Telefonaktiebolaget LM Ericsson (ERIC) 2007 Q4 法說會逐字稿

Welcome to the Ericsson analyst and media conference call for the fourth quarter and full-year report.

(OPERATOR INSTRUCTIONS).

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

Mr.

Gary Pinkham, Vice President of Investor Relations, will now open the call.

Thank you, operator, and hello, everyone, and welcome to our conference call for the fourth quarter of 2007.

This is Gary Pinkham, Head of Investor Relations here at Ericsson, and with me here in Stockholm is our CEO, Carl-Henric Svanberg, and Hans Vestberg, our Chief Financial Officer.

Before we get started, I would like to remind you that we will be making forward-looking statements during the call today.

These statements are based on our current expectations and certain planning assumptions.

The actual results may be different due to a number of factors.

There are risks and uncertainties associated with these planning assumptions, and we encourage you to use caution when considering such forward-looking statements.

With that, I would like to hand over to Carl-Henric.

And I will start here.

Ericsson in 2007, the first slide, it was from some points of view it was, of course, a good year.

We had 8% organic growth in constant currencies, and we took more market share gains than in many years.

At the same time, we saw a disappointing margin decline that you are all aware of in the second half, which I will come back to which was due to the shift in business mix.

The operating income of SEK30 billion was obviously strong, still SEK6 billion below last year, and the trend was negative in the second half.

We had a good cash flow, actually better than last year.

Hans Vestberg will come back and talk more about this, but it was accelerating during the year and was strong in Q4 due to a lot of focus on the cash flow activities.

This means that we have a compounded average growth rate of 12% over the last four years, less than obviously in 2007, but the dollar decline is significant.

The impact of the dollar decline is significant.

If we then go to the next slide and look at the network infrastructure market, what happened actually, well it started in mid-single digits, but it ended flattish.

We are affected by the operating consolidation and their whole back of operating expenses.

This is all known to you.

We also saw as we talked about in Q3 and in New York political unrest in some emerging markets, which led to sales being 45% down in Bangladesh and Thailand and for the full year about 40% in Pakistan.

So, of course, that has added to the difficulties.

Hopefully that will soon go away.

We are also seeing a change in the competitive landscape.

We see the big mergers going on.

We see weaker players gradually disappearing, and we see our Chinese vendors growing in importance.

What is important in this market outlook or market development for networks is obviously the fundamentals have not changed.

The number of subscribers, the growth rate, the number of wideband CDMA subscriptions is accelerating, now four and a half per month, six and a half per month, and we are seeing a continuous buildout of fixed broadband as well.

So there is really nothing in the fundamentals.

We see a lot of strong data traffic growth, and that we already commented upon.

And like we said before, this continues and it accelerates further, but we don't expect any upgrades in particular for 2008.

You will then look at the next slide on Q4 in short, flattish sales but still growth when taking the dollar effect into account.

Operating income I guess fairly much where everybody expected it, knowing what we went through in Q3.

But a cash flow that we will come back to and then the market comments that we have there you have all heard.

Reminding you of the two slides from before, on one hand, we have the mix shift that goes on with a much higher proportion on new network rollouts with initial lower margins, and at the same time, that takes from lesser expansions and upgrades.

And what is more important there I would say is the right slide there where we talk about the value creation circle, everything we do always starts with a new product, with low volumes and less maturity and fighting for a new installed base, leading to lower margins, eventually ending up as an upgrading product and installed base and healthy business.

And, of course, every product goes through that cycle through its lifetime, and what happened specifically to us now is the acceleration of the switch technology of where we're going from circuit switching to soft switching.

Where we're going from upgrading traditional circuit switches where we have what every vendor has its captive position to a fight about a new footprint and rollout of softswitch.

So that accelerates, and that puts pressure on our margins.

So where do we want to be longer-term?

Well, we have outpaced the market and grown fast in the market now for five years, and we expect to continue to do so.

Profitability, we are determined to have best-in-class margins.

We have had that through the five years.

Of course, the last year was a year when all the competitors were in losses, so the comparison is less valid.

But still we intend to be in respect to where the market is going to go.

Cash flow we have an ambition to be over 70%, and we got closer to that than we expected already in 2007.

If we then look at what we call our planning assumptions for 2008, we are -- we have found that through the plan for a flattish mobile infrastructure market, knowing what we learned here in the second half.

Professional Services we expect to continue to show good growth.

In this flattish scenario, we must not forget that there is nothing changed in industry fundamentals, and the consumers support a more positive longer-term outlook.

But now our focus is on 2008 and what we need to do to live with a flattish infrastructure market.

And, therefore, we did announce this morning cost reductions of SEK4 billion.

These should be seen in context of our operational excellence program that we now accelerate in all areas.

We are looking at SEK4 billion in cost cuts to safeguard our competitive position.

And, of course, on the one hand, that is a lot of money.

It will affect people.

On the other hand, it should be seen in the view of -- in the light of a cost base of some SEK150 billion or so in the Company.

So this is an adjustment for a flattish market.

It will affect all areas throughout the Company.

SG&A sourcing, supply, service delivery and so.

We will be more cautious when it comes to R&D because that is the muscle that builds up our technology leadership and our market leadership across the world.

Some 1000 people will be affected in Sweden.

We have not given a clear number for the whole world, but as a rule of thumb, it will probably be around 1000 per billion.

So maybe three times as much outside Sweden.

In Sweden we will do it through voluntary programs as far as possible.

We expect full effects from the program in 2009, and we expect one-time charges of SEK4 billion during the year.

We're not taking them now in the quarter.

We will take them through the year as each quarter as each activity is lower and decided upon.

So I will now hand over to Hans that will take us through the financial figures.

Thank you.

So let me briefly go over the financial highlights of Q4.

We ended on net sales of SEK54.5, which is a year-over-year growth of [3%].

Full-year ended SEK187.8, which is a growth of 4%.

As Carl-Henric mentioned, in constant currency, that is an 8% growth.

And just to be clear on that, what we have done is we have excluded the acquisitions to really compare apples to apples, and then we used a constant currency in between the years, and then you can see the growth.

So the conclusion is, of course, that we have an impact of the dollar decline.

That has been happening during 2007, and that is where I said before we have some 50% of our revenue in dollar-based revenues.

So that is how it pans out.

We ended at an operating income of 7.6, which is up from the third quarter of 5.6.

However, given what had been lost in the Q4 2006 of SEK12.2 billion, it is a significant reduction.

And as we previously explained, the reasons for that is the different business mix and the technologies that we have ongoing in networks, that is what is coming through.

An additional comment is the OpEx, the Q4 OpEx was SEK15.2 billion, which was higher, much higher than in the third quarter.

The main reasons for that is seasonality as we have a much higher business activity in the fourth quarter, as well as we have also full impact of the acquired company in the fourth quarter, both from an intangible depreciation point of view but also the OpEx coming in to the result.

If we now look at the net income, it landed on 5.6 versus 4.0 in the third quarter and lost to 9.7, and that is, of course, a reflection on the business mix, but also that we had somewhat better tax rates, which means that we have a little bit better results the full-year on net income.

If I then comment on cash flow, we have SEK12 billion in cash flow in the fourth quarter, last year 11.

If we take the full year, we ended 19, and basically we have the same in 2006, 18.

We have a strong cash flow in the fourth quarter with a favorite outcome on the working capital where inventories were down and accounts receivable fairly flat.

And then on the other current liabilities, we had favorite development as we had a lot of projects that came to conclusion.

We add the accrued expenses, as well as accounts payable, and VAT, which is reflecting the higher level of projects.

And, as you can note as well, we had a sequential growth of the net of rollout services above 60%, and that, of course, is a reflection of the higher degree of projects.

We also had one-time effects or payment from Hut UK that impacted operational cash flow of SEK1.6 billion.

I will come back to that.

That ended our cash conversion of 66%, which is vested in 2006, and for those that had a good memory, remember that I said I thought it would be difficult to reach 57.

We passed it, and of course, one of the reasons are the Hutch payment; the other is that we have also had the good focus in organization on the short-term improvements that we can do on cash flow that some will exceed in expectations, at least mine.

If we then enter a segment starting with networks, minus 4% growth in the quarter and 1% growth for the full year.

There, of course, we have had significantly increase in market share in this challenging market that we have mentioned.

And, of course, the dollar impact is quite -- is big here when we talk about constant currency on the network side as well.

So we have some (inaudible) impact there as well.

If we talk about the margins, the operating margins in the fourth quarter for networks ended at 10%.

We had 8% in the third quarter, and we had 21% in the fourth quarter 2006.

Of course, a sharp decline since last year, and again, the main reason is the [basic] mix and the product mix that we will have now since the third quarter, and that will continue.

Just a short mention on the [LPE] has now been decided by a couple of the major operators in the world, DoCoMo, Vodafone, and Verizon, which is a very positive sign and an important sign.

If we then take Professional Services, Professional Services up 19% in constant currency continued to show good growth and a good margin, stable on 15% operating margin.

Despite that, of course, it is going in and out quite a lot of projects there.

I think that was positive.

Two highlights.

We are now 185 million subscribers in the networks that we're managing in the Managed Services area.

We also made an acquisition of an IPTV company in Spain.

In order to support our positioning in IPTV, we also need system integration resources.

Finally then, it is worth mentioning the three UK contracts that have been renegotiated.

And this is the Managed Services contracts that we announced in 2005.

Here we are renegotiating the contract 3 UK has announced and will enter into a network sharing with T-Mobile UK.

So we had to renegotiate parts that needed to be brought back in order to make the network sharing.

The main activities in the Managed Services, they remain.

That's the operations of the network and [ISI] network that will remain with Ericsson.

It will be a comp decrease that will impact our sales for Managed Services, but it will not have a margin impact.

If we then go to multimedia, multimedia growing 7% in the quarter and ended at SEK4.9 billion and on a full year up 14%.

Here we need to remember that we are talking about a mix of businesses, some that are in very good shape, good growth and healthy margins, and we have areas where we are building a position where we have less of sales at the moment.

There if we are a building position, of course, around IPTV, which we see as a very important area going forward, and around IMS and IMS applications.

If we then just look into the acquisitions, LHS, Mobeon and Drutt have all been sort of performing well, even though LHS came in in the fourth quarter.

So it is a little bit early when it comes to the full P&L.

We acquired them a little bit earlier.

Tandberg, on the other hand, had good progress since they came in to the Ericsson family, had a challenging time as the bid process was almost for three quarters where they actually had some slower pace due to that.

But since they came in, they've been performing well.

Important here I think is to point out that maybe there are going to be variations in quarters.

But if we look to the full year, we have a negative 1% operating margin on the full year, and that is where we are on the breakeven with some areas on the investment, we are building position, and some areas which are performing well and being healthy.

So that is how we look at it.

So I will hand back to Carl-Henric to talk about the regions.

Thank you.

A couple of comments around regions in general for 2007.

If we look at the compounded average growth rate for Europe, it has been 10% over the last four years.

It is basically flattish this year, and that argued to the consolidation effect that we have talked about, and you will see the effects in Q4 more sharper.

If we look at the CEMA region where we have grown stronger through the years, we have this year a growth rate of 5%.

This is a little bit lower, but it is coming from lesser activities in Middle East and to some extent also in Russia where we are between 2G rollouts and 3G rollouts.

But generally this is an interesting region of growth.

Look at Asia-Pacific, we have been 24% up over the last four years, obviously getting increasingly challenging with such percentage growth numbers.

We have been somewhat lesser -- seen lesser growth this year 14%, partly due to here a dollar effect that has an impact and also at the end of the year where we saw effects from the political unrest in Bangladesh and Pakistan and Thailand and so on.

I will come back and comment on that in the next slide.

Latin America has turned up quite well.

We are there seeing continued 2G rollouts, also 3G.

North America has had a challenging year with comparable numbers from before, but also more so.

This is where we have the very clear dollar effects.

If we then look at Q4 as such, we have in Western Europe there we really saw a sharp decline in the UK, 45%, down 47% down due to network sharing consolidation discussions that put things on hold, which affected the whole of Europe obviously.

We have the same things with consolidation effects on the market even in Italy as an example.

The CEMA region, we were flattish much for the reasons I said, Middle East slower and in between in Russia, but generally go down the line business momentum, and Central Europe and Africa is just continuing strongly there.

Asia-Pacific this is in Q4 where we were affected by basically a 45% drop in Bangladesh and Thailand.

Pakistan was flattish with very comparable numbers from last year, but Pakistan is overall year is down 40% for the full year.

So these political turmoil and state of emergency is making it difficult to roll out networks.

Hopefully they should go away here soon.

China ended up strongly as we anticipated.

In fact, we have grown marketshare slightly through the year in a year where the Chinese members have grown their positions quite a lot on account of the other international vendors.

In Asia we also have had, but we have had so through the year a tough comparison in Australia with last year's big rollout in the 2006 year, so a big rollout for Telstra.

Latin America has really accelerated.

Strong growth there for the reasons I mentioned for the full year.

North America actually turned up positive, not because of upgrades to the market leader but rather strong expansion in the T-Mobile networks.

So that was just some regional comments.

When we talk about Sony Ericsson, that is well known.

They have communicated their results.

We have passed the 100 million mark for a number of units sold.

Our marketshare is now over 9%, obviously strong and if you look in the GSN wideband CDMA track and in value.

The Company is keeping the margins strong and healthy, even through their shift to broader portfolio and penetrating further down into the entry segment.

The leading position they have in music is strong, 145 music enabled phones sold year-to-date, and if you add to that their imaging position, they have built in Sony Ericsson a good position in the more richer phones and higher end of the market and successfully penetrating down.

So, in summary, I would say that it is on one hand a good year considering marketshare gains and overall profit, but obviously a disappointing second-half where the network margins coming under pressure from the mix shift.

We are planning for a flattish Mobile Networks market for 2008, and we're taking actions as a consequence of that.

We continue to see the competitive landscape evolving, and obviously we must make sure that we do everything right and in order to keep our leading position intact, and that is what we intend to do.

We must not look away from the fact that the fundamentals support a more positive longer-term outlook.

We have a few things that is going against us in the market right now, but over time there is no doubt that the need for communication is just increasing and creating excitement services for users and spreading also Internet and communication, and all that is left went into emerging markets.

We have as our last bullet here, the board will propose to the general shareholders meeting an unchanged dividend of SEK0.50 per share.

So with that said, I will hand back to Gary to guide us through the questions.

Operator, we are ready to start our Q&A session.

(OPERATOR INSTRUCTIONS) Rod Hall, JPMorgan.

I just have a couple of questions I guess for you from a strategic point of view.

The first one is just generally if you could help us understand, you talk about actions to safeguard your competitive position.

If you could elaborate on those in more detail, that would be helpful.

And the second one is with regards to the strategy on the margins, I guess in Q3 what we learned here anyway is that you are bidding a lot more aggressively, and I think that goes for the industry, not just Ericsson, on these new network deals.

So the margins are coming in very low, and that is why the mix shift is having such a severe impact on your margins.

I guess the question I have got is that it's a technology-oriented industry.

A lot of things could happen in two or three years.

It is hard to tell how things are going to develop, and you are the market leader.

I guess what I'm wondering is, why not go ahead and leave the prices up for the market now and try to make more money on those new network rollouts as you install them as opposed to trying to wait and make money on the upgrades later?

So those are my two questions.

Well, to start with, the actions to safeguard our competitive position, what we're doing here considering that we see a flattish scenario, of course, then we have ambitions to outpace the market and continue to take marketshare.

But just from looking at a flattish market, we need to adjust for that.

So it means that we will trim the costs in all parts of the Company with being a bit more cautious on R&D.

But this will be right through SG&A and supply, and so we're seeing an administration and so on.

So that will be down.

And even if we think that the market could return to a better growth rate, this is just an acceleration of the type of operational excellence work that we continue to do.

When it comes to the strategy for margins, you are I think partly right in what you're saying.

I think it is so that the new networks they always come at the lower margin because that is where you have the toughest competition.

That is where everybody is ready to go quite far to get a position for a network that then they will continue to live with for quite awhile.

And it is not necessarily so much of a choice that you make there.

What we have seen in 2007 is that because of the turmoil on the vendor side, we have won more new networks and got more breaks because operators have got nervous about the vendor choices.

I guess that will gradually stabilize.

So I think we will come back more to where we have been in the year before 2007.

But certainly we have ambitions to grow faster than the market.

Okay.

And if I could follow up just on the R&D point, are you trimming R&D, but then we hear of people like Verizon pushing faster on LTE, trying to move that technology forward if they possibly can and probably others as well that we have not heard about.

Are you worried at all about that?

I mean you think you have still got plenty of technological leadership.

You have got LTE in the pipeline.

It's not going to slow you down in that respect at all?

I think on one hand what you're saying is right.

I mean there is a push for more rather than less, and we have to maneuver that in the context of the market.

But, at the same time, we have the biggest R&D muscle of all.

So if we suffer, everybody else suffers more.

So I think this is part of daily management.

Peter Dionisio, Morgan Stanley.

Just a couple of questions.

The first one is on the competitive landscape.

It seems to us that Huawei continues to gain market share and continues to be very aggressive on price.

Do you think that the competitive environment today in wireless infrastructure is actually getting worse instead of stabilizing or instead of getting better?

Well, I think it is different ingredients is here.

Because generally I think we have prerequisites for a more balanced market with fewer stronger players.

On the other hand, of course, Huawei is getting increasingly stronger, and I think we need to realize that they are just one of the vendors today, and they are not just coming in there for grabbing a first initial bridgehead or something.

They are a vendor in the system.

They have got better in their technologies and so on.

Of course, they still have things they need to develop before they are maybe a fully fledged partner for an operator.

At the same time, their cost advantage is not as dramatic as people think.

So the more business they take on, the more they felt under pressure to also make profitable business.

I would say it is -- it has been -- it is quite in terms.

It has not gone less in terms, and it is hard to speculate exactly how it is going to play out.

And just as a quick follow-up.

Could you comment as well on the impact that you have observed so far on telco CapEx?

In fact, just general business activity on your side on the back of general economic slowdown.

Well, it is, in fact, we have not seen -- it is not -- I would not say it is a dramatic difference if you look at operators worldwide.

But what we do have is we have things going against the market right now like the operator consolidation in Europe and the effect that that has.

That will go away, but at the same time, others may start to consolidate.

But we may come into more of a balance situation, 40, 50 operators must consolidated in Europe.

So I would not say that there's a domestic difference but enough to put us down to a flattish market.

Mark Sue, RBC Capital Markets.

Maybe if you can give us your qualitative comments and just the growth opportunities in North America, perhaps the moving parts at AT&T and also the prospects with T-Mobile.

I'm asking since the initial CapEx indications from these carriers are actually -- it actually looks okay.

So any further qualitative comments would be helpful.

Well, I think we were a little bit -- we would have expected their ambitions to be somewhat more aggressive considering what kind of technologies they have at hand.

But they have been slightly more cautious I would say in 2007 and more so in the second half than maybe we expected in the first place.

And I think to some extent also impacted by the whole discussion about the recession and where things would be.

And so AT&T has been more cautious.

On the other hand, the other -- their other competitors have been more aggressively building out their networks.

So we have actually had good growth in all other accounts.

So we were actually following the big rollout last year and the year before.

We have actually been down on AT&T and got offset by other operators.

Looking now into the year to come with the spectrum auctions, that should lead to new initiatives and other technologies and people's desire to actually get mobile broadband.

I think things should start to move in the US.

The question is, of course, when.

Got it.

I'm not sure if you mentioned anything about rightsizing the business or if there is a need to.

Well, we have gone through it now.

We are doing SEK4 billion of cost cuts, which concerns probably some 4000 people, [4000] in Sweden, and that we're doing to adjust to a lower growth scenario.

Okay.

Thank you and good luck.

Francois Duhen, CM-CIC Securities.

I have got two questions.

Could you shed some light on the difference of growth between the fixed and mobile markets you can expect for the current year?

My second question was about mobile data.

We had good pieces of news recently from Vodafone yesterday.

When do you think that this could start to kick in in terms of more CapEx needed in Europe?

Let me start with the latter question, and I will hand over to Hans to talk about fixed mobile here.

We have a dramatic increase in data traffic in Europe.

I think everybody sees that.

I think it was interesting just to note that in Sweden alone with 9 million people, that we sold 0.5 million of PC laptop cards last year that was just beyond any expectation.

We are coming, however, in new built 3-D networks with quite some capacity.

So we have said that it will probably take beyond 2008 before we start to see any bigger expansions.

You have a couple of operators that are already expanding and pushing very, very hard and with mobile broadband propositions well on par with ADSL or any other broadband connections.

It is also interesting to note that in the 3G networks in Europe that we have delivered and monitored, data traffic today exceeds voice traffic.

(technical difficulty)--

-- with Ericsson in 2007, we can conclude that we had internally better growth in the fixed business and in mobile business.

But that is, of course, coming from a lower portion of fixed business that we have.

But given that we are investing in fixed business and we have a good product portfolio coming with some of the acquisitions we have done, we have been growing faster there.

And what about the 2008 prospect?

Yes, we expect in the view of the flattish market that should probably (inaudible).

[Simon Duff], [M&G].

With Motorola announcing it is exploring its structure and strategy, can you talk about whether that presents you with any strategic advantages and also whether any aspects of the Motorola business itself would be of interest to Ericsson?

And then on balance sheet, following Bristol-Myers' announcement yesterday in relation to short-term investments, can you just give us some comfort over the SEK29.4 billion of short-term investments that you have got on balance sheet just so that we have comfort that these are not CDO-related AAA rated assets?

Well, if I start off with the Motorola question, see if the other captures your second question.

I'm not sure we got it right.

But on the Motorola side, they are -- well, we all know the difficulty they have ended up with, and they are now taking -- seem to be taking steps of the kinds that we did five years ago when we separated mobile business and the other businesses.

So we can see the logic in it.

We are not sure really what their intentions are.

I must say that we have -- we are probably the company of all our competitors that have acquired the least because we do base our strategy on our own internal work, R&D and organic growth.

Any bigger merger or so in this industry is quite cumbersome and has a price.

So the benefits of it must be quite strong before you move in that direction.

So with that more cautious view, I think that we will have that also on your question there.

Can I just confirm are you saying you would look at those assets if they were separated?

We as professional business leaders we look at everything, but we will have a very cautious view on such a thing.

Because we do believe you're better off doing it on your own as you are faster to market the new ideas then.

Referring back to the 29.3, that is a good call it asset.

The main part is in cash.

Sorry.

Within the 29.4, it is described as short-term investments rather than being described as cash and equivalents.

The main part is in cash.

The 29.4?

The main part.

Of the 29.4?

Yes.

Okay.

And when you say the main part, so we could have 49% is not in cash?

I did not hear your question.

Again?

I'm just trying to -- basically what I want to avoid as a fixed-income investor is any kind of land mine that Bristol-Myers stepped on yesterday, and they said that they had lost 30% of the value of what people had previously thought were rocksolid AAA investments because it turned out they were investing in CDOs.

So I just really want to get a sort of categorical yes or no as to whether the SEK29.4 billion we're looking at, what percentage if any amount is invested in such securities?

There is nothing.

No, on the question, we don't have any subprime or any other type on that type of investment.

Stuart Jeffrey, Lehman Brothers.

I have got a question.

Earlier in the press conference, you mentioned that you were renegotiating some contracts.

I was trying to understand what you are renegotiating?

I am assuming perhaps payment terms?

And if you could talk us through perhaps some of the issues in trying to get operators to renegotiate those contracts?

Do you have to take any margin hits, any cost hits?

How do those pan out?

Yes, what we're doing is that we're focusing obviously a lot on cash flow related activities as we have had such growth on turnkey and in emerging markets with longer payment terms.

What we're pushing there is we're pushing terms and conditions in new contracts that could be one or two exceptions where we can go in and also discuss in one contract if there are other reasons for negotiations.

But generally that is not the path forward.

This is something that will penetrate through over time with new contract wins.

Tim Boddy, Goldman Sachs.

You said at the time of the third-quarter results and again I think in New York in November that there was hope for improving mix in the second half of the year and particularly as European operators' spending patterns improved.

I guess the bottom line is we were hoping for an improvement in gross margin as we go through the year.

How confident are you now compared to, say, back in November or October that we could see this improvement, and what are the key swing factors that we should be looking for?

Well, you know well enough we are not guiding on margins and so on.

But the comment that we made was related to the fact that we should have such -- everything else equal -- we should have the mix stabilizing as we run through the year, and then it would lead obviously to better margins.

But in this dynamic industry, other things may come in as well, and we are not going to guide on that.

But we have no new view on neither our performance or the market than we had at that time.

So effectively your confidence is the same?

A low-ish level?

We have no further comments right now.

Nicolas von Stackelberg, Sal.

Oppenheim.

First of all, could you maybe provide some additional detail on the huge swing that we saw in Q4 in your cash flow statement in the line item, Other Current Assets?

I think if I did the numbers right, it was a swing in Q4 of SEK11.5 billion.

Can you maybe given the size of that break it down into the key components?

I will answer on that.

And yes, we have a favorable development on other current liabilities.

And that reflects our higher level of projects that we completed in the fourth quarter.

As you have seen also, if you follow the line on network rollout, within the segment network, that was up sequentially over 60%.

That made us to have a favorable outcome there, especially on accrued expenses, VAT and accounts payable.

That was the three main areas.

And how has that developed at the start of the year?

I mean could we see a similar swing in the other direction in Q1?

I would say that VAT, of course, that swings back when you have that type what (multiple speakers) we will have in the first quarter.

Sorry.

How big is that within the SEK11.5 billion?

No, I said that the main ingredient in that one is VAT, accrued expenses and accounts payable.

That is the main portion.

But I will not go into the specifics of each of them.

Given the focus, investors' focus on cash conversion, I think it might help if you were to provide maybe some additional detail here.

Maybe just a quick follow-up.

The market has been waiting for 3G in China for three years now.

Any news?

My understanding is that 3G licenses will be issued finally in April.

Well, I am not sure whether it is April, but what we have also added to that picture is that we expect the structure reform to happen first where China is looking at how there are four big and two smaller operators eventually will be structured.

And I think we have reasons to believe that that should happen rather soon.

Then about the 3G licenses, it is, of course, a matter of how they see the Chinese standard mature.

And the general expectation is that they will follow licenses after this structural reform.

However, I would at least bet that it will take beyond the Olympic Games.

Philip Cusick, Bear Stearns.

First, just a clarification.

Why was SG&A up so much this quarter, and how should we think about it going forward?

As we wrote in the report, the main reason for OpEx being up is seasonality, and also that we have now a full impact of our acquisitions in our OpEx.

So there are seasonality effects, and it is in the OpEx.

I see.

And second, could you give us some more detail on the three UK negotiation?

How much of the revenue you were receiving are we going to be getting going forward?

And is there any potential for T-Mobile revenue there?

I would have thought that you -- like what is the return on capital at this point on that deal?

Is that pretty much impaired because of this shift, and are other deals at risk as well?

First of all, I think we have been very detailed in the discussion on the separate customer contract.

We cannot go in all details.

But, as you said, first of all, if the scope has been changed in order to meet the (inaudible) where in order for them to be able to do network sharing, that will have an impact on the Managed Services growth sequentially because it is going to be less.

However, it was going to be somewhat compensated for T-Mobile UK where we now will do the field operations.

That came in in the fourth quarter, so we have that already in the figures in fourth quarter.

So that means we will have both in the fourth quarter.

And then the risk of other deals being the same, I think this is a very special one, and it is the broader scope that we will have so far on the Managed Services deal.

I would not say it is a trend or something like that.

I think also I should say because listening to the tone of some questions here, this is not a negative development for us.

When we get the Managed Services deals somewhere, one of the upsides is that you also get some other Managed Services deals in that country, which means that you have further synergies that you can share and explore, and this is exactly what will happen.

But, of course, you have to adjust your contracts so that Managed Services can take place.

So from our point of view, this is a logical and positive development.

Okay.

And then again just to follow-up on the SG&A, can you give us an idea of what the ramp quarter to quarter was in terms of seasonality versus the new acquisitions?

It sounds like SG&A is going to stay fairly high, and I just want to make sure that I understand correctly.

No, we will not give you any specifics there, but again, the main part is seasonality, and then they are a portion of all these acquisitions, and there will be some pieces all over.

So you should not see that this is a running rate being 15.2 of the total OpEx.

Andrew Griffin, Merrill Lynch.

I just wanted to go back to how the profit shortfall in Q3 took you by surprise coming really at the end of the quarter.

And I wondered what processes you have put in place to prevent this being such a surprise should it happen again and what metrics you should have been tracking back then?

What we are doing because there is nothing that we are lacking in information as such in either the systems or the Company.

But this is more a matter of whether we can get even closer to our customers and be more updated on their immediate plans for upgrades and expansions.

Such tend to happen with a high degree of regularity and follow traffic growth.

So the main focus in most customer discussions that takes place is around new projects and technology choices and so on.

We are putting a much tighter focus now, especially since we have a slower growth scenario, putting a much tighter focus on also expansions and (inaudible) and upgrades, and we're doing that in a structured form throughout the world.

So that we can see the path and see if we can explore customers' thoughts and planning before it actually goes into action.

Kulbinder Garcha, Credit Suisse.

Just a couple of questions.

The first one is for Carl-Henric.

With respect to market share gains that are growing faster than the market, when I look at what you said, you seem to be implying that you're going to be a bit more selective on contracts going forward.

On top of that, it seems that the -- you are being quite clear that Chinese vendors are as aggressive if not more aggressive in the past.

And then finally, there is a good chance that Nokia Siemens and Alcatel-Lucent have probably been more aggressive in the past as well.

I cannot square that with how you are going to grow faster than the market in 2008.

That is my first question.

The second question is that, would you comment on the flexibility of your business model now compared to three or four years ago?

Because obviously the outlook has deteriorated over the last three months.

So the revenue growth for the industry is going to be flat now.

What if the revenues were down 5%, what is your ability to react now versus the past?

Is it quicker and if so why?

Well, if you look at the competitive landscape, you are mentioning a number of things that have happened and a number of actors here in the field.

Remember, though, that, first of all, all the changes and mergers and so on are not yet done.

But remember also that there are still quite some marketshares from all the other vendors that were once (inaudible) and they are gradually shrinking.

And if you look at our market share gains in 2007, it has been more on such accounts because that is where the worry is the biggest, of course, for an operator on this vendor choice.

On other vendors, it is just a matter of being the most attractive partner for a customer with a better technology lead position and so on.

If it comes to our flexibility, I do believe we have a fairly good flexibility and have been such that during the last years, we have a fairly high degree of temporary workers and so in our supply chain and even so in some areas of R&D where we can work with that way.

And I think our ability to adjust I think is quite good.

Any major cost adjustment is always painful and takes time, but I think we have a pretty high preparedness.

I think we have shown that within the Company at different times, this is an industry where all the time bits and pieces, some parts grow fast and other shrink.

Okay.

Just one follow-up.

I was not clear in your previous comments, do you expect the business mix to improve as we go through this year or not?

We are not guiding on where things will be.

What we said in Q3 was that the reasons for the shortfall of expansions and upgrades from operators in Europe and so, they should gradually go away ago.

And all then equal, that should improve our margins.

But, of course, other consolidation could take place, other things could happen.

But certainly what hit us in Q3 was to some extent temporary and will go away.

Thomas Langer, WestLB.

I don't want to flog a dead horse, but I want to come back to the SG&A line.

And okay, I understand there is seasonality, and I understand you made some acquisitions, and of course, OpEx go up, but sales should also have gone up.

And I just want to better understand what is going on in multimedia.

Is it fair to assume that an increase especially in selling expenses is related to the multimedia division, which at this stage is quite small in the overall context but, of course, could be or could drive also growth in other access segments.

I would like to understand that the weakness in multimedia is related to higher selling expense because you have to, let's call it, invest in new revenue streams?

That is a good comment.

As I said at the press conference today, if we look into SG&A, of course, there's a certain amount of investment there as well in our market units in order to meet the new broader portfolio that we have when we have made the acquisition during 2007.

So yes, you can say that that is somewhat right.

And then, of course, multimedia has four large or four acquisitions this year, which are in new segments where you need to develop your SG&A qualities as well.

But then we come back to what we discussed earlier about the cost adjustment program.

We will focus there as well on SG&A.

So it is a sort of a balance of still investing on SG&A resources that can sell our broader portfolio and at the same time see that we can take away other things.

So it is sort of a balance.

If I just could add maybe one more question to that, I understand that in wireless infrastructure you are top-notch, and you have leading margins.

Okay, that is fairly clear and understood.

But in new segments at least for Ericsson, such as IPTV and IMS, of course, is new for the entire industry.

I mean do you see this as new adjacent markets you want to enter that will incur further costs in 2008?

And when do you think you will reach a stage where you could reasonably believe in double-digit margins?

In multimedia?

Exactly.

Multimedia is, as we say, it is a mixture of healthy businesses with good growth and healthy margins.

And it is these investments.

If you want to invest as we do in IPTV, which as you are saying, is new for everybody in this industry, if you want to build a position there, this is not something you do in a year or two.

This is a long-term buildup of a position.

But, on the other hand, if you look at any large operator, if you look at their plans for the next five years, the largest growth in multimedia services to their customer base in traffic is IPTV and so on.

But remember then that IPTV is not just a TV part of it.

It drives fiber investments.

It drives transmission investments.

It drives router investments and even mobile broadband.

Rich Kramer, Arete.

Two questions.

One for Hans Vestberg.

After you've restored the EBIT margin by division or EBIT by division disclosure, could you go through perhaps what further concrete steps Ericsson might be able to take in improving disclosure?

And maybe what prevents you from publishing a target business model or some margin targets the way pretty much all of your major competitors do even if they are several years out and then you mark off the progress toward them?

And one for Carl-Henric Svanberg, when we look at the handset business and what Nokia and Samsung and others are doing, it is clear that the value is shifting towards content and consumer services.

Would Ericsson be open to altering the JV structure of Sony Ericsson to realize maybe the positive value that does not seem to be reflected in the Ericsson share price and also prepare Sony Ericsson a bit more for moving into the realm, which moves away from sort of Ericsson's core strength and more towards Sony and other content companies?

On the first question, on disclosures, as you mentioned, we have taken some steps to improve it, and of course, I have been listening a lot to all of you out there what we can do, and that has to make sense for all of us.

So we continued to work on that and see what we should disclose and what will be beneficial for your understanding and for your shareholders understanding, and those steps we will continue to take.

But nothing new that I can announce today, but I said I am working on it, and we are taking some steps already now.

When it comes to Sony Ericsson, they have a strategic importance to us and gradually more so I would say, the more the handsets get richer, and we're getting more and more communicating devices.

This has also strengthened the relationship, not just with Sony Ericsson, but also with Sony because most of their products becomes communicating pieces and part of an old communicating multimedia world.

It gives us through Sony Ericsson also better understanding for the consumer and what works or not.

When it comes to whether the value of that is actually recognized and appreciated, I think you as analysts are better to judge that.

I don't know which -- is the reason unrealized value?

I'm not sure which part people have not realized.

But certainly Sony Ericsson is of importance to us.

Operator, one last question, please.

Anders Wennberg, RAM.

I just had a follow-on question regarding the money you received from Hutchison Whampoa for the service contract.

Exactly what is it booked against?

And I have heard different things that it is booked against accounts receivable, and it is booked against the profit account and equipment.

If it is booked against receivables, does that mean that it has already been invoiced earlier in the year, or how should we see it?

The portion that is impacting operational cash flow, that has been booked against our asset side, especially on accounts receivable.

So that would imply that it has been invoiced earlier this year, but it has not been paid yet but are paying in Q4?

We have had -- we have an accounting treatment here as a percent of completion.

So we are (inaudible) that was booked down, and then we had some other items as well.

So that is where it ends.

And we cannot go in any further because now we are in a very detailed customer relation and contract areas, and I cannot comment on it anymore.

That will conclude today's question and answer session.

I would now like to turn the call back over to Mr.

Gary Pinkham for any additional or closing remarks.

Thank you, operator.

Before we finish today, I would like to remind you of our next event scheduled for Barcelona on the morning of February 11 at the 3GSM World Congress.

The agenda and registration information is on our website, and I encourage you to take a look.

Otherwise, if you have further questions, please feel free to call any of us on the IR team.

And thank you very much.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.