Telefonaktiebolaget LM Ericsson (publ) (ERIC) Q1 2011 Earnings Report, Transcript and Summary

Welcome to the Ericsson’s analyst and media conference call for the first quarter reports. To reinstate your names for this call please log on to www.ericsson.com/press or www.ericsson.com/investors. (Operator Instructions) As a reminder replay will be available one hour after today’s conference. Åse Lindskog will now open the call. Thank you. Åse Lindskog: Thank you, operator. Hello everyone and welcome to Ericsson’s call today. With me here today in the room I have Hans Vestberg, President and CEO of Ericsson; Jan Frykhammar who is our Chief Financial Officer; I have also Johan Wibergh who is heading of our Business Unit and Networks and in addition and also Magnus Mandersson who is heading up our Business Unit and Global Services. So first of all then ladies and gentlemen I have to remind you that during the call today, we will be making forward-looking statements. These statements they are based on our current expectations and certain planning assumptions, which are subject to risk and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call. So I encourage you to read about the risks and uncertainties in our earnings report as well as in our Annual Report full year 2010. So with that said and done I would like to hand over to Hans Vestberg for comments about our performance and plans going forward. So here Hans.

Thank you, Åse. And I will go briefly through the first quarter result and I will be doing that sharing with my colleagues in the room as well. First of all just a reminder that the result for the P&L is in 2011 including restructuring in 2010 it’s excluding restructuring and I will point out when it’s not. But just to have that here we will not make any specific comment on that but it’s so that 2011 is loaded with restructuring charges but 2010 is not when we compare. So we ended the first quarter with 53 billion Swedish krona in sales to summarize it in one simple line mobile broadband is driving a lot of that growth around the globe that’s in the short of it. The net income 4.1 billion compared to 1.3 last year and this is net, net both of them so they are these are apples-to-apples as these are including restructuring both of them. And that’s driven by increased volumes but also the improved profitability in the networks segment. Cash flow ended at minus 2.1 compared to 3 billion positive last year and this is adjusted cash flow, which means we extract the restructuring charges that were cashed out in operational cash flow. The reason for the negative cash flow is the higher level of work in progress in the regions, which is work in progress and the continued ramp up for production that’s increasing our working capital from the profit period we expect a good cash flow but we are tying up it’s the capital on the inventory side especially. Net sales up 17% year-over-year 25% organically and in constant currency. We have now five regions rolling out, out of 10. We will take the segments quickly we will come back to the networks up 35% very much driven by mobile broadband but also the GSM, EDGE in China, which is partly driven also by smartphones using EDGE I would say. Global services down 4% and here before Magnus will talk about it just a reminder this is of course a business that are very much impacted by currencies as well as trading services in local currencies. And they are growing if we subtract that currency change as we had for one year well year-over-year. Multimedia flat or minus 1% and here is the same of course with currency this would be a growth. We see revenue management coming back in volumes but not to the extent before but a definitely coming back IPX as well. That is quick on the net sales. Net income or profitability at 34.1 billion year-over-year dramatic improvement 220% quarter-over-quarter down 7% then we need to remember that volumes in Q4 was substantially it was higher. This is impacted by high volumes but also on the profitability improvements in the network segment especially. As we have talked now for two, three quarters about the network monetization they have started and they are partly impacted the first quarter. The other thing that is impacting of course when it comes to net income when we compare apples-to-apples including restructurings that we have net restructuring in first quarter 2011 compared to 2010. If you take the regions, quickly here you can say that we have five regions growing North America, Latin America, Northern Europe and Central Asia, we have China, North East Asia and India. And a couple of notes, North America has continued expansion on mobile broadband but also we have a very good service business there so that’s continuing to grow. Latin America is up 1% coming from lower investment level last year and of course with currency this would be higher but we will see that in the mobile broadband and rural expansions happening. Northern Europe and Central Asia here is Russia one of the markets that is really driving it and we see capacity expansions both on 2G and 3G in the region but it’s particularly in Russia. And now we are growing 45% in that region. India, we say easy comparison no choice there but last year we had an impact in the first half both from waiting for 3G investment but also from the security issues that were so we have to lower the volume than normal. This quarter we are coming back on more normal volumes but clearly we are not deploying 3G in India and we are rolling us out. Finally, China and North East Asia all main markets in that region are growing well South East Korea, Japan and in China. And mobile broadband combined with GSM in China are the main drivers. You can also see on the region updates that the Mediterranean and Middle East has an impact over the political unrest in North Africa and in the Middle East, which means that some markets there have been low in investment more on maintenance mode for obvious reasons. And then the three remaining markets Western Europe, Sub-Sahara, South East Asia they are on a lower volume as we have seen for quite a couple of quarters. But on the other hand we also see that there are currently new monetization in Europe and it is also happening in Africa. So it’s a mixed picture five regions growing and five regions not growing. I will hand over to Johan to talk about Japan and the global supply chain. Johan.

Thank you, Hans. So let me comment a little bit on the tragic event that happened in Japan with the earthquake and the tsunami. First of all it has had no impact on our sales in Q1 and our production volume in Q1 has been extremely high as you have seen from our results. And our global component supply chain is partly depends on Japan. We have no production in Japan but we source some important components from Japan. And so we anticipate them though estimate them so there will be delays in delivery of certain products. So that we cannot fully meet the strong demand that we see for our products and this is not the first time that we have had earthquakes of fires impact so it’s disturbing our supply chain. So therefore we have a well established procedure for how to act in this case. So within a few hours from the earthquake happening our crisis management team was active and we have since a few years back then and requested all our suppliers to tell us, which components that are produced in which factory. So we are putting a few hours we knew exactly all the potential components that may be affected on this event. And that enabled us during the Friday, Saturday and Sunday with these events and to go out in the stock market to bios [ph] manually that was needed and also placing orders the second source suppliers of these components. We also immediately started evaluating alternative components of key areas. The best estimate is that we have is such a majority of the delayed volumes will be delivered somewhere before the end of the third quarter and of course this also depends on the overall recovery in Japan, it can go quicker. It can also take longer time. But overall I’m really impressed with how quickly Japan is recovering, how hard they are working and the speed how things are getting back to normal. So that of course makes all of it a little bit harder to judge how long time those things will take. Moving on then to the next slide and looking how we work in these cases is that you see on the left side and that’s the normal production we have in the earthquake. We use them of course at local components we are having stocks so we can (Inaudible) produce. And so far it has been good production mounting in April. Then we go up in the stock market to complement and the missing components it’s put in alternative sources and what we have that in white in the middle of the potential GAAP that event tried to close as much as possible. You get the redesign on the products end and then you have the recovery of Japan. So overall then what happens normally in these types of cases is that the first day things look really bad you plan and anticipate the worst. Then as your mitigation activities kicks in as time goes by you get more and more improvements and then we are seeing a lot of good improvements in the last few weeks. With that I leave the supply chain and move over to the segments and then I take my own segments network spend. So as reported we have had a good start to the year and 35% up year-over-year and this is being driven by the market share increase that we have seen back in 2010 that we talked about in the quarter report and the strong portfolio that we have. We get really good feedback from our customers on the technology leadership and the performance of our portfolio that then has resulted in high sales of RBS 6000 our multistandard radio base station that we successfully launched last year. And in fact it’s very important because this is really when we have in replacement of existing radio base station families that we have been having for some 10 years that we have replaced a new generation that which has come really good. So high sales of RBS 6000, high sales of packet-core IP-routers and microwave backhaul. And also highlight that Q1 was good when it comes to GSM and GSM, EDGE in China has fall back to mobile broadband and overall CDMA driven by mobile broadband CDMA EVDO. Last year we made an acquisition of 60% of the company of LG-Nortel from Nortel nowadays LG-Ericsson and we have been really happy with the contracts that we have then gained in several areas. So that has performed quite well. Moving over to margins, we have had ended Q1 on a positive volume effect we are quite volume dependent and of course when volumes go up it gives a good effect on the bottom line. But we also have the business mix a good business mix of expansions and upgrades in this quarter. But we also have seen some modifications in gains we have been working quite consistently both on the setup for the portfolio and how it’s what it takes to produce it and how it’s built in R&D. Finally, the network modernization project in Europe we estimate when these projects that we have won so far when they are executed we wouldn’t have gained 3% market point in 2G and 3G in Europe. And with that I had over to Magnus.

Thank you, Johan. So let me go through then the global services quarter results. Let me start with that we are seeing that growing our market share on the global services market. We are now well above 11% I think that’s worthwhile to mention. We are growing our business at five out of 10 regions a year ago we did two regions out of 10 and we are seeing still a strong growth in professional service I would say with 3% year-on-year but also 11% from managed services and a good completion in bringing in new contracts. We continue to expand old contracts as well as bring in new ones (Inaudible) we have a four years extension in Spain we did our first managed service contract with EMOBILE in Japan. We are also selecting to modernize the IP network with (Inaudible) in Middle East. So we are into the media and over the top services with the Media Corp in Singapore as well as then a full modernization managed service for the tech assets of Telenor in Thailand. Also we are building up capabilities in our global centers both in Romania as well as in India serving them the increasing need and demand for OSS/BSS transformations as well as create the part of plan, design engineering of mobile broadband. Then moving into a bit of the low life we are seeing them that we are getting less integration projects on the product enhanced services especially on the systems integration. Then revenue management in the quarter as well as (Inaudible) Mr. Vestberg commented in the main press conference. We are also seeing that we are of course having quite a lot of disturbance in the installation phase of and completion of our NRO business based on the disturbances we had on the industries with component shortages previously past six to nine months. That has given us a loss in network rollout and of course this is also giving us bit lower margin for the same month. And of course a little bit lower margin also is not met with the fixed cost we are having so that is also taking a bit of the margin out from the business. And you should also remember that the restructuring cost does not included in the result last year which will have now in 2011. I think I will leave the comments now over to Hans.

Yes, thank you Magnus. Thank you, Johan. Quick on multimedia as I said flat sales we see multimedia brokering growing well and revenue management coming back and not to historical levels but we alone on higher levels than last year, PV that had good round last year all true I would say has a little bit weaker quarter this time. Overall, the volumes are not creating a profit where 7% negative (Inaudible) basic the volumes and the product mix and but it’s partly offset over continued efficiency work in multimedia. Let me also mention a little bit about the joint ventures. Sony Ericsson reported last week what we can say is that they made the fifth consecutive quarter profit they are arranging a new product in Android segment, which are doing well and we looking really excited into those products. ST-Ericsson little bit different they are on a different cycle. They have a legacy business that is falling and in the same time they are now introducing the new platforms, which are addressing the smartphone segment. However, there is not an offset yet from the new portfolio and a decline on legacy so we are widening the loss in Q1 compared to Q4. And it will take some time to ramp up the new portfolio to offset the legacy business and this is a very critical moment for ST-Ericsson to achieve that in that design wins into production. They are now present in seven out of the nine largest mobile handset manufacturing in the world. But this is going to be a phase right now that we are going to be critical for them to really speed up. They are executing well on the new portfolio. Ericsson is of course very committed to create a very good chipset manufactured that is going to be competing in the smartphone markets and we will be there to support them in this transition. Finally, then the joint ventures created a 0.5 billion loss mainly a loss from ST-Ericsson and a gain from Sony Ericsson. All in all, almost at the same level of loss as last year but a little bit differently distributed between joint ventures. Jan, I leave it over to you.

Okay, thank you Hans. And good afternoon to all of you. Let me now give you some highlights on the profitability and cash flow in the quarter. A lot has been said I think on the profitability already. I think highlights in the quarter was clearly the strong volume in networks together with the business mix, similar business mix that we enjoyed last year also and this prevailing in this quarter. With expansions and upgrades driven then by mobile broadband. Continued to see good momentum on the efficiency gains in cost of sales both on the product side as well as on the services side. And we had an one-off sale of a patent that created a revenue of some 300 million Swedish Krona in the quarter. On the negative side a bit from the margin you can see for yourself India volume has increased a lot in the quarter. We started to see some impact of the network modernization project and I think on that point it compared to where we were in January or when we met for the Q4 report. I would say that overall these projects are executing according to the overall plan but slightly later than anticipated but we still have some impact in the quarter. And again the net impact of the margin is very much impacted by our ability and capability to run rate [ph] mitigating actions here. And on the operating expense side, then R&D up 10% year-over-year this is mainly driven by the planned high in investments during this year in the radio side to secure LTE but as well then on the IP portfolio with the smart service are out for instance. That these are important developments for us this year. We also have a bit of an increase related to the acquisition of the LG-Ericsson asset. On the selling and G&A signed plus 10% again (Inaudible) that LG-Ericsson and then we continued to have quite a lot of activity around LTE trials in the market. We should remember then when we look at these numbers there is around 200 million Swedish Krona of restructuring charges impacting the gross margin and there is around 200 million of restructuring charges impacting the research and development expenses in 2011 Q1. If we then look at the operating margin, 11.9% versus 10.1% and again we have now included the restructuring charges in this quarter and excluded for last year. But again this is related to volume growth in networks that business as Johan mentioned has fixed cost high fixed cost structure in R&D and when you get the revenue growth there it impacts the bottom line. Looking at the net income, only thing I want to highlight there is that we have now disclosed an per share measurement excluding amortization of intangible assets and that’s on that page. That’s on that slide as well. If we look at the balance sheet, some ratios days of sales outstanding was an increase compared to Q4 and a decrease compared to Q1 of last year. Out in Q1 of last year I mean it’s the reason for the decrease then is related to volume and but that’s well and that we continued the focus on collections and turnaround of receivables, compared to Q4 it’s purely a volume difference. And inventory days as you can see for yourself here we have had an increasing trend basically during 2010 and into 2011. The majority of this inventory is then related to projects or what we call regional inventory here. And that is reflecting the higher activity level in the market. And then as well there is some more inventories in regards to the ramp up of production as Johan [ph] mentioned. If we look at the cash, the thing I want to highlight here first of all you know we continued to have a strong net cash position 48.3 billion Swedish Krona in the quarter. If you look at the operating cash flow there minus 2.9 or minus 2.1 adjusted for restructuring charges or outlays. From an income point of view we again had positive cash flows but from a working capital point of view we tied up capitals and that we had a negative impact. So our main issue in the quarter is actually working capital. So with that said Hans I hand back to you or to Åse now. Åse Lindskog: Thank you very much, Jan. So then operator we are ready now to open up for questions.

(Operator Instructions) Detailed information is provided in the report, and Ericsson's Investor Relations and Media Relations team will be happy to take additional questions and discuss further details with you after the call. Please hold while we queue for questions. Excuse me Jeff Kvaal from Barclays Capital is now online with a question. Jeff Kvaal – Barclays Capital: Yes gentlemen, thank you very much. I was wondering if you could help us interpret the 35% year-over-year growth in network and to what extent is that an a function of market growth or market share or there are organic elements that are or inorganic elements that contribute to that another factor might be adjusted the geo spend pick up was continuing is that a function of snap back given the component availability or should we think of that as a sustainable trend. Thanks.

Hi Jeff, this is Hans. What this inorganic growth or whatever with it’s the Korean business that’s the only thing we have now that is an acquisition that we didn’t have in the first quarter last year. But that is a smaller piece or a very small piece of the total growth in the quarter. I think as we have said before mobile broadband and the market share gain on mobile broadband, but also that we are present in the market that has the demand in a high level of smartphone is also important. We have a good footprint really in the world and of course being very present in North America, Korea, Japan that are driving lot of the mobile broadband and being very early out with smartphones. That’s very important and but that has been a consistent factor for us to be strong in this market and then we are strong in this market. And then as your sales have been of course the GSM in China was also a contributing factor this quarter. So I think you highlighted important when we talk about mobile broadband and remember what you once had, it’s not only the way you access this also the parts arranging from packet-core and routers et cetera that are impacting on this growth because that’s the mobile broadband. Jeff Kvaal – Barclays Capital: Okay. So Hans, will it be fair to say in GSM broadly speaking that the growth rates in 3G and 4G are now sustainability offsetting with the 2G declines from far years?

It’s a good question. I think that we have been talking for four quarters about that we have the mobile broadband growth. And which we have had but we couldn’t see it on the segment networks because of the decline in the voice IP, in this quarter we see that coming through that’s where we sort of passed the curve there and have a growth in the mobile broadband. But also remember that we are in 10 regions and we are growing in five, so it is still regions that are cautious and but there are markets that are growing well. So you are right we have passed the curve on the mobile broadband there. Jeff Kvaal – Barclays Capital: Okay, thank you Hans. Thank you.

Tim Boddy from Goldman Sachs who is now online with a question. Tim Boddy – Goldman Sachs: Yes, thanks. Another great rated question and then a great follow up on the balance sheet. Should we think about the U.S. is being in some way the lead indicators to Europe where the smartphone adoption is just a little behind are they really genuinely different dynamics in those markets? Because obviously Europe still more or less down from what we can tell in the regional split is perhaps surprising. And then secondly just on the balance sheet. I’m updating your plans for what’s really a narrow enormous cash pile contributing very little to earnings. Thank you.

Let me start if you should extrapolate on North America - remember that North America is very early out in adopters of the smartphones and the tablet and applications. So I wouldn’t replicate it straight forward but of course the usage we see across the globe being fairly equal on the smartphone it’s not so different from the U.S. it just that the volumes are so much larger there. Then of course we having the European market and network modernization ongoing but don’t forget that we have a strong service business in Europe as well. So it’s not only network shares, we need to balance that out. So of course we want to see more of that trend, but their networks has been built different as well from the beginning, so there are many factors that factor in when you draw that conclusion if it’s going to be the same in Europe or not, so you have to take it market by market and understand where they are. Tim Boddy – Goldman Sachs: And on the balance sheet?

Yes, Jan need to answer in the balance sheet.

Yeah, okay. So well so to start with an, I’m not sure that, yeah, it’s a strong balance sheet, I would like it to be even stronger. We have a payout here in our dividends that happened a few days ago, so some of the cash pile will come down due to that. But I think overall then what we have is of course the same messages as we’ve had before, it is so that being strong from a financial position (Inaudible) business creates drought [ph] and creates long term sustainability and I think that is very important for us. Having said all of that, if we decide to change the way we worked our balance sheet, I am sure that we will come back and talk to all of you at the same time about that. Tim Boddy – Goldman Sachs: Okay. Thanks very much.

Edward Snyder from Charter Equity is now online with the question. Edward Snyder – Charter Equity: Thank you very much. Hans, is there has been a proposal for a T-Mobile and AT&T to merge in the U.S. What kind of exposure would you have if this were to go through in terms of decline you are a supplier to both of these two. And would it impact any of your plans for LTE. So it’s two in two part but LTE but also the bread and butter sales that you do in 3G and GSM in the United States what kind of impact would that merger have? Thanks.

As I comment before on T-Mobile and AT&T, I mean it’s first of all we are the main supplier to both of them and whatever it is acquisition we will support them in that and for us the odds really are on what type of plans they have at these stages if it’s not well (Inaudible) I think we need to be cautious I mean we want AT&T and T-Mobile talking about their business and their mergers. But the most important for us we are the main supplier to both of them and we would like of course to be a part of any changes in the marketplace and then I think we are well positioned for that. Edward Snyder – Charter Equity: And certainly the net. Sorry.

Then you had the question on LTE, if this has an impact on LTE. We can only follow the external announcements that is communicated from these customers and we have not seen any changes in those plans for LTE that are have been communicated. Edward Snyder – Charter Equity: Well as your two largest customers in the U.S. market obviously this would have an impact on the growth rate in the United States. Any feel at all who can whack at that horse in terms of how hard that might be?

I remember we have many more customers in North America as well, I mean of course these are important customers but we are working with Verizon, we are working with Sprint and we are working with Rogers and many other of the medium sized operator as well. So we have a broad base in North America and then as said I’m not here to speculate in the merger how it will go and in what sense, I think that these two separate companies will do that. I think that we are well positioned to be part of it. Edward Snyder – Charter Equity: Great, thanks.

Kulbinder Garcha from Credit Suisse is now online with a question. Kulbinder Garcha – Credit Suisse: Yes, thank you. My question is just around the strength of CDMA in the quarter. And I guess do you expect the CDMA business to remain at the high level of sales for sometime or could (Inaudible) just start declining and what impact might that have in your gross margins and your overall margins going forward. And the reason why I’m asking is that I think if the network modernization in Europe comes back and CDMA peaks it kind of feels like your margins could have actually peaked for this year and going forward for sometime especially given you are doing cost cuttings I just want to really understand that dynamic. Thanks.

So Kulbinder it’s Johan. So I mean if this of course right that I mean going forward we do expect CDMA sales to decline. The pace of that could be dependent upon how much, how quickly LTE will be built out and also the usage of the CDMA networks and currently the CDMA EVDO is growing quite a lot and usage is really going up. So today it’s not really clear the pace of how that will happen but of course it will one day.

We can say from our initial plans on CDMA and that we anticipated we see a longer tail than we had in sort of our plans when we acquired CDMA. So but if you once had it depends now on the population of new CDMA handset coming out and how it will continue right now it’s good to go from CDMA. Kulbinder Garcha – Credit Suisse: I mean just on the mix change of the business if network modernization ramped in the mix are you signaling then that gross margins could actually see some pressure in the balance of the year?

We have already in this quarter mentioned that we had partly having modernization in the mix but we have also mitigating factors and good business mix we will of course see more of modernization as we go forward but we also see right now it takes a little bit longer time than the, than we previously anticipated. And that’s when I say previously anticipated it’s Ericsson not the operators. So we don’t ask them it’s delayed or something it’s what how we anticipated this would happen. But it’s fairly complex modernization so they will take some more time. So they will be in the mix but they are all, already parceled the mix in the first quarter. Kulbinder Garcha – Credit Suisse: I guess my question is Hans, what the mitigating factors because from a restructuring point of view the last couple of years I understand that there was ongoing cost cutting the pace of your restructuring at the group level clearly isn’t quite what it was historically. So what are the other mitigating factors that could offset if network modernization rises while your margins may not go down what else could you do for example or what else are you doing?

We are doing a lot of sonitations [ph] here and there we can talk through with what we do in networks and services that we do in every day in a company being present in 180 countries and having a portfolio that we have. So we are working constantly with efficiency and we will come back in the management briefing talking about a little bit what we are doing in network and services to continue to bring down our correspondence of our product and services so but that we don’t have a big program doesn’t mean that we are not working with efficiency everyday here. Kulbinder Garcha – Credit Suisse: Yes, thank you.

Mark Sue from RBC Capital Market is now online with a question. Mark Sue – RBC Capital Market: Thank you. Hans is Ericsson now in a position to see improving trends in network EBITDA margins because you have substituted market position and also the volumes industry structure develops these things to indicate that the largest player eventually ends up with the largest portion of the profit so as you could give us your thoughts?

I think that we are striving all the time for improving our both our growth and profitability long-term and that’s also how we work with management and setting targets on (Inaudible) our regional heads. They are in combination of growth and earnings and that’s also what you have in your long-term variable pays that the board has set out for us. So we of course believe that scale is very important because this is to have a leverage model and we saw that in networks this quarter. That when you get these types of volume growth our fixed quarters of course mixed for quite a lot and then it supports to quite a lot. So we are of course think it’s a portable scale Johan.

Perhaps add on a little bit here I mean. We are constantly working with our portfolio to make sure this competitive from every angle I mean we probably want ourselves to have the technology leadership and feedback we have had from customers on our new modernized portfolio has been extremely good and I think those are part reason behind the strong demand we see. We constantly work on optimizing that portfolio to make it more cost effective and driving down production costs, driving down cost of component. But we also brought the scale across the portfolio for instance that the scale we have in wireless then goes into the IP-routers to the optical products et cetera to reach the great scale of economy there. And it is the constant work that take some time to give effect. Mark Sue – RBC Capital Market: Okay, with the scale position that you have now, with the scale position that you have now does network modernization thus carrier consolidation do those things have less of an issue are they less of an issue in the future so that we can extrapolate your margin improvements at least for the next several quarters?

When it come with these cases the network modernization cases always tricky and when we work today we will comment on the business case over several years because we know that all of it’s cost of acquiring footprint and market share that we earn back later on which is update and capacity expansions. And all of these deals are different and depending on the position and then the hunger we have for the deals we do a quite thorough evaluation of short and long-term business case and depending on compared to the position they then act differently. So it’s too early to draw to those conclusions that you have.

Why must we take on the (Inaudible).

Yeah, scale is everything in our business as well as than reach the skill position I think we have three generations of management of global services talking about process, networks and tools and this is really what we are doing every day creaming our organization. The best case is of course if you have already field operations and you have an effort going out with this same field operations work force that’s both scale and skill and then you really obtain good margins. Otherwise, and then of course obtain scale and skill on our global network operation centers and that is what we are investing in I would say every day. As I said before we are basic increasing our scale and skill in the global centers in Romania and in India over the quarter both for plan, design and engineering as well as the network operations for managed services. So this is everything, I mean the more we can do on over more deliveries to create the margin we will obtain.

Thanks Mark. Mark Sue – RBC Capital Market: Thank you gentlemen.

(Inaudible) is now online with a question.

Yes, thanks for taking my question. My first question was on the component shortage and the potential impact, I know you don’t give specific guidance but you know could you interpret your comments in a way that Q2 and potentially Q3 revenues would perhaps grow slightly less than typical seasonality. And then my third question sorry my second question was on management services. Looks like revenues were flat year-on-year the other services were actually down 9% year-on-year margins were pretty low, so I’m just wondering I think you mentioned that impact serves us more than networks. But can you maybe give a bit more color on the drivers of that fees and is this a new sort of revenue growth and margin level or is anything in the near future or the pipeline that you think would change thus? Thank you.

Why don’t I start and let Magnus try. And I can if I talk a little bit about Q2 and possible impact on component shortages and then the relation to the seasonality and the impact. I think first of all I think the underlying trend in the market are around mobile broadband and mobile database is a trend that is happening and I don’t think that trend will go away in the second quarter. I think and we will also need to remember that when we talk about possible impact on components it is from a production volume point of view. And that depending a little bit on the type of contracts we have one can say that perhaps in average it’s lagged there of the say three months or so on revenue. But it’s also still of course that if this situation creates incompleteness in deliveries this may impact revenue both in services as well as in networks. But I think in average one can say that the lag is public demand. I think also that when it comes to seasonality we need to remember that the first quarter was very strong from a networks point of view. I think that we have a bit of a head wind when it comes to foreign exchange, so if you look at the very strong Swedish Krona here and the closing rates in the report you know we will have some headwinds on top line as related today’s. But overall I would say remember a bit of a strong Q1 for networks the fundamentals will still be there, there is a lag in terms of production volume versus revenue and then some hectic headwind. And Magnus please why don’t you talk about managed services.

Yes, I think again as we said that we have actually 11% growth year-on-year I think that’s worthwhile to mention this is a long-term business that we are into. And then of course when you look into professional services and services we have a currency impact that is quite great. We are also having then as I said before on the impact of the restructuring cost which was outside our P&L a year ago. And we have invested quite a lot in off shoring and put a lot of efforts in the organizational structure. So we are on that building up new competencies especially on OSS/BSS where we believe now that we have a very competitive work force being able to do a lot on shore and off shore projects. We have seasonality low activity as well on as I repeat that again of course it’s we have, there is some impact of lower sales in revenue management as you might remember from the (Inaudible) presentation as well as and this is giving us a mixed bag of course in between the quarters and of course in the way the different regions is performing as well as the product mix that changed. But I would say that the mobile broadband momentum is here and the managed service momentum is clearly and we are seeing that still.

Excuse me Alexandre Peterc from Exane BNP Paribas is online with a question. Alexandre Peterc – Exane BNP Paribas: Yes, thanks for taking my question. I would just like to understand the mix dynamics here could you maybe tell me whether the Q1 mix was exceptionally good or is this the norm for the rest of ‘11 and just regarding the network modernization given that the best comes a bit later and you have mitigating actions that work bit within play for being good in place. So if actually mean that the impact on gross margins from the network modernization bills will actually be lower than what you initially thought because of this time lag. Thanks.

If I could answer it fairly brief. I think first of all gross margin was fairly good in the quarter on receivables I start from the negative end I think we have a mixed impact in regards to the fact that services was quite, the service is share it was quite small in the quarter. I think when we are looking at the margins we also know when you know as well that the margins vary a bit between quarters. And I think if we look at the overall business mix, the business mix with capacity and upgrades is something that has been prevailing now for quite a few quarters and that is driven is mobile broadband. I think on the modernization as I said before the aim is still to execute the majority of these projects during this earnings next year. Some of the projects have started in the quarter but they will come gradually during the year. Alexandre Peterc – Exane BNP Paribas: Okay, thanks a lot.

Stuart Jeffrey from Nomura is now online with a question. Stuart Jeffrey – Nomura: Hello and thank you very much. Excuse me. Couple of questions on services please. Han, you mentioned that some of your services revenues are tied to infrastructure sales and lag a little bit I was hoping if you could perhaps explain how that’s happened in the past and what differences there might be now and so how we can think about that going forward? And secondly on the network roll out, I assume that even if I take out restructuring it’s still quite a negative number on the EBIT, I assume your cost haven’t gone up significantly so is this all about pricing that is been more aggressive as you start modernization projects for example Indian community rollouts and if it is a pricing dynamic if anything changed in the last couple of months. Can you perhaps give us some visibility on how that loss might improve? Thanks.

Johan here, I will try to answer that. And I think in the network rollout margins in Q1 there are two, three impacts really the first impact is the fact that the margin has been impacted a bit by increased costs in the projects because we have been running with the project organization here during quite a few quarters with more of an unstable supply chain and that has impacted the margin in the network rollout business and that will prevail until we see a more stable flow in the supply chain. So that has not to do with the pricing dynamic, when it comes to the network modernization project it is a bit of a pricing dynamic and that has to deal with the fact that we sell a total solution a project that includes both products and services but we report this according to how we have sold it for to say and from that point of view we have a bit of a negative impact on the network rollout margin. And the third area then is the network rollout revenue is lagging infrastructure and as these projects are finalized we should also see revenue coming back in network rollout but that’s of course depending on the acceptance (Inaudible) in the project, I hope that answers your question. Stuart Jeffrey – Nomura: I’m sorry, is there any lag effects from systems integration related to hardware or they just network rollouts that you are referring to?

Yes, I mean the main reason is real network rollout related to hardware I think what Magnus meant when he talked about system integration and it was the fact more underlying trend that we have seen the voice related CapEx decline throughout the last two years in the core business as well as revenue management and that has also been then you do a more of a system integration work. So network rollout is more short-term the system integration is more midterm on the other hand which we also write in the report done it that we see a good activity level or demand for OSS and BSS transformational projects and that is then of course the system integration in our internal terminology. Stuart Jeffrey – Nomura: Okay, thank you.

Patrick Standaert from Morgan Stanley is now online with a question. Patrick Standaert – Morgan Stanley: Hey, thank you very much for taking my question. Two if I may, the first one is on the Q on Q growth items done pretty well the Japan effect and the currency impact. But can we try to put a flow and if we assume a 7% normal seasonality is there any reason to open the door to a potential quarterly decline in Q2? Yes or no would be my first question.

We didn’t get the question was it relating to Q2 or? Patrick Standaert – Morgan Stanley: Yes, the Q2. So considering normal seasonality I understand the Japan.

Effects on Q2. Patrick Standaert – Morgan Stanley: Yeah, Q2 to Q from Q1.

I mean if we have, so if we have expected the same business in Q2 in terms of mix that we had in Q1 we have a negative impact on top line related to foreign exchange. And other than that I would say that you have, the things that we have discussed before we have a good underlying demand on mobile broadband there is a possible impact on the supply chain that we are working to mitigate and with those are the input [ph] that I can give you in that respect. Patrick Standaert – Morgan Stanley: Is there any flow you can provide us or you are leaving it open?

We don’t guide for the quarter again, we tried to give you the particulars that we have for the next quarter that you should think about and again we are working with all these in order of course to continue to grow that’s our main ambition. So that’s what we have. Patrick Standaert – Morgan Stanley: On the CDMA the question was raised before but we understand your comment Hans, of stronger for longer but we are nearly end of April do you have any visibility of how longer do you think they can restrain and these are the same level as they are now. Looks like Q1 was at least if not stronger than Q4, so it looks how long do you think they can stay to similar level one, two maybe three quarters?

We have CDMA growing in the first quarter, I think what will define the tail is of course that the level of new phones coming out and also the level of LTE being deployed in North America that’s were the two factor. As said when compared to what we anticipated on the business which required with a longer tail [ph] and that’s important but again it will be defined about new CDMA phones and the push for that market and as you know when they are coming out quite a number of new phones on CDMA, so still there are an uptick and a few ones had mobile broadband on CDMA EVDO that’s on HSPDA. Patrick Standaert – Morgan Stanley: And the final one for you Hans. When you look at your portfolio and the question about your balance sheet I was raised a bit earlier, is there any weaknesses that you would like to address for example in the IP-routers or any warehouse or you say non-organic would make sense and you would be open to ideas there?

As I already said on the network infrastructure side on mobility and fixed where we very much believe in organic growth but it can always leave something, we don’t have anything from those right now. Phone services we are always looking for acquisition they’re usually smaller we have done a couple of them already in the first quarter then I would say on the business support system, we believe that’s a important piece of the network and will grow an important OSS and BSS. And we are always exploring but we don’t have anything in front of us right now but we are looking to begin strengthen that portfolio but nothing that we have in front of us right now. Patrick Standaert – Morgan Stanley: Okay, thank you Han. Åse Lindskog: There is time for one last question.

Thank you, Anil Krishnan [ph] from UBS is now online with the final question. Anil Krishnan – UBS: Hi, thanks for taking my question. I just wanted to touch upon on the IP side of the business and if you could provide some color or talk about the kind of growth that you’ve seen there in the quarters especially in light of several operators talking about capacity constraints on the backhaul side of the piece and in particular the traction that you’ve seen for the SSR and then I have a couple of question for you Han.

As we said a before the driver is a little bit different in the networks all around the world depending how they are investing, but it’s clear that when we talk about mobile broadband growth it’s not only the rate of access it’s the packet-core, the IP-router it’s mainly [ph] backhaul all of that is being driven. But it’s I can pick out one operator in North America and then I can pick one in Indonesia and they will have different bottom mix where they see the bottom mix. Again it’s hard to generalize on a global level. But I think those components are all for important for mobile broadband and we have a very good portfolio and we are both coming off a new radio technology product but we are also coming out with new core products or IP-router products like the SSR that we launched in Barcelona in order to divest this, I think we are strengthening our portfolio in this area. Anil Krishnan – UBS: Okay thanks. And then just for Johan, I guess on the R&D guidance we understand it’s been maintained at $31 billion to $33 billion but how should we kind of look at it in light of the FX moves and I mean given that should we think it to be more towards the lower end of the range and also in general the OpEx seasonality going into Q2?

I think I mean range is a range, so please estimate in that range. I think that we have, I mean the thing we mentioned in the report on what we have been planning is what we are executing upon and this is really the year of CDLC and it is important for us to continue to secure a strong product for on the router side and therefore we spend with a extra R&D money this year. But the range is still applicable, I think the one more thing on the SG&A side then it is really the impact of the acquisition of the LG-Ericsson asset and some more activity still on the LTE side. I think what we also should perhaps mention before we end here is a bit on the restructuring charges after we get that clear I mentioned that at a press conference as well. We had all in all $400 million Swedish Krona in restructuring charges in the quarter $200 million on cost of sales and $200 million in R&D. We mentioned in the full year report that we think that we will have around $2 billion Swedish Krona in restructuring charges for the full year. And I also said then that I think that majority of the charges will be in the first half year. I still think that the charges will be big during the first half versus the second half and but we still think that $2 billion is a relevant estimate of seasonality. Anil Krishnan – UBS: Okay, thank you very much. Åse Lindskog: Thank you very much all of you. And before finalizing, I would like to invite you to our management meeting in New York on May 12. On stage then we will have the four gentlemen that you have listened to today. And they will talk you through our strategy on how to grow our sales and operating results in the coming years. You find more information about the management briefing on our website or you can send an email to the investor relations team here in Stockholm or in New York. Thank you very much for listening to our earnings call today. Thank you and bye-bye.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.