Telefonaktiebolaget LM Ericsson (ERIC) 2008 Q3 法說會逐字稿

Welcome to the Ericsson analyst and media conference call for their third-quarter report.

To view visual aids for this call, please log onto www.Ericsson.com/press or www.Ericsson.com/investors.

(Operator Instructions).

As a reminder, replay will be available three hours after today's conference.

Mr.

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

Thank you, operator, and hello, everyone, and welcome to our conference call for the third quarter of 2008.

With me here in Stockholm is Ericsson's CEO, Carl-Henric Svanberg and Hans Vestberg, the Chief Financial Officer.

We will be making forward-looking statements during the call today and these statements are based on our current expectations and certain planning assumptions.

There are risks and uncertainties associated with these planning assumptions and the actual results may be different due to a number of factors.

We therefore encourage you to use caution when considering such forward-looking statements.

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

Carl-Henric?

Hello, everybody.

We have reported early in the reporting period because we had stronger than expected results from the financial markets point of view and we consulted with the stock exchange here in the beginning of the week and we decided to offer the full report as soon as we could and that's what we're doing today.

Our numbers are a little bit better I would say on almost every line; we have a bit better sales, we have a bit lower costs and traction on the margins from the cost adjustment plans that are going on.

I think it's important to -- and basically all regions are growing nicely except Western Europe, that is still slow.

It's important to say that we don't see any effect in the report from the financial turmoil and that's quite obvious because it's only a couple of weeks old.

Cost reductions are running well, we're starting to get some traction.

Our financial position is strong -- SEK30 billion now, cash flow of SEK3.8 billion in the quarter with year-to-date cash of SEK17 billion.

I won't mention too much on Sony Ericsson.

Here they reported last week, and I have another slide, but it was of course encouraging to see that they have leveled out now on breakeven which is, of course, not satisfying.

But still from having come down that's at least encouraging.

If we look at the Q3 numbers in short, sales is up 13% in the quarter, actually up sequentially which is unusual.

I'll say a word more in a second here.

Actually in constant currency is somewhere around 17%.

This is obviously a strong number.

Interesting to note the five biggest markets where now India is the biggest, Indonesia the third and Brazil the fourth.

And all these markets are all less than or equal to 8% of total sales, so we have quite a few markets that are fairly large.

Gross margin is at 37% which is up from last year.

Stable sequentially, still for us reflecting a somewhat higher increasing margin trend as we have a higher proportion now of rollouts in emerging markets that put pressure on the margins.

The operating income reached 5.7 and that also means that the operating margin -- I think this is a bit important here now -- the operating margin is at 11.5% versus 9% a year ago.

It's of course ironic that we've had the decline in the Sony Ericsson at a time when we had the same strong improvement in Ericsson's basic business, but nevertheless that's where we are.

We have a strong net income before tax, an additional SEK0.5 billion posted impact there, basically because of the financial crisis where our borrowings get cheaper and our assets get better interest -- we get better interest for our cash positions and we have a currency effect as well.

So there the turmoil has played a little into our hands.

We have a little graph here where we look at nine months.

And what we want to show here is that we have from 2004 to 2006 we have in fact a 13% growth rate here, then it declines for the last couple of years to 7% largely I would say because of the falling dollar rate -- or at least to some extent because of the falling dollar rate.

But why we use this graph is to a little bit show you that the nine-month number for the year is following the trend and we were probably -- we had a lower second quarter and a higher third quarter.

And when you model your Q4 expectations do it from the nine-month trend this year, not from the higher sales in the third quarter.

If we then look a little bit at 2009 here upfront because I think that's of interest to us all -- in 2008 first we have seen, as I said, no impact yet from the financial turmoil in the reported numbers.

We have taken restructuring charges of SEK4.4 billion which exceeds the target we set of reaching SEK4 billion for the full year.

We still are looking at doing SEK1 billion or so in the fourth quarter because we see we can do more and we think it's important to have a cautious approach here in these turbulent times.

When we then look into 2009 there is a big difference from where we were in 2000 when the telecom crisis began.

Today most operators are financially strong, most don't even carry debt.

Most networks are quite loaded and the traffic increase is generally strong.

This is the opposite of 2000 when, as you recall, the operators were in heavy debt and there was lots of capacity in the networks.

So there is a good position to grow from here still.

And therefore I think it's fair to assume that we won't have so much of financial market domino effects hitting into the operators (inaudible) our industry.

Still I think we all understand that there are uncertainties here on how the consumer eventually will be impacted and what that means on their telecom spend and other financial market effects that could hit us.

But generally a much better position to develop from.

That means that we will continue -- for us, we will continue to plan for a flattish mobile infrastructure market.

This is what we've done in 2008, it has served us well, the market has grown better than that but it has worked fine for us as a planning assumption.

We will do so also for 2009, it is not a guidance for the market; I don't think we're in a position to give you a very precise guidance here, but it's our plan and we have also continued the plans in place for tougher conditions.

We will continue to focus on value creation, to grow fast in the market, to develop best in class margins and maintain and defend them and extend that and to produce strong cash conversion.

If we then, with that said, go back to the quarter, the key market trends -- strong mobile subscriptions, almost 180 million in the quarter growth; also strong growth in mobile broadband; a quarter of a million people now on wideband CDMA, up 24 million in the quarter; data is now four times the voice traffic in the networks.

We measured, it was three times voice in Q2, so there's a rapid development of data here.

We're starting to see HSPA PC modules soon being standard -- Dell, Lenovo, LG, Toshiba all have built-in Ericsson modules now.

Also a lot of focus on mobile broadband in emerging markets.

For us living in mature markets obviously it's very, very convenient to use mobile broadband and it drives our productivity.

But in emerging markets when it comes to m-health or m-learning or m-banking, this is really, really transforming these societies and there is a lot of focus on mobile broadband on the highest levels from the leaders in these markets.

On generally also -- much focus on migration to all IP, mobile and fixed together.

And the really dimensioning factor here is TV -- HDTV, interactive such.

And finally also I think everybody realizes the importance of communication when it comes to sustainability.

We are today in a situation where most politicians and scientists agree that we have to bring down emissions by 2050 with 50% to 70-80% at the time during a time frame when we will triple the world's economy.

There's no way that this can be achieved without hefty investments in technology.

And just as an example, you can actually call around the clock during an entire year for the same CO2 emissions as one hour of call traveling.

So a more intelligent society, intelligent buildings, intelligent travel is important here for sustainability.

A couple of quick comments on the regions.

I think you may have already studied them so I'll be brief here.

But Europe still slow, going down much because of southern Europe and UK whereas Germany and the Nordics are up.

A lot of focus on data growth, wideband CDMA is now on the way to pass GSM in investments and services is big in this region.

If we look at the Sema region in Africa, 9% year-over-year starts to accelerate and there's a lot of business activity and we see stronger growth going forward here.

Also here, for the reasons I said, a lot of focus on mobile broadband.

We have another interesting example that is just good to mention.

King Abdullah City, that is a new city being created in Saudi Arabia.

This is a real showcase for next generation of communication society with fiber, broadband capabilities, intelligent routers, all what have you for the police, for the healthcare, for the fire brigade, for the national security and of course for communications.

And this involves basically everything that Ericsson has in its portfolio.

You will then look at Asia-Pacific which was 70% up, negatively affected obviously by China's slowdown due to the Olympic Games.

Still in fact China was up 4% year-over-year, but it was also a slow quarter last year.

India is now the largest market in the nation, it's the third-largest market.

Other markets -- Vietnam, Singapore was strong while we have some political -- more difficult countries, Bangladesh and Pakistan, that is actually right now falling in sales for us.

Latin America is our strongest growing region right now, 43% up.

Lots of activities; the trend will continue for a while, 3G and as 2G and its services.

Brazil is really the strong market, Mexico and Central America are as well -- obviously not as large populations, but important markets for us.

North America finally, if you study the graph you see that it is not necessarily so much strong growth, although the numbers indicate it, but it's more that we have lifted the whole investment level to a new higher -- much higher level reflecting the strong focus on mobile broadband, strong focus on the continued billing coverage and expanding capacity in the networks.

This is also the region, as you know, that is focused a lot on IP and convergence here.

With that said I'll leave over to Hans to go over the numbers.

Thank you very much, Carl-Henric.

So let me go into the figures a little bit more in detail, starting with the sales, as mentioned earlier, SEK49.2 billion, which is a growth of 13% year-over-year.

And then making an approximation on the currency impact, it would give us some 17% in constant currency.

That is of course good growth in the quarter and Carl-Henric mentioned that year to date it's 6%.

If we then look at the gross margin stable at 37% between Q2 and Q3 and of course the year-over-year comparison is an improvement, and we all need to remember that Q3 last year was a low point when it comes to the margins, so that is an improvement.

Ending up at an operating income of SEK5.7 billion for an operating margin 11.5%.

If we then exclude Sony Ericsson, it's basically the same operating margin in the third quarter as the contribution on Sony Ericsson was breakeven excluding restructuring, that means that we had an operating margin excluding Sony Ericsson of 11.5% and (inaudible) 9% in the second quarter 9.7%.

So that's a little bit of an improvement there.

And one other element is of course the OpEx, that is down in the third quarter for two reasons -- seasonality from the second quarter and secondly that we see some impact now on our cost adjustment programs.

Continuing then, talking about the income after financial items, SEK6.2 billion indicating that we had a financial net of SEK0.5 billion, as mentioned earlier.

We had a favorable development in the quarter both on the interest on our investment and borrowing as well as the currencies and that added up to SEK0.5 billion in financial net.

That subsequently led to a net income of SEK2.8 billion that includes the restructuring of SEK2 billion in the quarter; all other figures that I mentioned earlier was excluding restructuring.

If we talk about cash flow, cash flow SEK3.8 billion from operations which are SEK1.4 billion is a dividend from Sony Ericsson.

We can see on the cash flow that we had a buildup in working capital, inventory and receivables increased.

Inventory is the customary increase due in order to prepare for the fourth quarter.

And when it comes to the Accounts Receivable we had good sales in the quarter as well as the current impact is coming into play there.

And final order, closing rate of the US dollar was quite high and we have a portion of our receivables in sales in dollar, as you all know.

So that's where we ended up with the cash flow.

That gives a cash conversion of 102% year to date.

If we then talk a little bit about our financial position and just get the feeling for where we are -- we have now after nine months this year net cash of SEK30.2 billion and if we look back four quarters we have been adding some SEK18.7 billion in net cash including a dividend of eight during this month, so that's of course important for us to have a strong financial position given that we have financial turmoil that we cannot really say where it's going to head.

If we then take a look at our long-term debt, our long-term debt is around SEK25 billion of which falling due in 2009 a little bit more than SEK3 billion.

So that should give you a feeling for our balance sheet items -- that we have a quite good net cash position that we have been working up, as well as our debt structure is quite good.

And also when we talk about the debt structure, it can be noted that we got a loan from the European Investment Bank of SEK4 billion in the third quarter which is for R&D investment especially in LTE.

Further that, when it comes to our possibility to get more sort of backup facilities, we have backup facilities of roughly USD2 billion or approximately SEK15 billion if needed.

That was a little bit on our financial position.

If we take the different segments starting in the networks, networks was sequentially flat or minus 1%, but up 16% year-over-year.

And here we can see a little bit of a mix change as we had 17% growth year-over-year on network rollout, 16% for the whole segment.

That means that we had a mix of more product in the segment than we have had for a couple of quarters where predominantly the growth has been with the rollout services.

And as we have mentioned before, the rollout services is of course pressing our margins and here we have a little bit more of a product at the same time, which is of course part of that favorable mix that we mentioned in the quarter.

If we stay on the same side we had a good quarter year-over-year for Redback especially outside US with a strong growth and the margins on networks ended at 11% operating margin compared to 10% in the second quarter and 8% one year ago.

So a small improvement there and of course the mix as well as the OpEx is helping also.

And the OpEx is the same explanation for the Group level, meaning we have some seasonality but we also have some early indications of the cost adjustment program.

Multimedia -- multimedia grew 10% year-over-year.

Here, as you all know, we have made some changes by divesting enterprise and acquisition, etc.

So for a comparable unit we are growing some 23% in the quarter.

Operating margin ending at 3% positive and that's of course an improvement.

We had a good quarter of revenue management and Tandberg Television which of course supported also the margins.

And I just want to remember you all -- want you to remember you all that we have -- in multimedia we are in early phases, so the margins are going up a little bit swinging between quarters, but we see an encouraging improvement there on that.

Professional services growth of 7% and in the quarter ending constant currency 10% which is quite good.

We can also see that we added some six new managed services contracts in the quarter ending now at 225 million subscribers in the network that we're managing.

Operating margins at 16% in the quarter which is good, very good, and that is coming from that we had fewer manager's contracts in early phases, that's what we talked about before when we start up manager's contracts it dilutes a little bit in the margins and this quarter we had very few of them.

That leads me into the cost reduction plans, just reminding you what we said at the Q4.

We have the program of SEK4 billion that we're targeting in full effect in 2009.

We expect the charges of SEK4 billion during the year.

We have now progressed three quarters, we added SEK1.8 billion in charges in the quarter and now we're totaling SEK4.4 billion year-to-date.

As Carl-Henric mentioned, we are continuing with our cost adjustment program and we will have also cost adjustments in the fourth quarter, maybe to some slightly slower pace than we'll have (inaudible) so far this year.

But we continue in this market to continue with this program as it's laid out.

We also have plans in place for a tougher market condition if it occurs.

That means I hand back to Carl-Henric.

So in quick summary, if we then -- a little word on Sony Ericsson, I think you're all familiar with it, new phones coming out as expected and being actually quite well received but tougher market and cost reductions in place to address that.

We will then just, in summary then -- it is a quarter with good sales and margins, cost reductions are giving affect, a lot of demand for broadband fixed and mobile, and all in all I think we're very well positioned in a market with some uncertainties and we have a cautious approach in the financial turmoil.

Thank you.

With that, operator, we're ready to start the Q&A session.

(Operator Instructions).

Tim Boddy, Goldman Sachs.

Thanks for the question.

It would be very helpful to better understand your confidence about the liquidity situation of your customers.

Obviously the debt levels as a whole are much better, but many customers do need to do significant refinancing.

So it would be very useful if you could just talk us through the steps you've taken to feel confident about what's now a very large receivable number on your balance sheet.

And I guess if some of those customers in emerging markets do see liquidity pressures, would you be prepared to use some of your cash position to tide them through given your belief that the underlying businesses remain healthy?

Thanks very much.

If I start off, and Hans can give you a bit more of the details here, but generally it is true that if you look at all operators in the world, they're not all sitting there with no debt.

Of course, there are those also that are more stretched, but overall the situation is dramatically different than last time and our financial position serves us obviously well.

The first question I get from every operator an email in the last couple of weeks is about our position.

So I'm going to hand over here to Hans to talk you through the credit situation a bit.

Yes, we have been for quite a long while been following very closely our customers and where they stand when it comes to our receivable side.

So we don't see any major change on that today but of course we will follow it very closely to see what's happening.

And of course it is not really if it's emerging markets or not, it's more what the type of operator we're talking about.

So I wouldn't say it's a geographical question.

Then if we are prepared to use our balance sheet for financing going forward I would say so far we have been very restricted on that and you can see it on our balance sheet that we're not doing much of customer financing.

So, so far we have no plan for doing that, but let's see what's happening in the market and we will come back to that.

I would add to it that Ericsson's position is since a long, long time ago is more positioned versus the market leaders.

We are typically serving the incumbent and the further out in the outskirts you go of the industry of course you'll see more stretched balance sheets.

But I think in general our customers are in good position.

So it sounds like you wouldn't be willing to extend credit to customers?

At the moment we have not done that and of course if customers would come back we would consider it and it depends more on customers.

But it's not that we have any broader or general program to do more customer financing at the moment.

Jeff Kvaal, Barclays Capital.

Thanks very much.

Carl-Henric, would you mind giving us a little bit better sense of the spillover that you're talking about from the second quarter into the third quarter and then how that plays into your order patterns for the fourth?

Thanks very much.

It was just a general comment that if we look at Q2 and Q3 together we could probably have had a couple of billion higher in Q2 and a couple of billion lower in Q3, then you would have seen more normal seasonality.

I think look at it from that point of view probably.

It's not the fact that we have seasonal uptake here for the first time in five years, this is not a sign of an accelerating market.

But rather of a steady development and I think this gives a good understanding for modeling Q4 from.

Okay, thank you.

And then, Hans, could I ask -- there seem to be a couple positive things going on in the gross margin line for you.

Are those things something that we should -- we didn't see them actually in the financials, but you talked about them qualitatively.

Are these things that we should expect to see come in over the course of the next few quarters?

Thank you.

I wouldn't say anything about the coming quarters but, yes, we had a little bit better mix in the quarter right now with the type of projects that we have done and therefore to the type of operators we invoice.

So I think that that is typical things that happen even though we had India -- it became the largest market in the quarter, we [work] to balance out that in other businesses at the moment.

I think it's more the mix that we had in the quarter, nothing else in that and then we're going to see forward how it looks later on.

Thank you both.

Kulbinder Garcha, Credit Suisse.

Thank you.

Just a couple of questions about geographic demand.

First of all in China, the Chinese carriers have given some quite bullish GSM CapEx guidance for the second half of the year.

Clearly you didn't see that in Q3 because of the Olympics I guess.

Is that something you think is going to happen or do you think it's more about them posturing versus a regulator?

So just what kind of uptick in China should we expect in the near term?

Second of all, on Western Europe, clearly trends remain weak there.

I'm just wondering with the macro uncertainty, is 2009 going to be another year if you were to guess that you're not going to see any debt-related spending.

On China first, China is -- in one way I think it's fairly easy to see how China is going to develop because there is a 3G rollout going to take place.

The reform and everything is there and the money is there and the organizations and the manning and everything is there.

That will call for bigger CapEx than before and that will come back and hit 2G, in spite of the fact that the 2G capacity demands are as big for 2009 as they've been before.

So this is only what happens when you have big rollouts, you have to sort of try to save somewhere.

That could very well be the cash I'll spend later on as it was in 2004 for us.

I think you should see the autumn numbers that are published are in view of that.

It could be a bit of a tactic play here that somebody tries to push numbers and then claim that they should be able to use those numbers in 2009 or something.

I don't think we should read too much into it because it won't even be possible to reach those numbers even if everybody worked hard.

But anyway China should be a good market in 2009, almost irrespective if the global crisis has an affect on China.

When it comes to Europe it's probably some truth in what you're asking there.

Hadn't we had the global crisis I think we would have been more -- slightly more optimistic about Europe.

I think now we're more cautious, but it is clear that already in 2008 it's a pretty hefty growth on wideband, it's only that GSM is coming down at the same time so that takes out each other.

But in 2009 we would've expected the growth in wideband to be bigger than the shrink of GSM and you should start to see growth happening.

Now I guess we are more cautious when we look at it.

Can I just ask you a follow-up on China there?

How do you feel about your position in Chinese 3G?

Because with China Mobile going to TDS-CDMA I'm guessing you won't often get much of that business.

With China Unicom your relationship hasn't historically been as strong, so I fail to see how Ericsson doesn't lose market share in China going forward.

Would you agree with that, disagree, how would you view your Chinese market share going forward?

In fact, don't forget that on Unicom to start with we had a pretty good part of the CDMA network, so they are old business partners or friends to us here.

And I don't think anybody else is better positioned with them than maybe we are.

Of course you can acclaim that the internal suppliers are better positioned, and to some extent maybe they are, but they will also -- [SETI] will be heavily now focused on TDS-CDMA.

And Huawei hasn't been as active inside China on mobile broadband as they have outside or on mobile networks.

So I think we have a good chance on wideband CDMA for Unicom.

We are the prime supplier to China Mobile, we are -- even in the last technical evaluation we came out as number one of all the TDS-CDMA vendors.

Of course it will be a bit of a political game there, but we expect to get a fair share of that and we may be -- this is not the time to be bullish.

It may be a bit bullish, but at least we have said our own ambition is to keep our market share as a combination of TD and rollout the wideband and continue GSM also for 2009.

Janardan Menon, Dresdner Kleinwort.

Thanks for the question.

I was just wondering, you've said your initial planning assumptions for 2009 are for a flattish market for global infrastructure.

Regionally how would you expect that to play out?

Which are the regions where you may expect a bit of weakness and which are the regions where you think some strength could offset that?

I can understand that our flattish planning assumption gets translated into market outlook or forecast, it's not intended that way.

We are using it as our planning assumption and we follow very carefully how things are going to go here.

So we cannot break down into regions something that isn't an outlook in the first place.

But to give some commentary anyway about the regions, I don't think we have -- there is obviously a question mark here what will happen to emerging market growth and interest rates and inflation and so on.

But when you look at the importance of mobile telephony, both regular voice telephony and mobile broadband, I think we have good reasons to believe that Brazil and the Sema region will continue as well as the Asian region will continue with some differences here and there.

I would probably say today that we don't have particularly great hope on Europe and then obviously America becomes interesting.

And there you can see that we have definitely lifted -- the activity level is higher, but it isn't really growing in that sense, but it's certainly higher.

So that may be some comments on the regions.

And just in terms of modeling your Q4 and beyond on OpEx, you've said that on the revenue side, possibly your Q4 because you've got about a couple of billion moving from Q2 to Q3, OpEx -- would it be pretty much normal seasonality into Q4 or would we be seeing more cost reduction efforts hitting it and coming in below those trends?

How should we be modeling that also into the early part of next year if you could give us some guidance?

We are not giving any guidance on the OpEx.

We have given you an expectation on R&D over -- we had made a third-quarter last year I believe or at least (inaudible) last year.

We believe we'll be in that range or that R&D spending excluding restructuring.

On the OpEx side I cannot really say how much is going to get an impact or not.

The program is rolling and we will do some more.

So of course that will impact next year.

But then we also need to remember we are doing investments at the same time.

We have acquired companies, etc.

So it's not one to one but, of course, we will see from next year a better impact of the cost adjustments that we have done so far this year.

Mark Sue, RBC.

Carl-Henric, in [possibly] weaker regions, is it your thought that it's just pause and, if so, long how long can Western Europe delay their CapEx spend considering that your data traffic seems to be accelerating?

And then separately, if you could just comment on if you're interested in adding metro Ethernet to your portfolio at this stage?

It's a good question actually.

We are, I think we are actually running a bit low here now in Europe and I don't know what you guys see.

But when I travel, at least in Europe, I find that my mobile phone connection is just getting worse and worse and I'm dropping out more and more.

So I think we are stretching -- we are stretching our networks here.

So one would expect that to translate into investments.

Then I guess that comes back a little bit to the consolidation and the talks and everything that is on its way.

When it comes to metro Ethernet -- so I guess in reality it should, yes, but with the financial crisis who knows exactly how, but it really should.

When it comes to metro Ethernet, we are actually in process of developing our program quite strongly.

So you will see us be more active in that by our own internal research and development here.

It is an important part, it is the part that is mostly affected by the strong traffic increases and when you look at the combinations here of our own internal work plus when we combine that to Redback and with Marconi products and so on, our product program starts to look quite interesting.

Richard Kramer, Arete Research.

A question for Hans and then one for Carl-Henric.

For Hans, can you help us understand the impact on margins from the 10% to 12% increase you had this quarter in inventories and receivables and maybe let us know whether there were any specific large customers where you were able to recognize revenue this quarter or any IPR income that came as a sale as opposed to normal royalty business?

And for Carl-Henric, maybe just a follow-on on the previous question.

Several of your competitors have indicated that there might be consolidation in the telecom equipment industry itself.

Can you tell us for 2009 whether you think Ericsson might participate in any M&A around the equipment industry or do you think the position you've got right now is one you can sit tight with?

Thank you.

If I start with the first one, and I hope I understand you well.

When it comes to the margin it's just the business mix, as I mentioned.

The inventory increase is more related to that we have a customary buildup for the fourth quarter.

And then on the receivable side, that's also a mix question, of course which type of customer, what type of projects we have been invoicing in the quarter.

So of course it it's a lot of emerging market new roll outs, which usually tend to have a longer lead time on receivables, that could be won.

On the IPR side, it's a normal quarter, nothing unusual, no sales like that.

So it's a normal quarter.

Well Richard, the question on consolidation is obviously well put, especially if there are a bit tougher times that will be hitting the weaker even more.

I think this is a time when weaker tends to get weaker and stronger can improve positions.

And as a leader of our industry this is really a time for us to leverage our leadership.

The question is then how do you do that?

I think we stick very much to our strategy of working with internal development and market development.

I think that has served us well.

We haven't really lost relative size advantage to the others in spite of the emerged.

So basically the answer is we are cautious.

At the same time times like this may open up opportunities, but we are hesitant to take on large integration work.

Thomas Langer, WestLB.

Thanks for taking my questions.

Just maybe a general question as far as your sales mix is concerned.

Is there anything you want to tell us about maybe non-wireless sales, i.e.

maybe about what's going on in backhaul, do you see that fixed broadband maybe has already become a more relevant part of your business?

I understand it's still pretty small, but could help at the margin.

So what do you see there, especially in light of the fact that maybe some, as you pointed out, some weaker competitors might start struggling?

And then, fortunately I have to come back to your working capital and maybe you could just tell us what was going on in the other receivables line, I think up SEK5 billion in the quarter?

Thank you.

First, when it comes to the sales mix, if we think about the all --everybody is moving towards an all IP network.

And in a nutshell it is much driven by preparing for TV, for HD interactive HDTV and that is what called for much more powerful access fiber to the home, for the intelligent routers, for the backhaul, for everything.

And there we can see, for example for ourselves here, that in the quarter Redback was actually strongly up and primarily due to very strong sales increases outside the US.

Tandberg Television is also doing fine and there is quite some good project work and potential business around the corner.

So in that sense I think it has worked fine.

And we are positioning ourselves very much for the needs that TV drives in transmission and routers and fiber.

And I probably should have mentioned that (inaudible) as well had quite a large fluctuation on the currencies in the quarter, especially on the closing rates on the dollar.

We have of course an impact on the balance sheet on both sides.

So of course we have an impact on other current receivables as well as our other current liabilities when it comes to our hedges and derivatives.

And it also goes for receivables that we have an impact on the dollar as well.

So the short answer for your question is that the currency impact on other current receivables that is sort of making it bigger.

But you need to see that's where all balance sheet items are sort of impacted like that which have a currency impact.

And I mentioned it -- I'll be brief, but maybe it's worth thinking about Abdullah City as a very -- as a role model for a new communication Society when it comes to your question about how we see it drive the need for backhaul and transmission and so on.

And that's in a nutshell is what happens in US also with this Lightspeed Project and all that goes on.

(Operator Instructions).

Tim Long, Banc of America.

Carl-Henric, you touched on this a few times, but I just want to hit it again.

You had real divergent performance from some of the emerging markets with Indonesia, Brazil and India very strong and you mentioned Pakistan, Bangladesh being on the weaker side.

Could you just give us your sense as to why some of these markets are performing differently and how you think about potential spillover, let's say what's going on in Pakistan and Bangladesh and potentially impacting what you're currently seeing in India and China and some of these other countries?

Do you think there are some just individual company specific things going on or do you think that we should be more concerned about potential spillover and impact on the overall emerging markets?

Thank you.

I think Pakistan and Bangladesh, they are exceptions to the rule.

Others may of course follow, but they are exceptions due to the political situation where we have various forms of political unrest, even states of emergency and so on, and that obviously takes down the appetite for international investors to come in there and work there.

So it is more due to security aspects or stability aspects.

What typically drives otherwise the demand in emerging markets is the tremendous role that communication plays for the development of those societies to drive growth.

So it's not examples of anything disturbing that perspective.

So is it safe to say the ones that are performing well, really the fundamental drivers of wireless, are positive and you haven't really seen much macro impact there?

There's no macro impact at all behind Pakistan and Bangladesh, absolutely not.

Then of course again, as I said in my introduction, what exactly is going to happen now in the financial turmoil and how that will affect the global economy then I think we just follow it closely and wait and see.

Alexander Peterc, Exane BNP Paribas.

I have two questions really.

The first one would be pertaining to the current environment in some of the emerging markets we've seen certain currencies being divided quite strongly over the past months.

Do you see any weakening of emerging demand related to that currency weakness?

And then the second question would be how do you see the pricing environment currently?

Do you see more or less or the same competitive pressure as that that you've witnessed over the past 12 months?

Thanks.

I can start with the second question so Hans can prepare for the first.

I think we have seen somewhat lesser pressure or returning to normal.

This is a very price pressured industry as such, but somewhat return to normal after years when some have struggled for their survival and then the Asian trends coming on board and seeking their references and so on.

I think we come back a little bit more to normal.

And the question is obviously now then going into if it's more softer time will that mean that people will fight harder for lesser projects or will it mean that people get more under stress and need to defend their margins better?

I think those two will act both ways.

And I don't think we have a strong opinion whether it's going to go up or down.

I think right now it's actually stabilized a bit.

And when it comes to exchange rate fluctuation in emerging markets, I think that in general terms we can say that we have local invoicing for our service capabilities which is also having the costing at currency than the products are usually in some stronger currency like in dollar or euro or something like that.

So initially I wouldn't say now that can happen, but of course any market in distress with a huge fluctuation in currency will also have inflation and other things coming into play.

So it's hard to say that that will not impact those.

But from a currency point of view, I mean the local sales that we're doing and services and then our cost is also in that currency most definitely.

And then our hardware and software is coming in other currency.

So short-term I wouldn't see it, but any country that gets this stressed on macroeconomics, of course it's hard to predict from us.

Mark McKechnie, AM Tech.

Thanks for taking the call.

In your press release you mentioned that your networks are loaded and traffic is showing strong increase.

I'm assuming or I'm guessing are you referring to Western Europe and the US for the network loading?

And if you could quantify what you mean by the networks are loaded.

Thanks.

I think that comment should be seen more in perspective where we were 2000 than in some actual percentage point or something right now because if you go more for each operator and ask them.

But if you go back to year 2000, we had a situation where people for years had built networks for a dramatic upturn in traffic that never really happened.

And this was the IT [pub].

So when the downturn came and the dust settled one could see that not only did they have no money to buy for, they had also lots of capacity spec passed in the networks and they could almost double the traffic as it was there.

That is not at all the situation today.

The last five, six, seven years operators have really been trimming their networks and refining their techniques for optimizing their CapEx.

That is the difference that we see over the last 10 years.

Are you getting the sense that the carriers and the developed economies may be underspending a bit here in this environment or are they spending just right?

I think that is -- in the developing economies I think that actually is almost -- you have to go almost operator per operator because when you build up new networks like that and capture market share everybody knows that what you have lost in market share or in customers that have joined somebody else is lost.

Time is of essence -- if you are two months late with a rollout that is a penalty that you need to pay for a long time.

So it's really important to go fast and that you can see in many markets.

Still, even they are under because they are under so much capacity buildout it becomes a financial -- you don't want to financially stretch yourself too much.

So it is a balance act, but I think they're doing that quite well.

I'm just trying to get the sense if this uptick in data traffic from the PT data cards and/or the Apple iPhone and what have you -- are you seeing that's leading to capacity upgrade spends in the 3G networks in Europe or here in the US?

Or when do you see a big windfall for a spend for Ericsson on that front?

I think if you look at -- take iPhone as an example.

We already see that examples of 20 times more traffic per iPhone user than normal users.

And obviously the first part of the network to get choked here is the transmission because in transmission a byte is a byte, it doesn't matter if it's a voice byte or a data byte.

In radio and the radio interface, it's been more capacity there, so it takes a while to hit the ceiling.

But certainly if you look at the large more aggressive operators today, they are all capacity upgrading whether you take Softbank in Japan or Telstra in Australia or some of the operators here in Europe or even AT&T -- although it hasn't really maybe hit big time yet, but it's certainly happening.

James Faucette, Pacific Crest.

Thank you very much.

I just wanted to go back to Tim Boddy's question at the beginning of the call regarding vendor financing.

I know that you had mentioned that that was something that you're not intending to do or not looking to do right now, but that if circumstances merited you might look more closely at that.

Can you kind of run through I guess how we should be thinking about what the environment might look like if you were to pursue some vendor financing, particularly if carriers start to be squeezed by credit constraints?

And I guess if you can include in that your views on the importance potentially of vendor financing from -- in the long-term competitive scenarios?

Thank you very much.

I think just a general comment first here before Hans comes in here.

It is important to understand that the total aggregated profits of the operators are twice as large as the vendor's total sales.

So for vendors to become banks for operators doesn't really make the numbers, you can't make the numbers.

Vendor financing was an obvious important competitive element when you had greenfield operators starting from scratch with being squeezed in every aspect of their financing.

And then it was an obvious part of our strategy to give them financing for the first part of the networks.

That is all different today and operators today are fairly -- most operators even in emerging markets are more cash rich and in better positions.

So if they have generally tougher situations to come to us than the bank isn't really that logical.

But I'll hand over to Hans here.

I go back to my previous comment that I made, that we will of course (inaudible), but at this moment we have no plans for doing any large customer financing in this market.

But as I said, (inaudible) know where the market is going but that's not the plan at the moment.

So it is important and I'm not saying it because we have some plans in this direction.

I think it's only important to remind everybody that Ericsson has lost less money on customers including vendor financing in emerging markets over the long, long period than we lost on customers alone in US and Germany.

So vendor financing isn't necessarily something that is bad.

And the reason why we haven't lost money is because we are sitting on the network which is the cash producing asset.

So unless you maintain and support that network it's not going to produce that cash.

So we tend to be quick collectors.

Operator, we want to conclude the conference call, please.

That concludes today's question-and-answer session and that concludes today's conference call.

The call is now over, you may now disconnect your lines.

Thank you very much.