Telefonaktiebolaget Lm Ericsson Class A · OMXSTO:ERIC_A
Telefonaktiebolaget Lm Ericsson Class A — Ericsson — Investor Day (November 2018)
165 slides from Telefonaktiebolaget Lm Ericsson Class A's investor day presentation, Nov 8, 2018
Slide 1: Ericsson Capital Markets Day 2018
Ericsson Capital Markets Day 2018 November 8, 2018 New York
Slide 2: Trends, strategy, performance and next step
Trends, strategy, performance and next step Peter Nyquist VP Investor Relations
Slide 3: Safe harbour statement
Safe harbour statement This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to risks and uncertainties that could materially affect our business and results. Please read our earnings reports and our most recent annual report for
Slide 4: Agenda
Agenda 10.00 a.m. Trends, strategy, performance and next steps 2.30 p.m. Break 20 minutes Introduction – Peter Nyquist 2.50 p.m. Market area trends Strategy execution and the next chapter – CEO Börje Ekholm Introduction – CEO Börje Ekholm Technology trends – CTO Erik Ekudden Market Area North Americ
Slide 5: Journey since Q1-2017
Journey since Q1-2017
Slide 6: Strategy execution and the next chapter
Strategy execution and the next chapter Börje Ekholm President and CEO
Slide 7: What we will cover today
What we will cover today Our turnaround Market opportunity Growth Targets ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 7
Slide 8: What we will cover today
What we will cover today Our turnaround Market opportunity Growth Targets ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 8
Slide 9: Creating a strong foundation
Creating a strong foundation Technology Stability and profitability leadership ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 9
Slide 10: Our turnaround plan
Our turnaround plan 2017 2018 2019 2020 Simplified structure Compliance program accelerated 25K HC reduction + delayering Accelerated cost out – SEK 10 b. 59 of 87 contracts addressed Stabilize Portfolio review 6K automations implemented & simplify Contract review 4K+ R&D engineers 26% growth in IoT
Slide 11: Progress in strategy execution
Progress in strategy execution RAN market share Gross margin1 36.3% 36.4% 32.7% 36.6% 36.7% 30.2% 29.8% 35.7% 29.7% 34.8% 35.5% 32.6% 28.9% 31.4% 30.5% 28.0% 28.0% 28.2% 29.8% 30.0% 29.9% 27.2% '12 '13 '14 '15 '16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 '12 '13 '14 '15 '16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 1Exclu
Slide 12: Returned to growth
Returned to growth Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Net sales adjusted for comparable units and currency Net sales as reported ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Pa
Slide 13: Traction towards >12% operating margin
Traction towards >12% operating margin1 Operating margin1 (%) >12% >10% 7.0% 4.1% Back to top line growth 2.3% 2.0% 0.7% 0.6% -0.1% Focused Cost savings strategy Increase program Gross launch R&D complete Margin hits investment Cost savings 35% program launched 2017 2018 2020 1 Operating margin excl
Slide 14: Focused strategy remains
Focused strategy remains Purpose and vision Mission Empowering an intelligent, sustainable Enabling the full value of connectivity and connected world. for service providers. Our customers’ needs Relentless efficiency End-customer experience New revenue streams Networks Digital Services Managed Serv
Slide 15: What we will cover today
What we will cover today Our turnaround Market opportunity Growth Targets ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 15
Slide 16: Strong underlying market growth
Strong underlying market growth Mobile data Cellular IoT connections exabytes / month billion ~5X ~4X 107 3.5 2.8 79 2.2 58 1.7 43 1.3 31 1.0 22 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Source: Ericsson Mobility Report Source: Ericsson Mobility Report ©Ericsson Telefonaktiebolaget
Slide 17: Focused strategy creates value for customers
Focused strategy creates value for customers Relentless efficiency End customer experience New revenue streams Managed Services Digital Services Networks 30% Reduction in critical incidents despite 90% Reduction in customer support 10% Increase in ARPU, despite flat market, tripled number of softwar
Slide 18: Technology shifts create market opportunity
Technology shifts create market opportunity Cloud and Edge AI and Automation 5G and IoT Core Networking TAM1 Yearly savings to CSPs2 RAN TAM1 $5 $40 USD b. from analytics, AI, automation USD b. $4 $30 $3 $20 $2 474 USD b. per year $10 $1 $0 Network Mgmt Assurance $0 2017 2018 2019 2020 2021 2022 202
Slide 19: 5G expands the addressable market
5G expands the addressable market enabling new revenue streams $200 – 600 b. Addressing opportunities Scale driven Massive IoT Critical IoT Industry 4.0 $950 – Enhanced Mobile Fixed Wireless $50 – 1,100 b. Broadband (eMBB) Access (FWA) 100 b. Performance driven opportunities Note: Numbers are early
Slide 20: What we will cover today
What we will cover today Our turnaround Market opportunity Growth Targets ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 20
Slide 21: Taking the next step
Taking the next step Growth in new business Growth in core business Technology leadership Stability and profitability ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 21
Slide 22: Our approach to growth
Our approach to growth Selective Disciplined Profitable Streamlined portfolio Execution Meeting group targets Targeted markets Financial discipline Positive Net Present Value (NPV) ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page
Slide 23: Addressing a growing market
Addressing a growing market 2% to 3% CAGR 2018 to 2022 Networks Digital Services Managed Services — Selective market expansion — Profitability over growth remains — Focus shift to growth — Acceleration of 5G — Invest in 5G portfolio: cloud-native — Launch new AI-driven offerings and automated 2-4% 1
Slide 24: Emerging Business uses an agile model to address new value pools
Emerging Business uses an agile model to address new value pools Build on our strengths Lean start-up approach Manage for positive NPV Address high growth markets Limited upfront investments 2020 break even target across the segment based on current Connectivity leadership Agile management business
Slide 25: Growth strategy supported by M&A
Growth strategy supported by M&A Portfolio near focus Technology — Growth areas where we need to strengthen our position — Competence — Adjacencies to existing businesses — Patent complements — Complement R&D activities to achieve quicker time to market — Emerging technologies — New areas where we h
Slide 26: What we will cover today
What we will cover today Our turnaround Market opportunity Growth Targets ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 26
Slide 27: Target update 2020
Target update 2020 Increased net sales ambition, maintained operating margin1 target CMD 2017 CMD 2018 SEK b. 2020 2020 2020 operating margin1 target ranges Sales 190-200 210-220 Networks 15% to 17% Gross margin1 37-39% Digital Services Low single digits Continued investments but R&D growing slower
Slide 28: Target 2022
Target 2022 Operating margin1 >12% no later than 2022 CMD 2017 CMD 2018 CMD 2018 SEK b. 2020 2020 2022 2022 operating margin1 target ranges Sales 190-200 210-220 Networks 15% to 17% Gross margin1 37-39% Digital Services 10% to 12% Continued investments but R&D growing slower than sales Managed Servi
Slide 29: Opportunities for growth beyond 2020
Opportunities for growth beyond 2020 Illustrative M&A – Portfolio near acquisitions & technology focus 2% to 3% YoY Growth in new businesses – 5G and IOT use cases Growth in core businesses – Market share gain Baseline – Grow with the market 2020 202X ©Ericsson Telefonaktiebolaget Internal | 2018-02
Slide 30: Technology trends
Technology trends Erik Ekudden, CTO
Slide 31: Towards a more versatile network
Towards a more versatile network Management ENM Dynamic Orchestration Orchestrated AI controlled AI assisted Core 5G EPC Core Virtualized Cloud native Radio access Software defined 4G LTE- NB- 5G 2G 3G LTE M IoT NR 1990 NOW Building the industries strongest 5G patent portfolio ©Ericsson Telefonaktie
Slide 32: Our global architecture
Our global architecture Devices / Access sites Distributed sites National sites Global sites Local networks Application cloud Management & Monetization Mobile Mobile Access, Mobility, Network applications Fixed Fixed Cloud infrastructure Transport We have the vital capabilities to ensure an efficien
Slide 33: Technology strategy focus
Technology strategy focus Innovation in network platform and new business ⏤ Research is the foundation for our technology Technologies providing for new business leadership and strong patent portfolio IoT platform onboarding and serving industry Global facilitation and aggregation of network ⏤ Busin
Slide 34: 5G time plan
5G time plan 5G devices broadly available 2017 2018 2019 2020 3GPP Rel-15 Rel-16 Rel-17, ... NSA SA 5G/NR Phase 1 5G/NR Phase 2 Rel-15 - June 2018 Rel- 16 - December 2019 Main focus: Main focus: NR: New 5G radio Wireless and Wireline 5G Core: EPC and 5GC Convergence Network Slicing Ultra Reliable Lo
Slide 35: Spectrum usage overview
Spectrum usage overview 5G Increased value from advanced antenna technologies and 4G spectrum aggregation in the active part of the network 3G 2G High NR Spectrum bands Localized combination (24 GHz – Peak Capacity Urban 52 GHz) capacity boost Mid bands (3 GHz – 6 GHz) Urban & sub-urban capacity Wid
Slide 36: 5G is developed for broader usage
5G is developed for broader usage Platform for Massive machine type Critical machine type addressing communication communication industry and — Smart meter — Industrial applications society — Tracking — Traffic safety & control — Fleet management — Remote manufacturing transformations Cost effective
Slide 37: The momentum around 5G innovation
The momentum around 5G innovation 5G-AA 5G Automotive Association Automotive 5G-ACIA AECC Automotive Edge 5G Alliance Connected Computing Industries Automation COnsortium 5G for global Network Enterprises platform Innovation IIC IEEE Industrial Internet The IEEE Standards Consortium Association ISO/
Slide 38: Enable enterprise and industry digital transformation
Enable enterprise and industry digital transformation Wide area and Indoor coverage Transport and logistic needs IoT connectivity ⏤ Asset management data to optimize the supply ⏤ Monitoring of real-time position, conditions and usage and delivery chain Radio Core Management Transport Solutions Wide-
Slide 39: Technology Trends
Technology Trends #1 The realization of zero touch is a set of intelligent network applications and features is key to hiding network complexity #2 The emergence of the Internet of Skills, will lead to human skills and senses delivered without boundaries #3 Highly adaptable cyber-physical systems is
Slide 40: Securing long-term technology leadership
Securing long-term technology leadership Summary Industry wide technology trends Areas of focus #1 The realization of zero touch — 5G Radio and Core #2 The emergence of the Internet of Skills — Distributed cloud and edge — Security and Trust #3 Highly adaptable cyber-physical systems — AI and Machin
Slide 41: Financial update
Financial update Carl Mellander CFO
Slide 42: Financial priorities communicated at CMD 2017
Financial priorities communicated at CMD 2017 CM Drive focus on D profit and cash 20 17 Secure resilience Improve visibility and accountability ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 42
Slide 43: Ericsson turnaround
Ericsson turnaround Operating margin1 (%) >12% >10% 7.0% 4.1% Back to top line growth 2.3% 2.0% 0.7% 0.6% -0.1% Focused Cost savings strategy Increase program Gross launch R&D complete margin hits investment Cost savings 35% program launched 2017 2018 2020 No later than 2022 Isolated quarters 1 Oper
Slide 44: Turnaround is visible across financial metrics
Turnaround is visible across financial metrics Net sales Underlying gross margin1 Free cash flow before M&A (SEK b. – rolling 4Q) (% – quarterly) (SEK b. – rolling 4Q) 230 12 39 220 37 10 210 200 35 8 190 33 6 180 31 170 4 29 160 27 2 150 140 25 0 Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2017 Q3 2017 Q1 2
Slide 45: All segments contributing to turnaround
All segments contributing to turnaround Networks Digital Services Managed Services Emerging Business & Other Net sales 32 36 (SEK b.) 9 9 7 6 2 2 2017 Q3 2018 Q3 2017 Q3 2018 Q3 2017 Q3 2018 Q3 2017 Q3 2018 Q3 Gross margin1 (%) 35% 41% 32% 37% -4% 13% 21% 32% Operating margin1 (%) 12% 16% -30% -16%
Slide 46: Improved cost structure
Improved cost structure Total cost1 as % of net sales 1% 5% — Cost effective product portfolio and delivery — Service delivery efficiency (part of SEK 10 b. program) — Scope review and contract exits — Exiting non-core and underperforming business 70% 64% — Supply chain efficiencies — Investments to
Slide 47: Strengthened financial resilience
Strengthened financial resilience Gross and net cash position (SEK b.) Debt maturity profile (SEK b.) 10 Well diversified debt maturity profile and 5 two undrawn credit facilities 0 (USD 2 b. RCF & EUR 250 m. 2018 2019 2020 2021 2022 2023 2024 2025 R&D financing from EIB) 66 Swedish Export Credit Co
Slide 48: Improved capital efficiency
Improved capital efficiency Working capital (days) Improvement actions — Implementation of the focused strategy 145 — Selective deal taking 126 — Enhanced processes for credit management and collection 108 Target 102 96 100 — Incentives tied to Economic Profit — Reduction of working capital in 2017
Slide 49: New incentive structure in 2018
New incentive structure in 2018 Short-term variable Long-term variable compensation metrics compensation metrics Economic profit Shareholder Operating Operating income as metric Executive team (Group & Market / Business areas) return income to incentivize reaching company turnaround targets Economic
Slide 50: Next stage
Next stage Operating margin1 (%) >12% >10% 7.0% 4.1% Back to top line growth 2.3% 2.0% 0.7% 0.6% -0.1% Focused Cost savings strategy Increase program Gross launch R&D complete margin hits investment Cost savings 35% program launched 2017 2018 2020 No later than 2022 Isolated quarters 1 Operating mar
Slide 51: Priorities for further value creation
Priorities for further value creation Continue to drive focus on Grow profitably profit, cash and resilience Drive focus on profit and cash Selective Disciplined Profitable Secure resilience Streamlined portfolio Execution Meeting group targets Targeted markets Financial discipline Positive net pres
Slide 52: Targets 2020 and 2022
Targets 2020 and 2022 CMD 2017 CMD 2018 CMD 2018 SEK b. 2020 2020 2022 Sales 190-200 210-220 Momentum for Networks in a stronger market Continued R&D investments to drive margin expansion Gross margin1 37-39% Automation and efficiency improvements Continued investments but Continued increased 5G inv
Slide 53: Currency impact and hedging activities
Currency impact and hedging activities Sales exposure to currencies in 2017 Other — Largest exposure in USD — USD to SEK movements has a direct impact on reported sales JPY 45% USD and income INR — SEK/USD 8.70 used in 2020 targets CNY — 10% stronger USD to SEK results in ~5% impact on sales and ~1p
Slide 54: Illustrative bridge on free cash flow
Illustrative bridge on free cash flow Illustrative Bridge from operating income to free cash flow % of net sales Comments Operating income >12% - Financial net, tax and other ~4% Planning assumption based on historical levels Planning assumption based on historical levels + Add back depreciation & a
Slide 55: Capital ambitions and strategy remain
Capital ambitions and strategy remain Capital ambitions Capital structure strategy Ambition 2018 Q3 Turnaround phase Repositioning phase (2017-2019) (2020-onwards) — Secure cash position and — Optimize the capital structure Equity ratio >40% 36% flexibility to invest based on improved business — Foc
Slide 56: Continuous cost improvements
Continuous cost improvements — SEK 10 b. program has been essential in restoring profitability and reaching more competitive cost levels ü — Cost program has helped to establish cost mentality and cemented cost management structures Cost management structure and Enhanced efforts Next level of cost e
Slide 57: Summary
Summary Our focused strategy has led us back to stability and profitability We continue with relentless profit and cash focus, securing resilience and improving visibility and accountability As profit and capital efficiency have improved, we pursue disciplined growth for further value creation ©Eric
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Slide 60: Ericsson Capital Markets Day 2018
Ericsson Capital Markets Day 2018 November 8, 2018 New York
Slide 61: Segment targets
Segment targets Carl Mellander CFO
Slide 62: Segment targets 2020 and 2022
Segment targets 2020 and 2022 Networks Digital Services Managed Services Emerging Business & Other 2020 target 2020 target 2020 target 2020 target Net sales Operating margin2 Net sales Operating margin2 Net sales Operating margin2 Net sales Operating margin2 SEK 141-145 b. 15-17% SEK 41-43 b. Low si
Slide 63: Stable IPR licensing revenue with long-term upside
Stable IPR licensing revenue with long-term upside Illustrative IPR revenue — Our 2020 planning is based on stable IPR licensing revenue (current run-rate SEK 7.5 b.) 5G — Revenues may temporarily fluctuate over time due to Automotive and contract renegotiations Smartphone other IoT penetration — Gr
Slide 64: Path to operating margin targets
Path to operating margin targets Illustrative Contribution per segment to operating margin1 target Operating margin1 Share of operating income improvement Operating margin1 target Operating margin1 target 2018 09 YTD to reach 2020 operating margin1 target 2020 2022 Networks 14.4% 15% to 17% 15% to 1
Slide 65: Networks
Networks Fredrik Jejdling, Executive Vice President and Head of Networks
Slide 66: Agenda
Agenda Performance and ambition to 2020 Meeting changing operator needs © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 7
Slide 67: Strategic priorities and achievements
Strategic priorities and achievements — 2 500 R&D engineers hired Talent transformation — 3 000 employees left Invest in technology and cost leadership — 100+ radios planned for 2019 Technology leadership — World 1st 5G commercial end-to-end call Selective market — RAN Compute & spectrum sharing exp
Slide 68: Financial performance Q317-Q318
Financial performance Q317-Q318 Quarterly sales (organic growth) Operating margin1 bridge YTD Observations YTD 37,1 32,4 35,9 Net sales 31,9 28,6 (2%) (5%) 4% — Growth mainly due to strong 5% (-2%) growth in North America, Europe and Latin America, driven by 13% 14% investments in 5G readiness and L
Slide 69: Key levers for reaching 2020 objectives
Key levers for reaching 2020 objectives 1 2 Secure our profitability Fund investments for cost competitiveness Objectives and network agility Key drivers of gross margin — Secure our — R&D for cost leadership — R&D for differentiating features financial 2020 — ERS 5G ready, 5G transport ambition — I
Slide 70: Our 2020 ambition
Our 2020 ambition Net sales ambition Operating margin1 target What will take us there Invest in technology and cost leadership 141- 134 145 15- 13% 17% Selective market expansion based on technology and cost competitiveness Acceleration of 5G with lead customers 2018 09 rolling 4Q 2020 2018 09 rolli
Slide 71: Agenda
Agenda Performance and ambition to 2020 Meeting changing operator needs © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 12
Slide 72: 2018: A pivotal year for the industry
2018: A pivotal year for the industry 5G 2018 The first commercial 20% 3.5 billion Cellular IoT connections of mobile data traffic will be launches of 5G in 2018 carried by 5G networks in 2023 in 2023 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 13 This sl
Slide 73: New business reality drives our strategy
New business reality drives our strategy New business reality Operator needs Investment strategy — 5G market driven by consumer, Relentless efficiency Invest for cost enterprise and industry needs — Add capacity and new technology to competitiveness — 4G and 5G coexistence, new meet the ever growing
Slide 74: Meeting traffic increase with cost efficiency measures on 4G and 5G
Meeting traffic increase with cost efficiency measures on 4G and 5G Relative cost-efficiency1 for Global mobile data forecast capacity expansions on a site 5G Cost/GB traffic — Improved cost-efficiency as cost/GB reduced faster than traffic grows x8 ÷10 — New value created as mobile 4G broadband per
Slide 75: Network evolution – leveraging existing investments
Network evolution – leveraging existing investments — Leveraging 5G ready ERS since 2015 Radio — Ericsson Spectrum Sharing Creating — RAN Compute for flexible deployment — Smooth and fast network migration customer Legacy LTE 5G NR — Capacity where it is needed – Massive value MIMO, mmWave 4G /5G Ba
Slide 76: New revenue streams emerging with IoT and Fixed Wireless Access
New revenue streams emerging with IoT and Fixed Wireless Access (FWA) — Massive IoT – happening now on 4G Ericsson is enabling more than half of the launched IoT networks — Driven by large scale deployments in China — 1 billion Cellular IoT end of 2018 — 3.5 billion Cellular IoT by 2023 $200- — Crit
Slide 77: Networks portfolio strategy
Networks portfolio strategy Approach Fixed access Converged transport & mobile Challenge with Fixed backhaul ⏤ Primary market RAN: Lead with Wireless Access (FWA) fastest cadence of best in class platforms, performance and TCO Antennas ⏤ Fixed Access: Complement with Primary market: Radio Access Net
Slide 78: Market leadership requires excellence beyond technology
Market leadership requires excellence beyond technology Business leadership Fastest cadence of platforms with best in class Commercial leadership cost/performance and first to introduce new features Technology leadership Fixed access Converged transport & mobile Challenge with Fixed Wireless Access
Slide 79: Key takeaways
Key takeaways Focused strategy execution generating results Tracking well towards financial targets 2020, with revised financial ambition R&D strategy focus on cost competitiveness and network agility for operators Our portfolio strategy is to lead in RAN and grow into adjacent markets Market leader
Slide 80: Digital Services
Digital Services Jan Karlsson, SVP and Head of Digital Services
Slide 81: Profitable commitment
Losses FY 2017: The Profitable Investing 10-12% operating SEK -10.3 b. commitment 2020 for beyond margin in 2022 YTD Q3 2018: SEK -4.9 b. All periods excluding restructuring charges, FY 2017 excludes restructuring charges and SEK -14.5 b. in impairments, write downs and other xo items © Telefonaktie
Slide 82: Agenda
Agenda Digital Services overview, execution and market outlook Strategy, priorities, actions and targets © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 23
Slide 83: Digital Services – customers’ ambitions in focus
Digital Services – customers’ ambitions in focus Programmable Automated Digital networks operations engagements Ambitions and objectives (~25%) (~20%) Time to market: Manual order Digital Impacted >50% shorter interventions: interactions: opex: (~20%) >40% less >70% >30% cut © Telefonaktiebolaget LM
Slide 84: Digital Services portfolio – addressing customers’ ambitions
Digital Services portfolio – addressing customers’ ambitions Programmable Automated Digital networks operations engagements Digital Business Support Systems (BSS) – rating, Management and orchestration (OSS) – charging, billing and digital customer engagement (~25%) assurance, analytics, orchestrati
Slide 85: Strategy execution – progress
Strategy execution – progress Strategy communicated at CMD 2017 Achievements YTD 2018 Software-led — Focused portfolio investments: >35% phase-out — Focused portfolio — Software-centric – own software core of solution — Service delivery focused on own products Industrialized services — Increased off
Slide 86: Financial performance
Financial performance 2018 Q3 vs 2017 Q3 Quarterly sales, SEK b. (organic growth) Operating income1 bridge, SEK b. Sales 11,8 — Legacy products in decline Operating expenses 8,8 9,0 8,9 7,3 (-6%) — Good progress in virtualization and Capitalized R&D (-12%) (-3%) 5G acceleration Gross margin — Delay
Slide 87: Market situation
Market situation Market outlook – Market position1 Market trends Per area CAGR within areas — Accelerating shift to cloud Digital BSS OSS BSS and NFV already with 4G CAGR # 1-4 CAGR # 1-3 Front-end — 5G investments kicking off ~0% 350+ customers ~5% 300+ customers — Increasing need of Back-end autom
Slide 88: Our virtualization and orchestration business traction
Our virtualization and orchestration business traction Cloud Cloud communication infrastructure Orchestration (customers) 70 vIMS 50+ customers 110+ 30+ vMSC customers Cloud core 25+ vDSC (customers) Analytics 110+ vEPC 65+ vSAPC 15+ customers 35+ vUDC Total number of customers per solution © Telefo
Slide 89: Digital Services portfolio integrated in the end-to-end 5G network offering
Digital Services portfolio integrated in the end-to-end 5G network offering Digital BSS Real-time charging and billing, digital customer engagement Management and Orchestration Devices / Local NW Global sites Network Management, Automation and Ericsson Digital BSS Orchestration of Nodes, Networks an
Slide 90: © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 |
© Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 31
Slide 91: Business momentum in 5G Core
Business momentum in 5G Core Now 9 Verizon live Swisscom Commercial 16 Wind Tre 8 contracts 8 2 undisclosed 1 undisclosed 35+ Proof of 3 Telstra concepts and trials 2 undisclosed 1 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 32
Slide 92: Agenda
Agenda Digital Services overview, execution and market outlook Strategy, priorities, actions and targets © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 33
Slide 93: Strategic choices made
Strategic choices made Customers — Telecom operators — 5G engagements with tier 1 key priority Profitability over Portfolio growth — A few selected customers drive our roadmap — Industrialized solutions – own software and high value services — Disciplined portfolio management Operating margin1 — Foc
Slide 94: Profitability over growth: 12-18 months actions
Profitability over growth: 12-18 months actions Efficient operations — Addressing the 45 critical and non-strategic projects Customers — Targeted virtualization and orchestration sales activities — Evolved operating model: — 5G program together with Networks — DevOps/continuous integration and deliv
Slide 95: Addressing the 45 critical and non-strategic projects
Addressing the 45 critical and non-strategic projects 34 critical projects refer to: 11 non-strategic projects refer to: — Telecom operator solutions that are large, multi- — Non-telecom operator customers, with very high year projects. degree of 3PP-based systems integration. — Majority based on ne
Slide 96: BSS strategy update
BSS strategy update R&D for full stack Revenue Manager to fulfill only existing customer commitments 350+ customers with established charging Developed capabilities will be added and billing products A strategy to better to the established portfolio serve the BSS customers and grow Established BSS t
Slide 97: Operating margin target 2020
Operating margin1 target 2020 Illustrative Net sales Target 2020 Sales SEK 41-43 b. — Driven by 5G Core, virtualization, Operating margin: orchestration and assurance Low single digit — Balanced shift from services to software Gross margin — Increased usage of industrialized solutions — 45 projects
Slide 98: Key takeaway
Key takeaway Momentum in customers’ Nurture technology installed base shifts and and build on + = efficiency experience Operating margin1 2020: low investments single digit margin 1 Disciplined Operating margin no later Invest in cloud portfolio than 2022: 10%-12% native and management, automation s
Slide 99: Managed Services
Managed Services Peter Laurin, SVP and Head of Managed Services
Slide 100: Agenda
Agenda Segment overview and strategy execution update Strategy, priorities and targets Key takeaways © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 41
Slide 101: This is Managed Services
This is Managed Services Network Managed Services SEK ~26.5 b. net sales1 - Managing network operations and field services >28,000 professionals (incl. external workforce) ~300 contracts in>100 countries IT Managed Services & ADM - Operating & developing applications and data centers Ericsson is one
Slide 102: Strategic Priorities
Strategic Priorities Communicated at CMD 2017 Execution 2018 1 Refocus offerings and business ⏤ Prioritized markets and offered no stand-alone field services ⏤ Strict financial governance for new contracts 2 Contract review ⏤ Addressed 40 of 42 contracts, maintained customer relationships 3 Execute
Slide 103: Contract review
Contract review — 42 contracts to be exited, renegotiated or transformed, 1.0 ambition to complete by 2019 0.9 0.8 — 40 contracts addressed end of Q3 with SEK 0.9 b. 0.7 annualized profit improvement and SEK 3.5 b. annualized net sales impact from contract exits1 0.5 Transformation 42 0.4 40 9 (23%)
Slide 104: Financial performance Q317-Q318
Financial performance Q317-Q318 Quarterly sales (organic growth %) Quarterly operating income1 (margin %) Net sales — Profitability over growth strategy — Contract renewal rate >90% — Growth in Managed Services IT & NDO 6,9 6,5 6,5 6,6 5,9 (-3%) (-8%) 0,4 0,4 — Decline from exiting unprofitable and
Slide 105: Future customer challenges will be more complex
Future customer challenges will be more complex Complexity Tomorrow 1. Increased complexity — 5G Networks — New IoT devices — End-user KPIs 2. New opportunities Today — 2G/3G/4G Networks — Smartphone-centric — Network KPIs Automation Artificial Alarms Intelligence © Telefonaktiebolaget LM Ericsson 2
Slide 106: Journey to AI in Managed Services
Journey to AI in Managed Services Robotic Process Artificial Today Scripting Automation Intelligence ~6,000 Efficiency Automations implemented 77% are reused in multiple contracts Last year Today Time © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 47
Slide 107: We are well positioned to deliver more value for our customers
We are well positioned to deliver more value for our customers We will : Complexity — Launch new AI-driven offerings 1. Domain expertise 2. Access to operations data — Shift from cost-plus to value-based commercial model 3. AI capabilities — Use software as integral part of our service offerings Aut
Slide 108: Future of Managed Services
Future of Managed Services © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 49
Slide 109: © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 |
© Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 50
Slide 110: Strategic priorities
Strategic priorities ⏤ New business and high contract renewal 1 Capture new business rates with strict financial governance ⏤ Higher share of AI offering Operating margin1 ⏤ Next generation AI offerings to support 2020: 5%-8% 2 Launch new AI driven offerings 5G, IoT and Cloud ⏤ R&D investments in AI
Slide 111: Financial ambition 2020
Financial ambition 2020 Illustrative Net sales Operating margin1 SEK 25.8 b. Ambition Target SEK 23-25 b. 5%-8% 5.4% 2018 09 4Q rolling Exits New business 2020 2018 09 YTD Contract Delivery R&D 2020 (Contract review, (net) review efficiencies and non-strategic deals, automation other) Higher ambitio
Slide 112: Key takeaways
Key takeaways Managed Services – profitable business, disciplined growth Develop next generation AI offerings to support 5G, IoT and Cloud Continue investments in AI technology and competence © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 53
Slide 113: Emerging Business and Other
Emerging Business and Other Åsa Tamsons, SVP and Head of Emerging Business and Other
Slide 114: Agenda
Agenda Segment overview and financial update Growth in Emerging Business Disciplined and lean start-up approach Emerging Business beyond 2020 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 55
Slide 115: Agenda
Agenda Segment overview and financial update Growth in Emerging Business Disciplined and lean start-up approach Emerging Business beyond 2020 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 56
Slide 116: Segment Emerging Business and Other
Segment Emerging Business and Other Media business iconectiv Emerging Business MediaKind Interconnection technology and Invest in strategic future growth Media solutions clearinghouse solutions opportunities built on 5G and IoT Partnering, retaining 49% ownership Close transaction around year-end Sa
Slide 117: Financial performance 2018
Financial performance 2018 Excluding MediaKind Net sales Quarterly sales Quarterly operating income1 Strong growth in iconectiv (YoY growth %) (margin %) Growth in Emerging Business driven by IoT Q3 Q1 2017 Q4 2018 Q2 Q3 1.7 Operating margin (40%) Improvement from iconectiv and Red Bee 1.3 1.3 1.1 (
Slide 118: Financial ambition 2020
Financial ambition 2020 Illustrative Net sales Operating income1 SEK b. SEK b. — MediaKind divestment will reduce net sales, and drive operating income Target improvement 8.2 Break-even1 — Improved operating income through Ambition higher sales in Emerging Business SEK 5-7 b. and iconectiv — Red Bee
Slide 119: Agenda
Agenda Segment overview and financial update Growth in Emerging Business Disciplined and lean start-up approach Emerging Business beyond 2020 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 60
Slide 120: Emerging Business – agile model addressing new value pools
Emerging Business – agile model addressing new value pools Build on our strengths Lean start-up approach Manage for positive NPV Address high growth markets Limited upfront investments 2020 break-even target across the segment based on current Connectivity leadership Agile management business portfo
Slide 121: Trends drive growth in new value pools
Trends drive growth in new value pools AI VR/AR Big Data Automation 163 ZB 4x 150 million >1.7 million VR/AR headset Machine learning new industrial 10x growth in shipments expected implementations robots will be global data until by 2023 from 2017 to installed by 2020 2025 2020 Large markets, growi
Slide 122: Exploring new growth opportunities
Exploring new growth opportunities Global Connectivity Factory Connectivity Edge Compute Data and Network Management Insights Connect and manage Enable industry 4.0 by Bring edge processing Explore opportunities to billions of IoT devices bringing LTE and 5G to power closer to the data, learn and pr
Slide 123: Global car manufacturers want global and secure connectivity
Global car manufacturers want global and secure connectivity End-user services End-to-end tracability © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 64
Slide 124: One global IoT solution
One global IoT solution Vodafone Orange Telia Company Softbank Swisscom Oredoo Sasktel China KDDI Bell Mobile China Arkessa Telecom Sprint Taiwan Service providers Mobile AIS get access to global Singtel Telkomsel Indosat enterprise use cases Oredoo Telstra Global connectivity for enterprises throug
Slide 125: Ease of use through one platform
Ease of use through one platform Device management Subscriptions Firmware © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 66
Slide 126: Business model for connectivity platform business
Business model for connectivity platform business Ericsson signs and Service providers Devices generate Revenue is shared Enterprises bring onboards service onboards revenue for with Ericsson and SIMs and devices providers enterprises enterprises service providers • Win strategic • # of enterprises
Slide 127: Agenda
Agenda Segment overview and financial update Growth in Emerging Business Disciplined and lean start-up approach Emerging Business beyond 2020 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 68
Slide 128: Disciplined and lean start-up approach
Disciplined and lean start-up approach 5i process Initiation Ideation Incubation Ignition Incorporation Average Smaller USD 15 k. avg. Phase 1 MVP, 4-6 months, Quarterly capital Part of core invest- investments to investment, USD 300 k. avg. investment injection based on business or ment size stimul
Slide 129: Disciplined governance: quarterly investment decisions
Disciplined governance: quarterly investment decisions based on achievements and milestones Monthly Milestones — Measure what matters – objectives and key results Measure and — Leading indicators and financial performance track — Examples of leading indicators: Footprint expansion, # of milestones e
Slide 130: Agenda
Agenda Segment overview and financial update Growth in Emerging Business Disciplined and lean start-up approach Emerging Business beyond 2020 © Telefonaktiebolaget LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 71
Slide 131: Growth now and beyond 2020
Growth now and beyond 2020 Now Beyond 2020 – Tap into new value pools – Manage portfolio for positive NPV – Build on our strengths, leverage synergies with – Potential upside beyond 2020 core business – Disciplined and lean start-up approach to validate ideas – Limited investments upfront, scale whe
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Slide 133: Break
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Slide 134: Ericsson Capital Markets Day 2018
Ericsson Capital Markets Day 2018 November 8, 2018 New York
Slide 135: Market Area trends
Market Area trends Börje Ekholm President and CEO
Slide 136: Radio units to be produced in USA
1 st radio units to be produced in USA ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 3
Slide 137: Radio units produced in USA; radio market share gain
1 st radio units to be produced in USA +1.5% radio market share gain ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 4
Slide 138: NB-IoT share in China
1 st radio units to be produced in USA +1.5% radio market share gain +5% NB-IoT share in China ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 5
Slide 139: Reduction in working capital
1 st radio units to be produced in USA +1.5% radio market share gain +5% NB-IoT share in China 20% reduction in working capital ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 6
Slide 140: Mobile subscription growth
1 st radio units to be produced in USA +1.5% radio market share gain +5% NB-IoT share in China 20% reduction in working capital +3% mobile subscription ©Ericsson Telefonaktiebolaget LMgrowth Internal | 2018-02-21 Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 7
Slide 141: Market Area North America
Market Area North America Niklas Heuveldop, SVP and Head of North America
Slide 142: Ericsson leading in North America
Ericsson leading in North America Group sales 2018 Jan-Sep — North American sales were $6.1B in 2017 North America — $4.7B YTD (+9% YoY), driven by investments in 5G readiness 30% — #1 wireless infrastructure vendor in North America Note: excludes Market Area ‘Other’ — 10,200+ employees in North Ame
Slide 143: The market reality
The market reality Operators required to evolve 7X Mobile data growth Operators are under pressure from saturation, price wars to compete effectively… North America mobile traffic Operator (Big 4) wireless revenue Operator (Big 4) blended ARPU Operators seeking… (Petabytes/Month) 19 000 CAGR (3Q16-2
Slide 144: The evolving industry
The evolving industry New spectrum availability Potential industry consolidation Potential new entrants Cable Opportunity Fixed wireless Mobile broadband access 5G will require 3.5GHz major capital New wireless Private LTE investments operator New T-Mobile Have key assets … but must evolve would hav
Slide 145: The business opportunity
The business opportunity Relentless efficiency Digital customer experience New revenue streams M-MIMO 5G Dynamic spectrum sharing Digital transformation Network slicing One network supporting multiple use cases Microservices Edge compute Cost efficiency (illustrative) Spend per unit of data delivere
Slide 146: The 5G race in North America
The 5G race in North America Commercial launch plans as announced by the operators 2018 Q4 2019 — Ericsson awarded 5G Mobile broadband contracts across 12 cities all top-4 operators 5G NR* (39 GHz) Mobile broadband — Two initial use cases: 9 cities Fixed wireless access and 5G NR* (2.5 GHz) mobile b
Slide 147: Summary and priorities going forward
Summary and priorities going forward North America is leading the global 5G race Service providers are transforming to address new opportunities Ericsson is uniquely positioned to support our customers maximize operating efficiencies, customer experience and new revenue growth ©Ericsson Telefonaktie
Slide 148: Market Area North East Asia
Market Area North East Asia Chris Houghton, SVP and Head of North East Asia
Slide 149: Ericsson in North East Asia
Ericsson in North East Asia Group sales 2018 Jan-Sep ⏤ 16,100 employees ⏤ 14,100 in Greater China (Mainland China, Taiwan, North East Hong Kong) Asia 8% ⏤ 2,000 in Japan and Korea ⏤ Ericsson market position ⏤ No.1 in Taiwan ⏤ No.2 in Korea ⏤ No.2 in Hong Kong ⏤ No.3 in Japan North East Asia sales, S
Slide 150: North East Asia market
North East Asia market Comments Addressable wireless capex (RAN+telecom core) — North East Asia provides scale and innovation. — Operators capex investments in non 5G declining USD b. whilst investment in 5G commencing, overall flat capex spend. 19.5 — Sharp growth in data traffic whilst slow uptake
Slide 151: North East Asia by market
North East Asia by market China market Japan market South Korea market ⏤ 5G the foundation of ambition ⏤ Main driver for 5G starts ⏤ Government vision of smart to be the world’s leading from eMBB, later move to manufacturing, health and economy IoT/Critical IoT connections transport running on 5G ⏤
Slide 152: 5G in North East Asia
5G in North East Asia — Ericsson awarded 5G contract by SKT in Q3 2018 — One of the earliest markets to launch 5G (Korea in early 2019) — Expected to be the biggest 5G market in the world (China from 2020) through government support Time line Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 2020 2021 China Field trial
Slide 153: Priorities going forward
Priorities going forward Improve business performance in Mainland China Increase footprint in Japan and Korea Secure 5G leadership ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 20 This slide contains forward-looking statements.
Slide 154: Market Area Europe & Latin America
Market Area Europe & Latin America Arun Bansal, SVP and Head of Europe & Latin America
Slide 155: Ericsson in Europe and Latin America
Ericsson in Europe and Latin America Top Countries Total of 42,800 employees Group sales 2018 Jan-Sep Brazil France Europe and Latin America: 29% Latin America Europe United Kingdom Germany Italy Mexico 7,800 35,000 Europe & LA sales, SEK b. Spain Sweden Managed Services Russia Netherland Digital 74
Slide 156: Market position and capital spending
Market position and capital spending Market position Operator capex (SEK b.) Latin America Europe 900 Fixed Mobile 0,6% 790 779 793 800 770 765 739 748 746 750 700 684 707 700 668 680 663 657 625 592 600 385 348 355 358 339 335 342 523 345 347 358 334 334 349 500 331 320 327 299 289 400 256 300 200
Slide 157: Selective gain of 4G footprint in Europe
Selective gain of 4G footprint in Europe 4G Growth in European market share Portfolio leadership — Ericsson Radio System — Product leadership — Competitive TCO — 5G software upgrade capability — Strong and competitive local services delivery ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Eri
Slide 158: 5G leadership in Europe
5G leadership in Europe 5G — US and China growth Slow Development in promoting 5G — Spectrum allocation, acceleration in Europe pricing and limited Europe license term challenging — Standalone industrial use case requires 5G capability not available until 2020 — Desired frontrunners — Market fragmen
Slide 159: Digitalization of Telecom core and Front end to enable 5G
Digitalization of Telecom core and Front end to enable 5G — Reduce opex — Speed to launch consumer services — End to end digitalization — Agile consumer offerings ©Ericsson Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | Ericsson Capital Markets Day 2018, Nov 8 | Page 26 This slide cont
Slide 160: Priorities going forward
Priorities going forward Key Enablers Strengthen 4G footprint — Ensure early 5G deals secure future profits — Build strong capabilities and accelerate competence shift to new generation products Focus on 5G in Europe — Apply strict commercial rules for new business — Attract talent to drive transfor
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Slide 162: Closing
Closing Börje Ekholm President and CEO
Slide 163: Summary
Summary Our Strong foundation through strategy execution turnaround R&D investments and cost out have restored market position and gross margin Market Growing demand for connectivity opportunity Addressed through solution in 4G, 5G, IoT and edge Growth Selective, disciplined and profitable Grow mark
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Slide 165: Forward-looking statements
Forward-looking statements This presentation 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, includi