UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

or

For the Fiscal Year Ended December 31, 20132014

or

For the transition period from/to

or

Date of event requiring this shell company report:

Commission file number 000–12033

TELEFONAKTIEBOLAGET LM ERICSSON

(Exact Name of Registrant as Specified in Its Charter)

LM ERICSSON TELEPHONE COMPANY

(Translation of Registrant’s Name Into English)

Kingdom of Sweden

(Jurisdiction of Incorporation or Organization)

SE-164 83 Stockholm, Sweden

(Address of Principal Executive Offices)

Roland Hagman, Vice President Group Function Financial Control

Telephone: +46 10 719 53 80, E-mail:Email: roland.hagman@ericsson.com

SE-164 83 Stockholm, Sweden

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:

Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

x  Large accelerated filer             ¨  Accelerated filer             ¨  Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAP  ¨    International Financial Reporting Standards as issued by the International Accounting Standards Board  x    Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.     Item 17  ¨     Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

CONTENTS

Ericsson Annual Report on Form 20-F 20132014

FORM 20-F 20132014 CROSS-REFERENCE TABLE

This document comprises the English version of our Swedish Annual Report for 20132014 and our Annual Report on Form 20-F for the year ended December 31, 2013.2014. Reference is made to the Form 20-F 20132014 cross-reference table on pages i to vi hereof and the Supplemental Information beginning on page 135,142, which contains certain other information required by Form 20-F. Only (i) the information in this document that is referenced in the Form 20-F 20132014 cross-reference table, (ii) the Supplemental Information, (iii) the section entitled“Forward-looking statements” and (iii)(iv) the Exhibits required to be filed pursuant to the Form 20-F shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statement on Form F-3 filed on April 23, 2012 (File No. 333-180880) and any other documentsdocument filed by us pursuant to the Securities Act of 1933, as amended, which incorporates by reference the 20132014 Form 20-F. Any information herein which is not referenced in the Form 20-F 20132014 cross-reference table or filed as an exhibit thereto shall not be deemed to be so incorporated by reference.

This annual report includes financial measures that were not calculated or presented in accordance with IFRS, and we refer to these measures as non-IFRS financial measures. Reconciliations of these non-IFRS financial measures to the most directly comparable IFRS financial measures can be found on pages 150-151155-156 of this annual report.

Market data and certain industry forecasts used herein were obtained from internal surveys, market research, publicly available information and industry publications. While we believe that market research, publicly available information and industry publications we use are reliable, we have not independently verified market and industry data from third-party sources. Moreover, while we believe our internal surveys are reliable, they have not been verified by any independent source.

The information included on the websites that appear in the Annual Report on Form 20-F is not incorporated by reference in the report.

The following cross-reference table indicates where information required by Form 20-F may be found in this document.

i

Ericsson Annual Report on Form 20-F 20132014

ii

Ericsson Annual Report on Form 20-F 20132014

iii

Ericsson Annual Report on Form 20-F 2014

iii

Ericsson Annual Report on Form 20-F 2013

iv

Ericsson Annual Report on Form 20-F 20132014

v

Ericsson Annual Report on Form 20-F 20132014

Note: The Company’s holding in ST-Ericsson SA meets the requirements of Rule 3-09 under Regulation S-X for the provision of separate financial statements of ST-Ericsson SA, a non-listed Swiss company that has a December 31 fiscal year end.

The Company intends to file the financial statements of ST-Ericsson SA as of and for the year ended December 31, 2013 as an amendment to this Annual Report on Form 20-F as soon as practicable after they become available.

vi

Ericsson Annual Report on Form 20-F 20132014

THIS IS ERICSSON IN BRIEF

We areEricsson is a world-leading provider of communications networks, telecom services and support solutions. Here we look at some of the factors that make Ericsson unique.

Life indriving force behind the Networked Society is becoming– a reality for billions of people and millions of businesses around the world. As everything becomes connected, our world is changing. Our lives are changing. At Ericsson, we are proud of the central role we are playingleader in this evolution, using innovation to empower people, business and society. The solutions we provide allow people to communicate, work, study, do business and live more freely. They help create more efficient and more sustainable societies.

We have been leaders in telecommunications and related services ever since Lars Magnus Ericsson founded the company in 1876. Today, we are expanding into the Information and Communications Technology (ICT) arena, and becoming a major ICT solutions provider.

It is a natural progression: our research and innovations made mobile communications and broadband possible, and those technologies are powering modern technologies such as cloud computing, smart grids, machine-to-machine (M2M) communication and m-commerce. Every time you make a call or use an app on your smartphone, tablet or mobile computer, you are probably using one of our solutions and one of the networks provided or managed by us. When you watch video or TV, there is a good chance that one of our solutions is behind it—maybe even one of the technologies that have won us four Emmy awards.

As well as the advanced technology, we also provide world-leading services, software and infrastructure, mainly to telecom operators.

Ericsson has always been a company driven by innovation—in technology and business. That is why we were the pioneers in managed services. That is why we hold so many standards-essential patents. We see our leadership in technology and services as one of the foundations of our business.

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.

OUR REGIONSGlobal presence

AsEricsson is a global company we have createdsupporting more than 500 operator customers and an efficient go-to-market organization based on 10 regions. Backed by our collective global knowledge, our regional competence and close customer relationships provide a solid foundation for profitable growth. In eachincreasing number of our regions, we work closely with customers to develop innovative, scalable solutions that help them increase revenue and reduce costs.

We share best practices across regions, which boosts both quality and efficiency. When a successful customer solution is identified and provennon-operator customers. The Company has been present in one region, we can roll it out around the world, sharing common processes, methods and tools.

This knowledge-sharing, the expertise and local knowledge gained through working closely with customers combine to create global scale, another of the pillars of our business success.

Operators look to long-term partnersmany countries, such as EricssonChina, Brazil and India, for support in every aspect of their business. To ensure a consistent offering towards allmore than 100 years. The ten largest customers, and enable economies of scale, the same set of engagement practices operate in each region: Mobile Broadband; Communication Services; Fixed Broadband and Convergence; Managed Services; Operations and Business Support Systems; and Television and Media Management.

BUSINESS UNITS

To best reflect our business, Ericsson reports four business segments. They are reflected in the four business units, eachhalf of which is responsibleare multinational, account for developing and maintaining its specific portfolio47% of products, solutions and services.Ericsson’s net sales.

Ericsson Annual Report on Form 20-F 2013

OUR SEGMENTS

Today, Ericsson has more than 114,000 people serving customers in over 180 countries. Our business is divided into four segments:

Ericsson Annual Report on Form 20-F 20132014

2013 AT A GLANCE2014 IN REVIEW

A look at someExamples of the most important measures of our performance,what Ericsson has achieved, and a summary of business highlights from around the world during 2013.

Ericsson Annual Report on Form 20-F 2013

2013 IN REVIEW

JANUARYJanuary – MARCHMarch

APRILApril – JUNEJune

JULY – SEPTEMBER

OCTOBER – DECEMBER

July – September

Ericsson Annual Report on Form 20-F 20132014

October – December

Ericsson Annual Report on Form 20-F 2014

LETTER FROM THE CEO

Ericsson isWe are on a journey of transformation. Building on our technologyOur industry is changing and services leadership in telecoms, we are becoming a leaderchanging to stay relevant to our customers and to capture opportunities both in Informationour core business and Communications Technology (ICT), a driving forcein our targeted growth areas.

Dear reader

Value creation

Our sales of SEK 228 billion were stable for the full year 2014, with an operating margin of 7.4%. Growth in the Networked Society. Let us look at some milestonesMiddle East, Europe and Asia compensated for a sales decline in North America and the operating margin improved in our core business. We improved cash flow from lastoperating activities during the year and exploregenerated a full-year cash flow of SEK 18.7 billion, exceeding our cash conversion target of more than 70%. Our strong financial position has over the road ahead.years secured our financial flexibility and enabled us to implement our strategy and to deliver consistent returns to our shareholders.

DEAR SHAREHOLDERSGoing into 2015, we aim to continue to grow faster than the market combined with best-in-class margins and strong operating cash flow. In doing so, we will not only drive shareholder value creation but also generate value for our customers, employees and for society at large.

AsThe pace of change in the worldmarket is changingincreasing as the telecom, IT and media industries converge into a Networked Society, itbroader ICT industry. At the same time, ICT is starting to transform virtually allother industries. The music industry was early out with digital distribution and new business models as a result of mobility, broadband and cloud creating new opportunities. The networks are becoming more relevant not only to people using their smartphones, but also to businesses and society at large. In light of this development, bothBoth operators and vendors are makingdeciding on different strategic choices basedroutes depending on their respective assets. Itthe assets they have. We are now at an inflection point where the Networked Society is a truly exciting timestarting to take shape around us. The transformation to the Networked Society, where anything that benefits from being connected will be connected, is driven by broadband, mobility and cloud.

The pace of change within the Company is also increasing as we take action to secure continued leadership in the industry.

Let’s look more closely at developments at Ericssonthis transforming market. We are investing not only in 2013. In our core business, we redefined the small-cell market with our Radio Dot System. We have established ourselves in the Chinese 4G market with TD-LTE, after a weaker position in 3G where we did not participate in the TD-SCDMA technology. The majorityareas of the European network modernization projects, which put pressure on our margins in recent years, are now behind us; in line with our strategy we now have a strong installed base in Europe. In parallel, we have strengthened in services across North America and are now the leaders in bothmobile infrastructure and telecom services, but also in the world’s most advanced ICT market.

targeted growth areas. We have continuedare streamlining our portfolio, with our strategy of expanding into targeted areas such as TVan increased focus on software and media, IP, cloud, as well as OSS and BSS. Andprofessional services. We are also investing in new competence to make sure that we have refocused our position in modems, winding up the ST-Ericsson joint venture and establishing our own thin modems business. We further strengthened our global services capabilities all over the world. And we continue to invest in research and development—SEK 162 billion in the past five years alone. We build on our core assets—can keep our technology and services leadership and be a trusted business partner to our customers.

Let me give you a few examples from recent years. We have reduced the number of hardware platforms, reduced the number

Ericsson Annual Report on Form 20-F 2014

of software stacks, made strategic investments and acquisitions in our targeted growth areas, divested our handset operations and discontinued our modem development. This streamlining of operations has made us stronger as a company and improved earnings in our core business.

However, our profit is not yet on the level where we want it to be. Current company transformation uncovers opportunities to leverage global scale—skills and scale to increase efficiencies and reduce cost further. Therefore a global cost and efficiency program was presented at our Capital Markets Day in November. The ambition with the program is to achieve savings of approximately SEK 9 billion, including SEK 4.5 billion in operating expense savings, with full effect during 2017.

We aim to improve operating income by monetizing our footprint, building success in targeted growth areas and by efficiency improvements.

Excel in core and establish leadership in targeted areas

Our strategy builds on a combination of excelling in our core business and establishing leadership in targeted growth areas. We are market leaders in both mobile infrastructure and telecom services with a large installed base to build on. We continue to invest in R&D and services capabilities, relentlessly innovating and shaping the market as partwe move towards 5G.

At the same time, we invest in five targeted growth areas that are adjacent to our core business: IP Networks, Cloud, OSS and BSS, TV and Media and Industry and Society. They all have a high share of software and professional services, a high degree of recurring business and a higher growth rate than the core business.

We made good progress in these targeted areas during 2014, with sales growth above 10%, and we continued to invest both in our constant evolution, something that is vital for maintainingown R&D and in selected acquisitions and partnerships:

Investing in the future

During 2014, we invested SEK 36 billion in R&D – which adds up to a transforming industry.

total investment of SEK 166 billion over the past five years. Our technology leadership is built on our investments in R&D and evidenced by more than 35,00037,000 granted patents, one of the industry’s strongest patent portfolios. Duringportfolios in the year we closed an IPR (intellectualindustry. Our expanding licensing business is based on our continued ambition to generate value from our intellectual property rights)(IPR) portfolio.

We have a holistic approach to capital and licensing agreementresource allocation across the Company, where investments in services capabilities go hand in hand with Samsung that is important not only to Ericsson but to the whole industry as it shows the benefits of sharing technology on fair, reasonableinvestments in R&D and non-discriminatory (FRAND) terms. The multi-year agreement, which ends the patent-related legal disputes between the companies, consists of an initial payment and ongoing royalty payments going forward.

Profitability

Our focus on profitability is now starting to pay off, with stable margins in Professional Services and a steady improvement in Networks during the year. Operating income was up from SEK 10.5 billion in 2012 to SEK 17.8 billion in 2013, with our operating margin increasing from 5% to 8%.

In North America we saw a strong start to the year as two major coverage projects peaked, with a subsequent weaker second half of 2013. We expect more capacity projects in Networks, continued momentum for Professional Services and growth in Support Solutions such as TV and media following the acquisition of Mediaroom from Microsoft.

As I mentioned earlier, the big European network modernization projects are coming to an end and we expect the telecom industry in Europe to improve, driven by macroeconomic improvementssales capabilities as well as a recent investment announcement by a large operator that could trigger others to invest.

It was a challenging year in Northeast Asia. This was primarily due to reduced activityacquisitions and currency headwinds in Japan, where we are approaching completion of a major project, and a structural decline in GSM sales in China.

Ericsson Annual Report on Form 20-F 2013

But late in the year we won important contracts for rolling out 4G both in China and Japan.

And now we have integrated Modems into the business, providing the device connectivity that is so important in the Networked Society.partnering.

GrowthSustainability and corporate responsibility

From 2012 to 2016, we expect a compound annual growth rate of more than 4% in the market segments that we address, measured in USD, with some variation between market segmentsSustainability and years.

The underlying fundamentals for growth in the industry are intact. Mobile broadband continued to grow, with subscriptions increasing 40% to 2.1 billioncorporate responsibility remained important during 2013. By 2019, we expect to see 9 billion mobile subscriptions, with three times as many smartphones as today, and 8 billion mobile broadband subscriptions.

Sustainable development was high on the agenda during 20132014, and we continue to lead the industry in working holistically with sustainability issuessustainable development and responsible business practices to driveensure positive triple-bottom-line (economic, environmental and social) growth in a way that positively impacts the triple bottom line.society. We focus on the issuesour efforts where we can make the biggest difference:difference. This involves improving the accessibility and affordability of mobile communication;communication and improving energy performance and optimizing the energy anduse of materials performance ofin our products, and solutions and in our own activities;activities.

We are helping to address and minimize climate change and we are also tackling challenges and opportunities provided by urbanization for example through the Ericsson Industry & Society product portfolio. We are also emphasizing the importance of responsible business ethics,practice and employee engagement. We address growing challenges in areas such as responsible sourcing, health and safety, privacy and human rights with transparency and seek to build trust among our stakeholders. We have made visible progress during the year2014, and we will continue to use our strength to ensure that technology is a force for positive, lasting change in the world.change.

Strategic directionLong-term fundamentals

We have set out a clear long-term strategy framework, where we are determined to evolve to become the industry leader in the Networked Society. This framework has three components:

The road ahead

The key focus areas outlined at our 2013 Investor Day remain the foundation for our strategy for 2014 and the years ahead.

The long-term fundamentals in the industry remain attractive and we are in a strong position to capture the opportunitiestransformation journey that lie ahead. To assist me in achieving this,accelerated during 2014 will continue throughout 2015, and beyond. Going forward, I have a dedicated, global organization with talented employees who work tirelessly to ensure thatam convinced Ericsson continueshas what it takes to generate sustainable value for our shareholders and customers.customers, and to continue to lead and shape the industry.

Hans Vestberg

President and CEO

Ericsson Annual Report on Form 20-F 20132014

MARKET TRENDSTHIS IS ERICSSON

NewTechnology and services leadership, combined with business expertise, global scale and skills, allows Ericsson to generate customer and shareholder value. The ability to transform is critical in the ICT industry (information and communication technology) and Ericsson strives to become a leader in this industry.

Over the past 100 years, Ericsson has continuously evolved its business portfolio, entered into new and adjacent markets, developed new products and solutions and adapted to new ways of working.

Ericsson reported four business segments in 2014: Networks, Global Services, Support Solutions and Modems¹), each of which is responsible for a full profit & loss statement and for the development and maintenance of its specific portfolio of products, solutions and services.

The core assets of the Company are technology and services leadership and global scale and skills. Long-term customer relationships and the fact that Ericsson has remained in the forefront in a competitive, fast-moving market for more than 100 years, show the ability to deliver customer value. Approximately 40% of the world’s mobile traffic goes through networks delivered by Ericsson. The progress of the strategy implementation to extend the business to adjacent customer segments is visible in an increasing share of sales to non-operator customers.

The ambition is to grow faster than the market

Ericsson’s ambition is to grow sales faster than the market, which is estimated, by the Company, to grow at a compound annual growth rate (CAGR) of 3–5% from 2013 to 2017.

A growth faster than the market is based on excelling in the core business (“Radio, Core and Transmission” and “Telecom Services”) and establishing leadership in the targeted areas of IP Networks, Cloud, OSS and BSS, TV and Media as well as Industry and Society, while at the same time increasing the share of recurring revenues and intellectual property rights (IPR) revenues.

Best-in-class margins and strong cash flow

A market-leading position, global presence, regional and local competence as well as close customer relationships provide a solid foundation for profitable growth. A market-leading position is an enabler of the aim to create shareholder value by growing sales faster than the market and generating industry best-in-class margins and generating strong cash flows.

Ericsson Annual Report on Form 20-F 2014

A strong financial position, focus on profitable growth and operational efficiencies and the ambition to improve earnings in the core business remain the cornerstones of Ericsson’s financial ambitions, while continuously monetizing the footprint and making cost efficiency improvements. By industrializing, centralizing and automating, as well as leveraging a less capital intensive business mix, the ambition is to have strong operating cash flow development. A strong cash flow generation has enabled increased dividends, and also provided the financial strength to invest. Over the last five years, the annual total shareholder return has averaged 10%.

The financial strategy includes unlocking additional values through a global cost and efficiency program, reaching an annual run-rate saving of SEK 9 billion during 2017, compared to 2014. Efficiency measures include structural enhancements, supply efficiencies and an accelerating transformation of the service delivery organization.

TRANSFORMATION

Ericsson has always been at the forefront of transformation driven by ever-changing market conditions and major technological disruptions. This technological and financial capability to adapt and the will to change are major competitive strengths.

The ongoing market transformation is reflected in Ericsson’s business mix. Over the past 15 years, the business has evolved from being hardware-centric to becoming software-and services-centric. In 2014, 66% of Ericsson’s business was related to services and software, compared with 34% in 1999. With the share of software and services likely to continue to increase, Ericsson’s competitive hardware will still remain important as a performance differentiator.

Operator segmentation drives change in strategy

A clear customer segmentation is taking place, as operators take different roles in the transforming the way people,ICT market. Ericsson works closely with operators to support their different strategic ambitions, providing solutions and services that grow their business and society communicatemeet their operational priorities.

In simple terms, network infrastructure consists of three layers: the network forms the base; the platforms represented by IT platforms and collaborate.operations and business support systems (OSS and BSS) is the second layer, and the applications and services are at the top. Network performance, efficient processes and structured OSS and BSS implementations – which enable

Ericsson Annual Report on Form 20-F 2014

the proactivity, flexibility and performance that the business portfolio requires – have moved into focus, driven by high data volumes, demanding applications and new service offerings for consumers.

Operator segmentation will have a significant impact on Ericsson’s ambitions and strategies. The ambition is to identify where value can be created and growth can be captured. The transformation drives new requirements on the networks. This is a major reason as to why Ericsson has chosen a strategy to invest in the targeted areas of IP Networks, Cloud, OSS and BSS, TV and Media, as well as Industry and Society.

Ericsson sees three strategic operator segments emerging:

For all three operator segments, connectivity is, and will continue to be, the foundation for their businesses and the key factor for differentiation as user demand for performance of applications and app coverage, increases.

Network developer; Network performance

The operators who have chosen to address user demands through network performance and efficiency are the Network developers. They concentrate on the broadband experience through internet connectivity and communication services.

For these customers, the network performance is key, and Ericsson addresses operators’ demands with solutions for high performance network architecture. The Network developers use external service platforms to address the increased demand of applications and services, but their own ambitions are focused on high quality connectivity, cost-efficiency and on operating the network as a utility service with a good return on capital investment.

Service enabler; Capable network platforms

The operator segment, represented by the service enablers, focuses on establishing systems and platforms that enable new enterprise practices such as IT cloud services and business processes, as well as services to enrich the consumer experience. In terms of applications and services they use external service producers.

Their focus, on top of a well-performing network, is on billing, customer care and service assurance. Service enablers provide functionality on capable platforms that are easy for other industries to integrate into their respective business processes. They are capitalizing on mobile broadband growth by introducing new pricing and revenue models such as targeted offerings based on usage patterns, capacity, service bundles, multi-device plans and real-time features such as top-up plans. Ericsson addresses these needs with its OSS and BSS platforms and professional services offering which cater for the control and management of the operations and the identification of new revenue streams.

The large majority of the operators are thus represented by Network developers and Service enablers, but they only represent a smaller share of current total network investments.

Service creator; New services

The largest share of current investments can be related to the group of operators representing the Service creators, who have the ambition to create intelligent networks to allow the creation of new services. In addition to network performance and consumer experience, these operators take the lead in providing innovative new services.

They are active participants in the establishment of new ecosystems in adjacent markets, such as utilities, transport and public safety. Their strategic focus is broader than that of the other two roles as, in addition to connectivity and customer experience, they focus on expanding business in applications and services to increase the share of profits from other industries.

Service creators are increasing their investments in the development of new businesses in media and entertainment, cloud and IT services, machine-to-machine (M2M) communications and enterprise offerings, as well as in specific industry solutions. Still, they would not compromise on the IT systems part, such as the OSS and BSS platforms, to orchestrate the traffic flows.

The user experience is increasingly determined by the actual performance of applications or app coverage, and the network needs not only to provide access but to also safeguard and optimize the actual performance of the applications used. Ericsson’s strategy is to offer solutions that fit the demands of the Service creators and to develop these offerings to enable an expansion of market position and value creation, and to capture growth.

Ericsson Annual Report on Form 20-F 2014

THE STRATEGIC DIRECTION

As a market leader, Ericsson strives to lead industry transformation through mobility. In order to stay relevant in the future, and to generate further shareholder and customer value, Ericsson continues to implement the Networked Society strategy.

Ericsson’s ambition is to grow sales faster than the market which the Company estimates to increase by CAGR 3–5% (2013–2017). Growth is expected to be achieved primarily through organic growth, but also in combination with acquisitions and partnerships. The Company believes that the track record of moving into new areas and markets is reflected in the current market position and global scale. The strategy is to excel in the core business, establish leadership in targeted areas and expand business in new areas.

Excel in Core business

Ericsson’s two core businesses are “Radio, Core and Transmission” and “Telecom Services”

The Networked Society brings innovation and progress to private life, business and society. New formsis Ericsson’s vision of collaboration, participation and sharing, as well as new ways to meet customer needs and build value, are making the network more and more essential to all aspects of everyday life.

All around the world, people are demanding greatera society where everything that benefits from being connected will be connected. The demand for increased mobility, better broadband and moresecure access to cloud-based services are the enablers of the Networked Society and thus the network infrastructure forms the foundation for business with operator customers.

Radio, Core and Transmission networks are based on industry standards which ensures global interoperability across all devices and all subscriptions. To enable value creation, the network is, and will be, based on a high-performance common infrastructure that offers seamless connectivity and delivers relevant services and content.

The rising number of smartphone subscriptions and changing user behavior drive the demand for better coverage, speed and capacity. Operators are responding by differentiating their services and adapting them to new business models.

Initially, Telecom Services business was highly dependent on the network infrastructure

Ericsson Annual Report on Form 20-F 2014

business and was dominated by the installation of network equipment. As competition in the operator market intensified and operators needed to focus on their core skills, Ericsson identified an expanded market opportunity in services. These three factors are driving theAn evolution of capabilities was initiated, in order to match the market demand. Ericsson developed new business models, more independent of the network infrastructure business, and acquired small and medium-sized local service and consulting companies. The successful implementation of this business strategy resulted in a significant shift in business mix. In 2014, 42% of sales was derived from services.

Establish leadership in targeted areas

To capture growth, Ericsson will continue to reallocate capital and resources to areas beyond its core business. The targeted areas where the strategy is to establish leadership positions include IP Networks, Cloud, OSS and BSS, TV and Media as well as Industry and Society.

Ericsson is expanding into targeted areas because they:

Through solutions, network competence as well as service and business capabilities, Ericsson offers tools for its customers to differentiate themselves.

The Company will also expand its market exposure to new customers by re-using products, solutions and services skills in selected industries. Ericsson believes it can generate value by targeting customers in new industries, either because they have similar business models to telecom operators, or gain from mobile broadband and the larger opportunity for connectivity. Ericsson believes mobility is helping industries reinvent the way they create value and today, the Company engages directly with customers in three selected industry verticals – utilities, transport and public safety. The ambition is to address these adjacent industry verticals in a focused manner, using the existing product offering, core technology expertise, network competence and skills.

Expand business in new areas

In order to stay in the forefront, the long-term strategy also includes expanding into new areas. The ambition is to develop new areas into value creative businesses with cutting-edge offerings that are competitive and profitable.

Ericsson selectively invests in, explores, expands, and may also discontinue, business in new areas. In line with the strategy, the modems development was discontinued in 2014, and the capital was reallocated to areas which are expected to have stronger growth potential.

Managing the transition

In the transformation process, Ericsson will remain true to its core values of professionalism, respect and perseverance. The ability to implement the strategy depends on the Company’s ability to leverage on its current assets namely the technology and services leadership and its global scale and skills.

Ericsson believes that the strategy to become a leader in the ICT industry allows the Company to be in the midst of the market transformation as telecom, IT and media come together and form the foundation for the Networked Society.

The strategy implies that the Company needs to make progress on the present and the future at the same time, thus both in the core business and in the targeted areas.

The ability to implement the strategy is key to staying relevant and will be reflected in future earnings development and in the ability to create shareholder value.

Ericsson Annual Report on Form 20-F 2014

CORE BUSINESS

Ericsson is a market leader in its core business areas. The strategy is to excel in the core business, to improve earnings and to continue to lead and innovate. The ambition is to leverage on its installed base and make further investments in R&D to maintain a strong position. The core business areas are called “Radio, Core and Transmission” and “Telecom Services”.

CORE BUSINESS

RADIO, CORE & TRANSMISSION

In Radio, Core and Transmission, Ericsson supports its customers in the new ICT landscape by leveraging the advantages of technology leadership, a position which has resulted in a competitive portfolio of radio networks and core networks. Ericsson continues to invest in new capabilities to support customers in the transformation of their networks.

The offering includes high-performance networks that meet demanding customer requirements. The network equipment market which Ericsson is exposed to is estimated by the Company to increase sales by CAGR 2–4% (2013–2017).

The strategy is to excel with a leading portfolio for high-performance networks, by building on scale and operational efficiency to

Ericsson wants to remain number one in solutions for operator networks and lead the transition to the network architecture that will enable the Networked Society.

MOBILE BROADBAND OPPORTUNITIESMaintain performance leadership

ConnectionsBy the end of 2020, Ericsson estimates that the number of mobile subscriptions will increase to 9.5 billion (from 7.1 billion in 2014) and that around 55% of the traffic that users will generate will be video. High network performance is a key competitive advantage when offering solutions to operators in their transition from circuit-switched to IP-based networks.

The capability to provide high-performance networks enables Ericsson to compete on quality and value, which is often reflected in a price premium. The Company believes that, with a user-centric approach, it can meet operator expectations on network performance, regarding speed, quality, personalization, simplicity and fast response time.

Radio

Over time, Ericsson believes that, even if the strategy implies that the business will comprise large infrastructure projects, capacity upgrades and the number of small-cell projects, which are an effect of network densification and indoor coverage build, are expected to increase as a share of total revenues.

Ericsson Annual Report on Form 20-F 2014

The increasing demand for small-cell solutions is based on arguments such as spectrum efficiency, reduced total cost of ownership (TCO) and improved user experience.

The key priority is that the software solutions and the functionality in the small-cell environment is the same as in the macro network, to allow for a viable business case for the operator. To meet this demand, Ericsson offers integrated solutions that enable the operator to implement an intelligent heterogeneous network that uses the available spectrum efficiently. This network combines small-cell networks and operator Wi-Fi networks with a densified and improved macro network. The result is a dense multi-layered network, where traffic flows seamlessly. Capacity is where the user needs it, especially indoors where an estimated 70% of mobile traffic is generated.

Transmission

Ericsson also offers backhaul solutions that match operators’ demands on cost-efficiency, scalability with low complexity, and that are resilient to failures with fast recovery times. Ericsson’s backhaul solutions use technologies such as microwave and optical fiber transmission, which are the starting pointmajor transmission solutions available to meet the capacity requirements set by the increased LTE and video traffic. Currently, microwave is the dominating transmission technology for mobile backhaul worldwide, with major arguments being that it enables cost-efficient and fast roll out of mobile broadband. The Company expects the share of microwave backhaul to remain high in the future, connecting around 50% of all radio sites in 2020.

Core network

The IP-based core network portfolio allows operators to use their complete network as a single business resource as opposed to the fragmentation and complexity of most legacy networks. Operators continue to evolve their communication services, by implementing solutions such as IMS, which is also used for providing voice over LTE (VoLTE).

Preparing for the next generation; 5G

The 5G mobile network is an evolution of the LTE networks, but with new frequencies, technologies and expanded business opportunities. 5G implementation in commercial mobile networks is expected in 2020, but Ericsson has already achieved speeds of 5 Gbps in live, over-the-air demonstrations. The next-generation network, 5G, addresses the relentless growth in mobile data demand, and is an efficient enabler of tailored mobile accesses to multiple industries.

With 5G, the network performance will be further enhanced to support demands on low latency in real time applications.

Ericsson is at the forefront of the development of this global standard.

An important aspect of the next-generation mobile technology, is that it is also an enabler of increased sustainability and improved efficiency in industry and society. The new global standard will be flexible and reliable for multiple industries and use cases.

CORE BUSINESS

TELECOM SERVICES

Ericsson wants to be an end-to-end business partner for network operators and other customers as the Networked Society becomes a reality. The global scale, skilled workforce, business understanding and extensive experience of managing carrier-class projects and multi-vendor networks make Ericsson the largest telecom services provider in the world, supporting operators in creating competitive, attractive and appealing offerings, while providing managed services to networks that serve more than 1 billion subscriptions worldwide. Ericsson addresses a telecom services market that is estimated by the Company to show a sales CAGR of 4–6% (2013–2017).

Ericsson pioneered managed services. The Company had a first mover advantage and the possibility to build scale, and continues to be the undisputed leader. The significant experience gained through 15 years in the managed services business has enabled the buildup of a best-practices pool. This is a significant competitive advantage enabling the Company to provide sophisticated methods, tools and processes as competitive capabilities for operators. Multi-vendor capability means that services can be provided to customers regardless of which vendor network they have as an installed base. The Company has different sets of skills covering everything from network equipment to

Ericsson Annual Report on Form 20-F 2014

software-support processes and the expertise required to design and manage end-to-end solutions ranging from mobile access networks and OSS, to service deployment platforms and BSS. Ericsson wants to further strengthen the number one position in telecom services and be a leading provider of professional services in ICT. The strength of the services business also proves the value of combining local capabilities with global scale.

Telecom services evolution

The current core offerings are directed to network operators. It includes professional services and network rollout. Professional services include: consulting and system integration (CSI), managed services, network design and optimization services and customer support. IT managed services are also included in the portfolio. Ericsson’s ambition is to simplify the management of every element in the operator network. This includes not only access and core, but also IT systems and the applications and services layer. The Company believes that any area in the operator network is addressable, but the business opportunity depends on the maturity of the network and the operations, the geographical location and the competitive situation of the operator.

Services-led transformation

With everything being connected, the demand for professional services increases.

The Ericsson transformation is expected to be led through these types of services. The strategy is to reuse telecom services capabilities and scale to grow in other industry domains and in new areas. This implies industrializing, globalizing and introducing new processes, methods and tools, so that Ericsson’s customers can deliver high performance services to their users.

Ericsson is also strengthening its CSI competences further. CSI specialists focus on helping operators transform their business strategy and processes to improve efficiency, thereby creating a competitive advantage. Analysis, integration design, product customization and solution management are usually part of the offered scope of CSI services.

The demand for consulting and integration is rapidly advancing as the Company builds skills and scale to expand the offering to become a trusted transformation partner in every part of the operator’s network.

As the network transforms, its complexity increases. With the increased complexity, the need and demand for professional services offerings – including consulting and systems integration, network design and optimization as well as managed services – has evolved. Network design and optimization is currently one of the fastest growing segments within professional services because of this complexity.

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CORE BUSINESS

BUSINESS MIX AND CYCLES

This section describes the business mix and business cycles of the core business.

Business mix in mobile infrastructure

The profitability in Radio, Core and Transmission depends on scale and the sustainability of the market leadership but also on the existing business mix. The combination of high quality hardware and software-based functionality as well as services offerings is Ericsson’s main competitive advantage in enabling high network performance.

Despite a decreasing share of total revenue, hardware remains a core element of the strategy. The Company strives to gradually increase software sales as the core business evolves and this, in combination with continuous operational efficiency improvements, will also affect the profitability development. In 2014, software sales account for around 40% of total software and hardware sales.

Software is an important link to new functionality and to high-performance networks both of which are key to capturing future growth opportunities, and enabling profitability improvements. Ericsson is leading the transformation of pricing models in the telecom industry by adapting the software pricing model to standard ICT and having an evolved transparent business model for infrastructure software sales. The Company believes that the way software is priced is critical to profitability, and the model will also facilitate customers’ cost predictability through improved transparency.

Business cycles in mobile infrastructure

The most traditional business model is in network infrastructure with its embedded software; delivering and rolling out physical networks including all necessary hardware and software. When Ericsson builds coverage there is a large share of hardware, and the project often includes network rollout services. The initial buildout or rollout phase is capital-intensive and has a lower-than-average gross margin. However, when the network is up and running and demands for capacity expansions arise, profitability increases, driven by an increased share of software sales and higher-margin hardware through network densification. In the expansion phase, the network rollout services, which were essential in the rollout phase, make way for professional services.

Business mix in telecom services

Large network-infrastructure projects were, and will continue to be, a key element of Ericsson’s business. When building network coverage across one or more geographical areas, the offering often includes network rollout services. A larger share of network rollout, as a share of total services sales, is usually dilutive to profitability. Thus, balancing the business mix between network rollout and professional services – customer support, network design and optimization, consulting and systems integration (CSI), network managed services – is central to the profitability.

Ericsson Annual Report on Form 20-F 2014

Business cycles in managed services

The managed services business model is different from the other services offerings as Ericsson takes over aspects of a customer’s business operation as a long-term commitment, over several years. The business model includes three phases of which the initial phase, the transition, is coupled with lower profitability, as it involves significant costs up front when staff and expertise are transferred from the customer to Ericsson. In the second phase, the transformation, Ericsson introduces its global processes, methods and tools and implements a global delivery model. In the third phase, Ericsson focuses on optimization and industrialization by simplifying, implementing and consolidating resources, processes, methods and tools to allow for improved profitability.

The Company has reached a good balance of contracts in the transition, transformation and optimization phases – with currently about 70% in the optimization phase – which have a beneficial effect on earnings and cash flow. Over time, the Company has advanced on the learning curve, which means that global synergies can be obtained, and thereby the initial phases can be shortened. This limits the negative impact on cash flow in the transition phase when going into new contracts.

Ericsson Annual Report on Form 20-F 2014

TARGETED AREAS

Global presence, software skills as well as the heritage of end-to-end and multi-technology expertise form a sound foundation for Ericsson’s business in targeted areas. The ability to implement the strategy depends on the capabilities to transform the targeted areas to value creative core businesses in the long term.

To remain relevant in the future market, Ericsson is investing in five targeted areas: IP Networks, Cloud, OSS and BSS, TV and Media as well as Industry and Society.

The Company intends to implement the strategy by building on existing capabilities in the core business and leveraging its technology and services leadership combined with global scale and skills.

The objective is to establish top three leadership positions in these targeted areas.

Ericsson already has a number one position in some of these areas, such as in OSS and BSS and in IPTV and media delivery, and intends to further strengthen the offering.

The targeted areas combined represented a market of USD 110–130 billion in 2013, with an estimated sales CAGR of about 10% (2013–2017).

The targeted areas thus have a higher growth rate than the core business. They also have some characteristics that are important – a high degree of software and professional services, more recurring revenues and less working capital. Since the target areas are adjacent to the core business, Ericsson believes that its global services expertise and software skills form a sound foundation for the business in these areas.

The introduction of new pricing models for software sales, with an up-front payment of a permanent license, usually supplemented by a support and maintenance contract is expected by Ericsson to imply a higher degree of recurring revenues.

The targeted areas play a significant role in the evolution of customers’ networks to match the demands of the Networked Society. There are currently approximately 6.7 billionAs the targeted areas require a high degree of services and have a high degree of software, they also support the development of the business mix to one where services and software clearly dominate.

Currently, a majority of the total business in targeted areas relates to services. Approximately half of the sales growth up until 2020 is estimated to be derived from the targeted areas. Income from these areas is expected to be accretive to operating margin over time.

Ericsson believes the combined strength of the product and professional services portfolio will be a competitive advantage.

Ericsson Annual Report on Form 20-F 2014

TARGETED AREA

IP NETWORKS

Ericsson believes it can build on a leading position in mobile subscriptions aroundbackhaul and packet core networks to grow the world,footprint in IP Networking for operators, where the Company wants to take a top three position. The market for IP Networks is expected to grow sales by CAGR 3–5% (2013–2017).

The market for IP Networks is driven by technology disruption and the proportionprevailing IT paradigm. An evolved network architecture has become a critical enabler of the fast introduction of new services and of the efficient handling of the increasing amount of data traffic. The legacy telecom networks were designed to deliver a limited number of services, such as voice and text messages, while the new IP-based multi-service networks create opportunities for operators to unlock the full potential of mobility, video and the cloud. It allows for increasingly virtualized network features, adding flexibility and paving the way for cooperation with new partners.

The network needs to be aware of consumers, services, devices, location in order to scale bandwidth and connections, while being much simpler to operate and maintain. This is enabled through unified management and orchestration including capabilities such as service provider software defined networking (SDN) and service awareness. With the support of Service Provider SDN, operators can orchestrate network resources on different layers for different purposes under the same management system.

IP networking solutions and Service Provider SDN are the key enablers to building a future network that is smart, simple, scalable and capable of delivering superior performance.

TARGETED AREA

CLOUD

Ericsson intends to use its network experience and competence to create compelling cloud solutions and strives to be number 1 in operator telecom cloud. The strategy includes the development of a broad range of offerings.

The IT paradigm and technology disruption drives the demand for cloud solutions to enable more flexible access to real time services. Ericsson strives to ensure that products are ready for deployment in any type of cloud environment, and that applications are suitable for moving to virtualized environments.

Network functions virtualization (NFV) offers a way to rationalize and simplify operations as well as speed up innovation, primarily for parts of the core and transport networks. The technology enables the network to allocate resources to IP-based services and applications according to capacity demand. Through NFV, combined with software defined networking (SDN), the hardware and software are decoupled and the functionality is virtualized.

An architecture built on cloud allows the operator to instantly deploy, modify and scale services and applications, and it enables an easier adaption of network characteristics and resources to serve the dynamic and real-time nature of new services. The virtual infrastructure is thus extended beyond the traditional computing and storage resources.

NFV and SDN together open up the opportunity for operators to implement services more quickly and flexibly and to reduce opex and to some extent capex.

Ericson recently added telecom cloud transformation as a CSI (consulting and systems integration) offering to enable operators to provide high-performance services in the virtualized network.

In 2014, Ericsson acquired a majority stake in Apcera to strengthen the cloud offering for the Enterprise IT market and entered into partnership with Guardtime to deliver secure clouds.

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TARGETED AREA

OPERATIONS AND BUSINESS SUPPORT SYSTEMS (OSS AND BSS)

Ericsson has a complete end-to-end OSS and BSS software offering and consulting, systems integration and IT managed services capabilities. OSS and BSS systems allow operators to manage the network, provide high-quality user experience and quickly introduce new services and charge for them.

The fragmented OSS and BSS market is expected by the Company to increase sales by CAGR 5–7% (2013–2017). Ericsson believes that its software expertise and real-time network experience are competitive advantages in this market.

The ambition is to extend the installed OSS and BSS base while also expanding the service offerings for transformation.

The OSS and BSS software offerings are based on a modular architecture, which means that the products are configurable and easily integrated and thereby also less expensive to maintain. Focus is on process-oriented, pre-integrated software suites to differentiate the offering and to speed up time to market.

Ericsson supports the transformation of OSS and BSS through these software suites combined with consulting and systems integration services, so that operators can adapt to rapidly changing and competitive markets. Through simplified processes and better business efficiency, Ericsson helps operators reduce total cost of ownership.

Most importantly though, OSS and BSS transformations can provide competitive advantages for operators through better targeted offerings to their customers, better user experience and improved customer service.

In Ericsson’s role as a consolidator of operators’ OSS and BSS systems, scale is an important foundation for generating profitability.

As the number of connected devices increases, so does the number of individualized subscriptions and price plans, and this increase will require real-time processing. Based on Ericsson’s real-time data expertise, its charging and billing software suite allow for quick introduction of new pricing models and offerings that enable value creation.

The software suite allows operators to provision, and charge for, the user services in an efficient way. It also offers operational efficiency through efficient data monetization including charging and billing, policy management and actionable insight via telecom analytics.

The OSS system provides the foundation for an integrated solution for network services and over-the-top (OTT) services, as well as big data and analytics. This means that the OSS and BSS solutions enable the operators to manage user interactions and capitalize on the revenue streams that data generates, through offering efficient management of the operators’ customers as well as of their networks.

The software suite and related services match the key operator success factors of user experience, business efficiency and innovation.

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TARGETED AREA

TV AND MEDIA

Ericsson’s ambition is to be the transformation partner of choice as the TV and Media industry undergoes change. The connectivity and capability of broadband is redefining the user, business and technology aspects of digital entertainment.

Ericsson has over 20 years of experience of content creation, exchange, distribution and delivery of TV. Ericsson expects the TV and Media market to have a sales CAGR of 11–13% (2013–2017).

Ericsson aims to enable the evolution of TV by creating innovative solutions that enable content owners, broadcasters, TV service providers, and network operators to efficiently deliver, manage and monetize new TV experiences. The Company does this by combining a product portfolio that spans the TV value chain, complemented by systems integration and broadcast managed services.

The offering includes a software portfolio of TV platforms, end-to-end video delivery network solutions for video compression that enable new consumer services such as digital TV, High Definition (HD) and 3D.

Ericsson launched the Ericsson MediaFirst TV Platform in 2014, a software-defined platform for the creation, management and delivery of next generation Pay TV. It is an end-to-end cloud-based platform for TV service providers.

Ericsson’s media delivery network (MDN) solution empowers IP network owners with a suite of tools to efficiently manage video traffic, and ensure user experience while enabling new revenues. With network control and efficiency from content to consumer, it positions operators for fast time-to-market and monetization.

The broadcast market is in the midst of a technology disruption, caused by the over-the-top (OTT) companies, and the need for operational efficiency, which drives demand for outsourcing of broadcast services and for IP transformation. Ericsson has expanded its established model for network and IT managed services to deliver broadcast services. These services capabilities enable broadcasters to make significant capex and opex savings through automating processes and standardization in processes, methods and tools, while applying Ericsson’s global populationdelivery model and services capabilities. Ericsson assumes responsibility for technical platforms, which means that the broadcaster can reduce time to market and minimize business continuity risks.

Ericsson’s solutions address the demands of the traditional broadcasters, as well as those of new entrants. Both customer segments face the challenge of adapting to a fast-changing and complex technological landscape. The combination of products and consulting, systems integration, training, and broadcast managed services allow Ericsson to advise, guide, support, implement and manage its customers’ transformation in the evolution of TV.

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TARGETED AREA

INDUSTRY AND SOCIETY

There is a high demand for connectivity and intelligent systems in markets such as utilities, transport and public safety. Ericsson believes that many of the demands in these market segments, which it refers to collectively as “Industry & Society”, can be met with the Company’s existing portfolio.

Ericsson’s capabilities, combined with its proven record of commercializing advanced ICT solutions, provides a solid foundation for bringing innovative capabilities into industry verticals while providing efficiencies of scale.

The ambition is to strengthen the number one position in solutions for operators to become a leading professional services provider in three adjacent selected industry verticals; initially utilities, transport and public safety.

The rapid uptake of connected devices and self-service applications is changing the way companies do business. The mobile network access—knownis fundamental to this development. Under the designation of Industry and Society, the industry verticals of utilities, transport and public safety play an important role in Ericsson’s strategy to grow in adjacent industries, reusing and extending the current portfolio of both products and services.

These selected industries are rapidly transforming driven by mobility and evolving technologies entering the market, such as population coverage—smart grids, intelligent transport systems and multimedia services. The technology shifts offer new business opportunities for Ericsson.

Ericsson’s technology and services leadership form the foundation on which to expand the business by addressing new customers across the selected industry-vertical industries. The Company brings innovative thinking, a deep understanding of a wide variety of communications technologies and experience in designing, deploying and managing services globally for the Networked Society.

One of the innovative offerings is constantly increasingthe Connected Vehicle Cloud which targets the global automotive industry’s existing and future demands for scalability, security and flexibility in the provisioning of connected car services to drivers and passengers.

The selected industries are also facing increased demand on sustainability and efficiency – demands that Ericsson can address by leveraging its technology leadership in its core business.

The telecom network and related services that Ericsson offers, including network infrastructure and professional services, meet communication needs that the industry verticals require, and helps to fulfill requirements of high reliability and high speed. The need for broadband connectivity is becoming critical, and, in Ericsson’s view, proprietary networks are no longer necessary to cater for the vast needs in specific industries.

The resources in technology, consulting, systems integration and managed services on a global scale enables Ericsson to address adjacent industries. The selected industries can benefit from Ericsson’s mobility expertise and services innovation, while the Company expands its footprint into new high-growth markets and brings disruptive change into the rapidly transforming industries.

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RESOURCE ALLOCATION

Ericsson reallocates capital and resources to support the strategy. Investments in services capabilities goes hand in hand with investment in product development, sales capabilities and in acquisitions and partnering.

Ericsson has always been a company driven by innovation – in technology and business. The Company’s long-term leadership in technology and services is a result of continuous efforts to invest in the ability to deliver customer value and to be relevant in the future.

R&D investment

R&D investments are the foundation for maintaining a technology leadership position. Investments in R&D keep the product portfolio and customers in front of a rapidly transforming market and to safeguard, secure and improve technology leadership. Ericsson will continue to invest a substantial part of R&D in the core area of Radio, Core and Transmission, to further enhance the capabilities in areas such as small cells and 5G. R&D investments in software are significant, as mobile networks are increasingly software-centric.

Ericsson will prioritize R&D investments in targeted areas to win technology leadership positions in these areas. R&D investments in the targeted areas will help the company expand the positions in areas such as IP Networks and Cloud.

Continuous focus will also be on finding better ways to do things internally, including how to further improve R&D agility. Lean and agile workflows in R&D has enabled Ericsson to bring innovations faster to the market and to increase operational efficiency.

During 2014, Ericsson opened its first ICT center in Sweden where R&D engineers can work beyond borders more easily and efficiently, bringing innovation and providing industry-leading cloud-enabled technology faster to the market. Two additional ICT centers are expected to be opened in 2015 – one in Canada and another in Sweden.

Investment in services capabilities

In Telecom Services, the global knowledge base enables Ericsson to develop new solutions that can be reused to offer benefits to customers. Locally, in each region, Ericsson professionals work with customers to develop innovative, scalable solutions. Best practices are shared across regions, boosting quality and efficiency. When a successful customer solution is proven in one region, it can be rolled out globally. Ericsson has invested in common global processes, methods and tools to enable synergies and efficiency gains to safeguard the global scale advantage.

Acquisitions and partnering

Ericsson has made specific acquisitions to strengthen the offerings in the targeted areas. In core areas, especially in Radio, Core and Transmission, the acquisition activities have mainly been related to consolidation activities and to create synergies to extend the leadership position. The strategy to establish leadership in targeted areas includes investing to accelerate growth and to improve Ericsson’s competitive position through small bolt-on acquisitions and strategic partnering agreements.

The ambitions of M&A and partnering activities are to fill portfolio gaps, to improve scale and skills and, above all, to strengthen the ability to create value. The activities address both product and services companies. In 2014, Ericsson invested in companies like Red Bee Media, MetraTech and Apcera and also partnered with Guardtime in the area of secure cloud.

Investment in sales competence

Investment in new competence is required for new solutions in the targeted areas, not only for R&D but also in sales resources as well as in service delivery resources to allow for economies of scale.

In 2014, Ericsson increased investments in sales capabilities particularly for Cloud and IP. Industry and Society customers were first addressed in three regions to learn how to sell and deliver in this customer segment. After the initial phase, sales processes and ways of working are reused in other regions to get scale.

Ericsson Annual Report on Form 20-F 2014

THE IPR PORTFOLIO

Licensing of intellectual property rights (IPR) contributes to a fair return on R&D investments and is a key element in Ericsson’s growth strategy.

The royalty-based IPR (Intellectual Property Rights) licensing business is a key element in the strategy to capture growth. Higher IPR revenues have an accretive impact on profitability.

Aligning with the strategic direction and ambition to grow faster than the market, these revenues are expected to continue to increase. The IPR strategy is to enlarge IPR licensing revenues by expanding the technology licensing portfolio to cover other products and by broadening Ericsson’s customer base beyond handset manufacturers and into new industries.

The Company has created a licensing portfolio, representing the value of technology knowhow and R&D. The portfolio includes both technology and patent licensing. The defensive value of the IPR portfolio protects the sales of Ericsson’s products and services as cross-licensing agreements are signed with other major IPR holders. The offensive value allows Ericsson to commercialize and obtain a fair return on the IPR portfolio. Both these values are direct returns of the investments made in R&D. Over the past five years, annual R&D investments have been on average 33 billion and revenues from the IPR licensing business has increased over time but decreased slightly in 2014, to SEK 9.9 billion.

In technology licensing, Ericsson provides specifications to proprietary technologies such as different interfaces, while the patent licensing includes giving access to essential patents for different technology standards.

Ericsson complies with its commitment, to standardization bodies, to license essential patents on fair, reasonable and non-discriminatory (FRAND) terms, which implies that accumulated costs are kept at a reasonable level. Ericsson’s view is that owners of essential patents should be compensated proportionally to their technology contribution to the standard. An example of a cross-licensing agreement is the multi-year license agreement between Samsung and Ericsson. The agreement covers patents for 2G, 3G, and 4G standards for networks and handsets.

Ericsson’s innovative portfolio is the result of the work of 25,000 R&D engineers. Most of the patents developed within the R&D organization are in wireless technology. Ericsson is involved in industry-wide standardization processes regarding mobile technologies and standards. By addressing the issue of spectrum by improving spectral efficiency with new technologies or features, and taking part in the industry decision-making regarding new suitable frequency bands, Ericsson has helped to render the development of many new technologies and patents. With more than 37,000 patents granted, the Company has one of the industry’s strongest patent portfolios.

Ericsson Annual Report on Form 20-F 2014

BUSINESS STRUCTURE

The strategic direction is to:

Excel in core business

Radio, Core and Transmission and Telecom Services.

Establish leadership in targeted areas

IP Networks, Cloud, OSS & BSS, TV and Media and Industry & Society.

Expand in new areas

with future possibilities and growth.

To best reflect the business focus, Ericsson reported four business segments 1) in 2014

Radio, Core and Transmission, as well as IP Networks and Cloud report into Networks, while Telecom Services report into Global Services. The product and software deliveries of OSS and BSS, TV & Media, report into Support Solutions, while services related to these areas report into Global Services. Industry and Society reports into Global Services. Many of the areas therefore have elements of both product and services.

Each business segment contains various shares of sales from the targeted areas. Sales in targeted areas showed a growth of more than 10% in 2014.

Read more in the Board of Directors’ Report on page 38.

Ericsson Annual Report on Form 20-F 2014

SEGMENT NETWORKS

Ericsson provides the network infrastructure needed for mobile and fixed communication, including 2G, 3G and 4G radio networks, and IP core and transport networks.

Within segment Networks, the strategy is to lead the radio evolution, grow IP networking and transform to cloud core.

Networks delivers products and solutions needed for mobile and fixed communication, including 2G, 3G and 4G radio networks, IP and transmission networks, core networks and cloud.

The main offerings include:

Networks’ major business models have so far been based on network coverage and network capacity expansions and upgrades. The revenue mix consists mainly of hardware and software. Gross margins are reaching outaffected by the business mix between sales of upgrades and expansions and coverage or new build-outs. Network coverage build-out, which is mainly hardware related, is to a large extent done on site, supported by Ericsson’s network rollout services, while upgrades and expansions usually involve software and professional services, and are often delivered remotely. The Company is transforming its business model to be more software based, with an increasing share of royalty and more people every year.license-based revenues.

GSM/EDGE technology has by far the widest reach today, covering more than 85% of the global population. The areas yet to be reached by GSM/EDGE are in thosesome countries that use the technology are sparsely populated.

Further expansion of Demand for WCDMA/HSPA will beis driven by increased user demand for internet access, the growing affordability of smartphones and regulatory requirements to connect the unconnected.

Even in the early days In terms of LTE rollout, at the end of 2012, it was estimated that the technology covered 10% of the world’s population. Looking ahead six years, Ericsson predicts that this will increase to more than 65%.

In 2013, global smartphone shipments outnumbered those of classic feature phones. The 1.9 billion smartphones subscriptions today are mainly in mid-to-high-end markets; the next billion is set to be mass-market phones now being introduced at USD 50-100. The continued growth in smartphones is changing consumer behaviorcapacity and creating new lifestyles around the world. Another factor is the accelerating usage of tablets of which only around 25% are currently connected to mobile networks.

A large proportion of the increasing data traffic—demand for smartphones, tablets and computers—comes from video, on websites, and through streaming, downloads, video applications and gaming. Video is more sensitive to network

Ericsson Annual Report on Form 20-F 2013

quality than many other forms of data traffic, a fact that makessuperior network performance, even more important.

The opportunities that these factors represent will increase demand for networks, drive the expansion of mobile broadband and pave the way for growth in new information services and data business.

CHANGING CONSUMER EXPECTATIONS

Today’s social, collaborative and sharing culture brings individual empowerment, new consumption patterns and stronger civic participation. It also brings an expectation of an always-on connection to the network and access to services wherever you are. For many people, a service delivered over the network—rather than ownership—is becoming the preferred way to consume and access content such as music and video, and is also becoming increasingly important in areas such as health, education and other public services.

INNOVATION IN ENTERPRISES

Industries such as media, commerce, utilities, transportation, health and education are using ICT to create new business and improve performance of today’s operations. New, disruptive players, such as Spotify and Netflix, are challenging the prevailing models of their respective music and television/video industries. This accelerating innovation power is based on the combination of skilled, demanding users who expect better ways to get what they want, the availability of highly capable networks, and powerful ICT-based business platforms.

OPERATOR BUSINESS DEVELOPMENT

Operators are at the center of the development of the Networked Society. Significantly, they are capitalizing on the growth in mobile broadband growth by introducing new pricing and revenue models. Rather than the all-you-can-eat models of a few years ago, we now see better-targeted offerings based on usage patterns, capacity, service bundles, multi-device plans and real-time features such as top-up plans. Operators are also increasing investments in, and focus on, developing new businesses in media and entertainment, cloud and IT services, machine-to-machine communications and enterprise offerings, as well as industry solutions in areas such as connected cars, health services and mobile money.

DIFFERENTIATION THROUGH NETWORK PERFORMANCE

In a smartphone and tablet-centric world, broadband becomes the main enabler and applications a key service model. The consumer and business user experience is increasingly determined by the actual performance of applications, and the network needs not only to provide access but also safeguard and optimize the actual performance of the applications used. Research by Ericsson ConsumerLab provides clear evidence of the business value of a superior consumer experience.

Operators that establish, demonstrate and promote a better user experience can take a lead in terms of satisfaction, loyalty and business value. Ericsson has established an approach to assessing and securing the performance of networks in relation to a real application experience. We call it App Coverage and have developed a set of indicators to measure and ensure network performance in terms of the application experience. We discuss this concept further in the Mobile Broadband section on Page 19.

OPERATOR TRANSFORMATION

Higher data volumes, more devices, demanding applications and new service offerings to consumers, enterprises and industries all increase pressure on operators to meet customer expectations. This calls for a rapid transformation where improved network performance, more efficient processes and better structured OSS and BSS implementations enable the proactivity, agility and performance that the business portfolio requires.

The combination of Ericsson’s technology and services leadership with business expertise and wide network of partners allows us to contribute to both network and business transformation for operators in markets around the world.

Ericsson Annual Report on Form 20-F 2013

OPERATOR EVOLUTION

Many operators are focusing on the user experience as a means of differentiation, with improved customer service and added-value services in order to increase customer loyalty and reduce retention costs. Increased focus on improved efficiency and core business is in many cases leading to new operational practices such as outsourcing and managed services partnerships.

Operators are also taking a sharper strategic focus. The three roles here are representative strategies adopted by several customers:

Ericsson works closely with operators to support their different strategic development ambitions, providing solutions that grow business and meet the operational priorities of all three roles. Among our key offerings are:

Ericsson’s technical and business expertise and solutions make it possible for operators to explore new roles and capture the new opportunities they can offer.

Ericsson Annual Report on Form 20-F 2013

OUR MARKETS

Understanding of our customers and their businesses helps us provide innovative offerings that ensure we and they stay ahead in every market.

CUSTOMERS IN MORE THAN 180 COUNTRIES

Ericsson’s business is characterized by long-term relationships, mainly with large telecom operators. We serve more than 500 operator customers, and an increasing number of non-operator customers, in more than 180 countries. We have been in many of these markets for more than 100 years.

We provide solutions and services to all major telecom operators in the world. Sales to telecom operators represent the vast majority of our revenues. Our ten largest customers, of which half are multinational, account for 44% of our net sales.

Our customers operate in a variety of markets and are at various levels of technological maturity. Their business focuses also differ depending on the maturity of their markets.

The installed base of radio networks is the foundation for Ericsson’s business with mobile operators. We are also expanding into other domains such as IP core networks, OSS and BSS, as well as the TV and media markets.

Over the past ten years, we have built a significant services business, representing 43% of net sales in 2013 (42% in 2012). Ericsson pioneered managed services, and continues to be the undisputed leader. Success in areas such as managed services, consulting and systems integration in turn creates opportunities for more business.

In recent years, we have expanded into TV and media. Users are consuming more video, which is an increasing source of data traffic in mobile networks—35% at the end of 2013. Video is forecast to account for more than half of all mobile network traffic in 2019. In this domain, we can reuse skills, methods and tools from our telecom managed services in the operation of broadcast services for TV and media companies.

Through the acquisition of Tandberg Television in 2007 and Microsoft’s Mediaroom in 2013, we are now also a leader in the IPTV and video compression business, with multi-screen solutions for TV Anywhere.

REINVENTING THE WAY COMPANIES CREATE VALUE

To build the Networked Society, we have to offer our innovations more widely than to operators alone. This requires new ways to extend our reach. Today we also engage directly with customers in selected industry verticals—particularly utilities, transport and public safety.

Our aim is to reuse products, solutions and services for these customers. They either have similar business models to telecom operators, or gain from mobile broadband and the larger opportunity to connect anything that benefits from being connected. Connectivity is helping these sectors reinvent the way they create value.

Sometimes we do business in direct collaboration with these companies, and sometimes together with our operator customers. Business requirements—such as handling large volumes of subscription data, in machine-to-machine applications, for example—are often a common factor. Our strategy is to explore and commercialize emerging opportunities within and between these sectors.

Since the split-up of our joint venture ST-Ericsson in 2013, and the establishment of the Modems segment, handset and device manufacturers have become a new customer segment, to whom we will supply multi-mode thin modems.

Ericsson Annual Report on Form 20-F 2013

OUR STRATEGY

We aim to become a leading Information and Communications Technology (ICT) solutions provider by combining our core assets: Our people, our technology and services leadership, and global scale.

VISION AND MISSION

Ericsson’s vision is to be the prime driver in an all-communicating world. By using innovation to empower people, business and society, we are enabling the Networked Society, in which everything that benefits from a connection will be connected.

OUR STRATEGY

Ericsson’s strategy builds directly on our vision of a connected world in which broadband, mobility and the cloud combine to create the Networked Society.

The strategy is based on four pillars:

We are executing this strategy by leveraging our technology and services leadership combined with our global scale. These competitive advantages, together with the skills and experience of our employees, make Ericsson a true end-to-end business partner for network operators and customers in selected industry verticals as the Networked Society becomes a reality.

Our go-to-market approach is built on business units and regions. The business units develop solutions for specific business areas, while the regions cultivate strong relationships with our customers. This allows us to address customers’ needs, keep them satisfied and ensure we always deliver what we promise.

Our position and our influence also give us an opportunity – and a responsibility – to help address urgent global challenges such as poverty, human rights and climate change.

EXCEL IN NETWORKS

We will excel with a leading portfolio for high-performance networks. Our wanted position is to remain No.1 in networks for service providers and lead the transition to the network architecture that will enable the Networked Society.

Ericsson Annual Report on Form 20-F 2013

We intend to simplify the management of every component of an operator’s network, while exploring opportunities to build new services based on areas such as big data and analytics on top of networks.

As the leader in radio evolution, Ericsson will continue to drive the introduction of new standards and technologies, while defending our existing business with a strong migration story. We can build on our leading position in mobile backhaul and packet core networks to grow our footprint in IP and transport, and use our network experience to create compelling cloud solutions.

EXPAND IN SERVICES

We expect to expand our No.1 position in services for operators by becoming a professional services partner to new types of customers in selected industry verticals. The strength of our services business proves the value of combining local capabilities with global scale, and we will continue with this proven strategy while prioritizing innovation, competence and cost control.

Top of the agenda is ensuring the continued transformation of our professional services capabilities. This means continuing to build capabilities in IT services and ensuring we reuse and standardize as much as possible – a process we refer to as services industrialization. We expect to also expand in product-related services, where we will extend our capabilities in designing and optimizing networks and move into services for heterogeneous networks, wireless networks that use a range of access technologies.

We expect to continue to lead in managed services. At the same time, we intend to build our consulting and systems integration competencies further, with an increased focus on extending our OSS, BSS and IP network transformation offerings, and continuing to explore opportunities in industry verticals.

EXTEND IN SUPPORT SOLUTIONS

Our priority is to extend our support solutions business with OSS and BSS as well as TV and media solutions to get the most out of networks. Ericsson strives to provide solutions that contribute to the best customer experience, business innovation and business efficiency.

We intend to build on our extensive installed OSS and BSS base to strengthen our position even further. In particular, we continue to focus on customer experience management and analytics, cloud and next-generation business intelligence. In addition, we intend to use our m-commerce strength in developing markets to provide banking capabilities to everyone. Our acquisition of Microsoft’s Mediaroom shows our commitment to capturing the opportunities created by the ongoing transformation of TV and media. Our ambition is to be the industry’s TV and media partner of choice, and we strive to enable the most efficient video-delivery networks, exploit the growing need for on-demand content management and lead in the multi-screen and multi-platform market.

ESTABLISH A LEADING POSITION IN NETWORKED SOCIETY ENABLERS

With the Networked Society becoming a reality, we are establishing ourselves in the emerging new business landscape. Building on our technology and services leadership with intellectual property rights, machine-to-machine platforms and modems, we are creating new business with players across the selected industry verticals of the utility, transportation and public safety industries.

Ericsson’s capabilities, combined with our proven record of commercializing advanced ICT solutions, position us perfectly to build solutions that bring new innovative capabilities into these industry verticals while providing new efficiencies of scale.

LONG-TERM STRATEGY FRAMEWORK

Evolving to be the industry leader in the Networked Society, based on our core business, we expect to grow in targeted areas and invest in new areas.

As we allocate capital to support this strategy, investment in services capabilities goes hand in hand with investment in product development. Our growth strategy, leveraging our market footprint, is primarily through organic growth, but also in combination with acquisitions and partnerships.

Ericsson Annual Report on Form 20-F 2013

HOW WE CREATE VALUE

Ericsson develops and applies various business models for different types of businesses and different parts of the portfolio. Here we discuss two of our main business models targeting telecom operators.

Ericsson has worked for many years with large network-infrastructure projects. The operation of the resulting complex networks created a demand for managed services. The advent of mobile data led to a need for software-based support systems to monetize data services. Over the years, the business models have evolved to meet customer demand. All have similar basic investment-to-value models, but with some significant differences.

They all start with an initial investment phase, such as research and the development of new products, solutions and services.

The early phases of both infrastructure coverage and managed services projects have lower margins and profits, as explained in the diagrams on the next page. Profitability improves in both cases as the projects develop and mature.

Ericsson Annual Report on Form 20-F 2013

MOBILE BROADBAND INFRASTRUCTURE BUSINESS MODEL

Our most traditional business model is in network infrastructure, delivering and rolling out a physical network including all necessary hardware and software. The first phase involves building coverage across one or more geographical areas and often includes network rollout services. Subsequent phases include increasing network capacity, and adding functionality. Services include network design and optimization, and systems integration.

The initial build and rollout phase can take several years, is capital-intensive, open to competitive bidding, and usually involves lower margins. The later phases, extending the capacity and functionality of the established footprint, often involve a lower share of hardware but more professional services and software, which can be deployed remotely. These phases generally produce higher margins. The differing nature of the phases makes it important that we find a beneficial mix of coverage and capacity projects, in order to secure a good balance between growth and profitability.

MANAGED SERVICES BUSINESS MODEL

A different model applies to our managed services business. We take over aspects of a customer’s business operation, or even the entire operation, for a period of up to seven years. Staff and expertise are often transferred from the customer to Ericsson. The initial transition and transformation phases can involve significant costs up front. But by simplifying, implementing and consolidating resources, tools, methods and processes, we step by step reduce the costs and improve our returns. Most such contracts are subsequently renewed. We have a good balance of contracts in the transition, transformation and optimization phases – with the vast majority of the business in the optimization phase – which has a beneficial effect on revenue and cash flow.

Ericsson Annual Report on Form 20-F 2013

HOW WE WORK

Our competitive advantages and core values, our people and our ways of working, all combine to ensure we are always innovative and efficient, and do business responsibly and sustainably.

TECHNOLOGY AND SERVICES LEADERSHIP

Innovative solutions and unparalleled service offerings

We support our customers in the new ICT landscape by combining the advantages of our leadership in technology and services capabilities.

Our technical expertise is driven by innovation, research and development, delivering high network performance and enabling our customers to be first to market where it matters. We hold one of the largest patent portfolios in the industry, with more than 35,000 granted patents worldwide. We supplied the world’s first LTE network and have maintained our leading LTE position since the first rollout of LTE in 2009. We are also a leading support systems provider.

Ericsson is also the largest telecom services provider in the world, supporting operators in creating competitive, attractive and appealing offerings to consumers, while providing managed services to networks that serve more than 1 billion subscribers worldwide. We pioneered managed services for the telecom industry more than 10 years ago and remain the leader today.

GLOBAL SCALE