"Group sales in the quarter declined -8% year-over-year with lower sales in Networks. Sales in Global Services were flat due to decline in network rollout although Professional Services increased 5%," says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC).

"Group sales increased sequentially by 6%. Sales for comparable units, adjusted for currency exchange rate effects and hedging declined year-over-year -15%. Operators showed a continued good demand for mobile broadband driven by smartphone and laptop usage. Sales were however impacted by continued industry component shortages and supply chain bottlenecks. We estimate that this had a negative impact on our sales in the quarter by SEK 3-4 b.

Gross margin improved year-over-year and sequentially due to business mix and efficiency gains. Cash flow declined year-over-year, mainly due to increased working capital. Sony Ericsson continued to show improved results and ST-Ericsson's transition program is on track.

Net income improved year-over-year and sequentially, positively impacted by improved earnings in Sony Ericsson.

The market conditions we saw in the second half of 2009 with mixed operator investment behavior prevailed also in the first half of this year. In the quarter all regions, except North America, showed lower year-over-year sales. Meanwhile, sequential sales showed a more mixed picture with growth in regions such as Mediterranean, North America, Northern Europe and Central Asia, as well as Sub-Saharan Africa.

Over the past years, we have gone through major changes with cost reductions and strengthened portfolio and market presence while maintaining our technology leadership. The cost reduction program, initiated in the first quarter 2009 has been completed, reaching its target. Going forward, cost and capital efficiency will remain top of our agenda," concludes Hans Vestberg.

All numbers, excl. EPS, Net income and Cash flow from operations, excl. restructuring charges.

¹⁾  EBITA - Earnings before interest, tax, amortizations and write-downs of acquired intangibles.  

²⁾  Cash flow from operations excl. restructuring cash outlays that have been provided for. Cash outlays in the quarter were SEK 0.7 (0.8) b. For the first quarter, cash outlays amounted to SEK 0.7 b.

³⁾  Second quarter 2009 excl. capital gain of SEK 0.8 b from divested TEMS services operation.

FINANCIAL HIGHLIGHTS

Income statement and cash flow

Sales in the quarter were down -8% year-over-year and increased 6% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, declined -15% year-over-year. The net impact of currency exchange rate effects and hedging was slightly negative. Sales were impacted by continued industry component shortages and supply chain bottlenecks. We estimate that this had a negative impact on our sales in the quarter by SEK 3-4 b.

During the quarter, operators in a number of developing markets were still cautious with investments which impacted sales in Networks, Network Rollout and Multimedia. This was partly offset by increased sales in Professional Services and especially in Managed Services.

Gross margin, excluding restructuring, improved slightly sequentially and improved year-over-year to 39% (36%) due to business mix and efficiency gains.

The cost reduction activities have reduced operating expenses as planned. However, integration of the acquired CDMA and GSM businesses, higher investments in certain R&D areas and growing number of 4G/LTE trials, have resulted in an increase in operating expenses to SEK 13.9 (13.6) b., excluding restructuring charges. Other operating income and expenses were SEK 0.5 (1.6) b. in the quarter. Last year includes a capital gain of SEK 0.8 b. from the divested TEMS services operation.

Operating income, excluding joint ventures and restructuring charges, amounted to SEK 5.3 (6.1) b., including positive contribution from the acquired CDMA and GSM businesses. The year-over-year decline is mainly due to lower sales. Operating margin declined to 11% (12%) for the same reason. Sequentially, the margin improved due to increased sales and efficiency gains. The capital gain of SEK 0.8 b. from the divested TEMS services operation is excluded from the 2009 numbers.

Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.1 (-2.0) b. excluding restructuring charges, compared to SEK -0.3 b. in the first quarter. Sequentially, Sony Ericsson improved sales and margins significantly due to efficiency programs and new products. ST-Ericsson's sales declined sequentially, however the loss remained at the same level, positively impacted by efficiency programs. Restructuring charges in joint ventures were SEK 0.2 b. in the quarter.

Financial net was SEK -0.1 (-0.1) b., mainly due to low interest rates and negative currency revaluation effects on financial assets and liabilities.

Net income amounted to SEK 2.0 (0.8) b. and earnings per share were SEK 0.58 (0.26) in the quarter.

Adjusted cash flow was SEK -2.0 (9.9) b. in the quarter, down sequentially from SEK 3.0 b. Cash flow from operations decreased mainly due to increased working capital as a result of tight components supply conditions which led to deliveries late in the quarter.