Telefonaktiebolaget LM Ericsson (ERIC) 2009 Q4 法說會逐字稿

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

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

(Operator Instructions).

As a reminder, 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, and welcome to our conference call for the fourth quarter of 2009.

With me here in Stockholm is Ericsson's CEO, Hans Vestberg, and Jan Frykhammar, the Chief Financial Officer.

Also joining in today is Johan Wibergh, Head of our Segment Networks.

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

These statements are based on 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 Hans for comments about our results and plans going forward.

Hans?

Thank you, Gary, and hello, everybody.

I will not go through the slides as we did in the press conference this morning.

I will try to make a summary, or me and Jan will do that all what we have conveyed in the morning so we can have some more time for Q&A.

So I will just start by talking about the trends in 2009.

And I think it was a quite clear trends in 2009.

The number one was definitely the breakthrough for data growth, the acceleration of that.

It was very much about an acceleration in nano-networks and of course that was fueled by the smartphones coming out, as well as much more mobile broadband in PCs, dongles, but also embedded.

And we have seen also in the latter part of 2009 now that many operators are start focusing on the machines, the machine opportunities.

So definitely we can see that data growth is there and of course all the devices coming out is supporting that.

And that also led to that more and more operators, especially in developed countries right now, are looking into network modernization because the coverage is already there and they are looking in how to modernize, upgrade the networks in order to meet this.

So there were more of the converged networks and modernization of what they have.

And that of course enables also and will include IP application on the networks.

The third trend that we've seen through the year is that 3G overtook 2G.

And 3G has now higher volumes than 2G.

And we have now had GSM as the number one volume driver since many, many years back, but 3G this year overpassed it.

Second, we have seen the first contracts on 4G or LTE where the earlier operators have now been out and defined the vendors.

And we are happy to say that we are part of a major rollout on that as well.

The impact from the economic environment is the fourth trend that we had in 2009.

And we already started by in, when we presented Q4 2008, to talk about it would be unreasonable that the telecom industry and Ericsson would not be impacted by the economic situation.

And hence we saw in the second part that the credit constraints, that the currency situation in some markets and the overall cautiousness, and especially in these emerging markets, actually came into play and we came down in volumes.

And that of course must come from that type of environment.

Fifth and the last trend in 2009 was the focus on efficiency from operators as the climate became as it became.

In 2009 operators focused much more on that which of course opened up a lot of opportunities to [manage share] for us.

Those are the five highlights from 2009 that we bring with us.

If we then talk about the net sales, net sales in Q4 ended at SEK58.3b for comparable units, down 16% and for full year basically flat.

So we stayed flat on sales between 2008 and '09 but the Q4 came down with 16%.

And that is also reflecting what we said the latter part of 2009, we saw that gradual impact on cautiousness and also the impact on credit.

And I think that if we go back, and of course it's always difficult to generalize on the world when we are in more than 175 countries, but in one way you can say that a lot of the decision-taking in the first half year of 2009 is of course what is flowing into our sales in the second part of 2009.

And there can be different reasons in different markets.

But if I try to generalize, of course the overall economic climate as well as the credit constraints, those were the main drivers for that.

At the same time we had of course also the change in portfolio where 3G came up and was not really offsetting our 2G.

And last but final, I think that the currency when it comes to 2009, of course, was fluctuating quite dramatically.

And we saw the US dollar exchange rate in the beginning of 2009 going from SEK9 and now came down.

So we had a depreciation through the year.

So beginning of the year we had support of it and then we have a gradual less and less support of the currencies.

So overall that's what we see.

But one thing that you can say also, that the trends that we saw coming in in Q3, that was the same trends as we had in Q4 when it comes to the market and our business.

And it has not worsened.

It is basically the same trends.

If then we say something about our operating income, and here we talk before joint ventures and excluding restructuring.

In the short summary we improved our operating margin to 12% compared to 11% last year and on the yearly basis, or year on year, will remain stable despite the drop in sales in Q4.

So -- and that's, of course, a lot from our cost efficiency work that has been part of that.

We have also the effect in both net sales and operating margin on Nortel.

SEK2.7b we invoiced on the CDMA that was required in the last six weeks when we were having that in our books.

So that's one piece of the puzzle as well.

If we take the regions fairly quickly, and Western Europe down 21% year over year, 6% full year.

The fourth quarter impacted of course on the re-scoping of the Hutchison deal that took down the -- to a negative growth.

But excluding that it still would be a negative growth, but it has still an impact.

We see in this region now more focus on quality of networks and efficiency of those networks.

And of course that sits high on the agenda for the operators.

A couple of important wins was of course with Mobile Norway and TV4 Group.

And the TV4 Group is of course very interesting to see that our managed service offering are now moving to the media industry as well where we see a natural next step for us with the capability that we've built up.

Last, in the beginning of the year, we signed LTE deal with TeliaSonera and also the extension of 3 Scandinavia, for mobile broadband that we are happy for.

We also now split up and talked about Western Europe for all regions by segment.

I will just make a few comments on the segments.

You can see in Western Europe, as I've been stressing before, we have gone from a very strong GSM rollout market to be a 3G service market, basically it changed the whole portfolio in Western Europe.

And I think that our management in Western Europe has done a great job.

CEMA region, which is the most impacted probably from this economic climate, we came down 21% and 4% full year for comparable units.

I think that there are large variations in this region.

There are some 2G buildups still, as well as very advanced mobile broadband networks being built.

We can see that managed services and services in general has a very high attraction in this region.

We signed, for example, the Romtelecom, a fixed line operator in the fourth quarter, as well as a mobile operator, du, in UAE.

So that, you can see, is what is happening.

At the same time also in the Networks business we secured with the largest operator in Africa, MTN, the frame agreement for 2010.

So this region has been a little bit more impacted and it's a little bit different sizes in different markets here because some are more developed than others.

Asia-Pacific, growth in all segments and growth overall for the full year, came down in the fourth quarter.

We can say that we have some variation but China, India, Vietnam, Japan showed good development during the year on building networks.

We can definitely see, as I said for several quarters right now, that Bangladesh, Indonesia and Pakistan came down in relative terms quite a lot, especially due to the economic climate.

We saw also in the fourth quarter that India came down.

That, we believe, is more from a structural point of view as they are waiting for the 3G auctions in the beginning of the year which has been announced.

We have not more guidance than we can see in the press, but that is the expectations.

Asia-Pacific, as said, growth in all different regions.

And if you look for the full year it's of course very good to have the big rollout in China on mobile broadband and WCDMA, but also that we now have secured in China GPON contracts with all three operators.

If we then go to Latin America, Latin America had a year that was quite tough, down 25%, 13% full year.

Then we should know that 2008 was a very strong year for Latin America, with an accelerating growth.

We bought 2G rollout and [hopped on] the 3G rollout.

So that came down.

But we can still see the underlying trends are still here.

The mobile broadband growth and the subscription growth is still there.

And we see a growing demand for managed services in the region.

So that was Latin America.

And finally then, Latin (sic - see presentation) America, we can conclude now, looking back in 2009, that we have significant strength in our position in North America, both with the Sprint deal but also with the CDMA acquisition, but also with gaining the LTE contract with Verizon, as well as being the domain vendor for AT&T on fixed.

So we have done a lot of inroads in North America and definitely strengthened our position there.

And we can say we have growth in all segments.

We grew 41% in the year.

And even if we would exclude CDMA and Sprint, we would still have growth in this region due to market share gains.

Finally, a couple of notes on the segments starting with Networks.

As said before, Networks came down then at second part of 2009, ending on a flat year basically and down 16% year over year.

Still, with that year over year down 16%, Networks showed stable EBITDA margins on 17%, and year over year 2008 and 2009 actually improving the EBITDA margin.

We had a positive impact in Q4 from the Nortel business, as said, with SEK2.7b.

And in here we both have the markets I talked about but also then the mix of technologies on 2G to 3G happening during the year.

We can say that we have maintained well our market shares in Networks during 2009, which is very good.

Then we also saw at the latter part of the year a pick up on our backhaul and IP router business, driven of course by the growth in broadband and data.

Professional Services, a quarter with 2% growth.

Here we had a little bit of differences, where one -- on the one hand we had Sprint for the first quarter, on the other hand we had still the re-scoping that, for comparable reasons, from the Hutch Italy.

Maintained margins full year 2008 to '09 but we came down in the fourth quarter with 3%.

And that was the things that I talked about in third quarter, early startups on Sprint, same, and the re-scope of Hutch.

At the same time there are efficiency gains in that service business.

We have now 370m in our managed services offering.

Finally on Services we made also the year end closing acquisition on Pride in Italy which adds some 1,000 people into system integration which we believe is a very important piece for our network transformation and working with our customers going forward.

Multimedia.

Multimedia had a growth of 5% full year, down 14% in the fourth quarter.

The main reason for coming down in the fourth quarter was the CEMA region and revenue management which were a little bit more cautious.

Margins has been improving really through the year and we had a 20% EBITDA in fourth quarter and 16% for the full year.

And we can definitely see that there are now more signs of that the TV business increases of interest from operators.

Finally before I let Jan come in, just a couple of things on Sony -- on the joint ventures.

They reported on Friday, so they basically have said it, in general we can say that both of these companies have done considerable restructuring and are showing an improved profitability or less losses, I would say.

And also Sony Ericsson is worth mentioning that they improved their ASP in the fourth quarter with the new release -- average sales price.

So Jan, a couple of things about the financials and our balance sheet.

Okay.

Thank you, Hans.

It's great to talk to all of you.

This is my first quarter as the CFO.

Please remember that when you ask all the nasty questions.

Anyway, so looking at Q4 and summarizing, I guess, 2009 from a financial point of view, I think we have had a strong focus in the Company of controlling what we can control, that means to work on our cost base and, at the same time, work on the passive side of our balance sheet.

We have started to see clear impacts, both in the Ericsson core assets in terms of progress for the restructuring, as well as also now in Q3/Q4 some good signs and progress in our joint venture companies.

What we are very proud of in the quarter is the cash flow.

If you then look at the debt maturity profile, this is working with the balance sheet on the passive side to really prepare for tougher times.

And we can see here that we have during the quarter paid back a Eurobond loan of some -- or obligation of some EUR471m.

So now we have a very good maturity profile.

In addition to that we have as well an undrawn back-up facility of some $2b that matures in 2014.

So I think from that we can conclude the year by saying that we have had good progress on the restructuring programs and also worked hard on our balance sheet.

That means also that we then have a strong financial position.

Looking at the cash flow in the quarter, operating cash flow of SEK12.4b.

If we exclude cash out, the impact of restructuring that was provided for, we have some SEK13.6b in the quarter.

We paid the Nortel acquisition which you will see impacts on the investment cash flow in a negative way there.

And then the Eurobond payback is the reason for the financials being minus SEK6.1b.

All in all, we ended the quarter with a SEK2.2b improved net cash position.

If we look at the balance sheet a little bit more then, I think in the quarter we had very strong collections, good work by our organization, and we also had a high amount of projects coming to an end which you see visible in the inventory ratios.

On the cost reduction side, we have said already in Q3 that we saw some -- we had good progress and we also had identified during the fall some opportunities for further savings.

Now we have said clearly that we believe that this program, by its end, and it will end by first half of 2010, will generate some savings between SEK15b to SEK16b and with an estimated restructuring charge of, all in all, SEK13b to SEK14b.

With that said, I guess, Hans, it's time for you again.

Yes.

Just let me sum it up before we go to the Q&A.

So then the summary of 2009, it was an impact from the economic climate in the second part.

But, as said, that was part of what we thought and planned for in the beginning of the year when we started our cost rationalizations.

We maintained market shares well in all segments and we even increased in some, especially in Services, which I think is good in this environment.

We can clearly see that the cost reduction is giving effects to the margins as they were stable despite this volume, if you exclude the restructuring charges.

And finally the strong position that we have created during 2009, both by working on the debt side but also on the collection side, has enabled us to come out in a very strong way here with the financial position in 2010.

And of course that also made it possible for us to do the acquisition on CDMA, etc., with Nortel which will be important for us.

So, by that, I hand it back to you, Gary.

Thank you, Hans.

And operator, we are ready to start the Q&A session now.

(Operator Instructions).

Our first question is from Edward Snyder from Charter Equity Research.

Thank you very much.

Hans, looking at the Networks segment specifically, I know we talk a lot about data, as in the smartphones, as to how it kicks up data rates, etc.

But it's clear the wideband CDMA is not grown margin enough to offset even the decline in GSM.

First, is that on a unit volume or just dollars?

I'm trying to get a handle on price erosion.

Are you selling as many wideband CDMA units in especially the radio networks as you'd expected and just the price competition is too intense or is it just that we're not needing as many of them because the efficiency of the systems turned out to be better than what most people expected?

And based on your answer there, what can we expect for LTE?

I know that a lot of buys have turned towards that as Verizon starts to look at deployments.

If we're almost 10 years into the wideband CDMA deployment we're still not at parity with GSM, what can we possibly hope for LTE?

Thanks.

Thanks.

I think that just a quick comment there, is in value 3G is higher than 2G.

But remember also that 2G is coming from a much higher level, of course, so we're not offsetting that yet.

But it's still a big mix shift that we see in our markets right now on 3G and data growth.

But on the other hand also there is an efficiency gain on the technology that we're coming out with all the time so it can actually cover even more technology.

So I think that's the short answer.

Then of course on LTE, etc., it is -- so it becomes more software in these technologies going forward.

But also the data rates are coming up quite dramatically as well.

So it will be a tradeoff there.

I think that on the LTE side, we have said now for at least when we've had that question, we of course will be part of a couple of very important operators in LTE business right now.

But from a volume point of view, we still look out a couple of years before that will be a significant volume for us.

And we need also to remember that GSM came out 1991, and 2008 was the peak year.

So our technologies are long-lived, and of course that goes for 3G as well, which is now some eight to nine years into the tenure of their technology.

Next question please, operator.

Our next question is from Gareth Jenkins from UBS.

Yes.

Hi, Hans.

Thanks very much.

Just a quick one on gross margins from the press conference earlier.

I just wanted some clarification if I could.

You were talking about more network modernization during the course of this year and accelerating data which would suggest some underinvestment by operators.

I just wondered if you could give us a sense of how that impacts your gross margins through 2010.

Should we assume gross margin mix shift is weaker because of more services or should we assume it's stronger because we're getting more IP and software modernization?

Thanks.

I will not give any clear indication on where the gross margin goes.

But what I said at the press conference, of course, that the gross margin was fairly stable during 2008 to 2009.

But then when you understand also the mix shift that we have in our portfolio with much more services that, for obvious reason, has a lower gross margin but much less of R&D in that, so from the profitability point the same.

So the gross margin will change over time.

And of course the network modernization, etc., that's a combination of product and services that we see opportunity for and we've seen more and more discussion about it.

So that we will see when we come into 2010 how that will play out.

Okay.

Thanks.

Our next question is from Tim Boddy from Goldman Sachs.

Yes.

Thanks for the question.

It would just be helpful to understand, I know you mentioned in the press conference that visibility is better at this point in the year than it was a year ago, but obviously -- you've obviously stopped providing guidance.

It'd be helpful to understand why that is.

Also just more of a technical point, I noticed that your intangible amortization charges, which I guess are principally charges incurred from acquisitions of obviously non-cash amortization of historic brands and IPR and so forth on the balance sheet, that's risen from about SEK800m a quarter in 2008 to SEK2.5b in the fourth quarter, and I imagine might even keep rising now you've added Nortel into the mix next year.

Can you just give us an outline of what this non-cash drag on earnings is going to be in 2010 and whether or not you're going to start to show an EPS excluding intangibles amortization as, for example, Nokia does.

Thank you.

Okay.

We'll start from the back here with your request on EPS excluding amortization of intangibles.

As usual, we report in the same way during the year and then we look in the first quarter what change we need to do.

And we will definitely consider that if it will be helpful for you and if we feel it's also helpful for us and we can report it.

So we will look into that in the first quarter.

When it comes to the increase in amortization, IPRs, etc., that of course means that we had CDMA Nortel in the fourth quarter, that amortization is included there and the intangible of it.

So that is -- now we don't -- we have no more acquisitions at the moment that were added in there.

So that has to be cleared up.

This is what we have right now.

On the guidance, I think that the guidance we said already last year that we would try to perform instead of talking more about the market and tell what we are doing and how we're going about it.

And yes, we have better visibility.

I think it was much more unsecure in the beginning of 2009 because then it was early out in the crisis.

That doesn't mean that the crisis has gone away.

But we have a way of working with it.

We work with internal indicators.

We work with external indicators.

We work with our customers much closer.

So we have been into this economy now for a while so of course we have learnt some from it.

So that's why I'm saying that we have a better visibility from that point of view.

But again, guidance we have decided not to do.

Instead we prefer to perform and then we report back every quarter as we're doing right now and tell you what's happened in the quarter as much we can for the segments and for the regions.

Okay.

Thanks for that.

Our next question is from Tim Long from BMO Capital Markets.

Thank you.

Just a question on the competitive landscape in the core Networks business.

Could you just talk a little bit as any changes we've seen in the market or in pricing as Huawei particularly gets a lot bigger?

What has that meant?

And prior to that you mentioned some of the emerging markets as being macro impacted.

Could it also be that there's macro impacts there and some of the competitive Asian solutions make more sense and therefore we're seeing some market share losses in those areas?

Thank you.

We think we have maintained our market share well on a global level.

Of course there can be certain markets, etc., but we think we have maintained our market share well.

When it comes to competitive landscape, for obvious reasons I think that this industry has gotten a lot of competitive because the prospects of the industry is good.

And we can see the growing importance of telecommunication in society, for you and me and for businesses.

So of course there are more people coming in there.

We have Asian vendors right now, we have others competitors before.

So I think that we are -- need to live with competition and we have done it for quite a while.

So I don't see it getting worse.

It's tough all the time and that's what we need to work with, lift up the assets and the competitive advantages and have -- and then continue to find efficiency all the time.

That's what we need to focus on.

But it will always be competition out there.

Our next question is from Mark Sue from RBC.

Thank you.

Hans, how should we think about the duration of the recovery from networks as it relates to the operators' urgency to upgrade their networks?

If we look at your geographic focus, subscriber net adds track of growth, are you planning for the market for the networks to grow this year?

Good question.

As I said before, it's a little bit too early to start guiding out on that and I will probably not -- I will not come back to guide on it neither.

I will more report of the first quarter what I have seen in the first quarter which is important.

I think there are drivers in the markets which we have seen before that some markets continue with rollout and are actually taking a lot investment, there are others which has been down.

If they will turn around right now, I'm not sure.

That we want to see.

But I think that Ericsson has great assets to compete in this market and actually grow faster than the market, especially with our mobile infrastructure, IP portfolio and the service business together.

That can create us to be able to grow faster than market.

But again it's a little bit too early to say anything specific about 2010.

If your visibility's a little bit better, does that mean it's less seasonal during the first half?

No.

I didn't say that.

I said just that we had better visibility.

But that comes from experience, of course.

This --- we all need to remember what times we are into.

This is one of the toughest crises since many decades.

And, of course, when you come into that you start to look into the models again, what will happen, how it will impact us.

And we are now around that for four or five quarters, of course, we get better visibility because our customers also understand a little bit better how their marketplace is moving.

And that means that we that are staying close to our customers get more information from them.

Okay, thank you, good luck.

Our next question is from Rod Hall at JP Morgan.

Yes, thanks for taking my question.

Hans, I just wanted to ask you, on North America obviously a lot of growth, a lot of that coming out of the new revenues that you've added from Sprint and from Nortel.

But I wonder, could you comment on what's going on in the underlying.

We can take some guesses but it would be nice to hear from you what the underlying growth was in North American for Q4 either on a year-on-year or quarter-on-quarter basis.

And then I just wonder we've seen continued heavy levels of spending from North America through this year.

And I wonder if you can talk a little bit about whether you think that's going to taper off in 2010, or whether you think the probability is pretty high for that to continue at the same pace that it did in 2009.

That's my first question.

I think you can deduct it yourself.

As I said we have announced the Sprint deal which is somewhere around $700m a year, and then we also disclosed the SEK2.7b on Nortel sales in the fourth quarter.

So if you exclude that you can make the calculation.

I don't have the calculator in front of me so I cannot really help you but -- so that you can get out.

Was there another question?

Well, the second part of that was just where do you see that spending going in 2010 generally?

Do you think it's going to maintain itself at the same level that it's been in 2009?

Do you see it tapering off a little bit?

Do you see it growing potentially?

Just wondering directionally where you see the underlying networks business going in North America in 2010.

I think that first of all if you take the whole context not only networks we are now building more recurrent revenues on the service side, and of course, that's there to stay and then we'll sell on top of that and continue.

On the network side we are now represented in basically on all the technologies from fixed to wireless with all the operators.

And of course, a lot will be defined how the market develops.

But the underlying growth as long as we can see of course, is continuing there with the data growth in the networks and more and more smartphones coming out and small PC notebooks that's going to use the mobile broadband.

So of course that will continue -- if that demand continues of course, it's going to be important with the networks to have high quality and the capacity all the time.

Okay.

So I mean I should assume from that comment that you're thinking that the revenues stay at least where they are and potentially go up in 2010?

I think that the important here is, of course, to understand that operators' investments will define that.

I think as I said the underlying things are there in order for grow the market, but finally it's going to be the investment call from the operators are going to define our revenues going there.

But the underlying is still there, and I cannot judge that that is going away.

Okay.

Thanks a lot.

Our next question is from Richard Kramer from Arete Research.

Hi, Hans.

Thanks very much.

Just a couple of simple questions, one on M&A.

You've highlighted a number of areas you see as growth for 2010 and beyond, transmission, broadband access, routing, a number of other areas.

And in none of those does Ericsson currently seem to hold a top three position.

Given that as CFO you are presiding over a spend of about SEK60b for M&A since Marconi, how do you look at the cash balance that you have now and in organic growth looking ahead for 2010 and beyond?

And then I have one other follow up question thanks.

Okay.

Hi, Richard.

I think that when it comes to acquisitions I think that on the portfolio side, on the product side we are happy what we have on mobile infrastructure.

We are the leading, and we strongly believe in organic growth.

On the fixed side we have made a lot of -- or the IP side we have done a lot of acquisition, and here it's more about execution and seeing that we got right.

There can always be some products here and there that can be needed, but I don't see anything at that side.

Services we look into all the time and, of course, that's smaller acquisition with resources in certain markets in order to get the competence or acquire market share with it.

And then multimedia, here we have our portfolio right now and we are going to see if there is something more needed, but that's going to be some small addition as well.

On the other hand we also -- you need to understand if you had asked me that same question one year ago I would have said the same.

Still we acquired pieces from Nortel, because industry consolidation we always need to have a watch for and see if we can enhance our number one position in this industry.

So that I don't know about, that's unknown.

But other than that that's how I see the M&A.

And on the cash balance situation I think we have done a good job to increase our net cash even though we have been doing a lot of acquisitions during the last years.

So I think we have a very strong financial position that we have right now.

And that's important in these times as we saw last year.

And then just as a quick follow-up when you think about restructuring, do you ever see an endpoint for the restructuring plan in Ericsson where you'll have a year where there'll be simply no need for restructuring or you'll be able to stand pat?

Because we seem to have seen a restructuring plan in more years than not this decade, and it looks as if it's continuing through to 2010.

It's not clear whether we'll see plans every year after that.

First of all, efficiency work is part of our business all the time, so that's true.

But of course, we believe that sometime we will not have a restructuring [sort].

And of course if you look back in the decade we have had several years where we don't have much of restructuring charges.

But right now in this economic climate I think it was obvious that we needed to adjust our cost structure given what we first saw, already in the beginning of the year even though it came late in the year.

So I think that we will be very proactive and taking the right activities here.

But again we -- all we want to really do run the company without restructuring, but that doesn't mean we won't look for efficiencies.

Okay, thank you.

Our next question is from Thomas Langer from West LB.

Yes, thanks for taking my question.

It's actually rather broad-based, and I noted that during your presentation you mentioned the GPON rollouts in China.

And you also mentioned your expanded role at AT&T.

My question is whether that could be a blueprint also for other markets where you engage maybe more aggressively also on the fixed side simply because big integrated operators demand a broader set of products and services.

And in particular could that also mean that maybe if you look at new areas of competence in the services area that could in the future more related to next generation broadband deployments on the broad -- sorry on the fixed side?

Thank you.

I will let Johan Wibergh answer that question.

We strong believe in a growing broadband infrastructure whether it's mobile or fixed.

So in the same way as we have seen so far a huge up-tick on mobile broadband, we see several countries where it's been complemented with a high speed fixed broadband.

So here then we talk about the [VBS] technology or GPON technology.

And as you said we made good advancement in China and the US that we are extremely happy about because they are extremely big in the range of 60% of the world market for that type of fixed broadband connection.

But we also have made advancements in other countries during the year, and we will continue also to sell actively, target other countries where we believe there are some good growth opportunities for that.

If I can add maybe a question, is that maybe part or an essential part of your growth strategy for the first part of this decade that you engage in a more aggressive way in the fixed line environment?

We strongly believe that going forward that more and more operators will come into convergent architecture and convergent business model still being dominated by the mobile access, but very much being complemented with a fixed access.

And, of course, for those operators that [sit there well] of course we target those.

Our next question is from Pierre Ferragu from Bernstein.

Thank you.

Just wanted to have a clarification on India where your sales seem to be down about 25% year-on-year this quarter, and you mentioned 3G as a temporary disruptive factor there.

My current understanding it's seems that the timeline for 3G is that 3G spending is not likely to happen before the very last -- very late part of the year in the last two months of the year.

And most of it is likely to happen actually in 2011.

So do you expect by then a continued weakness in the market in India?

Or do you see in India several rollouts in 2010 in 2G that will maintain the level of spending comparable to what we've seen in 2009?

Thank you -- in 2010, sorry, thank you.

I think that -- I am not predicting when the auction is going to be, because that is very difficult for me to do, and I am following the market as close as I can as you are doing.

Of course, if the auction will be moved out one year from now the underlying growth in subscribers, etc., are happening in India.

So that means that they will then invest in the 2G.

So that will be the flip side.

The prospect in the Q4 -- in the fourth quarter was that it should be an auction in the first quarter.

So, of course, then we saw some hesitance and some waiting there.

But let us see now what will happen with the auction, and if that's postponed or delayed or something that will, of course, mean that they will continue to spend on the technology that they have.

Thank you.

And perhaps a very quick follow up on China, the 3G rollout at Unicom do you expect a similar level of intensity in 2010 as we've seen in 2009 or a slowdown given the pace we've seen last year?

I think that, of course, in the startup phase the China Unicom was a very wide sort of coverage.

We expect that in this year it's going to be slower but still lots of new coverage will be done.

Thank you.

Our next question is from Matt Robison from Wedbush Securities.

Thanks for taking the call.

On Nortel you had mentioned seasonality, how should we think about the magnitude of that contribution in the outlook?

And was there an additional factor beyond seasonality related to the change in ownership that might have distorted it even more than normal?

And also you mentioned some markets that have pretty good subscriber growth, but didn't have a lot of spending in 2009, and what would be your feeling about that pent-up demand converting to revenue for your networks business?

Do you think we should look at that as being mid to late year or have you started to see some improvement for the first quarter?

On the CDMA business, as we disclosed from the beginning, basically it's a $2b business in decline.

Then, of course, we picked the last six weeks of the year, and of course there is a lot of seasonality into that one.

So I think those two numbers are important to understand.

Can you repeat the second question for me I missed that?

Oh well, I was -- some of your markets like Central Europe, Middle East, Africa and Latin America have showed pretty good subscriber growth but not much spending last year.

Do you see that pent-up demand being addressed beginning the first half or do we have to wait till mid of latter half of this year?

That I wouldn't give any guidance on, but again in Latin America there the hard comparison, first of all, because 2008 was a very good year in Latin America.

On the CMEA region it's hard to generalize because there are so many countries in there, some will probably come back this year and some will maybe take it easy for a while.

But to give any guidance when they -- what will happen and when they rebound that I -- it's a little bit too early, so I wouldn't do that.

I will come back in the first quarter and talk about it more in depth again, how we see the regions moving and the segments to get the flavor of what's happening in the market.

Thank you.

Our next question is from Didier Scemama from RBS.

Hi gentlemen, thanks for taking my question.

I was wondering if you could talk about how -- what you see in terms of wireless networks usage.

I think there was a very interesting slide at the Capital Markets Day from the CTO regarding the usage of bandwidth on 3G networks between netbooks, smartphones and sort of voice.

Have you seen any sort of change in the distribution of bandwidth?

Or is that still very much driven by 3G netbooks and notebooks?

(Inaudible).

So what can explain then back in May is very much what we continue to see then.

So it's two main drivers, the first one is laptops, netbooks with built in 3G modules or dongles, continue to show a pretty good uptake worldwide.

And the second one trend maybe becoming increasingly stronger is the amartphones.

It used to be only the iPhones now even much more by all the Android phones.

And the volumes they are generating seem to be very much on the similar pattern.

Typically we see around 400 megabytes on the smartphone per month, laptops, netbooks in the range of maybe 3 gigabytes.

Of course this huge difference is here depending on which country and subscribers.

But still fairly substantial the volumes anyway, and I see that that trend keeps on.

But do you see a higher utilization rate of networks as a result at peak times, or is it very much the same as before?

No, the consumer demand here has been strong.

I think that's what's most positive here is that the -- for many of the first years on 3G it was the buildup was driven by license demand and coverage build out.

But the last more than 12 months we have seen expansions being driven by consumer demand and by successful launches of applications, and I don't see that changing really.

Okay, thank you.

Our next question is from Alexandre Peterc from Exane BNP Paribas.

Yes, hi.

I have two questions.

Let me just start with an easy housekeeping one.

What was the market development in [OV] in 2009?

I know it's too early to give us a forecast for 2010, but if you could tell us what you think your addressable market did in 2009 at constant currency.

And then the second question is pertaining to the gross margin evolution.

Since the beginning of '08 about 40% of your restructuring was targeting cost of goods sold, yet the gross margin has moved in a steady downward motion to the current level.

Could you maybe comment on whether we should just write off that part of cost cutting as part of going to the price pressure you see in the market, or is it essentially the evolution of your business mix?

Thanks.

On the first one on the market development it's a little bit too early to answer where the infrastructure business has gone on 2009.

But we can definitely see that there has been a decline in the infrastructure business in 2009.

And it's most probably also double digits.

But we need to see everybody reporting and so on before we do it and as we are first out we have to wait and see.

On the gross margin I think that the main part, first of all, a lot of the efficiency works that we are doing against cost of sales right now that, of course, is coming into play over time here.

On the other hand the business mix is a very important parameter that you're mentioning.

And as we are increasing the service business our gross margin is coming down.

But that should not mean that our profitability is not staying at the same level as we have different types of cost structures on services and networks.

Okay, thanks very much.

Our next question is from James Faucette from Pacific Crest.

Thank you very much.

I wanted to go back to an earlier question and the comment was made that at some point 3G and WCDMA spending generally will offset the decline in 2G.

I am wondering if you can give us a little bit of insight as to when or at what level that's likely to take place firstly.

And secondly, we've talked for a long time about just the need for increased spending particularly out of where you are seeing increased data rates particularly out of carriers like in Western Europe.

And I am wondering what you look at as kind of the key elements that would likely catalyze that and drive your business in those markets.

Thank you.

Thank you.

When it comes to the 3G and GSM offsetting I would wait with that sort of indication and see what's happening here going forward.

But again GSM today is still deployed in many large markets, which are very important.

And, of course, if they continue to invest lot of GSM it will be there for a longer time.

So that is still a little bit on different operators.

But also remember right now we are going into technologies that's going a radio-based station that contains all types of technologies over time.

So it's going to be harder to say what is what there all the time, that's for sure, and the frequencies as well.

But definitely we see, as said before, that 3G is coming up and the decline in GSM is not offset on the growth of 3G at the moment.

The second question was about -- I don't remember now.

Yes, no, I'm sorry, just about -- we talked about the need for increased spend to address growth in data rates in Europe, but I'm wondering what you look at kind of the key catalyst or key things that need to happen for that to be catalyzed.

We look quite a lot on the data traffic of course in the networks, but also on the transmissions, possibly a little bit on the backbone because that is usually where it's seen in the beginning where the capacity constraints are coming.

So we look a lot in either backbone and transmission of data but also on the access interface on mobile broadband.

Our next question is from [Jude Jeffrey] from Nomura.

Hi, thank you very much.

I've got a question on professional services, two parts if that's okay.

The non-managed services part of professional services seems to have been very weak in Q4.

I was just hoping you could detail the dynamics there.

Is that a macro cycle or was it something more structural?

And secondly, on managed services, you said during the first half of the year that interest picked up.

And I was wondering if that interest is starting to wane at the operators to more normalized levels, or are you starting to convert this interest into concrete contractual discussions?

Thanks.

I guess I can take that one.

So if you look at Q4 there, there was some -- you have to look at Q4 '08, we had a very strong ending on a lot of projects there predominantly in consulting and system integration, so there was a bit of a tough comparison for that business in Q4 '08.

On the -- if you look at managed services I think -- I mean there is still a lot of discussions ongoing with basically all wireless and wireline operators, and I think that you can classify the demand as being still high for sure, and I don't see any change in that pattern compared to earlier in the year.

Thank you.

Next question, please.

Our next question is from Kulbinder Garcha from Credit Suisse.

Thanks.

I've got a couple of questions.

The first one is actually on Western Europe.

If you -- if I look at the details you've put in on Western European network revenues, and if you go back a few years it's clear that the Western European networking market for you has declined probably every year since 2006.

And I am wondering is there any visibility of hope in that?

Is that in long-term secular decline do you think or could that recovery?

That's my first question.

And the second one I guess is for Hans, on targets for the Company, Ericsson as a global leader provides very little guidance or targets apart from to say you're best in class margins long-term, which frankly doesn't mean a great deal with the industry isn't making much in terms of margins.

So can we look forward to a long-term kind of margin target which would be a bit more ambitious than that do you think?

Thank you.

On Western Europe I think the mix shift is quite apparent inside that network business, coming from very much rollout on GSM in the 2006 and '05, etc., to now being predominantly WCDMA, HSPA and backbone business as well.

So it has been a clear mix shift in inside network, which maybe you don't see here, but so it's quite a big swing here.

And at the same time our Western European region has of course also converted itself to do much more services, which has been growing very nicely.

And that's all about our portfolio that we can play with different types of products and services in times, during different times.

When it comes to the targets I think that those are the targets that we are going to follow, and we are going to focus on them.

We are sort of breaking down internal now how we go about them, if we are going to disclose them externally, have not decided to do that.

But as all the time we are reviewing and seeing but definitely nothing decided at this moment.

And will then cash conversion still be around 70% or can we look forward to 100% cash conversion anytime soon for Ericsson as a company?

That's a very good question, and we have had a target for 70% cash conversion or above 70% cash conversation, to be honest, that's important, because we believe in a growth mode, of course, we will need some capital to use it.

But as we've seen in this year, of course, we performed good on the cash conversion given that we actually have worked on our capital side, but also that we have a little bit lower business volumes.

So I think that is still valid with the cash conversion about 70% but it can be over 100% as well.

Thank you.

Mark McKechnie from Broadpont is online with a question.

Yes, thank you.

So a lot of questions have been asked I wanted to know if you could talk about seasonal patterns for 2010.

Again you did say visibility was a bit better, but typically the March and September quarters are weak and relatively stronger second and fourth quarters.

For modeling purposes, should we be looking at a kind of a normal seasonal decline here for March and then normal seasonality going forward, or are times just too difficult to predict?

Thanks.

As I said before we are not guiding and going into specific quarters, we'd rather now perform and then we report back what's happened in the quarter.

So we are not reporting on that.

As said before, yes, we had better visibility but again we will not guide on any specific way here at the moment.

Okay, great.

Thanks.

Operator, one last question please.

Our last question will be from Andrew Gardiner from Barclays Capital.

Good afternoon, thanks very much.

I had a quick follow-up or two small ones rather on the restructuring side of things.

You've formerly extended the amount of savings that you are looking for now out to the SEK15b to SEK16b level.

I was just wondering whether the split between COGS and OpEx remains roughly even as you'd highlighted previously for the SEK10b.

And then also at third quarter you'd highlighted you were ahead of plan in terms of achieving that initial SEK10b.

But can you tell us how much was actually in your figures as of the end of 2009?

Thank you.

First question, yes, it's sort of a similar split that we had before on the remaining portion of the program.

And the second question was how much we have achieved so far?

That's correct, yes.

On the savings?

Yes.

I think we -- in the end of 2009 we are close to the SEK10b.

Okay thank you very much.

Okay, thank you, operator.

And before we close the call today I would like to remind everyone that our next event will be at Mobile World Congress in Barcelona.

Details of the event are on our website.

With that, if you have any additional questions please do not hesitate to call the investor relations team or the media relations team.

Thank you very much.