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January 29, 1998

ERICSSON SEES EARNINGS FOR YEAR UP 68%

By CBR Staff Writer

Rolling on from a blistering interim trading statement, LM Ericsson Telefon AB, the giant Swedish telecommunications company has rounded off 1997 with figures which it could only describe as fantastically successful. Net profits for the year to December 31 were up 68% at $1.49bn on revenue that rose 35% to $20.94bn and orders now on the books total over $22bn, up 30% on this time last year. Earnings per share were well in excess of Wall Street’s expectations for the fourth quarter and most analysts continue to rate the stock a strong buy. At the last count, Ericsson was the third biggest telecommunications equipment supplier in the world (behind Lucent Technologies Inc and Motorola Inc) and throughout 1997 it has combined big gains in highly competitive areas like mobile handsets, with rigorous cost control; squeezing out improved gross and operating profit margins. These improvements gave the group its surprise fourth quarter earnings boost. South East Asian difficulties hardly touched the telecoms giant (less than 5% of its business originates there) and the company’s three biggest markets, North America, China and the UK, marched onwards and upwards. Mobile phones and terminals posted an incredible 87% sales growth for the year. The fly in the ointment, however, is the continuing trouble at the public telecoms and radio access to fixed-wire networks unit, Infocom Systems. Last year Ericsson confirmed that over a quarter of the 38,000 staff at the unit would be laid off. While sales were up 23% to $6.14bn, orders were up only 9% and earnings were unsatisfactory due to price pressures and restructuring charges. Looking forward, Ericsson says it will be investing heavily in technology research to fuel revenues from lucrative equipment upgrades (Ericsson filed 1,200 patent applications last year alone). But it also will be pushing hard to sell more services to existing equipment users. And following the market trend, we expect to see Ericsson make a significant acquisition in the datacoms arena in the near term. The board has proposed a final dividend up 40% at $0.44 per share.

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