that we are well on track to regain profitability also in this weakened market, and we think that the market outlook will remain weak.

So in short summary, it is true that Ericsson is today a smaller company than it was a couple of years ago, but it’s certainly about to become a stronger and a faster company.

That is what is important for us.

I will stop my presentation there and lead over to our CFO, Karl-Henrik Sundstrom, to continue this presentation, then look forward to your questions and comments afterwards.

Good morning, good afternoon and good evening.

I would like to start with the first slide – a financial summary.

I don’t need to repeat the highlights that Carl-Henric has mentioned, but I would like to point out that we’ve had a sequential increase in orders by 5%, and a year-on-year decrease of 20%.

Sales went up by 7% and the year-on-year is down 28%.

I would also like to comment about the currency effect.

The currency effect in orders from year-on-year level is around 10%, in sales about 9%.

Ericsson, on [living] in fluctuating currencies on our everyday business, we do not speculate on the foreign exchange.

We hedge sales and our costs on the time of contract.

Without hedging, we would have had a negative effect on the income of SEK1.1b, however, with hedging we limited negative effect to -SEK0.5b.

I would also like to comment at part of the result of -SEK0.2b which contributing from System, which has a small profit SEK0.6b, other activities -SEK0.3b, Sony Ericsson -SEK0.2b and unallocated expenses of -SEK0.2b.

Please go on to the next slide.

As previously mentioned, we had a book-to-bill of about 1% and, and as commented in the release, we had a book-to-bill of below 1% in Western Europe.

However, that is mainly due [announcing] order intake in the first quarter, as we can also see that we have a sequential increase of 5%.

Latin America we had a book-to-bill of below one, which was mainly due to a very big order intake from [inaudible] in the first quarter, and we see a strong sales flow.

In Asia Pacific, we had a book-to-bill about 1%, which is contributed by China, Japan and Australia.

However, we have had a sequential -2% in sales.

Next stage please.

As I mentioned previously, we have had a profit of SEK0.6 in System and orders had increase by 5% sequentially as well as sales 5% sequentially.

The year on year effect of exchange of -16% in orders and -28% in sales, and the same currency effects of -10% in orders booked and -9% in net sales remained.

What is interesting here is to repeat what Carl-Henric said, the orders for mobile systems adjusted for currency effects is about the same level today as it was in the second quarter of last year.

Please next.

Ericsson have, during the last couple of quarters, increased the focus on operation efficiency.

We have reduced accounts receivable as well as increased our days outstanding.

Inventories are now above 5 in turnover and in days are around 65 days.

Ericsson is becoming a more efficient company.

Next.

As previously mentioned, we presented a fairly strong cash-flow statement in the second quarter of SEK5.1b.

This is the third consecutive quarter with positive cash flow.

I would like to point out within customer financing it’s around SEK2.3b as a result of extraordinary sales of credit, among others, France Telecom and some other trades that we did during the second quarter.

I would also like to point out that the Farnce Telecom and some other credits are not included in the SEK5.1b.

It is also an extraordinary item included in the positive, which is the -SEK0.5b paid to [Infineon] curing the second quarter.

Next slide please.

Ericsson have also improved both net cash as well as payment ready net during the quarter and today have a negative net debt of SEK11b, which is an improvement of more than SEK5b in the second quarter.

Customer financing, today, has been reduced from SEK20.1b to SEK11.8b, which is one of the positive areas in the quarters.

Today we have provisions of around 50% of the total exposure.

Those provisions were, in the last quarter around 38%.

When it comes to customer financing commitment, they have also been reduced, however, not to the same extent as the gross exposure.

They will have reduced it from SEK12.5b down to SEK11b.

Next please.

I think it’s appropriate to talk about the status of the instruction program.

For the program announced 2002 we are well on track.

The target was SEK38b in Opex for four quarters of this year, we are well on track with a run rate of SEK42b in the second quarter.

Gross margin will increase to 34.5% to 36.5%.

We have today in the second quarter 35.1% and accumulated for this year 34.6%.

We are already in range. [undecipherable] We have signed agreements, one firm contract and letter of intent.

Next slide please.

The program that we announced in conjunction with the first quarter results are also implementation in progress.

We have a target of reducing it further SEK5b of Opex run rate to SEK33b of Opex in the third quarter of 2004.

When we come to the cost of sales reduction, that is also continuously being worked on and we are well on track.

Covering those components and component costs, lower production supply costs and third streamline our IS90 operation.

Next slide please.

Sony Ericsson joint venture.

We have seen an increase from the first quarter by 24% in shipped units and we have seen sales increase of 40%.

Income before taxes is less than half of what it was in the first quarter.

Due to the announcement made in June about the restructuring and includes some of American CDMA and some other R&D type to increase the R&D efficiency.

Restructuring totaling EUR70m will be for the full year, of which EUR57m has been used in the second quarter.

Sony Ericsson plans to generate profits during the second half of 2003.

Next slide please.

Finally I would like to give you some pre-planning assumptions for the remaining part of 2003.

The total profits during 2003, excluding restructuring profits, remains.

They expected to be flat were slightly down sequentially.

SEK15b cash outlay for restructuring, of which SEK5.2b were already made out in the first six months.

We will repay up to SEK11b of long-term maturities, of which SEK8.6b has been paid so far.

They will continue to focus on the capital reductions, and payment readiness will be around SEK50b at year end.

This is an increase of upwards of around SEK40b, compared to last quarter.

Thank you very much.

Before we move on to the Q&A session, I would like to comment that there is a typo on the chart talking about the target gross margins.

That the target for the year-end is 2003, not 2002, and that target is 34.5%-to 36.5% .

With that operator, we’re ready for the Q&A session now.

Thank you Sir.

Ladies and gentlemen at this time we will begin the question and answer session.

If you would like to ask a question please key 1 on your pushbutton telephone.

If you would like to decline from the calling process please press 2.

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

Plenty of detailed information is provided in the report Ericssons Investor Relations and Media Relations team will be happy to discuss further details with you after the call.

Our first question comes from Mr. Wojtek Uzdelewicz.

Maybe you could comment on, you mentioned that you met a lot of your customers and the indicating about the shift towards 3G WCDMA.

Can you give us a status or your thinking of where they are with their plans for 3G deployment.

Is that sort of still being pushed out delayed?

As we start moving towards 3G how is the margin and the pricing structure on that.

Is it going to be more positive or is it initially going to impact margins negatively, because of the split start up costs.

How do you see this playing out and having impact on your margins?

Thank you.

We start with the first question there.

I think that the plans that we saw initially for 3G was much a reflection of the optimism in the 1990s and everything was possible and going everywhere.

I think today we are into roll-out schedules that are much more balanced and much more in line with what we saw in [year 7].

We need to remember that this is a very complex technology where operators they build small [undecipherable] they try and test and then came in and they will start forward.

I think we have today, it is right that it is delayed from the announced returns but we’re probably where we should have been in the first place.

We can see that every operators are not discussing ifs, but rather how and when and so and in Europe and parts of Asia so I think that there, of course our planning scenario still we are in a weak market and we could see further declines this year and so on and that includes all those effects, but it’s clear that that is coming.

Also with every new technology coming on board and initially always starts as such with, maybe not necessarily lower margins but lower when you combine it with because you carry a lot of the R and D structure on sales.

That’s another story than the one you have.

We don’t expect that when we’re launching 3G that that should have an overall negative effect and our gross margin in the company we’re still relatively positive on the opportunity to continue to develop our gross margin [in several good ways].

Thank you.

Thank you.

And your next question comes from Mr. Tim Luke.

Thank you very much.

Carl-Henrik, I was wondering if you look at the third quarter if you could give us a sense, clearly overall guidance is slightly flat, slightly lower, how you see the outlook that can come from the different regions, and particularly if you give us a sense of how you see things in China for the second half of the year?

Then for Karl-Henrik [undecipherable] I was wondering if you could just give us a sense, with respect to the gross margins now in the third quarter, whether you would expect to see that flat with the level you had seen in the second quarter, or whether that might improve and given the gross margins being were they are now is it possible that you would now move towards a break even level at the pre-tax line, in the third quarter.

Thank you very much.

Let’s talk over the market situation.

The reason for why we see a quarter ahead now that could be level with or even slightly less is more an affect of a [undecipherable] seasonal variation and it’s attempt from our side to talk about things getting worse or things better so its more the fact we can foresee in [2003] at least than 2002 and that I just want to highlight that going forward.

When it comes to the overall market situation, what we’re seeing is a stabilizing Europe, [undecipherable] even if Europe was maybe slightly weaker in this particular quarter but that we think just [undecipherable] in quarter.

After [undecipherable] Europe, East Europe is improving.

If you look at Asia overall we had more optimistic sense at the beginning of the year, especially on China and then came SARS that cooled it down a bit.

SARS is now behind us and delayed projects are getting back on track and we are operating on forecasts for China to a level where they were before SARS for the year as a whole.

So we have positive feelings about China.

The rest of Asia is maybe somewhere in-between. [India] is clearly promising market where we have strong position.

Australia, New Zealand, Japan is also coming up a bit.

If we look at US.

The US market we expect to continue to be stable from a mobile communication point of view, but from infrastructure point of view could decline a bit next year because we’ve just gone through with some major roll-outs during this year.

Finally South America is starting to increase, but from a very low and weak position.

That’s just a little overview of where we see things and I’ll hand over to Karl-Henrik Sundstrom to talk about the gross margins.

Regarding the gross margin.

We maintain that towards our 34.5 – 36.5% [undecipherable] gross margin at the end of the year.

Any sequential direction?

No.

And what are the implications with that with respect to the pre-tax level if you have flat sales and a flat gross margin?

I think it’s not so difficult to see where the trends are pointing here with falling costs and [undecipherable]falling sales but we are not giving any particular guidance for the next quarter in terms of gross margins etc.

Thank you very much.

Thank you Tim.

Our next question please operator.

From the line is Paul Sagawa.

Hi.

A quick one and then a longer one.

The guidance for the third quarter for loss slightly down sequential.

That based on the current exchange rate environment or the exchange rate environment that was in place through the entire second quarter results, obviously if you haven’t accounted for the change that affects the details slightly higher.

The longer question is can you talk a little bit about the progress in EDGE and if there’s any change in operators interest, particularly in Europe [undecipherable] to the point that, technology, we might see some action in that direction?

I will just comment very quickly on first question and then I’ll ask Per-Arne here to talk a little bit about EDGE that we just launched the singular network in the US.

In terms of currency, the outlook for 2003 is based on the current that we had at the end of Q2.

But I’ll hand over to Per-Arne about EDGE.

On EDGE as Karl-Henrik pointed out we have successfully launched now EDGE singular in [Indianapolis] and that well on track for market launches.

Also the contract with AWS and the recently announded T-Mobile in the US contract for EDGE.

EDGE is well on the way in the US and also starting to catch up in Europe and a few parts in Asia as well.

We strongly believe that EDGE is here to stay.

Thanks.

Thank you Paul.

Next question operator.

You’re next question from the line Sam May.

Good afternoon.

Hi.

I have two questions, the first one is Professional Services in the quarter was down sequentially.

Can you comment on the reasons for that and what you think are you prospects going forward.

Then the second question is what’s your overall outlook for the infrastructure market on a global basis in ‘04?

Thank you very much.

Well when it comes to the personal services, we are over the first six months 4% up, excluding currency effects, but including currency effects we are down on that and that is what you are seeing.

There are always some swings between quarters and everyone shouldn’t be too detailed in trying to understand every percentage point but it is for example the professional service area is affected by the SARS situation because that unit within Ericsson also does network design for new projects and rollouts and so on and because a number of projects were put on hold that had an impact for maybe a couple of percentage points.

Our overall view is as you understand optimistic of this area.

On the infrastructure outlook for 2004, we haven’t given any guidance.

We had rather taken the approach that there is nothing wrong with the market as it is right now, in terms of getting to strong profitability and that’s what we intend to do and not get too involved in trying to guess whether the market is going to go up a couple of percentage or down.

So that’s basically where we are coming from.

The planning horizon for market [undecipherable] is [undecipherable].

Thank you very much.

And your next question is from Dale Pfau.

Good afternoon.

Thank you.

On Professional Services, could you give us your plans for what the percentage of total revenue will actually be in the second half and even into ‘04 if you could?

If that increases as a percentage of revenue, could you talk about what affect that could have on gross margins.

That isn’t a question that we can give an answer to in particular.

Professional services, in many ways, have a reasonably stable development with a growth expected that we have indicated.

Part of the company short and long term it will become, that is also a matter of how big the other parts of the company is getting.

We more focus on the fact that there are some important opportunities in Professional Services here, but Professional Services is the top of the business for us and if the proportion of Professional Services increases it also affects our numbers favorably.

Pointing out that currency, on an effective basis, you said it's up 4% year-over-year in the first half, so it's about the only part of your business that's showing any kind of reasonable growth.

Can we expect that to continue?

Yes.

We expect that to continue, and if anything it should improve.

Thank you.

Next question, please, operator.

Next on the line is Mr Matt Minstral.

I think he's dropped off, operator.

Can we have the next question, please.

Okay.

And the next question is from Pehlu Veroney.

Hi.

This is Pehlu Veroney.

A question on your short-term debt, please.

I look at short-term debt as of Q2 of around SEK6.5b.

It seems to me that the only bond which is maturing over the next 12 months, so up to June 30 2004, will be the $300m, the [code 3] bond.

That's around SEK2.5b equivalent.

So, the difference between your short-term debt of SEK6.5b and this bond of SEK2.5b is approximately SEK4b of non-capital market debt.

Could you give us some idea of what the major building blocks of these SEK4b are?

And of the major building blocks, what is going to be assumed to be refinanced or is going to actually be paid down?

Thank you.

This is Karl-Henrik Sundstrom speaking You are absolutely right.

The big chunk of that is the SEK2.3b that will be repaid in the second half.

And the remaining part is short-term borrowing.

If you want to have more detail, can you call [inaudible] after this call?

That's fine.

Thank you.

Okay.

Your next question is from the line of Mr Richard Kramer.

Thanks very much.

I'm just trying to understand a few items in the P&L account and cash flow.

The SEK300m provision for customer financing in the operating profits of Systems, can you tell us where that appears in the Profit and Loss account, in which line?

And the same with the SEK500m costs you suggested were paid to Infineon, and also where the hedging gains that were in this quarter might have been appearing in the Profit and loss account?

And can you also explain whether there were any other reserve reversals, like the provision write-back that was seen in the Systems business in this quarter, excluding those that the restructuring provisions, that are broken out?

And maybe finally, can you explain why CAPEX was so low, going from SEK1.2b in the first quarter to a net figure of SEK77m in the second quarter?

Were there any payments from Hewlett Packard for the outsourcing deal?

Or what was behind that unusual CAPEX figure, while at the same time, for example, we saw a very large chunk in the depreciation figure in the second quarter?

Thank you.

The SEK300b, it's [indiscernible] expenses.

The Infineon is not in the income statement.

Then you had a question about hedging gains.

They are spread all over the income statement, and also in the top line.

Then I actually lost you with your last question.

Can you repeat the question after that?

Sure.

CAPEX was at a very unusually low level, compared certainly to last quarter, whilst depreciation seemed to almost double.

Also, within the CAP-EX figure, were there any payments for the Hewlett Packard outsourcing deal, for example?

What explains that CAP-EX figure?

From the Hewlett Packard deal, there was none.

We had a very low CAP-EX.

In amortizations, we have done some extra write-offs of testing equipment of roughly SEK0.5b.

Okay.

Thank you.

The next question is from the line of Per Lindberg.

Good morning.

Good afternoon.

Thanks for that.

You evidently made fantastic progress on the operating margin side, of the 10% improvement or so sequentially without much help from the top line.

You also mentioned, both in your script today and your verbal statement, that you have come to an end with this financial chaos in the market.

Is it realistic to assume that that financial chaos, in turn, has altered the investment attitude of operators.

You have said, and your competitors have said, for the last two years, especially last year -- remember Moody's and S&P and all that -- that we see much higher levels of spending once operators concentrate on the true needs.

And, you know, leading that, could you comment if you see any change in your operators' thinking, that they have left a constraint from the financial market and, hence, that the operational needs have come higher on the priority list?

Thank you.

Just a clarification first.

Where we see that we have the financial crisis behind us is the financial crisis for Ericsson, where we had because of our ratings the ability to borrow money, should we be in financial difficulties, and so on.

That is what's behind us.

We have a strong balance sheet and strong cash position.

We can control our own destiny.

But your comments are interesting and, I'm sure, valid in many ways.

We have not anticipated any change in the environment in the near future here.

But it is clear that many of the operators that had difficulties on the debt side have had one very single-minded, for good reasons, strategy of reducing debt and getting to strong, safe ground.

And they are also, of course, carefully, carefully watched by the financial market to make sure that they actually do that.

Then once they have arrived at a reasonably good position, then comes all the other 100 questions.

Where are you going to go now?

Where are you going to see the growth?

What is going to happen?

Of course, that is something that I think is likely that, sooner or later, you will start to see.

And of course, there is such a temperature change in some of the operators, as they have dramatically reduced debt.

And just for curiosity, to link your operating margin progress then to operation on EBIT that you had [indiscernible], how much more revenues would you be able to extract from your current resources, without adding fixed costs?

Would you be able to deliver 20% more, 30% more, 50% more, 80% more with your current resources?

Because that would gives us hint to analysts about the operational leverage also on the margin side, if there were to become a pick-up in the margin.

Pick-up, we will not comment on that.

But to start with, we are at a place now of 27.5 times 410, [such as that] second quarter times four.

And that is still before we're taking out another SEK13b of costs, which is basically that the program launched in the last quarter.

So, I think that indicates the kind of leverage that we felt we did have.

Now, in streamlining the organization, that's the first important step.

Now I think we can get back to [indiscernible].

Thank you very much.

Thank you.

Your next question is from the line Ms. Angela Dean.

Thank you.

I think you mentioned in the press conference this morning that, if anything, your restructuring was ahead of plan.

I'm not sure you've repeated that this afternoon.

But can you just confirm if that's the case?

If that is the case, does that mean you're just going to get where you want to get sooner than expected?

Or that you actually may go further in terms of cost savings than you've actually announced?

Well, there are, and I think those of you who have followed us for all the quarters in this restructuring program, it doesn't necessarily follow a straight line all the time.

But it is true that, where we can often-- And these markets' expectations on a couple billion here, on the bottom line, basically came as an effect of 50-50 of Opex and cost of sales.

Opex is a bit ahead of plan, and successful cost of sales reductions.

It is true; we have confirmed that we, in the quarter, are a little bit ahead of plan.

But we haven't gone through the change, the forecast, and so on, on getting through the SEK38b at year-end.

And the next question is from the line of Mr. Thomas Langer.

Hi.

Thomas Langer with West LB.

Just a quick question on your CDMA business.

I'm just curious how you look at this business unit.

Is there something like a roadmap in place?

When do you want to achieve profitability?

Is it rather a long-term business for you?

Or when would you say, well that's it, and we'd better close down?

Thank you.

Well, we have stated a number of times that we are, at a market share level, [German] market share level, of around 5%.

And we do need to get up into the double digits, the 15% range.

And we're working on that.

I'm not prepared to give any further guidance or comment on the way to get there and how quickly to get there in order to [indiscernible].

Just a quick follow-up.

Has your commitment to CDMA increased over the past six months?

We are prepared to comment on that.

We have been committed to the CDMA effort in the past, and we continue to work on CDMA.

We are encouraged by recent orders in China Unicom and also in Kazakhstan on CDMA.

Thank you.

Thank you.

And your next question is from the line of Mr. [Jeff Schlesinger].

Please go ahead.

Thank you. [indiscernible] Can you please quantify what R&D was.

We're having a hard time getting that number on an adjusted basis with some of the one-time items.

What was R&D on an adjusted basis, either in aggregate or as a percentage of sales?

Thank you.

And if indeed it went down as much as it appears to be, where do you see R&D as a percent of sales stabilizing?

Thank you.

The first question will be published on the web shortly.

The second question, when it comes to R&D, I think in the situation that we are in today, I don't think there's any value in giving any guidance as a percentage number [with the normal period].

We will do whatever is necessary to keep our world-leading position.

We'll take one last call, please.

It's from the line of Adnaan Ahmad.

Hi.

Two questions.

First of all, could you just comment on the pricing environment, especially the mobile infrastructure marketplace on a regional basis?

What are you guys seeing with potential 3G supplier renegotiation?

Secondly, on operating efficiencies, could you just tell us, on DSOs trending down to 101, historically you gotten them down into the mid-80s, in terms of inventory days.

They've trended down to 5.3.

Of course, they ended up at 5.3.

When do you think they're going to be able to go?

Historically, they hit at 7.

So, if you could comment on that, that'd be great.

I can comment also on the pricing trends, and then [indiscernible].

But on the pricing trends, I think it is important to split the pricing trends into two categories.

Philosophically one is all the time our competitors are developing better and more cost-efficient solutions, which means that everything, all the time, like in the computer business, whatever, becomes available at lower and lower prices.

And there we don't see any difference in that trend from before going forward.

That's a natural part of our business.

The other element would be if there is a sort of falling price pressure, or competitors accepting lower margins, or losses [indiscernible] or so.

I don't see any such influence at all.

I think we are on very stable ground on the [indiscernible].

Regarding the DSO, you saw in my presentation that we're trending down.

However, we are higher than in the first quarter of last year.

And we stick to the announcement made at the end of last year, when we said that we would reach below 90, and that's the target.

And then [indiscernible] turnover, we said that we're going to be more than 5, and we're already there, so we will continue to do work focusing on that supply chain, as previously mentioned.

Thank you.

With that, I'd like to conclude.

Before we finish, I would like to inform all of you that we are planning a Capital Markets Day here in Stockholm during the first week in November, and we would like to invite all of you to join us.

We'll send out more information during September once we've finalized our plans.

But if you'd like to save the date, we'd appreciate it.

Regarding the Q2 report, if you have any more questions, please don't hesitate to call either myself or anyone on the investor relations team.

Thank you all for participating.

Goodbye.