Edgar Filing: ERICSSON LM TELEPHONE CO

6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

July 20, 2016

Commission File Number

000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F x Form 40-F ¨

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

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

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENTS ON FORM F-3 (NO. 333-203977) AND ON FORM S-8 (Nos. 333-196453, 333-161683 AND 333-161684) OF TELEFONAKTIEBOLAGET LM ERICSSON (PUBL.) AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED WITH OR FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TELEFONAKTIEBOLAGET LM ERICSSON (publ)

By:		/s/ NINA MACPHERSON
		Nina Macpherson
		Senior Vice President and
		General Counsel

By:		/s/ HELENA NORRMAN
		Helena Norrman
		Senior Vice President
		Corporate Communications

Date: July 20, 2016

LOGO

SECOND QUARTER

REPORT 2016, AS ADJUSTED FOR INCORPORATION BY REFERENCE

Stockholm, July 19, 2016


SECOND QUARTER HIGHLIGHTS		Read more (page)

•	Sales as reported decreased by -11% YoY. Sales, adjusted for comparable units and currency*, decreased by -7% YoY. Mobile broadband sales continued to decline particularly in markets impacted by a weak macro-economic environment.	3

•	Sales grew in South East Asia and Oceania. 4G sales in Mainland China and Networks sales in North America were stable.	3

•	The current sales trends and business mix are expected to prevail for the second half of the year.	3

•	Gross margin declined to 32.3% (33.2%) YoY, mainly due to a larger share of mobile broadband coverage business with lower hardware margins, and a higher share of services business.	3

•	Operating margin decreased to 5.1% (5.9%) YoY, mainly due to negative revaluation effects of currency hedge contracts and a lower gross margin, partly offset by lower operating expenses and restructuring charges.	4

•	Further actions are initiated to reduce cost, targeting a new annual run rate of operating expenses, excluding restructuring charges, of SEK 53 b. in the second half of 2017.	3

•	Cash flow from operating activities was SEK -0.7 (3.1) b. Cash flow from operating activities for the first six months was SEK -3.1 (-2.8) b. Full-year cash conversion target of more than 70% remains.	9


SEK b.	Q2 2016			Q2 2015			YoY change			Q1 2016			QoQ change			6 months 2016			6 months 2015
Net sales		54.1			60.7			-11	%		52.2			4	%		106.3			114.2
Sales growth adj. for comparable units and currency *		—			—			-7	%		—			6	%		-4	%		-6	%
Gross margin		32.3	%		33.2	%		—			33.3	%		—			32.8	%		34.2	%
Gross margin excluding restructuring charges *		33.2	%		35.1	%		—			33.9	%		—			33.6	%		35.7	%
Operating income		2.8			3.6			-22	%		3.5			-20	%		6.2			5.7
Operating income excluding restructuring charges *		3.8			6.3			-40	%		4.1			-8	%		7.9			9.1
Operating margin		5.1	%		5.9	%		—			6.7	%		—			5.9	%		5.0	%
Operating margin excluding restructuring charges *		7.0	%		10.4	%		—			7.9	%		—			7.4	%		7.9	%
Net income		1.6			2.1			-26	%		2.1			-26	%		3.7			3.6
EPS diluted, SEK		0.48			0.64			-25	%		0.60			-20	%		1.08			1.04
EPS (Non-IFRS), SEK ¹⁾ *		0.83			1.45			-43	%		0.87			-5	%		1.70			2.22
Cash flow from operating activities		-0.7			3.1			-123	%		-2.4			-70	%		-3.1			-2.8
Net cash, end of period ²⁾ *		21.0			28.0			-25	%		36.5			-43	%		21.0			28.0

¹⁾	EPS, diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges.

²⁾	The definition of Net cash is changed to exclude post-employment benefits, see accounting policies.

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

1 Ericsson | Second Quarter Report 2016

CEO COMMENTS

The negative industry trends from the first quarter have intensified impacting demand for mobile broadband, especially in markets with a weak macro-economic environment. We are delivering on ongoing cost reduction activities. However, in light of market development, management has, with the support of the Board of Directors, initiated significant actions to further reduce cost.

Business

Sales declined by -11% YoY. Sales, adjusted for comparable units and currency*, declined by -7%. Mobile broadband sales continued to decline particularly in markets impacted by a weak macro-economic environment such as Brazil, Russia and the Middle East. In Europe, completion of mobile broadband projects in 2015 continued to have a negative effect on sales growth YoY. 4G sales in Mainland China were stable YoY as the fast pace of deployments continued.

Network sales in North America were stable YoY driven by continued mobile broadband capacity investments. Global Services sales declined in North America as activities in Professional Services were lower.

The transition from 3G to 4G continued primarily in parts of Asia, contributing to solid sales growth in region South East Asia and Oceania.

Sales in the targeted growth areas were 20% of total sales and grew by 5% in the quarter in constant currencies. We continue to focus on increasing software sales and recurrent business to improve profitability over time.

In the strategic partnership with Cisco we have engaged in more than 200 customer opportunities, spanning all major geographies. To date more than 30 deals have been closed forming a good start to reach the targeted sales of USD 1 b. for 2018.

The current sales trends and business mix are expected to prevail for the second half of the year.

Profitability

Actions have been implemented to restore Global Services profitability, primarily to rightsize the service delivery operations. Losses in Network Rollout have been significantly reduced and the operating margin, excluding restructuring charges, for Professional Services has gradually improved to 10% in the quarter.

The Networks business was impacted by lower sales and an increased share of coverage business with a lower hardware margin. The margin decline for Support Solutions was mainly due to lower OSS and BSS software sales.

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

Profitability declined sequentially mainly due to lower IPR licensing revenues. IPR licensing revenues in the quarter were SEK 2.2 b., representing current IPR licensing contract portfolio. Revenues in Q1 2016 were SEK 3.8 b. and included certain one-time items.

We are delivering on ongoing cost reduction activities. Operating expenses, excluding restructuring charges*, have been reduced by SEK 2.1 b. to SEK 14.0 (16.1) b. YoY, mainly as a result of actions related to the global cost and efficiency program.

Actions to further reduce cost

To manage the lower demand for mobile broadband investments, a set of significant actions has been initiated to further drive efficiency improvements and reduce cost.

The cost and efficiency program targeting savings of SEK 9 b. during 2017, is progressing according to plan. In addition, we will reduce R&D investments in IP and capture efficiency gains from the new company structure. Together, these activities are expected to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 b. in the second half of 2017. This is to be compared with SEK 63 b. for full-year 2014 and equates to double the previously targeted savings in operating expenses.

The new company structure was implemented as of July 1 to accelerate strategy implementation, to mirror customer ways of working and increase end-to-end accountability for business owners. The new structure will also support cost reductions and efficiency improvements, including removal of existing duplications within product development.

Given current industry trends, we will intensify our activities to reduce cost of sales and adapt our operations to a weaker mobile broadband market.

We will focus on maintaining a strong net cash position through structural improvements in working capital and profitability. In addition, the capital expenditure level will decline as the investments in the global ICT centers have peaked.

Our Networked Society strategy comprises three key elements; leverage of our installed base, investments in new revenue base for sustainable profitable growth (targeted growth areas) and generation of strong cash flow enabling long-term investments and securing a strong balance sheet. Digitalization creates new opportunities with both existing and new customers and I am confident that our strategy and the actions we now take will create future value for our shareholders.

Hans Vestberg

President and CEO

2 Ericsson | Second Quarter Report 2016

FINANCIAL HIGHLIGHTS


SEK b.	Q2 2016			Q2 2015			YoY change			Q1 2016			QoQ change			6 months 2016			6 months 2015
Net sales		54.1			60.7			-11	%		52.2			4	%		106.3			114.2
Of which Networks		26.8			31.2			-14	%		25.8			4	%		52.6			57.6
Of which Global Services		24.5			26.4			-7	%		23.0			6	%		47.5			50.3
Of which Support Solutions		2.9			3.1			-7	%		3.4			-15	%		6.2			6.2
Of which Modems		—			0.0			—			—			—			—			0.1
Gross income		17.5			20.1			-13	%		17.4			1	%		34.9			39.1
Gross margin (%)		32.3	%		33.2	%		—			33.3	%		—			32.8	%		34.2	%
Research and development expenses		-7.4			-9.9			-25	%		-7.5			-1	%		-14.9			-18.4
Selling and administrative expenses		-7.1			-7.8			-8	%		-6.7			6	%		-13.8			-14.9
Other operating income and expenses		-0.2			1.1			-122	%		0.3			-184	%		0.0			-0.2
Operating income		2.8			3.6			-22	%		3.5			-20	%		6.2			5.7
Operating margin		5.1	%		5.9	%		—			6.7	%		—			5.9	%		5.0	%
for Networks		6	%		8	%		—			11	%		—			8	%		5	%
for Global Services		6	%		6	%		—			3	%		—			4	%		7	%
for Support Solutions		-15	%		-8	%		—			7	%		—			-3	%		-3	%
for Modems		—			—			—			—			—			—			—
Financial net		-0.5			-0.5			0	%		-0.5			13	%		-1.0			-0.6
Taxes		-0.7			-0.9			-26	%		-0.9			-26	%		-1.6			-1.5
Net income		1.6			2.1			-26	%		2.1			-26	%		3.7			3.6
Restructuring charges		-1.0			-2.7			-63	%		-0.6			62	%		-1.7			-3.4

SECOND QUARTER COMMENTS

Net sales

Sales as reported decreased by -11% YoY. Sales, adjusted for comparable units and currency*, decreased by -7%.

Segment Networks sales declined YoY mainly due to lower mobile broadband sales in markets with a weak macro-economic environment. A further delayed spectrum auction in India and completion of major projects in Europe in 2015 impacted mobile broadband sales negatively YoY. Sales in Mainland China declined YoY due to lower 3G sales. 4G sales in Mainland China were stable YoY with continued fast pace of deployments. Sales continued to grow in South East Asia, driven by large mobile broadband deployment projects. Sales in North America remained stable YoY.

Sales in Segment Global Services declined YoY, impacted by currency. Despite growth in Consulting and Systems Integration, Professional Services sales declined due to lower Managed Services sales following the re-scoping and exiting of specific contracts. Network Rollout sales continued to decline YoY due to lower mobile broadband activities.

Sales in Support Solutions decreased YoY due to lower sales in OSS and BSS partly because of lower software licensing sales in transformation projects. Sales increased in TV & Media, driven by compression business. Since the acquisition of Envivio last year, Ericsson offers both hardware and software compression.

Sales increased slightly QoQ partly offset by lower IPR licensing revenues.

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

Gross margin

Gross margin declined YoY mainly due to a larger share of mobile broadband coverage business with lower hardware margins and a higher share of services business.

Gross margin declined sequentially, mainly due to lower IPR licensing revenues and a higher share of services sales, partly offset by improved Global Services margins in both Professional Services and Network Rollout.

IPR licensing revenues in the quarter were SEK 2.2 b., representing current IPR licensing contract portfolio. Revenues were SEK 3.8 b. in Q1, 2016, and included certain one-time items.

Cost and efficiency program and restructuring charges

The cost and efficiency program, with the target to achieve net annual savings of SEK 9 b. during 2017 relative to 2014, is progressing according to plan. Total savings remains equally distributed between cost of sales and operating expenses.

In addition, the company will capture efficiency gains from the new company structure as well as reduce R&D investments in IP. The annual run rate for operating expenses, excluding restructuring charges, is thereby expected to decline to SEK 53 b. in the second half of 2017. This is to be compared with SEK 63 b. for full-year 2014.

Given current industry trends, the company will also intensify its activities to reduce cost of sales and adapt our operations to a weaker mobile broadband market.

The estimate for total restructuring charges in 2016 remains at SEK 4-5 b.

3 Ericsson | Second Quarter Report 2016

LOGO

Operating expenses

Operating expenses decreased YoY, mainly in R&D expenses due to savings related to the cost and efficiency program and lower restructuring charges. Lower amortization of intangible assets and increased capitalized development expenses also contributed to lower expenses. Operating expenses, excluding restructuring charges, were SEK 14.0. (16.1) b.

Other operating income and expenses

Other operating income and expenses declined YoY due to negative revaluation effects of currency hedge contracts in the quarter and a capital gain of SEK 0.3 b. in Q2, 2015. The revaluation and realization effects of currency hedge contracts were SEK -0.5 b. This is to be compared with SEK 0.2 b. in Q1, 2016 and SEK 0.6 b. in Q2, 2015.

The main part of the currency hedge contract balance is in USD. The SEK weakened against the USD between June 30, 2016 (SEK/USD rate 8.45) and March 31, 2016 (SEK/USD rate 8.11).

Operating income

Operating income decreased YoY, due to lower sales, negative revaluation effects of currency hedge contracts and a lower gross margin. The decrease in operating income was partly offset by lower operating expenses and lower restructuring charges.

Operating income decreased QoQ due to negative effects from currency hedge contracts, a lower gross margin and higher restructuring charges. The decrease in operating income was partly offset by higher sales.

Financial net

Financial net remained stable at SEK -0.5 b., both YoY and QoQ. Financial income improved YoY and QoQ while financial expenses increased YoY and QoQ. The financial net was impacted by low interest rates and depreciated local currencies in certain markets.

Taxes

The tax rate was stable YoY and QoQ.

Net income and EPS

Net income and EPS diluted decreased YoY and QoQ, following lower operating income. EPS diluted was SEK 0.48 (0.64) and EPS (Non-IFRS)* was SEK 0.83 (1.45).

Employees

The number of employees on June 30, 2016 was 116,507 compared with 115,300 on March 31, 2016. Almost 4,000 employees left the company in the quarter. The acquisition of Ericpol, adding 2,300 resources, contributed to the total increase in the headcount of the company.

Modems

The discontinuation of the modems business was completed in Q3 2015.

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

4 Ericsson | Second Quarter Report 2016

REGIONAL SALES


	Second quarter 2016								Change
SEK b.	Networks		Global Services		Support Solutions		Total		YoY			QoQ
North America		6.6		6.1		0.7		13.4		-8	%		2	%
Latin America		2.1		2.3		0.2		4.5		-10	%		12	%
Northern Europe and Central Asia		1.0		1.1		0.1		2.1		-18	%		-6	%
Western and Central Europe		1.7		2.6		0.1		4.5		-13	%		13	%
Mediterranean		2.1		3.1		0.2		5.4		-8	%		26	%
Middle East		1.9		2.8		0.3		4.9		-24	%		38	%
Sub-Saharan Africa		1.0		1.2		0.1		2.3		-13	%		9	%
India		1.0		1.3		0.2		2.4		-20	%		-10	%
North East Asia		4.2		1.8		0.1		6.0		-13	%		8	%
South East Asia and Oceania		3.2		2.0		0.1		5.3		8	%		1	%
Other ¹⁾		2.0		0.3		0.8		3.2		-6	%		-41	%

Total		26.8		24.5		2.9		54.1		-11	%		4	%

¹⁾	Region “Other” includes licensing revenues, broadcast services, power modules, mobile broadband modules, Ericsson-LG Enterprise and other businesses.

North America

Networks sales in North America were stable YoY driven by continued mobile broadband capacity investments. Sales in Professional Services were lower, YoY, following strong sales in Q2, 2015, and lower CDMA services sales. However, deployments in new spectrum, preparation for 5G and ICT transformation are high on customer agendas.

Latin America

Mobile broadband investments continued to decline, impacted by a weak macro-economic environment and local currency depreciation. However, mobile broadband investments in Mexico continued to increase YoY.

Northern Europe and Central Asia

Lower Networks sales were driven by further declining mobile broadband investments, especially in Russia. The macro-economic environment remains challenging in the region. Professional Services sales continued to develop favorably with growth in Managed Services in the Nordics.

Western and Central Europe

Completion of mobile broadband projects in 2015 continued to have a negative effect on sales growth YoY. Operators continued to focus on investments in capacity and quality in order to improve end-user experience. Professional Services sales remained stable.

Mediterranean

Sales declined due to lower investments in mobile broadband infrastructure as major projects were completed. However there is an increasing share of capacity investments. ICT transformation of TV & Media developed favorably.

Middle East

Networks sales declined mainly due to completion of a deployment project in Ethiopia and continued macro-economic challenges, resulting in lower mobile broadband investments. The services business developed favorably, mainly in the Professional Services domains.

Sub-Saharan Africa

Sales declined mainly due to a lower level of investments, impacted by lower oil prices, and the ramping down of a sizable mobile broadband project in South Africa. Floating of the Nigerian currency resulted in a devaluation of more than 40% in June, also impacting investment decisions negatively. However, mobile broadband sales increased somewhat as certain markets are investing in network improvements and introduction of 4G.

India

A further delayed spectrum auction slowed investments, impacting sales YoY negatively. Professional Services continued to progress positively.

North East Asia

4G deployments in Mainland China continued as projected, while core network deployments increased QoQ. In Korea and Japan, investments continued on lower levels as the initial 4G networks were built with high density as well as good capacity.

South East Asia and Oceania

Sales growth was primarily driven by mobile broadband investments in Thailand and Indonesia, moving from coverage projects to capacity business. Professional Services developed favorably, mainly driven by Managed Services.

Other

IPR licensing revenues in the quarter were SEK 2.2 b., representing the current IPR licensing contract portfolio. Revenues in Q1 2016 were SEK 3.8 b. and included certain one-time items.

5 Ericsson | Second Quarter Report 2016

SEGMENT RESULTS

NETWORKS

LOGO


SEK b.	Q2 2016			Q2 2015			YoY change			Q1 2016			QoQ change			6 months 2016			6 months 2015
Net sales		26.8			31.2			-14	%		25.8			4	%		52.6			57.6
Operating income		1.6			2.4			-35	%		2.7			-42	%		4.3			3.0
Operating margin		6	%		8	%		—			11	%		—			8	%		5	%
Restructuring charges		-0.6			-1.8			-67	%		-0.3			106	%		-0.9			-2.0

Net sales

Sales as reported decreased by -14% YoY mainly due to lower mobile broadband sales in markets with a weak macro-economic environment. A further delayed spectrum auction in India slowed investments and completion of major projects in Europe in 2015 impacted mobile broadband sales negatively YoY. Sales in Mainland China declined YoY due to lower 3G sales. 4G sales in Mainland China were stable YoY with continued fast pace of deployments. Sales continued to grow in South East Asia, driven by large mobile broadband deployment projects. Sales in North America remained stable YoY.

Sales increased QoQ, primarily driven by growth in regions North East Asia and Mediterranean, but was partly offset by a sales decline in region Northern Europe and Central Asia as well as in India.

Deliveries of Ericsson Radio System started at the end of 2015 and will scale to larger volumes during the latter part of this year.

The company has engaged in more than 200 customer opportunities, together with Cisco, spanning all major geographies, except for Brazil where regulatory approval is still pending. To date more than 30 deals have been closed.

Operating income and margin

Operating income and margin decreased YoY mainly due to lower sales volumes, a higher share of coverage business with lower hardware margins and negative revaluation effects of currency hedge contracts. Operating expenses declined significantly YoY, mainly as a result of the ongoing cost and efficiency program.

Sequentially, operating income and margin decreased due to lower IPR licensing revenues.

The effects of revaluation and realization of currency hedge contracts were negative at SEK -0.4 (0.5) b. in the quarter. In Q1, 2016, the effects of currency hedge contracts were positive at SEK 0.2 b.

6 Ericsson | Second Quarter Report 2016

GLOBAL SERVICES

LOGO


SEK b.	Q2 2016			Q2 2015			YoY change			Q1 2016			QoQ change			6 months 2016			6 months 2015
Net sales		24.5			26.4			-7	%		23.0			6	%		47.5			50.3
Of which Professional Services		18.7			20.0			-7	%		17.9			4	%		36.6			38.1
Of which Managed Services		7.3			8.2			-10	%		7.4			0	%		14.7			15.7
Of which Network Rollout		5.8			6.4			-9	%		5.1			14	%		10.9			12.2
Operating income		1.5			1.6			-10	%		0.6			130	%		2.1			3.3
Of which Professional Services		1.7			2.4			-30	%		1.3			30	%		3.0			4.5
Of which Network Rollout		-0.2			-0.8			-75	%		-0.6			-70	%		-0.8			-1.2
Operating margin		6	%		6	%		—			3	%		—			4	%		7	%
for Professional Services		9	%		12	%		—			7	%		—			8	%		12	%
for Network Rollout		-3	%		-12	%		—			-13	%		—			-8	%		-10	%
Restructuring charges		-0.3			-0.7			-50	%		-0.3			10	%		-0.7			-1.1

Net sales

Sales as reported decreased -7% YoY. Despite growth in Consulting and Systems Integration, Professional Services sales declined with lower Managed Services sales following the re-scoping and exiting of specific contracts. In North America, Professional Services sales declined YoY following strong sales in Q2, 2015, and lower CDMA services sales

Network Rollout sales continued to decline YoY due to lower mobile broadband activities.

Sales increased by 6% QoQ following a seasonally weak Q1.

Operating income and margin

Operating income decreased slightly YoY in Global Services with reduced profitability in Professional Services while Network Rollout operating income improved.

Sequentially, Global Services operating income improved significantly driven by rightsizing activities in service delivery operations and performance improvement in transformation projects. However, Professional Services margin continues to be negatively impacted by a large number of systems integration transformation projects in a start-up phase. QoQ, the operating margin, excluding restructuring charges, gradually improved to 10% (9%).

Network Rollout operating margin, excluding restructuring charges, improved QoQ to -2% (-11%). Activities continued in order to adapt the service delivery operations to current mobile broadband project volumes.


	Q2 2016		Q1 2016		Full year 2015
Number of signed Managed Services contracts		20		21		101
Number of signed significant consulting & systems integration contracts ¹⁾		18		13		66

¹⁾	In the areas of OSS and BSS, IP, Service Delivery Platforms and data center build projects.

7 Ericsson | Second Quarter Report 2016

SUPPORT SOLUTIONS

LOGO


SEK b.	Q2 2016			Q2 2015			YoY change			Q1 2016			QoQ change			6 months 2016			6 months 2015
Net sales		2.9			3.1			-7	%		3.4			-15	%		6.2			6.2
Operating income		-0.4			-0.2			75	%		0.2			-277	%		-0.2			-0.2
Operating margin		-15	%		-8	%		—			7	%		—			-3	%		-3	%
Restructuring charges		-0.1			-0.2			-65	%		0.0			—			-0.1			-0.2

Net sales

Sales as reported decreased -7% YoY due to lower sales in OSS and BSS partly because of lower software licensing sales in transformation projects. The underlying demand for OSS and BSS remains as operators continue to prioritize digital transformation and cost optimization. A multi-country, multi-year BSS infrastructure contract with Vimpelcom, estimated to generate more than USD 1 b. in net sales, was signed in the quarter. The overall transition of business models continues, from traditional telecom software licenses to recurrent license revenue deals.

Sales increased in TV & Media, driven by compression business. Since the acquisition of Envivio last year, Ericsson now offers both hardware and software compression.

Sales declined QoQ, following strong IPR licensing revenues in the previous quarter.

Operating income and margin

Operating income and margin declined YoY, mainly due to lower OSS and BSS software sales. Lower restructuring charges partly offset the decline in operating income.

Operating income declined sequentially, mainly as an effect of lower IPR licensing revenues.

8 Ericsson | Second Quarter Report 2016

CASH FLOW


SEK b.	Q2 2016			Q2 2015			Q1 2016
Net income reconciled to cash		1.3			3.4			3.6
Changes in operating net assets		-2.0			-0.3			-6.0
Cash flow from operating activities		-0.7			3.1			-2.4
Cash flow from investing activities		1.4			7.0			-1.0
Cash flow from financing activities		-9.3			-10.6			0.1
Net change in cash and cash equivalents		-7.0			-2.3			-4.3
Cash conversion (%) *		-54	%		90	%		-65	%

Cash flow from operating activities was SEK -0.7 (3.1) b. The decline was due to increased inventory and large tax payments. The inventory increase is an effect of lower demand for mobile broadband investments in markets negatively impacted by a weak macro-economic environment and the inventory is expected to decrease in the second half of 2016. Year to date, cash flow from operating activities was SEK -3.1 (-2.8) b. The full-year cash conversion target of more than 70% remains.

Cash outlays related to restructuring charges were SEK -0.6 b. in the quarter.

Cash flow from investing activities was impacted by investments in property, plant and equipment of SEK -1.5 b., mainly related to continued investments in Global ICT centers. The capital expenditure level will decline as the investments in the Global ICT centers have peaked.

Development expenses of SEK -1.1 b. were capitalized. Several small acquisitions, such as Ericpol and NodePrime, were made in the quarter.

Cash flow from financing activities amounted to SEK -9.3 b. and were impacted by the dividend payout of SEK -12.1 b.


Working capital KPIs, number of days	Jan-Jun 2016		Jan-Mar 2016		Jan-Dec 2015		Jan-Sep 2015		Jan-Jun 2015
Sales outstanding (target: <90)		115		108		87		113		112
Inventory (target: <65)		81		80		64		72		74
Payable (target: >60)		59		58		53		55		57

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

9 Ericsson | Second Quarter Report 2016

FINANCIAL POSITION


SEK b.	Jun 30 2016			Jun 30 2015			Mar 31 2016
+ Short-term investments		19.8			20.8			25.1
+ Cash and cash equivalents		28.9			33.0			35.9
Gross cash		48.8			53.8			61.0
- Interest bearing liabilities		27.8			25.8			24.5
Net cash *		21.0			28.0			36.5
Equity		136.7			136.7			145.6
Total assets		277.4			278.9			280.3
Capital turnover (times) *		1.1			1.3			1.1
Return on capital employed (%) *		6.5	%		6.9	%		6.9	%
Equity ratio (%) *		49.3	%		49.0	%		52.0	%
Return on equity (%) *		5.0	%		5.9	%		5.4	%

Net cash decreased by SEK -15.5 b. in the quarter mainly as a result of the dividend payout of SEK -12.1 b., increased working capital and large tax payments. The net cash position was SEK 21.0 b.

Post-employment benefits were SEK 27.3 b., compared with SEK 25.7 b. on March 31, 2016, following lower discount rates.

The average maturity of long-term borrowings as of June 30, 2016, was 4.3 years, compared with 5.3 years 12 months earlier.

In the quarter, the revolving Credit Facility of USD 2.0 b. was extended with one year. The facility will expire in 2021.

Debt maturity profile, Parent Company

LOGO

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

10 Ericsson | Second Quarter Report 2016

OTHER INFORMATION

Ericsson resolved on an acquisition offer for C shares for LTV 2016

On April 28, 2016, Ericsson announced that, in accordance with the resolution by the Annual General Meeting 2016, the company expands its treasury stock in order to provide shares for the Long-Term Variable Compensation Program (LTV) 2016 for employees in Ericsson.

The Board of Directors of Ericsson has resolved, by virtue of an authorization given by the Annual General Meeting on April 13, 2016, to direct an acquisition offer to all holders of C shares to acquire these shares. Acquisition shall be made during the period May 5 - May 20, 2016. Payment for acquired shares shall be made in cash with SEK 5 per share.

The offer is part of the financing of Ericsson’s Long-Term Variable Compensation Program 2016 and includes all 26,100,000 C shares which Ericsson has previously decided to issue to AB Industrivärden and Investor AB for the program.

AB Industrivärden and Investor AB have informed Ericsson that they intend to accept the offer.

Once all 26,100,000 C shares have been acquired by Ericsson, the Board intends to convert them to B shares. After the conversion, the number of B shares in issue will amount to 3,069,395,752. On April 28, 2016, Ericsson held 46,002,257 B shares as treasury stock.

Ericsson’s Nomination Committee appointed

On May 18, 2016, Ericsson announced that the Nomination Committee for the Annual General Meeting (AGM) 2017 had been appointed in accordance with the instruction for the Nomination Committee, resolved by the Annual General Meeting 2012. The Nomination Committee consists of: Petra Hedengran, Investor AB; Johan Held, Afa Försäkring, Leif Johansson, the Chairman of the Board of Directors, Bengt Kjell, AB Industrivärden and Handelsbankens Pensionsstiftelse; and Anders Oscarsson, AMF - Försäkring och Fonder. Petra Hedengran is the Chairman of the Nomination Committee.

Increase in the total number of shares and votes in Telefonaktiebolaget LM Ericsson

On May 31, 2016, Ericsson confirmed that the company’s share capital amounts to SEK 16,655,758,678 and the total number of shares is 3,331,151,735, of which 261,755,983 are A shares and 3,069,395,752 are B shares. The total number of votes is 568,695,558.2, of which class A shares represent 261,755,983 votes and class B shares represent 306,939,575.2 votes. The increase in the number of shares and votes is caused by the company’s recent issue of 26,100,000 C shares, which shares have subsequently been repurchased by the company and converted into B shares, by virtue of a conversion clause in the articles of association. This is in accordance with the resolution by the Annual General Meeting 2016 to expand the treasury stock as part of the financing of Ericsson’s Long-Term Variable Compensation Program (LTV) 2016. On May 31, 2016, the company held 69,331,486 shares as treasury stock.

Voluntary request from US Authorities

On June 17, 2016, after speculation in media regarding alleged corruption investigations, Ericsson issued a statement commenting on the media reports. Ericsson clarified that in March 2013, it received a voluntary request from US Authorities to answer a number of questions relating to Ericsson’s operations, confirmed by the company already in 2013. Ericsson cooperates with US Authorities to answer these and additional questions. Ericsson has not provided any detailed comments on the request or the questions as such, or if they relate to specific regions or countries, but confirms that it relates to Ericsson’s anti-corruption program and questions related to the Foreign Corrupt Practices Act.

Greek investigation into contract from 1999

On June 19, 2016, Ericsson gave an update about an investigation in Greece relating to a defense agreement signed in 1999 in which Ericsson Microwave Systems delivered an airborne radar system to Greece. Ericsson commented publicly on this case more than two years ago, including in conjunction with its Annual General Meeting. Ericsson Microwave Systems was sold by Ericsson in 2006. Recently, as part of the ongoing investigation, seven current and former Ericsson employees have been served with summons in preliminary investigation proceedings by a Greek prosecutor involving allegations of possible corruption. Ericsson has not been contacted by any authority in this matter.

DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012 (ITRA)

During the second quarter of 2016, Ericsson made sales of telecommunications infrastructure related products and services in Iran to MTNIrancell, Mobile Communication Company of Iran and to Hiweb, which generated gross revenues (reported as net sales) of approximately SEK 677 million. Ericsson does not normally allocate quarterly net profit (reported as net income) on a country-by-country or activity-by-activity basis, other than as set forth in Ericsson’s consolidated financial statements prepared in accordance with IFRS as issued by the IASB. However, Ericsson has estimated that its operating income (income before taxes and financial net) from such sales, after internal cost allocation, during the second quarter of 2016 would be substantially lower than such gross revenues. During the second quarter of 2016, Eghtesad Novin Bank (local bank in Iran) issued a letter of credit to one of Ericsson’s banks outside Iran, to secure an Iranian customer’s payment obligations to Ericsson.

11 Ericsson | Second Quarter Report 2016

RISK FACTORS

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2015.

Risk factors and uncertainties in focus short term for the Parent Company and the Ericsson Group include, but are not limited to:

•

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

•

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

•

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

•

Effects on gross margins of the business mix in the Global Services segment including proportion of new network build-outs and share of new managed services or digital transformation deals with initial transition costs;

•

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

•

New JV arrangements or partnerships which may not be successful and expose us to future costs;

•

Changes in foreign exchange rates, in particular USD;

•

Political unrest or instability in certain markets;

•

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

•

No guarantees that specific restructuring or cost-savings initiatives will be sufficient, successful or executed in time to deliver any improvements in short-term earnings;

•

Brexit might lead to economic uncertainty which may impact operators’ investment levels. Various geopolitical forces may impact the global economy and our business

•

Cyber security incidents, which may have material negative impact.

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

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

Date for next report: October 21, 2016

12 Ericsson | Second Quarter Report 2016

EDITOR’S NOTE

For further information, please contact:

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

Phone: +46 10 719 34 72

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

media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson

Org. number: 556016-0680

Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com


Investors

Peter Nyquist, Vice President,
Head of Investor Relations
Phone:		+46 10 714 64 49, +46 70 575 29 06
E-mail:		peter.nyquist@ericsson.com

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

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

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

Media

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

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

13 Ericsson | Second Quarter Report 2016

SAFE HARBOR STATEMENT

All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “would”, “potential”, “continue”, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; (xii) plans to launch new products and services; (xiii) assessments of risks; (xiv) integration of acquired businesses; (xv) compliance with rules and regulations and (xvi) infringements of intellectual property rights of others.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate or interest rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.

14 Ericsson | Second Quarter Report 2016

FINANCIAL STATEMENTS AND

ADDITIONAL INFORMATION


Contents

Financial statements
Consolidated income statement			16
Statement of comprehensive income			16
Consolidated balance sheet			17
Consolidated statement of cash flows			18
Consolidated statement of changes in equity			19
Consolidated income statement – isolated quarters			19
Consolidated statement of cash flows – isolated quarters			20

Additional information
Accounting policies			21
Net sales by segment by quarter			22
Sales growth adjusted for comparable units and currency			23
Operating income by segment by quarter			24
Operating margin by segment by quarter			24
Net sales by region by quarter			25
Net sales by region by quarter (cont.)			26
Top 5 countries in sales			26
Net sales by region by segment			27
Provisions			28
Information on investments			28
Other information			29
Number of employees			29
Restructuring charges by function			30
Restructuring charges by segment			30
Reconciliation tables, non-IFRS measures			31

15 Ericsson | Second Quarter Report 2016

CONSOLIDATED INCOME STATEMENT


	Apr-Jun									Jan-Jun
SEK million	2016			2015			Change			2016			2015			Change

Net sales		54,108			60,671			-11	%		106,317			114,191			-7	%
Cost of sales		-36,613			-40,536			-10	%		-71,432			-75,092			-5	%

Gross income		17,495			20,135			-13	%		34,885			39,099			-11	%
Gross margin (%)		32.3	%		33.2	%					32.8	%		34.2	%

Research and development expenses		-7,405			-9,896			-25	%		-14,890			-18,383			-19	%
Selling and administrative expenses		-7,109			-7,765			-8	%		-13,829			-14,896			-7	%

Operating expenses		-14,514			-17,661			-18	%		-28,719			-33,279			-14	%

Other operating income and expenses		-230			1,059						43			-181
Shares in earnings of JV and associated companies		12			27						29			54

Operating income		2,763			3,560			-22	%		6,238			5,693			10	%

Financial income		139			-238						50			446
Financial expenses		-666			-290						-1,043			-1,030

Income after financial items		2,236			3,032			-26	%		5,245			5,109			3	%

Taxes		-670			-909						-1,573			-1,532

Net income		1,566			2,123			-26	%		3,672			3,577			3	%


Net income attributable to:
Stockholders of the Parent Company		1,587			2,094						3,553			3,413
Non-controlling interests		-21			29						119			164

Other information
Average number of shares, basic (million)		3,261			3,247						3,259			3,246
Earnings per share, basic (SEK) ¹⁾		0.49			0.64						1.09			1.05
Earnings per share, diluted (SEK) ¹⁾		0.48			0.64						1.08			1.04

¹⁾	Based on Net income attributable to stockholders of the Parent Company.

STATEMENT OF COMPREHENSIVE INCOME


	Apr-Jun				Jan-Jun
SEK million	2016		2015		2016		2015

Net income		1,566		2,123		3,672		3,577

Other comprehensive income

Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans incl. asset ceiling		-941		-1,562		-4,443		-4,773
Tax on items that will not be reclassified to profit or loss		235		610		1,188		1,304

Items that may be reclassified to profit or loss
Cash flow hedges
Gains/losses arising during the period		—		—		—		—
Reclassification adjustments for gains/losses included in profit or loss		—		—		—		—
Revaluation of other investments in shares and participations
Fair value remeasurement		—		—		-4		181
Changes in cumulative translation adjustments		1,981		-2,626		848		1,783
Share of other comprehensive income on JV and associated companies		10		-92		-366		-96
Tax on items that may be reclassified to profit or loss		—		—		—		—

Total other comprehensive income, net of tax		1,285		-3,670		-2,777		-1,601

Total comprehensive income		2,851		-1,547		895		1,976


Total comprehensive income attributable to:
Stockholders of the Parent Company		2,843		-1,515		750		1,790
Non-controlling interest		8		-32		145		186

16 Ericsson | Second Quarter Report 2016

CONSOLIDATED BALANCE SHEET


SEK million	Jun 30 2016		Mar 31 2016		Dec 31 2015

ASSETS
Non-current assets
Intangible assets
Capitalized development expenses		7,064		6,349		5,493
Goodwill		41,913		40,316		41,087
Intellectual property rights, brands and other intangible assets		8,035		8,400		9,316

Property, plant and equipment		16,856		16,127		15,901

Financial assets
Equity in JV and associated companies		787		851		1,210
Other investments in shares and participations		1,178		1,090		1,275
Customer finance, non-current		2,315		1,663		1,739
Other financial assets, non-current		5,061		4,997		5,634

Deferred tax assets		14,451		14,117		13,183

		97,660		93,910		94,838

Current assets
Inventories		34,660		32,252		28,436

Trade receivables		68,461		66,701		71,069
Customer finance, current		2,532		2,346		2,041
Other current receivables		25,297		24,105		21,709

Short-term investments		19,846		25,077		26,046
Cash and cash equivalents		28,931		35,934		40,224

		179,727		186,415		189,525

Total assets		277,387		280,325		284,363


EQUITY AND LIABILITIES
Equity
Stockholders’ equity		135,746		144,699		146,525
Non-controlling interest in equity of subsidiaries		945		945		841

		136,691		145,644		147,366

Non-current liabilities
Post-employment benefits		27,323		25,715		22,664
Provisions, non-current		245		158		176
Deferred tax liabilities		2,036		2,098		2,472
Borrowings, non-current		18,164		22,110		22,744
Other non-current liabilities		2,030		1,834		1,851

		49,798		51,915		49,907

Current liabilities
Provisions, current		3,142		3,374		3,662
Borrowings, current		9,653		2,414		2,376
Trade payables		23,709		21,549		22,389
Other current liabilities		54,394		55,429		58,663

		90,898		82,766		87,090

Total equity and liabilities		277,387		280,325		284,363


Of which interest-bearing liabilities		27,817		24,524		25,120
Of which net cash *		20,960		36,487		41,150

Assets pledged as collateral		2,523		2,513		2,526
Contingent liabilities		1,003		918		922

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

17 Ericsson | Second Quarter Report 2016

CONSOLIDATED STATEMENT

OF CASH FLOWS


	Apr-Jun				Jan-Jun				Jan-Dec
SEK million	2016		2015		2016		2015		2015

Operating activities
Net income		1,566		2,123		3,672		3,577		13,673
Adjustments to reconcile net income to cash
Taxes		-3,410		-1,360		-4,618		-3,281		-2,835
Earnings/dividends in JV and associated companies		73		49		57		27		130
Depreciation, amortization and impairment losses		2,104		2,579		4,201		5,260		10,206
Other		988		22		1,640		966		3,110

		1,321		3,413		4,952		6,549		24,284

Changes in operating net assets
Inventories		-1,667		383		-5,879		-3,636		-366
Customer finance, current and non-current		-816		405		-1,067		147		824
Trade receivables		-564		3,630		2,844		5,667		7,000
Trade payables		2,457		-1,400		1,840		-3,068		-2,676
Provisions and post-employment benefits		218		1,685		204		1,519		544
Other operating assets and liabilities, net		-1,662		-5,038		-5,979		-10,000		-9,013

		-2,034		-335		-8,037		-9,371		-3,687

Cash flow from operating activities		-713		3,078		-3,085		-2,822		20,597

Investing activities
Investments in property, plant and equipment		-1,572		-2,424		-3,046		-4,791		-8,338
Sales of property, plant and equipment		50		1,075		94		1,150		1,301
Acquisitions/divestments of subsidiaries and other operations, net		-480		-169		-588		-227		-2,200
Product development		-1,099		-843		-2,307		-1,137		-3,302
Other investing activities		-890		-280		-155		-162		-543
Short-term investments		5,355		9,678		6,368		10,077		5,095

Cash flow from investing activities		1,364		7,037		366		4,910		-7,987

Cash flow before financing activities		651		10,115		-2,719		2,088		12,610

Financing activities
Dividends paid		-12,067		-11,035		-12,100		-11,060		-11,337
Other financing activities		2,761		431		2,855		1,330		627

Cash flow from financing activities		-9,306		-10,604		-9,245		-9,730		-10,710

Effect of exchange rate changes on cash		1,652		-1,860		671		-384		-2,664

Net change in cash and cash equivalents		-7,003		-2,349		-11,293		-8,026		-764

Cash and cash equivalents, beginning of period		35,934		35,311		40,224		40,988		40,988

Cash and cash equivalents, end of period		28,931		32,962		28,931		32,962		40,224

18 Ericsson | Second Quarter Report 2016

CONSOLIDATED STATEMENT

OF CHANGES IN EQUITY


	Jan-Jun				Jan-Dec
SEK million	2016		2015		2015

Opening balance		147,366		145,309		145,309
Total comprehensive income		895		1,976		12,362
Sale/repurchase of own shares		-74		88		169
Stock issue (net)		131		—		—
Stock purchase plan		472		414		865
Dividends paid		-12,099		-11,060		-11,337
Transactions with non-controlling interests		—		-2		-2

Closing balance		136,691		136,725		147,366

CONSOLIDATED INCOME STATEMENT

- ISOLATED QUARTERS


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net sales		54,108			52,209			73,568			59,161			60,671			53,520
Cost of sales		-36,613			-34,819			-46,899			-39,110			-40,536			-34,556

Gross income		17,495			17,390			26,669			20,051			20,135			18,964
Gross margin (%)		32.3	%		33.3	%		36.3	%		33.9	%		33.2	%		35.4	%

Research and development expenses		-7,405			-7,485			-7,921			-8,540			-9,896			-8,487
Selling and administrative expenses		-7,109			-6,720			-7,996			-6,393			-7,765			-7,131

Operating expenses		-14,514			-14,205			-15,917			-14,933			-17,661			-15,618

Other operating income and expenses		-230			273			254			80			1,059			-1,240
Shares in earnings of JV and associated companies		12			17			29			-121			27			27

Operating income		2,763			3,475			11,035			5,077			3,560			2,133

Financial income		139			-89			-109			188			-238			684
Financial expenses		-666			-377			-619			-809			-290			-740

Income after financial items		2,236			3,009			10,307			4,456			3,032			2,077

Taxes		-670			-903			-3,329			-1,338			-909			-623

Net income		1,566			2,106			6,978			3,118			2,123			1,454


Net income attributable to:
Stockholders of the Parent Company		1,587			1,966			7,056			3,080			2,094			1,319
Non-controlling interests		-21			140			-78			38			29			135

Other information
Average number of shares, basic (million)		3,261			3,258			3,254			3,251			3,247			3,244
Earnings per share, basic (SEK) ¹⁾		0.49			0.60			2.17			0.95			0.64			0.41
Earnings per share, diluted (SEK) ¹⁾		0.48			0.60			2.15			0.94			0.64			0.40

¹⁾	Based on Net income attributable to stockholders of the Parent Company.

19 Ericsson | Second Quarter Report 2016

CONSOLIDATED STATEMENT

OF CASH FLOWS - ISOLATED QUARTERS


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Operating activities
Net income		1,566		2,106		6,978		3,118		2,123		1,454
Adjustments to reconcile net income to cash
Taxes		-3,410		-1,208		395		51		-1,360		-1,921
Earnings/dividends in JV and associated companies		73		-16		-33		136		49		-22
Depreciation, amortization and impairment losses		2,104		2,097		2,521		2,425		2,579		2,681
Other		988		652		1,092		1,052		22		944

		1,321		3,631		10,953		6,782		3,413		3,136

Changes in operating net assets
Inventories		-1,667		-4,212		3,496		-226		383		-4,019
Customer finance, current and non-current		-816		-251		302		375		405		-258
Trade receivables		-564		3,408		2,754		-1,421		3,630		2,037
Trade payables		2,457		-617		886		-494		-1,400		-1,668
Provisions and post-employment benefits		218		-14		-673		-302		1,685		-166
Other operating assets and liabilities, net		-1,662		-4,317		4,141		-3,154		-5,038		-4,962

		-2,034		-6,003		10,906		-5,222		-335		-9,036

Cash flow from operating activities		-713		-2,372		21,859		1,560		3,078		-5,900

Investing activities
Investments in property, plant and equipment		-1,572		-1,474		-1,740		-1,807		-2,424		-2,367
Sales of property, plant and equipment		50		44		92		59		1,075		75
Acquisitions/divestments of subsidiaries and other operations, net		-480		-108		-945		-1,028		-169		-58
Product development		-1,099		-1,208		-1,183		-982		-843		-294
Other investing activities		-890		735		-418		37		-280		118
Short-term investments		5,355		1,013		-8,613		3,631		9,678		399

Cash flow from investing activities		1,364		-998		-12,807		-90		7,037		-2,127

Cash flow before financing activities		651		-3,370		9,052		1,470		10,115		-8,027

Financing activities
Dividends paid		-12,067		-33		—		-277		-11,035		-25
Other financing activities		2,761		94		-669		-34		431		899

Cash flow from financing activities		-9,306		61		-669		-311		-10,604		874

Effect of exchange rate changes on cash		1,652		-981		-2,109		-171		-1,860		1,476

Net change in cash and cash equivalents		-7,003		-4,290		6,274		988		-2,349		-5,677

Cash and cash equivalents, beginning of period		35,934		40,224		33,950		32,962		35,311		40,988

Cash and cash equivalents, end of period		28,931		35,934		40,224		33,950		32,962		35,311

20 Ericsson | Second Quarter Report 2016

ACCOUNTING POLICIES

THE GROUP

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2015, and should be read in conjunction with that annual report.

There is no significant difference between IFRS effective as per June 30, 2016 and IFRS as endorsed by the EU.

Amendments applied as from the first quarter of 2016

Net Cash

The definition of Net Cash has been adjusted in order to more clearly represent Ericsson’s ability to meet financial obligations. Post-employment benefits will no longer be included in the calculation of Net Cash. Net Cash for prior periods has been recalculated using the new definition. The revised definition is as follows:

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

Accounting for bonds

Due to the conditions in the market for government and mortgage bonds in Sweden, Ericsson now intends to hold bonds purchased in its “Asset management” portfolio until maturity instead of intending to hold them for trading. Bonds purchased in this portfolio after January 1, 2016 will be classified as available-for-sale. There were no purchases made in the first six months of 2016. The impact of this change on the financial statements will be disclosed in the interim report following the first purchase of bonds.

Amendments applied as from the second quarter of 2016

APMs

As from the second quarter, Ericsson has applied the new guidelines issued by ESMA* on APMs (Alternative Performance Measures). In summary, an APM is understood as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in IFRS. The APMs presented in the interim report will be reconciled to the most directly reconcilable line items in the financial statements at the end of the interim report.

*	European Securities and Markets Authority – a European supervisory authority

21 Ericsson | Second Quarter Report 2016

NET SALES BY SEGMENT BY QUARTER


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Networks		26,765			25,820			37,304			28,817			31,163			26,436
Global Services		24,481			23,018			30,670			27,055			26,392			23,901
Of which Professional Services		18,670			17,932			23,072			20,545			20,001			18,131
Of which Managed Services		7,330			7,352			8,214			7,976			8,150			7,501
Of which Network Rollout		5,811			5,086			7,598			6,510			6,391			5,770
Support Solutions		2,862			3,371			5,594			3,289			3,092			3,074
Modems		—			—			—			—			24			109

Total		54,108			52,209			73,568			59,161			60,671			53,520


	2016						2015
Sequential change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		4	%		-31	%		29	%		-8	%		18	%		-22	%
Global Services		6	%		-25	%		13	%		3	%		10	%		-20	%
Of which Professional Services		4	%		-22	%		12	%		3	%		10	%		-15	%
Of which Managed Services		0	%		-10	%		3	%		-2	%		9	%		-3	%
Of which Network Rollout		14	%		-33	%		17	%		2	%		11	%		-31	%
Support Solutions		-15	%		-40	%		70	%		6	%		1	%		-23	%
Modems		—			—			—			—			—			—

Total		4	%		-29	%		24	%		-2	%		13	%		-21	%


	2016						2015
Year over year change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		-14	%		-2	%		9	%		-4	%		8	%		8	%
Global Services		-7	%		-4	%		3	%		11	%		14	%		17	%
Of which Professional Services		-7	%		-1	%		8	%		15	%		21	%		20	%
Of which Managed Services		-10	%		-2	%		6	%		11	%		26	%		30	%
Of which Network Rollout		-9	%		-12	%		-9	%		-2	%		-2	%		9	%
Support Solutions		-7	%		10	%		40	%		8	%		9	%		11	%
Modems		—			—			—			—			—			—

Total		-11	%		-2	%		8	%		3	%		11	%		13	%


	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		52,585			25,820			123,720			86,416			57,599			26,436
Global Services		47,499			23,018			108,018			77,348			50,293			23,901
Of which Professional Services		36,602			17,932			81,749			58,677			38,132			18,131
Of which Managed Services		14,682			7,352			31,841			23,627			15,651			7,501
Of which Network Rollout		10,897			5,086			26,269			18,671			12,161			5,770
Support Solutions		6,233			3,371			15,049			9,455			6,166			3,074
Modems					—			133			133			133			109

Total		106,317			52,209			246,920			173,352			114,191			53,520


	2016						2015
Year to date, year over year change, percent	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		-9	%		-2	%		5	%		4	%		8	%		8	%
Global Services		-6	%		-4	%		11	%		14	%		16	%		17	%
Of which Professional Services		-4	%		-1	%		15	%		19	%		21	%		20	%
Of which Managed Services		-6	%		-2	%		17	%		22	%		28	%		30	%
Of which Network Rollout		-10	%		-12	%		-2	%		1	%		3	%		9	%
Support Solutions		1	%		10	%		19	%		9	%		10	%		11	%
Modems		—			—			—			—			—			—

Total		-7	%		-2	%		8	%		8	%		12	%		13	%

22 Ericsson | Second Quarter Report 2016

SALES GROWTH ADJUSTED FOR

COMPARABLE UNITS AND CURRENCY


	2016						2015
Sequential change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		6	%		-30	%		30	%		-6	%		16	%		-28	%
Global Services		8	%		-23	%		17	%		2	%		10	%		-26	%
Support Solutions		-13	%		-39	%		70	%		7	%		-3	%		-31	%

Total *		6	%		-28	%		26	%		-2	%		12	%		-28	%


	2016						2015
Isolated quarter, year over year change, percent	Q2			Q1			Q4			Q3			Q2			Q1

Networks		-11	%		-3	%		0	%		-15	%		-9	%		-9	%
Global Services		-3	%		0	%		-4	%		-2	%		-2	%		-2	%
Support Solutions		-6	%		5	%		22	%		-8	%		-13	%		-11	%

Total *		-7	%		-1	%		-1	%		-9	%		-6	%		-6	%


	2016						2015
Year to date, year over year change, percent	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		-7	%		-3	%		-8	%		-11	%		-9	%		-9	%
Global Services		-2	%		0	%		-2	%		-2	%		-2	%		-2	%
Support Solutions		0	%		5	%		0	%		-10	%		-12	%		-11	%

Total *		-4	%		-1	%		-5	%		-7	%		-6	%		-6	%

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

23 Ericsson | Second Quarter Report 2016

OPERATING INCOME

BY SEGMENT BY QUARTER


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Networks		1,593		2,724		7,154		2,764		2,435		590
Global Services		1,484		644		2,530		2,364		1,640		1,681
Of which Professional Services		1,676		1,293		2,712		2,386		2,403		2,109
Of which Network Rollout		-192		-649		-182		-22		-763		-428
Support Solutions		-421		238		1,668		-6		-240		82
Modems		—		—		1		-1		7		0
Unallocated ¹⁾		107		-131		-318		-44		-282		-220

Total		2,763		3,475		11,035		5,077		3,560		2,133


	2016				2015
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Networks		4,317		2,724		12,943		5,789		3,025		590
Global Services		2,128		644		8,215		5,685		3,321		1,681
Of which Professional Services		2,969		1,293		9,610		6,898		4,512		2,109
Of which Network Rollout		-841		-649		-1,395		-1,213		-1,191		-428
Support Solutions		-183		238		1,504		-164		-158		82
Modems		—		—		7		6		7		0
Unallocated ¹⁾		-24		-131		-864		-546		-502		-220

Total		6,238		3,475		21,805		10,770		5,693		2,133

¹⁾	“Unallocated” consists mainly of costs for corporate staff, non-operational capital gains and losses.

OPERATING MARGIN

BY SEGMENT BY QUARTER


As percentage of net sales, isolated quarters	2016						2015
As percentage of net sales, isolated quarters	Q2			Q1			Q4			Q3			Q2			Q1

Networks		6	%		11	%		19	%		10	%		8	%		2	%
Global Services		6	%		3	%		8	%		9	%		6	%		7	%
Of which Professional Services		9	%		7	%		12	%		12	%		12	%		12	%
Of which Network Rollout		-3	%		-13	%		-2	%		0	%		-12	%		-7	%
Support Solutions		-15	%		7	%		30	%		0	%		-8	%		3	%
Modems		—			—			—			—			—			—

Total		5	%		7	%		15	%		9	%		6	%		4	%


	2016						2015
As percentage of net sales, year to date	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Networks		8	%		11	%		10	%		7	%		5	%		2	%
Global Services		4	%		3	%		8	%		7	%		7	%		7	%
Of which Professional Services		8	%		7	%		12	%		12	%		12	%		12	%
Of which Network Rollout		-8	%		-13	%		-5	%		-6	%		-10	%		-7	%
Support Solutions		-3	%		7	%		10	%		-2	%		-3	%		3	%
Modems		—			—			—			—			—			—

Total		6	%		7	%		9	%		6	%		5	%		4	%

24 Ericsson | Second Quarter Report 2016

NET SALES

BY REGION BY QUARTER


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

North America		13,426			13,182			17,082			14,355			14,578			12,246
Latin America		4,542			4,040			6,106			5,610			5,067			4,574
Northern Europe & Central Asia ^1) 2)		2,093			2,222			2,847			2,520			2,556			2,726
Western & Central Europe ²⁾		4,466			3,953			5,320			4,540			5,131			4,741
Mediterranean ²⁾		5,427			4,296			6,971			5,470			5,887			4,982
Middle East		4,921			3,567			6,089			5,728			6,515			4,517
Sub Saharan Africa		2,313			2,120			2,847			2,691			2,653			2,158
India		2,426			2,683			3,172			3,629			3,049			3,531
North East Asia		6,041			5,579			8,916			6,348			6,943			6,030
South East Asia & Oceania		5,272			5,199			5,329			4,750			4,897			4,259
Other ^{1) 2)}		3,181			5,368			8,889			3,520			3,395			3,756

Total		54,108			52,209			73,568			59,161			60,671			53,520

¹⁾ Of which in Sweden		477			1,113			972			1,135			598			1,091
²⁾ Of which in EU		9,635			9,229			12,644			10,584			11,453			10,904

	2016						2015
Sequential change, percent	Q2			Q1			Q4			Q3			Q2			Q1

North America		2	%		-23	%		19	%		-2	%		19	%		-6	%
Latin America		12	%		-34	%		9	%		11	%		11	%		-30	%
Northern Europe & Central Asia ^1) 2)		-6	%		-22	%		13	%		-1	%		-6	%		-33	%
Western & Central Europe ²⁾		13	%		-26	%		17	%		-12	%		8	%		-22	%
Mediterranean ²⁾		26	%		-38	%		27	%		-7	%		18	%		-34	%
Middle East		38	%		-41	%		6	%		-12	%		44	%		-34	%
Sub Saharan Africa		9	%		-26	%		6	%		1	%		23	%		-17	%
India		-10	%		-15	%		-13	%		19	%		-14	%		49	%
North East Asia		8	%		-37	%		40	%		-9	%		15	%		-35	%
South East Asia & Oceania		1	%		-2	%		12	%		-3	%		15	%		-14	%
Other ^{1) 2)}		-41	%		-40	%		153	%		4	%		-10	%		-19	%

Total		4	%		-29	%		24	%		-2	%		13	%		-21	%

¹⁾ Of which in Sweden		-57	%		15	%		-14	%		90	%		-45	%		4	%
²⁾ Of which in EU		4	%		-27	%		19	%		-8	%		5	%		-24	%

	2016						2015
Year-over-year change, percent	Q2			Q1			Q4			Q3			Q2			Q1

North America		-8	%		8	%		31	%		2	%		-4	%		0	%
Latin America		-10	%		-12	%		-7	%		-5	%		-6	%		-3	%
Northern Europe & Central Asia ^1) 2)		-18	%		-18	%		-30	%		-20	%		-6	%		12	%
Western & Central Europe ²⁾		-13	%		-17	%		-13	%		-2	%		12	%		8	%
Mediterranean ²⁾		-8	%		-14	%		-7	%		5	%		7	%		4	%
Middle East		-24	%		-21	%		-11	%		-5	%		44	%		17	%
Sub Saharan Africa		-13	%		-2	%		9	%		10	%		41	%		19	%
India		-20	%		-24	%		34	%		81	%		85	%		108	%
North East Asia		-13	%		-7	%		-3	%		-10	%		8	%		23	%
South East Asia & Oceania		8	%		22	%		8	%		25	%		34	%		24	%
Other ^{1) 2)}		-6	%		43	%		91	%		4	%		1	%		15	%

Total		-11	%		-2	%		8	%		3	%		11	%		13	%

¹⁾ Of which in Sweden		-20	%		2	%		-7	%		4	%		-41	%		9	%
²⁾ Of which in EU		-16	%		-15	%		-12	%		-1	%		11	%		12	%

25 Ericsson | Second Quarter Report 2016

NET SALES

BY REGION BY QUARTER, CONT.


	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

North America		26,608			13,182			58,261			41,179			26,824			12,246
Latin America		8,582			4,040			21,357			15,251			9,641			4,574
Northern Europe & Central Asia ^1) 2)		4,315			2,222			10,649			7,802			5,282			2,726
Western & Central Europe ²⁾		8,419			3,953			19,732			14,412			9,872			4,741
Mediterranean ²⁾		9,723			4,296			23,310			16,339			10,869			4,982
Middle East		8,488			3,567			22,849			16,760			11,032			4,517
Sub Saharan Africa		4,433			2,120			10,349			7,502			4,811			2,158
India		5,109			2,683			13,381			10,209			6,580			3,531
North East Asia		11,620			5,579			28,237			19,321			12,973			6,030
South East Asia & Oceania		10,471			5,199			19,235			13,906			9,156			4,259
Other ^{1) 2)}		8,549			5,368			19,560			10,671			7,151			3,756

Total		106,317			52,209			246,920			173,352			114,191			53,520

¹⁾ Of which in Sweden		1,590			1,113			3,796			2,824			1,689			1,091
²⁾ Of which in EU		18,864			9,229			45,585			32,941			22,357			10,904

Year to date, year-over-year change, percent	2016						2015
Year to date, year-over-year change, percent	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

North America		-1	%		8	%		7	%		-1	%		-2	%		0	%
Latin America		-11	%		-12	%		-5	%		-5	%		-5	%		-3	%
Northern Europe & Central Asia ^1) 2)		-18	%		-18	%		-14	%		-6	%		3	%		12	%
Western & Central Europe ²⁾		-15	%		-17	%		0	%		6	%		10	%		8	%
Mediterranean ²⁾		-11	%		-14	%		1	%		5	%		6	%		4	%
Middle East		-23	%		-21	%		7	%		16	%		32	%		17	%
Sub Saharan Africa		-8	%		-2	%		18	%		22	%		30	%		19	%
India		-22	%		-24	%		74	%		91	%		97	%		108	%
North East Asia		-10	%		-7	%		2	%		5	%		15	%		23	%
South East Asia & Oceania		14	%		22	%		21	%		28	%		29	%		24	%
Other ^{1) 2)}		20	%		43	%		33	%		7	%		8	%		15	%

Total		-7	%		-2	%		8	%		8	%		12	%		13	%

¹⁾ Of which in Sweden		-6	%		2	%		-8	%		-9	%		-16	%		9	%
²⁾ Of which in EU		-16	%		-15	%		1	%		7	%		12	%		12	%

TOP 5 COUNTRIES IN SALES


Country	Q2						Jan-Jun
As percentage of net sales	2016			2015			2016			2015

United States		26	%		24	%		26	%		24	%
China		8	%		9	%		9	%		8	%
India		5	%		5	%		5	%		6	%
United Kingdom		3	%		3	%		3	%		3	%
Italy		3	%		3	%		3	%		3	%

26 Ericsson | Second Quarter Report 2016

NET SALES

BY REGION BY SEGMENT


	Q2 2016												Jan-Jun 2016
SEK million	Networks			Global Services			Support Solutions			Total			Networks			Global Services			Support Solutions			Total

North America		6,606			6,080			740			13,426			12,947			12,158			1,503			26,608
Latin America		2,096			2,257			189			4,542			4,119			4,072			391			8,582
Northern Europe & Central Asia		970			1,071			52			2,093			2,312			1,878			125			4,315
Western & Central Europe		1,711			2,633			122			4,466			3,006			5,155			258			8,419
Mediterranean		2,114			3,114			199			5,427			3,573			5,804			346			9,723
Middle East		1,871			2,777			273			4,921			3,278			4,673			537			8,488
Sub Saharan Africa		989			1,217			107			2,313			1,858			2,304			271			4,433
India		991			1,259			176			2,426			2,270			2,487			352			5,109
North East Asia		4,203			1,756			82			6,041			7,747			3,673			200			11,620
South East Asia & Oceania		3,189			2,010			73			5,272			6,374			3,938			159			10,471
Other		2,025			307			849			3,181			5,101			1,357			2,091			8,549

Total		26,765			24,481			2,862			54,108			52,585			47,499			6,233			106,317

Share of Total		50	%		45	%		5	%		100	%		49	%		45	%		6	%		100	%


	Q2 2016
Sequential change, percent	Networks			Global Services			Support Solutions			Total

North America		4	%		0	%		-3	%		2	%
Latin America		4	%		24	%		-6	%		12	%
Northern Europe & Central Asia		-28	%		33	%		-29	%		-6	%
Western & Central Europe		32	%		4	%		-10	%		13	%
Mediterranean		45	%		16	%		35	%		26	%
Middle East		33	%		46	%		3	%		38	%
Sub Saharan Africa		14	%		12	%		-35	%		9	%
India		-23	%		3	%		0	%		-10	%
North East Asia		19	%		-8	%		-31	%		8	%
South East Asia & Oceania		0	%		4	%		-15	%		1	%
Other		-34	%		-71	%		-32	%		-41	%

Total		4	%		6	%		-15	%		4	%


	Q2 2016
Year over year change, percent	Networks			Global Services			Support Solutions			Total

North America		-1	%		-14	%		-13	%		-8	%
Latin America		-7	%		-14	%		4	%		-10	%
Northern Europe & Central Asia		-37	%		13	%		-22	%		-18	%
Western & Central Europe		-10	%		-15	%		-16	%		-13	%
Mediterranean		-12	%		-5	%		4	%		-8	%
Middle East		-54	%		29	%		-15	%		-24	%
Sub Saharan Africa		-20	%		-3	%		-31	%		-13	%
India		-46	%		18	%		11	%		-20	%
North East Asia		-12	%		-10	%		-58	%		-13	%
South East Asia & Oceania		27	%		-12	%		-28	%		8	%
Other		3	%		-55	%		17	%		-6	%

Total		-14	%		-7	%		-7	%		-11	%


	Jan-Jun 2016
Year over year change, percent	Networks			Global Services			Support Solutions			Total

North America		10	%		-9	%		-8	%		-1	%
Latin America		-6	%		-16	%		-2	%		-11	%
Northern Europe & Central Asia		-31	%		5	%		-11	%		-18	%
Western & Central Europe		-15	%		-14	%		-18	%		-15	%
Mediterranean		-17	%		-7	%		2	%		-11	%
Middle East		-49	%		14	%		6	%		-23	%
Sub Saharan Africa		-7	%		-5	%		-31	%		-8	%
India		-42	%		15	%		-27	%		-22	%
North East Asia		-12	%		-7	%		-21	%		-10	%
South East Asia & Oceania		29	%		-3	%		-12	%		14	%
Other		24	%		-3	%		38	%		20	%

Total		-9	%		-6	%		1	%		-7	%

27 Ericsson | Second Quarter Report 2016

PROVISIONS


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Opening balance		3,532		3,838		4,331		5,354		4,056		4,427
Additions		839		492		589		695		2,777		915
Utilization/Cash out		-794		-667		-1,096		-1,545		-1,217		-1,204
Of which restructuring		-639		-487		-754		-1,103		-472		-437
Reversal of excess amounts		-240		-67		87		-168		-161		-236
Reclassification, translation difference and other		50		-64		-73		-5		-101		154

Closing balance		3,387		3,532		3,838		4,331		5,354		4,056


	2016				2015
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Opening balance		3,838		3,838		4,427		4,427		4,427		4,427
Additions		1,331		492		4,976		4,387		3,692		915
Utilization/Cash out		-1,461		-667		-5,062		-3,966		-2,421		-1,204
Of which restructuring		-1,126		-487		-2,766		-2,012		-909		-437
Reversal of excess amounts		-307		-67		-478		-565		-397		-236
Reclassification, translation difference and other		-14		-64		-25		48		53		154

Closing balance		3,387		3,532		3,838		4,331		5,354		4,056

INFORMATION ON INVESTMENTS

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


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Additions
Property, plant and equipment		1,572		1,474		1,739		1,807		2,424		2,367
Capitalized development expenses ¹⁾		1,099		1,208		1,183		982		843		294
IPR, brands and other intangible assets		13		5		23		10		26		11

Total		2,684		2,687		2,945		2,799		3,293		2,672

Depreciation, amortization and impairment losses
Property, plant and equipment		1,083		1,062		1,194		1,129		1,152		1,214
Capitalized development expenses		386		351		349		354		333		342
IPR, brands and other intangible assets, etc.		635		684		978		942		1,094		1,125

Total		2,104		2,097		2,521		2,425		2,579		2,681

¹⁾	Including reclassification

28 Ericsson | Second Quarter Report 2016

OTHER INFORMATION


	Apr-Jun						Jan-Jun						Jan-Dec
SEK million	2016			2015			2016			2015			2015

Number of shares and earnings per share
Number of shares, end of period (million)		3,331			3,305			3,331			3,305			3,305
Of which class A-shares (million)		262			262			262			262			262
Of which class B-shares (million)		3,069			3,043			3,069			3,043			3,043
Number of treasury shares, end of period (million)		69			57			69			57			49
Number of shares outstanding, basic, end of period (million)		3,262			3,248			3,262			3,248			3,256
Numbers of shares outstanding, diluted, end of period (million)		3,298			3,281			3,298			3,281			3,289
Average number of treasury shares (million)		55			58			55			59			56
Average number of shares outstanding, basic (million)		3,261			3,247			3,259			3,246			3,249
Average number of shares outstanding, diluted (million) ¹⁾		3,297			3,280			3,296			3,278			3,282
Earnings per share, basic (SEK)		0.49			0.64			1.09			1.05			4.17
Earnings per share, diluted (SEK) ¹⁾		0.48			0.64			1.08			1.04			4.13
Earnings per share (Non-IFRS), diluted (SEK) ²⁾ *		0.83			1.45			1.70			2.22			6.06

Ratios
Days sales outstanding		—			—			115			112			87
Inventory turnover days		83			74			81			74			64
Payable days		56			52			59			57			53
Equity ratio (%) *		—			—			49.3	%		49.0	%		51.8	%
Return on equity (%) *		4.5	%		5.9	%		5.0	%		4.9	%		9.3	%
Return on capital employed (%) *		6.0	%		6.9	%		6.5	%		6.5	%		11.6	%
Capital turnover (times) *		1.1			1.3			1.1			1.2			1.3
Cash conversion (%) *		-54.0	%		90.2	%		-62.3	%		-43.1	%		84.8	%

Exchange rates used in the consolidation ³⁾
SEK/EUR- closing rate		—			—			9.42			9.22			9.17
SEK/USD- closing rate		—			—			8.45			8.24			8.40

Other
Regional inventory, end of period		18,749			18,778			18,749			18,778			15,453
Export sales from Sweden		27,797			29,813			51,051			55,964			117,486

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

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

³⁾	Translation method changed from 2015. Monthly rates used to translate transactions are available on www.ericsson.com/thecompany/investors

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

NUMBER OF EMPLOYEES


	2016				2015
End of period	Jun 30		Mar 31		Dec 31		Sep 30		Jun 30		Mar 31

North America		13,838		14,081		14,548		14,669		14,975		15,156
Latin America		9,616		9,836		10,412		10,754		10,823		10,970
Northern Europe & Central Asia ¹⁾		20,177		20,167		20,700		20,953		21,441		21,556
Western & Central Europe		13,727		12,100		12,220		12,042		12,400		12,575
Mediterranean		12,957		12,906		12,702		12,748		12,925		13,363
Middle East		3,573		3,608		3,639		3,634		3,717		3,813
Sub Saharan Africa		2,347		2,377		2,301		2,306		2,389		2,442
India		22,541		22,424		21,999		21,343		21,353		21,215
North East Asia		13,547		13,623		13,706		13,782		13,104		13,488
South East Asia & Oceania		4,184		4,178		4,054		4,009		4,056		4,128

Total		116,507		115,300		116,281		116,240		117,183		118,706

¹⁾ Of which in Sweden		16,190		16,290		17,041		17,242		17,560		17,569

29 Ericsson | Second Quarter Report 2016

RESTRUCTURING CHARGES BY FUNCTION


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Cost of sales		-461		-328		-282		-351		-1,157		-484
Research and development expenses		-422		-257		-305		-547		-1,118		-51
Selling and administrative expenses		-138		-47		-117		-80		-469		-79

Total		-1,021		-632		-704		-978		-2,744		-614


	2016				2015
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Cost of sales		-789		-328		-2,274		-1,992		-1,641		-484
Research and development expenses		-679		-257		-2,021		-1,716		-1,169		-51
Selling and administrative expenses		-185		-47		-745		-628		-548		-79

Total		-1,653		-632		-5,040		-4,336		-3,358		-614

RESTRUCTURING CHARGES BY SEGMENT


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Networks		-607		-295		-259		-565		-1,842		-173
Global Services		-346		-315		-213		-358		-691		-419
Of which Professional Services		-273		-237		-60		-316		-175		-140
Of which Network Rollout		-73		-78		-153		-42		-516		-279
Support Solutions		-68		-22		-230		-37		-194		-19
Modems		—		—		1		-1		-12		-3
Unallocated		—		—		-3		-17		-5		—

Total		-1,021		-632		-704		-978		-2,744		-614


	2016				2015
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Networks		-902		-295		-2,839		-2,580		-2,015		-173
Global Services		-661		-315		-1,681		-1,468		-1,110		-419
Of which Professional Services		-510		-237		-691		-631		-315		-140
Of which Network Rollout		-151		-78		-990		-837		-795		-279
Support Solutions		-90		-22		-480		-250		-213		-19
Modems		—		—		-15		-16		-15		-3
Unallocated		—		—		-25		-22		-5		—

Total		-1,653		-632		-5,040		-4,336		-3,358		-614

30 Ericsson | Second Quarter Report 2016

RECONCILIATION TABLES, NON-IFRS

MEASURES

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

Non-IFRS financial measures are presented to enhance an investor’s evaluation of ongoing operating results, to aid in forecasting

future periods and to facilitate meaningful comparison of results between periods. Management uses these non-IFRS financial measures to, among other things, evaluate ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of certain performance-based compensation.

The non-IFRS financial measures presented in this report may differ from similarly-titled measures used by other companies.

SALES GROWTH ADJUSTED FOR COMPARABLE UNITS AND CURRENCY

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


	2016						2015
Isolated quarter, sequential change	Q2			Q1			Q4			Q3			Q2			Q1

Reported net sales		54,108			52,209			73,568			59,161			60,671			53,520
Acquired/divested business		-35			0			0			0			0			-422
Net FX impact		1,221			766			1,153			335			-608			-3,812
Comparable net sales, excluding FX impact		55,294			52,975			74,721			59,496			60,063			49,286
Sales growth adjusted for comparable units and currency (%)		6	%		-28	%		26	%		-2	%		12	%		-28	%

	2016						2015
Isolated quarter, year over year change	Q2			Q1			Q4			Q3			Q2			Q1

Reported net sales		54,108			52,209			73,568			59,161			60,671			53,520
Acquired/divested business		-95			-73			0			0			0			-422
Net FX impact		2,329			655			-6,005			-6,683			-9,143			-8,475
Comparable net sales, excluding FX impact		56,342			52,791			67,563			52,478			51,528			44,623
Sales growth adjusted for comparable units and currency (%)		-7	%		-1	%		-1	%		-9	%		-6	%		-6	%

	2016						2015
Year to date, year over year change	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Reported net sales		106,317			52,209			246,920			173,352			114,191			53,520
Acquired/divested business		-168			-73			-422			-422			-422			-422
Net FX impact		2,983			655			-30,307			-24,301			-17,618			-8,475
Comparable net sales, excluding FX impact		109,132			52,791			216,191			148,629			96,151			44,623
Sales growth adjusted for comparable units and currency (%)		-4	%		-1	%		-5	%		-7	%		-6	%		-6	%

31 Ericsson | Second Quarter Report 2016

ITEMS EXCLUDING RESTRUCTURING CHARGES

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


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Gross income		17,495			17,390			26,669			20,051			20,135			18,964
Net Sales		54,108			52,209			73,568			59,161			60,671			53,520
Gross margin (%)		32.3	%		33.3	%		36.3	%		33.9	%		33.2	%		35.4	%
Gross income		17,495			17,390			26,669			20,051			20,135			18,964
Restructuring charges included in cost of sales		461			328			282			351			1,157			484
Gross income, excluding restructuring charges		17,956			17,718			26,951			20,402			21,292			19,448
Net Sales		54,108			52,209			73,568			59,161			60,671			53,520
Gross margin, excluding restructuring charges (%)		33.2	%		33.9	%		36.6	%		34.5	%		35.1	%		36.3	%
Operating expenses		-14,514			-14,205			-15,917			-14,933			-17,661			-15,618
Restructuring charges included in R&D expenses		422			257			305			547			1,118			51
Restructuring charges included in selling and administrative expenses		138			47			117			80			469			79
Operating expenses, excluding restructuring charges		-13,954			-13,901			-15,495			-14,306			-16,074			-15,488
Operating income		2,763			3,475			11,035			5,077			3,560			2,133
Net Sales		54,108			52,209			73,568			59,161			60,671			53,520
Operating margin (%)		5.1	%		6.7	%		15.0	%		8.6	%		5.9	%		4.0	%
Operating income		2,763			3,475			11,035			5,077			3,560			2,133
Total restructuring charges		1,021			632			704			978			2,744			614
Operating income, excluding restructuring charges		3,784			4,107			11,739			6,055			6,304			2,747
Net Sales		54,108			52,209			73,568			59,161			60,671			53,520
Operating margin, excluding restructuring charges (%)		7.0	%		7.9	%		16.0	%		10.2	%		10.4	%		5.1	%

	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Gross income		34,885			17,390			85,819			59,150			39,099			18,964
Net Sales		106,317			52,209			246,920			173,352			114,191			53,520
Gross margin (%)		32.8	%		33.3	%		34.8	%		34.1	%		34.2	%		35.4	%
Gross income		34,885			17,390			85,819			59,150			39,099			18,964
Restructuring charges included in cost of sales		789			328			2,274			1,992			1,641			484
Gross income, excluding restructuring charges		35,674			17,718			88,093			61,142			40,740			19,448
Net Sales		106,317			52,209			246,920			173,352			114,191			53,520
Gross margin, excluding restructuring charges (%)		33.6	%		33.9	%		35.7	%		35.3	%		35.7	%		36.3	%
Operating expenses		-28,719			-14,205			-64,129			-48,212			-33,279			-15,618
Restructuring charges included in R&D expenses		679			257			2,021			1,716			1,169			51
Restructuring charges included in selling and administrative expenses		185			47			745			628			548			79
Operating expenses, excluding restructuring charges		-27,855			-13,901			-61,363			-45,868			-31,562			-15,488
Operating income		6,238			3,475			21,805			10,770			5,693			2,133
Net Sales		106,317			52,209			246,920			173,352			114,191			53,520
Operating margin (%)		5.9	%		6.7	%		8.8	%		6.2	%		5.0	%		4.0	%
Operating income		6,238			3,475			21,805			10,770			5,693			2,133
Total restructuring charges		1,653			632			5,040			4,336			3,358			614
Operating income, excluding restructuring charges		7,891			4,107			26,845			15,106			9,051			2,747
Net Sales		106,317			52,209			246,920			173,352			114,191			53,520
Operating margin, excluding restructuring charges (%)		7.4	%		7.9	%		10.9	%		8.7	%		7.9	%		5.1	%

32 Ericsson | Second Quarter Report 2016

EBITA AND EBITA MARGIN

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


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net Income		1,566			2,106			6,978			3,118			2,123			1,454
Taxes		670			903			3,329			1,338			909			623
Financial income and expenses		527			466			728			621			528			56
Amortization and write-downs of acquired intangibles		635			684			979			941			1,094			1,125
EBITA		3,398			4,159			12,014			6,018			4,654			3,258
Net Sales		54,108			52,209			73,568			59,161			60,671			53,520
EBITA margin (%)		6	%		8	%		16	%		10	%		8	%		6	%

	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Net Income		3,672			2,106			13,673			6,695			3,577			1,454
Taxes		1,573			903			6,199			2,870			1,532			623
Financial income and expenses		993			466			1,933			1,205			584			56
Amortization and write-downs of acquired intangibles		1,319			684			4,139			3,160			2,219			1,125
EBITA		7,557			4,159			25,944			13,930			7,912			3,258
Net Sales		106,317			52,209			246,920			173,352			114,191			53,520
EBITA margin (%)		7	%		8	%		11	%		8	%		7	%		6	%

CASH CONVERSION (%)

Cash flow from operating activities divided by the sum of net income and adjustments to reconcile net income to cash, expressed as percent.


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net income		1,566			2,106			6,978			3,118			2,123			1,454
Net income reconciled to cash		1,321			3,631			10,953			6,782			3,413			3,136
Cash flow from operating activities		-713			-2,372			21,859			1,560			3,078			-5,900
Cash conversion (%)		-54.0	%		-65.3	%		199.6	%		23.0	%		90.2	%		-188.1	%

	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Net income		3,672			2,106			13,673			6,695			3,577			1,454
Net income reconciled to cash		4,952			3,631			24,284			13,331			6,549			3,136
Cash flow from operating activities		-3,085			-2,372			20,597			-1,262			-2,822			-5,900
Cash conversion (%)		-62.3	%		-65.3	%		84.8	%		-9.5	%		-43.1	%		-188.1	%

NET CASH, END OF PERIOD

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


	2016				2015
SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Cash and cash equivalents		28,931		35,934		40,224		33,950		32,962		35,311
+ Short term investments		19,846		25,077		26,046		17,597		20,807		30,776
- Borrowings, non-current		18,164		22,110		22,744		22,900		22,551		23,496
- Borrowings, current		9,653		2,414		2,376		2,885		3,199		2,847
Net cash, end of period		20,960		36,487		41,150		25,762		28,019		39,744

33 Ericsson | Second Quarter Report 2016

CAPITAL EMPLOYED

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


	2016				2015
SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Total assets		277,387		280,325		284,363		278,378		278,916		302,967
Non-interest-bearing provisions and liabilities
Provisions, non-current		245		158		176		35		139		198
Deferred tax liabilities		2,036		2,098		2,472		2,208		3,010		3,156
Other non-current liabilities		2,030		1,834		1,851		1,802		1,939		1,815
Provisions, current		3,142		3,374		3,662		4,296		5,215		3,858
Trade payables		23,709		21,549		22,389		21,734		22,147		24,266
Other current liabilities		54,394		55,429		58,663		58,523		59,461		70,117
Capital employed		191,831		195,883		195,150		189,780		187,005		199,557

CAPITAL TURNOVER (TIMES)

Annualized net sales divided by average capital employed.


	2016				2015
Isolated quarters, SEK million	Q2		Q1		Q4		Q3		Q2		Q1

Net sales		54,108		52,209		73,568		59,161		60,671		53,520
Annualized net sales		216,432		208,836		294,272		236,644		242,684		214,080
Average capital employed
Capital employed at beginning of period		195,883		195,150		189,780		187,005		199,557		189,839
Capital employed at end of period		191,831		195,883		195,150		189,780		187,005		199,557
Average capital employed		193,857		195,517		192,465		188,393		193,281		194,698
Capital turnover (times)		1.1		1.1		1.5		1.3		1.3		1.1

	2016				2015
Year to date, SEK million	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

Net sales		106,317		52,209		246,920		173,352		114,191		53,520
Annualized net sales		212,634		208,836		246,920		231,136		228,382		214,080
Average capital employed
Capital employed at beginning of period		195,150		195,150		189,839		189,839		189,839		189,839
Capital employed at end of period		191,831		195,883		195,150		189,780		187,005		199,557
Average capital employed		193,491		195,517		192,495		189,810		188,422		194,698
Capital turnover (times)		1.1		1.1		1.3		1.2		1.2		1.1

34 Ericsson | Second Quarter Report 2016

RETURN ON CAPITAL EMPLOYED (%)

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


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Operating income		2,763			3,475			11,035			5,077			3,560			2,133
Financial income		139			-89			-109			188			-238			684
Annualized Operating income + Financial income		11,608			13,540			43,708			21,060			13,288			11,268
Average capital employed
Capital employed at beginning of period		195,883			195,150			189,780			187,005			199,557			189,839
Capital employed at end of period		191,831			195,883			195,150			189,780			187,005			199,557
Average capital employed		193,857			195,517			192,465			188,393			193,281			194,698
Return on capital employed (%)		6.0	%		6.9	%		22.7	%		11.2	%		6.9	%		5.8	%

	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Operating income		6,238			3,475			21,805			10,770			5,693			2,133
Financial income		50			-89			526			634			446			684
Annualized Operating income + Financial income		12,576			13,540			22,331			15,205			12,278			11,268
Average capital employed
Capital employed at beginning of period		195,150			195,150			189,839			189,839			189,839			189,839
Capital employed at end of period		191,831			195,883			195,150			189,780			187,005			199,557
Average capital employed		193,491			195,517			192,495			189,810			188,422			194,698
Return on capital employed (%)		6.5	%		6.9	%		11.6	%		8.0	%		6.5	%		5.8	%

EQUITY RATIO (%)

Equity, expressed as a percentage of total assets.


	2016						2015
SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Total equity		136,691			145,644			147,366			137,984			136,725			149,051
Total assets		277,387			280,325			284,363			278,378			278,916			302,967
Equity ratio (%)		49.3	%		52.0	%		51.8	%		49.6	%		49.0	%		49.2	%

RETURN ON EQUITY (%)

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


	2016						2015
Isolated quarters, SEK million	Q2			Q1			Q4			Q3			Q2			Q1

Net income attributable to stockholders of the parent company		1,587			1,966			7,056			3,080			2,094			1,319
Annualized		6,348			7,864			28,224			12,320			8,376			5,276
Average Stockholders’ equity
Stockholders’ equity, beginning of period		144,699			146,525			137,086			135,565			147,855			144,306
Stockholders’ equity, end of period		135,746			144,699			146,525			137,086			135,565			147,855
Average Stockholders’ equity		140,223			145,612			141,806			136,326			141,710			146,081
Return on Equity (%)		4.5	%		5.4	%		19.9	%		9.0	%		5.9	%		3.6	%

	2016						2015
Year to date, SEK million	Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar

Net income attributable to stockholders of the parent company		3,553			1,966			13,549			6,493			3,413			1,319
Annualized		7,106			7,864			13,549			8,657			6,826			5,276
Average Stockholders’ equity
Stockholders’ equity, beginning of period		146,525			146,525			144,306			144,306			144,306			144,306
Stockholders’ equity, end of period		135,746			144,699			146,525			137,086			135,565			147,855
Average Stockholders’ equity		141,136			145,612			145,416			140,696			139,936			146,081
Return on Equity (%)		5.0	%		5.4	%		9.3	%		6.2	%		4.9	%		3.6	%

35 Ericsson | Second Quarter Report 2016

EPS (NON-IFRS), SEK

EPS, diluted, excluding amortizations and write-down of acquired intangible assets and excluding restructuring charges.


	2016				2015
Isolated quarters	Q2		Q1		Q4		Q3		Q2		Q1

EPS diluted, SEK		0.48		0.60		2.15		0.94		0.64		0.40
Restructuring charges		0.22		0.13		0.15		0.21		0.58		0.13
Amortization and write-downs of acquired intangibles		0.13		0.14		0.20		0.20		0.23		0.23
EPS (Non-IFRS) diluted, SEK		0.83		0.87		2.50		1.35		1.45		0.76

	2016				2015
Year to date	Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar

EPS diluted, SEK		1.08		0.60		4.13		1.98		1.04		0.40
Restructuring charges		0.35		0.13		1.07		0.92		0.71		0.13
Amortization and write-downs of acquired intangibles		0.27		0.14		0.86		0.66		0.46		0.23
EPS (Non-IFRS) diluted, SEK		1.70		0.87		6.06		3.56		2.21		0.76

36 Ericsson | Second Quarter Report 2016

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