welcome to the networked society Ericsson Annual Report 2014 contents The business Results Ericsson in brief ................................................................................ 1 Board of Directors’ report* ......................................................... 42 2014 in review .................................................................................. 2 Consolidated financial statements* ......................................... 55 Letter from the CEO ....................................................................... 4 Notes to the consolidated financial statements* ................ 63 This is Ericsson ................................................................................. 8 Parent Company financial statements* ............................... 102 The strategic direction .................................................................. 12 Notes to the Parent Company financial statements* ....... 108 Core business ................................................................................. 14 Risk factors* .................................................................................. 121 Targeted areas ................................................................................ 20 Auditors’ report ............................................................................ 129 Resource allocation ...................................................................... 26 Forward-looking statements ................................................... 130 The IPR portfolio ............................................................................. 27 Business structure ......................................................................... 28 Corporate Governance The people ........................................................................................36 Corporate Governance report 2014 ..................................... 132 Sustainability and Corporate Responsibility ..........................38 Remuneration report .................................................................. 160 Letter from the Chairman ............................................................ 41 Shareholders Ericsson and the capital market ............................................. 164 Share information ........................................................................ 168 Section “The business” aims to provide insight into Ericsson’s transformation journey and its Other information strategic direction (p.1–13), building on the core Ten-year summary ...................................................................... 172 business (p. 14–19) and aiming to transform Glossary ......................................................................................... 174 targeted areas into core business (p.20–26). Financial terminology and Exchange rates ......................... 175 IPR portfolio and business structure (p.27–29) Shareholder information ........................................................... 176 lead over to the current offering and the * Chapters covered by the Auditors’ report. regional perspective (p.30–35). People and Sustainability & CR (p.36–39) end the section. MORE INFORMATION The Annual Report describes Ericsson’s financial and Ericsson issues a separate Sustainability and Corporate operational per formance during 2014. A Corporate Responsibility Report. www.ericsson.com/thecompany/ Governance Report is attached to the Annual Report. sustainability _corporateresponsibility Find this Annual Report online: There is further information on sustainability and www.ericsson.com/annualreport2014 corporate respon sibility on pages 38–39 and pages 50–51. ericsson in brief Ericsson is a driving force behind the Networked Society – a world leader in communications technology and services. The Company’s long-term relationships with every major telecom operator in the world allow people, businesses and societies to fulfill their potential and create a more sustainable future. Ericsson’s services, soft- ware and infrastructure – especially in mobility, broadband and the cloud – are enabling the telecom industry and other sectors to do better business, increase efficiency, improve the user experience and capture new opportunities. With more than 115,000 professionals and customers in more than 180 countries, Ericsson combines global scale with tech nology and services leadership. Investments in research and development ensure that Ericsson’s solutions – and its customers – stay in the forefront. The Company provides support for networks with more than 2.5 billion subscribers. Approx imately 40% of the world’s mobile traffic is carried through networks delivered by Ericsson. Founded in 1876, Ericsson has its headquarters in Stockholm, Sweden. The Ericsson share is listed on Nasdaq Stockholm and NASDAQ New York. Net sales Operating income Operating margin Cash flow from operating activities SEK billion SEK billion Percent SEK billion 228.0 16.8 7.4 18.7 (2013: 227.4) (2013: 17.8) (2013: 7.8) (2013: 17.4) Net sales per segment 6% 51% Global presence 43% Ericsson is a global company supporting more than 500 operator customers and an increasing number of Networks non-operator customers. The Company has been present SEK 117.5 (117.7) billion in many countries, such as China, Brazil and India, for more Global Services than 100 years. The ten largest customers, half of which SEK 97.7 (97.4) billion are multinational, account for 47% of Ericsson’s net sales. Support Solutions SEK 12.7 (12.2) billion Modems – no material revenues THE BUSINESS – Ericsson in brief Ericsson | Annual Report 2014 1 THE BUSINESS – 2014 in review 2014 in review Examples of what Ericsson has achieved, and of business highlights from around the world during 2014. JANUARY – MARCH APRIL – JUNE Ericsson and Samsung reached cross- license agreement. The agreement includes global cross licensing of patents relating to GSM, UMTS and LTE standards for networks and hand- sets. (Jan. 27) Ericsson announced the acquisition of Azuki Systems. The acquisition helps Ericsson to deliver on the Networked Society’s demand for TV Any- where services – on any screen, any time, across any network. (Feb. 6) Ericsson announced the industry’s first coordinated network-wide software launch. A software-driven network evolution enables operators to respond to quickly changing network requirements. (Feb.12) Century Link, a large US operator, signed a contract with Ericsson for operations and busi- Ericsson completed the acquisition of Red ness support systems (OSS & BSS) software Bee Media, a media services company in the suite Service Agility. The solution enables quick UK. The acquisition, announced in 2013, strength- delivery of new applications to customers. (Feb. 24) ens Ericsson’s broadcast services business and expands the customer list. (May 12) Ericsson and Royal Philips jointly launched an innovative connected LED street lighting New Ericsson Campus in Silicon Valley to solution which integrates telecom equipment drive innovation. Ericsson will bring together into light poles. The Zero Site provides energy- approximately 2,000 R&D staff to accelerate the efficient public lighting and improved network development of IP, TV and media innovation. performance in dense urban areas. (Feb. 24) (May 28) Ericsson announced several operator trials Ericsson announced OSS and BSS software of the Radio Dot System. Radio Dot System is a suite Cloud Manager 2.0. It supports operators small-cell architecture for enterprise buildings and in the transformation to virtualized network infra- public venues. (Feb. 24) structure. (June 2) At the Mobile World Congress in Barcelona, Ericsson won a long-term managed services Ericsson showed innovations and its technol- agreement with T-Mobile for Service Agility, the ogy and service capabilities . Ericsson leads the pre-integrated OSS and BSS software suite. way with solutions that drive the development in The solution allows T-Mobile to create, launch, mobility, broadband and the cloud, creating the deliver and manage services efficiently while at the foundation for eco-systems and transformation same time reduce overall operational costs. (June 2) across industries. (Feb. 24) The legend indicates which part of the business strategy the Taiwanese operator Far EasTone selected Ericsson was awarded a five-year network event is related to: Ericsson as the major supplier for its LTE radio transformation contract by Vodafone. The con- Core business and core network. The contract also includes net- tract includes products and services and is a part Targeted areas work optimization and 4G Cell Broadcast System of Vodafone’s growth plan, called Spring. (Feb. 26) Group for disaster warning services. (June 5) Read more on page 12. 2 Ericsson | Annual Report 2014 JULY – SEPTEMBER OCTOBER – DECEMBER Ericsson completed the acquisition of the business of Ambient, a US-based smart grid communications provider. The Ambient platform enables multiple smart grid applications and tech- nologies on a single infrastructure. (Oct.1) Network functions virtualization (NFV) successfully demonstrated with Japanese operator NTT DOCOMO. NFV enhances network flexibility, speeds up service introduction and Through a seven-year con- Ericsson was awarded its Fifth Emmy® increases resilience. (Oct. 14) tract for managed services award for its JPEG2000 interoperability tech- with operators in Romania, nology. JPEG2000 is a compression standard for Ericsson strengthened its position in the Ericsson is responsible for broadcast