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Ericsson Earmarks $25B for R&D

Ericsson AB (Nasdaq: ERIC) said today it will increase investments in research and development and shell out $25 billion over the next five years on new technologies and software.

The Swedish vendor has already boosted investment this year in new growth areas like 4G mobile broadband technology long-term evolution (LTE). Speaking at Ericsson’s Capital Markets Day event today, executive vice president and CFO Hans Vestberg said that in the first quarter of this year Ericsson focused R&D efforts on LTE, IPTV, and Ericsson mobile platforms. (See Ericsson Intros LTE Device Platform, Ericsson Demos HSPA Evolution, and Ericsson's Need for Speed.)

Ericsson’s R&D spend for the first quarter was $1.4 billion, which is up 30 percent from the company’s first quarter 2007 R&D expense of $1.07 billion. (See Ericsson Spreads Q1 Joy and Ericsson Bolsters US R&D.)

Part of the reason for pumping up R&D investment now is that with the development of LTE, the vendor will soon be simultaneously supporting multiple radio access technologies.

“We face a future where technology generations will co-exist [referring to GSM, W-CDMA, and LTE],” said Ericsson CEO Carl-Henric Svanberg. “That means we’ll support several technologies at the same time. The bigger we get, the bigger share of the industry’s R&D we do ourselves.”

Some of the world’s biggest operators like NTT DoCoMo Inc. (NYSE: DCM), AT&T Inc. (NYSE: T), and Verizon Wireless are well into planning for LTE deployments. In Sweden, TeliaSonera said it will deploy LTE over its newly acquired 2.6 GHz spectrum. (See DoCoMo Picks Ericsson LTE, AT&T & Verizon Make 700 MHz Plans, TeliaSonera Gets 4G Spectrum, MWC Preview: LTE in the Limelight , Ericsson Touts 2.6GHz Abilities, Swedish 4G, and Swedish LTE in 2010.)

But the vendor would not say what the $25 billion will be spent on. “We don’t specify what we’ll spend R&D on,” said a spokesman. “A lot of things can happen in five years.”

Svanberg stressed the importance of R&D to Ericsson and pointed to his company’s dominance in the W-CDMA market as an example of where technology investment paid off big time.

”Five years ago we were not considered leaders in W-CDMA. Today, we rule the W-CDMA market,” he said.

And the upside to higher R&D expense is the potential to increase revenue from intellectual property rights (IPR). ”We increase our R&D, but we get more IPR income,” said Svanberg.

But he indicated that while Ericsson’s IPR revenues were growing, the company was not about to start overturning apple carts and damaging existing customer and partner relationships.

“IPR is driven as a profit center. However, we must make sure we understand, compared to some others in the industry who are basically living on IPR, that we have to balance relationships with our customers in the industry,” said Svanberg.

Ericsson estimates there will be 6.5 billion mobile phone subscriptions in 2013, of which 2 billion will be mobile broadband subscribers.

— Michelle Donegan, European Editor, Unstrung

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