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Annual Report 2000 Understanding our business
Ericsson Annual Report 2000This document is the Ericsson Annual Report 2000 –Understanding our business.Together with the Ericsson FinancialStatements it forms the Ericsson Annual Report 2000. If notaccompanied by this document, the Financial Statements can beobtained from Ericsson Corporate Communications, tel +46 8 719 0000.
Uncertain factors in the future‘Safe Harbor’ Statement under the US Private SecuritiesLitigation Reform Act of 1995Some statements in this annual report are forward looking andactual results may differ materially from those stated. In additionto the factors discussed, among other factors that may affectresults are product demand, effect of economic conditions,exchange-rate and interest-rate fluctuations, impact of competing products and their pricing, product development,product introductions and technological difficulties, political risksin the countries in which the Company has operations or sales,supply constraints, and the results of customer financing efforts.
A true picture of EricssonPeople sometimes perceive Ericsson as only a mobile phonesupplier. We are more than that. Our focus and strength is network infrastructure – for both wireless and wireline communications. This is why we dedicate the annual report frontcover to our most significant products, our radio base stations.During 2000 these were Sweden’s single largest export products
with an export value exceeding 50 billion SEK or 5.6 billion USD.This is more than 10 percent of the country’s total export.
Above RBS 3000 series
The front cover photograph shows our RBS 3000 WCDMA radiobase station in production in our new plant in Gävle, Sweden.
Annual Report 2000 Understanding our business 1
Contents 2 Key financial highlights 3 Ericsson in brief 4 Securing the lead in 3G 8 A dynamic marketplace10 Ericsson stories 28 Ericsson core strengths 44 Our people and our culture 46 Share performance47 Ericsson world-wide 48 Glossary
Communications for everyone
This simple idea is at the heart of everything we do.We start by understanding the many ways in whichpeople want or need to communicate with oneanother. Then we create new and better ways to make that happen.
This is not simply about delivering excellent productsor services. It involves everything from driving newstandards, to manufacturing radio base stations,developing state-of-the-art mobile telephones andMobile Internet applications, as well as constructingand managing entire wireless or wirelinetelecommunication networks.
This document shows you what we mean. It tells youwhat we have made and what we have achieved. Italso shows you how we work and the many ways inwhich we are making a positive difference to the worldaround us. Through these activities we are building astrong, exciting and valuable business.
Key financial highlights
Total consolidated results
(SEK billion) 2000 1999 Changes in%
Orders booked 292.3 223.8 31
Net Sales 273.6 215.4 27
Income before tax 28.7 16.4 75
Net income 21.0 12.1 74
Earnings per share, fully diluted (SEK) 2.65 1.54 72
Dividend (SEK) 0.50 0.50
Cash flow before financing activities 6.4 –2.4
Return on capital employed (ROCE, %) 26.5 19.0
Equity ratio (%) 37.7 35.2
Number of employees 105,129 103,290 2
Segment results
Orders booked
Network operators 212.4 151.8 40
Consumer products 57.0 47.6 20
Enterprise solutions 17.8 18.0 –1
Other operations 18.6 22.0 –16
Less inter-segment –13.5 –15.6 –13
Total 292.3 223.8 31
Sales
Network operators 194.1 149.9 29
Consumer products 56.3 46.4 21
Enterprise solutions 17.5 17.3 1
Other operations 19.0 16.8 14
Less inter-segment orders –13.3 –15.0 –11
Total 273.6 215.4 27
Operating income
Network operators1 48.5 19.6
Consumer products 2 –24.2 0.3
Enterprise solutions 0.0 0.1
Other operations 3 7.6 0.1
Unallocated expenses –0.7 –2.5
Total 31.2 17.6
Incl. capital gain from Juniper shares 1 15.4 –
Incl. restructuring costs 2 –12.7 –
Incl. non-operational items 3 7.0 –0.3
Market Area sales
Western Europe 100.3 85.3 17
Central- and Eastern Europe, Middle East & Africa 37.7 29.7 27
North America 35.2 25.2 40
Latin America 44.1 30.3 46
Asia Pacific 56.3 44.9 25
Total 273.6 215.4 27
2 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 3
Our main achievements in the year 2000:
• We took the lead in Mobile Internet:
Named supplier in 22 of 33 announced agreements for 3G infrastructure
50 percent of GPRS market won with64agreements
Complete WCDMA and CDMA 2000 systems product portfolio launched
New data and network protocols launched, including IP v6 and VOICE OVER IP OVER WCDMA
PARTNERSHIPS formed with MICROSOFT, IBM and WORLDCOM for development of Mobile Internet applications
• We continued to lead 2G mobile systems:
MAJOR CONTRACT WINS for new or expanded networks achieved, including AT&T Wireless, Telcel, Pegaso and China Telecom
GSM SYSTEMS SALES reached record levels
40PERCENTof mobile traffic passes across Ericsson systems
• We took the lead in the wireline migration market:
ENGINE gained35percent market share
SUBSTANTIAL DELIVERIESof ENGINE made to BT, UK
ENGINE ACCESS RAMP, a platform for broadbandnetwork access, LAUNCHED SUCCESSFULLY
• We established a strong position for datacom and IP backbone:
PARTNERSHIPformed with Juniper Networks Inc., USA, in Mobile Internet routers
BREAK-THROUGH ORDERSwon from Telia International and China Telecom
• We focused Consumer Products on return to profit:
Clear strategy for CONSUMER PRODUCTSdefined and under implementation
SMARTPHONE R380,GPRS/Bluetooth-enabled R520, youth orientatedT20mobile phones and a new Bluetooth headset introduced
Ericsson in brief
•Strong and competitive value growth for our shareholders is one of Ericsson's most important overallobjectives. Our long-term growth objectives were established in 1999, and remain unchanged:
We intend to grow faster than the market, at a rate of at least20 percent annually, viewed over a five year period. To reachthis objective we will maintain or improve our positions in boththe Operator and the Consumer oriented areas of our business.
Ericsson strives to have a positive cash flow before strategicacquisitions. Growth of at least 20 percent with a positive cashflow requires a return on capital employed of between 20 and25 percent for Ericsson as a whole.
We must therefore maintain an average operating margin ofat least 10 percent and a capital turnover of two or better.
Return requirements may vary for different parts of ourbusiness. A lower operating margin can also be offset by a higherrate of capital turnover.
Ericsson long term financial objectives:For year 2000 we reached all our financial objectives but one:
•SALES GROWTH: 27 PERCENT (TARGET + 20)
•CASH FLOW: POSITIVE SEK6.4 B. (TARGET POSITIVE)
•CAPITAL TURNOVER: 2.1 (TARGET 2)
•RETURN ON CAPITAL EMPLOYED: 26.5 PERCENT (TARGET 20-25)
•OPERATING MARGIN: 6.1 PERCENT (TARGET: >10)
Key financial objectives
4 Annual Report 2000 Understanding our business
Securing the lead in 3G
Lars Ramqvist (L)Chairman
Kurt Hellström (R)President and CEO
2000 was full of challenges. In an increasingly challenging business climate, we increased our
lead as the world number one network provider. The most significant factors behind this
achievement were our strong current systems business, combined with our ability to secure
contracts for new generation technologies such as multiservice networks, 2.5G and 3G. In
spite of the problems within the Consumer Products division, we are pleased to report a new
record result for the year 2000, in addition to the very good operating performance in our
systems business. This result is also due to our successful ‘String-of-pearls’ investment and
acquisition strategy in datacom and router companies and the subsequent divestment of part
of our shareholding in Juniper Networks Inc., USA.
We also want to acknowledge the great contributions made by our dedicated employees.
Our record result would not have been possible without their achievements. In year 2000, we
added to our pool of talent a net of almost 2,000 new colleagues, predominantly in our
expanding R&D projects in 3G.
Annual Report 2000 Understanding our business 5
To the Shareholders
In the stock market, IT and telecom stocks were hit
both by the revaluation earlier in the year and by concerns
about the high license fees paid by mobile systems
operators in some key markets and their effect upon
future investments. For the first time in 10 years
Ericsson shares lost value; however, in the volatile market
it still performed better than average. On NASDAQ –
which has the most influence on our share price –
the telecom index fell by 54 percent during 2000,
while our value declined by 32 percent. This decline
was enforced by the weakening of the Swedish krona
against the US dollar during the year. In Stockholm,
the Ericsson share fell 21 percent.
2G systems a significant part
The second generation (2G) mobile systems remain a
very large and profitable market for us. We have not yet
seen the peak in global demand for 2G systems and
services. Sales in this area will remain a very significant
part of Ericsson’s business for many years to come.
Our customer base is very broad – perhaps the most
expansive in the industry. The 10 largest mobile systems
operators, who together account for more than 60
percent of the world’s telecom market, are all Ericsson
customers. We work with most of them on a global
scale, helping them to identify and develop new markets
and services. For this reason, our presence in 140
countries is an important asset, both to our customers
and to us.
The undisputed leader in 3G
Ericsson is the named supplier in 22 of the 33 WCDMA
3G agreements publicly announced up to year-end 2000.
Our success in capturing orders for new technologies
is due to three important strengths: our wide and loyal
customer base, our technology leadership and our ability
and commitment to deliver these systems in large
volumes, world-wide. This has strengthened our position
as the world leader in 3G mobile systems. We are now
very well placed to increase our overall market share as
the industry moves towards the roll out of 3G.
We also secured the lead position in the migration of
GSM to packet data, called GPRS or 2.5G, now being
implemented world-wide. The leading operators in
North and Latin America have decided to take the GSM
route to 3G, and, as the market leader in GSM and
GPRS, we will benefit from this.
As a result of these market achievements, we are now
increasing our investments in 2.5G and 3G – both to
ensure that we meet our commitments to our customers
and to develop a wide range of commercial applications
created for the new generation of technology. We do
this because we count on increased competition and a
tougher business climate near-term.
We continue to increase our investment in R&D also to
meet the constant new technical challenges presented.
Of course, we are already studying the technologies
and solutions beyond 3G, too – some refer to them as
4G – while, at the same time, further developing the
standards and capabilities of 3G systems.
Committed to delivering 3G on time
Our ability to deliver 3G is a key factor behind the fact
that so many customers are choosing Ericsson, and our
resources are significant. In the very competitive 3G
arena, operators with new and, sometimes, very expensive
3G licenses need to secure timely and flawless roll-out
of their services. These operators are turning to Ericsson,
as the supplier with the largest implementation capacity.
We estimate that in just three years, volumes of 3G
hardware and software could reach a level that 2G
hardware and software (i.e. GSM, TDMA, CDMA and PDC)
took 10 years to achieve. We are preparing for this
very intense ramping up of delivery and implement-
ation capacity.
Strong hold in growing wireline market
We are very pleased that our wireline business has
continued to grow well throughout this year. There
are two main reasons for this. First, as a result of
increasing data and internet traffic, sales of our
traditional AXE product line rose sharply. This has
helped to ensure yet another record year for AXE.
The second factor is ENGINE. This is our solution for
the migration of circuit-switched narrowband networks
into next generation multiservice networks, based on
ATM and IP packet-switching technologies that support
high-speed data and Internet traffic. We won a
35 percent global market share in this area in 2000.
One important recent contract is with the US operator
WorldCom, who selected our ENGINE platform for
their next generation network as a foundation for new
multimedia services. The ENGINE orders have been
won in fierce competition with traditional data-com
6 Annual Report 2000 Understanding our business
and telecom suppliers, and our success with ENGINE is
due to our existing customer relationships and our
R&D experience in this area.
In fact, Ericsson delivered its first packet-switched
products, Eripax for fixed and Mobitex for mobile
datacom, respectively, in the early 1980’s. Our first
ATM switch was displayed at the ISS conference in
Stockholm in 1990, and it was subsequently developed
into our powerful AXD301 switch. Our Internet and IP
R&D started during the first part of the 1990’s and
was complemented with the ‘String-of-pearls’ strategy,
i.e. acquisitions of suitable datacom and router
technologies. This strategy was created in 1995-96
and implemented in 1997. It has been a great success,
both from a product strategy and a financial point of
view. The first important investment was in Juniper
Networks Inc., USA, in 1997. In 2000, we sold part
of our shareholding in Juniper, with a pre-tax gain of
more than SEK 15 billion. We have at the same time
continued and advanced our relationship with Juniper
in a joint venture to develop and deliver high-speed
internet routing products.
Mobile phone market share above 10 percent
In 2000, Ericsson shipped 43.3 million mobile phones,
an increase of 38 percent in volume and 21 percent
in sales. We kept a market share of more than
10 percent in a world market of approximately 405
to 415 million phones in year 2000, confirming
our position as one the world’s top-three suppliers.
We report a loss in our Consumer Products
operations of more than SEK 24 billion for the year.
The major portion of this loss is restructuring charges
of more than SEK 12 billion – booked in 2000 –
which will generate annual savings of around SEK 15
billion from 2002. Another SEK 8-9 billion, however,
are attributable to specific adverse circumstances,
which were beyond our direct control.
Several factors contributed to losses
Two important factors that contributed to this loss
relate to supply of components. First, there was a fire
in a factory of a supplier of key components, where
we and the supplier together consumed the vast
majority of the output of the critical manufacturing
process affected, and for which alternative sourcing
was not immediately available. Although we achieved
top priority from the vendor, and also in record time
built up this advanced microchip process in our own
factory in Sweden, we could not mitigate very severe
consequences. Second, concurrent quality problems in
the supply of another key component also had a
significant negative impact on volumes and repair costs.
In total about seven million phones were affected.
Since volume is decisive, sales and margins dropped,
inventories increased and cost went up due to idle
capacity in our production. The effects of these supply
problems are not easy to calculate, since it is difficult
to assess how the operations had developed if they had
not happened, but we estimate the negative impact to
be in the range of SEK 5-6 billion.
Another adverse circumstance for the mobile phone
operations was the development of foreign currencies
during 2000. The stronger yen and dollar increased
our purchase costs for components, while our sales
were hit due to the weaker euro. Total negative currency
effects were around SEK 3 billion. With our large cost
base in Sweden, the stronger krona vs. the euro was
also a competitive disadvantage for us, compared to
other vendors with large cost bases including production
in euro.
Aside of the above mentioned specific issues, the
underlying performance in the handset business was
still unsatisfactory, with an unfavorable product
program in the low-end segment and then an over-
supply situation with stiff price competition in the
later part of 2000.
This, and the consequences of the component supply
problems, made forceful actions necessary.
Decisive restructuring actions taken
Our ‘Back-to-Profit’ program, announced with our
second quarter report in July 2000, is under
implementation and on target. We expect to return
our Consumer Products division to profit in the second
half of 2001, although we foresee a net loss for the full
year. Amongst the actions taken are the transfer of
production at the Kumla, Sweden, and Lynchburg,
USA, factories to low-cost manufacturing units, and
the strengthening of our design organization,
including appointment of a new head of industrial
design. We have also started to phase out a number of
products in order to improve and concentrate our
product portfolio. A partnership was also established
To the Shareholders
Annual Report 2000 Understanding our business 7
To the Shareholders
A word from the ChairmanHaving been the company President and Chief Executive Officer from May 1990 until March 1998 and after that Chairman of the Board,I was asked by the Board of Directors in July 1999 to return as CEO for an 18-month period. It has been an eventful but also a successfulperiod for the company. The share value increased by 64 percent in comparison with the general index 25 percent. In the last 10 yearperiod 1991-2000, Ericsson’s share value has risen more than 3,200 percent to compare with a general index increase of 419 percent.Our market capitalization increased 37 times during the period, i.e. with more than 800 billion SEK, the largest ever increase in acompany value on the OM Stockholm Stock Exchange.
I am very pleased and grateful for having had the opportunity to be a member of the company’s executive management during this period.Ericsson has become the world leader in mobile systems and gained a strong position in mobile and broadband internet.
And, I would also like to express my most sincere thanks to Kurt Hellström and his management team and to all our employees, whohave made this possible, to Ericsson’s customers world-wide for their confidence, and, not least, to all shareholders for your support andtrust in the company.
The members of the Board of Directors welcome Kurt Hellström in his new position as President and Chief Executive Officer and wishhim the very best for the year 2001 and in the future.
Lars Ramqvist
with Arima, Taiwan, for development and manufacturing
of entry-level phones for GSM. In January, 2001, the
Arima agreement was followed by a similar partnership
with another Taiwanese manufacturer, GVC.
On top of this, in January, 2001, we have in a
memorandum of understanding with Flextronics,
expressed our intent to transfer Ericsson’s entire
production of mobile phones to Flextronics. Through
this, we will obtain increased flexibility and economies
of scale. This reinforces our ‘Back-to-Profit’ program
and enables us to concentrate on R&D, design, marketing,
branding and sales.
By the end of 2001, the Consumer Products division
will employ 7,000 people, compared to a peak of 18,000
during year 2000. The financial benefit of this
streamlining will have full impact from 2002 onwards.
The actions we have taken and the route we have
chosen underline our long term commitment to our
customers. We know from previous generations of
technology that the supply of high quality handsets
will be crucial when service starts on the 3G networks.
Ericsson will be there to supply them.
A leader on two fronts
We are convinced, that the expansion of mobile
communications will continue, even if also our industry
can be occasionally affected by the general business
climate. The growing number of subscribers and an
even greater increase in traffic across mobile networks
are generating mobile growth. With both 2.5G and
3G, the ability to deliver advanced mobile internet
services will further grow traffic and revenue.
Large operators’ decisions to migrate existing circuit-
switched networks into multiservice networks are
driving the wireline market. The demand for these
networks increases with the number of users of
both fixed broadband internet and mobile internet,
and this demand will increase considerably as 2.5G and
3G fully roll out.
These are the two major trends in our industry, and
they are both highly favorable to Ericsson. At the end
of 2000 we were leaders in both areas and we intend
to stay no.1. Our investments in, and innovative
approach to both mobile and wireline communications
– which are explored in this annual report – are now
being increased and refined. We do this to better serve
our customers and to secure long-term profitability for
our company to ensure that our shareholders’
investments in Ericsson return excellent value.
Lars Ramqvist, Chairman
Kurt Hellström, President and CEO
8 Annual Report 2000 Understanding our business
A dynamic market place
Wireless communications
We have seen extraordinary growth in the number of
mobile subscribers and the traffic levels those subscribers
are creating. In 2000 the total number of mobile
subscribers world-wide grew to 700 million. We expect
further growth of 30 percent in 2001, and continued
increases in 2002. Indeed, in 2002 we believe there will
be in excess of 1 billion mobile subscribers world-wide
– that means more people will be using wireless phones
and devices than traditional wireline devices.
The market growth in mobile communications is
not just driven by new subscribers. Subscribers are,
on average, using their mobile services more often too.
Increased usage will grow as subscribers move to 2.5G
and 3G services – a migration that will create high
value new business for operators.
Wireless communications – key issues
The telecommunications industry has been criticized
of overstating the speed of uptake of a number of tech-
nologies, and there is much excitement about how
attractive 3G will be to consumers. We believe such
positive sentiments are well-founded however, and
expect to see rapid growth in 3G subscribers in 2002
and 2003.
There are many issues to be resolved before this
growth can take place, however. First of all, consumers
have to accept new technologies and services. WAP has
underlined that the arrival of an innovative technology
is no guarantee of rapid acceptance and commercial
success. Now, with the introduction of robust, easy to
use and useful services, it looks likely that WAP will
recover from its initial problems and will become
increasingly popular, growing in importance as sub-
scribers move to more sophisticated and personalized
services delivered by higher bandwidth GPRS and
WCDMA equipment.
Two real examples support our view that there is
enormous demand for user-focused data services
waiting to be met. The simplest and oldest form of the
Mobile Internet – SMS/Short Message Services –
recorded tremendous growth during 2000, increasing
from about three billion SMS messages per month
to around 13 billion messages per month by the end
of the year. Meanwhile, in Japan, i-mode is now growing
at a rate of 500,000 subscribers each month and
had at the end of 2000 attracted 27 million
subscribers. Consumers world-wide are now ready for
a range of new data services – WAP, together with GPRS
and 3G, will meet that demand.
Wireless communications – customer requirements
Promises to consumers must be met. To achieve sustained
and rapid growth, both suppliers and operators must
ensure that they can deliver what is required on time
and can develop and grow revenue quickly.
We are now working with our customers to help
them do exactly this. As you can read on the following
pages, Ericsson has created a unique set of capabilities
in mobile communications, designed to help operators
meet the challenges before them. From our global
scale and local expertize through to our technology
innovation – Mobile Internet expertize, engineering
skills and handset design and network construction
capabilities – Ericsson is the leading supplier in
telecommunications. It is through these areas of
excellence that we will meet the needs of our customers
and grow our business.
Wireline – market growth
Mobile subscribers will out number fixed subscribers
by 2002, but that does not mean the wireline market
will not continue to grow. On the contrary, the large
volumes of traffic created by mobile voice and data
communications is increasing the demand for wireline
network infrastructure. The arrival of higher band-
width services will continue to increase demand. In
addition to this, wireline networks are also growing
due to the rapid increase in fixed Internet and data traffic.
The move to broadband services, such as ATM, IP
and a number of optical systems, is adding to the level
of overall traffic. Having fast high capacity access
means people are spending more time accessing more
information.
Ericsson market forecast:By the shift 2001/2002 it will be morecommon to use a mobile phone thana fixed-line phone.
In 2003, the Mobile Internet willovertake the fixed internet.
Mobile phone estimates:2000: 405 – 415 miilion phones2001: 500 – 540 million phones
Subscriber estimates:2000: 700 – 715 million2001: 920 – 950 million
Annual Report 2000 Understanding our business 9
Wireline – customer requirements
To cope with greater diversity of traffic and the general
increases in traffic volumes, operators are evolving their
network infrastructure. This migration, from single
circuit-switched digital networks dedicated to one type
of traffic to packet-based multiservice networks capable of
carrying many forms of traffic, is the wireline equivalent
of the move in mobile communications from 2G to 3G.
The ability of multiservice networks to carry packet-
switched traffic from 2.5G and 3G mobile
communications underlines its position as the next
generation in wireline technology.
ENGINE, Ericsson’s answer to operators’ new require-
ments, is now the world’s leading wireline circuit-
to-packet migration solution. As the story on ENGINE
illustrates (p34), our solution is helping operators
evolve their networks so they are ready to meet
changing patterns of traffic, but also so they have the
flexibility to evolve quickly and efficiently over years
to come. With demand for fixed network capacity
expected to grow very heavily, this positions Ericsson at
the forefront of developments in the wireline market.
Changing shape of the operator market
Large operators are now attempting to dominate their
market by growing their operations in existing and
new markets – either through acquisitions, mergers
or the creation of new networks. This international
expansion is partly driven by the needs of international
enterprise clients who require global services. The
general increase in international wireless and wireline
traffic is another important factor.
The convergence of telephony, data and Internet
communications and other digital media – including
TV – is also introducing new businesses into the
already competitive world of telecommunications.
Service providers in various areas are now having
to grow their businesses in new areas or defend them-
selves from ambitious operators.
One result of this increased competition is that
operators are focusing on their core skills – customer
acquisition, marketing, customer care and billing –
and outsourcing other operations to experts. This is good
news for us. Our total solutions capability, which
spans everything from the construction of a network to
the creation of applications and solutions, enables
operators to outsource ‘everything else’ to Ericsson.
One benefit of using one core partner for operations
is that processes can be standardized wherever the
operator wants to do business.
This continuing consolidation of the telecommu-
nications business into a small number of very large
operators – surrounded by many niche players –
has important ramifications for Ericsson. We have
worked to ensure that our capabilities are developed
to match the evolving needs of the global players.
In doing so, we are aligning ourselves with the most
successful businesses in the market.
The new era of personalization
These changing market conditions will affect con-
sumers in many ways, but perhaps the most important
development is what we call ‘The Personalized
Internet’. Thanks to the new technologies and services
described here, people will be able to access a wide
range of Internet services whenever they want them,
and wherever they are. Mobile Internet services will
give people their own pocket-size portal to always-on,
real-time services. But 2.5G and 3G mobile commu-
nications, together with 3G wireline services, will also
enable subscribers to access the fixed broadband
Internet services from wireless laptops and other
devices. And a whole range of new devices will be
created with wireless-to-wireline broadband access,
from digital video cameras to a new generation of
personal digital assistants.
These are exciting developments for people, for
operators and for Ericsson. We have played a
fundamental role in shaping the fast and converging
world of communications – now we intend to develop
our position even further.
Now, let us explain how we have transfered our
knowledge of this exciting and challenging market into
revenue generating business operations. We also
show how our activities are benefiting our customers
and generating value for our shareholders.
10 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 11
A local business in 140 countriesInternational operators are globalizing fast. Our local knowledge and expertize is helping operators all overthe world to grow their business – regionally, nationally and internationally. Read more, page 28
12 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 13
Right technologies, right timeWe lead communications technology. We invent, develop and deliver products and services to meet ourcustomers’ needs at exactly the right time. Read more, page 30
14 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 15
Mobile Internet creates new revenuesWith the latest mobile services you can pay your bills, play games and get the latest informationwherever you are. We pioneered the technology that makes this possible, and now we are helping ourcustomers turn these innovations into real business. Read more, page 32
16 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 17
Convergence transforms the wired worldOperators world-wide are experiencing growth in wireline traffic, but existing networks can’t cope. The solution is ENGINE – a new era in wireline communications. Read more, page 34
18 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 19
Evolving networks to meet increasing demandThe Sydney 2000 Olympic Games required Telstra’s mobile network to handle unpredictable peaks of up to 300,000 simultaneous calls. How does an operator upgrade their existing systems to cope withsuch demand? First step, call Ericsson. Read more, page 36
20 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 21
Committed to mobile phonesBy working to understand consumers’ real needs we have created a new range of exciting mobile phones.These, together with our new strategies, are helping us to grow our business. Read more, page 38
22 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 23
Fast, lean and ready to goOperators, such as Oskar in the Czech Republic, need to roll out new networks faster and more cost-effectively. We mobilized our people and resources to make this happen. Read more, page 40
24 Annual Report 2000 Understanding our business
Annual Report 2000 Understanding our business 25
Working for a sustainable futureEricsson Response is an initiative to help improve disaster relief operations. We are working with aidorganizations to create better in-the-field communications. Read more, page 42
26 Annual Report 2000 Understanding our business
Read more, page 28 Read more, page 30 Read more, page 32 Read more, page 34
Read more, page 36 Read more, page 38 Read more, page 40 Read more, page 42
Annual Report 2000 Understanding our business 27
So, you have seen what we doNow see how we do it and how we are growing our business…
28 Annual Report 2000 Understanding our business
Large network operators are globalizing at a rapid rate. As they do this, we are helping them to meet the many challengesthey face. Indeed, our network of offices in 140 countries, and our unrivalled local knowledge, makes Ericsson anexceptionally valuable global partner for every ambitious operator.
Why does an operator needour expertize? Most of ourcustomers prefer to focus ontheir core skills, such ascustomer acquisition, customercare and billing. They work withus because we are experts at everything else. Perhapsthis makes global expansionsound simple? It’s not. It isboth complex and challenging.
The most difficult questionfacing an operator is always thevery first – where do we start?Because we have an establishedpresence in so many countries,operators are turning to us toanswer this, and the questionsthat follow.
This diagram illustrates someof the most important tasksinvolved in creating a network.Our competencies have beendeveloped to meet the needsof our customer in each area.Thanks to the effectiveness ofour approach, we are nowworking with all of the world’s10 largest operators.
Business planningAssessing market conditions,including regulatory issues, the value of the market andconsumer spending patterns.
RelationshipsDeveloping effective workingrelationships with a number of groups, including government,regulatory bodies, suppliersand local business partnersand employees.
Technical issuesHaving the expertize andresources to meet thechallenges presented by;existing telecommunicationsinfrastructure; the newinfrastructure required; thelevel of local competence;and the scale of resourcesneeded.
Natural environmentHaving working knowledgeand capabilities to work withlocal natural conditions,including the topography andthe weather.
ConsumersUnderstanding social andcultural attitudes and behavior,including local consumerattitudes to telecommunicationsservices, and assessing theopportunities for developingfuture services.
Annual Report 2000 Understanding our business 29
A local business in 140 countries
We are a global organization for one very good reason
– our customers. Their continued need for Ericsson
expertize has enabled us to grow our operations world-
wide. We now have offices in 140 countries, and through
this presence we have developed a unique combination
of local knowledge, relationships and capabilities.
As a result of these strengths, we are able to work both
for local operators who need to develop their regional
or national operations, and for international operators
who are establishing services in a new territory.
Moving with the markets
The total number of operators world-wide is currently
decreasing as very large operators acquire smaller players.
Being able to help large operators grow is now vital to
our business. We use our local knowledge to help
these businesses move into new markets, and use our
global scale to enable them to achieve greater efficiencies
and access to recognized world-class resources wherever
they operate.
At the same time, local operators continue to represent
an enormous and important market. Our global
capabilities and local presence are exceptionally useful to
our local operator customers as they work to defend their
own market, grow their business and build their value.
Real local expertize is enormously valuable
We believe real local expertize is only developed through
establishing and committing to a long term presence
in a country. We have been working internationally since
the 1880s, and many of our operations are now
successfully integrated into their surroundings, so much
so that people think of them as a local company.
But what constitutes real local expertize? We believe
it comes from three areas: knowledge – which means
understanding market conditions thoroughly, from
regulatory issues to consumer behaviour; relationships– which means working effectively with our people,
customers, government, regulators, contractors and
others; and capabilities – which means having an
established local service operation ready to look after a
customer and bring together resources and
competencies to achieve what is required. Through
developing these three areas we are creating the strongest
local presence of any global telecommunications supplier.
Of course, our activities also benefit the local people,
not just because of the economic benefits we create,
but also through our investment in training and
personal development. In 2000, for example, local
training programs for Ericsson people took place in
more than 100 countries.
Global scale creates operational efficiencies
Large operators increasingly require standardization of
products, services and processes, regardless of where
they operate. Working with us, the entire procurement-
to-delivery process is simplified, enabling operators to
establish revenue-generating services quicker and with
lower costs, and helping them to focus on their core
activities, such as customer acquisition.
Access to our world-class technologies and competencies
are important to both international and local operators.
Our commitment to technology leadership and technical
excellence, enables us to deliver best-in-class products
and services wherever they are required. That means all
operators can ensure that the quality of their services
satisfies customers, local government and regulators.
Exceptional returns from markets world-wide
The effectiveness of our approach is underlined by our
exceptional business performance world-wide. As of
year-end 2000, we have the largest total customer
base in the telecommunications industry; four out of
every 10 mobile calls are handled by Ericsson
equipment; we are working with all of the world’s ten
largest mobile operators; and our total income from
sales in 2000 was SEK 273 billion – making us the
world’s biggest telecommunications supplier.
In 2001 we will continue to develop relationships with
global and local operators, and we will be active at a
local level in both mature markets and fast-developing
areas such as China, Latin America and India.
• 105,000 EMPLOYEES IN 140 COUNTRIES
NET SALES PER MARKET AREAIN BSEK:
• WESTERN EUROPE – 100.2
• CENTRAL & EASTERN EUROPE, MIDDLE EAST AND AFRICA – 37.7
• NORTH AMERICA – 35.2
• LATIN AMERICA – 44.1
• ASIA PACIFIC – 56.3
• SALES IN SWEDEN – 8.7
30 Annual Report 2000 Understanding our business
Ericsson and its employees are driven by the passion
that we must lead the creation of the most significant
new telecommunications technologies. This is not
simply a sentiment. It is a fundamental part of our
strategy and supported by major investments. In 2000,
15 percent of our net sales were invested straight back
into R&D.
These investments have resulted in us filing 1,300
patents for new technologies and products in 2000.
Ericsson now has more than 100 granted patents
for WCDMA alone. This is not about innovation for
innovation’s sake. This is commitment to developing
new technologies that create the best possible
foundation for the business operations that follow.
Open standards grow the market
Our definition of technology leadership is not restricted
to R&D. As the 3G timeline on this page illustrates,
we actively drive innovations forward through every
point in their lifecycle, from research to standardization,
product development, manufacturing, delivery and
improvement. For us it is about transforming technologies
into products and services that deliver exceptional returns
back into our business.
We believe that the most effective way to develop new,
global-scale communications technologies is to create
universal standards through collaboration with
other organizations. This involves working not just with
customers and regulatory bodies, but with competitors
too. It can be a long and demanding process. But through
sharing knowledge and establishing common platforms
– as we have with GSM, EDGE, WAP, Bluetooth, WCDMA
– we are growing the scale of the market for Ericsson
products and services.
We are now engaged in driving standards in a range
of new technologies. For example, in 2000 we conducted
the first demonstration of voice-over-IP – using the
Rocco algorithm developed in our labs – with Japan
Telecom. We also worked with BT Wireless and
SmarTone (Hong Kong) to create the first end-to-end
demonstration of IPV6 across a mobile network. Both
of these technologies were initiated by Ericsson Research.
A new generation of technology is not created overnight. As this diagram illustrates, the development of 3G required long-term commitment from us. We pioneered ground-breaking R&D, and we led intense negotiations between operators,regulators and competitors to create a common standard.
Right technologies, right time
• Lead industry-wide international researchproject into WCDMA, a wideband digital radiotechnology able to provide the highcapacity needed for uses such as Internet,multimedia and video.
• Ericsson initiates creation of UMTS forum. • Major WCDMA testing program establishedin Kista, Sweden
• Development of general protocol to deliverservices to wireless networks.
• We are instrumental in helpingstandardization bodies ETSI
(Europe) and ARIB (Japan)assess WCDMA as the solutionfor the upcoming UMTS standard.
Now, thanks to theseinvestments, we are leading thewidescale commercialapplication of the technology.
Our work in this area isenabling operators to createnew markets, new revenue
streams and new ways todevelop their relationships withconsumers. This is alreadyhaving a profound effect on the telecommunicationsindustry and on our ownbusiness. As we anticipated
it would when we started work on 3G more than 10years’ ago.
Annual Report 2000 Understanding our business 31
TECHNOLOGY ACHIEVEMENTS IN 2000:
• TSP. SERVER PLATFORM FORREAL TIME AND APPLICATIONSERVERS
• AXI 540 EDGE ROUTER
• RXI 820 REALTIME ROUTER
• EDGE RADIO NETWORK FORMIGRATION TO PACKET-BASED3G MOBILE SYSTEMS
• CDMA ONE END-TO-ENDSOLUTION
• COMPLETE WCDMA PRODUCTPORTFOLIO, INCLUDING NEWWCDMA RADIO NETWORKCONTROLLER, RANOS NETWORKMANAGEMENT AND WCDMA BASESTATION PROGRAM
• CPP, PACKET SWITCHINGPLATFORM – 3G MOBILESYSTEMS PLATFORM FOR IPAND ATM
• WAP PORTAL AND GATEWAY
A very tangible expression of our central position
within the industry is Wireless Valley, in Kista, Sweden.
When we built our center for mobile communications
there in 1977 we were surrounded by fields. Today,
our neighbors are some 400 IT-related businesses, and
Kista has become the world center for the development
of the Mobile Internet.
Leadership for commercial advantage
Of course, we must always work hard to turn our
investment in technology into commercial opportunities
and operational advantage. Our approach to 2G, 2.5G
and 3G illustrates how we do this. As each development
phase has progressed, we have ensured that knowledge
is shared and applied throughout our organization.
Thanks to this approach we are market-ready and are
now bringing the Mobile Internet to life in markets world-
wide, commercially applying our technical know-how
across everything from mobile systems to Internet
applications and solutions, consumer products, Bluetooth
and multiservice networks.
Joint ventures extend our reach
We are doing more than ever to nurture innovation
and turn new thinking into commercial value. One
initiative is the Ericsson Microsoft Mobile Venture,
launched in September 2000, which is developing
and marketing mobile e-mail solutions for operators.
Another initiative is Ericsson Business Innovation.
Launched in July 2000, this business is developing
entrepreneurial projects, including partnerships with
gaming company Red Jade and our own Residential
Communications Systems unit.
We are also working with leading investment
companies. In August 2000 we created a USD 300
million Ericsson Venture Partners fund with
Industrivärden, Investor AB and Merrill Lynch.
This will explore Mobile Internet opportunities in
North America and Europe. In March, Ericsson,
Investor AB and Hutchison Whampoa acquired a
controlling interest in Guoco Land Limited and
created a venture capital operation to focus on the
Mobile Internet in Asia.
• Working with operators, we deploy 17 WCDMA
test systems in 15 countries across Europe,Asia and the Americas
• ETSI and ARIB accept WCDMA as one commonsolution for 3G; industry agrees to cooperateon common standards
• Demonstration of first live WCDMA
multimedia calls, Japan Telecom
• ETSI, ARIB and US regulatory bodies form3GPP.
• Japan Telecom selects Ericsson for 3Gbuild and development
• Demonstration of live roaming betweenGSM and 3G networks
• Ericsson settles 3G IPR disputes byagreement with Qualcomm Inc. – takes over Qualcomm’s infrastructurebusiness
• ITU – UN’S telecommunications body. –decides on radio interface specification(IMT 2000).
• Completion of world’s first voice-over-IP-over-WCDMA trial, with Japan Telecom
• First demonstration of GSM/GPRS, Edge andWCDMA networked together
• New 3G production facilities opened to meetoperator orders for equipment; capacitytransferred from handset manufacture toinfrastructure
• Agreements signed with NCC and Skanska for construction work on 3G sites world-wide
• First IP base station system launched
• Complete WCDMA and cdma 2000 productportfolio for 3G launched
• 3G platform for IP and ATM launched
• First European end-to-end contract for 3Gsystem agreed. Total of 22 agreementssigned with network operators for range of3G services.
32 Annual Report 2000 Understanding our business
The Mobile Internet is changing people’s lives. Now, regardless of where 3G subscribers are or what type of device theyuse to access the network, they can do everything from booking cinema tickets to playing games or managing theirfinances. It’s a whole new way to do lots of everyday things.
The Mobile Internet has beenwith us for several years. It started with SMS messagingand has developed insophistication with the arrivalof WAP and – more recently –powerful GPRS handsets.
Now, advances in radioengineering are opening a fargreater array of services. The WCDMA radio network,which delivers these services
direct from server to handset,is the key to this. The capacity ofa WCDMA network is muchgreater than a conventionalGSM network, which meansthat high bandwidth infotainment,transactions and location-based services can be accessedin real-time.
This diagram illustrates howthe WCDMA network will connectthe access device in the user’s
hand to the servers where theseservices are located. Therelationship looks clear andsimple here, but it has takenyears of advanced engineeringat Ericsson to invent andimplement the technologiesrequired to create this newgeneration of mobile services.
Annual Report 2000 Understanding our business 33
Mobile Internet creates new revenues
The Mobile Internet is not a vision of the future; it is
here, it is real and Ericsson is driving its roll-out
world-wide.
In fact, we have been leading the development of the
Mobile Internet for many years, not just by establishing
technologies and standards, but by defining how people
will use the new services and creating ways in which
operators and Ericsson can grow revenue through those
services.
New services, new customer relationships
The Mobile Internet is not a compact version of the
fixed Internet. It is a way to access a whole new
generation of information and entertainment services,
wherever you are and whenever you need them, and
builds on existing services, including SMS messaging
and WAP.
Together with high-quality voice services, the Mobile
Internet is now entering a new phase driven by 2.5G
and 3G. This will focus on four key areas: locationservices that provide a subscriber with specific information
about their immediate vicinity (a tourist guide to the
street they are in, for example); infotainment, including
everything from news bulletins to live games;
transactions, with access to banking, shopping, trading
and ticketing services; and messaging, including e-mail,
SMS, voice mail and the transfer of video and images.
This is just the beginning. As more subscribers migrate
to the Mobile Internet so the scale and sophistication
of what is available will increase. The key to widescale
user migration lies in people discovering that highly
personalized mobile services can become an invaluable
part of their everyday life. This is something we are
communicating through a marketing campaign in five
continents with the message ‘The Mobile Internet
Revolution. It’s an everyday thing.’ This campaign is
helping our customers to grow their Mobile Internet
business and our consumer products to gain market share.
As the Mobile Internet rolls out, operators will be
able to offer new services that encourage subscribers
to use their Mobile Internet handsets and other devices
more often and in new ways. Every aspect of this
benefits Ericsson, from the initial infrastructure build
and the provision of devices, to the development of
new applications and solutions. Increased usage will
require greater network capacity, and by extension more
network infrastructure – a cycle which is increasing
revenue for our customers and for us.
Unique strengths win contracts
One of the most significant factors behind an operator’s
decision to award a 3G contract is an existing and
successful relationship with an equipment supplier.
This is one of our core strengths. We currently have a
40 percent share of the operator market for GSM, and
our revenue from 1G and 2G mobile systems increased
by 34 percent in 2000. In GPRS services – sometimes
referred to as 2.5G – we won 64 GPRS contracts from
operators (covering 150 million subscribers), and our
share of the world-wide GPRS market was over 50 percent
in 2000.
This success, and the strength of our relationship with
customers, is due to a number of factors, including;
our long heritage of radio engineering expertize; our
experience with developing, manufacturing, deploying
and managing a wide range of innovative infrastructure
systems; and our handsets capability, which enables
operators to test their network and provide subscribers
with a high-value, branded access product.
Our lead in GPRS, has provided us with another
advantage – real working experience of new-generation
systems that use packet technologies for transmitting
data. One example is that always-on data services use
a tariff based on volume of data transmitted rather than
time connected, and we have seen in detail the profound
effect that has on an operator’s business model, and
how we can develop new ways to increase their profits.
Increasing our share of 3G markets
We are winning the 3G race. At year-end 2000, we had
been named in 22 of the 33 3G agreements announced.
3G involves high R&D and marketing costs for
equipment suppliers, and we also expect to see significant
price pressures from competitors. These conditions
mean that market share and economies of scale will
have a great impact on profitability. Ericsson expects
to have at least 30 percent global market share of
3G by 2002; this will ensure that we continue to be in
a leading position – and derive the maximum value
from our lead – as the Mobile Internet rolls-out in full.
3G CONTRACTS GAINED ATYEAR-END 2000 (ALL ARE WCDMA, UNLESSSPECIFIED)
• NTT DOCOMO, JAPAN
• JAPAN TELECOM, JAPAN
• SUOMEN 2G, FINLAND
• ÅLANDS MOBILTELEFON AB,FINLAND
• VODAFONE, UK
• BT CELLNET, UK
• TELCEL, MEXICO (FOR EDGE)
• LEAP WIRELESS, US (FORCDMA2000)
• MOBILCOM, GERMANY
• XFERA, SPAIN
• TELECOM ITALIA MOBILE,ITALY
• ANDALA HUTCHISON, ITALY
• WIND, ITALY
• MANNESMAN (D2), GERMANY
• TELEFONICA MOVILES, SPAIN
• TELFORT, NETHERLANDS
• SWISSCOM, SWITZERLAND
• EUROPOLITAN, SWEDEN
• TELENOR, NORWAY
• SONERA, FINLAND
• AT&T, US
• TMN, PORTUGAL
• FRANCE TELECOM/ORANGE,WORLD-WIDE.
34 Annual Report 2000 Understanding our business
Traditional wireline telephony is undergoing a rapid
evolution towards a new generation of network
technology. What is driving this? The extraordinary
growth of data, video and Internet traffic; the deployment
of high-speed access technologies to meet end user
demands for faster connectivity and higher capacity;
and the increasing use of Mobile Internet services. These
are all driving new traffic into the core networks.
Operators must invest in migration
For operators to gain revenues from these new forms of
traffic they must create networks able to carry both
conventional circuit-switched calls and packet-switched
voice and data from a wide range of new sources, including
those using IP (Internet Protocol). This is a business-
critical challenge and investment issue for our customers,
and one that we are helping them to meet through the
world-class solution we developed called ENGINE.
ENGINE brings a range of technologies and services
together in one bespoke and integrated solution. By
adopting this solution an operator can migrate – cost-
effectively and at great speed – from their legacy
system to a multiservice network capable of handling
many more types and volumes of voice and data
traffic. ENGINE can also be used to build entirely new
networks.
As well as being able to carry a growing volume of
traffic, ENGINE can also handle a wide range of services,
regardless of the device being used to access a network.
This enables subscribers to use services whenever and
wherever they want to, creating more traffic, higher
operator revenues and increased demand for Ericsson
network infrastructure products and services.
ENGINE also delivers efficiencies. Through integrating
and simplifying networks it is able to reduce an
operator’s planning, operations and management costs
by up to 60 percent, infrastructure costs by up to
50 percent, and transmission costs by up to 25 percent.
Ericsson’s ENGINE leads the market
Network operators have recognised these benefits. In
2000, 29 customers selected ENGINE as the way to
migrate their network or build a new network. In total,
35 operators – including WorldCom, BT and France
Telecom – are relying on ENGINE to take them forward
into a new era in wireline telecommunications.
This gives us a 35 percent share of the circuit-to-packet
migration market, and our target is an additional 50
orders by year-end 2001.
Creating high value products and services
The implementation of ENGINE creates close working
relationships with world-class operators. Through
ENGINE Labs, to be launched in 2001, we will take this
further, providing each customer with a dedicated
team who will invent and deliver new ways to increase
traffic across their network and reduce their costs.
The team’s involvement will include everything from
the creation of business models to the design of
customized applications, analysis of systems efficiency,
network management and other high-value services.
ENGINE is also leading the narrowband to broadband
services market. In 2000 we made a significant addition
when we added the ENGINE Access Ramp. This
enables operators to transform a business customer’s
network from narrowband to broadband.
Working with Texas Instruments, we have also
launched a ‘plug and play’ DSL (digital subscriber line)
modem which allows operators using ENGINE to
provide high-speed digital lines to all end-customers.
IP network business grows world-wide
Our Datacom and Optical Networks business is also
rapidly developing its activities. In 2000, we created
a joint venture with Juniper Networks to develop
high capacity Mobile Internet IP routers. These
products, sold exclusively by us, are used by Internet
service providers and mobile operators to build GPRS
and 3G systems.
We also won our largest IP backbone network contract
in 2000 when we were appointed by China Mobile to
provide equipment and management expertize to
implement China’s first national IP backbone network.
This network will enable the use of voice-over-IP
telephony services, and will serve as a transmission
system for GPRS. Ultimately, the system will deliver
voice, data and multimedia for 3G communications.
At a time when global demand for fixed bandwidth
is expected to grow at unprecedented rates, both
ENGINE and our activities in data communications
have underlined Ericsson’s long-term leadership in
wireline telecommunications. We expect to create an
even greater impact on the wired world in 2001.
WIRELINE MILESTONES IN 2000
• 30 NEW CONTRACTS FOR ENGINESIGNED IN 2000; 38 ENGINECONTRACTS SIGNED IN TOTAL
• 35 PERCENT PACKET-MIGRATIONMARKET SHARE GLOBALLY; 70PERCENT MARKET SHARE INEUROPE
• 49 BT SWITCHES CUT-OVER TODATE; WORLD’S FIRST HYBRIDSWITCH DELIVERED
• DATA NETWORKING ANDOPTICAL NETWORKS FORMEDJOINT VENTURE WITH JUNIPERNETWORKS.
Convergence transforms the wired world
Annual Report 2000 Understanding our business 35
There are three basic stages tomigrating a network usingENGINE. The first stage is theintroduction of ATM, atransmission technology ableto carry all types of traffic –including voice, data, videoand IP (Internet Protocol).MGWs (Media Gateways) arethen installed to enable thistraffic to reach either the PSTN(Public Service TelephoneNetwork), or servers providingservices such as infotainmentand transactions.
In stage two, ENGINE convertsthe entire backbone of thenetwork so that it can usepacket-switching to delivertraffic. Using this method, thedata in a PSTN call is translatedfrom a continuous stream of 1s and 0s into packets of data.It is then sent across thenetwork in pieces. At the otherend of the network the packetsare merged and the data istranslated back into 1s and 0sbefore it reaches its intendedreceiver. This makes more
efficient use of an operator’snetwork capacity because a packet can be sent via anyavailable part of the network.
In the third stage, the serversused to control the flow oftraffic across the network, andthe switches used to directthat traffic, are reduced. In fact, using ENGINE the networkcan be developed using justone Ericsson switch. Thisenables an operator to makesignificant savings on purchasingand maintaining equipment and
training employees. Althoughoperators can now reducehardware spending, our ENGINE customers are generallyincreasing their spend onEricsson products becausethey deliver these efficiencies.
This three-stage migrationcreates greater flexibility and efficiency, but this is justthe beginning. New servicesare now being developed byEricsson for operators; theseinclude applications andsolutions for use by mobile and
fixed Internet users. These newservices will stimulate traffic,and, as that happens, ENGINE
will grow to accommodate theincreasing demand.
Traffic is increasing and becoming more complex. That has created the need for more sophisticated wireline networks. ENGINE is a portfolio of productsand services from Ericsson that enables operators to migrate to a new network architecture, able to handle all forms of voice, data, multimedia andInternet traffic.
36 Annual Report 2000 Understanding our business
There were two particularlydifficult technical challenges tomeet. First, the sheer volumeof people expected to usetheir mobile phones in andaround Olympic sites(coverage was required for300,000 users in the OlympicPark alone). Second, thenumber of locations used,which included 35 venues for Olympic competition andmore than 100 venues fornon-competition activities.
To meet these challenges weupgraded Telstra’s core mobilenetwork infrastructure. Weinstalled new antennas, basestation controllers, visitorlocation registers and mobile
services switching centers,integrating new hardware andsoftware into the existinginfrastructure. This upgradecreated increased networkcapacity and functionality.
We then produced a secondlayer of coverage by installingradio transmitters in busylocations, such as the OlympicStadium, and ‘hot spots’, suchas function centers. A thirdlayer was added by usingsmall portable transmitters tocreate temporary areas of highcapacity known as QuickCells. These boosted coverage atlocations with one-off oroccasional high usage, suchas the start of the marathon.
What happens when a call is made?
RBS – Radio Base StationReceives and transmits signalsfrom handset into the mobilenetwork
BSC – Base Station ControllerSends call to and from MSC
(see below) and controls eachRBS, including the transfer of subscribers from one RBS toanother
HLR – Home Location RegisterCall is logged on this database,which contains information on the location of the subscriberand their billing information
VLR – Visitor Location RegisterCall is logged on this data-base,which holds temporaryinformation about all subscriberscurrently in the MSC area
MSC – Mobile ServicesSwitching CenterSends the call to its finaldestination via the fixed ormobile network
GMSC – Global Mobile ServicesSwitching CenterOverall management center for MSC-s
PSTN – Public ServiceTelephone NetworkCall is delivered to receiver viathe fixed telephone network.
With 1.5 million visitors expected for the Sydney 2000 games, Australian operator Telstra’s network had to be able to handle an enormous number ofmobile users and extreme peaks in traffic. They called in Ericsson engineers to help them create a mobile network that could do just that.
Annual Report 2000 Understanding our business 37
• R&D CENTERS ESTABLISHED IN23 COUNTRIES
• FOUNDATIONS CREATED FORERICSSON UNIVERSITY – A VIRTUAL TRAINING ANDLEARNING INITIATIVE
• 43 PERCENT OF OUR EMPLOYEESHAVE A UNIVERSITY DEGREE
• ERICSSON AWARDED ‘SUPPLIEROF THE YEAR’ BY BT.
Evolving networks to meet increasing demand
The global telephone system is the world’s biggest
machine. With the increasing convergence of voice
telephony and data communications, and the
extraordinary growth of wireless, that machine
grows larger every day.
Ericsson has made the single biggest contribution to
the creation and growth of the world’s phone system.
We not only develop and manufacture innovative
components for systems world-wide, we also enable
entire networks to work with one another. So what are
the technical skills that make Ericsson a world leader
in this area? And what value is created by our
leadership?
Increasing need for integration expertize
Despite the technical sophistication of existing systems,
user needs often change faster than a network’s ability
to cope. As our Sydney 2000 story illustrates
(see diagram, opposite page), the rapid growth in the
use of mobile phones has placed great strains on legacy
mobile networks.
Our challenge is to introduce new hardware and
software products into networks despite the complexity
and diversity of the existing infrastructure. New work
must also be implemented without disrupting current
services.
Over many years, our engineers have developed
competencies across the entire range of network activities
so that they can meet this challenge. We have
developed or co-developed many of the world’s most
important technology standards – including WAP,
Bluetooth, GPRS and 3G – and this enables our
engineers to access the very latest specialist knowledge
and expertize from within our organization. Our highly
developed culture of technical excellence also ensures
that we are attracting and retaining world-class experts
in all areas of telecommunications engineering.
One result of our exceptional level of collective
competency is our ability to integrate systems regardless
of which suppliers built a network and the products
they used. As new and more complex technologies are
introduced, this ability to understand and work with
any system is proving of enormous value to customers
world-wide, and it is growing the market for our
systems integration services. Integration work for fixed
and mobile systems is also often the start of an ongoing
relationship with an operator that might include
anything from the provision of handsets to network
management and other high value professional services.
Our total competency wins 3G contracts
The introduction of new technologies and standards
often requires the building of new networks. 3G is
an example of this. Ericsson is unique in being able
to provide world-class engineering expertize at every
single stage in the creation of a new network.
Our engineering experience is applied to deliver
maximim value to the customer, from helping them
prepare a business plan through to constructing network
infrastructure and transferring skills to employees.
We also develop high value business applications and
services for customers, helping them to increase both
traffic and the value of their services. Our ability, not
just to construct a network, but also to help a customer
grow the revenue it creates, has played a major part
in our success in gaining 3G contracts from operators.
Advantage from best-in-class components
Systems integration and network-build competencies
are both reliant on excellent products. We ensure that
we have access to the software and hardware we
need – when we need it – by forming close relationships
with best-in-class suppliers. For example, in 2000,
we formed joint ventures with Juniper Networks Inc.,
US for Mobile Internet routers, and with Microsoft
for a range of Mobile Internet applications and solutions.
Through Ericsson Microelectronics, we enable our
engineers to get access to tailor-made technologies
for fixed and mobile communication. This area of our
business has been so successful that it is now a global
supplier of transistors and modules, and is the market
leader in the development of Bluetooth components,
applications and solutions. With the Bluetooth global
market expected to grow to 900 million units by
2005, our expertize in this area is rapidly increasing
in value.
38 Annual Report 2000 Understanding our business
For many customers our ability to produce excellent
mobile terminals is an important part of our total
solutions capability. In fact, a significant number of
the mobile systems contracts we win include the
provision of handsets.
Sales of handsets are also growing at a rapid rate.
We expect the total global market for mobile phones
to increase by more than 25 percent in 2001, with
between 500 and 540 million products purchased
worldwide.
Back to profit with a new strategy
The forecasted continued growth in subscribers underlines
that we are in a period of great and increasing
opportunity for consumer products. However, in 2000
this market proved a tough environment. For example,
our own Consumer Products Division increased unit
sales by 38 percent and grew revenues by 21 percent,
but recorded a loss of SEK 24 b.
Our reaction to this performance was swift and decisive.
We identified the key factors behind these results,
most notably; lost sales due to component shortages
from a key supplier; an unfavorable mix of products;
over-supply of some products; strong price erosion;
and a high cost base. We then implemented a Back-
to-profit strategy to address these issues.
In 2000, we created the foundations for this strategy.
First we rationalized our product portfolio and in order
to be a competitive supplier in the entry level segment
we contracted with ARIMA of Taiwan to develop and
manufacture (ODM – Outsourced Development and
Manufacturing) entry level phones to our specification.
In January 2001 we signed an additional ODM contract
with the Taiwanese supplier GVC.
During the year we began the transfer of mobile
phone production to lower cost manufacturing units.
We further reinforced our approach through an
agreement with Flextronics, who will assume
responsibility for the complete supply chain and our
consumer production facilities in Brazil, Malaysia,
Sweden and UK and parts of the US plant in
Lynchburg, Virginia. Unused capacity at the facilities
in Kumla, Sweden, and Lynchburg will remain in
Ericsson and be converted to the production of high-
value infrastructure equipment.
We believe this alliance will improve our economies
of scale quickly as well as reduce capital exposure and
lower risk. It will also enable us to focus on our core
areas of consumer products expertise – R&D, design,
branding, sales and marketing of our mobile phones.
Consumer-focused innovation
In 2000, we also strengthened our approach to product
design. The results of this can already be seen in the
highly successful T20 (see diagram opposite), and the
R380, which were made commercially available in
year 2000.
Another example is the new R520. Our product
design teams and our mobile systems experts
collaborated on this project to transform the capabilities
of today’s wireless networks into end-user benefits.
The result is a powerful, always-on GPRS phone able to
transmit data at high speeds, handle secure transactions
using WAP (such as banking and purchasing) and
communicate with PCs and other devices via Bluetooth.
We recognise that, as the Mobile Internet grows, we
must deliver products that have world-class engineer-
ing inside and world-class design features outside. The
appointment in november 2000 of a new Head of
Industrial Design further strengthens our approach to
consumer-focused 2.5G and 3G product development.
Accessories and M2M Com grow fast
We expect significant growth in demand for mobile
communication accessories in 2001. Our M2M Com
business – which develops device to device
communications products – is also growing. Initiatives
include a strategic collaboration with Autoliv Volvo
and Delphi Automotive Systems for the development
of Bluetooth and GPRS capabilities for in-car multi-
media systems.
Ready for growth
After a challenging year, we expect our strategy to return
this area to profit in the second half of 2001 and to
create cost base reductions of SEK 15 bn. per year
from 2002 and onwards. This forms the foundation for
a highly responsive and focused consumer products
business that will increase in value as we move into a
period of new mobile standards and services.
CONSUMER PRODUCTSLAUNCHED IN 2000
• SMARTPHONE R380 WORLD
• GPRS/BLUETOOTH-ENABLEDR520
• R280 FOR TDMA/CDPD
• A1228C FOR CDMA
• YOUTH ORIENTATED T20
• BLUETOOTH HEADSET.
Committed to mobile phones
Annual Report 2000 Understanding our business 39
The new generation of mobile phone users look for more than just voice services. They want access to games, music,Mobile Internet, messaging and a wide range of other services and features. Launched in 2000, the T20 is the first of anew range of products from Ericsson targeted to the youth segment.
This approach has beendeveloped throughunderstanding the ways inwhich people use theirhandsets. Our learning hasinspired innovative productdesign thinking. With the T20, the result is a handsetpacked full of features and (as its marketing campaignsays) ‘designed to touch your senses’.
The friendly look andergonomic feel of the T20encourages people to pick
it up and use it. From the‘Welcome’ message throughto its SMS messagetemplates, this product hasbeen created to encouragepeople to use it more andmore. The commercial successof the T20 confirms that ourconsumer-focused approachproduces phones that peoplewant to use.
Accessories are particularlyimportant, especially toyounger generations. Thismarket development has been
incorporated into productdesign at Ericsson. For example,we saw the Japanese trendfor personalized carryingstraps and ensured that theT20’s holder works with awide range of straps. Thisunderlines that for manyconsumers, their mobile phoneis fast becoming as much afashion accessory as acommunications device.
Our product design team is currently developing a newgeneration of business phones
that have the same clear focuson consumers. In fact, theexcitement created by the T20is just the start. Expect to see a whole range of newproducts from Ericsson in thecoming months, each designedwith a clear focus on the needsand preferences of today’sconsumers.
40 Annual Report 2000 Understanding our business
Faced with intense competition, operators are moving
quickly to develop new revenue opportunities. To do
that, they need a partner with the same degree of agility.
We are that partner.
This is a business-critical relationship. According to
current estimates, delaying entry to 3G in one country
could cost an operator as much as $40 million per month.
For this reason, contracts with suppliers are increasingly
focused on responsiveness – you must deliver exactly
what’s required, on time.
These are vital issues for Ericsson, particularly with
3G. So, how are we ensuring that we have the right
people, with the right competencies, in place? How are
we improving the production and supply of products?
And how will we meet the logistical challenges involved
in constructing 3G networks?
Networking generates value
There is a long tradition of our people moving around
the world, taking their experiences and learning from
one project on to the next. We also encourage our people
to move around in the organization and gain
competencies across functions. This approach creates
experts, with a unique level of experience and
knowledge, who can be rapidly mobilized.
As they move, our people create their own informal
network of experts within Ericsson. These contacts
share their expertize and resources because they feel
part of a common cause.
In a business led by skills and knowledge, this
culture of active cooperation and networking is
generating enormous value.
These networks also benefit the managers running
our local offices. Wherever a new challenge appears,
the local manager can immediately access people
with world-class knowledge and rapidly arrange the
deployment of teams of engineers and other experts.
New program for rapid roll-out
Leading operators are now globalizing their operations.
As a result their orders are becoming more extensive
and complex, but they also need rapid solutions that
can be integrated with their existing systems and work
anywhere in the world.
BUILDLicence applicationLiaising with government/regulators to help operatorsecure licence
Business planningDefinition of customers, services and pricing strategies
Securing financeWorking with investors to attract funds required to createthe business
ResearchIncluding subscriber behaviorand topography
Radio network designIncluding cell planning for basestation locations/functions
ProcurementDefinition of equipment
ConstructionManagement of contractors;roll-out of infrastructure
TestingFull testing of entire network
OPERATEManagementof network performance
Network expansionEvolving the system according to performance and growth
Subscriber managementManaging billing and addingnew subscribers and services
AdministrationInstalling tools to monitorequipment and efficiency
TRANSFEROperator staff trainingTraining prior to hand-over
Continuous staff trainingOn-the-job skills training
The creation of a new mobile network involves three key stages. Ericsson has developed a set of world-class competencies for the activities that occur within each stage – as shown below. This enables us to offer our customers a total solutions approach to the construction and development of their network.
Fast, lean and ready to go
Annual Report 2000 Understanding our business 41
KEY RESOURCES PUT IN PLACE IN 2000
• 40,000 PEOPLE – OUR OWNOR CONTRACTED – READY TOROLL OUT 3G
• 3,700 ERICSSON PEOPLE AREWORKING AWAY FROM THEIRHOME COUNTRY
• PARTNERSHIPS FORMED FORLOGISTICS, INFRASTRUCTUREOR OUTSOURCE PRODUCTION;ARIMA, SGI, SELECTRA,FLEXTRONICS, NCC, SKANSKA,SPECTRASITE.
At the same time, overall demand for our products is
increasing at an exceptional rate. We anticipated these
conditions and initiated a new production and supply
programme in 1998 called Time To Customer (TTC)
Global. Its objective is to minimize the time from
order to product delivery or system implementation,
and to improve the precision of delivery. The key to
achieving this has been the development of standardized
product packages that can be manufactured ready to
meet demand and can be quickly integrated into a
customer’s current systems. In tandem with this, we have
also simplified our product portfolio, reduced the
components and carried out validation programs to
ensure both critical suppliers and our own production
centers can meet high levels of demand.
Our TTC Global program has enabled us to ensure
that our customers can move from order to revenue
generation faster than ever before.
Partnerships to meet 3G challenge
Our experience with building 2G and 2.5G networks
has helped us understand what additional competencies
and resources we need to roll-out 3G systems at speed.
The result of this is a highly active approach to forming
strategic partnerships.
In 2000, global co-operation and marketing agree-
ments were signed with NCC, Skanska, an Spectrasite
for the acquistion, construction and management
of 3G radio site locations world-wide. The Spectrasite
agreement enables Ericsson to access their existing portfolio
of 50,000 towers, rooftops and land sites for radio
infrastructure, as well as supporting long term funding
proposals for new sites based on radio site locations
being offered to several operators on a co-location basis.
These partnerships, together with our ability to
mobilize people and resources at ever-faster rates, are
of enormous value to our customers as they move into a
period of high market demand and intense competition.
This, together with our commitment to finding
organizational efficiencies, is also generating greater
value for our shareholders.
42 Annual Report 2000 Understanding our business
Through Ericsson Response, we are trying to improve the world’s preparedness for disasters and help relief organizationswork in a more effective way. The rapid response communications platform we have developed, shown here, is one of themost important new initiatives in this area.
The container switch is the heartof this platform. Either flown inor driven to a strategic pointclose to the main disaster area,this heavily protected switch iswhere the greatest intelligencelies within the network.
It is this switch that directs the
flow of traffic from aid workers in the field to the nearest PSTN(Public Service TelephoneSystem) network. We have also created an agreement withthe UN enabling relieforganizations using this platformto – when required – access
PSTN services via the UN switchat Brindisi in Italy. Theconnection to Brindisi will becreated through a satellite link.The container switch is also the location for a range ofservices for aid workers. Thesemight include anything from
global positioning systems to SMS messaging. This is the first time that an emergency communicationssystem for disaster relief hasenabled aid workers to access such services whilstworking in-the-field.
Annual Report 2000 Understanding our business 43
Working for a sustainable future
Why aspire to be a good corporate citizen? Because
we believe that a healthy planet is the best foundation
for sustainable business. Research tells us that corporate
responsibility issues are increasingly important to
consumers and customers. And we know that our most
important constituency – our employees – believe that
Ericsson should be active in addressing environmental
and social issues world-wide.
Environmental awareness creates efficiency
For us, environmental responsibility is driven by finding
new efficiencies. For example, replacing a TDMA RBS
882 radio base station with an RBS 884 reduces
electricity consumption by 40 percent and so lowers
energy costs for our customers.
To help us track the real impact of what we do we
use Life Cycle Assessment (LCA) methodology.
This assesses the ‘environmental impact profile’ of a
system, product, service or activity, from the raw
materials it requires through to production, supply,
end-use and what happens to it when it is no longer
required. As a result we can, for example, remove
potentially harmful substances from components and
reorganize our logistics strategy so we can take back
redundant products. Using these methods we have cut
the environmental impact per mobile subscriber
by approximately 50 percent in less than five years.
Anticipating new demands for 3G
Many countries face acute environmental challenges,
and this often affects our customers. For example,
environmental laws are increasingly strict in the first
country to roll out 3G – Japan. Because we have
anticipated these issues, we were able to meet the very
specific environmental requirements for 3G products
put forward by our customers there. To ensure that we
can meet all future requirements, we will continue to
consider the environmental impact at every stage
in the development of our 3G products and services.
We are supporting our environmental initiatives
with a major internal program called Environmental
Profile at Work. This helps our people assess their
personal effect on the environment – from commuting
to the use of materials – and asks them to think about
how they as individuals, and we as an organization,
can improve efficiency. All 105,000 Ericsson employees
will be involved in this scheme.
Research into health and safety
One of the most important aspects of corporate
responsibility is ensuring that our products and systems
are in no way harmful to people. This is why we
support extensive research into the effects of radio
waves on human health. We believe there is no
evidence that our products have had or will have any
adverse effects on users, and through rigorous testing
we have ensured that our products meet all current
standards – including World Health Organization
guidelines. We are committed to supporting objective
research into this area by independent organizations
and we will continue to invest in our own research.
Ericsson Response aids disaster relief
In 2000, we formed a global disaster response initiative
called Ericsson Response. Through this project we will
provide communications aid for leading relief
organizations, including the United Nations (UN),
the International Federation of Red Cross and Red
Crescent Societies.
In May, a pilot project was launched improving the
level of disaster preparedness and response in Turkey,
Vietnam, Thailand, Iran, Guatemala and Costa Rica.
A new rapid deployment telecommunications platform
was also developed for use by the UN and others
(see diagram, opposite page). We have also invited
business partners, governments and other relief
organizations to work with us in the development of a
strategic response to major disasters world-wide.
The formation of Ericsson Response followed the
UN’s Global Compact. This created a set of universal
values relating to environment, human rights and
labor standards, and issued a challenge to corporations
to develop responsible business operations and a
commitment to positive action. It also urged businesses
to find new ways of cooperating with the UN.
Ericsson Response is now used as a role model for
ways in which the private sector and the UN can
work together, with UN Secretary General Kofi Annan
citing Ericsson as a good corporate citizen for its
leadership in this area.
• FIRST ERICSSON RESPONSEVOLUNTEERS SENT ON FIELDMISSION.
• GSM PLATFORM DONATED TO THE UN
• FIVE ERICSSON INTERNETCOMMUNITY AWARD (ERICA)WINNERS RECEIVE USD100,000 WORTH OF WEBDEVELOPMENT SERVICES EACH
ERICA WINNERS IN 2000 WERE:
• FIJI SCHOOL OF MEDICINE – FIJI
• THE GOULD LEAGUE –AUSTRALIA
• NATIONAL DOWN SYNDROMESOCIETY – US
• PATHWAYS COMMUNITYNETWORK – US
• RHODES UNIVERSITYMATHEMATICS EDUCATIONPROJECT – SOUTH AFRICA
44 Annual Report 2000 Understanding our business
Our people and our culture
Number of employees by geographic region
Number of 2000 Number of 1999 Number of 1998employees percent employees percent employees percent
Europe, Middle East, Africa 71,100 0.68 70,900 0.68 74,900 0.72
USA and Canada 13,500 0.13 12,200 0.12 9,800 0.09
Latin America 8,500 0.08 8,200 0.08 7,800 0.08
Asia Pacific 12,000 0.11 12,000 0.12 11,200 0.11
105,100 1.00 103,300 1.00 103,700 1.00
Taking care of our people
Our success as an organization depends on the collective
abilities and commitment of our people world-wide.
However, the rapid growth of the telecoms and data
industries has created a shortage of skilled people. This
represents a challenge for us, as we currently recruit
around 10,000 new employees each year.
For this reason, we have introduced a range of measures
to ensure we can attract, retain and develop excellent
people. ‘Excellerate’ is a very important initiative. This
global management program is open to top graduates
world-wide and is run in cooperation with London
Business School, UK, and Columbia University, USA.
The program attracted 1,300 applications in 2000.
Those accepted must hold two masters degrees, speak
at least three languages and have previous international
experience. There are currently 16 participants from
nine countries in the program; our objective is for 25
new participants to join in September 2001. The
standard of applications has been so high that many
excellent applicants to the program have been offered
other positions within Ericsson.
Retaining excellent people
Of course, retaining key people is also a high priority.
We have been particularly successful at this due to three
factors: the opportunities to travel and work created by
our cosmopolitan culture (3,700 of our people are
currently on assignment outside their home country);
the challenging assignments created by our development
as a business; and our belief in the value of empowering
our people. These factors have ensured that excellent
managers are able to develop their career across many
disciplines and countries and yet remain within Ericsson.
Rewarding our people
The area of remuneration requires a delicate balancing
act. Ericsson has been built on inclusive community
values, such as loyalty, fairness and the opportunity
to build a long term career, but there is also increasing
pressure for us to incentivise individual performance.
As a result, we are evolving our approach by introducing
both a Performance Management program, which will
help individuals improve their contribution to the
business, and a greater range of personal incentives for
those individuals.
Annual Report 2000 Understanding our business 45
Employees by age group
In 2000, we expanded our Short Term Incentive
program, a yearly bonus scheme based on personal
objectives linked to company goals.
We also planned new Stock Option programs, which
is now being expanded to reach 12,000 employees, and
a Stock Purchase Program, which is open to all employees.
The purpose of the purchase program is to inspire as
many of our people as possible to invest in Ericsson.
This is done through offering – within a certain limit
– one free Ericsson share for each share bought by the
employee. We believe this enhances shareholder value,
minimizes share value dilution and helps us to attract
and retain talented and committed people.
The value of learning
We operate in an industry where skills and knowledge
are key elements in the creation of value. For this reason,
it is important that we help our people develop their
expertize throughout their career. We have created a
number of new initiatives to achieve this.
One example is the Ericsson University. This virtual
organization, which we developed in 2000 ready for
official launch in 2001, will make education and training
programs available to all of our people, world-wide.
Some of the courses will be accessed via the Internet
and most of them will be run in cooperation with the
vast network of contacts we have developed with
Universities all over the world.
First, best and cost-effective
Despite our move towards greater individual performance
targets and personal incentives, we still believe
passionately in the value of a shared culture.
Twelve years ago we identified three core values that
have helped to define an Ericsson way of working.
These values are: professionalism, respect and
perseverance. The way we define each value has evolved
over time, but they remain as important to us today
as when they were first introduced.
In spring 2000, Kurt Hellström, CEO, created a
significant addition to how we as Ericsson employees
think about what we do. In the Ericsson strategic plan,
launched in 2000, he coined the phrase ‘Be first, be
best and be cost-effective’. In an extremely competitive
market, this statement is helping our people prioritize
their efforts and resources. Such clarity is becoming
increasingly valuable as we work to deliver first-to-market,
excellent and cost-effective solutions for our customers.
46 Annual Report 2000 Understanding our business
Share performance
Stock exchange trading
Ericsson’s Series A and Series B shares are traded on
the OM Stockholm Stock Exchange, and the Series B
shares are also traded on the exchanges in Düsseldorf,
Frankfurt, Hamburg, London and Paris, and on the
“Swiss Exchange” in Switzerland. Ericsson shares are
also traded in the United States in the form of American
Depositary Receipts (ADRs) through the NASDAQ
system, under the symbol ERICY. Each ADR represents
one Series B share.
Ericsson shares have been traded in Euros in Frankfurt
and Paris since January 1, 1999. More than 17 billion
shares were traded in 2000. Of this number, about 44
(48) percent were traded on the OM Stockholm Stock
Exchange, 31 (22) percent via the NASDAQ exchange
and 24 (29) percent on the London Stock Exchange.
Trading on other exchanges amounted to about 1
percent of the total, unchanged from the previous year.
During 1993 a subordinated convertible debenture
loan was issued with a par value of SEK2,171,719,760
and with a term of seven years. These convertibles
were traded on the OM Stockholm Stock Exchange
and as American Depositary Debentures (ADDs) on
the NASDAQ system. The convertibles and the ADDs
carried the right to convert to the Ericsson B shares.
Last day for conversion was May 31, 2000. Date of
maturity for the 1993/2000 convertible debenture
loan was June 30, 2000. At that date, less than 1
percent of the outstanding convertible debenture loan
remained unexchanged and was redeemed including
one final interest payment.
Share price trend
The total market value of the Ericsson share dropped
21 percent in 2000 to SEK852 billion. The index for
the OM Stockholm Stock Exchange decreased by 12
percent during the year. The NASDAQ composite index
decreased by 39 percent and the NASDAQ telecom
index decreased by 54 percent in the same period. The
Ericsson share decreased by 32 percent on NASDAQ. The
difference to the development on OM Stockholmsbörsen
is mainly attributed to currency changes SE/USD.
Shareholders
In all, about 90 percent of Ericsson’s shares are owned
by Swedish and international institutions. At the end
of 2000, about 55 (55) percent of the shares were held
outside Sweden, with 29 (33) percent in the US, 5 (6)
percent in the UK, 5 (2) percent in Luxemburg, 4 (4)
percent in Germany, and 12 (12) percent in countries.
Employee ownership
The Ericsson Savings Fund (Ericssons Allemansfond)
was started in 1984. The Fund, which has 1,156
participants, invests in Ericsson’s shares. At the end
of 2000 the Fund held 3,540,000 shares. The price
per unit at year-end was SEK5,762 (SEK7,568).
A convertible debenture loan amounting to
SEK6,000 Million was issued in 1997 with
preferential rights to Ericsson’s employees. Employees
who joined Ericsson after October 10, 1997, were
given an opportunity to purchase convertible
debentures issued by AB Aulis, an Ericsson company.
In 1998, an option plan was implemented for 500
key personnel, who were allotted seven-year call
options in Ericsson. The size of the allotment was
decided by earnings per share for 1998, and the
employee salary and bonus category. Based on the
same principles, some 2,000 key employees and senior
executives received seven-year employee options based
on earnings in 1999. At an Extraordinary General
Meeting in November, 1999, it was decided to
implement a stock option plan also for fiscal year
2000. In accordance with this resolution, 50.4 million
employee options (adjusted for split 4:1) were issued
to approximately 8,000 employees.
Share capital
As of December 31, 2000, Ericsson’s share capital
consisted of SEK7,910,335,612 (4,892,846,303),
represented by 7,910,335,612 shares. The par value of
each share is SEK1.00. As of December 31, 2000, the
shares were divided into 656,218,640 Series A shares,
each carrying one vote, and 7,254,116,972 Series B
shares, each carrying one-thousandth of a vote.
On April 18, 2000 Ericsson effected a stock dividend
through which the par value of the share increased
from SEK2.50 to SEK4.00, followed by a stock split
4:1. The share capital increased to SEK7,844,422,428,
represented by 7,844,422,428 shares. As a consequence
of the split, the par value of the share is SEK1.00.
During the period January 1 to January 22, 2001,
convertible debentures related to convertible liabilities
for 1997 were converted to 47,092 B shares.
Annual Report 2000 Understanding our business 47
Countries in which Ericsson has companies or officesCountries in which Ericsson is not represented
Ericsson is a global company, with operations in over 140 countries. We have grown our
global operations since our early years. Our headquarters are located in Stockholm, with
regional headquarters in London, Dallas, Miami and Hong Kong.
Western Europe
Austria
Belgium
Cyprus
Denmark
Finland
France
Germany
Greece
Iceland
Ireland
Italy
Luxembourg
Malta
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
Eastern Europe,
Middle East
and Africa
Albania
Algeria
Bahrain
Belarus
Bosnia-Herzogovina
Botswana
Bulgaria
Croatia
Czech Republic
Egypt
Estonia
Ethiopia
Gabon
Georgia
Ghana
Hungary
Iran
Israel
Jordan
Kazakhstan
Kyrgyzstan
Latvia
Lebanon
Libya
Lithuania
Macedonia
Moldavia
Morocco
Nigeria
Oman
Poland
Romania
Russian Federation
Saudi Arabia
Serbia
Slovakia
Slovenia
South Africa
Syria
Tajikistan
Tanzania
Tunisia
Turkey
Ukraine
United Arab Emirates
Uzbekistan
Yemen
Yugoslavia
Zimbabwe
Asia and
Oceania
Australia
Bangladesh
China
Hong Kong & Macao
India
Indonesia
Japan
Republic of Korea
Malaysia
New Guinea
New Zealand
Pakistan
Philippines
Singapore
Sri Lanka
Taiwan
Thailand
Vietnam
North America
Canada
United States
Latin America
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Guatemala
Honduras
Jamaica
Mexico
Netherlands Antilles
Nicaragua
Panama
Paraguay
Peru
Puerto Rico
Uruguay
Venezuela
Ericsson has companies or offices in the following countries:
Ericsson world-wide
48 Annual Report 2000 Understanding our business
Glossary
ADSL (Asymmetrical Digital Subscriber Line)
A method to increase transmission speed in a copper
cable. ADSL facilitates the division of capacity into a
channel with higher speed to the subscriber, typically
for video transmission, and a channel with
significantly lower speed in the other direction.
ATM (Asynchronous Transfer Mode)
A technology for broadband transmission of voice, data
and video transmission of telecom signals in large
amounts. In addition to high-capacity signal trans-
mission, ATM provides considerable flexibility, since
the individual subscriber is able to adapt the capacity
of a switched connection to current requirements.
AXE
An open architecture, Ericsson’s communications
platform. A system for computer-controlled digital
exchanges that constitute the nodes in large public
telecommunications networks. The basis for Ericsson’s
wireline and mobile systems.
Bluetooth
A radio technology developed by Ericsson and other
companies built around a new chip that makes it
possible to transmit signals over short distances
between phones, computers and other devices without
the use of wires.
CDMA (Code Division Multiple Access)
A technology for digital transmission of radio signals
between, for example, a mobile phone and a radio
base station. In CDMA, a frequency is divided into a
number of codes.
Circuit Switching
A switched circuit is only maintained while the sender
and recipient are communicating, as opposed to a
dedicated circuit which is held open regardless of
whether data is being sent or not.
Edge
A technology that gives GSM and TDMA similar
capacity to handle services for the third generation of
mobile telephony. Developed to enable the
transmission of large amounts of data at a high speed,
384 kilobits per second in mobile applications.
Epoc
An operating system for mobile terminals, developed
by Symbian (Ericsson joint-venture company
including Matsushita, Motorola, Nokia and Psion).
GPRS (General Packet Radio Service)
A packet-switched technology that enables high-speed
(115 kilobits per second) wireless Internet and other
data communications.
GSM (Global System for Mobile Communication)
Originally developed as a pan-European standard for
digital mobile telephony, GSM has become the world’s
most widely used mobile system. It is used on the
900 MHz and 1800 MHz frequencies in Europe,
Asia and Australia, and the 1900 MHz frequency in
North America and Latin America.
IP (Internet Protocol)
The Internet protocol defines how information travels
between networks across the Internet.
ISDN (Intergrated Services Network)
A technology which offers high speed transmission
of voice, data and video through existing fixed line
infrastructure.
ISP (Internet Service Provider)
A company specializing in offering end-users access
to the Internet. As a rule does not have own
communications network but functions as a link
between the user and the network operator.
ITU (International Telecommunication Union)
A United Nations agency that deals with
telecommunications issues.
This glossary has been prepared for a broad group of readers who may not be familiar with
technical terms in this Annual Report. However, brief definitions of these terms cannot provide
complete explanations.
LAN (Local Area Network)
A small data network covering a limited area, such
as within a building or group of buildings.
Packet switching
A method of switching data in a network where
individual packets of a set size and format are
accepted by the network and delivered to their
destinations. The sequence of the packets is
maintained and the destination established by the
exchange of control information (also contained
in the packets) between the sending terminal and
the network before the transmission starts.
PBX (Private Branch Exchange)
An exchange system used in companies and
organizations to handle internal and external calls.
PDC (Personal Digital Cellular)
A Japanese standard for digital mobile telephony in
the 800 MHz and 1500 MHz bands.
Router
A data switch that handles connections between
different networks. A router identifies the addresses
on data passing through the switch, determines
which route the transmission should take and
collects data in so-called packets that are then sent
to their destinations.
SMS (Short Message Service)
Available on digital networks, allowing messages of up
to 160 characters to be sent and received via the network
operator’s message center to your mobile phone.
3GPP (Third-generation Partnership Project)
A global cooperative project in which standardization
bodies in Europe, Japan, South Korea and the United
States as founders are coordinating WCDMA issues. See
also WCDMA.
TDMA (Time Division Multiple Access)
A technology for digital transmission of radio signals
between, for example, a mobile phone and a radio base
station. In TDMA, the frequency band is split into a
number of channels that are stacked into short time
units so that several calls can share a single channel
without interfering with one another. TDMA is also
the name of a digital technology based on the IS-136
standard. TDMA is the current designation for what
was formerly known as D-AMPS.
UMTS (Universal Mobile Telecommunications
System)
The name of the third-generation mobile phone
standard in Europe, standardized by ETSI.
VOIP (Voice over Internet Protocol)
A technology for transmitting ordinary phone
calls over the Internet using packet-linked routes.
Also called IP telephony.
WAP (Wireless Application Protocol)
A free, unlicensed protocol for wireless
communications that makes it possible to create
advanced telecommunications services and to access
Internet pages from a mobile telephone. WAP is
the de facto standard that is supported by a large
number of suppliers.
WCDMA (Wideband Code Division Multiple Access)
A technology for wideband digital radio
communications of Internet, multimedia, video and
other capacity-demanding applications. WCDMA,
developed by Ericsson and others, has been selected
for the third generation of mobile phone systems in
Europe, Japan, Korea and the US. The technology
is also the principal alternative being discussed in the
remaining parts of the world.
WDM (Wavelength Division Multiplexing)
A technology that uses optical signals on different
wavelengths to increase the capacity of fiber
optic networks in order to handle a number of services
simultaneously.
W-LAN (Wireless-Local Area Network)
A wireless version of the LAN.
ISSN 1100 - 8962
Telefonaktiebolaget LM EricssonSE-126 25 Stockholm
Project management Ericsson Corporate CommunicationsDesign and production SAS Design, London, UKPhotography Mike Goldwater, Network Photographers Ltd., PA Photos Ltd.,Gettyone Stone and Stefan AlmersIllustration Rachel Oxley Production coordinator AraliaReprographics Scarena ABPrinting Christer Persson Tryckeri AB, Köping
EN/LZT 108 4712 R1© Telefonaktiebolaget LM Ericsson 2001
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