FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

April 21, 2006

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 23, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or

Form 40-F. Form 20-F x      Form 40-F ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨      No x

 


Announcement of LM Ericsson Telephone company, dated July 21, 2006 regarding Ericsson Q2 Report 2006

 



LOGO    Second quarter report 2006
   July 21, 2006

Ericsson reports strong development securing new business

 

    Net sales SEK 44.2 (38.4) b. in the quarter, SEK 83.3 (69.9) b. first six months

 

    Operating income SEK 8.3 (8.3) b. in the quarter, SEK 14.9 (14.9) b. first six months

 

    Operating margin 18.7% in the quarter, 19.6% excl. amortization of Marconi intangible assets

 

    Net income SEK 5.7 (5.8) b. in the quarter, SEK 10.3 (10.5) b. first six months 1)

 

    Earnings per share SEK 0.36 (0.37) in the quarter, SEK 0.65 (0.66) first six months 1)

CEO COMMENTS

“In the changing industry environment we have leveraged our scale, technology leadership and global presence to advance our leading position in mobile systems as well as in services,” says Carl-Henric Svanberg, President and CEO of Ericsson. “We have secured a large number of key contracts during the quarter, adding to our strong business momentum. With the Marconi assets as a cornerstone, we are also building a leading position in next-generation converged networks.

The ongoing consolidation in our industry is a natural process, driven by the need for critical mass in R&D, marketing and supply. As market leader our strategy based on organic growth and bolt-on acquisitions remains. With our scale advantage and an organization focused on innovation and operational excellence, we are well positioned to continue to win market share. Our ability to achieve a healthy balance between long-term growth and short-term profitability will be key to success.

The deployment of 3G/HSPA continues, led by North America and countries in Asia, Central and Eastern Europe, Middle East and Africa. HSPA capabilities enable Internet to go mobile and enhance the consumer experience of using high-speed data services. This will also open tremendous opportunities to people living in countries with limited wireline communications.

Telecommunication is an important driver for economic and social development. We have now reached some 2.5 b. mobile subscriptions in the world. Through an intense cost focus throughout the industry, there are continued opportunities for further penetration. The GSM technology has by far the majority of users and, through its superior economies of scale, strongly contributes to making our vision of ‘communication for all’ a reality,” concludes Carl-Henric Svanberg.

FINANCIAL HIGHLIGHTS

Income statement and cash flow

 

     Second quarter     First quarter     Six-month period  

SEK b.

   2006     2005     Change     2006     Change     2006     2005     Change  

Net sales

   44.2     38.4     15 %   39.2     13 %   83.3     69.9     19 %

Gross margin

   42.0 %   45.9 %   —       43.3 %   —       42.6 %   47.1 %   —    

Operating income

   8.3     8.3     -1 %   6.6     25 %   14.9     14.9     0 %

Operating margin

   18.7 %   21.6 %   —       16.9 %   —       17.9 %   21.3 %   —    

Income after financial items

   8.3     8.5     -2 %   6.7     24 %   15.0     15.2     -2 %

Net income 1)

   5.7     5.8     -2 %   4.6     25 %   10.3     10.5     -2 %

Cash flow before financial investing activities

   -2.0     5.4     —       -16.1     —       -18.0     -1.1     —    

Earnings per share, SEK 1)

   0.36     0.37     —       0.29     —       0.65     0.66     —    
                                                

Operating margin adj. for. Marconi intangibles

   19.6 %   21.6 %   —       17.9 %   —       18.8 %   21.3 %   —    

EPS, adj. for Marconi intangibles

   0.38     0.37     —       0.31     —       0.68     0.66     —    
                                                

1) Attributable to stockholders of the parent company, excluding minority interest.


Sales in the quarter were up 15% year-over-year with good performance in basically all areas and with services being especially strong.

Gross margin was 42.0% (45.9%) during the quarter, reflecting the increased proportion of services sales and the integration of the former Marconi operations.

The operating margin increased sequentially from 16.9% to 18.7% (21.6%), primarily due to continued cost rationalization as well as strong performance by Sony Ericsson. Operating margin amounted to 19.6% excluding amortization of intangible assets related to Marconi. Operating income remained unchanged at SEK 8.3 (8.3) b. year-over-year.

The financial net was 0.0 (0.2) b. in the quarter.

Net income in the quarter was SEK 5.7 (5.8) b. and earnings per share were SEK 0.36 (0.37).

Cash flow before financial investing activities was SEK -2.0 (5.4) b. in the quarter, mainly due to a sequential increase of customer financing of SEK 1.5 b. and increased accounts receivable following the completion of several large contracts late in the quarter.

Balance sheet items and other performance indicators

 

     Six months     Three months     Full year  

SEK b.

   2006     2006     2005  

Net cash

   27.9     33.7     50.6  

Interest-bearing provisions and liabilities

   21.6     32.7     30.9  

Days sales outstanding

   95     101     81  

Inventory turnover

   4.5     4.2     5.0  

Customer financing, net

   4.6     3.2     4.9  

Equity ratio

   53.9 %   50.2 %   49.0 %

Net cash decreased by SEK 5.8 b. to SEK 27.9 (39.3) b. during the quarter, due to the increased receivables and payment of dividend of SEK 7.2 b. for 2005 in April. In the quarter, bond loans of SEK 9.6 b. matured and were repaid. During the quarter, the pension liability decreased by SEK 1.1 b., mainly due to the change in discount rate in the pension liability in Sweden from 3.5% to 4.0%. The equity ratio was 53.9% (44.9%).

Days sales outstanding were 95 days, a sequential decrease of six days. Inventories, including work in progress, were down in the quarter by SEK 0.4 b. to SEK 23.1 (19.3) b. and inventory turnover improved to 4.5 from 4.2 times in the previous quarter.

Deferred tax assets were reduced by SEK 2.1 b. in the quarter, from SEK 16.8 b. at March 31 to SEK 14.6 b., reflecting utilization of tax loss carry forwards.

MARKET AND BUSINESS HIGHLIGHTS

Long-term industry growth drivers remain solid. New technologies and richer services will continue to drive and accelerate traffic in the world’s networks. The number of mobile subscriptions in the world is expected to pass three billion in 2007. The GSM/WCDMA track represents more than 80% of all mobile subscriptions around the world and the vast majority of the growth. New and more innovative solutions and more affordable handsets are expected to continue to expand the market.

Fixed and mobile broadband enable new user applications with rich content and interactivity, such as IPTV, chatting, gaming and music services. IPTV is expected to be a main driver of new traffic in converging networks when triple play becomes a reality. TV services are expected to grow strongly also in mobile networks, driven by users that want instant access to on-demand business, sports and news updates.

WCDMA/HSPA networks are key components in offering users richer services. Currently Ericsson is a supplier to more than 40 HSPA networks under deployment around the world, of which half are in commercial operation. The number of WCDMA subscriptions grew by approximately 13 million to more than 68 million during the quarter. Seven new WCDMA networks were commercially launched during the quarter, bringing the total to 100 WCDMA networks, of which Ericsson is a supplier to 55.

 

2


Services continues to be a key area as operators seek to lower operating costs and free up time for customer interaction and business development. We have a clear leadership through our early start and presently manage networks with 65 million subscribers and provide around-the-clock support to networks with 725 million subscribers. Through our economies of scale and proven expertise, we are able to offer our customers not only first-class operations but also considerable savings.

Regional overview

Western Europe sales were up by 26% compared to the same quarter last year. Growth is primarily driven by strong services sales and the added Marconi business. Mobile systems sales were flat. The strong tariff competition and falling roaming charges drive traffic growth and increase operators’ need for network expansions as well as intensify their focus on total cost of ownership.

Central and Eastern Europe, Middle East and Africa sales grew by 24% compared to the same quarter last year. The activity level was especially high in Pakistan, Russia, Saudi Arabia and South Africa. The growth is primarily in GSM, but 3G sales are increasing and during the quarter several contracts for WCDMA/HSPA were received in the region.

Asia Pacific sales grew by 55% compared to the same quarter last year, primarily driven by strong growth in Australia, China, India, Indonesia and Japan. During the quarter, China showed strong increase year-over-year and there is a steady demand and rollout activity. Contracts are however large and completion and invoicing tend to fluctuate between quarters.

North America sales were down 42% year-over-year. Sales were down 17% when adjusted for the extra SEK 2 b. invoicing in the second quarter 2005 related to planned later deliveries. The ongoing HSPA build-out continues according to plan. The 2G build-out also continues, however, operators’ reductions of excess inventory have short-term effects on our sales. The upcoming spectrum auctions presently affect the market but should stimulate new network rollouts.

Latin America sales declined by 14% compared to the same quarter last year. As expected, operators are investing less after two exceptionally strong rollout years. There is, however, in many markets a continued need for investments in quality and coverage. Planning for 3G has started, and in parallel further CDMA operators investigate the benefits of changing to GSM/WCDMA.

Subscription growth

The growth rate for net mobile subscription additions continues with record levels for the first half of 2006 and with some 200 million in the quarter. At the end of the quarter, worldwide subscription penetration reached 38% with close to 2.5 billion subscriptions in total, of which two billion are GSM. The global number of subscriptions is expected to pass three billion during 2007.

OUTLOOK

All estimates are measured in USD and refer to market growth compared to previous year.

The traffic growth in the world’s mobile networks is expected to continue as a result of both new services and new subscribers. GSM/WCDMA represents over 80% of the total global mobile systems market. It is our primary market and our outlook will therefore be limited to the GSM/WCDMA track.

For 2006 we believe that the GSM/WCDMA track within the global mobile systems market, measured in USD, will show moderate growth compared to 2005.

Our previous outlook included all standards and was: For 2006 we continue to believe that the global mobile systems market, measured in USD, will show moderate growth compared to 2005.

We continue to believe that the addressable market for professional services will show good growth in 2006.

With our technology leadership and global presence we are well positioned to take advantage of the market opportunities.

 

3


SEGMENT RESULTS

Systems

 

     Second quarter     First quarter     Six-month period  

SEK b.

   2006     2005     Change     2006     Change     2006     2005     Change  

Net sales

   41.4     36.1     15 %   36.8     13 %   78.3     65.1     20 %

Mobile Networks

   30.8     28.8     7 %   26.7     15 %   57.5     52.2     10 %

Fixed Networks

   2.5     1.1     122 %   2.9     -13 %   5.4     2.2     147 %

Professional Services

   8.1     6.2     31 %   7.2     13 %   15.4     10.7     43 %

Operating income

   7.2     8.2     -11 %   6.0     20 %   13.3     14.4     -8 %

Operating margin

   17 %   23 %   —       16 %   —       17 %   22 %   —    

Sales of mobile networks were up by 7% compared to the same quarter last year. Adjusted for the extra SEK 2 b. invoicing in the second quarter 2005 related to planned later deliveries, sales of mobile networks increased by 15% in the quarter. The larger proportion of initial network build-outs reflects our strong position in the market.

Sales of fixed networks increased by SEK 1.4 b. year-over-year to SEK 2.5 b., of which Marconi added approximately SEK 2.0 b.

Sales of network rollout and professional services increased 30%, compared to the same quarter last year. During the quarter, strong growth in network rollout continued due to a high proportion of new networks being built. Sales of professional services developed strongly during the quarter and grew 31% compared to the same quarter last year. Approximately SEK 0.5 b. of this is services business related to Marconi.

Other Operations

 

     Second quarter     First quarter     Six-month period  

SEK b.

   2006     2005     Change     2006     Change     2006     2005     Change  

Net sales

   3.2     2.7     19 %   2.7     18 %   5.9     5.4     9 %

Operating income

   0.2     -0.1     —       0.1     —       0.3     0.0     —    

Operating margin

   7 %   -4 %   —       2 %   —       5 %   -1 %   —    

Cables and Ericsson Mobile Platforms continued to show strong performance. The restructuring of Power Modules is generating the expected results. As previously announced, the defense operations will be sold to Saab AB with closing expected before the end of the third quarter.

SONY ERICSSON MOBILE COMMUNICATIONS

For information on transactions with Sony Ericsson Mobile Communications, please see Financial statements and additional information.

Sony Ericsson Mobile Communications (Sony Ericsson) more than doubled year-on-year income before taxes. Units shipped in the quarter reached 15.7 million, a 33% increase compared to the same period last year, and generated a market share increase both on a year-on-year and sequential basis. Sales for the quarter were EUR 2.272 m., a year-on-year increase of 41%, reflecting a successful product portfolio. Income before taxes was EUR 211 m. in the quarter, a year-on-year increase of 143%. Ericsson’s share in Sony Ericsson’s income before tax was SEK 1.0 (0.4) b.

Growth in the global handset market continued to outpace expectations, and Sony Ericsson now forecasts the global market outlook for 2006 to be above 950 million units, up from the previous estimate of above 900 million units.

PARENT COMPANY INFORMATION

Net sales for the six-month period amounted to SEK 0.3 (0.7) b., and income after financial items was SEK 6.6 (5.3) b.

Major changes in the Parent Company’s financial position for the period include a decrease of net liabilities (current and non-current receivables and liabilities) to subsidiaries of SEK 14.2 b., largely related to the acquisitions of Marconi assets in the first quarter, repayment of bond loans of SEK 9.6 b. and a payment of dividend for 2005 to shareholders of SEK 7.1 b. in the second quarter, resulting in reduced cash and short-term investments of SEK 32.0 b.

 

4


In accordance with the conditions of the Stock Purchase Plans and Option Plans for Ericsson employees, 1,849,309 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock at June 30, 2006, was 262,234,352 Class B shares.

OTHER INFORMATION

Marconi integration

The integration of the acquired Marconi assets is running according to plan. During the quarter, approximately 1,000 employees have been identified for lay-offs. The remaining 600 will be identified in the third quarter 2006 and provisions will be made for all restructuring costs before year-end. The product portfolio and supply chain integration is on plan with targeted savings by year-end 2007.

Through the restructuring process, service portfolios, softswitch solutions, broadband access and transmission products are being integrated. As a consequence, it will become increasingly difficult to accurately isolate and track the Marconi business. Marconi sales are estimated to be SEK 2.5 b. in the quarter, with an operating loss of approximately SEK 0.2 b. In addition, amortization of intangible assets amounts to SEK 0.4 b.

Sale of defense business

As announced on June 12, 2006, Ericsson has agreed to sell its defense business, Ericsson Microwave Systems AB, and its 40% holding in Saab Ericsson Space to Saab AB. Ericsson will retain the National Security and Public Safety business and parts of the Power Systems business. The retained units have around 300 employees. The retained activities will be reported as part of the Systems segment. The purchase price is SEK 3.8 b. in cash and the agreement involves transfer of approximately 1,250 employees. The estimated value of the current assets and liabilities held for sale amount to approximately SEK 3.0 b. respectively. The transaction is expected to close in September 2006.

As announced on June 12, 2006, the expected capital gain of approximately SEK 3.0 b. is of similar magnitude as the previously announced restructuring costs, mainly related to the Marconi acquisition and the Career Change Offer in Sweden, giving a neutral effect in total on Ericsson’s income after financial items for 2006.

Recommended public offer in Netwise

As announced on June 5, 2006, Ericsson issued a recommended cash offer of SEK 60 per share to the shareholders and holders of warrants in Netwise AB to transfer all shares in and all warrants issued by Netwise to Ericsson. Netwise B-shares are listed on Nya Marknaden in Sweden. Ericsson and Netwise today have an ongoing cooperation and see further possibilities in combining Netwise’s cutting-edge IP competence and applications for the enterprise segment with Ericsson’s global presence.

The acceptance period for the offer runs up to and including August 2, 2006. The estimated date for payment to shareholders is August 27, 2006. The total value of the offer amounts to SEK 300 m. For further information on the offer, please see: www.ericsson.com/investors.

Stockholm, July 21, 2006

Carl-Henric Svanberg

President and CEO

Date for next report: October 19, 2006

REVIEW REPORT

We have reviewed the interim report for the period January 1 to June 30, 2006, for Telefonaktiebolaget LM Ericsson (publ). Management is responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim financial information based on our review.

We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by FAR. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden RS and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not, in all material respects, in accordance with IAS 34 and the Annual Accounts Act.

Stockholm, July 21, 2006

 

Bo Hjalmarsson    Peter Clemedtson    Thomas Thiel
Authorized Public Accountant    Authorized Public Accountant    Authorized Public Accountant
PricewaterhouseCoopers AB    PricewaterhouseCoopers AB   

 

5


EDITOR’S NOTE

To read the complete report with tables, please go to:

http://www.ericsson.com/investors/financial_reports/2006/6month06-en.pdf

Ericsson invites media, investors and analysts to a press conference at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00 (CET), July 21.

An analyst and media conference call will begin at 14.00 (CET).

Live audio webcasts of the press conference and conference call as well as supporting slides will be available at www.ericsson.com/press and www.ericsson.com/investors

FOR FURTHER INFORMATION PLEASE CONTACT

Henry Sténson, Senior Vice President,

Communications

Phone: +46 8 719 4044

E-mail: investor.relations@ericsson.com or

press.relations@ericsson.com

Investors

Gary Pinkham, Vice President,

Investor Relations

Phone: +46 8 719 0000

E-mail: investor.relations@ericsson.com

Susanne Andersson,

Investor Relations

Phone: +46 8 719 4631

E-mail: investor.relations@ericsson.com

Glenn Sapadin,

Investor Relations,

North America

Phone: +1 212 843 8435;

E-mail: investor.relations@ericsson.com

Media

Åse Lindskog, Director,

Head of Media Relations

Phone: +46 8 719 9725, +46 730 244 872;

E-mail: press.relations@ericsson.com

Ola Rembe, Director,

Media Relations

Phone: +46 8 719 9727, +46 730 244 873;

E-mail: press.relations@ericsson.com

Telefonaktiebolaget LM Ericsson (publ)

Org. number: 556016-0680

Torshamnsgatan 23

SE-164 83 Stockholm

Phone: +46 8 719 00 00

www.ericsson.com

Safe Harbor Statement of Ericsson under the Private Securities Litigation Reform Act of 1995;

All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “would”, “potential”, “continue”, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; and (xii) plans to launch new products and services.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) further reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.

 

6


FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION

 

     Page
Financial statements   

Consolidated income statement

   8

Consolidated balance sheet

   9

Consolidated statement of cash flows

   10

Consolidated statement of recognized income and expense

   11

Consolidated income statement - isolated quarters

   12
     Page
Additional information   

Accounting policies

   13

Net sales by segment by quarter

   15

Operating income, operating margin and employees by segment by quarter

   16

Net sales by market area by quarter

   17

External net sales by market area by segment

   18

Top ten markets in sales

   19

Customer financing risk exposure

   19

Transactions with Sony Ericsson Mobile Communications

   19

Other information

   20

Acquisition of assets from Marconi

   21

 

7


ERICSSON

CONSOLIDATED INCOME STATEMENT

 

     Apr - Jun     Jan - Jun  

SEK million

   2006     2005     Change     2006     2005     Change  

Net sales

   44,166     38,444     15 %   83,342     69,911     19 %

Cost of sales

   -25,598     -20,797       -47,817     -37,010    
                            

Gross margin

   18,568     17,647     5 %   35,525     32,901     8 %

Gross margin %

   42.0 %   45.9 %     42.6 %   47.1 %  

Research and development and other technical expenses

   -6,861     -6,267       -13,609     -11,941    

Selling and administrative expenses

   -5,263     -3,895       -10,055     -7,536    
                            

Operating expenses

   -12,124     -10,162       -23,664     -19,477    

Other operating income

   817     425       1,327     772    

Share in earnings of JV and associated companies

   992     393       1,689     709    
                            

Operating income

   8,253     8,303     -1 %   14,877     14,905     0 %

Operating margin %

   18.7 %   21.6 %     17.9 %   21.3 %  

Financial income

   567     881       1,089     1,594    

Financial expenses

   -529     -696       -996     -1,269    
                            

Income after financial items

   8,291     8,488       14,970     15,230    

Taxes

   -2,559     -2,693       -4,633     -4,791    

Net income

   5,732     5,795     -1 %   10,337     10,439     -1 %

of which

            

Net income attributable to stockholders of the parent company

   5,712     5,843       10,287     10,460    

Net income attributable to minority interest

   20     -48       50     -21    

Other information

            

Average number of shares, basic (million)

   15,869     15,835       15,867     15,790    

Earnings per share, basic (SEK) 1)

   0.36     0.37       0.65     0.66    

Earnings per share, diluted (SEK) 1)

   0.36     0.37       0.65     0.66    

1) Based on Net income attributable to stockholders of the parent company

 

8


ERICSSON

CONSOLIDATED BALANCE SHEET

 

SEK million

   Jun 30
2006
   Mar 31
2006
   Dec 31 1)
2005

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

   5,604    5,842    6,161

Goodwill

   6,958    7,334    7,362

Other

   15,988    15,796    939

Property, plant and equipment

   8,401    8,069    6,966

Financial assets

        

Equity in JV and associated companies

   6,229    5,671    6,313

Other investments in shares and participations

   731    701    805

Customer financing, non-current

   1,686    467    1,322

Other financial assets, non-current

   2,022    2,404    2,796

Deferred tax assets

   14,621    16,758    18,519
              
   62,240    63,042    51,183
              

Current assets

        

Inventories

   23,105    23,503    19,208

Financial assets

        

Accounts receivable - trade

   46,291    44,790    41,242

Customer financing, current

   2,926    2,687    3,624

Other current receivables

   14,826    14,817    12,574

Short-term investments

   32,905    42,605    39,767

Cash and cash equivalents

   16,646    23,749    41,738
              
   136,699    152,151    158,153
              

Total assets

   198,939    215,193    209,336
              

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

   106,377    107,064    101,622

Minority interest in equity of consolidated subsidiaries

   893    943    850
              
   107,270    108,007    102,472
              

Non-current liabilities

        

Post-employment benefits

   5,603    6,683    5,891

Other provisions, non-current

   669    776    904

Deferred tax liabilities

   255    101    391

Borrowings, non-current

   13,412    14,131    14,185

Other non-current liabilities

   3,094    2,882    2,740
              
   23,033    24,573    24,111
              

Current liabilities

        

Other provisions, current

   13,476    16,063    17,764

Borrowings, current

   2,616    11,842    10,784

Accounts payable

   16,138    14,438    12,584

Other current liabilities

   36,406    40,270    41,621
              
   68,636    82,613    82,753
              

Total equity and liabilities

   198,939    215,193    209,336
              

Of which interest-bearing provisions and liabilities

   21,631    32,656    30,860

Net cash

   27,920    33,698    50,645

Assets pledged as collateral

   499    546    549

Contingent liabilities

   1,491    1,532    1,708

1) Ericsson has adopted the new option in IAS 19 as from January 1, 2006. Earlier periods have been restated accordingly.
   The net effect on equity per December 31, 2005 was SEK -3,055 million.

 

9


ERICSSON

CONSOLIDATED STATEMENT OF CASH FLOWS

 

     Apr - Jun    Jan - Jun    Jan - Dec

SEK million

   2006    2005    2006    2005    2005

Net income attributable to stockholders of the parent company

   5,712    5,843    10,287    10,460    24,315

Adjustments to reconcile net income to cash

   2,658    2,239    5,908    4,428    10,845
                        
   8,370    8,082    16,195    14,888    35,160

Operating net assets

              

Inventories

   -433    -105    -2,903    -3,604    -3,668

Customer financing, current and non-current

   -1,586    267    246    -179    -641

Accounts receivable

   -3,269    -1,699    -4,505    -3,441    -5,874

Other

   -2,849    565    -6,394    -6,324    -8,308
                        

Cash flow from operating activities

   233    7,110    2,639    1,340    16,669

Investing activities

              

Product development

   -412    -152    -770    -455    -1,174

Other investing activities

   -1,808    -1,545    -19,914    -2,005    -4,170
                        

Cash flow from operating investing activities

   -2,220    -1,697    -20,684    -2,460    -5,344
                        

Cash flow before financial investing activities

   -1,987    5,413    -18,045    -1,120    11,325
                        

Short-term investments

   9,700    -6,877    6,862    -9,721    6,375
                        

Cash flow from investing activities

   7,480    -8,574    -13,822    -12,181    1,031
                        

Cash flow before financing activities

   7,713    -1,464    -11,183    -10,841    17,700
                        

Dividends paid

   -7,154    -3,976    -7,160    -3,976    -4,133

Sale/repurchase of own stock

   7    15    14    19    117

Other financing activities

   -8,154    -663    -7,263    925    -2,070
                        

Cash flow from financing activities

   -15,301    -4,624    -14,409    -3,032    -6,086

Effect of exchange rate changes on cash

   485    -120    500    -199    -288
                        

Net change in cash

   -7,103    -6,208    -25,092    -14,072    11,326

Cash and cash equivalents, beginning of period

   23,749    22,548    41,738    30,412    30,412
                        

Cash and cash equivalents, end of period

   16,646    16,340    16,646    16,340    41,738

 

10


CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE

 

     Jan-Jun 2006    Jan-Dec 2005    Jan-Jun 2005

SEK million

  

Stock-

holders’

equity

  

Minority

interest

  

Total

equity

  

Stock-

holders’

equity

  

Minority

interest

  

Total

equity

  

Stock-

holders’

equity

  

Minority

interest

  

Total

equity

Actuarial gains and losses related to post-employment benefits including payroll tax

   1,557    —      1,557    -3,221    —      -3,221    -2,750    —      -2,750

Revaluation of other investments in shares and participations

                          

Fair value remeasurement taken to equity

   -3    —      -3    -3    —      -3    -6    —      -6

Transferred to income statement at sale

   —      —      —      -147    —      -147    -147    —      -147

Cash flow hedges:

                          

Fair value remeasurement of derivatives taken to equity

   2,422    —      2,422    -3,961    —      -3,961    -3,125    —      -3,125

Transferred to income statement for the period

   120    —      120    1,404    —      1,404    -411    —      -411

Transferred to balance sheet for the period

   99    —      99    —      —      —      —      —      —  

Changes in cumulative translation effects due to changes in foreign currency exchange rates

   -1,519    -62    -1,581    4,118    147    4,265    3,641    122    3,763

Tax on items taken directly to or transferred from equity

   -1,293    —      -1,293    1,523    —      1,523    1,901    —      1,901
                                            

Total transactions taken to equity

   1,383    -62    1,321    -287    147    -140    -897    122    -775

Net income

   10,287    50    10,337    24,315    145    24,460    10,460    -21    10,439
                                            

Total income and expenses recognized for the period

   11,670    -12    11,658    24,028    292    24,320    9,563    101    9,664

Other changes in equity:

                          

Sale of own shares

   14    —      14    117    —      117    19    —      19

Stock Purchase and Stock Option Plans

   212    —      212    242    —      242    90    —      90

Dividends paid

   -7,141    -19    -7,160    -3,959    -174    -4,133    -3,959    -17    -3,976

Stock issue, net

   —      15    15    —      17    17    —      10    10

Business combinations

   —      59    59    —      -342    -342    —      -293    -293

 

11


ERICSSON

CONSOLIDATED INCOME STATEMENT - ISOLATED QUARTERS

 

     2006     2005  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

   44,166     39,176     45,665     36,245     38,444     31,467  

Cost of sales

   -25,598     -22,219     -25,497     -19,862     -20,797     -16,213  
                                    

Gross margin

   18,568     16,957     20,168     16,383     17,647     15,254  

Gross margin %

   42.0 %   43.3 %   44.2 %   45.2 %   45.9 %   48.5 %

Research and development and other technical expenses

   -6,861     -6,748     -6,378     -6,135     -6,267     -5,674  

Selling and administrative expenses

   -5,263     -4,792     -5,332     -3,932     -3,895     -3,641  
                                    

Operating expenses

   -12,124     -11,540     -11,710     -10,067     -10,162     -9,315  

Other operating income

   817     510     883     836     425     347  

Share in earnings of JV and assoc. companies

   992     697     1,013     673     393     316  
                                    

Operating income

   8,253     6,624     10,354     7,825     8,303     6,602  

Operating margin %

   18.7 %   16.9 %   22.7 %   21.6 %   21.6 %   21.0 %

Financial income

   567     522     362     697     881     713  

Financial expenses

   -529     -467     -643     -490     -696     -573  
                                    

Income after financial items

   8,291     6,679     10,073     8,032     8,488     6,742  

Taxes

   -2,559     -2,074     -1,435     -2,649     -2,693     -2,098  
                                    

Net income

   5,732     4,605     8,638     5,383     5,795     4,644  

of which

            

Net income attributable to stockholders of the parent company

   5,712     4,575     8,541     5,314     5,843     4,617  

Net income attributable to minority interest

   20     30     97     69     -48     27  

Other information

            

Average number of shares, basic (million)

   15,869     15,866     15,859     15,845     15,835     15,756  

Earnings per share, basic (SEK) 1)

   0.36     0.29     0.54     0.34     0.37     0.29  

Earnings per share, diluted (SEK) 1)

   0.36     0.29     0.54     0.33     0.37     0.29  

1) Based on Net income attributable to stockholders of the parent company

 

12


Accounting policies

This interim report is prepared in accordance with IAS 34. The term IFRS used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC). In this interim report we have adopted the following amendments and interpretations effective as from January 1, 2006. These amendments and interpretations have been endorsed by the EU, except for one amendment to IAS 21. That amendment is commented below under IAS 21.

IAS 19 Employee Benefits

As from January 1, 2006, Ericsson has adopted the new allowed alternative in IAS 19, Employee Benefits, on how to recognize actuarial gains and losses. The previous method to recognize actuarial gains and losses – to the extent that they fell outside the 10 percent corridor – was that they were amortized over the average remaining service time of plan participants. Instead, as from January 1, 2006, all actuarial gains and losses are recognized directly in equity, net of deferred tax, in the period they occur. Earlier reporting periods have been restated accordingly. The adoption of this new alternative has increased the provision for post-employment benefits with SEK 3.5 billion, accruals for social security with SEK 0.8 billion and has affected equity by SEK 3.1 billion net of tax as per January 1, 2006. The impact on reported equity as per January 1, 2005, is SEK 0,7 billion.

IAS 39 Financial instruments: Recognition and Measurement

Three amendments have been issued by the IASB, effective as from January 1, 2006, with earlier application encouraged.

The amendments relate to:

 

  Cash Flow Hedges of Forecast Intra group Transactions that permits the foreign currency risk of a highly probable intra group forecast transaction to qualify as the hedged item in a cash flow hedge. Ericsson adopted his amendment 2005.

 

  Fair Value Option that restricts the use of the option to designate any financial asset or any financial liability to be measured at fair value through profit and loss. The company carries loans and receivables, deposits and borrowing at amortized cost, except for specific issued bonds where the carrying value is adjusted as a result of the application of fair value hedge accounting. This amendment has therefore not had a any impact on the financial position or result for 2005 and is not expected to have any impact for 2006.

 

  Financial guarantee contracts that requires financial guarantee contracts to be recognized, initially at fair value and subsequently at the higher of (i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and (ii) the amount initially recognized less any cumulative amortization. This amendment has not had a significant impact on the financial position or result.

IAS 21 The Effects of Changes in Foreign Exchange Rates

IAS 21 has been amended in relation to the accounting treatment of Net Investments in a Foreign Operation. A monetary item that forms part of a company investment in a foreign operation should not be dependent on the currency of the monetary item. Also, the accounting should not depend on which entity within the group that conducts a transaction with the foreign operation. It is only the second amendment that is endorsed by the EU as of March 31, 2006. These amendments have not had a significant impact on the financial position or result.

IFRIC 4 Determining whether an Arrangement contains a Lease

This interpretation has not had a significant impact on the financial position and result.

 

13


IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste of Electric and Electronic Equipment

This amendment has not had a significant impact on the financial position or result.

Parent Company information

The Parent Company reports according to RR 32 “Reporting in separate financial statements”. RR 32 requires the Parent Company to use similar accounting principles as for the Group, i.e. IFRS to the extent allowed by RR 32.

 

14


NET SALES BY SEGMENT BY QUARTER

SEK million

 

     2006     2005  

Isolated quarters

   Q2     Q1     Q4     Q3     Q2     Q1  

Systems

   41,435     36,821     43,020     33,939     36,138     29,002  

- Mobile networks

   30,782     26,763     33,664     26,763     28,770     23,450  

- Fixed networks

   2,506     2,868     1,270     1,137     1,130     1,048  

Total Network equipment

   33,288     29,631     34,934     27,900     29,900     24,498  

- Of which network rollout

   4,637     5,119     5,451     3,579     3,595     2,748  

Professional Services

   8,147     7,190     8,086     6,039     6,238     4,504  

Other Operations

   3,189     2,694     3,012     2,502     2,670     2,712  

Less: Intersegment sales

   -458     -339     -367     -196     -364     -247  
                                    

Total

   44,166     39,176     45,665     36,245     38,444     31,467  
                                    
     2006     2005  

Sequential change (%)

   Q2     Q1     Q4     Q3     Q2     Q1  

Systems

   13 %   -14 %   27 %   -6 %   25 %   -21 %

- Mobile networks

   15 %   -21 %   26 %   -7 %   23 %   -19 %

- Fixed networks

   -13 %   126 %   12 %   1 %   8 %   -31 %

Total Network equipment

   12 %   -15 %   25 %   -7 %   22 %   -20 %

- Of which network rollout

   -9 %   -6 %   52 %   0 %   31 %   -24 %

Professional Services

   13 %   -11 %   34 %   -3 %   38 %   -27 %

Other Operations

   18 %   -11 %   20 %   -6 %   -2 %   -18 %

Less: Intersegment sales

   35 %   -8 %   87 %   -46 %   47 %   -63 %
                                    

Total

   13 %   -14 %   26 %   -6 %   22 %   -20 %
                                    
     2006     2005  

Year over year change (%)

   Q2     Q1     Q4     Q3     Q2     Q1  

Systems

   15 %   27 %   17 %   15 %   19 %   11 %

- Mobile networks

   7 %   14 %   16 %   13 %   19 %   11 %

- Fixed networks

   122 %   174 %   -16 %   11 %   0 %   17 %

Total Network equipment

   11 %   21 %   14 %   13 %   18 %   11 %

- Of which network rollout

   29 %   86 %   51 %   35 %   44 %   25 %

Professional Services

   31 %   60 %   31 %   25 %   25 %   9 %

Other Operations

   19 %   -1 %   -9 %   -12 %   -5 %   11 %

Less: Intersegment sales

   26 %   37 %   -46 %   -68 %   -38 %   -43 %
                                    

Total

   15 %   24 %   16 %   14 %   18 %   12 %
                                    
     2006     2005  

Year to Date

   0606     0603     0512     0509     0506     0503  

Systems

   78,256     36,821     142,099     99,079     65,140     29,002  

- Mobile networks

   57,545     26,763     112,647     78,983     52,220     23,450  

- Fixed networks

   5,374     2,868     4,585     3,315     2,178     1,048  

Total Network equipment

   62,919     29,631     117,232     82,298     54,398     24,498  

- Of which network rollout

   9,756     5,119     15,373     9,922     6,343     2,748  

Professional Services

   15,337     7,190     24,867     16,781     10,742     4,504  

Other Operations

   5,883     2,694     10,896     7,884     5,382     2,712  

Less: Intersegment sales

   -797     -339     -1,174     -807     -611     -247  
                                    

Total

   83,342     39,176     151,821     106,156     69,911     31,467  
                                    
     2006     2005  

YTD year over year change (%)

   0606     0603     0512     0509     0506     0503  

Systems

   20 %   27 %   16 %   15 %   15 %   11 %

- Mobile networks

   10 %   14 %   15 %   14 %   15 %   11 %

- Fixed networks

   147 %   174 %   0 %   9 %   8 %   17 %

Total Network equipment

   16 %   21 %   14 %   14 %   15 %   11 %

- Of which network rollout

   54 %   86 %   40 %   35 %   35 %   25 %

Professional Services

   43 %   60 %   24 %   20 %   18 %   9 %

Other Operations

   9 %   -1 %   -4 %   -2 %   2 %   11 %

Less: Intersegment sales

   30 %   37 %   -49 %   -51 %   -40 %   -43 %
                                    

Total

   19 %   24 %   15 %   15 %   15 %   12 %
                                    

 

15


OPERATING INCOME, OPERATING MARGIN AND EMPLOYEES

BY SEGMENT BY QUARTER

SEK million

OPERATING INCOME AND MARGIN

 

     2006     2005  

Isolated quarters

   Q2     Q1     Q4     Q3     Q2     Q1  

Systems

   7,237     6,033     9,391     7,122     8,155     6,217  

Phones

   945     665     933     653     371     300  

Other Operations

   221     54     212     119     -94     46  

Unallocated 1)

   -150     -128     -182     -69     -129     39  
                                    

Total

   8,253     6,624     10,354     7,825     8,303     6,602  
                                    
     2006     2005  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Systems

   17 %   16 %   22 %   21 %   23 %   21 %

Phones 2)

   —       —       —       —       —       —    

Other Operations

   7 %   2 %   7 %   5 %   -4 %   2 %
                                    

Total

   19 %   17 %   23 %   22 %   22 %   21 %
                                    
     2006     2005  

Year to date

   0606     0603     0512     0509     0506     0503  

Systems

   13,270     6,033     30,885     21,494     14,372     6,217  

Phones

   1,610     665     2,257     1,324     671     300  

Other Operations

   275     54     283     71     -48     46  

Unallocated 1)

   -278     -128     -341     -159     -90     39  
                                    

Total

   14,877     6,624     33,084     22,730     14,905     6,602  
                                    
     2006     2005  

As percentage of net sales

   0606     0603     0512     0509     0506     0503  

Systems

   17 %   16 %   22 %   22 %   22 %   21 %

Phones 2)

   —       —       —       —       —       —    

Other Operations

   5 %   2 %   3 %   1 %   -1 %   2 %
                                    

Total

   18 %   17 %   22 %   21 %   21 %   21 %
                                    

1) “Unallocated” consists mainly of costs for corporate staffs and non-operational capital gains and losses
2) Calculation not applicable

NUMBER OF EMPLOYEES

 

     2006     2005  

Year to date

   0606     0603     0512     0509     0506     0503  

Systems

   57,779     57,554     50,107     48,839     47,955     46,338  

Other Operations

   6,013     5,699     5,948     5,748     5,683     5,587  
                                    

Total

   63,792     63,253     56,055     54,587     53,638     51,925  
                                    

Of which Sweden

   21 129     21 108     21 178     21 238     21 358     21 175  
     2006     2005  

Change in percent

   0606     0603     0512     0509     0506     0503  

Systems

   20 %   24 %   10 %   9 %   6 %   2 %

Other Operations

   6 %   2 %   18 %   9 %   2 %   3 %
                                    

Total

   19 %   22 %   11 %   9 %   6 %   3 %
                                    

Of which Sweden

   -1 %   0 %   -1 %   -3 %   -5 %   -7 %

 

16


NET SALES BY MARKET AREA BY QUARTER

SEK million

 

      2006     2005  

Isolated quarters

   Q2     Q1     Q4     Q3     Q2     Q1  

Western Europe

   12,485     11,247     12,522     9,555     9,902     9,961  

Central and Eastern Europe, Middle East & Africa

   12,908     10,466     12,458     9,404     10,376     8,672  

North America

   3,726     5,281     5,109     4,500     6,475     3,348  

Latin America

   3,819     3,652     5,980     5,115     4,429     3,551  

Asia Pacific

   11,228     8,530     9,595     7,671     7,262     5,935  
                                    

Total

   44,166     39,176     45,664     36,245     38,444     31,467  
                                    

Of which Sweden

   1,641     1,391     1,741     1,304     1,571     1,494  

Of which EU

   13,755     11,901     13,744     10,409     10,528     10,607  
     2006     2005  

Sequential change (%)

   Q2     Q1     Q4     Q3     Q2     Q1  

Western Europe

   11 %   -10 %   31 %   -4 %   -1 %   -24 %

Central and Eastern Europe, Middle East & Africa

   23 %   -16 %   32 %   -9 %   20 %   -14 %

North America

   -29 %   3 %   14 %   -31 %   93 %   20 %

Latin America

   5 %   -39 %   17 %   15 %   25 %   -21 %

Asia Pacific

   32 %   -11 %   25 %   6 %   22 %   -34 %
                                    

Total

   13 %   -14 %   26 %   -6 %   22 %   -20 %
                                    

Of which Sweden

   18 %   -20 %   34 %   -17 %   5 %   -19 %

Of which EU

   16 %   -13 %   32 %   -1 %   -1 %   -24 %
     2006     2005  

Year over year change (%)

   Q2     Q1     Q4     Q3     Q2     Q1  

Western Europe

   26 %   13 %   -4 %   -2 %   7 %   26 %

Central and Eastern Europe, Middle East & Africa

   24 %   21 %   24 %   11 %   31 %   21 %

North America

   -42 %   58 %   82 %   35 %   31 %   -24 %

Latin America

   -14 %   3 %   33 %   40 %   28 %   24 %

Asia Pacific

   55 %   44 %   7 %   16 %   3 %   2 %
                                    

Total

   15 %   24 %   16 %   14 %   18 %   12 %
                                    

Of which Sweden

   4 %   -7 %   -5 %   -11 %   2 %   11 %

Of which EU

   31 %   12 %   -2 %   4 %   4 %   30 %
     2006     2005  

Year to date

   0606A     0603A     0512     0509     0506     0503  

Western Europe

   23,732     11,247     41,940     29,418     19,863     9,961  

Central and Eastern Europe, Middle East & Africa

   23,374     10,466     40,911     28,452     19,048     8,672  

North America

   9,007     5,281     19,432     14,323     9,823     3,348  

Latin America

   7,471     3,652     19,075     13,095     7,980     3,551  

Asia Pacific

   19,758     8,530     30,463     20,868     13,197     5,935  
                                    

Total

   83,342     39,176     151,821     106,156     69,911     31,467  
                                    

Of which Sweden

   3,032     1,391     6,110     4,369     3,065     1,494  

Of which EU

   25,656     11,901     45,288     31,544     21,135     10,607  
     2006     2005  

YTD year over year change (%)

   0606A     0603A     0512     0509     0506     0503  

Western Europe

   19 %   13 %   5 %   9 %   16 %   26 %

Central and Eastern Europe, Middle East & Africa

   23 %   21 %   22 %   21 %   27 %   22 %

North America

   -8 %   58 %   26 %   13 %   5 %   -24 %

Latin America

   -6 %   3 %   32 %   31 %   26 %   24 %

Asia Pacific

   50 %   44 %   7 %   7 %   2 %   1 %
                                    

Total

   19 %   24 %   15 %   15 %   15 %   12 %
                                    

Of which Sweden

   -1 %   -7 %   -1 %   1 %   6 %   11 %

Of which EU

   21 %   12 %   7 %   11 %   15 %   30 %

 

17


EXTERNAL NET SALES BY MARKET AREA BY SEGMENT

SEK million

 

Apr - Jun 2006

   Systems     Share of
Systems
    Other     Share of
Other
    Total     Share of
Total
 

Western Europe

   10,729     26 %   1,756     62 %   12,485     28 %

Central and Eastern Europe, Middle East & Africa

   12,414     30 %   494     17 %   12,908     29 %

North America

   3,530     9 %   196     7 %   3,726     9 %

Latin America

   3,773     9 %   46     2 %   3,819     9 %

Asia Pacific

   10,899     26 %   329     12 %   11,228     25 %
                                    

Total

   41,345     100 %   2,821     100 %   44,166     100 %
                                    

Share of Total

   94 %     6 %     100 %  

Apr - Jun 2005

                                    

Western Europe

   8,465     23 %   1,437     61 %   9,902     26 %

Central and Eastern Europe, Middle East & Africa

   10,095     28 %   282     12 %   10,377     27 %

North America

   6,302     18 %   173     7 %   6,475     17 %

Latin America

   4,388     12 %   41     2 %   4,429     11 %

Asia Pacific

   6,840     19 %   421     18 %   7,261     19 %
                                    

Total

   36,090     100 %   2,354     100 %   38,444     100 %
                                    

Share of Total

   94 %     6 %     100 %  

Change

                                    

Western Europe

   27 %     22 %     26 %  

Central and Eastern Europe, Middle East & Africa

   23 %     75 %     24 %  

North America

   -44 %     13 %     -42 %  

Latin America

   -14 %     12 %     -14 %  

Asia Pacific

   59 %     -22 %     55 %  
                        

Total

   15 %     20 %     15 %  
                        
Year to date                                     

Jan - Jun 2006

                                    

Western Europe

   20,421     26 %   3,311     63 %   23,732     28 %

Central and Eastern Europe, Middle East & Africa

   22,535     29 %   839     16 %   23,374     28 %

North America

   8,622     11 %   385     8 %   9,007     11 %

Latin America

   7,366     9 %   105     2 %   7,471     9 %

Asia Pacific

   19,166     25 %   592     11 %   19,758     24 %
                                    

Total

   78,110     100 %   5,232     100 %   83,342     100 %
                                    

Share of Total

   94 %     6 %     100 %  

Jan - Jun 2005

                                    

Western Europe

   16,947     26 %   2,916     60 %   19,863     28 %

Central and Eastern Europe, Middle East & Africa

   18,390     28 %   659     14 %   19,049     27 %

North America

   9,527     15 %   296     6 %   9,823     14 %

Latin America

   7,891     12 %   89     2 %   7,980     12 %

Asia Pacific

   12,328     19 %   868     18 %   13,196     19 %
                                    

Total

   65,083     100 %   4,828     100 %   69,911     100 %
                                    

Share of Total

   93 %     7 %     100 %  

Change

                                    

Western Europe

   20 %     14 %     19 %  

Central and Eastern Europe, Middle East & Africa

   23 %     27 %     23 %  

North America

   -9 %     30 %     -8 %  

Latin America

   -7 %     18 %     -6 %  

Asia Pacific

   55 %     -32 %     50 %  
                        

Total

   20 %     8 %     19 %  
                        

 

18


TOP 10 MARKETS IN SALES

Jan-Jun 2006

 

Sales

   YTD
Share of
total sales
    Q2
Share of
total sales
 

UNITED STATES

   9 %   7 %

CHINA

   7 %   10 %

ITALY

   6 %   6 %

AUSTRALIA

   6 %   5 %

UNITED KINGDOM

   5 %   5 %

SPAIN

   4 %   4 %

SWEDEN

   4 %   4 %

BRAZIL

   4 %   3 %

INDIA

   3 %   3 %

PAKISTAN

   3 %   2 %

CUSTOMER FINANCING RISK EXPOSURE

 

SEK billion

   June 30
2006
   Mar 31
2006
   Dec 31
2005
   Sep 30
2005
   Jun 30
2005
   Mar 31
2005

On-balance sheet credits

   5.7    4.6    7    6.5    6.5    6.9

Off-balance sheet credits

   0.1    0.1    0.1    0.1    0.1    0.1
                             

Total credits

   5.8    4.7    7.1    6.6    6.6    7.0

Accrued interest

   0.1    0.1    0.1    0.1    0.1    0.1

Less third-party risk coverage

   -0.2    -0.2    -0.2    -0.5    -0.1    -0.3
                             

Ericsson’s risk exposure

   5.7    4.6    7.0    6.2    6.6    6.8
                             

On-balance sheet credits, net book value

   4.6    3.2    4.9    4.5    4.4    4.2

Credit commitments for customer financing

   6.4    5.5    3.6    2.6    2.8    2.3

TRANSACTIONS WITH SONY ERICSSON MOBILE COMMUNICATIONS

 

     Apr - Jun    Jan - Jun

SEK million

   2006    2005    2006

Revenues from Sony Ericsson

   737    358    1,697

Purchases from Sony Ericsson

   20    211    83

Receivables from Sony Ericsson

   515    202    515

Liabilities to Sony Ericsson

   59    15    59

Dividends from Sony Ericsson

   —      —      1,160

 

19


ERICSSON

OTHER INFORMATION

 

     Apr - Jun     Apr - Jun     Jan - Jun     Jan - Jun     Jan - Dec  

SEK million

   2006     2005     2006     2005     2005  

Number of shares and earnings per share

          

Number of shares, end of period (million)

   16,132     16,132     16,132     16,132     16,132  

Number of treasury shares, end of period (million)

   262     293     262     293     268  

Number of shares outstanding, basic, end of period (million)

   15,870     15,839     15,870     15,839     15,864  

Numbers of shares outstanding, diluted, end of period (million)

   15,941     15,912     15,941     15,912     15,927  

Average number of treasury shares (million)

   263     297     265     298     289  

Average number of shares outstanding, basic (million)

   15,869     15,835     15,867     15,790     15,843  

Average number of shares outstanding, diluted (million) 1)

   15,939     15,908     15,938     15,863     15,907  

Earnings per share, basic (SEK)

   0.36     0.37     0.65     0.66     1.53  

Earnings per share, diluted (SEK)1)

   0.36     0.37     0.65     0.66     1.53  

Ratios 2)

          

Equity ratio, percent

   —       —       53.9 %   44.9 %   49.0 %

Capital turnover (times)

   1.3     1.3     1.3     1.2     1.2  

Accounts receivable turnover (times)

   3.9     4.2     3.8     3.9     4.1  

Inventory turnover (times)

   4.4     4.5     4.5     4.4     5.0  

Return on equity, percent

   21.3 %   26.6 %   19.7 %   24.8 %   26.7 %

Return on capital employed, percent

   26.2 %   31.0 %   24.4 %   28.0 %   28.7 %

Days Sales Outstanding

   —       —       95     90     81  

Payment readiness, end of period

   —       —       54,205     66,670     78,647  

Payment readiness, as percentage of sales

   —       —       32.5 %   47.7 %   51.8 %

Exchange rates used in the consolidation

          

SEK / EUR - average rate

   —       —       9.33     9.15     9.28  

                       - closing rate

   —       —       9.24     9.42     9.42  

SEK / USD - average rate

   —       —       7.60     7.11     7.45  

                       - closing rate

   —       —       7.27     7.81     7.93  

Other

          

Additions to property, plant and equipment

   1,372     1,005     2,071     1,500     3,365  

- Of which in Sweden

   229     360     499     572     965  

Additions to capitalized development expenses

   412     152     770     455     1,174  

Capitalization of development expenses, net

   -238     -516     -556     -1050     -1,930  

Amortization of development expenses

   650     667     1,326     1,505     3,104  

Depreciation of property, plant and equipment and amortization of other intangible assets

   1,066     746     2,387     1,398     2,598  
                              

Total depreciation and amortization

   1,716     1,413     3,713     2,903     5,702  

Export sales from Sweden

   22,574     23,650     46,872     46,259     93,879  

1) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share
2) Ratios restated in accordance with new option in IAS 19

 

20


Acquisition of assets from Marconi

As per January 1, 2006, Ericsson acquired assets of Marconi telecommunication operations. Closing took place on January 23, 2006, except for a few smaller parts of the operations. The main part of the acquisition from Marconi was assets, but Ericsson also acquired shares in some entities. The acquisition of subsidiaries has been accounted for using the purchase method of accounting, as defined in IFRS 3 Business Combinations. As prescribed under this method, Ericsson has allocated the total purchase price, both for acquired assets and companies, to assets acquired and liabilities assumed based on their fair values. The fair values have been determined by applying generally accepted principles and procedures. The planned amortization period for intangible assets is 10 years.

The operating income of operations acquired from Marconi, amounted to SEK -1.2 billion for the first six months of 2006, including SEK -0.8 for amortization of intangible assets. This has been included in the consolidated financial statements for the period January 1 - June 30 2006.

Allocation of purchase consideration

 

     GBP m.    SEK b.

Intangible assets

     

Intellectual property rights

   850    11.6

Brands

   200    2.9

Customer relationships

   52    0.7

Goodwill

   0    0.0
         

Subtotal

   1,102    15.2

Other assets and liabilities

     

Inventory

   139    1.9

Property, plant and equipment

   91    1.3

Pensions

   -59    -0.8

Other

   132    1.8
         

Subtotal

   303    4.2
         

Total purchase consideration

   1,405    19.4
         

The determination of purchase consideration allocation and fair values of assets acquired and liabilities assumed is based on preliminary appraisal; therefore, these values may be subject to minor adjustments.

Cash flow effects

 

Total cash purchase consideration

   1,405    19.4

Less acquired cash and cash equivalents

   -128    -1.8
         

Net cash outflow from the acquisition

   1,277    17.6

 

21


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELEFONAKTIEBOLAGET LM ERICSSON (PUBL)

By:

 

/S/    CARL OLOF BLOMQVIST

  Carl Olof Blomqvist
  Senior Vice President and
  General councel

By:

 

/S/    HENRY STÉNSON

  Henry Sténson
  Senior Vice President
  Corporate Communications

Date: July 21, 2006