Report of Foreign Issuer (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

July 18, 2018

Commission File Number

000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, 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 ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Announcement of LM Ericsson Telephone Company, July 18, 2018 regarding “Ericsson reports second quarter results 2018”.

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.


T ELEFONAKTIEBOLAGET LM E RICSSON (publ)

By:		/s/ XAVIER DEDULLEN
		Xavier Dedullen
		Senior Vice President, Chief Legal Officer

By:		/s/ CARL MELLANDER
		Carl Mellander
		Senior Vice President, Chief Financial Officer

Date: July 18, 2018

LOGO

Second quarter report 2018

Stockholm, July 18, 2018


Second quarter highlights

•		Sales as reported and sales adjusted for comparable units and currency both decreased by -1% YoY. Segment Networks showed a sales growth of 2% YoY, both in reported sales and sales adjusted for comparable units and currency, with strong sales growth in North America.

•		Gross margin was 34.8% (29.1%). Gross margin excluding restructuring charges improved to 36.7% (30.9%), driven mainly by cost reductions and the continued ramp-up of Ericsson Radio System (ERS).

•		Operating expenses were SEK 17.2 (15.4) b. Operating expenses excluding restructuring charges increased to SEK 16.3 (14.8) b. Cost reductions in SG&A were offset by increased investments in R&D, higher provision for variable compensation and an increase in provision for overdue trade receivables.

•		Operating income was SEK 0.2 (-0.5) b. Operating income excluding restructuring charges was SEK 2.0 (1.0) b.

•		Networks operating margin excluding restructuring charges was 13.3% (13.4%), with an improved gross margin offset by increased investments in R&D.

•		Digital Services operating income (loss) excluding restructuring charges improved to SEK -1.5 (-1.8) b. due to improved gross margin to 42.6% (35.7%), mainly driven by cost reductions.

•		Managed Services operating margin excluding restructuring charges improved to 6.5% (-2.1%) as a result of cost reductions and customer contract reviews.

•		Cash flow from operating activities was SEK 1.4 (0.0) b. and free cash flow was SEK -0.6 (-1.3) b. Net cash increased to SEK 33.1 (24.0) b.


	Q2			Q2			YoY			Q1			QoQ			6 months			6 months
SEK b.	2018			2017			change			2018			change			2018			2017
Net sales		49.8			50.3			-1	%		43.4			15	%		93.2			98.1
Sales growth adj. for comparable units and currency		—			—			-1	%		—			9	%		—			—
Gross margin		34.8	%		29.1	%		—			34.2	%		—			34.5	%		22.6	%
Operating income (loss)		0.2			-0.5			—			-0.3			—			-0.1			-11.8
Operating margin		0.3	%		-1.1	%		—			-0.7	%		—			-0.2	%		-12.0	%
Net income (loss)		-1.8			-0.5			—			-0.7			—			-2.5			-10.5
EPS diluted, SEK		-0.58			-0.14			—			-0.25			—			-0.83			-3.22
EPS (non-IFRS), SEK ¹⁾		-0.09			0.33			—			0.11			—			0.02			-1.86
Cash flow from operating activities		1.4			0.0			—			1.6			-8	%		3.0			-1.5
Free cash flow ²⁾		-0.6			-1.3			-54	%		0.3			—			-0.3			-4.6
Net cash, end of period		33.1			24.0			38	%		35.6			-7	%		33.1			24.0
Gross margin excluding restructuring charges		36.7	%		30.9	%		—			35.9	%		—			36.3	%		25.0	%
Operating income (loss) excluding restructuring charges		2.0			1.0			109	%		0.9			138	%		2.9			-8.6
Operating margin excluding restructuring charges		4.1	%		1.9	%		—			2.0	%		—			3.1	%		-8.7	%

1)	EPS diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges. When a company reports a loss, the number of shares used for calculating earnings diluted per share shall be the same as for basic calculation.

2)	Free cash flow: Cash flow from operating activities less net capital expenditures and other investments, see Alternative Performance Measures (APM) at the end of the report.

Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

1 Ericsson | Second Quarter Report 2018

CEO comments

“We continue to execute on our focused business strategy and are tracking well towards our 2020 target of an operating margin ¹⁾ of at least 10%. The investments in technology leadership have resulted in increased gross margin ¹⁾ to 37% (31%) and growth in segment Networks.

Customers turn to new technology in order to manage growing demand for data with sustained quality and without increasing costs. This, together with fixed wireless access, represent the first business cases for 5G. We will continue to invest in securing leadership in 5G. This includes further investments in R&D, to solidify our complete 5G portfolio, and investments in field trials. We also intend to selectively capture new business opportunities, through our 5G-ready 4G portfolio, to extend our footprint as operators prepare for 5G. We provide solutions for all frequency bands for 5G, which strengthens our global competitiveness.

We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G. Networks gross margin ¹⁾ improved to 40% (36%). Digital Services is tracking towards a turnaround and gross margin ¹⁾ improved to 43% (36%) YoY, and was stable QoQ. However, while losses decreased both YoY and QoQ, we still have a lot of work to do. The top priority is to turn around performance in the segment, but we are in parallel accelerating investments to make the portfolio 5G ready and cloud native. In Managed Services, gross margin ¹⁾ improved to 14% (2%) supported by continued efficiency gains and customer contract reviews, resulting in a positive operating income. We have also on-boarded several new contracts in the quarter.

In segment Emerging Business and Other, we invest in strategic future growth areas such as Internet of Things (IoT). We see increasing momentum with several important customer wins with our connectivity platform in the quarter. However, sales are still low. Our media business generated a loss of SEK -0.4 b. in the quarter. We expect to close the announced divestment of Media Solutions, recently renamed MediaKind, by the end of the third quarter.

The SEK 10 b. cost reduction program, launched in Q2 2017, has been successfully completed. We reduced the total workforce by more than 2,000 in the quarter and by 20,500 in total as part of the program. These are tough but necessary actions to ensure competitiveness. Run-rate savings to date amount to more than SEK 10 b., and the effect is gradually becoming visible in the earnings, mainly through lower service delivery costs and common costs. Even though the cost reduction program is completed, our estimate for restructuring charges of SEK 5-7 b. for the full year remains, as we will continue our efficiency activities throughout the year.

Free cash flow improved to SEK -0.6 (-1.3) b. and our cash position remains strong. Our work to further strengthen the balance sheet continues.

We see strengthened momentum for 5G in the quarter and it is clear that our 5G-ready portfolio is attractive and competitive in the market. We have gradually improved the cost position and will continue to have a strict cost focus in order to further increase competitiveness and efficiency. We are confident in reaching our long-term target of at least 12% operating margin ¹⁾ beyond 2020.”

Börje Ekholm

President and CEO

1)	Excluding restructuring charges

Planning assumptions going forward

Market related

•

The Radio Access Network (RAN) equipment market is estimated to decline by -2% for full-year 2018 with 2% CAGR for 2017-2022. In 2018, the Chinese market is expected to decline due to reduced LTE investments, while there is positive momentum in North America.

Currency exposure

•

Rule of thumb: A weakening by 10% of USD to SEK would have a negative impact of approximately -5% on net sales and approximately -1 percentage point on operating margin (based on 2017 full-year currency exposure). For historical rates, see www.ericsson.com/en/investors

Ericsson related, 2018

•

Sales: Seasonality (5-year average sales) is -2% between Q2 and Q3 and 23% between Q3 and Q4.

•

The current annual revenue baseline of the IPR licensing contract portfolio is approximately SEK 7 b.

•

Restructuring charges for full-year 2018 are estimated to be SEK 5-7 b.

•

Actual and estimated net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs:

2018

2017

2018

2019

SEK b.

Actual

Estimate

Actual

Estimate

Cost of sales

-0.2

-0.9

-2.6

-1

R&D expenses

-0.3

-0.6

-0.3

-1

Total impact

-0.5

-1.5

-2.9

-2

-1 to -2

•

The divestment of Media Solutions is expected to be closed by the end of Q3 2018 with estimated additional expenses of SEK -0.3 b. in Q3, related to the divestment. Results after the divestment will be reported as share of earnings according to the equity method. Ericsson’s holding will be 49% of the shares. Media Solutions sales were SEK 3.2 b. in 2017.

2 Ericsson | Second Quarter Report 2018

CEO comments

Financial highlights


SEK b.	Q2 2018			Q2 2017			YoY change			Q1 2018			QoQ change			6 months 2018			6 months 2017
Net sales		49.8			50.3			-1	%		43.4			15	%		93.2			98.1
Sales growth adj. for comparable units and currency		—			—			-1	%		—			9	%		—			—
Gross income		17.3			14.6			18	%		14.9			17	%		32.2			22.1
Gross margin (%)		34.8	%		29.1	%		—			34.2	%		—			34.5	%		22.6	%
Research and development expenses		-9.8			-8.4			17	%		-9.1			8	%		-18.9			-17.4
Selling and administrative expenses		-7.1			-6.8			3	%		-6.2			15	%		-13.2			-15.0
Impairment losses on trade receivables		-0.4			-0.2			57	%		0.0			—			-0.4			-1.9
Other operating income and expenses		0.0			0.2			-95	%		0.1			-87	%		0.1			0.4
Operating income (loss)		0.2			-0.5			—			-0.3			—			-0.1			-11.8
Operating margin (%)		0.3	%		-1.1	%		—			-0.7	%		—			-0.2	%		-12.0	%
Financial net		-0.8			0.1			—			-0.5			50	%		-1.4			-0.4
Taxes		-1.2			0.0			—			0.1			—			-1.0			1.7
Net income (loss)		-1.8			-0.5			—			-0.7			—			-2.5			-10.5
Restructuring charges		-1.9			-1.5			24	%		-1.2			60	%		-3.1			-3.3
Gross income excluding restructuring charges		18.3			15.6			17	%		15.6			17	%		33.9			24.5
Gross margin excluding restructuring charges		36.7	%		30.9	%		—			35.9	%		—			36.3	%		25.0	%
Operating expenses excluding restructuring charges		-16.3			-14.8			10	%		-14.8			10	%		-31.1			-33.5
Operating income (loss) excl. restructuring charges		2.0			1.0			109	%		0.9			138	%		2.9			-8.6
Operating margin excluding restructuring charges		4.1	%		1.9	%		—			2.0	%		—			3.1	%		-8.7	%

Net sales

Sales as reported decreased by -1 %YoY. Sales adjusted for comparable units and currency decreased by -1% YoY. Sales as reported in Networks increased by 2% YoY, driven by strong sales growth in North America. Digital Services sales declined by -11% YoY, mainly due to continued decline in legacy product sales and lower telecom core sales in North East Asia. Managed Services sales declined by -2% YoY, mainly as a result of customer contract reviews. Sales in Emerging Business and Other increased by 2% YoY, mainly driven by growth in iconectiv and IoT partly offset by lower sales in the media solutions business.

Sequential sales increased by 15%. Sales adjusted for comparable units and currency increased by 9% QoQ.

IPR licensing revenues

IPR licensing revenues declined to SEK 1.8 (2.0) b. YoY and decreased sequentially from SEK 1.9 b.

Gross margin

Gross margin improved to 34.8% (29.1%). Gross margin excluding restructuring charges increased to 36.7% (30.9%) with significant improvements in all segments. Key drivers of the improvement were cost reductions, ramp-up of Ericsson Radio System (ERS) product platform, market mix and good progress in addressing non-strategic contracts in Managed Services. Completion in 2017 of the amortization of software release development expenses had a positive effect on gross margin YoY .

Sequentially, gross margin increased to 34.8% from 34.2%. Gross margin excluding restructuring charges improved sequentially to 36.7% from 35.9%.

Operating expenses

Operating expenses increased to SEK 17.2 (15.4) b. Operating expenses excluding restructuring charges increased to SEK 16.3 (14.8) b., mainly due to increased R&D expenses while selling and administrative expenses (SG&A) were stable YoY.

LOGO

R&D expenses were SEK 9.8 (8.4) b. R&D expenses excluding restructuring charges increased to SEK 9.3 (8.0) b., mainly due to increased 4G and 5G investments in Networks, in line with the strategy. The net effect of higher amortized than capitalized R&D expenses was SEK -0.3 (0.1) b.

SG&A increased YoY due to higher restructuring charges. SG&A excluding restructuring charges were flat at SEK 6.6 b. YoY. Cost reductions of SEK 0.7 b. YoY were offset by costs related to revaluation of customer financing of SEK -0.2 b. and higher provision for variable compensation.

3 Ericsson | Second Quarter Report 2018

Financial highlights

Each quarter, 25% of the anticipated full year variable compensation is provisioned for. In Q2 2017, SG&A were positively impacted as provisions were reversed following the weak company results.

Impairment losses on trade receivables increased to SEK -0.4 (-0.2) b. Impairment testing is made continuously using a methodology where country and customer risks are assessed.

Operating expenses increased sequentially following increased investments in Networks R&D, impacted by seasonality and currency effects. Operating expenses increased by approximately SEK -0.3 b. QoQ, due to currency effects.

Other operating income and expenses

Other operating income and expenses, which comprises several minor items, were SEK 0.0 (0.2) b. Other operating income and expenses in Q1 2018 were SEK 0.1 b.

Consequences of technology and portfolio shifts

Due to technology and portfolio shifts, the company is reducing the capitalization of development expenses for product platforms and software releases as well as the deferral of hardware costs. As a consequence, higher amortization than capitalization of development expenses and higher recognition than deferral of hardware costs had a negative impact on operating income YoY. The amounts related to capitalized software releases were fully amortized in 2017.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs

SEK b.

Q2
2018

Q2
2017

Q1
2018

Cost of sales

-0.2

-0.4

-0.3

R&D expenses

-0.3

0.1

-0.4

Total impact

-0.5

-0.3

-0.7

Restructuring charges

Restructuring charges were SEK -1.9 (-1.5) b. Restructuring charges in Q1 2018 were SEK -1.2 b.

Operating income and margin

Operating income increased to SEK 0.2 (-0.5) b. YoY. Operating income excluding restructuring charges increased to 2.0 (1.0) b. driven by increased gross margin partly offset by increased R&D expenses. Operating margin excluding restructuring charges improved to 4.1% (1.9%).

Operating income improved sequentially to SEK 0.2 b. from -0.3 b. Operating income excluding restructuring charges improved to SEK 2.0 b. from SEK 0.9 b., driven by higher sales and increased gross margin. This was partly offset by increased operating expenses.

Financial net

Financial net was SEK -0.8 (0.1) b. mainly due to negative revaluation and realization effects of foreign exchange forecast hedging at SEK -0.3 (0.3) b. and negative return on assets. The financial net declined sequentially from SEK -0.5 b. In Q1 2018 the revaluation and realization effects of foreign exchange forecast hedging was SEK -0.1 b.

Taxes

Taxes amounted to SEK -1.2 (0.0) b. in the quarter and were impacted by SEK -0.7 b. as a result of revaluation of deferred tax assets due to a change in Swedish corporate tax rate. Certain profits realized in foreign jurisdictions and adjustments for taxes related to prior periods also impacted taxes negatively.

Net income (loss) and EPS

The losses in net income and the negative EPS diluted increased both YoY and QoQ, following increased taxes and negative financial net, partly offset by improved operating income.

Employees

The number of employees on June 30, 2018, was 95,260 – a net reduction of 2,321 employees in the quarter and of 13,867 employees compared with June 30, 2017. The decrease is mainly a result of activities under the cost reduction program.

Focused strategy execution

The following four measures are indicators of the progress of strategy execution.


Area	Activity	Status Q2 2018
Networks	Transition to new Ericsson Radio System	84% (2017: 61%) YTD accumulated (ERS radio unit deliveries out of total radio unit deliveries)
Digital Services	- Growth in sales of new product portfolio - Addressing critical customer contracts	- Net sales 12 months rolling -14% - Out of 45 contracts identified, in total 16 have been addressed (8 in Q218 isolated)
Managed Services	Addressing low- performing customer contracts	Out of a total of 42 contracts identified, 33 (2 in Q218 isolated) have been addressed to result in an annualized profit improvement of SEK 0.8 b. (Q1 2018: SEK 0.7 b.)

Changes in segment reporting

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solutions (BSS) were moved between the segments Managed Services and Digital Services, with a sales increase in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b. (positive for Managed Services, negative for Digital Services). Historical data have been restated to reflect the organizational change.

4 Ericsson | Second Quarter Report 2018

Financial highlights

Market area sales


	Second quarter 2018										Change
SEK b.	Networks		Digital Services		Managed Services		Emerging Business and Other		Total		YoY			QoQ
South East Asia, Oceania and India		5.0		1.1		0.9		0.0		7.0		-3	%		9	%
North East Asia		3.6		0.8		0.4		0.0		4.8		-19	%		41	%
North America		11.4		2.1		0.8		0.0		14.3		11	%		27	%
Europe and Latin America		7.8		2.9		3.4		0.1		14.2		0	%		9	%
Middle East and Africa		3.0		1.6		1.0		0.0		5.6		-2	%		-2	%
Other ¹⁾		1.7		0.3		0.0		1.9		3.9		-7	%		12	%

Total		32.4		8.8		6.5		2.1		49.8		-1	%		15	%

¹⁾	Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other

South East Asia, Oceania and India

Sales declined YoY. Large 4G deployments are ongoing, however timing of orders impacted Networks sales negatively YoY. Digital Services sales declined slightly YoY, due to timing of project milestones. Managed Services sales increased, partly driven by a newly signed contract.

North East Asia

Sales declined YoY due to lower Networks sales in Mainland China as a consequence of reduced LTE investments. Digital Services sales declined YoY, due to a telecom core contract delay. Sales in Japan recovered after finalization of spectrum allocations.

North America

Sales increased YoY, primarily in Networks, driven by investments in 5G readiness across all major customers. Digital Services sales declined slightly YoY, due to timing of project milestones.

Europe and Latin America

Sales were stable YoY. Continued sales growth in parts of Europe and Latin America was offset by a decline in certain markets. In addition, Managed Services sales declined YoY as a consequence of addressing non-strategic contracts.

Middle East and Africa

Sales declined slightly YoY. Networks sales were negatively impacted by monetary restrictions in a few markets in the Middle East. The decline was partly offset by growth in Digital Services.

Other

Sales declined YoY, mainly in Media Solutions. IPR licensing revenues amounted to SEK 1.8 (2.0) b.

5 Ericsson | Second Quarter Report 2018

Market area sales

Segment results

Networks


SEK b.	Q2 2018			Q2 2017			YoY change			Q1 2018			QoQ change			6 months 2018			6 months 2017
Net sales		32.4			31.7			2	%		28.6			13	%		61.0			63.3
Of which products		22.3			21.3			5	%		19.5			15	%		41.8			43.1
Of which IPR licensing revenues		1.5			1.7			-11	%		1.5			-2	%		3.0			3.4
Of which services		10.1			10.4			-3	%		9.1			10	%		19.2			20.2
Sales growth adjusted for comparable units and currency		—			—			2	%		—			7	%		—			—
Gross income		12.6			10.9			15	%		11.1			13	%		23.7			20.9
Gross margin		38.8	%		34.4	%		—			38.9	%		—			38.8	%		33.0	%
Operating income		3.5			3.4			4	%		3.4			5	%		6.9			6.1
Operating margin		10.9	%		10.8	%		—			11.8	%		—			11.3	%		9.7	%
Restructuring charges		-0.7			-0.8			-8	%		-0.5			56	%		-1.2			-2.2
Gross income excl. restructuring charges		13.0			11.4			14	%		11.5			13	%		24.6			22.6
Gross margin excl. restructuring charges		40.2	%		36.0	%		—			40.4	%		—			40.3	%		35.7	%
Operating income excl. restructuring charges		4.3			4.2			1	%		3.9			12	%		8.1			8.3
Operating margin excl. restructuring charges		13.3	%		13.4	%		—			13.5	%		—			13.4	%		13.1	%

Net sales

Sales as reported and sales adjusted for comparable units and currency increased by 2% YoY. The increase is mainly due to strong growth in North America, driven by investments in 5G readiness. This was partly offset by lower sales in South East Asia, Oceania and India and in the Middle East and North East Asia.

Sales increased by 13% QoQ. Sales adjusted for comparable units and currency increased by 7% QoQ .

Gross margin

Gross margin increased to 38.8% (34.4%) YoY. Gross margin excluding restructuring charges increased to 40.2% (36.0%) due to improved margins of hardware and services, driven by cost reductions, a successful shift of the radio platform and favorable market mix.

Gross margin was flat QoQ at 38.8%. Gross margin excluding restructuring charges was 40.2%, compared with 40.4% in Q1 2018. Higher recognition than deferral of hardware costs impacted gross margin negatively by SEK -0.1 b. QoQ.

Operating margin

Operating margin was flat YoY at 10.9% (10.8%). Operating margin excluding restructuring charges was 13.3% (13.4%), with improved gross margin offset by increased R&D expenses. Restructuring charges were SEK -0.7 (-0.8) b.

Operating margin declined QoQ to 10.9% from 11.8%. Operating margin excluding restructuring charges decreased to 13.3% from 13.5% due to increased R&D expenses, partly compensated by higher sales. The change in net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs was SEK 0.2 b. QoQ.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs

SEK b.

Q2
2018

Q2
2017

Q1
2018

Cost of Sales

-0.2

-0.1

-0.3

R&D expenses

0.2

0.1

Total impact

0.0

-0.2

Strategy execution

As presented at the 2017 Capital Markets Day, the target for Networks is to improve the operating margin to 15%-17% by 2020. Three important activities for profitability improvements are to

- invest in R&D to safeguard a leading portfolio

- fully transition the radio unit deliveries to Ericsson Radio System (ERS) for increased competitiveness

- continue to make savings in service delivery and common costs.

The ERS, which was introduced to the market in 2015, has proven to be competitive as well as creating a strong market position. For the first half of 2018, ERS accounted for 84% of total radio unit deliveries. The plan is to have fully transitioned the radio unit deliveries to ERS by the end of 2018.

In the quarter, a divestment of a Spanish fiber service operations, with approximately 600 service engineers, was completed.

6 Ericsson | Second Quarter Report 2018

Segment results | Networks

Digital Services


SEK b.	Q2 2018			Q2 2017			YoY change			Q1 2018			QoQ change			6 months 2018			6 months 2017
Net sales		8.8			9.9			-11	%		7.3			22	%		16.1			18.0
Of which products		4.5			5.4			-17	%		3.9			13	%		8.4			9.7
Of which IPR licensing revenues		0.3			0.4			-11	%		0.3			-2	%		0.7			0.7
Of which services		4.4			4.5			-4	%		3.3			32	%		7.7			8.3
Sales growth adjusted for comparable units and currency		—			—			-12	%		—			16	%		—			—
Gross income		3.5			3.3			5	%		2.9			20	%		6.4			1.0
Gross margin		39.1	%		33.2	%		—			39.8	%		—			39.5	%		5.4	%
Operating income (loss)		-2.4			-2.2			6	%		-2.6			-9	%		-5.0			-11.2
Operating margin		-26.9	%		-22.6	%		—			-35.9	%		—			-30.9	%		-62.4	%
Restructuring charges		-0.9			-0.5			94	%		-0.6			52	%		-1.5			-0.7
Gross income excl. restructuring charges		3.8			3.5			7	%		3.1			21	%		6.9			1.4
Gross margin excl. restructuring charges		42.6	%		35.7	%		—			42.9	%		—			42.7	%		7.8	%
Operating income (loss) excl. restructuring charges		-1.5			-1.8			-16	%		-2.0			-26	%		-3.5			-10.5
Operating margin excl. restructuring charges		-16.9	%		-18.0	%		—			-27.9	%		—			-21.9	%		-58.4	%

Net sales

Sales as reported declined by -11% YoY. Sales adjusted for comparable units and currency decreased by -12% YoY. Legacy product sales continued to decline in the quarter. New product sales declined YoY, mainly due to lower telecom core sales in North East Asia as a consequence of a contract delay. The demand for our 5G-ready and cloud-native products remains strong with several signed contracts in the quarter.

Sales increased by 22% QoQ driven by software and services, following a seasonally weaker Q1, and by increased sales in large transformation projects. Sales adjusted for comparable units and currency increased by 16% QoQ.

Gross margin

Gross margin improved to 39.1% (33.2%). Gross margin excluding restructuring charges increased to 42.6% (35.7%), supported by improved software margins and cost reductions in services. Reduced amortization of software release development expenses had a positive impact of SEK 0.3 b. on gross income YoY.

Gross margin declined QoQ to 39.1% from 39.8% . Gross margin excluding restructuring charges declined slightly QoQ to 42.6% from 42.9%, due to reduced services margins and an increased services share, driven by increased sales in large transformation contracts. This was partly compensated by continued cost reductions and improved software margins.

Operating income (loss)

Operating income (loss) decreased YoY to SEK -2.4 (-2.2) b. Operating income (loss) excluding restructuring charges improved to SEK -1.5 (-1.8) b., due to improved gross margin and reduced operating expenses partly offset by lower sales. Operating expenses decreased despite an impact from higher amortized than capitalized development expenses of SEK -0.4 (0.1) b. and impairment losses on trade receivables of SEK -0.2 (0.0) b. Total restructuring charges of SEK -0.9 (-0.5) b. had a negative impact on operating income YoY.

Operating income (loss) improved QoQ to SEK -2.4 b. from -2.6 b. Operating income excluding restructuring charges improved to SEK -1.5 b. from -2.0 b., driven by increased sales.

Net impact from amortization and capitalization of development expenses

SEK b.

Q2
2018

Q2
2017

Q1
2018

Cost of Sales

0.0

-0.3

0.0

R&D expenses

-0.4

0.1

-0.4

Total impact

-0.4

-0.2

-0.4

Strategy execution

As presented at the Capital Markets Day 2017, the target is to turn around Digital Services into low single-digit operating margin by 2020. Cost reduction activities were intensified in the quarter across the areas of service delivery, selling and administrative expenses and R&D. These activities will continue, aiming for simplicity and efficiency. While new ways of working are improving R&D efficiency, at the same time investments continue in a portfolio of 5G-ready and cloud-native products in order to defend current market position and prepare Digital Services for future growth.

A key activity for the turnaround is to manage and complete 34 identified critical multi-year customer contracts and to either exit or complete 11 identified non-strategic contracts. The plan is to complete or exit approximately 50% of the 45 contracts in 2018. 16 contracts have been addressed at the end of Q2 2018.

The ongoing digitalization drives opportunities for operators to reduce costs and be more agile by; automating operations, digitally serving and engaging with customers and building programmable core networks. Consequently, operators increasingly invest in the areas where Digital Services provide solutions. Rolling 12 months, however, sales of the new portfolio declined by -14%, mainly due to lower telecom core sales as a consequence of a contract delay in North East Asia. It is not unusual that such sales vary between quarters.

7 Ericsson | Second Quarter Report 2018

Segment results | Digital Services

Managed Services


SEK b.	Q2 2018			Q2 2017			YoY change			Q1 2018			QoQ change			6 months 2018			6 months 2017
Net sales		6.5			6.7			-2	%		5.9			11	%		12.4			13.0
Sales growth adjusted for comparable units and currency		—			—			-3	%		—			6	%		—			—
Gross income (loss)		0.8			0.0			—			0.5			65	%		1.3			-0.5
Gross margin		12.4	%		0.3	%		—			8.3	%		—			10.5	%		-4.0	%
Operating income (loss)		0.3			-0.3			216	%		0.1			199	%		0.4			-2.1
Operating margin		4.6	%		-3.9	%		—			1.7	%		—			3.2	%		-16.1	%
Restructuring charges		-0.1			-0.1			7	%		-0.1			141	%		-0.2			-0.2
Gross income (loss) excl. restructuring charges		0.9			0.1			—			0.5			69	%		1.5			-0.3
Gross margin excl. restructuring charges		14.0	%		2.0	%		—			9.1	%		—			11.7	%		-2.5	%
Operating income (loss) excl. restructuring charges		0.4			-0.1			—			0.2			179	%		0.6			-1.9
Operating margin excl. restructuring charges		6.5	%		-2.1	%		—			2.6	%		—			4.6	%		-14.6	%

Net sales

Sales as reported decreased by -2% YoY, mainly as a result of contract reviews. Sales in Managed Services IT showed good growth. Sales adjusted for comparable units and currency decreased by -3% YoY.

Sales as reported increased by 11% QoQ. Sales adjusted for comparable units and currency increased by 6% QoQ .

Gross margin

Gross margin increased to 12.4% (0.3%) YoY, and sequentially from 8.3%, supported by results of efficiency measures and by reviewed and addressed contracts. In the quarter, positive adjustments of SEK 0.1 b. were made, related to reversal of earlier provisions.

Operating income

Operating income increased to SEK 0.3 (-0.3) b. YoY, due to higher gross margin. Restructuring charges were SEK -0.1 (-0.1) b.

Sequentially, operating income increased due to higher gross margin and higher net sales.

Strategy execution

As part of the focused business strategy, Managed Services has its full attention on turning the business around through addressing low-performing operations and non-strategic contracts as well as improving efficiency in the service delivery process. Investments continue in machine intelligence, automation and analytics in order to further enhance user experience, improve efficiency and better manage the increasingly complex networks of tomorrow.

As presented at the 2017 Capital Markets Day, the ambition for Managed Services is to improve the operating margin to 4%-6% in 2020. In order to focus the business and improve profitability, 42 managed services contracts (out of >300) have been identified for exit, renegotiation or transformation. At the end of Q2 2018, 33 of the 42 contracts have been addressed resulting in an annualized profit improvement of approximately SEK 0.8 b., already fully impacting gross margin.

8 Ericsson | Second Quarter Report 2018

Segment results | Managed Services

Emerging Business and Other (includes Emerging Business, Media Solutions, Red Bee Media and iconectiv)


SEK b.	Q2 2018			Q2 2017			YoY change			Q1 2018			QoQ change			6 months 2018			6 months 2017
Net sales		2.1			2.0			2	%		1.7			24	%		3.7			3.8
Sales growth adjusted for comparable units and currency		—			—			1	%		—			18	%		—			—
Gross income		0.5			0.4			17	%		0.3			44	%		0.8			0.8
Gross margin		24.4	%		21.3	%		—			21.1	%		—			22.9	%		20.1	%
Operating income (loss)		-1.3			-1.5			-11	%		-1.2			11	%		-2.5			-4.6
Operating margin		-63.5	%		-73.0	%		—			-71.2	%		—			-66.9	%		-121.9	%
Restructuring charges		-0.1			-0.1			-2	%		-0.1			107	%		-0.2			-0.2
Gross income excl. restructuring charges		0.6			0.5			15	%		0.4			40	%		1.0			0.9
Gross margin excl. restructuring charges		27.4	%		24.3	%		—			24.3	%		—			26.0	%		22.5	%
Operating income (loss) excl. restructuring charges		-1.2			-1.3			-12	%		-1.1			6	%		-2.3			-4.4
Operating margin excl. restructuring charges		-57.4	%		-66.6	%		—			-67.5	%		—			-61.9	%		-117.3	%

Net sales

Sales as reported increased by 2% YoY. Sales adjusted for comparable units and currency increased by 1%, driven by growth in the iconectiv business. Sales and deliveries started, in the quarter, on a multi-year number portability contract in United States. This contract was awarded to iconectiv in 2015. Sales in Emerging Business continued to grow, driven by IoT.

Sales in the media business (Media Solutions and Red Bee Media) were SEK 1.3 (1.5) b. Media Solutions sales declined YoY, mainly due to lower sales in the discontinued portfolio. Red Bee Media sales declined slightly, mainly due to scope changes in contracts.

Sales increased by 24% QoQ, mainly due to growth in iconectiv, Media Solutions and Red Bee Media. Sales adjusted for comparable units and currency increased by 18% QoQ.

Gross margin

Gross margin increased YoY to 24.4% (21.3%). Gross margin excluding restructuring charges increased to 27.4% (24.3%), supported by improvements in IoT, Media Solutions and Red Bee Media.

Gross margin increased QoQ to 24.4% from 21.1%. Gross margin excluding restructuring charges increased to 27.4% from 24.3%, with a positive impact from operational improvements in Red Bee Media.

Operating income (loss)

Operating income improved YoY to SEK -1.3 (-1.5) b. Operating income excluding restructuring charges improved to SEK -1.2 (-1.3) b. driven by improved results in Media Solutions and iconectiv. Emerging Business operating income declined YoY, driven by increased investments in line with the strategy.

Media Solutions and Red Bee Media combined operating income excluding restructuring charges and corporate allocations was SEK -0.4 (-0.7) b. Results in Media Solutions improved YoY, driven by operational efficiencies, partly offset by costs related to the planned transaction for Media Solutions in Q3 2018.

Operating income declined QoQ to SEK -1.3 from -1.2 b. Operating income excluding restructuring charges declined to SEK -1.2 from -1.1 b. due to increased investments in Emerging Business in line with the strategy.

Net impact from amortization and capitalization of development expenses

SEK b.

Q2
2018

Q2
2017

Q1
2018

Cost of Sales

0.0

R&D expenses

-0.1

Total impact

-0.1

Strategy execution

As outlined at the Capital Markets Day in 2017, the target for segment Emerging Business and Other, including iconectiv, is a break-even result by 2020.

Selective investments will continue in Emerging Business to build a position and grow sales in new areas. Main investments are on IoT, UDN (Unified Delivery Network) and Emodo (mobile advertising and data monetization platform) business. Parts of the portfolio are still in an early phase, with focus on generating sales and scale the business, and do not yet cover the required investments, hence resulting in a negative bottom-line. The acquisition of Vidscale, a subcontractor to the Ericsson UDN business, was completed in the quarter and will lower the operational cost for the business.

For the media solutions business, Ericsson is partnering with One Equity Partners (OEP) and retaining a 49% ownership stake. This allows Ericsson to capture the upside of the business while at the same time taking an active part in the expected consolidation of the industry. Activities are accelerated to complete the transaction as planned during Q3 2018. Additional expenses related to the divestment of the media solutions business is estimated to be SEK -0.3 b. in Q3.

For Red Bee Media, the target is to achieve a sustainable profitable business, by continuing to develop and manage the business as an independent and focused media services entity within Ericsson. Operations and services propositions will be further developed, in line with the Red Bee Media tactical and transformational strategic execution plans.

9 Ericsson | Second Quarter Report 2018

Segment results | Emerging Business and other

Cash flow


SEK b.	Q2 2018		Q2 2017		Q1 2018
Net income reconciled to cash		-0.3		-0.1		-1.0
Changes in operating net assets		1.7		0.1		2.6
Cash flow from operating activities		1.4		0.0		1.6
Cash flow from investing activities		1.6		-2.0		-1.8
Cash flow from financing activities		-3.7		-8.9		-0.1
Effect of exchange rate changes on cash		1.0		-0.6		1.1
Net change in cash and cash equivalents		0.4		-11.5		0.8
Free cash flow: Cash flow from operating activities less net capital expenditures and other investments		-0.6		-1.3		0.3

Operating activities

Cash flow from operating activities was SEK 1.4 (0.0) b., driven by SEK 1.7 b. of positive change in net operating assets. Trade receivables were reduced, mainly due to good collection. Sales of trade receivables continued to trend downwards and were reduced both QoQ and YoY. Trade payables increased, mainly due to seasonal inventory build-up. Cash outlays related to restructuring charges were SEK -0.8 (-1.1) b. in the quarter.

Investing activities

Cash flow from investing activities excluding interest-bearing securities was SEK -2.1 (-1.3) b. M&A activities were SEK -0.4 (0.0) b., related to an acquisition in Emerging Business. Cash flow from investments in property, plant and equipment was SEK -1.0 (-1.0) b. and capitalized development expenses were SEK -0.3 (-0.3) b. Cash flow from interest-bearing securities was SEK 3.7 (-0.7) b. Together, the above items generated a positive cash flow from investing activities of SEK 1.6 (-2.0) b.

Financing activities

Cash flow from financing activities was negative at SEK -3.7 (-8.9) b. Dividends of SEK 3.3 (3.3) b. were paid out. Net change in cash and cash equivalents was SEK 0.4 (-11.5) b.

Free cash flow

Free cash flow improved to SEK -0.6 (-1.3) b. due to increased cash flow from operating activities partly offset by increased acquisitions.

Free cash flow decreased QoQ from SEK 0.3 b. to SEK -0.6 b. mainly due to negative effects of currency fluctuations and lower cash flow from operating activities.

10 Ericsson | Second Quarter Report 2018

Cash flow

Financial position


SEK b.	Jun 30 2018			Jun 30 2017			Mar 31 2018
+ Cash and cash equivalents		37.0			21.4			36.7
+ Interest-bearing securities, current		8.3			10.8			5.5
+ Interest-bearing securities, non-current		21.5			22.1			27.1
Gross cash		66.9			54.3			69.3
– Borrowings, current		2.6			3.2			2.6
– Borrowings, non-current		31.1			27.1			31.1
Net cash		33.1			24.0			35.6
Equity		93.6			119.9			93.5
Total assets		265.3			275.2			260.7
Capital turnover (times)		1.2			1.1			1.1
Return on capital employed (%)		0.1	%		-13.3	%		-1.0	%
Equity ratio (%)		35.3	%		43.6	%		35.9	%
Return on equity (%)		-5.7	%		-16.6	%		-3.5	%

Gross cash decreased by SEK -2.4 b. and net cash decreased by SEK -2.5 b. in the quarter, due to payment of dividends of SEK 3.3 b. Gross cash was SEK 66.9 b. and net cash was SEK 33.1 b.

Post-employments benefits increased in the quarter, to SEK 27.3 b. from SEK 25.6 b., due to decreased interest rates in Sweden and normal service and interest costs partly offset by return on pension assets and higher interest rates in the UK.

The Swedish defined benefit obligation (DBO) has been calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the DBO would have been approximately SEK 8.5 b. lower as of June 30, 2018.

The average maturity of long-term borrowings as of June 30, 2018, was 3.9 years, a decrease from 4.5 years 12 months earlier.

A credit facility agreement of EUR 250 million was signed with the European Investment Bank (EIB) in the quarter but has not yet been disbursed. The credit facility will mature five years after disbursement.

LOGO

11 Ericsson | Second Quarter Report 2018

Financial position

Parent Company

Income after financial items was SEK 1.7 (2.3) b. The decrease was mainly due to lower recognized dividends from subsidiaries.

At the end of the quarter, gross cash (cash, cash equivalents, short-term investments and interest-bearing securities non-current) amounted to SEK 53.6 (41.1) b.

The dividend of SEK 3.3 b. was paid out in the first week of April after decision by the Annual General Meeting on the 28th of March.

There has been a decrease in intercompany lending of SEK 6.4 b. and a decrease in intercompany borrowing of SEK 4.6 b. in the second quarter.

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 3,447,302 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock at June 30, 2018, was 43,381,932 Class B shares.

12 Ericsson | Second Quarter Report 2018

Parent Company

Other information

Ericsson’s Nomination Committee appointed

On April 26, 2018, Ericsson announced that the Nomination Committee for the Annual General Meeting 2019 had been appointed in accordance with the Instruction for the Nomination Committee, resolved by the Annual General Meeting 2012. The Nomination Committee consists of: Johan Forssell, Investor AB; Bengt Kjell, AB Industrivärden and Svenska Handelsbankens Pensionsstiftelse; Christer Gardell, Cevian Capital Partners Limited; Anders Oscarsson, AMF Försäkring och Fonder and Ronnie Leten, the Chairman of the Board of Directors. Johan Forssell is the Chairman of the Nomination Committee.

Ericsson signs credit facility agreement with the European Investment Bank

On May 31, 2018, Ericsson announced that it has signed a credit facility of EUR 250 million with the European Investment Bank (EIB). The funding will support research and development activities for 5G and is in line with Ericsson’s focused business strategy. The credit facility will mature five years after disbursement.

POST-CLOSING EVENTS

Ericsson to divest its field services business in Sweden to Transtema Group

On July 11, 2018, Ericsson announced that it has signed an agreement with the Swedish company Transtema Group AB to divest Ericsson Local Services AB (LSS), a subsidiary of Ericsson supplying field service operations and maintenance of fixed and mobile networks in Sweden. This divestment is in line with Ericsson’s business strategy. The transaction is expected to close in the third quarter of 2018 and is subject to customary closing conditions, including regulatory approvals.

13 Ericsson | Second Quarter Report 2018

Other information

Risk factors

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2017. Risk factors and uncertainties in focus short term for the Parent Company and the Ericsson Group include, but are not limited to:

•

Potential negative effects on operators’ willingness to invest in network development due to uncertainty in the financial markets and a weak economic business environment, or reduced consumer telecom spending, or increased pressure on Ericsson to provide financing, or delayed auctions of spectrum

•

Intense competition from existing competitors as well as new entrants, including IT companies entering the telecommunications market, which could have a material adverse effect on the results

•

Uncertainty regarding the financial stability of suppliers, for example due to lack of financing

•

Effects on gross margins and/or working capital of the business mix in the Networks segment between capacity sales and new coverage build-outs

•

Effects on gross margins of the business mix including new network build-outs and new managed services or digital transformation deals with initial transition costs

•

Effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. with postponed investments and intensified price competition as a consequence

•

New and ongoing partnerships which may not be successful and expose us to future costs

•

Changes in foreign exchange rates, in particular USD

•

Political unrest and uncertainty in certain markets, as well as escalating trade disputes and sanctions

•

Effects on production and sales from restrictions with respect to timely and adequate supply of materials, components and production capacity and other vital services on competitive terms

•

No guarantees that strategy execution, specific restructuring or cost-savings initiatives, profitability restoring efforts and/or organizational changes will be sufficient, successful or executed in time to deliver any improvements in earnings

•

Cybersecurity incidents, which may have a material negative impact

•

Rapidly changing technologies and the ways these are brought to the market, which could be disruptive to the business

•

Ericsson is subject to risks associated with the development and implementation of new solutions or technologies under existing customer contracts. The company may not be successful or incur delays in developing or implementing such solutions or technologies, which could result in damage claims and loss of customers which may have an adverse impact on liquidity and results of operations.

Ericsson stringently monitors the compliance with all relevant trade regulations and trade embargoes applicable to dealings with customers operating in countries where there are trade restrictions or trade restrictions are discussed. Ericsson operates globally in accordance with Group policies and directives for business ethics and conduct and has a dedicated anti-corruption program. However, in some of the countries where the company operates, corruption risks can be high and compliance failure could have a material adverse impact on our business, financial condition and brand.

This report has not been reviewed by Telefonaktiebolaget LM Ericsson’s auditors.

Date for next report: October 18, 2018

14 Ericsson | Second Quarter Report 2018

Risk factors

Board Assurance

The Board of Directors and the CEO certify that the financial report for the six months gives a fair view of the performance of the business, position and profit or loss of the Company and the Group, and describes the principal risks and uncertainties that the Company and the companies in the Group face.

Stockholm, July 18, 2018

Telefonaktiebolaget LM Ericsson (publ)

Org. Nr. 556016-0680


Helena Stjernholm	Ronnie Leten	Jacob Wallenberg
Deputy Chairman	Chairman	Deputy Chairman

Jon Fredrik Baksaas	Jan Carlson	Nora Denzel
Member of the Board	Member of the Board	Member of the Board

Eric A. Elzvik	Kurt Jofs	Kristin S. Rinne
Member of the Board	Member of the Board	Member of the Board

Börje Ekholm

President, CEO and member of the Board


Torbjörn Nyman	Kjell-Åke Soting	Roger Svensson
Member of the Board	Member of the Board	Member of the Board

15 Ericsson | Second Quarter Report 2018

Board Assurance

Editor’s note

Ericsson invites media, investors and analysts to conference calls on July 18, 2018; one starting at 09.00 (CET) and the other at 14.00 (CET).

Live audio webcasts of the conference calls as well as supporting slides will be available at: www.ericsson.com/press and www.ericsson.com/investors Replay of the conference calls will be available approximately one hour after each call has ended and will remain available for seven days.

For further information, please contact:

Carl Mellander Senior Vice President, Chief Financial Officer Phone: +46 10 713 89 70

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

Helena Norrman, Senior Vice President, Chief Marketing and Communications Officer

Phone: +46 10 719 34 72

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

Telefonaktiebolaget LM Ericsson Org. number: 556016-0680 Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com

Investors


Peter Nyquist, Vice President,
Head of Investor Relations
Phone:		+46 10 714 64 99, +46 70 575 29 06
E-mail:		peter.nyquist@ericsson.com


Stefan Jelvin, Director,
Investor Relations
Phone:		+46 10 714 20 39, +46 70 986 02 27
E-mail:		stefan.jelvin@ericsson.com

Åsa Konnbjer, Director,
Investor Relations
Phone:		+46 10 713 39 28, +46 73 082 59 28
E-mail:		asa.konnbjer@ericsson.com

Rikard Tunedal, Director,
Investor Relations
Phone:		+46 10 714 54 00, +46 761 005 400
E-mail:		rikard.tunedal@ericsson.com

Media


Ola Rembe, Vice President,
Head of External Communications
Phone:		+46 10 719 97 27, +46 73 024 48 73
E-mail:		media.relations@ericsson.com


Corporate Communications
Phone:		+46 10 719 69 92
E-mail:		media.relations@ericsson.com

16 Ericsson | Second Quarter Report 2018

Editor’s note

Forward-looking statements

This report includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, including, in particular the following:

•

Our goals, strategies, planning assumptions and operational or financial performance expectations

•

Industry trends, future characteristics and development of the markets in which we operate

•

Our future liquidity, capital resources, capital expenditures, cost savings and profitability

•

The expected demand for our existing and new products and services as well as plans to launch new products and services including research and development expenditures

•

The ability to deliver on future plans and to realize potential for future growth

•

The expected operational or financial performance of strategic cooperation activities and joint ventures

•

The time until acquired entities and businesses will be integrated and accretive to income

•

Technology and industry trends including the regulatory and standardization environment in which we operate, competition and our customer structure.

The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,” “might,” “continue,” or, in each case, their negative or variations, and similar words or expressions are used to identify forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

We caution investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond our control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2017.

These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.

17 Ericsson | Second Quarter Report 2018

Forward-looking statements

Financial statements and

other information


Contents

Financial statements
19		Consolidated income statement
19		Statement of comprehensive income (loss)
20		Consolidated balance sheet
21		Consolidated statement of cash flows
22		Consolidated statement of changes in equity
22		Consolidated income statement – isolated quarters
23		Consolidated statement of cash flows – isolated quarters
24		Parent Company income statement
24		Parent Company statement of comprehensive income (loss)
25		Parent Company balance sheet

Additional information
26		Accounting policies
28		Segment reporting
29		Net sales by segment by quarter
30		Sales growth adjusted for comparable units and currency
30		Gross income (loss) and gross margin by segment by quarter
31		Operating income (loss) and operating margin by segment by quarter
32		EBITA and EBITA margin by segment by quarter
33		Net sales by market area by quarter
34		Top 5 countries in sales
34		Net sales by market area by segment
35		IPR licensing revenues by segment by quarter
35		Provisions
36		Information on investments
37		Other information
37		Number of employees



Items excluding restructuring charges
38		Restructuring charges by function
38		Restructuring charges by segment
39		Gross income (loss) and gross margin excluding restructuring charges by segment
40		Operating income (loss) and operating margin excluding restructuring charges by segment

Alternative performance measures
41		Sales growth adjusted for comparable units and currency
42		Items excluding restructuring charges
43		EBITA and EBITA margin
43		Cash conversion
43		Gross cash and net cash, end of period
44		Capital employed
44		Capital turnover
45		Return on capital employed
45		Equity ratio
45		Return on equity
46		Earnings (loss) per share (non-IFRS)
46		Free cash flow

18 Ericsson | Second Quarter Report 2018

Financial statements and other information

Financial statements

Consolidated income statement


	Apr-Jun									Jan-Jun
SEK million	2018			2017			Change			2018			2017			Change

Net sales		49,808			50,281			-1	%		93,219			98,084			-5	%
Cost of sales		-32,475			-35,652			-9	%		-61,028			-75,954			-20	%

Gross income		17,333			14,629			18	%		32,191			22,130			45	%
Gross margin (%)		34.8	%		29.1	%					34.5	%		22.6	%

Research and development expenses		-9,783			-8,364			17	%		-18,856			-17,430			8	%
Selling and administrative expenses		-7,053			-6,818			3	%		-13,209			-15,041			-12	%
Impairment losses on trade receivables ¹⁾		-369			-235			57	%		-397			-1,875			-79	%

Operating expenses		-17,205			-15,417			12	%		-32,462			-34,346			-5	%

Other operating income and expenses		11			239						95			380
Shares in earnings of JV and associated companies		26			12						29			23

Operating income (loss)		165			-537			-131	%		-147			-11,813			-99	%

Financial income		275			-27						203			-109
Financial expenses		-1,085			83						-1,554			-267

Income after financial items		-645			-481			34	%		-1,498			-12,189			-88	%

Taxes		-1,157			24						-1,029			1,706

Net income (loss)		-1,802			-457			294	%		-2,527			-10,483			-76	%


Net income (loss) attributable to:
Stockholders of the Parent Company		-1,885			-471						-2,722			-10,539
Non-controlling interests		83			14						195			56

Other information
Average number of shares, basic (million)		3,290			3,275						3,288			3,273
Earnings (loss) per share, basic (SEK) ²⁾		-0.58			-0.14						-0.83			-3.22
Earnings (loss) per share, diluted (SEK) ³⁾		-0.58			-0.14						-0.83			-3.22

¹⁾	Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.

²⁾	Based on net income (loss) attributable to stockholders of the Parent Company.

³⁾	Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Statement of comprehensive income (loss)


	Apr-Jun				Jan-Jun
SEK million	2018		2017		2018		2017

Net income (loss)		-1,802		-457		-2,527		-10,483

Other comprehensive income (loss)

Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans incl. asset ceiling		123		574		-726		972
Revaluation of borrowings due to change in credit risk		8		—		66		—
Tax on items that will not be reclassified to profit or loss		-186		-160		-53		-329

Items that may be reclassified to profit or loss
Available-for-sale financial assets
Gains/losses arising during the period		—		41		—		73
Reclassification adjustments on gains/losses included in profit or loss		—		2		—		5
Revaluation of other investments in shares and participations
Fair value remeasurement		—		—		—		2
Changes in cumulative translation adjustments		1,742		-2,773		3,041		-2,795
Share of other comprehensive income on JV and associated companies		9		-9		20		1
Tax on items that may be reclassified to profit or loss		—		-9		—		-18

Total other comprehensive income (loss), net of tax		1,696		-2,334		2,348		-2,089

Total comprehensive income (loss)		-106		-2,791		-179		-12,572

Total comprehensive income (loss) attributable to:
Stockholders of the Parent Company		-216		-2,766		-416		-12,612
Non-controlling interest		110		-25		237		40

19 Ericsson | Second Quarter Report 2018

Financial statements

Consolidated balance sheet


	Jun 30		Mar 31		Dec 31
SEK million	2018		2018		2017

ASSETS
Non-current assets
Intangible assets
Capitalized development expenses		5,458		4,229		4,593
Goodwill		30,145		28,777		27,815
Intellectual property rights, brands and other intangible assets		3,883		3,853		4,148

Property, plant and equipment		12,894		12,912		12,857

Financial assets
Equity in JV and associated companies		658		630		624
Other investments in shares and participations		1,587		1,302		1,279
Customer finance, non-current		1,367		1,845		2,178
Interest-bearing securities, non-current		21,501		27,104		25,105
Other financial assets, non-current		6,805		5,192		5,897

Deferred tax assets		23,573		23,822		21,963

		107,871		109,666		106,459

Current assets
Inventories		30,050		29,009		25,547
Contract assets		12,460		11,712		13,120

Trade receivables		41,580		42,455		48,105
Customer finance, current		1,664		1,709		1,753
Other current receivables		26,344		23,980		22,301

Interest-bearing securities, current		8,304		5,453		6,713
Cash and cash equivalents		37,049		36,697		35,884

		157,451		151,015		153,423

Total assets		265,322		260,681		259,882


EQUITY AND LIABILITIES
Equity
Stockholders’ equity		92,689		92,703		96,935
Non-controlling interest in equity of subsidiaries		871		763		636

		93,560		93,466		97,571

Non-current liabilities
Post-employment benefits		27,306		25,646		25,009
Provisions, non-current		2,819		2,597		3,596
Deferred tax liabilities		1,332		1,325		901
Borrowings, non-current		31,131		31,134		30,500
Other non-current liabilities		4,549		2,792		2,776

		67,137		63,494		62,782

Current liabilities
Provisions, current		6,715		6,435		6,283
Borrowings, current		2,642		2,554		2,545
Contract liabilities		30,959		30,391		29,076
Trade payables		28,563		26,453		26,320
Other current liabilities		35,746		37,888		35,305

		104,625		103,721		99,529

Total equity and liabilities		265,322		260,681		259,882


Of which interest-bearing liabilities		33,773		33,688		33,045
Assets pledged as collateral		5,702		5,148		5,215
Contingent liabilities		1,363		1,412		1,561

20 Ericsson | Second Quarter Report 2018

Financial statements

Consolidated statement of cash flows


	Apr-Jun				Jan-Jun				Jan-Dec
SEK million	2018		2017		2018		2017		2017

Operating activities
Net income (loss)		-1,802		-457		-2,527		-10,483		-32,433
Adjustments to reconcile net income to cash
Taxes		-1,071		-1,826		-3,386		-5,938		-9,064
Earnings/dividends in JV and associated companies		-19		-8		-15		-15		56
Depreciation, amortization and impairment losses		2,065		2,197		3,956		7,628		27,892
Other		568		-48		708		479		440

Net income reconciled to cash		-259		-142		-1,264		-8,329		-13,109

Changes in operating net assets
Inventories		-1,910		-1,492		-4,723		-4,698		4,719
Customer finance, current and non-current		547		1,140		947		306		798
Trade receivables and contract assets		1,661		184		8,977		3,002		1,379
Trade payables		1,252		19		654		382		1,886
Provisions and post-employment benefits		478		315		-369		4,951		4,755
Contract liabilities		-233		-573		524		4,234		5,024
Other operating assets and liabilities, net		-94		550		-1,731		-1,388		4,149

		1,701		143		4,279		6,789		22,710

Cash flow from operating activities		1,442		1		3,015		-1,540		9,601

Investing activities
Investments in property, plant and equipment		-951		-1,018		-1,807		-2,033		-3,877
Sales of property, plant and equipment		52		37		175		106		1,016
Acquisitions/divestments of subsidiaries and other operations, net		-431		9		-880		12		276
Product development		-325		-315		-579		-1,180		-1,444
Other investing activities		-398		-42		-237		68		-463
Interest-bearing securities		3,656		-676		3,122		-12,562		-11,578

Cash flow from investing activities		1,603		-2,005		-206		-15,589		-16,070

Cash flow before financing activities		3,045		-2,004		2,809		-17,129		-6,469

Financing activities
Dividends paid		-3,289		-3,274		-3,289		-3,278		-3,424
Other financing activities		-383		-5,636		-477		5,266		8,902

Cash flow from financing activities		-3,672		-8,910		-3,766		1,988		5,478

Effect of exchange rate changes on cash		980		-594		2,123		-379		-91

Net change in cash and cash equivalents		353		-11,508		1,166		-15,520		-1,082

Cash and cash equivalents, beginning of period		36,697		32,954		35,884		36,966		36,966

Cash and cash equivalents, end of period		37,050		21,446		37,050		21,446		35,884

21 Ericsson | Second Quarter Report 2018

Financial statements

Consolidated statement

of changes in equity


	Jan-Jun				Jan-Dec
SEK million	2018		2017		2017

Opening balance ¹⁾		97,571		135,257		135,257
Opening balance adjustment due to IFRS 9		-983		—		—

Adjusted opening balance		96,588		135,257		135,257

Total comprehensive income (loss)		-179		-12,572		-35,232
Sale/repurchase of own shares		49		34		-5
Stock issue (net)		—		15		15
Long-term variable compensation plans		391		431		885
Dividends paid		-3,289		-3,278		-3,424
Transactions with non-controlling interests		—		—		75

Closing balance		93,560		119,887		97,571

¹⁾	The opening balance adjustment for IFRS 15 on initial application date (January 1, 2016) was SEK -4,353 million. Opening balances of 2017 and 2018 have been restated for IFRS 15.

Consolidated income statement

- isolated quarters


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net sales		49,808			43,411			57,881			49,413			50,281			47,803
Cost of sales		-32,475			-28,553			-45,365			-36,132			-35,652			-40,302

Gross income		17,333			14,858			12,516			13,281			14,629			7,501
Gross margin (%)		34.8	%		34.2	%		21.6	%		26.9	%		29.1	%		15.7	%

Research and development expenses		-9,783			-9,073			-9,938			-10,519			-8,364			-9,066
Selling and administrative expenses		-7,053			-6,156			-8,245			-5,741			-6,818			-8,223
Impairment losses on trade receivables ¹⁾		-369			-28			-680			-1,094			-235			-1,640

Operating expenses		-17,205			-15,257			-18,863			-17,354			-15,417			-18,929

Other operating income and expenses		11			84			-12,926	²⁾		415			239			141
Shares in earnings of JV and associated companies		26			3			-5			6			12			11

Operating income (loss)		165			-312			-19,278			-3,652			-537			-11,276

Financial income		275			-72			-124			-139			-27			-82
Financial expenses		-1,085			-469			-394			-182			83			-350

Income after financial items		-645			-853			-19,796			-3,973			-481			-11,708

Taxes		-1,157			128			1,303			516			24			1,682

Net income (loss)		-1,802			-725			-18,493			-3,457			-457			-10,026


Net income (loss) attributable to:
Stockholders of the Parent Company		-1,885			-837			-18,476			-3,561			-471			-10,068
Non-controlling interests		83			112			-17			104			14			42

Other information
Average number of shares, basic (million)		3,290			3,286			3,283			3,279			3,275			3,272
Earnings (loss) per share, basic (SEK) ³⁾		-0.58			-0.25			-5.63			-1.09			-0.14			-3.08
Earnings (loss) per share, diluted (SEK) ⁴⁾		-0.58			-0.25			-5.63			-1.09			-0.14			-3.08

¹⁾	Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.

²⁾	Includes write-down of goodwill of SEK -13.0 billion.

³⁾	Based on net income (loss) attributable to stockholders of the Parent Company.

⁴⁾	Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

22 Ericsson | Second Quarter Report 2018

Financial statements

Consolidated statement

of cash flows - isolated quarters


	2018				2017
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Operating activities
Net income (loss)		-1,802		-725		-18,493		-3,457		-457		-10,026
Adjustments to reconcile net income to cash
Taxes		-1,071		-2,315		-1,803		-1,323		-1,826		-4,112
Earnings/dividends in JV and associated companies		-19		4		-2		73		-8		-7
Depreciation, amortization and impairment losses		2,065		1,891		16,118		4,146		2,197		5,431
Other		568		140		179		-218		-48		527

Net income reconciled to cash		-259		-1,005		-4,001		-779		-142		-8,187

Changes in operating net assets
Inventories		-1,910		-2,813		8,356		1,061		-1,492		-3,206
Customer finance, current and non-current		547		400		36		456		1,140		-834
Trade receivables and contract assets		1,661		7,316		-2,246		623		184		2,818
Trade payables		1,252		-598		2,565		-1,061		19		363
Provisions and post-employment benefits		478		-847		412		-608		315		4,636
Contract liabilities		-233		757		2,700		-1,910		-573		4,807
Other operating assets and liabilities, net		-94		-1,637		3,337		2,200		550		-1,938

		1,701		2,578		15,160		761		143		6,646

Cash flow from operating activities		1,442		1,573		11,159		-18		1		-1,541

Investing activities
Investments in property, plant and equipment		-951		-856		-1,105		-739		-1,018		-1,015
Sales of property, plant and equipment		52		123		898		12		37		69
Acquisitions/divestments of subsidiaries and other operations, net		-431		-449		-107		371		9		3
Product development		-325		-254		-138		-126		-315		-865
Other investing activities		-398		161		-573		42		-42		110
Interest-bearing securities		3,656		-534		-2,772		3,756		-676		-11,886

Cash flow from investing activities		1,603		-1,809		-3,797		3,316		-2,005		-13,584

Cash flow before financing activities		3,045		-236		7,362		3,298		-2,004		-15,125

Financing activities
Dividends paid		-3,289		—		-1		-145		-3,274		-4
Other financing activities		-383		-94		2,073		1,563		-5,636		10,902

Cash flow from financing activities		-3,672		-94		2,072		1,418		-8,910		10,898

Effect of exchange rate changes on cash		980		1,143		240		48		-594		215

Net change in cash and cash equivalents		353		813		9,674		4,764		-11,508		-4,012

Cash and cash equivalents, beginning of period		36,697		35,884		26,210		21,446		32,954		36,966

Cash and cash equivalents, end of period		37,050		36,697		35,884		26,210		21,446		32,954

23 Ericsson | Second Quarter Report 2018

Financial statements

Parent Company income statement


	Apr-Jun				Jan-Jun				Jan-Dec
SEK million	2018		2017		2018		2017		2017

Net sales		—		—		—		—		—
Cost of sales		—		—		—		—		—

Gross income		—		—		—		—		—

Operating expenses		-352		-355		-506		-644		-1,294
Other operating income and expenses		411		618		754		1,190		1,616

Operating income		59		263		248		546		322

Financial net		1,295		2,040		1,472		1,709		-2,297

Income after financial items		1,354		2,303		1,720		2,255		-1,975

Transfers to (-) / from untaxed reserves		—		—		—		—		-120
Taxes		-72		-98		-155		-108		-53

Net income (loss)		1,282		2,205		1,565		2,147		-2,148

Parent company statement

of comprehensive income (loss)


	Apr-Jun				Jan-Jun				Jan-Dec
SEK million	2018		2017		2018		2017		2017
Net income (loss)		1,282		2,205		1,565		2,147		-2,148

Revaluation of borrowings due to change in credit risk		-8		—		50		—		—
Tax on items that will not be reclassified to profit or loss		2		—		-11		—		—
Available-for-sale financial assets
Gains/losses arising during the period		—		41		—		73		68
Reclassification adjustments on gains/losses included in profit or loss		—		2		—		5		5
Revaluation of other investments in shares and participations
Fair value remeasurement		—		—		—		—		102
Tax on items that may be reclassified to profit or loss		—		-9		—		-17		-14

Total other comprehensive income, net of tax		-6		34		39		61		161

Total comprehensive income (loss)		1,276		2,239		1,604		2,208		-1,987

24 Ericsson | Second Quarter Report 2018

Financial statements

Parent company balance sheet


SEK million	Jun 30 2018		Dec 31 2017

ASSETS
Fixed assets
Intangible assets		223		329
Tangible assets		292		346
Financial assets ¹⁾ ²⁾		114,269		119,896

		114,784		120,571
Current assets
Inventories		—		1
Receivables ²⁾		42,362		41,173
Short-term investments		7,862		6,446
Cash and cash equivalents		24,219		18,715

		74,443		66,335

Total assets		189,227		186,906


STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES
Equity
Restricted equity		48,164		48,164
Non-restricted equity ²⁾		37,939		39,578

		86,103		87,742

Provisions		533		602

Non-current liabilities ²⁾		62,862		60,623

Current liabilities		39,729		37,939

Total stockholders’ equity, provisions and liabilities		189,227		186,906


¹⁾ Of which interest-bearing securities, non-current		21,501		25,105

²⁾	The following 2018 opening balances have been adjusted due to IFRS 9: financial assets increased by SEK 8 million, receivables decreased by SEK –4 million, non-restricted equity decreased by SEK –28 million, and non-current liabilities increased by SEK 31 million.

25 Ericsson | Second Quarter Report 2018

Financial statements

Additional information

Accounting policies

The group

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 IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31,2017 and should be read in conjunction with that annual report, with exception for the accounting policies described below.

New standards as from January 1, 2018

Two new IFRS standards are effective as from January 1, 2018, IFRS 9 “Financial instruments” and IFRS 15 “Revenue from Customer Contracts”.

Presentation in the financial statements

For IFRS 15 the Company has adopted the full retrospective method for transition, which mean that prior year comparatives have been restated and equity has been adjusted at the initial application date (January 1, 2016). The Company has applied IFRS 9 retrospectively on the required effective date, January 1, 2018. The 2018 opening balances have been adjusted, but the previous periods have not been restated.

Based on the new requirements under IFRS 15, contract assets and contract liabilities have been added as new lines in the consolidated balance sheet and statement of cash flow. Previously, contract assets were reported as trade receivables and contract liabilities were reported as deferred revenue and as advances from customers within other current liabilities. Due to IFRS 9, impairment losses on trade receivables are reported on a separate line in the consolidated income statement. Previously, these losses have been reported as Selling and administrative expenses. In the statement of comprehensive income, a new line has been added for revaluation of borrowings due to changes in credit risk. A new line has been added to the consolidated statement of equity showing the adjustment to the opening balance.

The prior periods financial statements and key ratios presented in this quarterly report have been restated to reflect adoption of these new standards.

Accounting policy – IFRS 9 “Financial instruments”

Financial assets

The Company classifies its financial assets in the following categories: at amortized cost, at fair value through other comprehensive income (FVOCI), and at fair value through profit or loss (FVTPL). The classification depends on the characteristics of the asset and the business model in which it is held.

Financial assets at amortized cost

Financial assets are classified as amortized cost if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is to hold financial assets in order to collect contractual cash flows. These assets are subsequently measured at amortized cost using the effective interest method, minus impairment allowances.

Financial assets at fair value through other comprehensive income (FVOCI)

Assets are classified as FVOCI if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. These assets are subsequently measured at fair value with changes in fair value recognized in other comprehensive income (OCI), except for effective interest, impairment gains and losses and foreign exchange gains and losses recognized in the income statement. Upon derecognition, the cumulative gain or loss in OCI is reclassified to the income statement.

Financial assets at fair value through profit or loss (FVTPL)

All financial assets that are not classified as either amortized cost or FVOCI are classified as FVTPL. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the near term. Derivatives are classified as held for trading, unless they are designated as hedging instruments for the purpose of hedge accounting. Assets held for trading are classified as current assets. Debt instruments classified as FVTPL, but not held for trading, are classified on the balance sheet based on their maturity date (i.e. those with a maturity longer than one year are classified as non-current). Investments in shares and participations are classified as FVTPL and classified as non-current financial assets.

Gains or losses arising from changes in the fair values of the “Financial assets at fair value through profit or loss” category (excluding derivatives and customer financing) are presented in the income statement within Financial income in the period in which they arise. Gains and losses on derivatives are presented in the income statement either as Cost of sales, Other operating income, Financial income or Financial expense, depending on the intent with the transaction. Gains and losses on customer financing are presented in the income statement as Selling expenses.

Impairment in relation to financial assets

At each balance sheet date, financial assets classified as either amortized cost or FVOCI and contract assets are assessed for impairment based on Expected Credit Losses (ECL). Allowances for trade receivables and contract assets are always equal to lifetime ECL. The loss is recognized in the income statement. When there is no reasonable expectation of collection, the asset is written off.

Borrowings

Borrowings by the Parent Company are designated FVTPL because they are managed and evaluated on a fair value basis. Changes in fair value are recognized in the income statement, except for changes in fair value due to change in credit risk which are recognized in Other comprehensive income.

26 Ericsson | Second Quarter Report 2018

Additional information


Summary of changes to classification of financial assets and financial liabilities

Type of asset	IAS 39 classification	IFRS 9 classification	Reason for IFRS 9 classification
Cash equivalents, interest-bearing securities, and derivatives (held for trading)	FVTPL	FVTPL	Held for trading portfolios are classified as FVTPL (no change).

Cash equivalents (not held for trading)	Loans and receivables	Amortized cost	These assets are held to collect contractual cash flows.

Interest-bearing securities (not held for trading)	Available-for-sale	FVTPL	These assets are not held for trading but are managed and evaluated on a fair value basis.

Trade receivables	Loans and receivables	FVOCI	Trade receivables are managed in a business model whose objective is achieved through both collection of contractual cash flows and selling of assets.

Customer financing	Loans and receivables	FVTPL	Customer finance assets are managed in a business model with the objective to realize cash flows through the sale of assets.

Investments in shares and participations (equity instruments)	Available-for-sale	FVTPL	This is an accounting policy choice under IFRS 9.

Borrowings by parent company	Amortized cost	Designated FVTPL	These borrowings are managed and evaluated on a fair value basis.

Fair value hedging and fair value hedge accounting

Fair value hedge accounting is no longer applied as of January 1, 2018.

Financial guarantees

Financial guarantee contracts are initially recognized at fair value (i.e., usually the fee received). Subsequently, these contracts are measured at the higher of:

– The expected credit losses.

– The recognized contractual fee less cumulative amortization when amortized over the guarantee period, using the straight-line-method.

Accounting policy – IFRS 15 “Revenue from Contracts with Customers”

IFRS 15, “Revenue from Contracts with Customers” establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer.

The following paragraphs describes the types of contracts, when performance obligations are satisfied, and the timing of revenue recognition. They also describe the normal payment terms associated with such contracts and the resulting impact on the balance sheet over the duration of the contracts. The vast majority of Ericsson’s business is for the sale of standard products and services.

Standard products and services

Products and services are classified as standard solutions if they do not require significant installation and integration services to be delivered. Installation and integration services are generally completed within a short period of time, from the delivery of the related products. These products and services are viewed as separate distinct performance obligations. This type of customer contract is usually signed as a frame agreement and the customer issues individual purchase orders to commit to purchases of products and services over the duration of the agreement.

Revenue for standard products shall be recognized when control over the equipment is transferred to the customer at a point in time. This assessment shall be viewed from a customer’s perspective considering indicators such as transfer of titles and risks, customer acceptance, physical possession, and billing rights. For hardware sales, transfer of control is usually deemed to occur when the equipment arrives at the customer site and for software sales, when the licenses are made available to the customer. Contractual terms may vary, therefore judgment will be applied when assessing the indicators of transfer of control. Revenue for installation and integration services is recognized upon completion of the service.

Transaction prices under these contracts are mostly billed upon delivery of the hardware or software, and completion of installation services, although a proportion may be billed upon formal acceptance of the related installation services. This will result in a contract asset for the proportion of the transaction price that is not yet billed.

Revenue for recurring services such as customer support and managed services is recognized as the services are delivered, generally pro-rata over time. Transaction prices under these contracts are billed over time, often on a quarterly basis. Contract liabilities or receivables may arise depending on whether the quarterly billing is in advance or in arrears.

Contract for standard products and services applies to business in all segments.

Customized solution

Some products and services are sold together as part of a customized solution to the customer. This type of contract requires significant installation and integration services to be delivered within the solution, normally over a period of more than 1 year. These products and services are viewed together as a combined performance obligation. This type of contract is usually sold as a firm contract in which the scope of the solution and obligations of both parties are clearly defined for the duration of the contract.

27 Ericsson | Second Quarter Report 2018

Additional information

Revenue for the combined performance obligation shall be recognized over time if progress of completion can be reliably measured and enforceable right to payment exists over the duration of the contract. The progress of completion is estimated by reference to the output delivered such as achievement of contract milestones and customer acceptance. This method is considered appropriate as it reflects the nature of the customized solution and how integration service is delivered in these projects. Formal acceptance term is considered a key indicator of transfer of control for a customized solution and shall therefore be obtained prior to recognizing revenue. If the criteria above are not met, then all revenue shall be recognized upon the completion of the customized solution, when final acceptance is provided by the customer.

Transaction price under these contracts are represented by progress payments or billing milestones as defined in the contracts. In most cases, revenue recognized is limited to the progress payments or unconditional billing milestones over the duration of the contract, therefore no contract asset or contract liability arises on these contracts. In some contracts, revenue may be recognized in advance of billing milestones if enforceable payment rights exist at all times over the contract duration. This will result in a contract asset balance until billing milestones are reached.

Contract for customized solution applies to the Business Support Systems (BSS) business within the segment Digital Services and the Media Solutions business within the segment Emerging Business and Other.

Intellectual Property Rights (IPR)

This type of contract relates to the patent and licensing business. The Company has assessed that the nature of its IPR contracts is such that they provide customers a license with the right to access Ericsson intellectual properties over time, therefore revenue shall be recognized over the duration of the contract. Royalty revenue based on sales or usage is recognized when the sales and usage occurs.

The transaction price on these contracts is usually structured as a royalty fee based on sales or usage over the period, measured on a quarterly basis. This results in a receivable balance if the billing is performed the following quarter after measurement. Some contracts include lump sum amounts, payable either up front at commencement or on an annual basis. This results in a contract liability balance if payment is in advance of revenue, as revenue is recognized over time.

As described in Note C3 “Segment Information” of the Annual Report 2017, revenue from IPR licensing contracts are allocated to the segments Networks and Digital Services.


Impact of IFRS 9 and IFRS 15 on balance sheet items

					Restated				Adjusted
	As reported at		IFRS 15		balance at		IFRS 9		balance at
	31.12 2017		restatement		31.12.2017		adjustment		1.1.2018

ASSETS
Non-current assets
Deferred tax assets		21,228		735		21,963		288		22,251

Current assets
Inventories		24,960		587		25,547		—		25,547
Contract assets		—		13,120		13,120		—		13,120
Trade receivables		63,210		-15,105		48,105		-1,240		46,865

EQUITY AND LIABILITIES
Equity
Stockholder’s equity		99,540		-2,605		96,935		-983		95,952

Non-current liabilities
Borrowings, non-current		30,500		—		30,500		31		30,531

Current liabilities
Provisions		6,350		-67		6,283		—		6,283
Contract liabilities		—		29,076		29,076		—		29,076
Other current liabilities		62,370		-27,065		35,305		—		35,305

Segment reporting

Changes applied in Q1 2018

As of Q1 2018, sales related to 3PP routing business are reported in Networks (earlier Digital Services). Comparative periods have been restated to reflect this change. In Q1 2018, these sales were SEK 151 (160) million.

Changes applied in Q2 2018

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solution (BSS) was moved between segments Managed Services and Digital Services, with increased sales in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b (positive for Managed Services, negative for Digital Services). Historical data has been restated to reflect the organizational change.

28 Ericsson | Second Quarter Report 2018

Additional information


Net sales by segment by quarter
	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		32,393			28,602			37,077			31,871			31,699			31,638
Of which Products		22,319			19,473			25,404			21,734			21,281			21,858
Of which Services		10,074			9,129			11,673			10,137			10,418			9,780
Digital Services		8,833			7,262			11,820			8,930			9,901			8,101
Of which Products		4,467			3,947			6,452			4,859			5,370			4,327
Of which Services		4,366			3,315			5,368			4,071			4,531			3,774
Managed Services		6,528			5,896			6,898			6,618			6,673			6,283
Emerging Business and Other		2,054			1,651			2,086			1,994			2,008			1,781

Total		49,808			43,411			57,881			49,413			50,281			47,803


	2018						2017
Sequential change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		13	%		-23	%		16	%		1	%		0	%		—
Of which Products		15	%		-23	%		17	%		2	%		-3	%		—
Of which Services		10	%		-22	%		15	%		-3	%		7	%		—
Digital Services		22	%		-39	%		32	%		-10	%		22	%		—
Of which Products		13	%		-39	%		33	%		-10	%		24	%		—
Of which Services		32	%		-38	%		32	%		-10	%		20	%		—
Managed Services		11	%		-15	%		4	%		-1	%		6	%		—
Emerging Business and Other		24	%		-21	%		5	%		-1	%		13	%		—

Total		15	%		-25	%		17	%		-2	%		5	%		—


	2018						2017
Year over year change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		2	%		-10	%		—			—			—			—
Of which Products		5	%		-11	%		—			—			—			—
Of which Services		-3	%		-7	%		—			—			—			—
Digital Services		-11	%		-10	%		—			—			—			—
Of which Products		-17	%		-9	%		—			—			—			—
Of which Services		-4	%		-12	%		—			—			—			—
Managed Services		-2	%		-6	%		—			—			—			—
Emerging Business and Other		2	%		-7	%		—			—			—			—

Total		-1	%		-9	%		—			—			—			—


	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		60,995			28,602			132,285			95,208			63,337			31,638
Of which Products		41,792			19,473			90,277			64,873			43,139			21,858
Of which Services		19,203			9,129			42,008			30,335			20,198			9,780
Digital Services		16,095			7,262			38,752			26,932			18,002			8,101
Of which Products		8,414			3,947			21,008			14,556			9,697			4,327
Of which Services		7,681			3,315			17,744			12,376			8,305			3,774
Managed Services		12,424			5,896			26,472			19,574			12,956			6,283
Emerging Business and Other		3,705			1,651			7,869			5,783			3,789			1,781

Total		93,219			43,411			205,378			147,497			98,084			47,803


	2018						2017
Year over year change, percent	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		-4	%		-10	%		-6	%		—			—			—
Of which Products		-3	%		-11	%		-4	%		—			—			—
Of which Services		-5	%		-7	%		-8	%		—			—			—
Digital Services		-11	%		-10	%		-9	%		—			—			—
Of which Products		-13	%		-9	%		-10	%		—			—			—
Of which Services		-8	%		-12	%		-8	%		—			—			—
Managed Services		-4	%		-6	%		-8	%		—			—			—
Emerging Business and Other		-2	%		-7	%		-9	%		—			—			—

Total		-5	%		-9	%		-7	%		—			—			—

29 Ericsson | Second Quarter Report 2018

Additional information


Sales growth adjusted for comparable units and currency*
	2018						2017
Sequential change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		7	%		-22	%		—			—			—			—
Digital Services		16	%		-38	%		—			—			—			—
Managed Services		6	%		-11	%		—			—			—			—
Emerging Business and Other		18	%		-20	%		—			—			—			—

Total		9	%		-24	%		—			—			—			—


	2018						2017
Isolated quarter, year over year change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		2	%		-2	%		—			—			—			—
Digital Services		-12	%		-3	%		—			—			—			—
Managed Services		-3	%		-4	%		—			—			—			—
Emerging Business and Other		1	%		-2	%		—			—			—			—

Total		-1	%		-2	%		—			—			—			—


Year to date, year over year change,	2018						2017
percent	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		0	%		-2	%		—			—			—			—
Digital Services		-8	%		-3	%		—			—			—			—
Managed Services		-3	%		-4	%		—			—			—			—
Emerging Business and Other		-1	%		-2	%		—			—			—			—

Total		-2	%		-2	%		—			—			—			—

* Sales growth adjusted for comparable units and currency has not been restated for 2017.
Gross income (loss) and gross margin by segment by quarter

Isolated quarters,	2018						2017
SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		12,565			11,127			11,849			10,654			10,894			10,031
Digital Services		3,458			2,892			1,114			2,620			3,289			-2,324
Managed Services		809			491			-691			-360			19			-542
Emerging Business and Other		501			348			245			367			427			336

Total		17,333			14,858			12,517			13,281			14,629			7,501


Isolated quarters,	2018						2017
As percentage of net sales	Q2			Q1			Q4			Q3			Q2			Q1

Networks		38.8	%		38.9	%		32.0	%		33.4	%		34.4	%		31.7	%
Digital Services		39.1	%		39.8	%		9.4	%		29.3	%		33.2	%		-28.7	%
Managed Services		12.4	%		8.3	%		-10.0	%		-5.4	%		0.3	%		-8.6	%
Emerging Business and Other		24.4	%		21.1	%		11.7	%		18.4	%		21.3	%		18.9	%

Total		34.8	%		34.2	%		21.6	%		26.9	%		29.1	%		15.7	%


Year to date,	2018						2017
SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		23,692			11,127			43,428			31,579			20,925			10,031
Digital Services		6,350			2,892			4,699			3,585			965			-2,324
Managed Services		1,300			491			-1,574			-883			-523			-542
Emerging Business and Other		849			348			1,375			1,130			763			336

Total		32,191			14,858			47,928			35,411			22,130			7,501


Year to date,	2018						2017
As percentage of net sales	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		38.8	%		38.9	%		32.8	%		33.2	%		33.0	%		31.7	%
Digital Services		39.5	%		39.8	%		12.1	%		13.3	%		5.4	%		-28.7	%
Managed Services		10.5	%		8.3	%		-5.9	%		-4.5	%		-4.0	%		-8.6	%
Emerging Business and Other		22.9	%		21.1	%		17.5	%		19.5	%		20.1	%		18.9	%

Total		34.5	%		34.2	%		23.3	%		24.0	%		22.6	%		15.7	%

30 Ericsson | Second Quarter Report 2018

Additional information


Operating income (loss) and operating margin by segment by quarter

Isolated quarters,	2018						2017
SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		3,544			3,371			1,945			2,375			3,424			2,711
Digital Services		-2,374			-2,607			-12,271			-3,770			-2,237			-9,004
Managed Services		299			100			-1,275			-727			-258			-1,829
Emerging Business and Other		-1,304			-1,176			-7,677			-1,530			-1,466			-3,154

Total		165			-312			-19,278			-3,652			-537			-11,276


Isolated quarters,	2018						2017
As percentage of net sales	Q2			Q1			Q4			Q3			Q2			Q1

Networks		10.9	%		11.8	%		5.2	%		7.5	%		10.8	%		8.6	%
Digital Services		-26.9	%		-35.9	%		-103.8	%		-42.2	%		-22.6	%		-111.1	%
Managed Services		4.6	%		1.7	%		-18.5	%		-11.0	%		-3.9	%		-29.1	%
Emerging Business and Other		-63.5	%		-71.2	%		-368.0	%		-76.7	%		-73.0	%		-177.1	%

Total		0.3	%		-0.7	%		-33.3	%		-7.4	%		-1.1	%		-23.6	%


Year to date,	2018						2017
SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		6,915			3,371			10,455			8,510			6,135			2,711
Digital Services		-4,981			-2,607			-27,282			-15,011			-11,241			-9,004
Managed Services		399			100			-4,089			-2,814			-2,087			-1,829
Emerging Business and Other		-2,480			-1,176			-13,827			-6,150			-4,620			-3,154

Total		-147			-312			-34,743			-15,465			-11,813			-11,276


Year to date	2018						2017
As percentage of net sales	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		11.3	%		11.8	%		7.9	%		8.9	%		9.7	%		8.6	%
Digital Services		-30.9	%		-35.9	%		-70.4	%		-55.7	%		-62.4	%		-111.1	%
Managed Services		3.2	%		1.7	%		-15.4	%		-14.4	%		-16.1	%		-29.1	%
Emerging Business and Other		-66.9	%		-71.2	%		-175.7	%		-106.3	%		-121.9	%		-177.1	%

Total		-0.2	%		-0.7	%		-16.9	%		-10.5	%		-12.0	%		-23.6	%

31 Ericsson | Second Quarter Report 2018

Additional information

EBITA and EBITA margin by segment by quarter


Isolated quarters,	2018						2017
SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		3,618			3,461			2,032			2,460			3,509			2,892
Digital Services		-2,204			-2,443			-4,890			-3,577			-2,034			-8,246
Managed Services		303			105			-1,268			-726			-259			-1,825
Emerging Business and Other		-1,202			-1,088			-1,199			-1,430			-1,308			-2,222

Total		515			35			-5,325			-3,273			-92			-9,401


Isolated quarters	2018						2017
As percentage of net sales	Q2			Q1			Q4			Q3			Q2			Q1

Networks		11.2	%		12.1	%		5.5	%		7.7	%		11.1	%		9.1	%
Digital Services		-25.0	%		-33.6	%		-41.4	%		-40.1	%		-20.5	%		-101.8	%
Managed Services		4.6	%		1.8	%		-18.4	%		-11.0	%		-3.9	%		-29.0	%
Emerging Business and Other		-58.5	%		-65.9	%		-57.5	%		-71.7	%		-65.1	%		-124.8	%

Total		1.0	%		0.1	%		-9.2	%		-6.6	%		-0.2	%		-19.7	%


Year to date,	2018						2017
SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		7,079			3,461			10,893			8,861			6,401			2,892
Digital Services		-4,647			-2,443			-18,747			-13,857			-10,280			-8,246
Managed Services		408			105			-4,078			-2,810			-2,084			-1,825
Emerging Business and Other		-2,290			-1,088			-6,159			-4,960			-3,530			-2,222

Total		550			35			-18,091			-12,766			-9,493			-9,401


Year to date	2018						2017
As a percentage of net sales	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		11.6	%		12.1	%		8.2	%		9.3	%		10.1	%		9.1	%
Digital Services		-28.9	%		-33.6	%		-48.4	%		-51.5	%		-57.1	%		-101.8	%
Managed Services		3.3	%		1.8	%		-15.4	%		-14.4	%		-16.1	%		-29.0	%
Emerging Business and Other		-61.8	%		-65.9	%		-78.3	%		-85.8	%		-93.2	%		-124.8	%

Total		0.6	%		0.1	%		-8.8	%		-8.7	%		-9.7	%		-19.7	%

32 Ericsson | Second Quarter Report 2018

Additional information

Net sales by market area by quarter


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

South East Asia, Oceania and India		6,981			6,379			7,844			7,858			7,234			8,410
North East Asia		4,764			3,385			6,465			5,653			5,901			5,564
North America		14,337			11,317			14,685			12,319			12,970			12,027
Europe and Latin America ¹⁾ ²⁾		14,174			13,061			16,939			13,430			14,231			12,201
Middle East and Africa		5,626			5,765			7,581			6,297			5,731			5,356
Other ¹⁾ ²⁾		3,926			3,504			4,367			3,856			4,214			4,245

Total		49,808			43,411			57,881			49,413			50,281			47,803

¹⁾ Of which in Sweden		596			915			872			660			785			1,017
²⁾ Of which in EU		8,619			8,522			10,822			8,635			8,687			8,328

	2018						2017
Sequential change, percent	Q2			Q1			Q4			Q3			Q2			Q1

South East Asia, Oceania and India		9	%		-19	%		0	%		9	%		-14	%		—
North East Asia		41	%		-48	%		14	%		-4	%		6	%		—
North America		27	%		-23	%		19	%		-5	%		8	%		—
Europe and Latin America ¹⁾ ²⁾		9	%		-23	%		26	%		-6	%		17	%		—
Middle East and Africa		-2	%		-24	%		20	%		10	%		7	%		—
Other ¹⁾ ²⁾		12	%		-20	%		13	%		-8	%		-1	%		—

Total		15	%		-25	%		17	%		-2	%		5	%		—

¹⁾ Of which in Sweden		-35	%		5	%		32	%		-16	%		-23	%		—
²⁾ Of which in EU		1	%		-21	%		25	%		-1	%		4	%		—

	2018						2017
Year-over-year change, percent	Q2			Q1			Q4			Q3			Q2			Q1

South East Asia, Oceania and India		-3	%		-24	%		—			—			—			—
North East Asia		-19	%		-39	%		—			—			—			—
North America		11	%		-6	%		—			—			—			—
Europe and Latin America ¹⁾ ²⁾		0	%		7	%		—			—			—			—
Middle East and Africa		-2	%		8	%		—			—			—			—
Other ¹⁾ ²⁾		-7	%		-17	%		—			—			—			—

Total		-1	%		-9	%		—			—			—			—

¹⁾ Of which in Sweden		-24	%		-10	%		—			—			—			—
²⁾ Of which in EU		-1	%		2	%		—			—			—			—

	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

South East Asia, Oceania and India		13,360			6,379			31,346			23,502			15,644			8,410
North East Asia		8,149			3,385			23,583			17,118			11,465			5,564
North America		25,654			11,317			52,001			37,316			24,997			12,027
Europe and Latin America ¹⁾ ²⁾		27,235			13,061			56,801			39,862			26,432			12,201
Middle East and Africa		11,391			5,765			24,965			17,384			11,087			5,356
Other ¹⁾ ²⁾		7,430			3,504			16,682			12,315			8,459			4,245

Total		93,219			43,411			205,378			147,497			98,084			47,803

¹⁾ Of which in Sweden		1,511			915			3,334			2,462			1,802			1,017
²⁾ Of which in EU		17,141			8,522			36,472			25,650			17,015			8,328

Year to date, year-over-year change,	2018						2017
percent	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

South East Asia, Oceania and India		-15	%		-24	%		0	%		—			—			—
North East Asia		-29	%		-39	%		-13	%		—			—			—
North America		3	%		-6	%		1	%		—			—			—
Europe and Latin America ¹⁾ ²⁾		3	%		7	%		-9	%		—			—			—
Middle East and Africa		3	%		8	%		-9	%		—			—			—
Other ¹⁾ ²⁾		-12	%		-17	%		-18	%		—			—			—

Total		-5	%		-9	%		-7	%		—			—			—

¹⁾ Of which in Sweden		-16	%		-10	%		-1	%		—			—			—
²⁾ Of which in EU		1	%		2	%		-6	%		—			—			—

33 Ericsson | Second Quarter Report 2018

Additional information

Top 5 countries in sales


Country	Q2						Jan-Jun
Percentage of Net sales	2018			2017			2018			2017

United States		30	%		28	%		29	%		27	%
China		6	%		9	%		5	%		8	%
India		5	%		4	%		5	%		5	%
Australia		3	%		4	%		3	%		4	%
Japan		3	%		2	%		3	%		3	%

Net sales by market area by segment


	Q2 2018															Jan-Jun 2018
SEK million	Networks			Digital Services			Managed Services			Emerging Business and Other			Total			Networks			Digital Services			Managed Services			Emerging Business and Other			Total

South East Asia, Oceania and India		4,987			1,077			915			2			6,981			9,406			2,304			1,640			10			13,360
North East Asia		3,596			792			368			8			4,764			5,839			1,524			754			32			8,149
North America		11,358			2,136			822			21			14,337			20,706			3,482			1,417			49			25,654
Europe and Latin America		7,753			2,908			3,434			79			14,174			15,203			5,207			6,678			147			27,235
Middle East and Africa		3,034			1,594			990			8			5,626			6,529			2,915			1,935			12			11,391
Other		1,665			326			-1			1,936			3,926			3,312			663			—			3,455			7,430

Total		32,393			8,833			6,528			2,054			49,808			60,995			16,095			12,424			3,705			93,219

Share of total		65	%		18	%		13	%		4	%		100	%		66	%		17	%		13	%		4	%		100	%


	Q2 2018
										Emerging
Sequential change,				Digital			Managed			Business
percent	Networks			Services			Services			and Other			Total

South East Asia, Oceania and
India		13	%		-12	%		26	%		-75	%		9	%
North East Asia		60	%		8	%		-5	%		-67	%		41	%
North America		22	%		59	%		38	%		-25	%		27	%
Europe and Latin America		4	%		26	%		6	%		16	%		9	%
Middle East and Africa		-13	%		21	%		5	%		100	%		-2	%
Other		1	%		-3	%		—			27	%		12	%

Total		13	%		22	%		11	%		24	%		15	%


	Q2 2018															Jan-Jun 2018
										Emerging															Emerging
Year over year change,				Digital			Managed			Business									Digital			Managed			Business
percent	Networks			Services			Services			and Other			Total			Networks			Services			Services			and Other			Total

South East Asia, Oceania and India		-5	%		-12	%		18	%		-33	%		-3	%		-19	%		-5	%		6	%		233	%		-15	%
North East Asia		-5	%		-52	%		-17	%		700	%		-19	%		-28	%		-39	%		-11	%		967	%		-29	%
North America		15	%		-2	%		-8	%		-19	%		11	%		8	%		-11	%		-19	%		-4	%		3	%
Europe and Latin America		1	%		-1	%		-3	%		84	%		0	%		8	%		-5	%		-2	%		116	%		3	%
Middle East and Africa		-5	%		5	%		-3	%		—			-2	%		5	%		2	%		-4	%		—			3	%
Other		-12	%		-14	%		—			0	%		-7	%		-18	%		-13	%		—			-6	%		-12	%

Total		2	%		-11	%		-2	%		2	%		-1	%		-4	%		-11	%		-4	%		-2	%		-5	%

34 Ericsson | Second Quarter Report 2018

Additional information

IPR licensing revenues by segment by quarter


Isolated quarters,	2018				2017
SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Networks		1,486		1,522		1,731		1,640		1,670		1,724
Digital Services		326		334		380		360		366		379

Total		1,812		1,856		2,111		2,000		2,036		2,103


	2018				2017
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Networks		3,008		1,522		6,765		5,034		3,394		1,724
Digital Services		660		334		1,485		1,105		745		379

Total		3,668		1,856		8,250		6,139		4,139		2,103

Provisions


	2018				2017
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Opening balance		9,030		9,879		9,514		10,357		10,514		6,320
Additions		1,974		1,315		2,769		1,942		1,403		6,365
Utilization/Cash out		-1,486		-2,216		-2,186		-2,626		-1,324		-2,085
Of which restructuring		-832		-1,424		-1,204		-1,461		-1,075		-1,586
Reversal of excess amounts		-191		-117		-199		-32		-65		-66
Reclassification, translation difference and other		207		169		-19		-127		-171		-20

Closing balance		9,534		9,030		9,879		9,514		10,357		10,514

Of which restructuring		4,029		3,524		4,043		3,458		4,003		4,059

	2018				2017
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Opening balance		9,879		9,879		6,320		6,320		6,320		6,320
Additions		3,289		1,315		12,479		9,710		7,768		6,365
Utilization/Cash out		-3,702		-2,216		-8,221		-6,035		-3,409		-2,085
Of which restructuring		-2,256		-1,424		-5,326		-4,122		-2,661		-1,586
Reversal of excess amounts		-308		-117		-362		-163		-131		-66
Reclassification, translation difference and other		376		169		-337		-318		-191		-20

Closing balance		9,534		9,030		9,879		9,514		10,357		10,514

Of which restructuring		4,029		3,524		4,043		3,458		4,003		4,059

35 Ericsson | Second Quarter Report 2018

Additional information

Information on investments

Investments in assets subject to depreciation, amortization, impairment and write-downs


	2018				2017
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Additions
Property, plant and equipment		951		856		1,105		739		1,018		1,015
Capitalized development expenses		325		254		138		126		315		865
Goodwill, IPR, brands and other intangible assets		124		421		315		1		19		1

Total		1,400		1,531		1,558		866		1,352		1,881

Depreciation, amortization and impairment losses
Property, plant and equipment		1,080		928		1,284		2,894		1,061		1,075
Capitalized development expenses		635		616		881		874		690		2,481
Goodwill, IPR, brands and other intangible assets		350		347		13,953		378		446		1,875

Total		2,065		1,891		16,118		4,146		2,197		5,431


	2018				2017
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Additions
Property, plant and equipment		1,807		856		3,877		2,772		2,033		1,015
Capitalized development expenses		579		254		1,444		1,306		1,180		865
Goodwill, IPR, brands and other intangible assets		545		421		336		21		20		1

Total		2,931		1,531		5,657		4,099		3,233		1,881

Depreciation, amortization and impairment losses
Property, plant and equipment		2,008		928		6,314		5,030		2,136		1,075
Capitalized development expenses		1,251		616		4,926		4,045		3,171		2,481
Goodwill, IPR, brands and other intangible assets		697		347		16,652		2,699		2,321		1,875

Total		3,956		1,891		27,892		11,774		7,628		5,431

36 Ericsson | Second Quarter Report 2018

Additional information


Other information

	Apr-Jun						Jan-Jun						Jan-Dec
SEK million	2018			2017			2018			2017			2017

Number of shares and earnings per share
Number of shares, end of period (million)		3,334			3,334			3,334			3,334			3,334
Of which class A-shares (million)		262			262			262			262			262
Of which class B-shares (million)		3,072			3,072			3,072			3,072			3,072
Number of treasury shares, end of period (million)		43			58			43			58			50
Number of shares outstanding, basic, end of period (million)		3,291			3,276			3,291			3,276			3,284
Numbers of shares outstanding, diluted, end of period (million)		3,323			3,319			3,323			3,319			3,324
Average number of treasury shares (million)		44			58			46			59			56
Average number of shares outstanding, basic (million)		3,290			3,275			3,288			3,273			3,277
Average number of shares outstanding, diluted (million) ¹⁾		3,322			3,318			3,321			3,316			3,317
Earnings (loss) per share, basic (SEK)		-0.58			-0.14			-0.83			-3.22			-9.94
Earnings (loss) per share, diluted (SEK) ¹⁾		-0.58			-0.14			-0.83			-3.22			-9.94
Earnings (loss) per share (Non-IFRS), diluted (SEK) ²⁾		-0.09			0.33			0.02			-1.86			-3.24

Ratios
Days sales outstanding		—			—			99			109			96
Inventory turnover days		83			90			83			81			66
Payable days		77			66			82			61			60
Alternative Performance Measures (APMs)
Equity ratio (%)		—			—			35.3	%		43.6	%		37.5	%
Return on equity (%)		-8.1	%		-1.6	%		-5.7	%		-16.6	%		-28.1	%
Return on capital employed (%)		1.1	%		-1.3	%		0.1	%		-13.3	%		-20.6	%
Capital turnover (times)		1.3			1.1			1.2			1.1			1.2
Free cash flow		-611.0			-1,328			-313			-4,567			5,109
Cash conversion (%)		-556.8	%		-0.7	%		-238.5	%		18.5	%		-73.2	%
Exchange rates used in the consolidation
SEK/EUR- closing rate		—			—			10.44			9.65			9.83
SEK/USD- closing rate		—			—			8.97			8.46			8.20

Other
Market area inventory, end of period		19,739			20,830			19,739			20,830			14,480
Export sales from Sweden		24,978			21,780			45,657			43,229			87,463

¹⁾	Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

²⁾	Excluding amortizations and write-downs of acquired intangibles and restructuring charges.


Number of employees
	2018				2017
End of period	Jun 30		Mar 31		Dec 31		Sep 30		Jun 30		Mar 31
South East Asia, Oceania and India		23,516		23,623		24,495		26,396		26,748		27,221
North East Asia		12,303		12,321		12,456		12,945		12,972		12,962
North America		9,510		9,798		10,009		10,665		11,073		11,253
Europe and Latin America ¹⁾		45,743		47,528		49,231		50,832		53,173		54,194
Middle East and Africa		4,188		4,311		4,544		5,014		5,161		5,268
Total		95,260		97,581		100,735		105,852		109,127		110,898
¹⁾ Of which in Sweden		13,431		13,763		13,864		14,195		14,483		14,712

37 Ericsson | Second Quarter Report 2018

Additional information

Items excluding restructuring charges

Restructuring charges by function

2018

2017

Isolated quarters, SEK million

Cost of sales

-937

-743

-2,038

-817

-927

-1,460

Research and development expenses

-502

-326

147

-1,896

-344

-214

Selling and administrative expenses

-441

-103

-534

-106

-243

-69

Total

-1,880

-1,172

-2,425

-2,819

-1,514

-1,743

2018

2017

Year to date, SEK million

Jan-Jun

Jan-Mar

Jan-Dec

Jan-Sep

Jan-Jun

Jan-Mar

Cost of sales

-1,680

-743

-5,242

-3,204

-2,387

-1,460

Research and development expenses

-828

-326

-2,307

-2,454

-558

-214

Selling and administrative expenses

-544

-103

-952

-418

-312

-69

Total

-3,052

-1,172

-8,501

-6,076

-3,257

-1,743

Restructuring charges by segment

2018

2017

Isolated quarters, SEK million

Networks

-749

-479

-1,260

-1,409

-816

-1,343

of which cost of sales

-469

-415

-1,052

-430

-512

-1,153

of which operating expenses

-280

-64

-208

-979

-304

-190

Digital Services

-882

-581

-686

-1,103

-454

-270

of which cost of sales

-303

-226

-609

-241

-242

-195

of which operating expenses

-579

-355

-77

-862

-212

-75

Managed Services

-123

-51

-376

-99

-115

-85

of which cost of sales

-103

-48

-326

-94

-113

-83

of which operating expenses

-20

-3

-50

-5

-2

Emerging Business and Other

-126

-61

-103

-208

-129

-45

of which cost of sales

-62

-54

-51

-52

-60

-29

of which operating expenses

-64

-7

-52

-156

-69

-16

Total

-1,880

-1,172

-2,425

-2,819

-1,514

-1,743

2018

2017

Year to date, SEK million

Jan-Jun

Jan-Mar

Jan-Dec

Jan-Sep

Jan-Jun

Jan-Mar

Networks

-1,228

-479

-4,828

-3,568

-2,159

-1,343

of which cost of sales

-884

-415

-3,147

-2,095

-1,665

-1,153

of which operating expenses

-344

-64

-1,681

-1,473

-494

-190

Digital Services

-1,463

-581

-2,513

-1,827

-724

-270

of which cost of sales

-529

-226

-1,287

-678

-437

-195

of which operating expenses

-934

-355

-1,226

-1,149

-287

-75

Managed Services

-174

-51

-675

-299

-200

-85

of which cost of sales

-151

-48

-616

-290

-196

-83

of which operating expenses

-23

-3

-59

-9

-4

-2

Emerging Business and Other

-187

-61

-485

-382

-174

-45

of which cost of sales

-116

-54

-192

-141

-89

-29

of which operating expenses

-71

-7

-293

-241

-85

-16

Total

-3,052

-1,172

-8,501

-6,076

-3,257

-1,743

38 Ericsson | Second Quarter Report 2018

Items excluding restructuring charges


Gross income (loss) and gross margin excluding restructuring charges by segment

Isolated quarters,	2018						2017
SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		13,034			11,542			12,901			11,084			11,406			11,184
Digital Services		3,761			3,118			1,724			2,860			3,531			-2,129
Managed Services		912			539			-365			-266			132			-459
Emerging Business and Other		563			402			295			420			488			364

Total		18,270			15,601			14,555			14,098			15,557			8,960


Isolated quarters,	2018						2017
As percentage of net sales	Q2			Q1			Q4			Q3			Q2			Q1

Networks		40.2	%		40.4	%		34.8	%		34.8	%		36.0	%		35.3	%
Digital Services		42.6	%		42.9	%		14.6	%		32.0	%		35.7	%		-26.3	%
Managed Services		14.0	%		9.1	%		-5.3	%		-4.0	%		2.0	%		-7.3	%
Emerging Business and Other		27.4	%		24.3	%		14.1	%		21.1	%		24.3	%		20.4	%

Total		36.7	%		35.9	%		25.1	%		28.5	%		30.9	%		18.7	%


Year to date,	2018						2017
SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		24,576			11,542			46,575			33,674			22,590			11,184
Digital Services		6,879			3,118			5,986			4,262			1,402			-2,129
Managed Services		1,451			539			-958			-593			-327			-459
Emerging Business and Other		965			402			1,567			1,272			852			364

Total		33,871			15,601			53,170			38,615			24,517			8,960


Year to date,	2018						2017
As percentage of net sales	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		40.3	%		40.4	%		35.2	%		35.4	%		35.7	%		35.3	%
Digital Services		42.7	%		42.9	%		15.4	%		15.8	%		7.8	%		-26.3	%
Managed Services		11.7	%		9.1	%		-3.6	%		-3.0	%		-2.5	%		-7.3	%
Emerging Business and Other		26.0	%		24.3	%		19.9	%		22.0	%		22.5	%		20.4	%

Total		36.3	%		35.9	%		25.9	%		26.2	%		25.0	%		18.7	%

39 Ericsson | Second Quarter Report 2018

Items excluding restructuring charges


Operating income (loss) and operating margin excluding restructuring charges by segment

Isolated quarters,	2018						2017
SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		4,293			3,850			3,205			3,784			4,240			4,054
Digital Services		-1,492			-2,026			-11,585			-2,668			-1,783			-8,734
Managed Services		422			151			-898			-628			-143			-1,744
Emerging Business and Other		-1,178			-1,115			-7,575			-1,321			-1,337			-3,109

Total		2,045			860			-16,853			-833			977			-9,533


Isolated quarters,	2018						2017
As percentage of net sales	Q2			Q1			Q4			Q3			Q2			Q1

Networks		13.3	%		13.5	%		8.6	%		11.9	%		13.4	%		12.8	%
Digital Services		-16.9	%		-27.9	%		-98.0	%		-29.9	%		-18.0	%		-107.8	%
Managed Services		6.5	%		2.6	%		-13.0	%		-9.5	%		-2.1	%		-27.8	%
Emerging Business and Other		-57.4	%		-67.5	%		-363.1	%		-66.2	%		-66.6	%		-174.6	%

Total		4.1	%		2.0	%		-29.1	%		-1.7	%		1.9	%		-19.9	%


Year to date,	2018						2017
SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		8,143			3,850			15,283			12,078			8,294			4,054
Digital Services		-3,518			-2,026			-24,770			-13,185			-10,517			-8,734
Managed Services		573			151			-3,413			-2,515			-1,887			-1,744
Emerging Business and Other		-2,293			-1,115			-13,342			-5,767			-4,446			-3,109

Total		2,905			860			-26,242			-9,389			-8,556			-9,533


Year to date,	2018						2017
As percentage of net sales	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		13.4	%		13.5	%		11.6	%		12.7	%		13.1	%		12.8	%
Digital Services		-21.9	%		-27.9	%		-63.9	%		-49.0	%		-58.4	%		-107.8	%
Managed Services		4.6	%		2.6	%		-12.9	%		-12.8	%		-14.6	%		-27.8	%
Emerging Business and Other		-61.9	%		-67.5	%		-169.6	%		-99.7	%		-117.3	%		-174.6	%

Total		3.1	%		2.0	%		-12.8	%		-6.4	%		-8.7	%		-19.9	%

40 Ericsson | Second Quarter Report 2018

Items excluding restructuring charges

Alternative performance measures

This section includes a reconciliation of certain Alternative Performance Measures (APMs) to the most directly reconcilable line items in the financial statements. The presentation of APMs has limitations as analytical tools and should not be considered in isolation or as a substitute for related financial measures prepared in accordance with IFRS.

APMs are presented to enhance an investor’s evaluation of ongoing operating results, to aid in forecasting future periods and to facilitate meaningful comparison of results between periods.

Management uses these APMs to, among other things, evaluate ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of certain performance-based compensation.

The APMs presented in this report may differ from similarly titled measures used by other companies.

For additional information, see Alternative Performance Measures in the Ericsson Annual Report 2017.

Sales growth adjusted for

comparable units and currency

Sales growth adjusted for the impact of acquisitions and divestments as well as the effects of foreign currency fluctuations.


	2018						2017
Isolated quarter, sequential change	Q2			Q1			Q4		Q3		Q2		Q1

Reported net sales		49,808			43,411			—		—		—		—
Acquired/divested business		—			—			—		—		—		—
Net FX impact		-2,460			423			—		—		—		—
Comparable net sales, excluding FX impact		47,348			43,834			—		—		—		—
Sales growth adjusted for comparable units and currency (%)		9	%		-24	%		—		—		—		—

	2018						2017
Isolated quarter, year over year change	Q2			Q1			Q4		Q3		Q2		Q1

Reported net sales		49,808			43,411			—		—		—		—
Acquired/divested business		—			—			—		—		—		—
Net FX impact		-263			3,328			—		—		—		—
Comparable net sales, excluding FX impact		49,545			46,739			—		—		—		—
Sales growth adjusted for comparable units and currency (%)		-1	%		-2	%		—		—		—		—

	2018						2017
Year to date, year over year change	Jan-Jun			Jan-Mar			Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Reported net sales		93,219			43,411			—		—		—		—
Acquired/divested business		—			—			—		—		—		—
Net FX impact		3,065			3,328			—		—		—		—
Comparable net sales, excluding FX impact		96,284			46,739			—		—		—		—
Sales growth adjusted for comparable units and currency (%)		-2	%		-2	%		—		—		—		—

41 Ericsson | Second Quarter Report 2018

Alternative performance measures

Items excluding restructuring charges

Gross income, operating expenses, and operating income (loss) are presented excluding restructuring charges and, for certain measures, as a percentage of net sales.


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Gross income		17,333			14,858			12,516			13,281			14,629			7,501
Net sales		49,808			43,411			57,881			49,413			50,281			47,803
Gross margin (%)		34.8	%		34.2	%		21.6	%		26.9	%		29.1	%		15.7	%

Gross income		17,333			14,858			12,516			13,281			14,629			7,501
Restructuring charges included in cost of sales		937			743			2,038			817			927			1,460
Gross income, excluding restructuring charges		18,270			15,601			14,554			14,098			15,556			8,961
Net sales		49,808			43,411			57,881			49,413			50,281			47,803
Gross margin, excluding restructuring charges (%)		36.7	%		35.9	%		25.1	%		28.5	%		30.9	%		18.7	%

Operating expenses		-17,205			-15,257			-18,863			-17,354			-15,417			-18,929
Restructuring charges included in R&D expenses		502			326			-147			1,896			344			214
Restructuring charges included in selling and administrative expenses		441			103			534			106			243			69
Operating expenses, excluding restructuring charges		-16,262			-14,828			-18,476			-15,352			-14,830			-18,646

Operating income (loss)		165			-312			-19,278			-3,652			-537			-11,276
Net sales		49,808			43,411			57,881			49,413			50,281			47,803
Operating margin (%)		0.3	%		-0.7	%		-33.3	%		-7.4	%		-1.1	%		-23.6	%

Operating income (loss)		165			-312			-19,278			-3,652			-537			-11,276
Total restructuring charges		1,880			1,172			2,425			2,819			1,514			1,743
Operating income (loss), excluding restructuring charges		2,045			860			-16,853			-833			977			-9,533
Net sales		49,808			43,411			57,881			49,413			50,281			47,803
Operating margin, excluding restructuring charges (%)		4.1	%		2.0	%		-29.1	%		-1.7	%		1.9	%		-19.9	%

	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Gross income		32,191			14,858			47,927			35,411			22,130			7,501
Net sales		93,219			43,411			205,378			147,497			98,084			47,803
Gross margin (%)		34.5	%		34.2	%		23.3	%		24.0	%		22.6	%		15.7	%

Gross income		32,191			14,858			47,927			35,411			22,130			7,501
Restructuring charges included in cost of sales		1,680			743			5,242			3,204			2,387			1,460
Gross income, excluding restructuring charges		33,871			15,601			53,169			38,615			24,517			8,961
Net sales		93,219			43,411			205,378			147,497			98,084			47,803
Gross margin, excluding restructuring charges (%)		36.3	%		35.9	%		25.9	%		26.2	%		25.0	%		18.7	%

Operating expenses		-32,462			-15,257			-70,563			-51,700			-34,346			-18,929
Restructuring charges included in R&D expenses		828			326			2,307			2,454			558			214
Restructuring charges included in selling and administrative expenses		544			103			952			418			312			69
Operating expenses, excluding restructuring charges		-31,090			-14,828			-67,304			-48,828			-33,476			-18,646

Operating income (loss)		-147			-312			-34,743			-15,465			-11,813			-11,276
Net sales		93,219			43,411			205,378			147,497			98,084			47,803
Operating margin (%)		-0.2	%		-0.7	%		-16.9	%		-10.5	%		-12.0	%		-23.6	%

Operating income (loss)		-147			-312			-34,743			-15,465			-11,813			-11,276
Total restructuring charges		3,052			1,172			8,501			6,076			3,257			1,743
Operating income (loss), excluding restructuring charges		2,905			860			-26,242			-9,389			-8,556			-9,533
Net sales		93,219			43,411			205,378			147,497			98,084			47,803
Operating margin, excluding restructuring charges (%)		3.1	%		2.0	%		-12.8	%		-6.4	%		-8.7	%		-19.9	%

42 Ericsson | Second Quarter Report 2018

Alternative performance measures

EBITA and EBITA margin

Earnings (loss) before interest, taxes, amortization and write-downs of acquired intangibles, also expressed as a percentage of net sales.


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net income (loss)		-1,802			-725			-18,493			-3,457			-457			-10,026
Taxes		1,157			-128			-1,303			-516			-24			-1,682
Financial income and expenses		810			541			518			321			-56			432
Amortization and write-downs of acquired intangibles		350			347			13,953			379			445			1,875
EBITA		515			35			-5,325			-3,273			-92			-9,401
Net sales		49,808			43,411			57,881			49,413			50,281			47,803
EBITA margin (%)		1	%		0.1	%		-9.2	%		-6.6	%		-0.2	%		-19.7	%

	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Net income (loss)		-2,527			-725			-32,433			-13,940			-10,483			-10,026
Taxes		1,029			-128			-3,525			-2,222			-1,706			-1,682
Financial income and expenses		1,351			541			1,215			697			376			432
Amortization and write-downs of acquired intangibles		697			347			16,652			2,699			2,320			1,875
EBITA		550			35			-18,091			-12,766			-9,493			-9,401
Net sales		93,219			43,411			205,378			147,497			98,084			47,803
EBITA margin (%)		1	%		0.1	%		-8.8	%		-8.7	%		-9.7	%		-19.7	%

Cash conversion

Cash flow from operating activities divided by the sum of net income (loss) and adjustments to reconcile net income to cash, expressed as a percentage.


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net income (loss)		-1,802			-725			-18,493			-3,457			-457			-10,026
Net income reconciled to cash		-259			-1,005			-4,001			-779			-142			-8,187
Cash flow from operating activities		1,442			1,573			11,159			-18			1			-1,541
Cash conversion (%)		-556.8	%		-156.5	%		-278.9	%		2.3	%		-0.7	%		18.8	%

	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Net income (loss)		-2,527			-725			-32,433			-13,940			-10,483			-10,026
Net income reconciled to cash		-1,264			-1,005			-13,109			-9,108			-8,329			-8,187
Cash flow from operating activities		3,015			1,573			9,601			-1,558			-1,540			-1,541
Cash conversion (%)		-238.5	%		-156.5	%		-73.2	%		17.1	%		18.5	%		18.8	%

Gross c ash and net cash, end of period

Gross cash: Cash and cash equivalents plus interest-bearing securities (current and non-current).

Net cash: Cash and cash equivalents plus interest-bearing securities (current and non-current) less interest-bearing liabilities (which include: non-current borrowings and current borrowings).


	2018				2017
SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Cash and cash equivalents		37,049		36,697		35,884		26,210		21,446		32,954
+ Interest-bearing securities, current		8,304		5,453		6,713		6,526		10,754		13,548
+ Interest-bearing securities, non-current		21,501		27,104		25,105		22,405		22,122		19,124
Gross cash, end of period		66,854		69,254		67,702		55,141		54,322		65,626
- Borrowings, current		2,642		2,554		2,545		3,004		3,230		9,514
- Borrowings, non-current		31,131		31,134		30,500		28,039		27,100		27,823
Net cash, end of period		33,081		35,566		34,657		24,098		23,992		28,289

43 Ericsson | Second Quarter Report 2018

Alternative performance measures

Capital employed

Total assets less non-interest-bearing provisions and liabilities.


	2018				2017
SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Total assets		265,322		260,681		259,882		267,239		275,160		291,976
Non-interest-bearing provisions and liabilities
Provisions, non-current		2,819		2,597		3,596		3,930		4,794		4,867
Deferred tax liabilities		1,332		1,325		901		1,736		1,838		1,888
Other non-current liabilities		4,549		2,792		2,776		2,563		2,602		2,699
Provisions, current		6,715		6,435		6,283		5,584		5,563		5,647
Contract liabilities		30,959		30,391		29,076		26,185		28,657		29,930
Trade payables		28,563		26,453		26,320		23,559		25,266		26,077
Other current liabilities		35,746		37,888		35,305		33,395		32,599		37,323
Capital employed		154,639		152,800		155,625		170,287		173,841		183,545

Capi tal turnover

Annualized net sales divided by average capital employed.


	2018				2017
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Net sales		49,808		43,411		57,881		49,413		50,281		47,803
Annualized net sales		199,232		173,644		231,524		197,652		201,124		191,212
Average capital employed
Capital employed at beginning of period		152,800		155,625		170,287		173,841		183,545		185,667
Capital employed at end of period		154,639		152,800		155,625		170,287		173,841		183,545
Average capital employed		153,720		154,213		162,956		172,064		178,693		184,606
Capital turnover (times)		1.3		1.1		1.4		1.1		1.1		1.0

	2018				2017
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Net sales		93,219		43,411		205,378		147,497		98,084		47,803
Annualized net sales		186,438		173,644		205,378		196,663		196,168		191,212
Average capital employed
Capital employed at beginning of period		155,625		155,625		185,667		185,667		185,667		185,667
Capital employed at end of period		154,639		152,800		155,625		170,287		173,841		183,545
Average capital employed		155,132		154,213		170,646		177,977		179,754		184,606
Capital turnover (times)		1.2		1.1		1.2		1.1		1.1		1.0

44 Ericsson | Second Quarter Report 2018

Alternative performance measures

Return on capital employed

The annualized total of operating income (loss) plus financial income as a percentage of average capital employed.


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1
Operating income (loss)		165			-312			-19,278			-3,652			-537			-11,276
Financial income		275			-72			-124			-139			-27			-82
Annualized operating income (loss) + financial income		1,760			-1,536			-77,608			-15,164			-2,256			-45,432
Average capital employed
Capital employed at beginning of period		152,800			155,625			170,287			173,841			183,545			185,667
Capital employed at end of period		154,639			152,800			155,625			170,287			173,841			183,545
Average capital employed		153,720			154,213			162,956			172,064			178,693			184,606
Return on capital employed (%)		1.1	%		-1.0	%		-47.6	%		-8.8	%		-1.3	%		-24.6	%

	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Operating income (loss)		-147			-312			-34,743			-15,465			-11,813			-11,276
Financial income		203			-72			-372			-248			-109			-82
Annualized operating income (loss) + financial income		112			-1,536			-35,115			-20,951			-23,844			-45,432
Average capital employed
Capital employed at beginning of period		155,625			155,625			185,667			185,667			185,667			185,667
Capital employed at end of period		154,639			152,800			155,625			170,287			173,841			183,545
Average capital employed		155,132			154,213			170,646			177,977			179,754			184,606
Return on capital employed (%)		0.1	%		-1.0	%		-20.6	%		-11.8	%		-13.3	%		-24.6	%

Equity ratio

Equity, expressed as a percentage of total assets.


	2018						2017
SEK million	Q2			Q1			Q4			Q3			Q2			Q1
Total equity		93,560			93,466			97,571			112,710			119,887			122,434
Total assets		265,322			260,681			259,882			267,239			275,160			291,976
Equity ratio (%)		35.3	%		35.9	%		37.5	%		42.2	%		43.6	%		41.9	%

Return on equity

Annualized net income (loss) attributable to stockholders of the Parent Company as a percentage of average Stockholders’ equity.


	2018						2017
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1
Net income (loss) attributable to stockholders of the parent company		-1,885			-837			-18,476			-3,561			-471			-10,068
Annualized		-7,540			-3,348			-73,904			-14,244			-1,884			-40,272
Average stockholders’ equity
Stockholders’ equity, beginning of period		92,703			96,935			112,095			119,177			121,698			134,582
Stockholders’ equity, end of period		92,689			92,703			96,935			112,095			119,177			121,698
Average stockholders’ equity		92,696			94,819			104,515			115,636			120,438			128,140
Return on equity (%)		-8.1	%		-3.5	%		-70.7	%		-12.3	%		-1.6	%		-31.4	%

	2018						2017
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Net income (loss) attributable to stockholders of the parent company		-2,722			-837			-32,576			-14,100			-10,539			-10,068
Annualized		-5,444			-3,348			-32,576			-18,800			-21,078			-40,272
Average stockholders’ equity
Stockholders’ equity, beginning of period		96,935			96,935			134,582			134,582			134,582			134,582
Stockholders’ equity, end of period		92,689			92,703			96,935			112,095			119,177			121,698
Average stockholders’ equity		94,812			94,819			115,759			123,339			126,880			128,140
Return on equity (%)		-5.7	%		-3.5	%		-28.1	%		-15.2	%		-16.6	%		-31.4	%

45 Ericsson | Second Quarter Report 2018

Alternative performance measures

Earnings (loss) per share (non-IFRS)

Earnings (loss) per share, diluted, excluding amortizations and write-down of acquired intangible assets and excluding restructuring charges.


	2018				2017
Isolated quarters, SEK	Q2		Q1		Q4		Q3		Q2		Q1
Earnings (loss) per share, diluted		-0.58		-0.25		-5.63		-1.09		-0.14		-3.08
Restructuring charges		0.41		0.30		0.37		0.73		0.38		0.46
Amortization and write-downs of acquired intangibles		0.08		0.06		4.17		0.07		0.09		0.43
Earnings (loss) per share (non-IFRS)		-0.09		0.11		-1.09		-0.29		0.33		-2.19

	2018				2017
Year to date, SEK	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Earnings (loss) per share, diluted		-0.83		-0.25		-9.94		-4.31		-3.22		-3.08
Restructuring charges		0.71		0.30		1.93		1.57		0.84		0.46
Amortization and write-downs of acquired intangibles		0.14		0.06		4.77		0.59		0.52		0.43
Earnings (loss) per share (non-IFRS)		0.02		0.11		-3.24		-2.15		-1.86		-2.19

Free cash flow

Cash flow from operating activities less net capital expenditures and other investments.


	2018				2017
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1
Cash flow from operating activities		1,442		1,573		11,159		-18		1		-1,541
Net capital expenditures and other investments
Investments in property, plant and equipment		-951		-856		-1,105		-739		-1,018		-1,015
Sales of property, plant and equipment		52		123		898		12		37		69
Acquisitions/divestments of subsidiaries and other operations, net		-431		-449		-107		371		9		3
Product development		-325		-254		-138		-126		-315		-865
Other investing activities		-398		161		-573		42		-42		110
Free cash flow		-611		298		10,134		-458		-1,328		-3,239

	2018				2017
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Cash flow from operating activities		3,015		1,573		9,601		-1,558		-1,540		-1,541
Net capital expenditures and other investments
Investments in property, plant and equipment		-1,807		-856		-3,877		-2,772		-2,033		-1,015
Sales of property, plant and equipment		175		123		1,016		118		106		69
Acquisitions/divestments of subsidiaries and other operations, net		-880		-449		276		383		12		3
Product development		-579		-254		-1,444		-1,306		-1,180		-865
Other investing activities		-237		161		-463		110		68		110
Free cash flow		-313		298		5,109		-5,025		-4,567		-3,239