STOCKHOLM -- Second quarter summary

Orders booked in the quarter grew by 17% year-over-year and were flat sequentially at SEK 33.1 (28.3) b. Net sales in the quarter grew by 18% year-over-year to SEK 32.6 (27.6) b. and 16% sequentially as a result of ongoing 3G rollouts, continued GSM capacity expansions as well as upgrades to EDGE. Currency exchange effects negatively impacted sales by 6% year-over-year.

Gross margin increased sequentially to 47.8% (35.1%) due to continued focus on operational excellence, higher volumes and a favorable product mix. The announced operating expense reduction target of an annualized run rate of SEK 33 b., was achieved at the end of this quarter, one quarter earlier than originally anticipated.

Income after financial items was SEK 7.8 (0.2) b. compared to SEK 4.3 b. in the first quarter, including a non-recurring positive effect of SEK 0.3 b. Net currency exchange effects, compared to rates one year ago, have had a negative impact of SEK -0.7 b. on operating income in the quarter.

Cash flow before financing was SEK 4.3 (5.1) b. Continued focus on workflow improvements has kept working capital close to flat despite the sales growth. The financial position improved consequently, with a net of financial assets and liabilities, i.e. net cash, of SEK 31.7 b.

CEO COMMENTS

"Confidence has returned to the industry. 3G rollouts, GSM capacity expansions as well as EDGE upgrades creates momentum for us," says Carl-Henric Svanberg, president and CEO of Ericsson. "With new and expansion contracts across all regions we are capitalizing on our technology leadership, our large installed base as well as our particularly strong position in high growth markets. Our competitive services offering is gaining operator recognition with eight new contracts for managed services and hosting.

We show healthy development in all technologies. Our organization's commitment to drive operational excellence creates strong results. Higher than anticipated sales drove an encouraging bottom line performance and it is our continued ambition to deliver best in class margins. We have now reached a point where targeted investments in R&D and customer support should further strengthen our leading position and ability to drive profitable growth.

The pace of 3G network rollout is accelerated by the growing number of handsets available. Experience from the introductory phase of WCDMA/CDMA2000 puts richer consumer offerings and enhanced system capacity in focus. We will leverage our 3G leadership by the introduction of Ericsson WCDMA Evolved, with HSDPA capabilities. This is a logical evolutionary step that will offer true mobile broadband with speeds of up to 14 Mbit/s.

It is clear that consumers want to use the same services irrespective of whether they are accessing them from a fixed or mobile network. Our end-to-end solutions, based on converged services and networks, support our customers in meeting these consumer demands. Our long experience in wireline, our leading wireless technology and our IP knowledge, are essential components in driving the convergence necessary to achieve ease-of-use and reachability for private as well as professional users.

We will reinforce our position as the leading infrastructure provider in the telecom industry through understanding of consumer needs, continued R&D leadership, operational excellence and by being the most innovative and responsive partner to our customers," concludes Carl-Henric Svanberg.

LM Ericsson