Annual Report 2000Understanding our business · 2016. 4. 25. · Annual Report 2000Understanding our business 1 Contents 2 Key financial highlights3 Ericsson in brief4 Securing the

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


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


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.


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


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


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


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


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.



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



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



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



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



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



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



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



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


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


So, you have seen what we doNow see how we do it and how we are growing 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.


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


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.


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.


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.


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.


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


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.


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.


• 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.


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


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.


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


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.


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.


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


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.


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.


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.


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


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

Documents

Annual Report 2000Understanding our business · 2016. 4. 25. · Annual Report 2000Understanding our business 1 Contents 2 Key financial highlights3 Ericsson in brief4 Securing the