Telefonaktiebolaget LM Ericsson (ERIC) 6-K Current report (foreign)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

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

the Securities Exchange Act of 1934

January 29, 2021

Commission File Number 000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

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

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

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

Announcement of LM Ericsson Telephone Company, January 29, 2021 regarding “Fourth quarter and full-year report 2020”.

SIGNATURES

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

TELEFONAKTIEBOLAGET LM ERICSSON (publ)
By:	/s/ XAVIER DEDULLEN
	Xavier Dedullen
	Senior Vice President, Chief Legal Officer
By:	/s/ CARL MELLANDER
	Carl Mellander
	Senior Vice President, Chief Financial Officer

Date: January 29, 2021

Fourth quarter and full-year report 2020    

Stockholm, Jan 29, 2021

Fourth quarter highlights

• Sales adjusted for comparable units and currency grew by 13% YoY mainly driven by sales in North East Asia, Europe and North America. Reported sales were SEK 69.6 (66.4) b.

• Gross margin excluding restructuring charges improved to 40.6% (37.1%) with margin improvements in all segments. Reported gross margin improved to 40.6% (36.8%).

• Operating income excluding restructuring charges improved to SEK 11.0 b. (15.8% operating margin) from SEK 6.5 b. (9.7% operating margin) mainly driven by Networks. Reported operating income was SEK 11.0 (6.1) b.

• Networks sales increased by 20% YoY, adjusted for comparable units and currency. Operating margin excluding restructuring charges was 21.5% (14.5%).

• Reported net income was SEK 7.2 (4.5) b.

• Free cash flow before M&A was SEK 12.8 (-1.9) b. Q4 2019 included a payment of SEK 10.1 b. related to the resolution of the US SEC and DOJ investigations. Net cash Dec 31, 2020, was SEK 41.9 (34.5) b.

Full-year highlights

• Sales adj. for comp. units and currency grew by 5%, with Networks growing by 10%. Reported sales increased by 2% to SEK 232.4 b.

• Gross margin excl. restructuring charges was 40.6% (37.5%), with improvements in all segments.

• Reported operating income improved to SEK 27.8 (10.6) b.

• Reported net income was SEK 17.6 (1.8) b.

• Free cash flow before M&A amounted to SEK 22.3 (7.6) b. Full-year 2019 included a payment of SEK 10.1 b. related to the resolution of the US SEC and DOJ investigations.

• The Board of Directors will propose a dividend for 2020 of SEK 2.00 (1.50) per share to the AGM.

Planning assumptions highlights (please see page 6 for complete planning assumptions)

• Three-year average reported sales seasonality between Q4 and Q1 is -24%; however, the seasonal effect may be somewhat less pronounced due to 5G deployment in some of Ericsson’s markets.

SEK b.	Q4 2020			Q4 2019			YoY change			Q3 2020			QoQ change			Jan-Dec 2020			Jan-Dec 2019			YoY change
Net sales		69.6			66.4			5	%		57.5			21	%		232.4			227.2			2	%
Sales growth adj. for comparable units and currency		—			—			13	%		—			—			—			—			5	%
Gross margin		40.6	%		36.8	%		—			43.1	%		—			40.3	%		37.3	%		—
Operating income (loss)		11.0			6.1			80	%		8.6			27	%		27.8			10.6			163	%
Operating margin		15.8	%		9.2	%		—			15.0	%		—			12.0	%		4.6	%		—
Net income (loss)		7.2			4.5			60	%		5.6			29	%		17.6			1.8			—
EPS diluted, SEK		2.26			1.33			70	%		1.61			40	%		5.26			0.67			—
Measures excl. restructuring charges and other items affecting comparability¹
Gross margin excluding restructuring charges		40.6	%		37.1	%		—			43.2	%		—			40.6	%		37.5	%		—
Operating income excl.restr.charges & items affecting compar. in 2019 ²		11.0			5.7			92	%		9.0			23	%		29.1			22.1			32	%
Operating margin excl.restr.charges & items affecting compar. in 2019 ²		15.8	%		8.6	%		—			15.6	%		—			12.5	%		9.7	%		—
Free cash flow before M &A		12.8			-1.9			—			3.9			—			22.3			7.6			192	%
Net cash, end of period		41.9			34.5			21	%		41.5			1	%		41.9			34.5			21	%

¹  Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statements.

²  Operating income excludes restructuring charges in all periods and cost provisions related to the resolution of the SEC and DOJ investigations of SEK -11.5 b. in Q3 2019 as well as a partial release of the same provision of SEK 0.7 b. in Q4 2019.

1    Ericsson | Fourth quarter and full-year report 2020

CEO comments

As we navigate through the pandemic, health and well-being of our colleagues, customers and partners is our number one priority. Despite the challenges, our people continued to deliver and to serve our customers with very limited disturbances. Our R&D investments have continued to drive both technology leadership and cost efficiency which have led to increased market share and improved financial performance. We are today a leader in 5G with 127 commercial contracts and 79 operating networks around the world. Organic¹ sales grew by 5% for the full year. Our operating margin² of 12.5% (5.0%) exceeded our 2020 target and reached the 2022 Group target range two years early.

Networks sales grew organically¹ by 20%, reporting a gross margin² of 43.5% (41.1%) for Q4. This reflects continued high activity levels in North America and North East Asia, and also in Europe where we further increased market share. Networks delivered an operating margin² of 19% for full-year 2020 - well above the 15%-17% target. Investing in R&D is fundamental to our strategy. Since 2017 we have increased R&D investment by SEK 10 b. and delivered SEK 16 b. of improved operating income. Our growth during 2020 is built on a strong and competitive 5G portfolio.

Digital Services gross margin² grew to 41.0% (38.1%) in Q4. From 2017 to 2020, gross margin excluding restructuring charges and items affecting comparability increased from 29% to 42%, as a result of streamlined product portfolio, fewer critical contracts, a growing portion of software sales and lower service delivery costs. We continue to execute on the turnaround plan and the operating income² of SEK 0.5 b. in Q4 is the best quarterly result to date. The cloud-native 5G portfolio has a high win ratio and significant new customer contracts will start to generate revenues during the next 12-18 months. By selective R&D investments to accelerate our growth portfolio, we aim to capture further opportunities.

Managed Services delivered a gross margin² of 17.7% (15.4%) in Q4. Sales declined on operator consolidation in the US during 2020. The full-year 2020 operating margin² was 8.1% – above the 5%-8% target. We expect the margin profile to improve further with increasing sales of our Operations Engine with its high value-added services, driven by R&D investments in AI and automation. We see increasingly positive response from customers to our new portfolio.

Emerging Business and Other sales are growing in enterprise offerings such as IoT Platforms, complemented by the acquisition of Cradlepoint. Gross margin² improved to 33.8% (15.1%) driven by operational leverage from growth and lower cost as a result of the exited Edge Gravity business. Cradlepoint drives new revenues for mobile service providers and strengthens our position in the 5G enterprise market, alongside our existing Dedicated Networks and IoT portfolio. The underlying business in Cradlepoint develops according to plan. However, reported sales and costs for Cradlepoint are impacted by purchase price allocations and during 2021 our operating margin is expected to be negatively impacted by approximately -1 percentage point due to amortization of intangibles and increased cost for market expansion.

Free cash flow before M&A was SEK 22.3 (7.6) b. in full-year 2020. The Board will propose a dividend of SEK 2.00 (1.50) per share to the AGM, underlining the confidence in Ericsson’s business and financial position. In this context it is worth noting that we decided early on not to apply for any pandemic-related government support.

Patent licensing revenues for the full year amounted to SEK 10 b. As communicated in December, we are approaching important contract renewals, which could negatively impact 2021 and 2022 earnings (see planning assumptions on operating income, page 6). We are confident in the long-term value of our patent portfolio, including a strong position in 5G. We will seek to maximize the net present value of this portfolio, established over many years on the back of R&D investments. The IPR standardization framework, based on FRAND terms, underpins the interoperability of global wireless communications with more than 8 billion mobile subscriptions.

The pandemic has fast forwarded the digitalization of societies, including remote working, by months if not years. A resilient digital infrastructure is critical. We see more signs that countries and enterprises see 5G as a key access technology, with increasing deployment speed in Australia, the Middle East, North East Asia and the US. The pandemic has exposed the digital divide and rapid deployment of 5G is a fast way to bridge the divide.

The Swedish telecom regulator’s decision to exclude Chinese vendors from 5G networks may create exposure for our operations in China. Our business in 180 markets today has been built on free trade and open, competitive markets. This has also ensured the development of a single global standard for mobile communication. It is critical that responses to the geopolitical situation safeguard the extraordinary value associated with those operating standards for 5G and beyond.

During 2020 we further reinforced our strong commitment to ethics and compliance. We increased the investment with the recruitment of additional dedicated resources and the deployment of new or revised processes and controls. As a vital cornerstone, we put focus on establishing a durable ethical culture that is built on individual accountability for responsible business practices. The ongoing independent monitorship is providing valuable contributions to achieving our ambition.

Long-term business fundamentals remain strong and we will continue to invest in further strengthening our portfolio and growing our global footprint. While we expect temporary negative impact during 2021 from IPR renewals, Cradlepoint and investments to strengthen our long-term business, we remain fully committed to the 2022 target as a milestone towards the long-term EBITA³ target of 15%-18%.

I want to take this opportunity for a shout out to all my colleagues who have turned the business around including delivering on customer commitments during a raging pandemic. I’m proud to be part of this team!

Stay healthy and well.

Börje Ekholm

President and CEO

¹  Sales adjusted for comparable units and currency

²  Excluding restructuring charges

³  Excluding restructuring charges and amortization of intangible assets

2    Ericsson | Fourth quarter and full-year report 2020 CEO comments

Financial highlights

Net sales development

SEK b.	Q4 2020		Q4 2019		YoY change			YoY adj.¹			Q3 2020		QoQ change			Jan-Dec 2020		Jan-Dec 2019		YoY change			YoY adj.¹
Netsales		69.6		66.4		5	%		13	%		57.5		21	%		232.4		227.2		2	%		5	%
of which Networks		49.4		44.4		11	%		20	%		41.7		19	%		166.0		155.0		7	%		10	%
of which Digital Services		12.7		13.2		-4	%		3	%		8.7		45	%		37.3		39.9		-6	%		-3	%
of which Managed Services		5.8		7.0		-17	%		-12	%		5.5		6	%		22.6		25.6		-12	%		-10	%
of which Emerging Business and Other		1.7		1.7		0	%		-4	%		1.6		10	%		6.5		6.8		-4	%		-4	%

¹  Sales growth adjusted for comparable units and currency. Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statements.

Fourth quarter comments

Group reported sales increased by 5% YoY. Sales growth adjusted for comparable units and currency was 13%, primarily driven by 5G deployments in North East Asia, North America and in Europe. Sales in Middle East & Africa and in Latin America declined, primarily due to macroeconomic conditions in combination with weak currencies, partly as a result of Covid-19.

IPR licensing revenues increased to SEK 2.6 (2.5) b. as lower volumes with one licensee were offset by new contracts.

Networks sales adjusted for comparable units and currency increased by 20% YoY primarily driven by growth from 5G deployments in North East Asia and North America as well as market share gains in Europe.

Digital Services sales adjusted for comparable units and currency increased by 3% YoY driven by growth in cloud infrastructure. Sales adjusted for currency grew in four of the five market areas.

Managed Services sales adjusted for comparable units and currency decreased by -12% YoY, mainly due to lower variable sales in a managed services contract in North America post the merger between two large operators, and transfer of a managed services contract to an associated company.

Emerging Business and Other sales adjusted for comparable units and currency decreased by -4%, partly driven by Emerging Business.

Sequentially, Group reported sales increased by 21% with growth across all market areas.

Full-year comments

Reported sales increased by SEK 5.2 b. or 2% to SEK 232.4 (227.2) b. Networks sales increased by SEK 11.0 b. or 7%, Digital Services sales decreased by SEK -2.5 b. or -6%, Managed Services sales decreased by SEK -3.0 b. or -12% and Emerging Business and other sales decreased by SEK -0.3 b. or -4%. Sales adjusted for comparable units and currency increased by 5%.

IPR licensing revenues increased to SEK 10.0 (9.6) b. as lower volumes with one licensee were offset by new contracts.

Networks sales adjusted for comparable units and currency increased by 10%. Sales growth was primarily driven by North East Asia, North America and Europe.

Digital Services sales adjusted for comparable units and currency declined by -3%, mainly impacted by a sales decline in the legacy portfolio, primarily in hardware. Sales grew YoY in South East Asia, Oceania & India and in North East Asia.

Managed Services sales adjusted for comparable units and currency decreased by -10%, mainly due to lower variable sales in a managed services contract in North America post the merger between two large operators, and transfer of a managed services contract to an associated company.

Emerging Business and Other sales adjusted for comparable units and currency decreased by -4%. Emerging Business sales grew driven by Cradlepoint and IoT platforms.

In the market area dimension, sales growth in North East Asia, North America as well as in South East Asia, Oceania and India offset a decline in the two remaining market areas.

The sales mix by commodity was: software 22% (21%), hardware 41% (38%) and services 37% (41%).

3    Ericsson | Fourth quarter and full-year report 2020 Financial highlights

Income and margin development

SEK b.	Q4 2020			Q4 2019			YoY change			Q3 2020			QoQ change			Jan-Dec 2020			Jan-Dec 2019			YoY change
Net sales		69.6			66.4			5	%		57.5			21	%		232.4			227.2			2	%
Gross income		28.3			24.4			16	%		24.8			14	%		93.7			84.8			10	%
Gross margin		40.6	%		36.8	%		—			43.1	%		—			40.3	%		37.3	%		—
Research and development (R&D) expenses		-10.4			-10.6			—			-10.1			—			-39.7			-38.8			—
Selling and administrative expenses		-7.4			-8.2			—			-6.0			—			-26.7			-26.1			—
Impairment losses on trade receivables		0.3			-0.2			—			—			—			0.1			0.7			-84	%
Other operating income and expenses		0.4			0.8			-50	%		0.1			—			0.7			-9.7			—
Operating income		11.0			6.1			80	%		8.6			27	%		27.8			10.6			163	%
of which Networks		10.6			6.4			66	%		9.2			16	%		30.9			24.8			25	%
of which Digital Services		0.5			-0.2			—			-0.6			—			-2.2			-4.0			—
of which Managed Services		0.4			0.3			37	%		0.5			-18	%		1.6			2.3			-32	%
of which Emerging Business & Other		-0.5			-0.4			—			-0.4			—			-2.4			-12.5			—
Operating margin		15.8	%		9.2	%		—			15.0	%		—			12.0	%		4.6	%		—
Financial income and expenses, net		-0.1			-0.1			—			0.1			—			-0.6			-1.8			—
Taxes		-3.7			-1.6			—			-3.2			—			-9.6			-6.9			—
Net income		7.2			4.5			60	%		5.6			29	%		17.6			1.8			—
Restructuring charges		0.0			-0.3			—			-0.3			—			-1.3			-0.8			—
Measures excl.restructuring charges and other items affecting comparability¹
Gross margin excluding restructuring charges		40.6	%		37.1	%		—			43.2	%		—			40.6	%		37.5	%		—
Operating income excl.restr.charges & items affecting compar. in 2019 ²		11.0			5.7			92	%		9.0			23	%		29.1			22.1			32	%
Operating margin excl.restr.charges & items affecting compar. in 2019 ²		15.8	%		8.6	%		—			15.6	%		—			12.5	%		9.7	%		—
Operating margin excluding restructuring charges		15.8	%		9.7	%		—			15.6	%		—			12.5	%		5.0	%		—

¹  Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statements.

²  Operating income excludes restructuring charges in all periods and cost provisions related to the resolution of the SEC and DOJ investigations of SEK -11.5 b. in Q3 2019 as well as a partial release of the same provision of SEK 0.7 b. in Q4 2019.

Fourth quarter comments

Gross margin

Reported gross margin was 40.6% (36.8%). Gross margin excluding restructuring charges improved to 40.6% (37.1%) with margin improvements in all segments. Operational leverage contributed to the higher margin in Networks. In Digital Services an increased share of software supported the higher margin. There was limited impact of critical contracts in Q4 2020 while the impact in Q4 2019 was SEK -0.3 b. Managed Services gross margin improved mainly as an effect of efficiency gains.

Sequentially, reported gross margin decreased to 40.6% from 43.1%. Gross margin in Q3 was positively impacted by a high share of software sales in both Networks and Digital Services while Q4 had a higher share of hardware.

Restructuring charges

Restructuring charges amounted to SEK 0.0 (-0.3) b. in the quarter.

Research and development (R&D) expenses

R&D expenses amounted to SEK -10.4 (-10.6) b. The decline was mainly a result of currency impact. R&D expenses increased in segment Emerging Business & Other due to the acquisition of Cradlepoint.

Selling and administrative (SG&A) expenses

SG&A expenses were SEK -7.4 (-8.2) b. Lower costs for travel and trials as well as currency impact more than offset the increased expenses due to the acquisition of Cradlepoint.

Revaluation of customer financing was SEK 0.0 (-0.2) b.

Impairment losses on trade receivables

Impairment losses on trade receivables were SEK 0.3 (-0.2) b.

Other operating income and expenses

Other operating income and expenses was SEK 0.4 (0.8) b. In Q4 2019 a provision related to the resolution of the US SEC and DOJ investigations was released with a positive impact of SEK 0.7 b. In Q4 2020, SEK 0.3 b. of the provision related to costs for the compliance

monitor was released. The monitorship was part of the US SEC and DOJ resolution. Q4 2019 was further impacted by

SEK -0.3 b. from the wind-down of the former JV between Ericsson and STMicroelectronics.

Share in earnings of JVs and associated companies was SEK -0.1 (0.0) b.

Operating income and margin

Reported operating income improved to SEK 11.0 (6.1) b. YoY. Operating income excluding restructuring charges was SEK 11.0 (6.5) b. corresponding to an operating margin of 15.8% (9.7%). The improvement was mainly driven by improved gross margin as well as lower SG&A expenses.

Sequentially, reported operating income increased to SEK 11.0 b. from SEK 8.6 b. Operating income excluding restructuring charges increased to SEK 11.0 b. from SEK 9.0 b. Operating income improved in all segments in the quarter with Networks and Digital Services as the main contributors.

Financial income and expenses, net

Reported financial net was SEK -0.1 (-0.1) b. There was a positive currency hedge effect following the strengthened SEK to USD. The currency hedge effect was SEK 0.6 b. in the quarter compared with SEK 0.2 b. in Q4 2019. Sequentially financial net declined to SEK -0.1 b. from SEK 0.1 b. with the currency hedge effect up from SEK 0.3 b. in the third quarter. The SEK strengthened against the USD between September 30, 2020 (SEK/USD rate 9.00) and December 31, 2020 (SEK/USD rate 8.19).

Taxes

Taxes were SEK -3.7 (-1.6) b. The effective tax rate in Q4 was 34% compared with 36% in Q3 2020. The tax rate was impacted by non-deductible costs in the quarter.

Net income

Net income improved to SEK 7.2 (4.5) b. and EPS diluted improved to SEK 2.26 (1.33) YoY driven by the stronger operating income.

4    Ericsson | Fourth quarter and full-year report 2020 Financial highlights

Employees

The number of employees on December 31, 2020, was 100,824 compared with 99,826 on September 30, 2020. The increase derives mainly from the acquired Cradlepoint business.

Full-year comments

Gross margin

Reported gross margin was 40.3% (37.3%). Gross margin excluding restructuring charges improved to 40.6% (37.5%) YoY with strong margin improvements in all segments. A lower share of services sales had a positive impact on the gross margin. Networks margin was supported by operational leverage. Digital Services margin improved due to increased share of software as well as limited impact from the critical contracts in 2020. Managed Services gross margin improved mainly as an effect of efficiency gains.

Restructuring charges included in the gross margin increased to SEK -0.7 (-0.3) b.

Restructuring charges

Restructuring charges increased to SEK -1.3 (-0.8) b. YoY. The restructuring charges were mainly related to restructuring of the acquired antenna and filter business in segment Networks and to organizational changes as a consequence of the operator merger in North America.

Research and development (R&D) expenses

R&D expenses increased to SEK -39.7 (-38.8) b. R&D expenses increased in segment Networks through increased investments in a broader portfolio of antenna and site solutions and in 5G, while R&D investments in Digital Services decreased.

Restructuring charges impacted R&D expenses by SEK -0.4 (-0.3) b.

Selling and administrative (SG&A) expenses

SG&A expenses increased to SEK -26.7 (-26.1) b. mainly due to the acquired Cradlepoint business as well as continued investments in compliance and digital transformation. Revaluation of customer financing was SEK -0.3 (-0.7) b. Restructuring charges impacted SG&A expenses by SEK -0.2 (-0.1) b.

Impairment losses on trade receivables

Impairment losses on trade receivables were SEK 0.1 (0.7) b.

Other operating income and expenses

Other operating income and expenses was SEK 0.7 (-9.7) b. Costs of SEK -10.7 b. related to the resolution of the US SEC and DOJ investigations negatively impacted 2019.

Share in earnings of JVs and associated companies was SEK -0.3 (-0.3) b.

Operating income and margin

Reported operating income improved to SEK 27.8 (10.6) b. YoY. Operating margin was impacted by SEC and DOJ resolution costs of SEK -10.7 b. in 2019. Operating income, excluding restructuring charges and the SEC and DOJ resolution costs in 2019, improved to SEK 29.1 (22.1) b. in 2020, with an operating margin excluding restructuring charges of 12.5% (9.7%). The improvement was primarily driven by hardware sales in segment Networks.

Financial income and expenses, net

The financial net improved to SEK -0.6 (-1.8) b., mainly due to positive currency hedge effects. The currency hedge effects, which derive from the hedge loan balance in USD, impacted financial net by SEK 1.0 (-0.3) b. The SEK strengthened against the USD between December 31, 2019 (SEK/USD rate 9.32) and December 31, 2020 (SEK/USD rate 8.19).

Taxes

Taxes were SEK -9.6 (-6.9) b. impacted by the increased income. The tax rate in 2020 was 35%. Costs of SEK -10.7 b. related to the resolution of the US SEC and DOJ investigations were handled as non-tax-deductible in 2019. Excluding these costs, the 2019 tax rate was approximately 35%.

Net income

Net income improved to SEK 17.6 (1.8) b. driven by stronger operating income. EPS diluted was SEK 5.26 (0.67) and adjusted EPS (non-IFRS) was SEK 5.83 (1.07).

Employees

The number of employees on December 31, 2020, was 100,824, an increase of 1,407 employees compared with December 31, 2019. The increase is mainly to be found in the employee categories of R&D, product management and sales. 709 employees joined through the acquired Cradlepoint business.

5    Ericsson | Fourth quarter and full-year report 2020 Financial highlights

Planning assumptions

Market related

• The global RAN equipment market is estimated to grow by 3% in 2021. China is expected to grow by 4%, North America by 2%, Europe by 3%. Source: Dell’Oro Mobile RAN 5-year forecast report, Jan 2021.

Ericsson related

Net sales

• Three-year average reported sales seasonality between Q4 and Q1 is -24%, however the seasonal effect may be somewhat less pronounced due to 5G deployment in some of Ericsson’s markets.

• See IPR comment in section “Operating income”.

Gross margin

• In segment Networks, the mix is expected to be similar in Q1 2021 as it was in Q4 2020.

• The improvements in Digital Services continue, but earnings will vary between quarters depending on business mix, sales seasonality and impact of the less than 10 remaining critical contracts.

• See IPR comment in section “Operating income”.

• In Managed Services there will be quarterly variations depending on timing of add-on sales and costs, but margins are tracking well towards the financial targets.

R&D and SG&A expenses

• Operating expenses typically decrease between Q4 and Q1 due to seasonality, however, with large variations.

Operating income (EBIT)

• IPR; Current geopolitical conditions are impacting handset sales volumes as is the shift from 4G to 5G handsets. This, in combination with expiring contracts delaying royalty payments from unlicensed periods and potential costs of litigation, may impact Ericsson’s operating income by SEK 1-1.5 b. per quarter beginning in the first quarter 2021. The actual financial impact will depend on the timing as well as terms and conditions of new agreements.

Restructuring charges

• Restructuring charges are estimated to be approximately 1% of sales per year on average.

Currency exposure

• Rule of thumb: A change by 10% of USD to SEK would have an impact of approximately +/-5% on net sales and approximately +/-1 percentage point on operating margin.

Cradlepoint

• Cradlepoint is fully consolidated into segment Emerging Business & Other.

• Ericsson’s operating margin is expected to be negatively impacted by approximately -1 percentage point as of closing in Q4 2020 up until the end of 2022. Approximately half of this impact is related to amortization of intangible assets.

6    Ericsson | Fourth quarter and full-year report 2020 Planning assumptions

Market area sales

SEK b.	Q4 2020		Q4 2019		YoY change			Q3 2020		QoQ change			Jan-Dec 2020		YoY change
South EastAsia, Oceania and India		9.7		9.2		6	%		7.8		25	%		30.0		1	%
North EastAsia		12.8		9.7		32	%		8.8		45	%		33.3		26	%
North America		19.1		17.4		10	%		18.4		4	%		73.8		5	%
Europe and Latin America		17.1		17.5		-2	%		13.3		29	%		55.7		-6	%
Middle East and Africa		6.5		8.4		-23	%		5.5		18	%		23.3		-9	%
Other¹		4.3		4.2		3	%		3.7		17	%		16.2		-1	%
Total		69.6		66.4		5	%		57.5		21	%		232.4		2	%

¹ Market area “Other” includes primarily IPR licensing revenues and the major part of segment Emerging Business and Other.

Sales breakdown by market area by segment is available at the end of this report.

Fourth quarter comments

• 5G momentum is increasing Ericsson has powered 79 live 5G networks and has signed 127 commercial 5G agreements.

• Strong growth in North East Asia, and continued business momentum in North America.

• Networks sales continued to grow in Europe driven by market share gains.

• Organic sales growth in all market areas except Middle East and Africa.

South East Asia, Oceania and India

Sales increased YoY across all segments, driven by continued investments in LTE, primarily in India, and by 5G momentum, predominantly in Australia. Managed Services sales increased YoY, mainly as a result of a new contract signed in 2020.

North East Asia

Sales increased YoY. Growth in Networks sales was driven by increased business volumes in Japan and continued 5G deployment in Mainland China. Digital Services sales were stable.

North America

Sales increased driven by continued strong momentum in 5G network expansions. Managed Services sales decreased YoY post the merger between two large operators.

Europe and Latin America

Sales in Europe and Latin America grew organically. Sales in Europe in Networks and Digital Services grew as a result of market share gains, partly offsetting lower sales in Latin America due to macroeconomic conditions following Covid-19. Sales decreased in Managed Services YoY due to earlier decisions on contract exits.

Middle East and Africa

Sales declined YoY in Networks and Digital Services primarily due to timing of investments in the Middle East, while sales declined in Africa due to macroeconomic conditions.

Other

IPR licensing revenues increased to SEK 2.6 (2.5) b. as lower volumes with one licensee were offset by new contracts.

Full-year comments

South East Asia, Oceania and India

Networks sales remained flat YoY. Growth in Managed Services was driven mainly by a new contract signed in 2020. Digital Services sales increased YoY due to continued LTE investments and 5G momentum.

North East Asia

Sales increased YoY. Strong Networks sales growth was driven by 5G deployment in Mainland China and increased business volumes in Japan, Taiwan and Hong Kong. Digital Services sales grew through 5G core network deployments.

North America

Sales increased YoY driven by 5G network deployments across all major customers. Managed Services sales decreased after the merger between two operators. In Digital Services the sales increase in the growth portfolio did not fully compensate for the decline in legacy products.

Europe and Latin America

Sales decreased YoY due to earlier decisions on Managed Services contract exits and reduced sales in Latin America due to macroeconomic conditions following Covid-19. Networks sales increased in Europe as a result of market share gains, partly offsetting the sales decline in Latin America.

Middle East and Africa

Sales decreased YoY primarily due to macroeconomic conditions and delayed investments in Networks and Digital Services. Continued 5G deployments in the Middle East contributed positively. Managed Services sales were stable.

Other

IPR licensing revenues increased to SEK 10.0 (9.6) b., as lower volumes with one licensee were offset by new contracts.

7    Ericsson | Fourth quarter and full-year report 2020 Market area sales

Segment results

Segment Networks

SEK b.	Q4 2020			Q4 2019			YoY change			Q3 2020			QoQ change			Jan-Dec 2020			Jan-Dec 2019			YoY change
Net sales		49.4			44.4			11	%		41.7			19	%		166.0			155.0			7	%
Sales growth adj. for comparable units and FX		—			—			20	%		—			—			—			—			10	%
Gross income		21.4			18.3			17	%		19.4			11	%		72.4			64.7			12	%
Gross margin		43.4	%		41.1	%		—			46.5	%		—			43.6	%		41.8	%		—
Operating income		10.6			6.4			66	%		9.2			16	%		30.9			24.8			25	%
Operating margin		21.5	%		14.4	%		—			22.0	%		—			18.6	%		16.0	%		—
Restructuring charges		0.0			0.0			—			-0.3			—			-0.7			-0.1			—
Measures excl.restructuring charges
Gross margin excl.restructuring charges		43.5	%		41.1	%		—			46.7	%		—			43.8	%		41.8	%		—
Operating income excl.restructuring charges		10.6			6.4			65	%		9.4			13	%		31.6			24.8			27	%
Operating margin excl.restructuring charges		21.5	%		14.5	%		—			22.7	%		—			19.0	%		16.0	%		—

Breakdown of sales into products, services and IPR licensing is available in the back-end tables.

Fourth quarter comments

• Sales adjusted for comparable units and currency grew 20%.

• Growth across 4 of the 5 market areas.

• Reported operating margin at 21.5%.

Net sales

Reported sales increased by 11% YoY. Sales adjusted for comparable units and currency grew by 20% mainly driven by higher hardware sales as a result of increased market footprint. All market areas reported growth apart from Middle East & Africa where the macroeconomic impact of Covid-19 had a negative effect on operators’ capex levels.

Sales increased by 19% sequentially, a higher than normal seasonality, driven by large hardware deliveries. Sales increased QoQ in all market areas, except for North America where sales remained at the same level as in Q3.

Gross margin

Reported gross margin increased to 43.4% (41.1%) YoY mainly as a result of operational leverage.

Reported gross margin decreased QoQ to 43.4% from 46.5%. Q3 had a large share of software, while Q4 had a higher share of hardware and increased services sales as a result of ongoing 5G deployments.

Operating income and margin

Reported operating income increased to SEK 10.6 (6.4) b. YoY, with an increase in operating margin to 21.5% (14.4%). The increase was primarily driven by the improved gross income. Operating expenses decreased by SEK -1.1 b. to SEK -10.9 b. mainly due to lower trial and pre-sales costs, lower travel costs, as well as a positive currency impact.

Reported operating income increased by SEK 1.4 b. QoQ, supported by seasonally higher sales.

Full-year comments

Net sales

Reported sales increased by 7% in 2020 to SEK 166.0 (155.0) b. Growth was primarily due to increased hardware deliveries following the increased market footprint. Sales adjusted for comparable units and currency increased by 10%. From a geographical perspective growth was primarily driven by increased sales in North East Asia, North America and Europe. Sales declined YoY in Latin America and Africa, due to the macroeconomic situation on the back of Covid-19.

The Networks share of IPR licensing revenues was SEK 8.2 (7.9) b.

Gross margin

Reported gross margin increased to 43.6% (41.8%) YoY. Gross margin excluding restructuring charges increased to 43.8% (41.8%) as a result of the continued strengthening of operational leverage.

Operating income and margin

Reported operating income increased to SEK 30.9 (24.8) b. YoY, with an increase in operating margin to 18.6% (16.0%). Operating margin excluding restructuring charges increased to 19.0% (16.0%) driven by sales growth and improved gross margin. Operating expenses increased by SEK -1.7 b. to SEK -41.9 b. due to higher R&D investments in 5G and in a broader portfolio of antenna and site solutions as well as an increase in restructuring charges.

Impairment losses on trade receivables impacted operating expenses by SEK 0.2 (-0.1) b. Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs was SEK 0.3 (1.1) b.

8    Ericsson | Fourth quarter and full-year report 2020 Segment results

Segment Digital Services

SEK b.	Q4 2020			Q4 2019			YoY change			Q3 2020			QoQ change			Jan-Dec 2020			Jan-Dec 2019			YoY change
Netsales		12.7			13.2			-4	%		8.7			45	%		37.3			39.9			-6	%
Sales growth adj. for comparable units and FX		—			—			3	%		—			—			—			—			-3	%
Gross income		5.2			4.9			6	%		3.8			37	%		15.6			14.8			5	%
Gross margin		40.9	%		37.2	%		—			43.4	%		—			41.9	%		37.2	%		—
Operating income (loss)		0.5			-0.2			—			-0.6			—			-2.2			-4.0			—
Operating margin		3.9	%		-1.2	%		—			-6.8	%		—			-5.9	%		-10.1	%		—
Restructuring charges		0.0			-0.2			—			-0.1			—			0.0			-0.6			—
Measures excl.restructuring charges
Gross margin excl.restructuring charges		41.0	%		38.1	%		—			43.5	%		—			42.0	%		37.8	%		—
Operating income (loss) excl.restructuring charges		0.5			0.0			—			-0.5			—			-2.2			-3.4			—
Operating margin excl.restructuring charges		3.8	%		0.3	%		—			-5.8	%		—			-5.9	%		-8.6	%		—

Breakdown of sales into products, services and IPR licensing is available in the back-end tables.

Fourth quarter comments

• Sales adjusted for comparable units and currency grew by 3%

• Reported gross margin improved to 40.9% (37.2%) supported by a higher share of software, in line with the strategy.

• Sales in the growth portfolio grew by 2% in the quarter.

Net sales

Reported sales decreased by -4% YoY, while the growth portfolio increased by 2%. Sales adjusted for comparable units and currency increased by 3% YoY, driven by growth in cloud infrastructure. Sales adjusted for currency grew in four of the five market areas.

Reported sales grew by 45% QoQ, with good business momentum in the growth portfolio, which grew by 63%. Sales of packet core, OSS and cloud infrastructure products strengthened in the quarter.

Gross margin

Reported gross margin increased to 40.9% (37.2%) YoY. Gross margin excluding restructuring charges increased to 41.0% (38.1%) supported by a higher share of software sales. In addition, Q4 2019 was negatively impacted by critical contracts, while such impact was limited in Q4 2020.

Gross margin excluding restructuring charges decreased to 41.0% from 43.5% QoQ as a result of a higher share of hardware sales.

Operating income (loss)

Reported operating income was SEK 0.5 (-0.2) b. with an operating margin of 3.9% (-1.2%). Operating expenses declined by SEK 0.4 b. to SEK -4.7 b. mainly due to lower restructuring charges, lower pre-sales costs and lower travel costs as well as a positive currency impact. R&D investments remained flat YoY with continued rationalization of the legacy portfolio, and with investments reallocated to the cloud-native 5G product portfolio.

Reported operating income increased by SEK 1.1 b. QoQ, supported by seasonally higher sales.

Full-year comments

Net sales

Reported sales decreased by -6% in 2020. Sales adjusted for comparable units and currency decreased by -3%, mainly impacted by a sales decline in the legacy portfolio, primarily in hardware. Sales grew YoY in South East Asia, Oceania and India and in North East Asia while sales in the remaining three market areas declined.

The growth portfolio had good business momentum and sales grew by 6% in 2020. Important 5G Core contracts have been signed with several tier-1 operators in 2020 and are expected to generate revenues in 2021 and beyond.

The Digital Services share of IPR licensing revenues was SEK 1.8 (1.7) b.

Gross margin

Reported gross margin increased to 41.9% (37.2%) supported by an increased share of software sales. The impact of critical contracts was limited in 2020.

Operating income (loss)

Reported operating income (loss) was SEK -2.2 (-4.0) b. Operating income (loss) excluding restructuring charges was SEK -2.2 (-3.4) b. The improvement was driven by higher gross margin and lower operating expenses. Operating expenses declined by SEK 1.1 b. of which SEK 0.4 b. was related to lower restructuring charges. The net impact of capitalized and amortized development expenses was SEK -0.1 (-0.9) b. R&D expenses remained at the same level as in 2019, with a shift of investments towards the cloud-native 5G portfolio.

9    Ericsson | Fourth quarter and full-year report 2020 Segment results

Segment Managed Services

SEK b.	Q4 2020			Q4 2019			YoY change			Q3 2020			QoQ change			Jan-Dec 2020			Jan-Dec 2019			YoY change
Net sales		5.8			7.0			-17	%		5.5			6	%		22.6			25.6			-12	%
Sales growth adj. for comparable units and FX		—			—			-12	%		—			—			—			—			-10	%
Gross income		1.0			1.0			-1	%		1.1			-6	%		4.0			4.0			1	%
Gross margin		17.7	%		14.8	%		—			19.9	%		—			17.8	%		15.6	%		—
Operating income		0.4			0.3			37	%		0.5			-18	%		1.6			2.3			-32	%
Operating margin		6.9	%		4.2	%		—			8.9	%		—			6.9	%		9.0	%		—
Restructuring charges		0.0			0.0			—			0.0			—			-0.3			0.0			—
Measures excl.restructuring charges
Gross margin excl.restructuring charges		17.7	%		15.4	%		—			20.1	%		—			18.9	%		15.8	%		—
Operating income excl.restructuring charges		0.4			0.3			20	%		0.5			-20	%		1.8			2.4			-23	%
Operating margin excl.restructuring charges		6.9	%		4.8	%		—			9.1	%		—			8.1	%		9.2	%		—

Fourth quarter comments

• Sales declined YoY mainly due to lower variable sales in North America.

• Operating margin excluding restructuring charges increased YoY despite lower sales.

• Further investments in automation, analytics and AI-driven offerings – supporting 5G and efficiency in service delivery.

Net sales

Reported sales declined by -17% YoY. Sales adjusted for comparable units and currency decreased by -12% YoY, mainly due to reduced variable sales in a large contract in North America, post the merger between two large operators, and transfer of a contract to an associated company. Sales in Managed Services IT showed growth mainly in market areas North America and in South East Asia, Oceania and India.

Gross margin

Reported gross margin increased to 17.7% (14.8%) YoY. Gross margin excluding restructuring charges increased to 17.7% (15.4%) YoY, mainly due to efficiency gains and higher variable sales.

Reported gross margin decreased to 17.7% from 19.9% QoQ. Gross margin excluding restructuring charges decreased to 17.7% from 20.1% QoQ, mainly due to seasonally higher costs.

Operating income and margin

Reported operating income was SEK 0.4 (0.3) b., driven by improved gross margin and lower operating expenses, partly offset by lower sales.

Reported operating income decreased to SEK 0.4 b. from SEK 0.5 b. QoQ mainly due to lower gross margin.

Full-year comments

Net sales

Reported sales declined by -12% in 2020. Sales adjusted for comparable units and currency decreased by -10%, mainly due to reduced variable sales in a large contract in North America, post the merger between two large operators, and transfer of a contract to an associated company. Exits of non-strategic contracts also contributed to the sales decline. Sales in Managed Services IT showed growth.

Gross margin

Reported gross margin increased to 17.8% (15.6%). Gross margin excluding restructuring charges increased to 18.9% (15.8%), mainly as a result of efficiency gains and higher variable sales, partly offset by lower sales.

Operating income and margin

Reported operating income was SEK 1.6 (2.3) b. Operating income excluding restructuring charges was SEK 1.8 (2.4) b. Despite the decline in sales, operating income excluding restructuring charges increased by SEK 0.2 b., when excluding the positive effect from reversal of a provision for impairment of trade receivables made in 2019.

Restructuring charges in 2020 amounted to SEK -0.3 (0.0) b.

10    Ericsson | Fourth quarter and full-year report 2020 Segment results

Segment Emerging Business and Other

SEK b.	Q4 2020			Q4 2019			YoY change			Q3 2020			QoQ change			Jan-Dec 2020			Jan-Dec 2019			YoY change
Net sales		1.7			1.7			0	%		1.6			10	%		6.5			6.8			-4	%
Of which Emerging Business and iconectiv		1.3			1.1			12	%		1.0			20	%		4.5			4.3			5	%
Of which Red Bee Media		0.5			0.6			-18	%		0.5			-1	%		2.1			2.4			-13	%
Of which Media Solutions		0.0			0.0			—			0.0			—			-0.1			0.1			—
Sales growth adj. for comparable units and FX		—			—			-4	%		—			—			—			—			-4	%
Gross income		0.6			0.2			164	%		0.5			21	%		1.7			1.3			30	%
Gross margin		35.3	%		13.4	%		—			32.0	%		—			25.6	%		18.9	%		—
Operating income (loss)		-0.5			-0.4			—			-0.4			—			-2.4			-12.5			—
Of which Em . Business, iconectiv, Cradlepoint & common costs		-0.7			-0.6			—			-0.3			—			-2.1			-2.1			—
Of which Red Bee Media		0.0			0.0			—			0.0			—			0.0			0.1			—
Of which Media Solutions		0.2			-0.3			—			-0.2			—			-0.3			-0.3			—
Of which adjustments 2019 ¹		—			0.5			—			—			—			—			-10.1			—
Operating margin		-28.5	%		-23.2	%		—			-26.7	%		—			-37.0	%		-184.0	%		—
Restructuring charges		0.0			0.0			—			0.0			—			-0.3			-0.1			—
Measures excl.restructuring charges
Gross margin excl.restructuring charges		33.8	%		15.1	%		—			30.5	%		—			28.0	%		19.6	%		—
Operating income (loss) excl.restructuring charges		-0.5			-0.4			—			-0.5			—			-2.1			-12.4			—
Operating margin excl.restructuring charges		-29.3	%		-21.4	%		—			-29.2	%		—			-32.6	%		-183.0	%		—
Op.income excl.restr.charges & item saffecting com p.¹		-0.5			-0.8			—			-0.5			—			-2.1			-2.3			—
Op.margin excl.restr.charges & item saffecting com p.¹		-29.3	%		-47.8	%		—			-29.2	%		—			-32.6	%		-34.3	%		—

¹  Includes cost provisions of SEK -11.5 b. related to the resolution of the SEC and DOJ investigations in Q3 2019, and a partial release of the same provision of SEK 0.7 b. in Q4 2019. Includes winding down non-cash costs of the ST-Ericsson legal structure of SEK -0.3 b. in Q4 2019. Includes a social security cost refund of SEK 0.9 b. in Q3 2019.

Fourth quarter comments

• Cradlepoint business included from November 1. Reported in Emerging Business.

• Gross margin growth in Emerging Business driven by Edge Gravity exit and Cradlepoint.

• IoT platforms sales and gross margin grew.

Net sales

Reported sales were flat YoY. Sales in Emerging Business grew, driven mainly by the acquired Cradlepoint business. Sales adjusted for comparable units and currency decreased by -4%.

Gross margin

Reported gross margin increased to 35.3% (13.4%) YoY. Gross margin excluding restructuring charges increased to 33.8% (15.1%). The increase was driven by Emerging Business (Edge Gravity exit, Cradlepoint and IoT platforms).

Reported gross margin increased to 35.3% from 32.0% QoQ. Gross margin excluding restructuring charges increased to 33.8% from 30.5% QoQ. The improvement was driven by Emerging Business (Cradlepoint) and Media Solutions.

Operating income (loss)

Reported operating income (loss) was SEK -0.5 (-0.4) b.

Operating income in the quarter was positively impacted by SEK 0.3 b. related to a provision release related to costs for the compliance monitor (reported in Media Solutions). In Q4 2019 operating income was positively impacted by a provision release of SEK 0.7 b. related to the resolution of the US SEC and DOJ investigations and negatively impacted by a write-down of SEK -0.3 b. related to the wind-down of the ST-Ericsson legal structure. Operating income excluding restructuring charges and items affecting comparability was SEK -0.5 (-0.8) b.

Media Solutions reported operating income was SEK 0.2 (-0.3) b. including Ericsson’s 49% share in earnings of MediaKind .

Red Bee Media’s operating income improved, despite lower sales due to Covid-19.

Full-year comments

Net sales

Reported sales decreased by -4% in 2020. Sales in Emerging Business grew driven by the acquired Cradlepoint business and by IoT platforms. Sales adjusted for comparable units and currency decreased by -4%.

Gross margin

Reported gross margin increased to 25.6% (18.9%) YoY. Gross margin excluding restructuring charges increased to 28.0% (19.6%). The increase was driven by Emerging Business (IoT Platforms, Edge Gravity exit and Cradlepoint).

Operating income (loss)

In 2020 operating income was positively impacted by SEK 0.3 b. related to a provision release related to costs for the compliance monitor.

In 2019 operating income was impacted by costs of SEK -10.7 b. related to the resolution of the US SEC and DOJ investigations, a refund of earlier paid social security costs in Sweden of SEK 0.9 b. and by a cost of SEK -0.3 b. related to the wind-down of the ST-Ericsson legal structure.

Reported operating income (loss) was SEK -2.4 (-12.5) b. Operating income (loss) excluding restructuring charges and items affecting comparability was SEK -2.1 (-2.3) b.

Media Solutions operating income (loss) excluding restructuring charges and items affecting comparability was SEK -0.3 (-0.3) b. including Ericsson’s 49% share in earnings of MediaKind .

Red Bee Media’s operating income improved, despite lower sales due to Covid-19.

The exit of the Edge Gravity business in Q2 2020 contributed positively to profitability.

Restructuring charges in 2020 amounted to SEK -0.3 (-0.1) b.

11    Ericsson | Fourth quarter and full-year report 2020 Segment results

Cash flow

SEK b.	Q4 2020		Q4 2019		Q3 2020		Jan-Dec 2020		Jan-Dec 2019
Net income adjusted for non-cash items		12.5		8.0		9.7		32.5		14.1
Working capital changes (net operating assets and liabilities)		1.4		-7.5		-4.4		-3.6		2.8
Cash flow from operating activities		13.9		0.5		5.3		28.9		16.9
Capex (net) including product development		-1.2		-1.6		-1.1		-5.1		-5.9
Other investing activities and lease liabilities		0.0		-0.8		-0.3		-1.6		-3.3
Free cash flow before M&A		12.8		-1.9		3.9		22.3		7.6
Acquisitions/divestments, net1)		-9.3		-1.3		-0.1		-9.6		-1.5
Free cash flow		3.5		-3.2		3.8		12.7		6.1
Cash flow from investing activities		-8.6		-4.8		-1.1		-15.2		-3.5
Cash flow from financing activities		-8.5		0.1		-0.9		-12.5		-6.9
Net change in cash and cash equivalents		-5.2		-6.1		3.1		-1.5		6.7

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

¹  Includes the acquisition of Cradlepoint of SEK -9.5 b.

Fourth quarter comments

• Free cash flow before M&A was SEK 12.8 (-1.9) b. Payments of SEK -10.1 b. related to SEC & DOJ impacted Q4 2019.

• Cradlepoint was acquired for SEK -9.5 b.

Cash flow from operating activities

Reported cash flow from operating activities increased to SEK 13.9 (0.5) b. YoY, supported by improved income in the quarter. Q4 2019 was impacted by payments of SEK -10.1 b. related to the resolution of the US SEC and DOJ investigations. Cash flow in the quarter was supported by a reduction in net operating assets, despite increased trade receivables due to increased business momentum. Due to the increase in 5G buildout in 2020, demand for customer financing solutions has increased. Most of such financing has been successfully transferred to banks and the amount of customer finance credits on the balance sheet remains low. Provisions of SEK 0.8 b. were utilized, of which SEK 0.3 b. related to restructuring charges.

Free cash flow

Free cash flow before M&A was SEK 12.8 (-1.9) b. Free cash flow before M&A increased by SEK 4.5 b. YoY, adjusted for payments of SEK -10.1 b. related to SEC and DOJ, in Q4 2019. Free cash flow was SEK 3.5 (-3.2) b.

Cash flow from investing activities

Reported cash flow from investing activities was SEK -8.6 (-4.8) b. driven by the acquisition of Cradlepoint, the US market leader in Wireless WAN Edge 4G and 5G solutions for the enterprise market, for SEK -9.5 b. Investments in property, plant and equipment were SEK -1.1 (-1.5) b. in the quarter. Investments in interest-bearing securities were SEK 1.2 (-1.8) b.

Cash flow from financing activities

Reported cash flow from financing activities was SEK -8.5 (0.1) b. Dividends paid amounted to SEK -3.5 (0.0) b. of which SEK -2.5 b. was related to the second installment (SEK 0.75 per share) of dividend to shareholders and SEK -1.0 b. was related to dividend to minority shareholders in Ericsson’s subsidiaries. Other financing activities was SEK -4.4 (0.8) b. due to repayment of a bilateral loan with the European Investment Bank (EIB).

Full-year comments

Cash flow from operating activities

Reported cash flow from operating activities improved to SEK 28.9 (16.9) b. in 2020 as a result of improved income. The impact from changes in net operating assets and liabilities was SEK -3.6 (2.8) b. and SEK -0.5 b. when adjusted for a capital injection of SEK -3.0 b. made into the Ericsson Swedish Pension Trust, affecting cash flow negatively, as described under “Financial position” on the next page. Working capital efficiency has improved as a result of a strong focus on cash flow. Accounts receivables days of sales outstanding improved to 69 (75) days and working capital days improved to 65 (75) days. The increased business momentum has led to an increasing demand for customer financing solutions. Most of such financing has been successfully transferred to banks and the amount of customer finance credits on the balance sheet remains low. Provisions of SEK 4.0 (7.6) b. were utilized, of which SEK 0.8 (1.8) b. related to restructuring charges.

Free cash flow

The improved profitability, in combination with continued focus on cash flow, resulted in free cash flow before M&A of SEK 22.3 (7.6) b.

Cash flow from investing activities

Reported cash flow from investing activities was SEK -15.2 (-3.5) b. M&A was SEK -9.6 (-1.5) b. of which SEK -9.5 b. was related to the acquisition of Cradlepoint. Investments in interest-bearing securities amounted to SEK -1.3 (4.2) b. Investments in property, plant and equipment were SEK -4.5 (-5.1) b., including investments in the US production plant. In addition, product development decreased to SEK -0.8 (-1.5) b. due to reduced capitalization of development expenses.

Cash flow from financing activities

Reported cash flow from financing activities was SEK -12.5 (-6.9) b. Dividends were SEK -6.0 (-4.5) b. of which SEK -5.0 b. was related to dividends to shareholders and SEK -1.0 b. to dividends to minority shareholders in Ericsson’s subsidiaries. Borrowings declined mainly due to repayment of a bilateral loan with the European Investment Bank (EIB). The impact of lease liabilities was SEK -2.4 (-3.0) b.

12    Ericsson | Fourth quarter and full-year report 2020 Cash flow

Financial position

SEK b.	Dec 31 2020			Dec 31 2019			Sep 30 2020
Gross cash		72.0			72.2			78.2
- Borrowings, current		7.9			9.4			14.6
- Borrowings, non-current		22.2			28.3			22.1
Net cash		41.9			34.5			41.5
Equity		85.2			81.9			82.5
Total assets		271.5			276.4			277.2
Capital turnover (times)		1.4			1.4			1.3
Return on capital employed (%)		17.0	%		6.7	%		13.5	%

Fourth quarter comments

• Solid net cash position of SEK 41.9 (34.5) b.

• The average maturity of long-term borrowings as of December 31, 2020, was 2.7 years.

• Standard & Poor’s upgraded Ericsson’s rating to BBB- (“investment grade”) with stable outlook.

Gross cash decreased by SEK -6.2 b. QoQ. The strong free cash flow was more than offset by the acquisition of Cradlepoint of SEK -9.5 b., repayment of the bilateral loan with the European Investment Bank (EIB) of SEK -5.8 b., payment of dividends of SEK -3.5 b. and the negative impact from currency on cash.

Ericsson also refinanced a loan of USD 170 million with the Swedish Export Credit Corporation (SEK) with a new bond loan of USD 200 million, resulting in a net increase in funding of USD 30 million. The new facility is set to mature in December 2030.

Net cash increased by SEK 0.4 b. QoQ to SEK 41.9 b. Net cash does not include lease liabilities.

Liabilities for post-employment benefits increased, to SEK 37.4 b. from SEK 36.5 b. in the quarter due to lower interest rates.

On November 18, 2020, Standard & Poor’s upgraded Ericsson’s rating to BBB- (“investment grade”) with stable outlook.

Full-year comments

Gross cash was SEK 72.0 (72.2) b. while net cash increased to SEK 41.9 (34.5) b. as a result of the strong free cash flow despite cash payments for Cradlepoint of SEK -9.5 b. and repayment of the bilateral loan with the European Investment Bank (EIB) of SEK -5.8 b.

Liabilities for post-employment benefits increased to SEK 37.4 (35.8) b., due to lower interest rates despite a capital injection of SEK -3.0 b. into the Swedish Pension Trust. The Swedish defined benefit obligation (DBO) was calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the liability for post-employment benefits would have been approximately SEK 11.8 b. lower (SEK 25.6 b.) as of December 31, 2020.

During 2020 there was a funding need for approximately SEK 4 b. for the Swedish pension plan of which SEK 3 b. was covered by payments in Q2 and Q3 into the Swedish Pension Trust and SEK 1 b. by providing a pledged business mortgage to PRI Pensionsgaranti. Details regarding Ericsson’s pension plans can be found in note G1 “Post-employment benefits” of the Annual Report.

The average maturity of long-term borrowings was 2.7 years as of December 31, 2020, unchanged from 12 months earlier.

Ericsson has an unutilized revolving credit facility of USD 2.0 b.

Ericsson has an undrawn credit facility agreement of EUR 250 million with the European Investment Bank (EIB).

Ericsson refinanced a loan of USD 170 million with the Swedish Export Credit Corporation (SEK) with a new bond loan of USD 200 million, resulting in a net increase in funding of USD 30 million. The new facility is set to mature in December 2030.

In June 2020, Moody’s upgraded Ericsson’s rating to Ba1 with stable outlook and in November Standard & Poor’s upgraded Ericsson’s rating to BBB- (“investment grade”) with stable outlook. Both Standard & Poor’s and Fitch have a long-term BBB- (“investment grade”) rating on Ericsson with stable outlook.

The capital turnover remained at 1.4 (1.4) times, while Return on Capital Employed (ROCE) improved to 17.0% (6.7%) driven by improved operating income.

13    Ericsson | Fourth quarter and full-year report 2020 Financial position

Parent Company

Income after financial items Jan-Dec 2020, was SEK 8.3 (-3.1) b.

At the end of the year, gross cash (cash, cash equivalents, short-term investments and interest-bearing securities, non-current) amounted to SEK 57.0 (56.5) b.

There was an increase in intercompany lending of SEK 0.7 b. and in intercompany borrowing of SEK 2.2 b. in the fourth quarter.

The holding of treasury stock on December 31, 2020 was 6,043,960 Class B shares.

14    Ericsson | Fourth quarter and full-year report 2020 Parent Company

Dividend, AGM and Annual Report

Dividend proposal

The Board of Directors proposes to the Annual General Meeting a dividend to the shareholders of SEK 2.00 (1.50) per share for the financial year 2020, representing a total dividend of approximately SEK 6.7 (5.0) b. The dividend is proposed to be paid in two installments, SEK 1.00 per share with the record date April 1, 2021, and SEK 1.00 per share with the record date October 1, 2021. The proposed payment periods aim to facilitate a more efficient cash management. The dividend reflects this year’s earnings and balance sheet structure, as well as coming years’ business plans and expected economic development.

Ericsson Annual General Meeting

The Annual General Meeting of shareholders will be held on March 30, 2021. Additional information about the Annual General Meeting of shareholders will be made available on Ericsson’s website.

Annual Report

The annual report will be made public and available on the Ericsson website www.ericsson.com in the first week of March. .

15    Ericsson | Fourth quarter and full-year report 2020 Dividend, AGM and Annual Report

Other information

Ericsson Capital Markets Day 2020

On November 9, 2020, Ericsson announced that the Company would hold its Capital Markets Day on November 10, outlining revised strategic growth ambitions and new long-term financial targets.

Executives from across the business joined President and CEO, Börje Ekholm, to share insights from Ericsson’s three-year focused turnaround, and articulated ambitions to strengthen the Group, with a particular emphasis on long-term growth in the enterprise market.

Since the launch of the focused business strategy in 2017, the Company has restored profitability, delivered organic growth and is on track towards its 2020 financial targets. With global technology leadership and growing market share in 5G, the company is now turning to the next phase of its journey—growing the business through incremental core business growth and acceleration of enterprise focus.

Ericsson update: IPR license renewals and risk of financial impact

On December 11, 2020, Ericsson announced that the Company filed a lawsuit in the U.S. District Court for the Eastern District of Texas, against Samsung, for violating contractual commitments to negotiate in good faith and to license patents on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.

The case addresses breaches of FRAND obligations by Samsung and seeks to obtain a ruling by the court that Ericsson has complied with its own commitments.

The FRAND system is a fundamental building block of a rich ecosystem that has allowed global cellular connectivity to scale to more than 8 billion interoperable connections. It allows access to intellectual property, developed by contributors like Ericsson, under global mobile standards, on FRAND terms and conditions. It also rewards those contributors for their significant up-front investment in R&D in each mobile generation.

Several license renewal negotiations may delay the payment of IP royalties if they extend beyond the expiry of existing licenses into an unlicensed period (noted in Q2 and Q3 2020 reports). Once renewed, unpaid royalties are expected to be recovered and recognized as revenue at the time of renewal.

Current geopolitical conditions are impacting handset sales volumes as is the shift from 4G to 5G handsets. This, in combination with delayed royalty payments from unlicensed periods and potential costs of litigation, may impact Ericsson’s operating income by SEK 1—1.5 b. a quarter beginning in the first quarter 2021. The actual financial impact will depend on the timing and terms and conditions of new agreements.

The value of Ericsson’s IP portfolio extends to more than 54,000 granted patents and is strengthened by annual investment in R&D of approx. SEK 40 b. With a leading global position in 5G, the company is confident of growing its IPR revenues long term, thereby further maximizing the value of the overall patent portfolio..

Litigation with Samsung (partly a post-closing event)

Ericsson and Samsung were not able to renew the now expired patent license agreement between the parties in a timely manner.

On December 11, 2020, Ericsson filed a lawsuit in the U.S. District Court for the Eastern District of Texas, against Samsung, for violating contractual commitments to negotiate in good faith and to license patents on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions. In addition, Ericsson also sought to obtain a ruling by the court that it had complied with its own FRAND commitments. The lawsuit was later amended to include claims of patent infringement against Samsung.

On December 17, 2020, Samsung informed Ericsson that it had filed suit in Wuhan, China, on December 7, 2020, seeking rate setting for Ericsson’s 4G & 5G standard essential patents.

On January 1, 2021 Ericsson filed a patent infringement case in the U.S. District Court for the Eastern District of Texas against Samsung.

On January 4, 2021, Ericsson filed a complaint at the US International Trade Commission (ITC) as well as in Dusseldorf, Mannheim, and Munich Regional Courts in Germany, the District Court of the Hague in The Netherlands, and the Enterprise Court of Brussels in Belgium asserting infringement of patents by Samsung.

On January 7, 2021, Samsung asserted patent infringement claims against Ericsson in a complaint at the US ITC as well as in counterclaims in the U.S. District Court for the Eastern District of Texas.

On January 15, 2021, Ericsson filed an additional US ITC Action and a case in the U.S. District Court for the Eastern District of Texas against Samsung for patent infringement.

In the context of the various court proceedings, the parties are involved in filing and contesting various pre-trial motions and related court awards, including as to venue. The filing of multiple lawsuits, complaints and other proceedings, when parties take legal action over a patent license agreement renewal, is standard and consequently additional lawsuits, complaints and other proceedings, may follow.

Covid-19 update

The health and safety of employees, customers, partners and other stakeholders are Ericsson’s top priority. Event restrictions and restrictions for non-critical business travel are in place, and employees are asked to work from home at least until the end of Q1, 2021. In addition, it is mandatory to use face masks in all offices and locations.

Employees working from home are offered the possibility to buy office furniture for their home office environment, funded by the Company. In preparation for returning to the office, a Workplace of the Future program has been initiated to develop guidelines for a workplace with more flexibility to work remotely and more opportunities to connect and collaborate in the office. Work life aspects such as culture, ways of working, well-being, digital tools and impact for leaders are also included in the program scope.

The Company decided early on not to apply for any pandemic-related government support. The Company continues to operate efficiently and profitably and believe that tax-payers’ money is better used by targeting the health and economic effects of Covid-19. The proactive approach to business continuity management in full alignment with customers at the beginning of the pandemic continues to pay off. Quality in Ericsson’s operations and customers´ networks are maintained. The dual mode production strategy and regionalized supply chains make it possible to keep the supply chain operational.

16    Ericsson | Fourth quarter and full-year report 2020 Other information

Risk factors

Ericsson is exposed to a number of risks in its activities. To stimulate identification and support cross-functional treatment within the Ericsson Group, risks are grouped in a number of categories, including for example risks relating to technology, IPR, compliance, project execution, operations, products and services, treasury and accounting, the geopolitical environment, M&A, cyber security and occupational health and safety.

Ericsson’s risk management is embedded into strategy development and operational processes and is a part of the Ericsson Group Management System to ensure accountability, effectiveness, efficiency, business continuity and compliance. Risks are defined in both a short-term and long-term perspective and are related to long-term objectives as per the strategic direction as well as to short-term objectives.

Risk factors and uncertainties of relevance to Ericsson are described in the Annual Report 2019. Updates to these risk factors and uncertainties observed by Ericsson that are deemed of short-term relevance include, but are not limited to, the following:

Pandemics, such as the one caused by the novel coronavirus, Covid-19, could severely impact our local and global operations

Pandemics, such as for example the one caused by the novel Coronavirus, could severely impact our local and global operations related to e.g. service delivery, research & development, sales and supply, as well as our customers and suppliers, with significant financial and other consequences. As an example, the Covid-19 pandemic has caused challenges and risks relating to travel and lockdowns limiting access to sites, transportation and logistics and impacting the flow of goods. Although we further strengthen business continuity measures to be able to continue to support our customers’ needs and mitigate any impact on our business, disruptions to the global economy and to the operations and business of our customers, suppliers, and partners could cause disturbances in our operations and may have material adverse effects on our business and financial position.

Investigation into Ericsson’s licensing practice in China

In April 2019, Ericsson was informed by China’s State Administration for Market Regulation (SAMR) Anti-monopoly bureau that SAMR has initiated an investigation into Ericsson’s patent licensing practices in China. Ericsson is cooperating with the investigation, which is still in a fact-finding phase. The next steps include continued fact-finding and meetings with SAMR in order to facilitate the authority’s assessments and conclusions. In case of adverse findings, SAMR has the power to impose behavioral and financial remedies, which may have material adverse effects on our business, financial condition and results of operations.

Our ability to benefit from intellectual property rights (IPR), may be limited by the loss of patent licenses to or from third parties

Patent licensing agreements are generally multi-year and term based and the process for renewal of these licenses normally requires negotiations, particularly in conjunction with technology shifts and the introduction of new standards, such as 5G. Such renewals and negotiations may take time to resolve, sometimes involve litigation and may have material adverse impact on our business and financial position, including on the timing for and level of revenues from the IPR licensing contract portfolio.

Ongoing geopolitical and trade uncertainty from a range of factors may have a material adverse impact on our business, operations, business prospects and consequently on operating results, financial conditions and our ability to meet our targets

In addition to what is set forth in the Annual Report 2019 Risk Factor section, items 1.2 and 3.2, these uncertainties include the effects from ongoing trade disputes – notably between the US and China, and the uncertainty on how the change in US administration may impact that trade dispute. There are uncertainties for the future bilateral trading relationship between China and several countries as a result of restrictions towards Chinese vendors in national 5G networks. Restrictions have been adopted in several countries such as Australia, Canada, France, Japan, UK, and the US. In Sweden, the Post and Telecommunication Authority (PTS) has taken a decision to exclude Chinese vendors’ products from the 5G auction. Of special relevance for Ericsson in this context is the trade relationship between Sweden and China, since Ericsson, even though it is a global company with a presence on all global markets, has its headquarters in Sweden and therefore risks collateral damages from a weakened Swedish-Chinese relationship as a result of this decision. There is a risk that the above lead to measures taken by China that are targeted at the economic interests of Sweden and Swedish industry, including those of Ericsson.

In China a new export control law applies from December 1, 2020 with additional controls for a list of products and a Chinese legislation with an unreliable entity list can target companies deemed to be causing harm to Chinese interests. In January 2021 China also issued regulations setting up a mechanism to review foreign investments for national security implications that would allow authorities to reject or limit foreign investments in China. These measures might impact the ability to operate in China or to use China in global value chains.

The geopolitical situation can have consequences on the entire industry, with an increased likelihood of further industry split, separation of global value chains and separation of global standards for mobile telecommunications. This overall development has also led to several countries evaluating how to ensure uninterrupted access to telecommunication network infrastructure, for example through promoting disaggregation of the Radio Access Network and support of national communication network infrastructure champions as alternative to the established global vendors such as Ericsson although the timing and extent of this remains unclear.

All of the above may have a material and potentially lasting adverse impact on our business, including sales, market share, market access and supply chain and R&D activities, our financial condition and results of operations.

Stockholm, January 29, 2021

Telefonaktiebolaget LM Ericsson (publ)

The Board of Directors

Corporate Reg. No. 556016-0680

Date for next report: April 21, 2021

17    Ericsson | Fourth quarter and full-year report 2020 Risk factors

Editor’s note

Press briefing and live webcast

Ericsson invites media, investors and analysts to a conference call on January 29, 2021 starting at 9:00 am CET.

Live audio webcast of the conference call as well as supporting slides will be available at:

www.ericsson.com/investors and

www.ericsson.com/press

Replay of the conference call will be available approximately one hour after the call has ended and will remain available for seven days.

For further information, please contact:

Carl Mellander, Senior Vice President, Chief Financial Officer

Phone: +46 72 583 88 70

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

media.relations@ericsson.com

Stella Medlicott, Senior Vice President, Chief Marketing and Communications Officer Phone: +46 73 095 65 39

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

media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson

Org. number: 556016-0680

Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com

Investors

Peter Nyquist, Vice President,

Head of Investor Relations

Phone: +46 70 575 29 06

E-mail: peter.nyquist@ericsson.com

Lena Häggblom, Director,

Investor Relations

Phone: +46 72 593 27 78

E-mail: lena.haggblom@ericsson.com

Stefan Jelvin, Director,

Investor Relations

Phone: +46 70 986 02 27

E-mail: stefan.jelvin@ericsson.com

Media

Peter Olofsson, Head of Corporate Communication

Phone: +46 70 267 34 45

E-mail: media.relations@ericsson.com

Corporate Communications

Phone: +46 10 719 69 92

E-mail: media.relations@ericsson.com

18    Ericsson | Fourth quarter and full-year report 2020 Editor’s note

Forward-looking statements

This report includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, including, the following:

• Our goals, targets, strategies, planning assumptions and operational or financial performance expectations, such as the investor day key messages and our targets and strategies as described in the introductory bullets, the CEO comments, the Segment descriptions and in Other information

• Industry trends, future characteristics and development of the markets in which we operate

• Our future liquidity, capital resources, capital expenditures, cost savings and profitability

• The expected demand for our existing and new products and services as well as plans to launch new products and services including research and development expenditures

• The ability to deliver on future plans and to realize potential for future growth

• The expected operational or financial performance of strategic cooperation activities and joint ventures

• The time until acquired entities and businesses will be integrated and accretive to income

• Technology and industry trends including the regulatory and standardization environment in which we operate, competition and our customer structure.

The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,” “might,” “continue,” or, in each case, their negative or variations, and similar words or expressions are used to identify forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

We caution investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond our control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2019.

These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation

19    Ericsson | Fourth quarter and full-year report 2020 Forward-looking statements

Auditors’ Review Report

Introduction

We have reviewed the condensed interim financial information (year-end report) of Telefonaktiebolaget LM Ericsson (publ.) as of December 31, 2020, and the twelve months period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the year-end report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this year-end report based on our review.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity.

A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the year-end report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm, January 29, 2021

Deloitte AB

Thomas Strömberg

Authorized Public Accountant

20    Ericsson | Fourth quarter and full-year report 2020 Auditors’ Review Report

Financial statements

and other information

Contents

Financial statements (unaudited)	22
Condensed consolidated income statement	22
Condensed statement of comprehensive income (loss)	22
Condensed consolidated balance sheet	23
Condensed consolidated statement of cash flows	24
Condensed consolidated statement of changes in equity	25
Condensed consolidated income statement – isolated quarters	25
Condensed consolidated statement of cash flows – isolated quarters	26
Condensed Parent Company income statement	27
Condensed Parent Company statement of comprehensive income (loss)	27
Condensed Parent Company balance sheet	28
Accounting policies and Explanatory notes (unaudited)	29
Accounting policies	29
Explanatory notes	29
Net sales by segment by quarter	30
Gross income by segment by quarter	31
Operating income (loss) by segment by quarter	31
Net sales by market area by quarter	32
Net sales by market area by segment	33
Top 5 countries in sales	33
IPR licensing revenues by segment by quarter	34
Provisions	34
Financial instruments	35
Information on investments	35
Other information	36
Number of employees	36
Preliminary allocation of purchase consideration	36
Alternative performance measures (unaudited)	37
Sales growth adjusted for comparable units and currency	37
Items excluding restructuring charges	38
EBITA and EBITA margin	39
Rolling four quarters of net sales and operating margin excluding restructuring charges (%)	39
Gross cash and net cash, end of period	40
Capital employed	40
Capital turnover	40
Return on capital employed	41
Equity ratio	41
Return on equity	41
Adjusted earnings (loss) per share (non-IFRS)	42
Free cash flow and free cash flow before M&A	42
Sales growth by segment adjusted for comparable units and currency	43
Gross margin by segment by quarter	43
Operating margin by segment by quarter	43
Restructuring charges by function	44
Restructuring charges by segment	44
Gross income and gross margin excluding restructuring charges by segment	45
Operating income (loss) and operating margin excluding restructuring charges by segment	46
Rolling four quarters of net sales by segment	46
Rolling four quarters of operating margin excluding restructuring by segment (%)	46
EBITA and EBITA margin by segment by quarter	47
Other ratios	47

21    Ericsson | Fourth quarter and full-year report 2020 Financial statements and other information

Financial statements (unaudited)

Condensed consolidated income statement

	Q4							Jan-Dec
SEK million	2020		2019		Change			2020		2019		Change
Net sales		69,590		66,373		5	%		232,390		227,216		2	%
Cost of sales		-41,333		-41,939		-1	%		-138,666		-142,392		-3	%
Gross income		28,257		24,434		16	%		93,724		84,824		10	%
Research and development expenses		-10,433		-10,633		-2	%		-39,714		-38,815		2	%
Selling and administrative expenses		-7,402		-8,222		-10	%		-26,684		-26,137		2	%
Impairment losses on trade receivables		264		-173		-253	%		118		737		-84	%
Operating expenses		-17,571		-19,028		-8	%		-66,280		-64,215		3	%
Other operating income and expenses		381		756		-50	%		662		-9,710		-107	%
Share in earnings of JV and associated companies		-59		-37		59	%		-298		-335		-11	%
Operating income (loss)		11,008		6,125		80	%		27,808		10,564		163	%
Financial income and expenses, net		-95		-71		34	%		-596		-1,802		-67	%
Income after financial items		10,913		6,054		80	%		27,212		8,762		211	%
Income tax		-3,721		-1,570		137	%		-9,589		-6,922		39	%
Net income		7,192		4,484		60	%		17,623		1,840		858	%
Net income (loss) attributable to:
Owners of the Parent Company		7,522		4,430					17,483		2,223
Non-controlling interests		-330		54					140		-383
Other information
Average number of shares, basic (million)		3,328		3,313					3,323		3,306
Earnings (loss) per share, basic (SEK) ¹)		2.26		1.34					5.26		0.67
Earnings (loss) per share, diluted (SEK) ²)		2.26		1.33					5.26		0.67

¹⁾  Based on net income (loss) attributable to owners of the Parent Company.

²⁾  Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Condensed statement of comprehensive income (loss)

	Q4				Jan-Dec
SEK million	2020		2019		2020		2019
Net income (loss)		7,192		4,484		17,623		1,840
Other comprehensive income (loss)
Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans incl. asset ceiling		-716		1,984		-4,618		-6,182
Revaluation of borrowings due to change in credit risk		-325		-197		99		-651
Tax on items that will not be reclassified to profit or loss		173		-523		880		1,363
Items that have been or may be reclassified to profit or loss
Cash flow hedge reserve
Gains/losses arising during the period		160		290		136		-290
Reclassification adjustments on gains/losses included in profit or loss		70		—		281		—
Changes in cumulative translation adjustments		-2,888		-1,708		-5,254		1,979
Share of other comprehensive income (loss) on JV and associated companies		-55		17		-81		131
Tax on items that have been or may be reclassified to profit or loss		-47		-59		-86		60
Total other comprehensive income (loss), net of tax		-3,628		-196		-8,643		-3,590
Total comprehensive income (loss)		3,564		4,288		8,980		-1,750
Total comprehensive income (loss) attributable to:
Owners of the Parent Company		3,823		4,253		8,786		-1,403
Non-controlling interests		-259		35		194		-347

22    Ericsson | Fourth quarter and full-year report 2020 Financial statements

Condensed consolidated balance sheet

	Dec 31		Sep 30		Dec 31
SEK million	2020		2020		2019
Assets
Non-current assets
Intangible assets
Capitalized development expenses		3,857		3,978		4,040
Goodwill		34,945		30,314		31,200
Intellectual property rights, brands and other intangible assets		4,805		2,091		2,491
Property, plant and equipment		13,383		13,882		13,850
Right-of-use assets		7,980		8,243		8,487
Financial assets
Equity in JV and associated companies		1,274		1,317		1,565
Other investments in shares and participations		1,519		1,420		1,432
Customer finance, non-current		1,221		1,269		2,262
Interest-bearing securities, non-current		21,613		23,898		20,354
Other financial assets, non-current		4,842		5,312		5,614
Deferred tax assets		26,296		29,726		31,174
		121,735		121,450		122,469
Current assets
Inventories		28,097		32,804		30,863
Contract assets		11,273		11,468		12,171
Trade receivables		42,063		38,180		43,069
Customer finance, current		1,916		1,878		1,494
Other current receivables		16,014		17,081		14,479
Interest-bearing securities, current		6,820		5,552		6,759
Cash and cash equivalents		43,612		48,774		45,079
		149,795		155,737		153,914
Total assets		271,530		277,187		276,383
Equity and liabilities
Equity
Stockholders’ equity		86,674		82,830		82,559
Non-controlling interest in equity of subsidiaries		-1,497		-345		-681
		85,177		82,485		81,878
Non-current liabilities
Post-employment benefits		37,353		36,515		35,817
Provisions, non-current		2,886		2,378		2,679
Deferred tax liabilities		1,089		1,102		1,224
Borrowings, non-current		22,218		22,132		28,257
Lease liabilities, non-current		7,104		7,426		7,595
Other non-current liabilities		1,383		1,759		2,114
		72,033		71,312		77,686
Current liabilities
Provisions, current		7,580		8,544		8,244
Borrowings, current		7,942		14,587		9,439
Lease liabilities, current		2,196		2,257		2,287
Contract liabilities		26,440		29,393		29,041
Trade payables		31,988		30,704		30,403
Other current liabilities		38,174		37,905		37,405
		114,320		123,390		116,819
Total equity and liabilities		271,530		277,187		276,383

23    Ericsson | Fourth quarter and full-year report 2020 Financial statements

Condensed consolidated statement of cash flows

	Q4				Jan-Dec
SEK million	2020		2019		2020		2019
Operating activities
Net income		7,192		4,484		17,623		1,840
Adjustments for
Taxes		2,946		949		6,123		1,652
Earnings/ dividends in JV and associated companies		115		33		374		406
Depreciation, amortization and impairment losses		2,293		2,290		8,674		9,089
Other		-9		197		-256		1,079
		12,537		7,953		32,538		14,066
Changes in operating net assets
Inventories		3,753		5,200		384		261
Customer finance, current and non-current		-119		-66		370		-858
Trade receivables and contract assets		-7,231		-3,216		-3,185		10,995
Trade payables		2,999		688		4,303		-372
Provisions and post-employment benefits		199		-10,509		-2,669		-3,729
Contract liabilities		-2,046		-4,413		-560		-1,579
Other operating assets and liabilities, net		3,811		4,859		-2,248		-1,911
		1,366		-7,457		-3,605		2,807
Cash flow from operating activities		13,903		496		28,933		16,873
Investing activities
Investments in property, plant and equipment		-1,090		-1,475		-4,493		-5,118
Sales of property, plant and equipment		104		206		254		744
Acquisitions/divestments of subsidiaries and other operations, net¹)		-9,256		-1,341		-9,598		-1,505
Product development		-177		-329		-817		-1,545
Other investing activities		668		-74		801		-331
Interest-bearing securities		1,189		-1,759		-1,348		4,214
Cash flow from investing activities		-8,562		-4,772		-15,201		-3,541
Financing activities
Dividends paid		-3,456		-15		-5,996		-4,450
Repayment of lease liabilities²)		-636		-711		-2,417		-2,990
Other financing activities		-4,387		834		-4,079		540
Cash flow from financing activities		-8,479		108		-12,492		-6,900
Effect of exchange rate changes on cash		-2,024		-1,936		-2,707		258
Net change in cash and cash equivalents		-5,162		-6,104		-1,467		6,690
Cash and cash equivalents, beginning of period		48,774		51,183		45,079		38,389
Cash and cash equivalents, end of period		43,612		45,079		43,612		45,079

¹⁾  Includes acquisition of Cradlepoint of SEK -9.5 b.

²⁾  Includes a repayment of a bilateral loan with the European Investment Bank (EIB) of SEK -5.8 b.

24    Ericsson | Fourth quarter and full-year report 2020 Financial statements

Condensed consolidated statement of changes in equity

	Jan-Dec
SEK million	2020		2019
Opening balance		81,878		87,770
Adjustment due to new accounting standards 1)		—		-249
Adjusted opening balance		81,878		87,521
Total comprehensive income (loss)		8,982		-1,750
Sale/repurchase of own shares		163		197
Long-term variable compensation plans		150		377
Dividends to shareholders		-5,996		-4,450
Transactions with non-controlling interests		—		-17
Closing balance		85,177		81,878

¹⁾  Opening balance adjustment in 2019 due to IFRS 16.

Condensed consolidated income statement – isolated quarters

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Net sales		69,590		57,472		55,578		49,750		66,373		57,127		54,810		48,906
Cost of sales		-41,333		-32,710		-34,661		-29,962		-41,939		-35,587		-34,739		-30,127
Gross income		28,257		24,762		20,917		19,788		24,434		21,540		20,071		18,779
Research and development expenses		-10,433		-10,101		-10,035		-9,145		-10,633		-9,497		-9,518		-9,167
Selling and administrative expenses		-7,402		-5,992		-7,052		-6,238		-8,222		-4,920		-6,964		-6,031
Impairment losses on trade receivables		264		-28		42		-160		-173		200		151		559
Operating expenses		-17,571		-16,121		-17,045		-15,543		-19,028		-14,217		-16,331		-14,639
Other operating income and expenses 1)		381		61		131		89		756		-11,305		66		773
Share in earnings of JV and associated companies		-59		-59		-152		-28		-37		-214		-67		-17
Operating income (loss)		11,008		8,643		3,851		4,306		6,125		-4,196		3,739		4,896
Financial income and expenses, net		-95		109		292		-902		-71		-685		-441		-605
Income after financial items		10,913		8,752		4,143		3,404		6,054		-4,881		3,298		4,291
Taxes		-3,721		-3,186		-1,558		-1,124		-1,570		-2,013		-1,451		-1,888
Net income (loss)		7,192		5,566		2,585		2,280		4,484		-6,894		1,847		2,403
Net income (loss) attributable to:
Owners of the Parent Company		7,522		5,353		2,452		2,156		4,430		-6,229		1,705		2,317
Non-controlling interests		-330		213		133		124		54		-665		142		86
Other information
Average number of shares, basic (million)		3,328		3,326		3,322		3,317		3,313		3,308		3,304		3,300
Earnings (loss) per share, basic (SEK) 2)		2.26		1.61		0.74		0.65		1.34		-1.89		0.52		0.70
Earnings (loss) per share, diluted (SEK) 3)		2.26		1.61		0.74		0.65		1.33		-1.89		0.51		0.70

¹⁾  Includes cost provisions related to the resolution of the SEC and DOJ  investigations of SEK -11.5 b. in Q3 2019 and a partial release of the same provision of SEK 0.7 b. in Q4 2019.

²⁾  Based on net income (loss) attributable to owners of the Parent Company.

³⁾  Potential ordinary shares are not considered when their conversion to��ordinary  shares would increase earnings per share.

25    Ericsson | Fourth quarter and full-year report 2020 Financial statements

Condensed consolidated statement of cash flows – isolated quarters

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Operating activities
Net income (loss)		7,192		5,566		2,585		2,280		4,484		-6,894		1,847		2,403
Adjustments for
Taxes		2,946		2,465		1,132		-420		949		-411		310		804
Earnings/ dividends in JV and associated companies		115		74		155		30		33		278		71		24
Depreciation, amortization and impairment losses		2,293		2,105		2,156		2,120		2,290		2,199		2,274		2,326
Other		-9		-541		-440		734		197		508		450		-76
		12,537		9,669		5,588		4,744		7,953		-4,320		4,952		5,481
Changes in operating net assets
Inventories		3,753		-1,578		-1,253		-538		5,200		1,077		-3,065		-2,951
Customer finance, current and non-current		-119		-635		307		817		-66		-265		384		-911
Trade receivables and contract assets		-7,231		-1,513		0		5,559		-3,216		6,528		3,338		4,345
Trade payables		2,999		-624		4,104		-2,176		688		-2,913		1,833		20
Provisions and post-employment benefits		199		-1,897		-1,189		218		-10,509		10,719		-480		-3,459
Contract liabilities		-2,046		-1,501		-1,000		3,987		-4,413		-3,988		-1,641		8,463
Other operating assets and liabilities, net		3,811		3,358		-1,108		-8,309		4,859		151		-1,698		-5,223
		1,366		-4,390		-139		-442		-7,457		11,309		-1,329		284
Cash flow from operating activities		13,903		5,279		5,449		4,302		496		6,989		3,623		5,765
Investing activities
Investments in property, plant and equipment		-1,090		-963		-1,327		-1,113		-1,475		-1,231		-1,098		-1,314
Sales of property, plant and equipment		104		55		69		26		206		122		184		232
Acquisitions/divestments of subs. and other operations, net 1)		-9,256		-89		-45		-208		-1,341		-466		3		299
Product development		-177		-167		-211		-262		-329		-313		-446		-457
Other investing activities		668		301		-126		-42		-74		-56		-36		-165
Interest-bearing securities		1,189		-246		1,141		-3,432		-1,759		-1,114		2,414		4,673
Cash flow from investing activities		-8,562		-1,109		-499		-5,031		-4,772		-3,058		1,021		3,268
Financing activities
Dividends paid		-3,456		-42		-2,489		-9		-15		-141		-3,308		-986
Repayment of lease liabilities		-636		-567		-618		-596		-711		-1,052		-623		-604
Other financing activities2)		-4,387		-277		-1,451		2,036		834		1,396		-680		-1,010
Cash flow from financing activities		-8,479		-886		-4,558		1,431		108		203		-4,611		-2,600
Effect of exchange rate changes on cash		-2,024		-165		-3,084		2,566		-1,936		1,550		13		631
Net change in cash and cash equivalents		-5,162		3,119		-2,692		3,268		-6,104		5,684		46		7,064
Cash and cash equivalents, beginning of period		48,774		45,655		48,347		45,079		51,183		45,499		45,453		38,389
Cash and cash equivalents, end of period		43,612		48,774		45,655		48,347		45,079		51,183		45,499		45,453

¹⁾  Includes acquisition of Cradlepoint of SEK -9.5  b.

²⁾  Includes a repayment of a bilateral loan with the European  Investment Bank (EIB) of SEK -5.8 b.

26    Ericsson | Fourth quarter and full-year report 2020 Financial statements

Condensed Parent Company income statement

	Q4				Jan-Dec
SEK million	2020		2019		2020		2019
Net sales		—		—		—		—
Cost of sales		—		—		—		—
Gross income		—		—		—		—
Operating expenses		-383		-499		-1,378		-1,531
Other operating income and expenses 1)		1,038		1,808		2,866		-8,148
Operating income		655		1,309		1,488		-9,679
Financial net		3,946		4,984		6,845		6,610
Income after financial items		4,601		6,293		8,333		-3,069
Transfers to (-)/from untaxed reserves		-1,540		-1,961		-1,540		-1,961
Taxes		103		352		-408		87
Net income (loss)		3,164		4,684		6,385		-4,943

¹⁾  Includes costs of SEK -10.7 billion in 2019 related to the resolution of the SEC and DOJ investigations.

Condensed Parent Company statement of comprehensive income (loss)

	Q4				Jan-Dec
SEK million	2020		2019		2020		2019
Net income (loss)		3,164		4,684		6,385		-4,943
Revaluation of borrowings due to change in credit risk		-325		-197		99		-651
Tax on items that will not be reclassified to profit or loss		67		41		-20		134
Total other comprehensive income, net of tax		-258		-156		79		-517
Total comprehensive income (loss)		2,906		4,528		6,464		-5,460

27    Ericsson | Fourth quarter and full-year report 2020 Financial highlights

Condensed Parent Company balance sheet

	Dec31		Dec31
SEK million	2020		2019
Assets
Fixed assets
Intangible assets		26		58
Tangible assets		460		303
Financial assets ¹)		104,989		106,156
		105,475		106,517
Current assets
Receivables		30,230		23,166
Short-term investments		6,621		6,328
Cash and cash equivalents		28,775		29,800
		65,626		59,294
Total assets		171,101		165,811
Stockholders’ equity, provisions and liabilities
Equity
Restricted equity		48,164		48,164
Non-restricted equity		33,915		32,222
		82,079		80,386
Provisions		343		668
Non-current liabilities		22,111		28,341
Current liabilities		66,568		56,416
Total stockholders’ equity, provisions and liabilities		171,101		165,811
¹)   Of which interest-bearing securities, non-current		21,597		20,354

28    Ericsson | Fourth quarter and full-year report 2020 Financial highlights

Accounting policies and Explanatory notes (unaudited)

Accounting policies

The group

This condensed consolidated interim financial report for the quarterly reporting period ended December 31, 2020, has been prepared in accordance with Accounting Standard IAS 34 “Interim Financial Reporting”. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2019 and should be read in conjunction with that annual report. There are no amendments of IFRS during 2020 that are estimated to have a material impact on the result and financial position of the Company.

Explanatory notes

Covid-19 impacts on the Financial statements

As noted in the previous interim reports, the Covid-19 pandemic has impacted certain lines within our financial statements. Fiscal stimulus provided by governments worldwide has reduced government bond yields and resulted in the significant movement in the capital and equity markets in Q1. These trends have largely reversed as the economic conditions improved in subsequent quarters. This meant that movements in certain line items reported in Q1 have largely been offset or reversed in subsequent quarters to Q4. Figures below are year to date.

In Sweden, government bond yields decreased significantly in Q1, resulting in a significant increase in the net pensions liability. The market conditions have since stabilized, although government bond yields are still lower than that at the end of 2019. The higher pensions liability was offset by cash contributions into the Swedish pension trust of SEK 3.0 b and improved trust asset performance in subsequent quarters, resulting in an increase in group pension liability of SEK 1.5 b at Q4.

Borrowings issued by the Parent Company are held at fair value with changes in value due to changes in credit risk recognized in Other comprehensive income (OCI). The widening of credit spreads for corporate bonds in Q1 resulted in a positive impact in equity. Credit spreads on corporate bonds have decreased substantially in subsequent quarters, resulting in a positive impact of SEK 0.1 b. recognized in the OCI at Q4.

Foreign exchanges rates continued to fluctuate significantly during the period. Since the peak in Q1, USD has weakened against SEK in subsequent quarters. This resulted in a net gain on the hedge loan balances used to manage FX execution risk of SEK 1.0 b. recognized within Financial income and expenses in the Consolidated income statement at Q4.

A stronger SEK in subsequent quarters, especially against USD, resulted in significant negative currency translation adjustment of SEK -5.4 b. on consolidation, recognized in the OCI at Q4.

The Company currently expect no material changes to expected future cash flows which could impact recoverability of assets such as deferred tax assets and intangible assets. Risk assessment on the business plans is carried out on a regular basis and an impairment review will be performed if conditions suggest that such assets may be impaired.

The Company also assessed the wider economic impact in the foreseeable future on the expected credit losses model for trade receivables. The Company concluded that the impact is not material but will continue to perform such analysis on a regular basis.

29    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Net sales by segment by quarter

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		49,366			41,659			39,827			35,126			44,448			39,261			37,819			33,481
Of which Products		37,523			30,992			28,966			24,748			31,159			27,500			26,698			23,765
Of which Services		11,843			10,667			10,861			10,378			13,289			11,761			11,121			9,716
Digital Services		12,671			8,733			8,575			7,345			13,168			9,881			8,991			7,817
Of which Products		7,430			4,621			4,598			3,798			7,338			5,594			4,611			3,937
Of which Services		5,241			4,112			3,977			3,547			5,830			4,287			4,380			3,880
Managed Services		5,815			5,498			5,573			5,714			7,027			6,359			6,323			5,856
Emerging Business and Other		1,738			1,582			1,603			1,565			1,730			1,626			1,677			1,752
Total		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
	2020												2019
Sequential change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		19	%		5	%		13	%		-21	%		13	%		4	%		13	%		-20	%
Of which Products		21	%		7	%		17	%		-21	%		13	%		3	%		12	%		-20	%
Of which Services		11	%		-2	%		5	%		-22	%		13	%		6	%		14	%		-18	%
Digital Services		45	%		2	%		17	%		-44	%		33	%		10	%		15	%		-40	%
Of which Products		61	%		1	%		21	%		-48	%		31	%		21	%		17	%		-47	%
Of which Services		27	%		3	%		12	%		-39	%		36	%		-2	%		13	%		-30	%
Managed Services		6	%		-1	%		-2	%		-19	%		11	%		1	%		8	%		-15	%
Emerging Business and Other		10	%		-1	%		2	%		-10	%		6	%		-3	%		-4	%		-23	%
Total		21	%		3	%		12	%		-25	%		16	%		4	%		12	%		-23	%
	2020												2019
Year over year change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		11	%		6	%		5	%		5	%		7	%		9	%		17	%		17	%
Of which Products		20	%		13	%		8	%		4	%		5	%		9	%		20	%		22	%
Of which Services		-11	%		-9	%		-2	%		7	%		12	%		11	%		10	%		6	%
Digital Services		-4	%		-12	%		-5	%		-6	%		1	%		10	%		2	%		8	%
Of which Products		1	%		-17	%		0	%		-4	%		-2	%		22	%		3	%		0	%
Of which Services		-10	%		-4	%		-9	%		-9	%		5	%		-3	%		0	%		17	%
Managed Services		-17	%		-14	%		-12	%		-2	%		2	%		-2	%		-3	%		-1	%
Emerging Business and Other		0	%		-3	%		-4	%		-11	%		-24	%		-33	%		-18	%		6	%
Total		5	%		1	%		1	%		2	%		4	%		6	%		10	%		13	%
																				��
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		165,978			116,612			74,953			35,126			155,009			110,561			71,300			33,481
Of which Products		122,229			84,706			53,714			24,748			109,122			77,963			50,463			23,765
Of which Services		43,749			31,906			21,239			10,378			45,887			32,598			20,837			9,716
Digital Services		37,324			24,653			15,920			7,345			39,857			26,689			16,808			7,817
Of which Products		20,447			13,017			8,396			3,798			21,480			14,142			8,548			3,937
Of which Services		16,877			11,636			7,524			3,547			18,377			12,547			8,260			3,880
Managed Services		22,600			16,785			11,287			5,714			25,565			18,538			12,179			5,856
Emerging Business and Other		6,488			4,750			3,168			1,565			6,785			5,055			3,429			1,752
Total		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
	2020												2019
Year over year change, percent	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		7	%		5	%		5	%		5	%		12	%		14	%		17	%		17	%
Of which Products		12	%		9	%		6	%		4	%		13	%		16	%		21	%		22	%
Of which Services		-5	%		-2	%		2	%		7	%		10	%		9	%		9	%		6	%
Digital Services		-6	%		-8	%		-5	%		-6	%		5	%		6	%		4	%		8	%
Of which Products		-5	%		-8	%		-2	%		-4	%		5	%		9	%		2	%		0	%
Of which Services		-8	%		-7	%		-9	%		-9	%		4	%		4	%		8	%		17	%
Managed Services		-12	%		-9	%		-7	%		-2	%		-1	%		-2	%		-2	%		-1	%
Emerging Business and Other		-4	%		-6	%		-8	%		-11	%		-19	%		-18	%		-7	%		6	%
Total		2	%		1	%		2	%		2	%		8	%		9	%		11	%		13	%

30    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Gross income by segment by quarter

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Networks		21,430		19,375		16,022		15,586		18,265		16,327		15,670		14,455
Digital Services		5,183		3,787		3,738		2,929		4,898		3,749		3,311		2,878
Managed Services		1,031		1,093		955		933		1,039		1,136		779		1,036
Emerging Business and Other		613		507		202		340		232		328		311		410
Total		28,257		24,762		20,917		19,788		24,434		21,540		20,071		18,779
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Networks		72,413		50,983		31,608		15,586		64,717		46,452		30,125		14,455
Digital Services		15,637		10,454		6,667		2,929		14,836		9,938		6,189		2,878
Managed Services		4,012		2,981		1,888		933		3,990		2,951		1,815		1,036
Emerging Business and Other		1,662		1,049		542		340		1,281		1,049		721		410
Total		93,724		65,467		40,705		19,788		84,824		60,390		38,850		18,779

Operating income (loss) by segment by quarter

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Networks		10,604		9,165		5,255		5,827		6,399		7,216		5,680		5,472
Digital Services		499		-591		-697		-1,417		-164		-660		-1,405		-1,798
Managed Services		401		491		263		408		292		562		203		1,252
Emerging Business and Other		-496		-422		-970		-512		-402		-11,314		-739		-30
Total		11,008		8,643		3,851		4,306		6,125		-4,196		3,739		4,896
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Networks		30,851		20,247		11,082		5,827		24,767		18,368		11,152		5,472
Digital Services		-2,206		-2,705		-2,114		-1,417		-4,027		-3,863		-3,203		-1,798
Managed Services		1,563		1,162		671		408		2,309		2,017		1,455		1,252
Emerging Business and Other		-2,400		-1,904		-1,482		-512		-12,485		-12,083		-769		-30
Total		27,808		16,800		8,157		4,306		10,564		4,439		8,635		4,896

31    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Net sales by market area by quarter

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
South East Asia, Oceania and India		9,748			7,801			6,582			5,917			9,231			7,432			6,965			6,148
North East Asia		12,823			8,814			7,790			3,907			9,704			6,356			6,516			3,824
North America		19,101			18,356			18,407			17,911			17,368			18,985			17,699			16,171
Europe and Latin America 1) 2)		17,125			13,318			13,061			12,241			17,489			14,308			14,085			13,124
Middle East and Africa		6,518			5,520			5,431			5,829			8,426			6,046			5,641			5,412
Other 1) 2)		4,275			3,663			4,307			3,945			4,155			4,000			3,904			4,227
Total		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
1)   Of which in Sweden		363			249			284			227			235			13			149			192
2)   Of which in EU*		8,874			7,090			7,278			6,259			10,572			8,815			8,385			7,957
	2020												2019
Sequential change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
South East Asia, Oceania and India		25	%		19	%		11	%		-36	%		24	%		7	%		13	%		-25	%
North East Asia		45	%		13	%		99	%		-60	%		53	%		-2	%		70	%		-54	%
North America		4	%		0	%		3	%		3	%		-9	%		7	%		9	%		-10	%
Europe and Latin America 1) 2)		29	%		2	%		7	%		-30	%		22	%		2	%		7	%		-27	%
Middle East and Africa		18	%		2	%		-7	%		-31	%		39	%		7	%		4	%		-21	%
Other 1) 2)		17	%		-15	%		9	%		-5	%		4	%		2	%		-8	%		-5	%
Total		21	%		3	%		12	%		-25	%		16	%		4	%		12	%		-23	%
1)   Of which in Sweden		46	%		-12	%		25	%		-3	%		1708	%		-91	%		-22	%		-49	%
2)   Of which in EU*		25	%		-3	%		16	%		-29	%		20	%		5	%		5	%		-23	%
	2020												2019
Year over year change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
South East Asia, Oceania and India		6	%		5	%		-5	%		-4	%		12	%		-7	%		0	%		-4	%
North East Asia		32	%		39	%		20	%		2	%		16	%		10	%		37	%		13	%
North America		10	%		-3	%		4	%		11	%		-4	%		27	%		23	%		43	%
Europe and Latin America 1) 2)		-2	%		-7	%		-7	%		-7	%		-2	%		-3	%		1	%		1	%
Middle East and Africa		-23	%		-9	%		-4	%		8	%		23	%		4	%		-3	%		-8	%
Other 1) 2)		3	%		-8	%		10	%		-7	%		-6	%		-13	%		-1	%		21	%
Total		5	%		1	%		1	%		2	%		4	%		6	%		10	%		13	%
1)   Of which in Sweden		54	%		1815	%		91	%		18	%		-37	%		-97	%		-75	%		-79	%
2)   Of which in EU*		1	%		-4	%		5	%		-4	%		2	%		4	%		-3	%		-7	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
South East Asia, Oceania and India		30,048			20,300			12,499			5,917			29,776			20,545			13,113			6,148
North East Asia		33,334			20,511			11,697			3,907			26,400			16,696			10,340			3,824
North America		73,775			54,674			36,318			17,911			70,223			52,855			33,870			16,171
Europe and Latin America 1) 2)		55,745			38,620			25,302			12,241			59,006			41,517			27,209			13,124
Middle East and Africa		23,298			16,780			11,260			5,829			25,525			17,099			11,053			5,412
Other 1) 2)		16,190			11,915			8,252			3,945			16,286			12,131			8,131			4,227
Total		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
1)   Of which in Sweden		1,123			760			511			227			589			354			341			192
2)   Of which in EU*		29,501			20,627			13,537			6,259			35,729			25,157			16,342			7,957
	2020												2019
Year to date, year over year change, percent	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
South East Asia, Oceania and India		1	%		-1	%		-5	%		-4	%		1	%		-4	%		-2	%		-4	%
North East Asia		26	%		23	%		13	%		2	%		18	%		20	%		27	%		13	%
North America		5	%		3	%		7	%		11	%		20	%		30	%		32	%		43	%
Europe and Latin America 1) 2)		-6	%		-7	%		-7	%		-7	%		-1	%		0	%		1	%		1	%
Middle East and Africa		-9	%		-2	%		2	%		8	%		5	%		-2	%		-5	%		-8	%
Other 1) 2)		-1	%		-2	%		1	%		-7	%		-1	%		1	%		9	%		21	%
Total		2	%		1	%		2	%		2	%		8	%		9	%		11	%		13	%
1)   Of which in Sweden		91	%		115	%		50	%		18	%		-75	%		-82	%		-77	%		-79	%
2)   Of which in EU*		0	%		-1	%		1	%		-4	%		-1	%		-2	%		-5	%		-7	%

*) No sales to UK are included as from 2020.

32    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Net sales by market area by segment

	Q4 2020															Jan-Dec 2020
SEK million	Networks			Digital Services			Managed Services			Emerging Business and Other			Total			Networks			Digital Services			Managed Services			Emerging Business and Other			Total
South East Asia, Oceania and India		7,227			1,394			1,119			8			9,748			21,464			4,329			4,219			36			30,048
North East Asia		10,526			1,957			292			48			12,823			27,120			5,124			831			259			33,334
North America		15,581			2,715			783			22			19,101			62,199			7,979			3,529			68			73,775
Europe and Latin America		10,183			4,209			2,632			101			17,125			33,257			11,954			10,168			367			55,745
Middle East and Africa		3,588			1,935			989			6			6,518			13,281			6,144			3,854			19			23,298
Other		2,261			461			0			1,553			4,275			8,657			1,794			-1			5,739			16,190
Total		49,366			12,671			5,815			1,738			69,590			165,978			37,324			22,600			6,488			232,390
Share of total		71	%		18	%		8	%		3	%		100	%		71	%		16	%		10	%		3	%		100	%

	Q4 2020
Sequential change, percent	Networks			Digital Services			Managed Services			Emerging Business and Other			Total
South East Asia, Oceania and India		30	%		28	%		-3	%		167	%		25	%
North East Asia		42	%		73	%		78	%		-45	%		45	%
North America		0	%		37	%		5	%		100	%		4	%
Europe and Latin America		26	%		54	%		8	%		11	%		29	%
Middle East and Africa		15	%		37	%		—			100	%		18	%
Other		20	%		18	%		—			12	%		17	%
Total		19	%		45	%		6	%		10	%		21	%

	Q4 2020															Jan-Dec 2020
Year over year change, percent	Networks			Digital Services			Managed Services			Emerging Business and Other			Total			Networks			Digital Services			Managed Services			Emerging Business and Other			Total
South East Asia, Oceania and India		6	%		2	%		7	%		-53	%		6	%		-2	%		7	%		10	%		-37	%		1	%
North East Asia		43	%		1	%		-13	%		-45	%		32	%		33	%		5	%		-19	%		46	%		26	%
North America		18	%		-8	%		-34	%		38	%		10	%		11	%		-17	%		-24	%		-29	%		5	%
Europe and Latin America		2	%		3	%		-21	%		-7	%		-2	%		-2	%		-5	%		-16	%		-9	%		-6	%
Middle East and Africa		-27	%		-19	%		-11	%		-54	%		-23	%		-9	%		-12	%		-1	%		-24	%		-9	%
Other		2	%		3	%		—			4	%		3	%		2	%		3	%		—			-5	%		-1	%
Total		11	%		-4	%		-17	%		0	%		5	%		7	%		-6	%		-12	%		-4	%		2	%

Top 5 countries in sales

	Q4						Jan-Dec
Country, percentage of net sales1)	2020			2019			2020			2019
United States		29	%		27	%		33	%		32	%
China		8	%		8	%		8	%		7	%
Japan		9	%		6	%		5	%		4	%
Australia		4	%		4	%		4	%		3	%
Saudi Arabia		3	%		5	%		3	%		3	%

¹⁾  Based on the full year 2020.

33    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

IPR licensing revenues by segment by quarter

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Networks		2,105		1,773		2,282		2,019		2,014		1,972		1,845		2,066
Digital Services		463		389		501		443		443		433		404		454
Total		2,568		2,162		2,783		2,462		2,457		2,405		2,249		2,520
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Networks		8,179		6,074		4,301		2,019		7,897		5,883		3,911		2,066
Digital Services		1,796		1,333		944		443		1,734		1,291		858		454
Total		9,975		7,407		5,245		2,462		9,631		7,174		4,769		2,520

Provisions

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Opening balance		10,922		10,603		11,060		10,923		22,007		11,358		12,033		16,008
Additions1)		1,245		1,093		2,116		793		2,438		12,774		1,423		1,401
Utilization/Cash out1)		-761		-475		-2,066		-673		-12,529		-2,151		-2,084		-1,676
Of which restructuring		-332		-160		-137		-186		-143		-711		-378		-557
Reversal of excess amounts		-673		-172		-192		-124		-842		-128		-88		-125
Reclassification, translation difference and other		-267		-127		-315		141		-151		154		74		-3,575
Closing balance		10,466		10,922		10,603		11,060		10,923		22,007		11,358		12,033
Of which restructuring		1,200		1,659		1,594		1,202		1,095		1,099		1,743		2,059
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Opening balance		10,923		10,923		10,923		10,923		16,008		16,008		16,008		16,008
Additions		5,247		4,002		2,909		793		7,172		15,598		2,824		1,401
Utilization/Cash out		-3,975		-3,214		-2,739		-673		-7,576		-5,911		-3,760		-1,676
Of which restructuring		-815		-483		-323		-186		-1,789		-1,646		-935		-557
Reversal of excess amounts		-1,161		-488		-316		-124		-1,183		-341		-213		-125
Reclassification, translation difference and other		-568		-301		-174		141		-3,498		-3,347		-3,501		-3,575
Closing balance		10,466		10,922		10,603		11,060		10,923		22,007		11,358		12,033
Of which restructuring		1,200		1,659		1,594		1,202		1,095		1,099		1,743		2,059

¹⁾  Includes additions of cost provisions related to the resolution of the SEC and DOJ investigations of SEK -11.5 b. in Q3 2019. Includes payment of SEK 10.1 b. to SEC and DOJ in Q4 2019.

34    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Financial instruments

There have been no changes to the classification of financial instruments or fair value hierarchy categorization from that presented in the latest 2019 Annual Report. Where Level 2 and Level 3 fair value hierarchies apply, the inputs and valuation methods used remained unchanged. The book values and fair values of financial instruments are as follows:

	Dec 31		Sep 30		Dec 31
SEK million	2020		2020		2019
Financial assets at fair value through profit or loss		57,781		64,402		57,040
Financial assets at fair value through OCI		42,063		38,180		43,069
Financial assets at amortized costs		4,457		4,361		4,519
Total financial assets		104,301		106,943		104,628
Financial liabilities at fair value through profit or loss		27,453		35,645		36,895
Financial liabilities at amortized costs		34,927		32,397		32,199
Total financial liabilities		62,380		68,042		69,094

Financial assets at fair value through profit or loss (FVTPL) are mainly interest bearing securities and cash equivalents, measured under both Level 1 and Level 2 (SEK 51,616 million at Dec 2020, SEK 58,210 million at Sep 2020 and SEK 50,543 million at Dec 2019). Cash equivalents (SEK 23,557 million at Dec 2020, SEK 29,230 million at Sep 2020 and SEK 23,934 million at Dec 2019) are Level 2 instruments valued using inputs such as quoted fixing rates, interest rate swaps, IBOR rates and FX forward rates.

Other FVTPL assets measured under Level 3 hierarchy are customer finance receivables (SEK 3,137 million at Dec 2020, SEK 3,147 million at Sep 2020 and SEK 3,756 million at Dec 2019) and other financial investments (SEK 1,505 million at Dec 2020, SEK 2,557 million at Sep 2020 and SEK 2,600 million at Dec 2019). Movements of customer finance receivables are as follows: additions of SEK 24,765 million, disposals and repayments of SEK 25,069 million and revaluation loss of SEK 66 million.

Financial assets at fair value through OCI consist of trade receivables, measured at gross values less impairment allowance for expected credit losses which is deemed to be equal to their fair values.

Financial liabilities at FVTPL are mainly parent company borrowings (SEK 27,221 million at Dec 2020, SEK 35,024 million at Sep 2020 and SEK 35,899 million at Dec 2019). Some borrowings are valued at quoted market prices (Level 1), whereas the carrying value of other borrowings not traded on the credit market (Level 2) reflects the effect in own credit spreads derived from quoted Credit Default Swap for Investment Grade companies.

Financial assets and liabilities at amortized costs comprise of some cash equivalents, borrowings and trade payables that are deemed to be equal to fair values.

Information on investments

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

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Additions
Property, plant and equipment		1,090		963		1,327		1,113		1,475		1,231		1,098		1,314
Capitalized development expenses		177		167		211		262		329		313		446		457
IPR, brands and other intangible assets		124		—		97		1		1		2		—		1
Total		1,391		1,130		1,635		1,376		1,805		1,546		1,544		1,772
Depreciation, amortization and impairment losses
Property, plant and equipment		1,186		916		1,003		1,009		1,100		1,048		919		880
Capitalized development expenses		230		230		272		174		256		330		449		520
Goodwill, IPR, brands and other intangible assets		276		365		258		321		269		229		226		314
Total		1,692		1,511		1,533		1,504		1,625		1,607		1,594		1,714
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Additions
Property, plant and equipment		4,493		3,403		2,440		1,113		5,118		3,643		2,412		1,314
Capitalized development expenses		817		640		473		262		1,545		1,216		903		457
IPR, brands and other intangible assets		222		98		98		1		4		3		1		1
Total		5,532		4,141		3,011		1,376		6,667		4,862		3,316		1,772
Depreciation, amortization and impairment losses
Property, plant and equipment		4,114		2,928		2,012		1,009		3,947		2,847		1,799		880
Capitalized development expenses		906		676		446		174		1,555		1,299		969		520
Goodwill, IPR, brands and other intangible assets		1,220		944		579		321		1,038		769		540		314
Total		6,240		4,548		3,037		1,504		6,540		4,915		3,308		1,714

35    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Other information

	Q4				Jan-Dec
SEK million	2020		2019		2020		2019
Number of shares and earnings per share
Number of shares, end of period (million)		3,334		3,334		3,334		3,334
Of which class A-shares (million)		262		262		262		262
Of which class B-shares (million)		3,072		3,072		3,072		3,072
Number of treasury shares, end of period (million)		6		20		6		20
Number of shares outstanding, basic, end of period (million)		3,328		3,314		3,328		3,314
Numbers of shares outstanding, diluted, end of period (million)		3,331		3,328		3,331		3,328
Average number of treasury shares (million)		6		22		11		28
Average number of shares outstanding, basic (million)		3,328		3,313		3,323		3,306
Average number of shares outstanding, diluted (million) 1)		3,331		3,326		3,326		3,320
Earnings (loss) per share, basic (SEK) 2)		2.26		1.34		5.26		0.67
Earnings (loss) per share, diluted (SEK) 1)		2.26		1.33		5.26		0.67
Exchange rates used in the consolidation
SEK/EUR - closing rate		—		—		10.06		10.43
SEK/USD - closing rate		—		—		8.19		9.32
Other
Assets pledged as collateral		—		—		6,808		5,901
Contingent liabilities		—		—		1,198		1,527

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

²⁾  Based on net income (loss) attributable to owners of the Parent Company.

Number of employees

	2020								2019
End of period	Dec 31		Sep 30		Jun 30		Mar 31		Dec 31		Sep 30		Jun 30		Mar 31
South East Asia, Oceania and India		25,869		25,633		25,265		24,942		24,559		24,322		23,942		24,051
North East Asia		13,944		13,955		13,965		13,786		13,783		13,608		13,334		13,169
North America		10,175		9,537		9,785		9,718		9,643		9,487		9,342		9,246
Europe and Latin America 1)		46,580		46,495		46,521		46,402		47,135		44,150		43,846		43,833
Middle East and Africa		4,256		4,206		4,264		4,247		4,297		4,320		4,292		4,281
Total		100,824		99,826		99,800		99,095		99,417		95,887		94,756		94,580
1)   Of which Sweden		13,173		13,046		12,884		12,746		12,730		12,679		12,549		12,455

Preliminary allocation of purchase consideration

Acquisition of Cradlepoint
SEK billion
Total consideration incl. cash	9.5
Net assets acquired
Cash and cash equivalents	0.3
Inventory	0.6
Other current assets	0.8
Other non-current assets	0.2
Intangible assets	3.3
Contract liabilities	-0.8
Other current liabilities	-0.6
Other non-current liabilities	-1.3
Total identifiable net assets	2.4
Goodwill	7.1
Total	9.5

On November 1, 2020, Ericsson acquired 100 percent of the shares in Cradlepoint for SEK 9.5 billion in an all-cash transaction. Cradlepoint is the US market leader in Wireless WAN Edge 4G and 5G solutions for the enterprise market. Approximately 700 employees joined Ericsson as part of the transaction. Balances to facilitate the Purchase price allocation are preliminary.

36    Ericsson | Fourth quarter and full-year report 2020 Accounting policies and Explanatory notes

Alternative performance measures (unaudited)

In this section, the Company presents its Alternative Performance Measures (APMs), which are not recognized measures of financial performance under IFRS. The presentation of APMs has limitations as analytical tools and should not be considered in isolation or as a substitute for related financial measures prepared in accordance with IFRS.

APMs are presented to enhance an investor’s evaluation of ongoing operating results, to aid in forecasting future periods and to facilitate meaningful comparison of results between periods.

Management uses these APMs to, among other things, evaluate ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of certain performance-based compensation. APM’s should not be viewed as substitutes for income statement or cash flow items computed in accordance with IFRS.

As from 2020 net sales and operating margin excluding restructuring charges rolling four quarters (%) are introduced. The Company is of the view that the new APM is a good way to explain and measure the performance of the company. The contracts are delivered over several quarters and thus an individual quarter does not always fully reflect the performance.

The Company has decided to remove Cash conversion as an APM since it is no longer used by the Company. The Company is instead using Free cash flow before M&A to reflect the cash flows generated by the Company.

This section also includes a reconciliation of the APM’s to the most directly reconcilable line items in the financial statements. For more information about non-IFRS key operating measures, see Ericsson Annual Report 2019.

Sales growth adjusted for comparable units and currency

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

	2020												2019
Isolated quarters, year over year change	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Reported net sales		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
Acquired business		-206			-415			-422			-319			-96			—			—			—
Net FX impact		5,472			4,304			-326			-1,654			-2,748			-2,457			-2,538			-2,932
Comparable net sales, excluding FX impact		74,856			61,361			54,830			47,777			63,529			54,670			52,272			45,974
Comparable quarter net sales adj. for acq/div business 1)		66,373			57,150			54,810			48,798			63,037			53,077			49,055			42,961
Sales growth adjusted for comparable units and currency (%)		13	%		7	%		0	%		-2	%		1	%		3	%		7	%		7	%
	2020												2019
Year to date, year over year change	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Reported net sales		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
Acquired business		-1,362			-1,156			-741			-319			-96			—			—			—
Net FX impact		7,796			2,324			-1,980			-1,654			-10,675			-7,927			-5,470			-2,932
Comparable net sales, excluding FX impact		238,824			163,968			102,607			47,777			216,445			152,916			98,246			45,974
Comparable quarter net sales adj. for acq/div business 1)		227,132			160,758			103,608			48,798			208,130			145,093			92,016			42,961
Sales growth adjusted for comparable units and currency (%)		5	%		2	%		-1	%		-2	%		4	%		5	%		7	%		7	%

¹⁾  Adjusted for divestment of MediaKind in February 2019, acquisition of Kathrein in October 2019 and acquisition of Cradlepoint in November 2020.

37    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Items excluding restructuring charges

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

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Gross income		28,257			24,762			20,917			19,788			24,434			21,540			20,071			18,779
Net sales		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
Gross margin (%)		40.6	%		43.1	%		37.6	%		39.8	%		36.8	%		37.7	%		36.6	%		38.4	%
Gross income		28,257			24,762			20,917			19,788			24,434			21,540			20,071			18,779
Restructuring charges included in cost of sales		5			73			312			335			218			28			26			65
Gross income excluding restructuring charges		28,262			24,835			21,229			20,123			24,652			21,568			20,097			18,844
Net sales		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
Gross margin excluding restructuring charges (%)		40.6	%		43.2	%		38.2	%		40.4	%		37.1	%		37.8	%		36.7	%		38.5	%
Operating expenses		-17,571			-16,121			-17,045			-15,543			-19,028			-14,217			-16,331			-14,639
Restructuring charges included in R&D expenses		-21			244			227			-39			79			98			49			118
Restructuring charges included in selling and administrative expenses		8			13			144			5			30			21			43			23
Operating expenses excluding restructuring charges		-17,584			-15,864			-16,674			-15,577			-18,919			-14,098			-16,239			-14,498
Operating income (loss)		11,008			8,643			3,851			4,306			6,125			-4,196			3,739			4,896
Net sales		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
Operating margin (%)		15.8	%		15.0	%		6.9	%		8.7	%		9.2	%		-7.3	%		6.8	%		10.0	%
Operating income (loss)		11,008			8,643			3,851			4,306			6,125			-4,196			3,739			4,896
Total restructuring charges		-8			330			683			301			327			147			118			206
Operating income (loss) excluding restructuring charges		11,000			8,973			4,534			4,607			6,452			-4,049			3,857			5,102
Net sales		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
Operating margin excluding restructuring charges (%)		15.8	%		15.6	%		8.2	%		9.3	%		9.7	%		-7.1	%		7.0	%		10.4	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Gross income		93,724			65,467			40,705			19,788			84,824			60,390			38,850			18,779
Net sales		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
Gross margin (%)		40.3	%		40.2	%		38.6	%		39.8	%		37.3	%		37.5	%		37.5	%		38.4	%
Gross income		93,724			65,467			40,705			19,788			84,824			60,390			38,850			18,779
Restructuring charges included in cost of sales		725			720			647			335			337			119			91			65
Gross income excluding restructuring charges		94,449			66,187			41,352			20,123			85,161			60,509			38,941			18,844
Net sales		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
Gross margin excluding restructuring charges (%)		40.6	%		40.7	%		39.3	%		40.4	%		37.5	%		37.6	%		37.5	%		38.5	%
Operating expenses		-66,280			-48,709			-32,588			-15,543			-64,215			-45,187			-30,970			-14,639
Restructuring charges included in R&D expenses		411			432			188			-39			344			265			167			118
Restructuring charges included in selling and administrative expenses		170			162			149			5			117			87			66			23
Operating expenses excluding restructuring charges		-65,699			-48,115			-32,251			-15,577			-63,754			-44,835			-30,737			-14,498
Operating income (loss)		27,808			16,800			8,157			4,306			10,564			4,439			8,635			4,896
Net sales		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
Operating margin (%)		12.0	%		10.3	%		7.7	%		8.7	%		4.6	%		2.8	%		8.3	%		10.0	%
Operating income (loss)		27,808			16,800			8,157			4,306			10,564			4,439			8,635			4,896
Total restructuring charges		1,306			1,314			984			301			798			471			324			206
Operating income (loss) excluding restructuring charges		29,114			18,114			9,141			4,607			11,362			4,910			8,959			5,102
Net sales		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
Operating margin excluding restructuring charges (%)		12.5	%		11.1	%		8.7	%		9.3	%		5.0	%		3.1	%		8.6	%		10.4	%

38    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

EBITA and EBITA margin

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

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net income (loss)		7,192			5,566			2,585			2,280			4,484			-6,894			1,847			2,403
Taxes		3,721			3,186			1,558			1,124			1,570			2,013			1,451			1,888
Financial income and expenses, net		95			-109			-292			902			71			685			441			605
Amortization and write-downs of acquired intangibles		276			365			258			321			269			229			226			314
EBITA		11,284			9,008			4,109			4,627			6,394			-3,967			3,965			5,210
Net sales		69,590			57,472			55,578			49,750			66,373			57,127			54,810			48,906
EBITA margin (%)		16.2	%		15.7	%		7.4	%		9.3	%		9.6	%		-6.9	%		7.2	%		10.7	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Net income (loss)		17,623			10,431			4,865			2,280			1,840			-2,644			4,250			2,403
Taxes		9,589			5,868			2,682			1,124			6,922			5,352			3,339			1,888
Financial income and expenses, net		596			501			610			902			1,802			1,731			1,046			605
Amortization and write-downs of acquired intangibles		1,220			944			579			321			1,038			769			540			314
EBITA		29,028			17,744			8,736			4,627			11,602			5,208			9,175			5,210
Net sales		232,390			162,800			105,328			49,750			227,216			160,843			103,716			48,906
EBITA margin (%)		12.5	%		10.9	%		8.3	%		9.3	%		5.1	%		3.2	%		8.8	%		10.7	%

Rolling four quarters of net sales and operating margin excluding restructuring charges (%)

Net sales, operating margin and restructuring charges as a sum of last four quarters.

	2020												2019
Rolling four quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net sales		232,390			229,173			228,828			228,060			227,216			224,652			221,335			216,333
Operating income (loss)		27,808			22,925			10,086			9,974			10,564			2,587			10,024			6,450
Restructuring charges		1,306			1,641			1,458			893			798			4,882			5,287			7,049
Operating income (loss) excl. restr. charges		29,114			24,566			11,544			10,867			11,362			7,469			15,311			13,499
Operating margin excl. restr. charges (%)		12.5	%		10.7	%		5.0	%		4.8	%		5.0	%		3.3	%		6.9	%		6.2	%

39    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Gross cash and net cash, end of period

Gross cash: Cash and cash equivalents plus interest-bearing securities (current and non-current).

Net cash: Cash and cash equivalents plus interest-bearing securities (current and non-current) less borrowings (current and non-current).

	2020								2019
SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Cash and cash equivalents		43,612		48,774		45,655		48,347		45,079		51,183		45,498		45,453
+ Interest-bearing securities, current		6,820		5,552		5,739		7,834		6,759		5,866		6,367		3,183
+ Interest-bearing securities, non-current		21,613		23,898		24,025		23,335		20,354		19,157		17,091		23,022
Gross cash, end of period		72,045		78,224		75,419		79,516		72,192		76,206		68,956		71,658
-Borrowings, current		7,942		14,587		15,290		17,759		9,439		1,622		2,160		3,015
-Borrowings, non-current		22,218		22,132		22,581		23,381		28,257		37,153		33,040		32,533
Net cash, end of period		41,885		41,505		37,548		38,376		34,496		37,431		33,756		36,110

Capital employed

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

		2020								2019
SEK million		Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Total assets			271,530		277,187		276,778		292,307		276,383		288,531		280,447		283,958
Non-interest-bearing provisions and liabilities
Provisions, non-current			2,886		2,378		2,240		2,703		2,679		2,308		2,646		2,670
Deferred tax liabilities			1,089		1,102		1,164		1,060		1,224		857		1,178		792
Other non-current liabilities			1,383		1,759		1,813		2,178		2,114		2,163		2,160		2,118
Provisions, current			7,580		8,544		8,363		8,357		8,244		19,699		8,712		9,363
Contract liabilities			26,440		29,393		31,532		34,265		29,041		34,499		37,264		38,605
Trade payables	��		31,988		30,704		32,182		29,840		30,403		30,672		31,388		30,842
Other current liabilities			38,174		37,905		34,834		40,521		37,405		34,624		33,351		38,528
Capital employed			161,990		165,402		164,650		173,383		165,273		163,709		163,748		161,040

Capital turnover

Annualized net sales divided by average capital employed.

Annualization factor of four is used for isolated quarter.

Annualization  factor of four is used for Jan-Mar, two is used for Jan-Jun, 4/3 is used for Jan-Sep and one is used for  Jan-Dec.

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Net sales		69,590		57,472		55,578		49,750		66,373		57,127		54,810		48,906
Annualized net sales		278,360		229,888		222,312		199,000		265,492		228,508		219,240		195,624
Average capital employed
Capital employed at beginning of period		165,402		164,650		173,383		165,273		163,709		163,748		161,040		149,615
Capital employed at end of period		161,990		165,402		164,650		173,383		165,273		163,709		163,748		161,040
Average capital employed		163,696		165,026		169,017		169,328		164,491		163,729		162,394		155,328
Capital turnover (times)		1.7		1.4		1.3		1.2		1.6		1.4		1.4		1.3
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Net sales		232,390		162,800		105,328		49,750		227,216		160,843		103,716		48,906
Annualized net sales		232,390		217,067		210,656		199,000		227,216		214,457		207,432		195,624
Average capital employed
Capital employed at beginning of period		165,273		165,273		165,273		165,273		149,615		149,615		149,615		149,615
Capital employed at end of period		161,990		165,402		164,650		173,383		165,273		163,709		163,748		161,040
Average capital employed		163,632		165,338		164,962		169,328		157,444		156,662		156,682		155,328
Capital turnover (times)		1.4		1.3		1.3		1.2		1.4		1.4		1.3		1.3

40    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Return on capital employed

The annualized total of operating income (loss) as a percentage of average capital employed.

Annualization factor of four is used for isolated quarter.

Annualization factor of four is used for Jan-Mar, two is used for Jan-Jun, 4/3 is used for Jan-Sep and one is used for Jan-Dec.

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Operating income (loss)		11,008			8,643			3,851			4,306			6,125			-4,196			3,739			4,896
Annualized operating income (loss)		44,032			34,572			15,404			17,224			24,500			-16,784			14,956			19,584
Average capital employed
Capital employed at beginning of period		165,402			164,650			173,383			165,273			163,709			163,748			161,040			149,615
Capital employed at end of period		161,990			165,402			164,650			173,383			165,273			163,709			163,748			161,040
Average capital employed		163,696			165,026			169,017			169,328			164,491			163,729			162,394			155,328
Return on capital employed (%)		26.9	%		20.9	%		9.1	%		10.2	%		14.9	%		-10.3	%		9.2	%		12.6	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Operating income (loss)		27,808			16,800			8,157			4,306			10,564			4,439			8,635			4,896
Annualized operating income (loss)		27,808			22,400			16,314			17,224			10,564			5,919			17,270			19,584
Average capital employed
Capital employed at beginning of period		165,273			165,273			165,273			165,273			149,615			149,615			149,615			149,615
Capital employed at end of period		161,990			165,402			164,650			173,383			165,273			163,709			163,748			161,040
Average capital employed		163,632			165,338			164,962			169,328			157,444			156,662			156,682			155,328
Return on capital employed (%)		17.0	%		13.5	%		9.9	%		10.2	%		6.7	%		3.8	%		11.0	%		12.6	%

Equity ratio

Equity expressed as a percentage of total assets.

	2020												2019
SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total equity		85,177			82,485			78,472			79,113			81,878			77,475			84,533			84,532
Total assets		271,530			277,187			276,778			292,307			276,383			288,531			280,447			283,958
Equity ratio (%)		31.4	%		29.8	%		28.4	%		27.1	%		29.6	%		26.9	%		30.1	%		29.8	%

Return on equity

Annualized net income (loss) attributable to owners of the Parent Company as a percentage  of average stockholders’ equity.

Annualization factor of four is used for isolated quarter.

Annualization  factor of four is used for Jan-Mar, two is used for Jan-Jun, 4/3 is used for Jan-Sep and one is used for  Jan-Dec.

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Net income (loss) attributable to owners of the Parent Company		7,522			5,353			2,452			2,156			4,430			-6,229			1,705			2,317
Annualized		30,088			21,412			9,808			8,624			17,720			-24,916			6,820			9,268
Average stockholders’ equity
Stockholders’ equity, beginning of period		82,830			79,005			79,841			82,559			78,200			84,488			84,619			86,978
Stockholders’ equity, end of period		86,674			82,830			79,005			79,841			82,559			78,200			84,488			84,619
Average stockholders’ equity		84,752			80,918			79,423			81,200			80,380			81,344			84,554			85,799
Return on equity (%)		35.5	%		26.5	%		12.3	%		10.6	%		22.0	%		-30.6	%		8.1	%		10.8	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Net income (loss) attributable to owners of the Parent Company		17,483			9,961			4,608			2,156			2,223			-2,207			4,022			2,317
Annualized		17,483			13,281			9,216			8,624			2,223			-2,943			8,044			9,268
Average stockholders’ equity
Stockholders’ equity, beginning of period		82,559			82,559			82,559			82,559			86,978			86,978			86,978			86,978
Stockholders’ equity, end of period		86,674			82,830			79,005			79,841			82,559			78,200			84,488			84,619
Average stockholders’ equity		84,617			82,695			80,782			81,200			84,769			82,589			85,733			85,799
Return on equity (%)		20.7	%		16.1	%		11.4	%		10.6	%		2.6	%		-3.6	%		9.4	%		10.8	%

41    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Adjusted earnings (loss) per share (non-IFRS)

Adjusted earnings (loss) per share, diluted, excluding amortizations and write-down of acquired intangible assets and excluding restructuring charges.

The APM has been renamed. It was earlier referred to as Earnings (loss) per share (non-IFRS).

	2020								2019
Isolated quarters, SEK	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Earnings (loss) per share, diluted		2.26		1.61		0.74		0.65		1.33		-1.89		0.51		0.70
Restructuring charges		0.01		0.08		0.14		0.07		0.07		0.04		0.02		0.05
Amortization and write-downs of acquired intangibles		0.06		0.08		0.06		0.07		0.06		0.05		0.06		0.05
Adjusted earnings (loss) per share (non-IRFS)		2.33		1.77		0.94		0.79		1.46		-1.80		0.59		0.80
	2020								2019
Year to date, SEK	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Earnings (loss) per share, diluted		5.26		3.00		1.39		0.65		0.67		-0.67		1.21		0.70
Restructuring charges		0.30		0.29		0.21		0.07		0.18		0.11		0.07		0.05
Amortization and write-downs of acquired intangibles		0.27		0.21		0.13		0.07		0.22		0.16		0.11		0.05
Adjusted earnings (loss) per share (non-IRFS)		5.83		3.50		1.73		0.79		1.07		-0.40		1.39		0.80

Free cash flow and free cash flow before M&A

Free cash flow: Cash flow from operating activities less net capital expenditures and other investments.

Free cash flow before M&A: Cash flow from operating activities less net capital expenditures and other investments (excluding M&A).

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Cash flow from operating activities		13,903		5,279		5,449		4,302		496		6,989		3,623		5,765
Net capital expenditures and other investments (excl M&A)
Investments in property, plant and equipment		-1,090		-963		-1,327		-1,113		-1,475		-1,231		-1,098		-1,314
Sales of property, plant and equipment		104		55		69		26		206		122		184		232
Product development		-177		-167		-211		-262		-329		-313		-446		-457
Other investing activities		668		301		-126		-42		-74		-56		-36		-165
Repayment of lease liabilities		-636		-567		-618		-596		-711		-1,052		-623		-604
Free cash flow before M&A		12,772		3,938		3,236		2,315		-1,887		4,459		1,604		3,457
Acquisitions/divestments of subs and other operations, net		-9,256		-89		-45		-208		-1,341		-466		3		299
Free cash flow		3,516		3,849		3,191		2,107		-3,228		3,993		1,607		3,756
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Cash flow from operating activities		28,933		15,030		9,751		4,302		16,873		16,377		9,388		5,765
Net capital expenditures and other investments (excl M&A)
Investments in property, plant and equipment		-4,493		-3,403		-2,440		-1,113		-5,118		-3,643		-2,412		-1,314
Sales of property, plant and equipment		254		150		95		26		744		538		416		232
Product development		-817		-640		-473		-262		-1,545		-1,216		-903		-457
Other investing activities		801		133		-168		-42		-331		-257		-201		-165
Repayment of lease liabilities		-2,417		-1,781		-1,214		-596		-2,990		-2,279		-1,227		-604
Free cash flow before M&A		22,261		9,489		5,551		2,315		7,633		9,520		5,061		3,457
Acquisitions/divestments of subs and other operations, net		-9,598		-342		-253		-208		-1,505		-164		302		299
Free cash flow		12,663		9,147		5,298		2,107		6,128		9,356		5,363		3,756

42    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Sales growth by segment adjusted for comparable units and currency

	2020												2019
Isolated quarter, year over year change, percent	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks 1)		20	%		13	%		4	%		0	%		2	%		4	%		11	%		10	%
Digital Services		3	%		-5	%		-5	%		-9	%		-3	%		5	%		-3	%		0	%
Managed Services		-12	%		-9	%		-12	%		-5	%		-1	%		-5	%		-6	%		-5	%
Emerging Business and Other 2)		-4	%		2	%		-6	%		-8	%		9	%		-7	%		24	%		38	%
Total 1) 2)		13	%		7	%		0	%		-2	%		1	%		3	%		7	%		7	%
	2020												2019
Year to date, year over year change, percent	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks 1)		10	%		6	%		2	%		0	%		6	%		8	%		11	%		10	%
Digital Services		-3	%		-6	%		-7	%		-9	%		-1	%		1	%		-2	%		0	%
Managed Services		-10	%		-9	%		-9	%		-5	%		-4	%		-5	%		-6	%		-5	%
Emerging Business and Other 2)		-4	%		-4	%		-7	%		-8	%		14	%		15	%		30	%		38	%
Total 1) 2)		5	%		2	%		-1	%		-2	%		4	%		5	%		7	%		7	%

¹⁾  Adjusted for Kathrein acquisition in October 2019.

²⁾  Adjusted for MediaKind divestment in February 2019.

Gross margin by segment by quarter

	2020												2019
Isolated quarters, as percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		43.4	%		46.5	%		40.2	%		44.4	%		41.1	%		41.6	%		41.4	%		43.2	%
Digital Services		40.9	%		43.4	%		43.6	%		39.9	%		37.2	%		37.9	%		36.8	%		36.8	%
Managed Services		17.7	%		19.9	%		17.1	%		16.3	%		14.8	%		17.9	%		12.3	%		17.7	%
Emerging Business and Other		35.3	%		32.0	%		12.6	%		21.7	%		13.4	%		20.2	%		18.5	%		23.4	%
Total		40.6	%		43.1	%		37.6	%		39.8	%		36.8	%		37.7	%		36.6	%		38.4	%
	2020												2019
Year to date, as percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		43.6	%		43.7	%		42.2	%		44.4	%		41.8	%		42.0	%		42.3	%		43.2	%
Digital Services		41.9	%		42.4	%		41.9	%		39.9	%		37.2	%		37.2	%		36.8	%		36.8	%
Managed Services		17.8	%		17.8	%		16.7	%		16.3	%		15.6	%		15.9	%		14.9	%		17.7	%
Emerging Business and Other		25.6	%		22.1	%		17.1	%		21.7	%		18.9	%		20.8	%		21.0	%		23.4	%
Total		40.3	%		40.2	%		38.6	%		39.8	%		37.3	%		37.5	%		37.5	%		38.4	%

Operating margin by segment by quarter

	2020												2019
Isolated quarters, as percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		21.5	%		22.0	%		13.2	%		16.6	%		14.4	%		18.4	%		15.0	%		16.3	%
Digital Services		3.9	%		-6.8	%		-8.1	%		-19.3	%		-1.2	%		-6.7	%		-15.6	%		-23.0	%
Managed Services		6.9	%		8.9	%		4.7	%		7.1	%		4.2	%		8.8	%		3.2	%		21.4	%
Emerging Business and Other		-28.5	%		-26.7	%		-60.5	%		-32.7	%		-23.2	%		-695.8	%		-44.1	%		-1.7	%
Total		15.8	%		15.0	%		6.9	%		8.7	%		9.2	%		-7.3	%		6.8	%		10.0	%
	2020												2019
Year to date, as percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		18.6	%		17.4	%		14.8	%		16.6	%		16.0	%		16.6	%		15.6	%		16.3	%
Digital Services		-5.9	%		-11.0	%		-13.3	%		-19.3	%		-10.1	%		-14.5	%		-19.1	%		-23.0	%
Managed Services		6.9	%		6.9	%		5.9	%		7.1	%		9.0	%		10.9	%		11.9	%		21.4	%
Emerging Business and Other		-37.0	%		-40.1	%		-46.8	%		-32.7	%		-184.0	%		-239.0	%		-22.4	%		-1.7	%
Total		12.0	%		10.3	%		7.7	%		8.7	%		4.6	%		2.8	%		8.3	%		10.0	%

43    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Restructuring charges by function

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Cost of sales		-5		-73		-312		-335		-218		-28		-26		-65
Research and development expenses		21		-244		-227		39		-79		-98		-49		-118
Selling and administrative expenses		-8		-13		-144		-5		-30		-21		-43		-23
Total		8		-330		-683		-301		-327		-147		-118		-206
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Cost of sales		-725		-720		-647		-335		-337		-119		-91		-65
Research and development expenses		-411		-432		-188		39		-344		-265		-167		-118
Selling and administrative expenses		-170		-162		-149		-5		-117		-87		-66		-23
Total		-1,306		-1,314		-984		-301		-798		-471		-324		-206

Restructuring charges by segment

	2020								2019
Isolated quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Networks		-19		-272		-380		-75		-48		-5		-5		-10
of which cost of sales		-20		-79		-110		-72		-24		12		9		-3
of which operating expenses		1		-193		-270		-3		-24		-17		-14		-7
Digital Services		14		-87		34		20		-206		-128		-93		-187
of which cost of sales		-10		-8		3		-16		-125		-32		-27		-60
of which operating expenses		24		-79		31		36		-81		-96		-66		-127
Managed Services		0		-11		-2		-245		-42		-2		1		-2
of which cost of sales		0		-11		-2		-245		-40		-2		3		-1
of which operating expenses		0		0		0		0		-2		0		-2		-1
Emerging Business and Other		13		40		-335		-1		-31		-12		-21		-7
of which cost of sales		25		25		-203		-2		-29		-6		-11		-1
of which operating expenses		-12		15		-132		1		-2		-6		-10		-6
Total		8		-330		-683		-301		-327		-147		-118		-206
	2020								2019
Year to date, SEK million	Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar		Jan-Dec		Jan-Sep		Jan-Jun		Jan-Mar
Networks		-746		-727		-455		-75		-68		-20		-15		-10
of which cost of sales		-281		-261		-182		-72		-6		18		6		-3
of which operating expenses		-465		-466		-273		-3		-62		-38		-21		-7
Digital Services		-19		-33		54		20		-614		-408		-280		-187
of which cost of sales		-31		-21		-13		-16		-244		-119		-87		-60
of which operating expenses		12		-12		67		36		-370		-289		-193		-127
Managed Services		-258		-258		-247		-245		-45		-3		-1		-2
of which cost of sales		-258		-258		-247		-245		-40		0		2		-1
of which operating expenses		0		0		0		0		-5		-3		-3		-1
Emerging Business and Other		-283		-296		-336		-1		-71		-40		-28		-7
of which cost of sales		-155		-180		-205		-2		-47		-18		-12		-1
of which operating expenses		-128		-116		-131		1		-24		-22		-16		-6
Total		-1,306		-1,314		-984		-301		-798		-471		-324		-206

44    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Gross income and gross margin excluding restructuring charges by segment

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		21,450			19,454			16,132			15,658			18,289			16,315			15,661			14,458
Digital Services		5,193			3,795			3,735			2,945			5,023			3,781			3,338			2,938
Managed Services		1,031			1,104			957			1,178			1,079			1,138			776			1,037
Emerging Business and Other		588			482			405			342			261			334			322			411
Total		28,262			24,835			21,229			20,123			24,652			21,568			20,097			18,844
	2020												2019
Isolated quarters, as percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		43.5	%		46.7	%		40.5	%		44.6	%		41.1	%		41.6	%		41.4	%		43.2	%
Digital Services		41.0	%		43.5	%		43.6	%		40.1	%		38.1	%		38.3	%		37.1	%		37.6	%
Managed Services		17.7	%		20.1	%		17.2	%		20.6	%		15.4	%		17.9	%		12.3	%		17.7	%
Emerging Business and Other		33.8	%		30.5	%		25.3	%		21.9	%		15.1	%		20.5	%		19.2	%		23.5	%
Total		40.6	%		43.2	%		38.2	%		40.4	%		37.1	%		37.8	%		36.7	%		38.5	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		72,694			51,244			31,790			15,658			64,723			46,434			30,119			14,458
Digital Services		15,668			10,475			6,680			2,945			15,080			10,057			6,276			2,938
Managed Services		4,270			3,239			2,135			1,178			4,030			2,951			1,813			1,037
Emerging Business and Other		1,817			1,229			747			342			1,328			1,067			733			411
Total		94,449			66,187			41,352			20,123			85,161			60,509			38,941			18,844
	2020												2019
Year to date, as percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		43.8	%		43.9	%		42.4	%		44.6	%		41.8	%		42.0	%		42.2	%		43.2	%
Digital Services		42.0	%		42.5	%		42.0	%		40.1	%		37.8	%		37.7	%		37.3	%		37.6	%
Managed Services		18.9	%		19.3	%		18.9	%		20.6	%		15.8	%		15.9	%		14.9	%		17.7	%
Emerging Business and Other		28.0	%		25.9	%		23.6	%		21.9	%		19.6	%		21.1	%		21.4	%		23.5	%
Total		40.6	%		40.7	%		39.3	%		40.4	%		37.5	%		37.6	%		37.5	%		38.5	%

45    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

Operating income (loss) and operating margin excluding restructuring charges by segment

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		10,623			9,437			5,635			5,902			6,447			7,221			5,685			5,482
Digital Services		485			-504			-731			-1,437			42			-532			-1,312			-1,611
Managed Services		401			502			265			653			334			564			202			1,254
Emerging Business and Other		-509			-462			-635			-511			-371			-11,302			-718			-23
Total		11,000			8,973			4,534			4,607			6,452			-4,049			3,857			5,102
	2020												2019
Isolated quarters, as percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		21.5	%		22.7	%		14.1	%		16.8	%		14.5	%		18.4	%		15.0	%		16.4	%
Digital Services		3.8	%		-5.8	%		-8.5	%		-19.6	%		0.3	%		-5.4	%		-14.6	%		-20.6	%
Managed Services		6.9	%		9.1	%		4.8	%		11.4	%		4.8	%		8.9	%		3.2	%		21.4	%
Emerging Business and Other		-29.3	%		-29.2	%		-39.6	%		-32.7	%		-21.4	%		-695.1	%		-42.8	%		-1.3	%
Total		15.8	%		15.6	%		8.2	%		9.3	%		9.7	%		-7.1	%		7.0	%		10.4	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		31,597			20,974			11,537			5,902			24,835			18,388			11,167			5,482
Digital Services		-2,187			-2,672			-2,168			-1,437			-3,413			-3,455			-2,923			-1,611
Managed Services		1,821			1,420			918			653			2,354			2,020			1,456			1,254
Emerging Business and Other		-2,117			-1,608			-1,146			-511			-12,414			-12,043			-741			-23
Total		29,114			18,114			9,141			4,607			11,362			4,910			8,959			5,102
	2020												2019
Year to date, as percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		19.0	%		18.0	%		15.4	%		16.8	%		16.0	%		16.6	%		15.7	%		16.4	%
Digital Services		-5.9	%		-10.8	%		-13.6	%		-19.6	%		-8.6	%		-12.9	%		-17.4	%		-20.6	%
Managed Services		8.1	%		8.5	%		8.1	%		11.4	%		9.2	%		10.9	%		12.0	%		21.4	%
Emerging Business and Other		-32.6	%		-33.9	%		-36.2	%		-32.7	%		-183.0	%		-238.2	%		-21.6	%		-1.3	%
Total		12.5	%		11.1	%		8.7	%		9.3	%		5.0	%		3.1	%		8.6	%		10.4	%

Rolling four quarters of net sales by segment

	2020								2019
Rolling four quarters, SEK million	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Networks		165,978		161,060		158,662		156,654		155,009		152,202		148,875		143,449
Digital Services		37,324		37,821		38,969		39,385		39,857		39,696		38,802		38,644
Managed Services		22,600		23,812		24,673		25,423		25,565		25,419		25,525		25,730
Emerging Business and Other		6,488		6,480		6,524		6,598		6,785		7,335		8,133		8,510
Total		232,390		229,173		228,828		228,060		227,216		224,652		221,335		216,333

Rolling four quarters of operating margin excluding restructuring by segment  (%)

	2020												2019
Rolling four quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		19	%		17	%		16	%		16	%		16	%		17	%		16	%		16	%
Digital Services		-6	%		-7	%		-7	%		-8	%		-9	%		-18	%		-20	%		-21	%
Managed Services		8	%		7	%		7	%		7	%		9	%		9	%		9	%		10	%
Emerging Business and Other		-33	%		-31	%		-196	%		-196	%		-183	%		-185	%		-40	%		-44	%
Total		13	%		11	%		5	%		5	%		5	%		3	%		7	%		6	%

46    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures

EBITA and EBITA margin by segment by quarter

	2020												2019
Isolated quarters, SEK million	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		10,636			9,347			5,321			5,957			6,447			7,253			5,716			5,552
Digital Services		625			-461			-563			-1,283			-23			-521			-1,268			-1,638
Managed Services		403			492			264			409			293			563			205			1,253
Emerging Business and Other		-380			-370			-913			-456			-323			-11,262			-688			43
Total		11,284			9,008			4,109			4,627			6,394			-3,967			3,965			5,210
	2020												2019
Isolated quarters, as percentage of net sales	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Networks		21.5	%		22.4	%		13.4	%		17.0	%		14.5	%		18.5	%		15.1	%		16.6	%
Digital Services		4.9	%		-5.3	%		-6.6	%		-17.5	%		-0.2	%		-5.3	%		-14.1	%		-21.0	%
Managed Services		6.9	%		8.9	%		4.7	%		7.2	%		4.2	%		8.9	%		3.2	%		21.4	%
Emerging Business and Other		-21.9	%		-23.4	%		-57.0	%		-29.1	%		-18.7	%		-692.6	%		-41.0	%		2.5	%
Total		16.2	%		15.7	%		7.4	%		9.3	%		9.6	%		-6.9	%		7.2	%		10.7	%
	2020												2019
Year to date, SEK million	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		31,261			20,625			11,278			5,957			24,968			18,521			11,268			5,552
Digital Services		-1,682			-2,307			-1,846			-1,283			-3,450			-3,427			-2,906			-1,638
Managed Services		1,568			1,165			673			409			2,314			2,021			1,458			1,253
Emerging Business and Other		-2,119			-1,739			-1,369			-456			-12,230			-11,907			-645			43
Total		29,028			17,744			8,736			4,627			11,602			5,208			9,175			5,210
	2020												2019
Year to date, as percentage of net sales	Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar			Jan-Dec			Jan-Sep			Jan-Jun			Jan-Mar
Networks		18.8	%		17.7	%		15.0	%		17.0	%		16.1	%		16.8	%		15.8	%		16.6	%
Digital Services		-4.5	%		-9.4	%		-11.6	%		-17.5	%		-8.7	%		-12.8	%		-17.3	%		-21.0	%
Managed Services		6.9	%		6.9	%		6.0	%		7.2	%		9.1	%		10.9	%		12.0	%		21.4	%
Emerging Business and Other		-32.7	%		-36.6	%		-43.2	%		-29.1	%		-180.3	%		-235.5	%		-18.8	%		2.5	%
Total		12.5	%		10.9	%		8.3	%		9.3	%		5.1	%		3.2	%		8.8	%		10.7	%

Other ratios

	Q4				Jan-Dec
	2020		2019		2020		2019
Days sales outstanding		—		—		69		75
Inventory turnover days		86		73		78		77
Payable days		69		66		82		77

47    Ericsson | Fourth quarter and full-year report 2020 Alternative performance measures