Telefonaktiebolaget LM Ericsson (ERIC) 2009 Q3 法說會逐字稿

Good afternoon and welcome to the Ericsson's analyst and media conference call for the third quarter report.

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

(Operator Instructions).

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

Mr.

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

Thank you, operator, and hello, everyone.

Welcome to our conference call for the third quarter of 2009.

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

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

Therefore, we 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-Henrik for comments about our results and some plans going forward.

Thank you, Gary, and welcome to the call.

Let me just, during three or four minutes here, make a couple of remarks over the years that I can oversee that could be of interest also in times where the market is a bit tighter.

My first slide there is around the development 2003 to 2009, where we just go through what we have done from when we were basically a mobile networks company; how we have introduced services; how we have introduced multimedia; how we have introduced managed services; what we have done in converged networks, building out our capabilities on the fixed side and to drive convergence; what we've done also on the platform side in the ST-Ericsson venture; and what is now adding to it also the network transformation part, when fixed and mobile networks are converging with IP technology.

What this has meant to us is we've have a growth trend for up till last year of 12%.

And what's been interesting is that almost every year, when we have grown 10%, 12%, everyone has said, yes, we understand you have done so, but the future is not going to be as exciting.

And I think there is something to remember here.

This is an industry when new opportunities continues to emerge, and so it will be also for years to come.

If we look what have happened to the market then if we go to the next slide, we've obviously come from 700 million to 4.5 billion subscribers.

We've seen voice telephony turn into Internet and multimedia.

And in this period when we've seen the mobile telephony conquer the world, we have also seen the Internet becomes everybody's tool in the Western world.

We have seen many competitors, I remember 12 companies quoted the GSM rollout in North America in 2003.

Today, as you know, there are very, very few left in the Western world, and we are stronger than ever.

But in the meantime, we're also seeing new competitors rise in China.

We have come from being a hardware-dominated company to being a software-dominated company.

And we are, in fact, the fifth largest maker of software in the world of all kinds.

We have also seen how we've gone from equipment-dominated to be service-dominated.

We, in fact, have 75% of all our employees in the market units around the world are services employees, and 48% overall in the entire Company.

What does this mean for where we see it go from here?

Where we are, actually, in going from mobile telephony to mobile Internet and broadband, we are seeing a different society evolving.

And broadband is what we often call our society's new highways.

They are changing our lives in every aspect, in education, in health care, in administration, in banking, in everything we do.

And of course, it's not all about fixed broadband.

Mobile broadband is so important, and for the vast majority of the world's population, mobility is the way to Internet.

We will talk lesser and lesser about billions of people and more and more about devices.

Almost every consumer electronic, every device, every electric appliance will be connected in various ways.

And it is also a lot of effort.

As you know, we are involved in Africa, as an example, a lot of efforts on closing the digital divide and take people out of isolation.

We have also spoken over the years about sustainability and the role that a more intelligent society needs to play to deal with the climate issues that we have.

All of these have also meant that Ericsson has evolved.

We have come from being an equipment-lead company that delivers new networks and followed by services and maintenance to become a company that are sitting in the operators -- middle of the operators' networks, often running the networks, migrating them to new technologies and filling in upgrades and expansions.

It's a service-lead business which is quite different.

We also come from traditional telecom to IP with all those opportunities and from hardware to software.

And our abilities to change with these changes -- not just in from an engineering and technology point of view, but in the way we work, in the culture, in the processes and workflows and the business models -- our ability to cope with that change is key to success.

But with that said, just as a quick introduction, a few words on 43.

We see, as you see in the market, a bit of a blended picture.

The strong role for mobile broadband continues.

And markets like all the world's leading economies like US, Japan, China, even Europe now, is showing growth, driven by mobile broadband.

And that's exciting, obviously.

In there is also showing strong growth even it is 2G and 3G is around the corner there.

But we're also seeing affects from the economic environment.

Very much as we have talked about from the beginning of the year, it's unrealistic that we won't get affected and we have talked about the emerging markets and more notable effects in emerging markets.

So very much as we have expected it, it is happening here now.

And of course, a lot of this is because there was lesser of projects in the making a year ago.

That's also a method of orders and sales for us right now.

There are also some credit constraints in certain markets.

And all of this involves a shift from 2G to 3G.

So right now we have lesser of 2G sales and more of 3G sales.

And that shift as such is positive to us.

The bigger market share in 3G, we more paid for a 3G base station than a 2G base station, and it's more software opportunities as it comes along with 3G rollouts.

And if you go back to the end of 2008, 2G sales were 70%.

3G was 30%.

Now it's basically 50%-50%.

And of course, this means that the growth of 3G will have a bigger impact, the bigger the platform we grow from becomes.

We have also high demand for services.

That continues.

Operators need to focus on the core business, wants efficiency.

If we look at then the next slide on what that means to us as Ericsson, network sales are lower than last year.

But as we started our restructuring activities already two years ago, and these restructuring activities are in fact because we can work more efficiently in an IT environment.

We can use more common hardware and different products.

We can use more - we can use common software platforms and it opens up for efficiencies.

So all of this was in the making for a longer period of time that we are accelerating in this tighter market.

It means that we have now concluded -- we have taken charges of SEK14 billion so far, which is last year's SEK7 billion and this year's so far SEK7 billion, which was the total ambition up till next summer.

In this job, we are finding new opportunities in the particular areas we're looking because of this IP technology efficiency.

And we will do more before the program ends in the coming summer.

But all of this means that we are maintaining our SEK5.5 billion of operating income before JVs and restructuring in the quarter, despite lower sales, and we feel pretty confident that we can defend the margins even in a bit of a tougher climate.

Services continues strong and is now 40% of total sales, including network rollout.

We have, in fact, stable margins of 1% down sequentially despite the fact that we have a bigger than 1% startup costs, corresponding to 1% margin startup costs, from the contracts that are on the way in, saying, as an example the [real scope] touch contract and so on.

There is little yet of Sprint, because that has just started.

The cash flow, SEK6.9 billion is, of course, an encouraging number, a quality stamp of the earnings.

But it also, in fairness, reflects somewhat lower business activity.

But still it's a healthy number and good cash conversion here today.

So with a few quick comments on each region, Western Europe shows a 6% year-over-year decline for comparable units.

But this is where we have a descoping of the Hutch 3 Italy contract, where we are now down to doing exactly what we should do around the networks.

There are more other related services that we took out of that.

If we exclude the descoping effect, Europe is actually showing growth, which is an encouraging sign from a region that has shown decline for a while.

This is primarily driven by 3G upgrades, are now bigger than 2G decline.

A lot of growth in mobile broadband and I'm sure everyone that listens in here, you're sitting with your BlackBerrys or iPhones or whatever you have, and everybody is aware of the benefits of mobile broadband.

This also drives a need for new spectrum, and there's a lot of that going on, both new and 2.6 gigahertz band, but also reforming of existing 900 megahertz band.

Particularly encouraging growth in UK.

Actually now you can see there are the four largest markets in the quarter for Ericsson.

That's exciting.

Spain remains weak.

If we then talk about the CEEMEA region, we are 11% down.

That is the region that has the biggest impact from the financial crisis, especially tight credit conditions in smaller countries with weaker currencies.

Still, several markets, Turkey shows strong growth.

Nigeria, Egypt, Saudi Arabia, as well.

We have a continued stream of new licenses, 3G licenses, related with Tunisia.

And here is also all the region where services and multimedia is growing.

And you can see also if you see the chart down at the bottom of the picture, you can see that it is weaker in the region.

But of course, last year's Q4 was particularly strong.

Asia-Pacific, 9% growth is encouraging.

Still, also, a region with a bit of a blended picture.

Here, China and Japan shows very strong 3-D driven growth.

Vietnam is almost double from last year, and it was exciting to see that India, actually, was the largest market in the quarter.

I don't think that the heads of China and the US -- North America -- will leave India's managing director or head alone there on that top position.

Latin America, and again, also, we have other markets that are slower -- Pakistan, Bangladesh as we commented on before.

General slower economy -- activities in those countries, while countries like Indonesia have very strong traffic growth.

Here, we have more credit restraints.

We are also seeing across Asia, more than before of government-supported build-outs of fiber broadband and backhaul networks.

Latin America is, as you can see on the charts of Asia-Pacific, how they are steadily growing.

If you look at Latin America, 18% down, here, we also have effects from the economic decline as we had in the CEEMEA region.

Now it becomes a tough comparison with last year.

If you look at the previous five years, you can see that we are basically on par where we were in 2006 and 2007, but 2008 showed a very strong finish there.

But slower demand a bit across the region.

Mobile broadband, successfully development.

We have some licenses delays there.

There are also some, for new spectrum, there are also some consumer services related to IP TV that are delayed because of permits from governments.

If we then look at finally at North America, that is a region here you can see it's a little bit bumpy because there are a few large operators and the roll out, the places are all here.

But we're also showing it in Swedish crowns, and you know how the dollar has been from 6 to 9, to 7 to 8 to 7.

It becomes a bit of a roller coaster in Swedish crowns, obviously.

So, the comparison also from last year was quite tough.

We have been chosen as a domain supplier for AT&T for wireline access.

That is a major step forward for us.

We have become the sole LTE supplier for Metro PCS.

And we have the Sprint services contract.

Overall, we have grown in US from some 3,000 five, six years ago to now 14,000.

And we are now the leading force in US, and that's extremely encouraging, considering the importance of North America and the US.

So with that said, I hand over to Hans.

Thank you, Carl-Henric.

Let me then go through the financials, and, as usual, I will comment the figures excluding restructuring charges if I don't mention otherwise.

So starting with the net sales in the quarter were SEK46.4 billion.

That is a 4% drop for comparable units and adding back the currency impact, as we had the strong currency in this quarter compared to one year ago, we are down 12%.

And as Carl-Henric mentioned, mainly due to networks and with somewhat tougher market conditions, as it was mentioned.

I will come back to networks.

If you look also on the sequential decline, it's 11%.

And here we have a couple of other effects that need to be in consideration.

First of all, we have an FX effect as we are coming down in the currency in the quarter, so we have that, and we have the normal seasonal pattern.

And then we also have, as Carl-Henric mentioned, the Hutch rescoping that has an impact on the total growth as well.

So there is a little bit different on a sequential one, but of course, all in all, we have the decline in the more normal networks, that is both year over year or sequentially.

But there's a little bit of different explanations there.

Gross margin, fairly stable, I guess.

If you just look between the two quarters, year over year, the decline is pure mix.

The underlying gross margins in basically our product lines is coming up.

Operating income, SEK5.5 billion before joint ventures.

That's almost the same level as last year even though we have lower sales.

And compared to Q2 where we had SEK6.9 billion.

In the SEK6.9 billion, we had SEK0.8 billion, that was the capital gain of the TEMS divestment, so that is SEK6.1 billion.

So all in all, the operating margin is flat or improved if you compare to those quarters.

And one big contributor is of course our efficiency gains that were done.

And if we look at the OpEx, it's down now to SEK11.6 billion compared to SEK12.9 billion last year.

And of course, even though the currencies are working against us in our markets, that's quite strong.

If you then look at the earnings in our joint ventures, they were negative SEK1.5 billion, and compared to last year, it's of course, zero, which we had a zero result, clearly duration.

But if we look then on the sequential, we see an actual improvement on both ST-Ericsson and Sony Ericsson with the cost rationalizations they are doing.

Net income, which includes restructuring then, ends up at SEK0.8 billion.

And that should be compared to last year's SEK2.9 billion.

And of course the main differentiator is the joint ventures, as well as the restructuring charges that are bigger, adding to it.

Finally, Carl-Henric talked about the cash flow, ended up at SEK6.9 billion.

And that SEK6.9 billion has a component of cash layouts for restructuring, that is SEK1.2 billion, which means that our operating cash flow is SEK5.7 billion, if you include all.

But as we've done before, we talked about the rounding operating cash flow, which is SEK6.9 billion.

That leads us then to have a fairly good quarter.

We're adding some sEK4 billion in gross cash, coming up SEK80 billion -- almost SEK80 billion in gross cash, but more important of course are changing net cash, where we added SEK6 billion in the quarter.

So the cash flow was good, mainly coming from profit, but also, as mentioned before, the working capital is somewhat coming down.

That is, of course, helping as well.

All in all, SEK34 billion in net cash.

So we are continuing to consolidate our balance sheet well.

If we then go and talk about the cost reductions program, you have a reminder there, we started this 2009 program with a couple of different assumptions.

One of the main assumptions was that we couldn't transition to IP, which leads to a lot of efficiency improvements when it comes to common hardware, as well as software platforms, which, in subsequently the fewer sites, the fewer products, etc.

We have now after three quarters this year, achieved the restructuring charge of SEK7 billion.

And for the ones that have good memory, you know that we, in the first quarter when we posted our fourth-quarter result, we announced a program of SEK10 billion with a savings of SEK10 billion but restructuring charges of SEK6 billion to SEK7 billion.

That means that we have almost have hit that restructuring program or that cost reduction plan.

And two reasons for it.

One is that we have pushed a little bit harder and we have also had higher targets internally to see that we get there.

So I think that organization I believe is very well on our efficiency plan.

That means also that we have found further efficiency potentials that we will continue to pursue now as we go along in the next quarters, up to the end of the program at mid 2010.

Also, there, you also tie it back to the SEK14 billion of Carl-Henric's statement in the beginning, the 2008 program, as you will remember, that was SEK6.5 billion that we made, and that is in the bolt on the slide.

So that's where we are with the cost reduction.

Ahead of plan, and we will see further opportunities for efficiency gains.

Networks.

Networks, of course, we talked about, 8% down and of course with currency more.

You can also see that the margins are stable.

15% EBITDA margin; operating more 11%.

Then it should be noted that network rollout is growing with 24% and taking a bigger portion, of course, indicating that our equipment side is improving on its gross margins.

Here, we have talked about the lower demand, as well as the technologies between 2G and 3G, where the 2G decline is not offset by the growth in 3G.

So all in all, the network slides have done a great job being [held out] with efficiency gains in order to see that they have a model that they can leverage on this level of sales.

Professional services, 9% growth in the quarter with SEK12.8 billion in sales.

You can also say that if you add back the rescoping of 3 Italia, the growth will be definitely well above double digits.

And as you can see, the managed services only growing 3%.

That's mainly attributable to also the rescoping of Hutch.

If we would add that back or make comparable units here, it will definitely be in the double digits.

So we still have good growth and a good interest for both our consultancy business in these times and managers, but it also seems to be integration.

Margins staid stable, 16% operating margin last year, 15% in this quarter, 16% in the second quarter, coming down 1%.

That should be seen, of course, in the light of the startup costs cost the same.

Sprint was a little bit less as it came late in the quarter, but also the rescoping of the Hutch contract in Italy.

So the underlying margin is good.

We also, as Carl-Henric said, welcomed 6,100 employees from Sprint coming in the 21 of September.

Putting a proof point to our managed services business and of course putting a very important footprint in North America on managed services.

Multimedia.

Limited sequential growth and actually a little bit down.

The main reason for it down year over year is the revenue management that had a very strong Q3 [2008].

Despite that, we had growth in multimedia brokering, and consumer and business applications.

And you can also say that we are continued gaining shares in the revenue management business.

The EBITDA margins is up to 19%.

Two main reasons were good software quarterly [M] as well as the efficiency gains in multimedia is also coming through.

Here we can see that between quarters the margin points vary, but I think you can see across all three segments, that we sort of have lowered the breakeven line, so we can actually afford a little bit lower volumes and still make the margins.

I think that is the whole idea with our efficiency programs that we have had.

So by that, I hand back to Mr.

Svanberg.

Just one comment then on the joint ventures.

In both the joint ventures then you will see [all] is in place.

And if we look at Sony Ericsson, you can see there from sales of EUR1.6 billion down from EUR2.8 billion, a very dramatic sale [top], obviously.

Still flat sequentially.

It seems to have bottomed out for the Company; it's stabilizing.

Net income before tax of minus EUR198 billion is still a big loss, but it's significantly down from where it was in Q2.

And Q3 last year was at the breakeven results, so we didn't start to make losses in Sony Ericsson until Q4.

So, and we are now, again, quickly approaching a breakeven situation.

So pretty dramatic.

As you can understand cost reductions are taking place with that 40% sales decline.

Obviously, the company did well for several years and were early with the first smartphones touchscreens, but missed when others came, like iPhone and others.

And it's exciting now to see the program that is being, that is coming here and being released, and we will see how that gets received.

The new financing there is obviously also a good thing for their financial position.

In ST-Ericsson, somewhat similar but here we have even a 9% sequential growth.

The loss pace from Q2 was cut in half.

Here we have also have of course large cost reductions that are on track and cost alignments.

But here we also have synergies that we can capture after the merger.

So in summary, we do see, as we anticipated, effects from the economic environment.

But we are having our restructuring is successful, and we can safeguard the margins.

We see an exciting longer-term opportunities here, with broadband really picking up in mobile broadband, and obviously, also on the services side.

So we feel we are in a good position to continue to lead this industry forward.

And in a nutshell you could say that the areas of strength that we have, they are permanent.

Of course, you never know in this industry; you can't take anything for granted.

But they are a more permanent nature whereas the weaker areas are more of a temporary nature.

And the joint ventures are turning around as expected in a still changing market.

So with that I think it's Q&A, Gary.

Operator, we're ready to start the Q&A session.

(Operator Instructions).

Phil Cusick, Macquarie.

Hi, guys.

Thank you for taking my question.

I wonder if you can walk through what you expect from the Sprint dilution to services margin starting in the fourth quarter?

That's a big deal on the revenue line, but we understand it's going to be dilutive.

And then can you give us some idea as to how well you can leverage that employee base as you look into that new Metro PCS deal that you talked about announcing as well recently?

Thanks.

Okay.

If we talk about the dilution, as I said, we started the Sprint deal late in the quarter, so we will of course have the transition and transformation costs mainly come into Q4.

That will take off some 1% or 2% on the bottom line.

At the same time, we of course have efficiency gains, but if you wanted that level, that is probably what we can do.

But at the same time, of course, we're working continuously with efficiency gains and an improvement.

So, but if you single it out, that will have that impact.

But that's nothing unusual.

I think that's usually what we have.

Okay.

But that's this level, 1% to 2% on the margin line?

As I said, that is also -- yes.

Then others are, of course, compensating for that.

But if you single it out, that will be the answer.

If you then talk about how we can leverage in totality our business in North America, I think that as we are now in the planning phase and hopefully we will conclude the CDMA business with Nortel and the Metro PCS, we will of course have a very important footprint on CDMA.

And together here of course we can create a lot of synergies and important possibilities to grow, which I think is the most important.

So yes, we look forward to this, and I think it's a good way of continuation in North America.

Great.

Thanks, guys.

Mark Sue, RBC Capital Markets.

Thank you.

Carl-Henric and Hans, perhaps if we can get a sense of how long the spending lull will be in terms of network upgrades.

Are you seeing leading indicators, perhaps even comments from customers, that a return to demand is just around the corner?

Or should we plan for a long-term recovery?

And also with the sharp increase in the line of credit available for competitors such as Huawei, are there structural things that can change, that have changed which can limit the growth of Ericsson when things do recover?

Let me start, and Hans can add something to this.

When it comes to the -- I picked them in a random order here -- but the credit constraints as you saw generally in society loosened up I think quicker than most anticipated after a bit of a slow start.

But huge difference for most companies around the world than it was just six months ago.

So that can of course ease quickly.

It depends a little bit here and to go to smaller emerging markets that have had currency fluctuations and so on, that's where you see those constraints.

So it's a little bit hard to say how it's going to play out, but it shouldn't be too long, I would think.

If you then look at -- then you have one aspect of the technology shift.

And of course, that, it gets easier to compensate the 2G growth for 3G growth the bigger the 3G platform becomes.

And that is growing quite rapidly, as you know.

What we are seeing today in the little tighter emerging markets here is that there were obviously lesser of projects on the drawing board six to 12 months ago.

And if we look at our own indicators, I think all operators understand that it's better times ahead.

And exactly how quickly that turns out I think that is hard to say, but that's always difficult to predict more precisely, and we don't intend to either.

When it comes to Huawei, I mean that's a tough competitor, but we've always had tough competitors.

And I'm not sure that their level of competition has changed in any bigger way than we have seen before.

They are always aggressive on new deals because they want to build their platform.

But overall, their cost advantages are not so big as some people think because we have a lot of our activities in local countries already.

Hans, can I just quickly ask, not that we don't love you, but where is the new CFO?

He or she will probably be announced pretty soon.

Okay, thank you.

Alexandre Peterc, Exane BNP Paribas.

Hi, thanks for taking my question.

I would just like to have a sense of where we stand in the cycle now.

If you look at the constant FX like-for-like sales, they were up 5% in Q1, minus 3% in Q2, and now Q3 says minus 12%.

I understand there's about say 4 percentage points of that is down due to the reclassification of H3G Italy, but that's still minus 8%.

So could you give us a sense if this is where we are the worst of this sales decline cycle and should look at somewhat better times ahead in the coming quarter, maybe Q4 or Q1?

On Q4, Q1, that is a close horizon and I don't think we -- we're not going to issue any particular guidance there.

And it is also not so easy to exactly know what the operators will do in a particular quarter.

But of course, over time, with the traffic increases that are on the networks, that the market will recover.

But we're not going to give any particular guidance for the next couple quarters.

And then just from a housekeeping perspective, could you tell us whether the multimedia margin should also be down in Q4 as we were also in previous years?

And in services as well we had a very strong Q4.

Should we see considerable strength in Q4 '09 as well?

I'll leave that to the CFO to answer.

First of all, we don't do any guidance for separate quarters.

I think that I can just repeat two of my main messages.

Number one, we have seen that multimedia has come to another level of profitability.

And of course it can still vary between quarters depending on how much revenue management, etc.

But remember we have taken down sort of the breakeven point with efficiency gains are down, so that's an important one.

On the services side, again, they have continued growing and doing efficiency gains.

There are, if you single out, a specific deal, which is a Sprint deal, which will have an impact on the margins in the fourth quarter.

On the other hand, we continue to grow and have an efficiency gain in the fourth quarter on services.

So that's all the information I have given out.

I'm not guiding for any specific margins in any area.

And I think that we look at a track record where we have been, and so I think that's more important.

Okay.

Thank you very much.

Edward Snyder, Charter Equity Research.

Thanks a lot.

Carl-Henric, how would you weight [Lloyd] unit volume versus say more aggressive pricing as an impact to the quarter?

Was it 80-20?

Was it 50-50?

It seems unlikely that with such a steep decline in unit volumes that we wouldn't see some price competition too, especially given your competitors have been striving to get in this space.

And I know it varies a lot, but generally how long does it take for startup costs and new managed services to roll off and the margins to exceed the corporate average?

Are we talking typically a quarter, two quarters?

I'm just looking for a general estimate.

I think that if you take the overall pricing trends that I think you asked about, I missed the word there, but I think it was.

Remember that there are some new bidding going on in every quarter and they are always very price competitive.

But the question for us and for the industry is how does our whole portfolio evolve from quarter to quarter?

And I can say that there is any -- that there is no difference in the trends from what we have seen before.

And you can sometimes hear about the deal here and there being very aggressive.

But those are still not representative for the whole business development.

Leave it to Hans to talk about services here.

The services, I will make it sort of historical for you.

And when I was running services, it took us probably 12 to 18 months to make a transitional transformation.

I guess the new management team will [pretty come] in the leader they have improved that.

And I would say two to three quarters, they're doing it right now, so that is how it can wait.

Then, it's of course a little bit dependent on the size and the scope of it, but definitely they have reduced at times for the startup costs, because it's all about bringing in the people, seeing all the people are part of Ericsson, and then transforming onto our processes, tools and methods, etc.

But there, the guys are doing a fantastic job to refine the process.

So they are improving it and shortening it all the time.

So I guess two to three quarters a little bit depending on the size of them.

So this would be typical for something like Sprint and you could expect in the same year, 2010, we should start seeing some improvement in margins due to that (multiple speakers)?

Yes.

We should see that during the year in 2010.

And then finally, we've seen some consolidation, you are taking over Nortel's, some of Nortel's businesses.

So the consolidation everybody has been waiting for is finally starting to happen.

You would expect things to improve.

I know it's a recession hitting us now, but what's your estimation in terms of any effect at all from that consolidation towards your top line or your margins in the long run?

And will it be a big impact, a minor impact?

Some of these plays are pretty small competitors.

Should we not look to that as a boost to your financials even in the distant future?

I guess it's a lot of happenings in the market right now.

If you talk with ourselves, of course we will have an impact of consolidating net Nortel when we have cleared that, that will have.

All other consolidation in the market is sort of in the making right now.

It's a little bit hard to predict if that's going to have a view on the landscape, on the market landscape going forward, so it's actually a little bit too hard to say right now.

Many of the assets are right now in discussions, which other vendors are looking at or making bids for, so we don't really know how it's going to pan out.

So I think it's a little bit too early to say how it will affect us, that consolidation, but definitely we will come back on that and there are things moving up in the industry.

Thanks a lot.

Jeff Kvaal, Barclays.

Yes, thanks very much.

I was wondering if you would mind clarifying a little bit the trajectory or feeling from carriers in the Western European and China region.

To what extent in Western Europe is data traffic likely to drive an uptake, or are they able to offset that with other efficiencies?

Then in China we've seen some concern about the trajectory of spending from 2009.

Any thoughts on that would be very helpful.

Thank you.

If we start off with China, their projects are -- they are running ahead at full speed.

And I think I have there have been speculations, and we have even speculated before, that with a very strong uptake, that there is still in 2G, which will dominate for a long time, that there will be, with traffic and uses, there will be an obvious catchup of need.

At the same time, I think we are seeing a very encouraging development on prices on 3G handsets.

So if they really push hard here, they may be able to get traffic over into 3G networks even sooner.

And all those [fits] are always positive to us because that means more capacity in 3G instead of 2G and 3G means high, more pay per base station than we have on 2G.

So even if that happens, that's a positive for us.

We've seen no signals in China of any slowing down pace or anything.

If you look at Europe, we have the upgrades then and the growth that we see in the quarter, that is mobile broadband driven growth.

This is what happens here.

There is also in Europe managed services driven growth.

But managed services is a big thing in Europe, and you have seen our advances in several of the markets, and you can see how the UK is now the fourth largest country in Ericsson in the quarter, and that is very much managed services driven.

Okay.

Do you feel that there's an underinvestment in Western Europe in particular at the moment?

I think there has been a hesitance among some of the operators.

Many of them have sat there with their flat fees and they're not really sure of how they can drive up the revenues.

Of course the revenues are going up because they add on more and more subscriptions for mobile broadband, so that is positive.

But I think many of them are at the point, and I'm sure you are all users of the networks, and you can see the quality level.

So it's unavoidable that upgrades are starting to come.

Thank you.

Kai Korschelt, Deutsche Bank.

Yes, good afternoon.

My first question relates to India, where it seems that the potential 3G spectrum option and, hence, the rollout has been delayed further.

Do you have any more color on when you would expect the tenders there to commence?

And then my second question relates to Nortel.

Should we expect the cash outflow for the acquisition as well as the revenue and profit contribution in the fourth quarter?

Thank you.

The first part, on India is -- I mean India is growing strongly as you can see, and will continue to do so irrespectively of the 3G license dates.

We can see that they are slipping.

And they have been slipping for a long time, as they did in China.

But there's no doubt that the government understands the huge importance that it has, that they get issued.

And we are already building 3G for BSNL that has a time advantage over the others; they have their go-ahead already.

So something is happening here.

But there could be further delays, but we will have to live with that.

On the Nortel, given that we get approvals in the fourth quarter, yes, it will be cash layouts for the acquisitions some, but also profit and sales in the fourth quarter in that case.

So we will define when we get the approvals, which we're still waiting for.

Okay, thank you.

Piper Jaffray.

Mike Walkley, Piper Jaffray.

Thank you.

Just wondering if you could share with us your views for industry seasonality for Q4; do we still expect a seasonal increase in Q4 with carriers spending their CapEx budgets?

Or is it more muted given the macro backdrop?

And just a clarification on the -- it sounds like you're seeing some signs of improvement in emerging markets for credit.

Have you seen projects being discussed there?

Or is the credit issue leading to increased price competition?

To go from the back, I think on the price competition, I don't think we have anything new to add.

When it comes to seasonality for fourth quarter, we are, as you know, we are not guiding for the coming quarter.

But of course there will be seasonality.

But exactly how I think we will have to wait and see.

As I added at the press conference this morning, Q4 is the strongest quarter when it comes to total sales and income, and that we still believe.

But of course, you have to come from the base we are.

And also we need to think about the currencies here because if the currencies remains where they are, that will give us less top line.

And remember last year we got -- with us quite a lot past the fourth quarter came with a very strong currency.

Now it will go the opposite.

This year the currencies remain as they are, and I don't speculate any currency.

But just so we know that because the translation effect, of course, is average, and if the change rate will say where they are, the average will come down, and that will affect our dollars sales and of course they came down a little bit on the sales.

So that's what I said in this morning's press conference and I just want to reiterate it here so we have all the same information from.

Thank you.

Kulbinder Garcha, Credit Suisse.

Thank you.

Both of my questions are linked to restructuring.

First of all, of the SEK10 billion restructuring plan due to be delivered by the middle of next year, how much has already benefited the P&L and how much is yet to bring down OpEx and potentially COGS?

Can you just quantify how much is being delivered?

And second of all, a question for Hans.

You mentioned this further scope for efficiency gains here.

Over the last couple of years, it looks like Ericsson has managed to remove SEK6 billion to SEK7 billion of annual costs out of the business.

Is the magnitude of the next efficiency drive of that size much smaller given the environment may be improving?

How should we think about how much more efficiency you can take out of the business?

And also linked to that, given that you keep restructuring, why are your cash restructuring charges necessarily exceptional?

And why shouldn't we start looking at them in the EPS numbers, do you think?

I didn't catch the last one, but I'll take the two first ones and I'll come back to the last one.

When it comes to the program, how much of the 2009 program that is actually in a run rate and impacting?

Some will hit in the third quarter.

In the second quarter, we have very little at all impacting all the restructuring that we have done in this year.

But in third quarter of course is coming in right now.

And of course in the fourth quarter we continue to increase.

So yes, some impacts from the 2009 program we'll have in the third quarter and no specific number, but we have that.

When it comes to the continued efficiency gains, I did not give out any numbers today, but what we see of course, there are two things.

First of all, we have plans that had higher ambitions than SEK10 billion internally, and that will be delivered.

And then, we have also seen further opportunities in this process right now, where we have looked into everything, as well as, of course, the lower demand in networks also has opened up some efficiency gains.

So I have to come back on specific numbers how much more it will be.

The only thing I've said is we will continue with the program, and you should estimate that we continue into Q4 with having a restructuring on the same size or higher maybe then we had in the third quarter.

I think that's sort of what I said so far.

Then I'll have to come back after this quarter and talk about how much more we have.

And the last one about EPS, what was that?

Yes, my question really is it seems Ericsson has continuously restructured since 2005 with the exception of one year, and you talked about doing more restructuring to 2010.

At the moment we kind of look at your earnings X restructuring.

Should we almost consider that Ericsson are in and now a perpetual state of restructuring, so we should also, we should model on an ongoing basis, cash restructuring costs, because that's the nature of the business?

Or will this next efficiency drive be the last one for a while, do you think?

I think there's a couple of comments to make there.

Remember it's not -- we don't have a situation where restructuring is the normal course of our business.

But the restructuring that we have done before the programs that we started in 2008 and 2009 were related to acquisitions.

And if we would end up in such a situation there would be a restructuring need, then I think you are helping by us telling that, and you can follow that.

In the general business, we're doing two restructuring program here now.

And they are because we are transforming into more active technology and all that that I've talked about.

They will be concluded by 2010.

And if nothing special happens, we don't anticipate to start any other such program.

Then we are back to normal course of business and we will track it further up in the P&L.

Okay, thank you.

Neil Steer, Redburn.

Thanks for taking my question.

I actually had a few but most of them have been asked already.

Hans, just picking up on the last response to the last question, did you say that in Q4 you will actually spend an equivalent sum that you spent in Q3 in terms of restructuring, i.e.

round about SEK2.7 [billion]?

I said that in the press conference and I will say it right now as well.

Have been -- at least that we will have continued restructurings at least in Q4 as I see it right now and that will be in the senior level at least as well in Q3.

And just to be clear, that's not, you're not talking about the cash charge there; you're actually talking about the new program?

I'm talking about the restructuring charge.

Okay.

And on the professional services side, are there any large contracts that, over the course of the next 12 months, come up for rescoping or retendering?

I cannot really say.

Of course, we have things falling out all the time for rescoping and retendering, but nothing in particular comes to my mind.

Nothing that could provide a step change like the Hutch contract?

No, nothing -- in my sort of visibility at this stage I don't have any step change like the Hutch in Italy, no.

Okay.

Thanks very much.

Rod Hall, JPMorgan.

Yes, thanks for taking my questions.

Just two quick ones.

The first one, I guess both of these are for Hans, really.

The first one is on the hedging activity.

Do you have any temptation because these currencies are wildly swinging around to reduce or increase your hedging exposure over time?

That would be my first one.

And then the second one is related to Sprint.

I know that there was some cash outflow that you guys expected to have as you brought all those employees onboard.

Did we see all of that in Q3 or should we expect to see a hit to cash flow in Q4 from all of the new technology and equipment you need to buy to support those employees?

As the CFO, you don't have temptations; you keep control.

So I wouldn't say that I have a lot of temptations.

I think that in this current environment, you tend to keep your models for hedging.

After your currencies are moving up and down, you don't start changing any idea about hedging policy.

So we keep our hedging policy, I think.

Then, of course, we are always evaluating if we can do things smarter, more efficient for our investors.

That will do of course, but right now, with the volatility we have had, I don't think it would be wise to change it.

On the Sprint cash layout, I don't see any particular impact on cash flow for a Sprint deal sort of starting up, more than the normal startup costs that I've already talked about.

So nothing else.

Okay, thank you.

Matt Robison, Wedbush.

Thanks for taking the question.

On the -- just to follow up on the Sprint question, the timing of that is that something that's already happened in terms of the startup costs?

Or is it going to extend through the fourth quarter?

And then I was just maybe a little more conceptually, as far as the capacity upgrades, we hear a lot about transport and Packet Core as sort of bottlenecks for data.

What's been the experience on the air interface and adding carriers and the rate at which you are able to see revenue for WCDMA base stations for base station upgrades?

Has that started to happen yet?

Or -- and what's the -- how should we think of the uptick for that segment of your revenue opportunity as data traffic increases?

On the first question, was that we took over the Sprint operation on the 21 of September, so it was a fairly small transition and it was a transition costs in Q3 but we will have more in Q4.

That's how it looks.

The upgrades, it is happening; there are upgrades in different parts of the world, in both second carrier and third carrier, and that is happening.

The data uptake in the networks -- the data traffic increase is big, much bigger than anybody anticipated.

And you can also see that despite the fact that the vast majority of the data pickup will be from laptops and synchronizing of computers and downloads, what the iPhones and other smartphones does is a much more intense, short messages that absorb capacity because of its headings and its [measures] and so on, so that very soon, not too much traffic starts to create congestives in the networks of the kind that you mentioned.

So there are upgrade needs a little bit everywhere now.

So should we assume that the operators that have the more mature data services are already into the second and third carrier upgrades and in terms of the transition from one to two carriers, that's mostly just the new 3G networks?

No, you will have it on all in various stages, but certainly that is happening.

Okay, thanks.

Operator, one last question please.

Richard Kramer, Arete Research.

Thanks very much.

One question for Carl-Henric before his departure and one question for Hans please.

Carl-Henric, since the third-quarter '07 profits warning and even before, you've been talking about a mix shift towards software and I think you mentioned again today Ericsson is the fifth largest software company in the world.

Yet if we observe the gross margins for Ericsson for even the last eight quarters, they have been sort of [fairly] stubbornly, even excluding all the charges around 36%, 37%, which is very unlike what we see at sort of large software companies.

Can we expect to see, in coming times, any meaningful gross margin upside that would make Ericsson's P&L look much more like a large software company even for the networks portion of the business?

And for Hans, just to understand a little bit better, we understand there is a major reorganization planned for Ericsson management for 2010.

Can you comment on whether, as an incoming CEO, you do plan to have some sort of organizational shakeup?

And also whether you will have an impairment review in fourth quarter 2009 concerning all the acquisitions that you have made and the I think it's SEK24 billion of goodwill you've got on the balance sheet?

Thanks.

Well, if we -- sorry about that.

On the software side, you do see a trend of increasing margin.

Remember that we have a very substantial increase in services that is changing the mix.

And that is -- so the stable margins that we track are increasing markets and networks and all in services.

We have come quite a way from where we were five years ago, a hardware dominated company.

Software is not yet as big as hardware.

But it's approaching that.

But remember it's still smaller than the hardware.

So the full characteristics in the networks business that, of what you see in software companies, will take still some time.

But the trend is there.

And can we assume that hardware gross margins are going down, offset by rising software gross margins?

Yes, you have an element of that.

You have a bit of an element of hardware margins coming down.

That is true.

Okay.

And Hans?

When it comes to impairment, that we do every quarter, we review our balance sheet.

That's the normal procedures so we're following that, so I have nothing more to add.

That will continue to do and following our acquisitions, to see that they have the right value.

But the new organization that you have heard of, maybe you can call me and tell me what you heard because I don't know.

So I have nothing at least that is planned or communicated.

Well we'll wait and see after the next earnings release.

Thanks very much.

Thank you.

Operator, please conclude the call.

Ladies and gentlemen, that will conclude today's question-and-answer session.

We would like to thank you for your participation, and you may now disconnect.