Ericsson Capital Markets Day November 8, 2018 New York

Transcription

1 Ericsson Capital Markets Day 2018 November 8, 2018 New York

2 Trends, strategy, performance and next step Peter Nyquist VP Investor Relations

3 Safe harbour statement This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to risks and uncertainties that could materially affect our business and results. Please read our earnings reports and our most recent annual report for a better understanding of these risks and uncertainties and please see the last page in this presentation for further information about forward-looking statements. Any forward-looking statements made during this presentation speaks only as of the date of this presentation and Ericsson expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them.

4 Agenda a.m. Trends, strategy, performance and next steps 2.30 p.m. Break 20 minutes a.m. Introduction Peter Nyquist Strategy execution and the next chapter CEO Börje Ekholm Technology trends CTO Erik Ekudden Financial update CFO Carl Mellander Q&A Lunch 45 min 2.50 p.m. Market area trends Introduction CEO Börje Ekholm Market Area North America Niklas Heuveldop Market Area North East Asia Chris Houghton Market Area Europe & Latin America Arun Bansal Q&A p.m. Segment update Segment targets CFO Carl Mellander Networks Fredrik Jejdling Digital Services Jan Karlsson Managed Services Peter Laurin Emerging Business and Other Åsa Tamsons Q&A 4.00 p.m. Closing 4.05 p.m. Mingle Summary CEO Börje Ekholm Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 4

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6 Strategy execution and the next chapter Börje Ekholm President and CEO

7 What we will cover today Our turnaround Market opportunity Growth Targets Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 7

8 What we will cover today Our turnaround Market opportunity Growth Targets Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 8

9 Creating a strong foundation Technology leadership Stability and profitability Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 9

10 Our turnaround plan Stabilize & simplify Invest & grow Simplified structure Accelerated cost out SEK 10 b. Portfolio review Contract review Digital Services turnaround Invest in R&D for technology and cost leadership Selective market expansion in Networks Scale in Emerging Businesses Compliance program accelerated 25K HC reduction + delayering 59 of 87 contracts addressed 6K automations implemented 4K+ R&D engineers 26% growth in IoT SIMs Improved cash position +SEK 11 b. 74% hit rate on targeted Networks contracts Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 10 This slide contains forward-looking statements. Actual result may be materially different.

11 Progress in strategy execution RAN market share Gross margin % 36.4% 32.7% 29.7% 30.2% 29.8% 34.8% 36.6% 35.7% 36.7% 35.5% 28.9% 32.6% 31.4% 30.5% 29.8% 30.0% 29.9% 28.0% 28.0% 28.2% 27.2% '12 '13 '14 '15 '16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 '12 '13 '14 '15 '16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Source: Dell Oro 1Excluding restructuring charges numbers also exclude xo items and are not IFRS 15 reconciled Source: Ericsson Built upon increased R&D investments for technology and cost leadership Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 11

12 Returned to growth Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Net sales adjusted for comparable units and currency Net sales as reported Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 12

13 Traction towards >12% operating margin 1 Operating margin 1 (%) >12% 7.0% >10% Focused strategy launch % 0.6% -0.1% Increase R&D investment Cost savings program launched 0.7% 2.0% Gross Margin hits 35% % Cost savings program complete Back to top line growth Operating margin exclude restructuring charges numbers are not IFRS reconciled and also excluding xo items. Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 13 This slide contains forward-looking statements. Actual result may be materially different.

14 Focused strategy remains Purpose and vision Empowering an intelligent, sustainable and connected world. Mission Enabling the full value of connectivity for service providers. Our customers needs Relentless efficiency End-customer experience New revenue streams Networks Digital Services Managed Services Emerging Business Highly scalable, cost competitive, modular platforms offering lowest total cost of ownership, best user experience & smooth network transformation to 5G TCO efficient solutions for programmable 4G and 5G core networks, automated operations and digital engagements Providing superior customer experience and cost performance led by automation and AI driven operations and optimization Pursue new business opportunities e.g. within IoT and Industry 4.0, foster an innovation culture and invest in promising incubation opportunities Foundation: Technology leadership Product-led solutions Global skill & scale Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 14

15 What we will cover today Our turnaround Market opportunity Growth Targets Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 15

16 Strong underlying market growth Mobile data exabytes / month Cellular IoT connections billion ~5X ~4X Source: Ericsson Mobility Report Source: Ericsson Mobility Report Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 16 This slide contains forward-looking statements. Actual result may be materially different.

17 Focused strategy creates value for customers Relentless efficiency End customer experience New revenue streams Managed Services Digital Services Networks 30% Reduction in critical incidents despite tripled number of software upgrades 90% Reduction in customer support esclated to Tier 2 10% Increase in ARPU, despite flat market, from network modernization Networks Digital Services Emerging Business and Other 50% Reduction in energy consumption from footprint and operations optimization 86% Reduction in average deployment time for new software 210% ROI in year 1 for an IoT based factory maitenance system Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 17

18 Technology shifts create market opportunity Cloud and Edge AI and Automation 5G and IoT $5 Core Networking TAM 1 USD b. Yearly savings to CSPs 2 from analytics, AI, automation $40 RAN TAM 1 USD b. $4 $30 $3 $2 $1 474 USD b. per year $20 $10 $ Non-Virtualized Virtualized Network Mgmt Revenue Mgmt Other Assurance Workforce Mgmt $ G 3G 4G 5G Source: IHS, Dell Oro Source: Gartner Source: Dell Oro 1TAM: Total addressable market 2 CSP: Communication service providers Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 18 This slide contains forward-looking statements. Actual result may be materially different.

19 5G expands the addressable market enabling new revenue streams Scale driven opportunities Massive IoT $ b. Critical IoT Addressing Industry 4.0 $950 1,100 b. Enhanced Mobile Broadband (embb) Fixed Wireless Access (FWA) $ b. Performance driven opportunities Note: Numbers are early estimates. Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 19 This slide contains forward-looking statements. Actual result may be materially different.

20 What we will cover today Our turnaround Market opportunity Growth Targets Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 20

21 Taking the next step Growth in new business Technology leadership Growth in core business Stability and profitability Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 21

22 Our approach to growth Selective Disciplined Profitable Streamlined portfolio Targeted markets Execution Financial discipline Meeting group targets Positive Net Present Value (NPV) Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 22

23 Addressing a growing market 2% to 3% CAGR 2018 to 2022 Networks Selective market expansion Acceleration of 5G Digital Services Profitability over growth remains Invest in 5G portfolio: cloud-native and automated Managed Services Focus shift to growth Launch new AI-driven offerings 1-3% 1-4% 2-4% Source: Dell Oro Source: Analysis Mason, Gartner, IDC, IHS, Dell Oro Source: Gartner and Ericsson Selective Disciplined Profitable Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 23 This slide contains forward-looking statements. Actual result may be materially different.

24 Emerging Business uses an agile model to address new value pools Build on our strengths Lean start-up approach Manage for positive NPV Address high growth markets Connectivity leadership Trusted partner position with communication providers Leverage R&D investments Limited upfront investments Agile management Scale rapidly upon market traction 2020 break even target across the segment based on current business portfolio Scale a small number of opportunities at any one time Capitalize on investments Selective Disciplined Profitable Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 24 This slide contains forward-looking statements. Actual result may be materially different.

25 Growth strategy supported by M&A Portfolio near focus Growth areas where we need to strengthen our position Adjacencies to existing businesses Complement R&D activities to achieve quicker time to market New areas where we have limited presence but see clear, scalable solutions building on our operator customer base Technology Competence Patent complements Emerging technologies Networks Digital Services Managed Services Emerging Business Grow in adjacent technologies Portfolio expansion Portfolio & competence Portfolio expansion Radio software and hardware, transport Extending 5G beyond enhanced mobile broadband Artificial Intelligence for operations and optimization Horizontal solutions enhancing IoT connectivity platforms Selective Disciplined Profitable Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 25 This slide contains forward-looking statements. Actual result may be materially different.

26 What we will cover today Our turnaround Market opportunity Growth Targets Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 26

27 Target update 2020 Increased net sales ambition, maintained operating margin 1 target SEK b. CMD 2017 CMD operating margin 1 target ranges Sales Networks 15% to 17% Gross margin % Digital Services Low single digits R&D Continued investments but growing slower than sales Managed Services 5% to 8% SG&A Structural improvements Emerging Business and Other Break-even Operating margin 1 >10% Free Cash Flow (before M&A) Positive Sum of the parts 10% to 13% 1Numbers exclude restructuring charges. Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 27 This slide contains forward-looking statements. Actual result may be materially different.

28 Target 2022 Operating margin 1 >12% no later than 2022 SEK b. CMD 2017 CMD CMD operating margin 1 target ranges Sales Networks 15% to 17% Gross margin 1 R&D 37-39% Continued investments but growing slower than sales Digital Services 10% to 12% Managed Services 8% to 10% SG&A Structural improvements Emerging Business and Other - Operating margin 1 >10% >12% Free Cash Flow (before M&A) Positive Strong Sum of the parts 12% to 14% 1Numbers exclude restructuring charges. Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 28 This slide contains forward-looking statements. Actual result may be materially different.

29 Opportunities for growth beyond 2020 Illustrative 2% to 3% YoY M&A Portfolio near acquisitions & technology focus Growth in new businesses 5G and IOT use cases Growth in core businesses Market share gain X Baseline Grow with the market Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 29 This slide contains forward-looking statements. Actual result may be materially different.

30 Technology trends Erik Ekudden, CTO

31 Towards a more versatile network Radio access Core Management 2G 3G EPC 4G LTE ENM Virtualized Orchestrated LTE- M AI assisted Software defined Cloud native NB- IoT Dynamic Orchestration AI controlled 5G Core 5G NR 1990 NOW Building the industries strongest 5G patent portfolio Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 31 This slide contains forward-looking statements. Actual result may be materially different.

32 Our global architecture Devices / Local networks Access sites Distributed sites National sites Global sites Application cloud Management & Monetization Mobile Fixed Access, Mobility, Network applications Cloud infrastructure Transport We have the vital capabilities to ensure an efficient end-to-end network Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 32 This slide contains forward-looking statements. Actual result may be materially different.

33 Technology strategy focus Innovation in network platform and new business Technologies providing for new business Research is the foundation for our technology leadership and strong patent portfolio IoT platform onboarding and serving industry devices and use-cases Global facilitation and aggregation of network assets for third party services Business driven pre-standard development and joint customer proof of concepts are necessary to drive the innovation and create a solid foundation for world wide standards and scale 5G and LTE for high capacity and wide range of access characteristics Technologies enhancing the network platform AI, machine learning and security for optimization, automation, agility and trust Distributed cloud for virtualized network functions and network slicing Leading architecture, modularity, and open interfaces combined with world class development as the means to support customer variants Revenue Continuous evolution of the network platform for cost rationalization, and fast feature growth through rapid technology adoption driving profitability Illustrative no scale implied R&D Research Testbeds PoCs Standard Development (Features, Cost rationalization, Characteristics, Security) Maintenance Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 33 This slide contains forward-looking statements. Actual result may be materially different.

34 5G time plan 5G devices broadly available GPP Rel-15 Rel-16 Rel-17,... NSA SA 5G/NR Phase 1 5G/NR Phase 2 Rel-15 - June 2018 Main focus: NR: New 5G radio 5G Core: EPC and 5GC Network Slicing Support for edge computing Rel December 2019 Main focus: Wireless and Wireline Convergence Ultra Reliable Low Latency Communication Leading 5G investments G devices broadly available 2020 Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 34 This slide contains forward-looking statements. Actual result may be materially different.

35 Spectrum usage overview 5G 4G 3G 2G NR Spectrum combination High bands (24 GHz 52 GHz) Mid bands (3 GHz 6 GHz) Increased value from advanced antenna technologies and spectrum aggregation in the active part of the network Localized Peak Capacity Urban & sub-urban capacity Urban capacity boost Low bands (0-3 GHz) Wide area Coverage Wide Area coverage and capacity Spectrum assets is an increasing competitive advantage for operators Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 35 This slide contains forward-looking statements. Actual result may be materially different. This slide contains forward-looking statements. Actual result may be materially different.

36 5G is developed for broader usage Platform for addressing industry and society transformations Massive machine type communication Smart meter Tracking Fleet management Critical machine type communication Industrial applications Traffic safety & control Remote manufacturing Cost effective delivery of increased data traffic Enhanced Mobile Broadband Virtual & Augmented Reality 4K/8K resolutions Smartphones Fixed Wireless Access Mobile / wireless / fixed Enterprise Home Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 36 but subscribers and households addressed initially This slide contains forward-looking statements. Actual result may be materially different.

37 The momentum around 5G innovation 5G-AA 5G Automotive Association Automotive Enterprises 5G-ACIA 5G Alliance Connected Industries Automation IIC Industrial Internet Consortium 5G for global Network platform Innovation AECC Automotive Edge Computing COnsortium IEEE The IEEE Standards Association ISO/IEC International Organization for Standardization & International Electrotechnical Commission Consumers Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 37 Throughput Reach - Latency Security

38 Enable enterprise and industry digital transformation Transport and logistic needs IoT connectivity to optimize the supply and delivery chain Public safety needs mission critical communication for voice and data Asset management data Monitoring of real-time position, conditions and usage Digitalization of legacy systems Critical video- and data communication Network availability and survivability Wide area and Indoor coverage Radio Core Management Transport Solutions Wide- and local area LTE, Narrowband IoT, CAT-M, cloud based packet core, end-end IoT orchestration and end-end security management Manufacturing industry needs to automate production and increase flexibility Real-time low latency critical communication Remote monitoring and control Massive onboarding of IoT devices Body cam CPE equipment (vehicles) Air, Dot Baseband Core Network Helmet mounted display Rugged smartphone 5G and IoT - future proof network platform that fulfills enterprise and industry demands Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 38 This slide contains forward-looking statements. Actual result may be materially different.

39 Technology Trends #1 #2 #3 #4 #5 The realization of zero touch is a set of intelligent network applications and features is key to hiding network complexity The emergence of the Internet of Skills, will lead to human skills and senses delivered without boundaries Highly adaptable cyber-physical systems is a self-organizing expert system created by the combination of model of models Trust technologies for security assurance, will provide mechanisms to protect networks and offer security assurance to both humans and machines. Ubiquitous, high capacity radio, where the network is becoming a general connectivity platform that enables the sharing of data anywhere and anytime. Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 39 This slide contains forward-looking statements. Actual result may be materially different.

40 Securing long-term technology leadership Summary Industry wide technology trends #1 The realization of zero touch #2 The emergence of the Internet of Skills #3 Highly adaptable cyber-physical systems #4 Trust technologies for security assurance #5 Ubiquitous, high capacity radio Areas of focus 5G Radio and Core Distributed cloud and edge Security and Trust AI and Machine Learning Management & Orchestration IoT platforms Innovation capacity 23,600 employees in R&D Ericsson Research Ericsson ONE Ericsson AI Accelerator Co-creation with lead customers, industry partners and academia Standardization and open source 45,000 granted patents Strategic investments Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 40 This slide contains forward-looking statements. Actual result may be materially different.

41 Financial update Carl Mellander CFO

42 Financial priorities communicated at CMD 2017 Drive focus on profit and cash CMD 2017 Secure resilience Improve visibility and accountability Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 42

43 Ericsson turnaround Operating margin 1 (%) >12% 7.0% >10% Focused strategy launch 2.3% 0.6% -0.1% Increase R&D investment Cost savings program launched 0.7% 2.0% Gross margin hits 35% 4.1% Cost savings program complete Back to top line growth No later than 2022 Isolated quarters Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 43 1Operating margin excludes restructuring charges numbers are not IFRS reconciled and also exclude xo items. This slide contains forward-looking statements. Actual result may be materially different.

44 Turnaround is visible across financial metrics Net sales (SEK b. rolling 4Q) Q Q Q Q Q Q YoY change in quarterly net sales adjusted to comparable units and currency (%)2 Net sales turned to growth Underlying gross margin 1 (% quarterly) Q Q Q Q Strong gross margin improvement Free cash flow before M&A (SEK b. rolling 4Q) Q Q Q Q Positive and increasing free cash flow 1 Gross margin excludes restructuring charges excludes xo items and are not restated for IFRS growth rates not adjusted for IFRS 15 Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 44

45 All segments contributing to turnaround Networks Digital Services Managed Services Emerging Business & Other Net sales (SEK b.) Q Q Q Q Q Q Q Q3 Gross margin 1 (%) 35% 41% 32% 37% -4% 13% 21% 32% Operating margin 1 (%) 12% 16% -30% -16% -9% 7% -66% -42% Strong growth in North America Top line decline flattening out Increased hardware and services Significant cost savings across service margins delivery, SG&A and R&D Increased R&D investments pay off with improved gross margin and sales Lower sales due to contract exits Gross margin improved through efficiency measures and contract reviews From losses to stable profits Top line growth from iconectiv Losses in the Media business reduced Continued disciplined investments in Emerging Business 1Excludes restructuring charges Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 45

46 Improved cost structure Total cost 1 as % of net sales 1% 5% 70% 64% Cost effective product portfolio and delivery Service delivery efficiency (part of SEK 10 b. program) Scope review and contract exits Exiting non-core and underperforming business Supply chain efficiencies Investments to strengthen technology leadership Strong link to improved gross margin Operating income Cost of sales R&D Selling expenses G&A Other * 16% 19% 6% 7% 6% 5% YTD Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page YTD Underlying decrease in selling expenses Decrease offset by provisions for variable compensation and increased cost of customer field trials G&A reductions (part of SEK 10 b. program) *Other items include revaluation of customer financing, impairment losses on trade receivables, other operating income and expenses, shares in earnings of JV and associated companies 1 All periods excluding restructuring charges 2017 also excludes xo items and are not restated for IFRS 15

47 Strengthened financial resilience Gross and net cash position (SEK b.) Q3 Net cash Gross cash Q Q3 Secured strong cash position Debt maturity profile (SEK b.) Long-term credit rating development A1/A+ Baa2/BBB Ba1/BB+ A3/A- Ba3/BB Swedish Export Credit Corporation Nordic Investment Bank European Investment Bank Notes and Bonds B2/B Moody s S&P Fitch Investment grade (Baa3/BBB-) Well diversified debt maturity profile and two undrawn credit facilities (USD 2 b. RCF & EUR 250 m. R&D financing from EIB) Restoring profitability expected to reinstate Investment Grade rating over time Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 47 This slide contains forward-looking statements. Actual result may be materially different.

48 Improved capital efficiency Working capital (days) Improvement actions Target 100 Implementation of the focused strategy Selective deal taking Enhanced processes for credit management and collection Incentives tied to Economic Profit Reduction of working capital in 2017 partly related to write-downs and provisions Q3 YTD FY Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 48 Working capital days equals sum of days sales outstanding and inventory days less payable days 2017 numbers are not IFRS reconciled

49 New incentive structure in 2018 Short-term variable compensation metrics Long-term variable compensation metrics Executive team Senior executives Group functions 1 Business areas 1 Market areas 1 Economic profit (Group & Market / Business areas) Economic profit (Group & Market / Business areas) Economic profit (Group & Market / Business areas) Shareholder return Shareholder return Operating income Operating income Operating income as metric to incentivize reaching company turnaround targets Economic profit introduced as a new metric to sharpen focus on capital efficiency along with profit Sales force Sales, margins, cash collection Economic profit measures operating income minus cost of capital Rewarding our employees based on key metrics for value creation Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 49 1Not all employees in group functions, business areas and market areas are included in short-term variable program

50 Next stage Operating margin 1 (%) >12% 7.0% >10% Focused strategy launch 2.3% 0.6% -0.1% Increase R&D investment Cost savings program launched 0.7% 2.0% Gross margin hits 35% 4.1% Cost savings program complete Back to top line growth No later than 2022 Isolated quarters Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 50 1Operating margin excludes restructuring charges numbers are not IFRS reconciled and also exclude xo items. This slide contains forward-looking statements. Actual result may be materially different.

51 Priorities for further value creation Continue to drive focus on profit, cash and resilience Grow profitably Drive focus on profit and cash Secure resilience Selective Disciplined Profitable Streamlined portfolio Execution Meeting group targets Improve visibility and accountability Targeted markets Financial discipline Positive net present value Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 51 This slide contains forward-looking statements. Actual result may be materially different.

52 Targets 2020 and 2022 SEK b. CMD 2017 CMD CMD Sales Momentum for Networks in a stronger market Gross margin 1 R&D SG&A 37-39% Continued investments but growing slower than sales Structural improvements Continued R&D investments to drive margin expansion Automation and efficiency improvements Continued increased 5G investments R&D efficiency and portfolio optimization in Digital Services High focus on driving efficiencies Operating margin 1 >10% Free Cash Flow (before M&A) Positive >12% Strong 2020 target maintained. >12% to be reached no later than 2022 Free cash flow ambition maintained Underlying assumptions Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 52 USD to SEK 8.70 Managed Services addressable market; 2-4% CAGR (Source: External sources and Ericsson analysis) Network: RAN equipment 2% CAGR (Source: Dell Oro) Digital Services 1-4% CAGR (Source: External sources and Ericsson analysis) 1 Numbers exclude restructuring charges. This slide contains forward-looking statements. Actual result may be materially different.

53 Currency impact and hedging activities Sales exposure to currencies in 2017 Other JPY 45% USD INR CNY EUR Largest exposure in USD USD to SEK movements has a direct impact on reported sales and income SEK/USD 8.70 used in 2020 targets 10% stronger USD to SEK results in ~5% impact on sales and ~1pp on operating margin SEK to USD development SEK/USD Actions to limit FX exposure Maximize natural hedging by using USD as sourcing currency Natural hedging complemented by financial forecast hedging Q Q Q Q3 Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 53 This slide contains forward-looking statements. Actual result may be materially different.

54 Illustrative bridge on free cash flow Illustrative Bridge from operating income to free cash flow Operating income % of net sales >12% Comments - Financial net, tax and other ~4% Planning assumption based on historical levels + +/- - - Add back depreciation & amortization Change in working capital Capex Restructuring ~3-4% +-0 ~2% 1% Planning assumption based on historical levels with less capitalized development Striving to maintain working capital efficiency but swings may impact cash flow Planning assumption ~2% per year with limited capitalization of development expenses Current assumption as a base level going forward 1 Gradually decline towards 1% = Free cash flow (before M&A) >8% - M&A 1-2% Planning assumption 1-2% per year Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 54 1As we will continue to focus on efficiency improvements across the company, there can be differences between the years and we will continue to give updates regularly if any material deviations are expected This slide contains forward-looking statements. Actual result may be materially different.

55 Capital ambitions and strategy remain Capital ambitions Capital structure strategy Ambition 2018 Q3 Turnaround phase ( ) Repositioning phase (2020-onwards) Equity ratio Net cash Credit rating >40% >Pension liability 1 (SEK 26 b.) Solid inv. grade 36% SEK 32 b. BB+ Stable/ Ba2 Stable Secure cash position and flexibility to invest Focus on cash flow with tight management of working capital and investments Opportunistic approach to funding and no maturities before end of 2020 Optimize the capital structure based on improved business performance Restore investment grade rating Deliver strong free cash flow, grow dividend and increase shareholder returns Capital ambition based on a strong equity ratio and ample liquidity Capital structure strategy with focus on delivering free cash flow 1 Pension liability Net liability SEK 26 b. as per Sep 30, 2018, mainly related to Sweden Sweden net exposure is insured by external party Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 55 This slide contains forward-looking statements. Actual result may be materially different.

56 Continuous cost improvements ü SEK 10 b. program has been essential in restoring profitability and reaching more competitive cost levels Cost program has helped to establish cost mentality and cemented cost management structures Cost management structure and ways of working to continue Continued governance under Group Transformation Office Enhanced efforts in selected areas Review potential Selling, R&D and G&A productivity improvements Next level of cost efficiencies Next step in digital transformation, end-to-end process simplification & continued investment in R&D Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 56

57 Summary Our focused strategy has led us back to stability and profitability We continue with relentless profit and cash focus, securing resilience and improving visibility and accountability As profit and capital efficiency have improved, we pursue disciplined growth for further value creation Ericsson Telefonaktiebolaget Internal LM Ericsson 2018 Ericsson Capital Markets Day 2018, Nov 8 Page 57 This slide contains forward-looking statements. Actual result may be materially different.

58 Q&A

59 Lunch