Peter Nyquist - Head, IR Hans Vestberg - President and CEO Jan Frykhammar – EVP and CFO Magnus Mandersson - Head, Global Services

Mark Sue - RBC Capital Markets Edward Snyder - Charter Equity Research Achal Sultania - Credit Suisse Gareth Jenkins - UBS Sandeep Deshpande - JP Morgan Alexandre Peterc - Exane/BNP Paribas Alban Cousin - Arete Research Tim Long - BMO Capital Markets Kai Korschelt - Merrill Lynch Stuart Jeffrey - Nomura

Welcome to the Ericsson’s Analyst and Media Conference Call for the Third Quarter Report. To view the visual aids for this call, please log on to www.ericsson.com/press or www.ericsson.com/investors. [Operator Instructions]. As a reminder, a replay will be available one hour after today’s conference. Peter Nyquist will now open the call.

Okay. Thank you, operator, and hello, everyone, and welcome to this call, the Q4 and the year-end result call. With me here today, we have our Hans Vestberg, President and CEO of Ericsson; Jan Frykhammar, our CFO; and Magnus Mandersson, Head of Global Services; Helena Norrman, Head of Marketing and Communication. During the call today, we will be making forward-looking statements. These statements are based on our current expectations and certain planning assumptions which are subject to risks and uncertainties. The actual result may differ materially due to factors mentioned in today’s press release and discussed in this conference call. We encourage you to read about these risks and uncertainties in our earnings report, as well as in our Annual Report. Before handing over the Hans, I would like to mention, as you probably can see on this slide, that in the comments we have adjusted for the SEK4.2 billion in initial payments from Samsung. For the full-year, we had made adjustment on 2013, we had made adjustment of SEK2.1 billion. And for Q4 2013, we haven’t made it and therefore SEK3.7 billion. And as you will see in the adjustment, the impact will hit segment networks and support solutions. A commentary made on gross margin and operating income considers these adjustments. And all tables displays the reported numbers. With that said, I would like to hand over to you, Hans.

Okay. Thank you, Peter. Let me just go over some of the key market development for 2014 and I will be doing it pretty quickly because some of you have probably already followed on the press conference this morning and read the material. We can conclude, 2014 continue with their high demand on mobile data from consumers. We will see that operators has moved into - focused much more on network performance which means capacity enhancements and densification. At the same time, we now see the next step of technology evolution in our industry which is very much about virtualization and cloud. And that coupled with the opportunities are pretty in the market and choice has been taken. We see operators taking their choices, some consolidates, some going to other industries. And with all that due in 2014, and we believe that will continue as well in the inflection point of this industry. We also talked about two very important market variation - North America which really is a market with strong fundamentals. We have seen investments driven by quality and capacity enhancement during the year. However, slower pace in the second half. I will come back to that. China is probably doing the most rapid technology transformation that we’ve ever seen with 4G passing some 100 million 4G subscribers in one year. In total, we have now 7.1 billion mobile subscriptions in the world growing still with 6%. More important, a growth of 32% on mobile broadband subscriptions to 2.9 billion mobile broadband subscriptions. That’s a little bit on the market. If we now look at Ericsson, 2014, excel in the core business. We have clearly, both with business mix and efficiency gains, improved our core business. We have also launched a couple of new products where, of course, there is a Radio Dot system, is important with the first commercial during the year. Professional services, as we believed in the first half, they would come back in the second half and you can see why. Very many managed services contracts that we signed up in the first half is now coming into the base as well as the demand on system integration is, of course, high with all the softwares from OSS, BSS, TV and Media that have to be integrated. That’s good to see. Our target there, as we talked a lot about at the Capital Markets Day, we said that that market is growing 10% and that’s partly why we have chosen them. We can conclude that we grew more than 10% in 2014 in these target areas. And that’s good to see we have momentum in all five of these target areas. Capital Markets Day is also we reveal our proactively focus on reducing costs. And we have the plan of reducing our cost base with SEK9 billion in 2017. We have seen the first activities here especially with modems which is ahead of the plan, definitely doing very well on agreeing on the end of life on the 7450. That means that we know when we can ramp down these and when we can move resources to radio, because we’re doing some part of that, and when then we can reduce and discontinue other activities. And that’s what we’ve already seen happening in the fourth quarter. Concluding, also, this was the year where we clearly seen that our modernization work in Europe paid off. We have strengthened the position in Europe and that’s gone from a coverage sort of project to radio and to much more capacity. If we then look at ourselves, full year, SEK228 billion and for comparable units, that’s down 2%. Of course, the softer mobile broadband business North America was an important factor in the second half. On the other hand, we had many other regions that were compensating to the year. We see also in the year clearly an improved margin in the core business. We produced some 7% full-year operating margin. That should be compared to last year, 8%. But remember, last year, we also had the business from the settlement with Samsung that Peter talked about, how we have tried to adjust in order to make it much more comparable and easier to compare the years. So we can see that. Third consecutive year on cash conversion, over 70%, which is the long-term target for the company. We’re happy with that. Good work throughout whole organization to reduce our capital structure which meant also that basically we - with all the activities we have done, we maintained our balance sheet and our gross cash position and Jan will come back to that. Fourth quarter, down 2%, very much similar to the full-year. North America sort of softer in mobile broadband. Middle East, Europe, Asia, stronger. And of course, eight out of ten regions growing in the fourth quarter which is also the strength of the company where the largest region is not growing. We had currency tailwind which is helping us on top line, of course. But also there are some other challenging come-around [ph] on the hedging effects which we will come back to later. We think that our growth margin improved to 36.6% which is, of course, good. That led us an operating income of SEK6.3 billion or 9.3% operating margin, which is clearly an improvement as well. And here, of course, we see a good business mix, efficient improvements. And on the negative side, we are on the peak on our OpEx. As what I’ve said, we are addressing that in 2015. We needed that to get the competitive portfolio but now it’s time to take it down and management is extremely focused on doing that. We also have an impact on the currency, of course, that went negative. Then you can just look at the regional sales for full-year and clearly see that North America was not growing, negative 8%. On the other hand, you saw everything from Middle East, India, Western Europe, Central Europe growing for us in the year, sort of balancing out. And then if you do the same bridge on the fourth quarter, we can clearly see that North America came down and that’s, of course, in Swedish kronor, with some tailwind but many other regions, of course, eight of them growing very well. And highlighting the Middle East that has been consistently strong for us; but Western Europe, India very strong. Southeast Asia came back very good in the fourth quarter. And here you can see also other that went down 35%. In other, as we have explained many times, we had broadcast services, some other small businesses, but we also had the IPO. Or in here you see the impact of - that we had the Samsung payment at the fourth quarter 2013. That was a quick summary of where we are and I hand over to Jan.

Okay. Thank you, Hans. Let me then briefly comment on the fourth quarter in terms of gross margin and operating income. I want to start with if you look at the gross margin trend there in the chart, you can see that we clearly operate the company now on much better level of gross margins. Typically, in the fourth quarter, we have a high share of project completions that is visible in network rollout sales in the quarter. We had that this year as well but we also had a much better overall business in terms of software and also, if I compare with Q3, a better IPR revenue. Also in the mix is that we continue with high pace in rolling out the coverage projects then mainly, of course, related to Mainland China. So overall, a good gross margin development in the quarter and also partly supported then by the FX development. If we look at operating expenses, SEK17.8 billion in the quarter. Typically, we have a seasonal uptake of operating expenses between the third quarter and fourth quarter. I’m sure many companies have that. We have continued to invest in the target areas, predominantly in R&D. That’s feasible in the run rates. But as Hans said as well, when we go now into 2015, ’16, we will work with efficiencies and cost reductions in order to make sure then that operating expenses comes down here gradually. Then if you look at the hedge impact, I’ll come back to that with a separate pictures, so we don’t need to comment that now. I think operating cash flow of SEK8.6 billion also was a good recovery compared to the third quarter. So if we take next slide, please. Here, we then look at the sales growth adjusted for comparable units and FX. And you can see here that we have an organic FX adjusted group sales in the quarter of 12% and networks 17%. Global services grew both in reported numbers as well as in organic FX adjusted numbers, 10% and 5%. Support solutions, minus 5% organic FX adjusted. We have the same major FX exposures to big currency in terms of top line, is U.S. dollars, and that has been the case for many years. If you then take next look at operating income. So with adjustments that Hans have gone through to create comparability with initial payments from Samsung there in Q4 of 2013, we start really the comparison with an operating income of SEK5.4 billion as of Q4 of 2013. That has been improved then to SEK6.3 billion, driven by two main things. One is gross margin improvements. You can see that in this slide. And also the fact that we have a net positive impact now from currency including volatility reductions. So this means we are exposed to FX by means of translation and transaction exposure. But also when we include the negative impacts of our hedge contracts, there is a positive contribution in the quarter. And that’s I think important to know. Expenses upturn, so that offsets partly the improvement. If you then look at the currency hedge impact, you can see here that we had SEK1 billion negative in the fourth quarter. Most of these now is realized in the quarter. And that has, of course, to do with the profile of the year that we have; the biggest dollar inflows in the fourth quarter every year. So most of this is realized. Now we have the hedging policy that we have so we, in average, have approximately five to six months hedge horizon. We continue to disclose our closing rates when we go in to 2015 on a quarterly basis on our homepage; which I hoped improves the visibility of these impacts for yourselves when you do the analysis. And the rules of thumb here in terms of the impacts on the income of currency movements still holds. If we now look at the cash position, we start the year with the gross cash balance of SEK77.1 billion. When we ended the year, we had a gross cash of SEK72.2 billion. Operating cash flow, of course, positive for the full-year close to the SEK19 billion. We have spent approximately 5.3 billion in CapEx, acquisitions around SEK6 billion. We have paid back some loans and we don’t have any non-maturing debt until 2017. And that’s also disclosed in the report. And then we paid dividend net-net. We end at SEK72.2 billion or a gross cash reduction of close to SEK5 billion. Net cash then reduced full-year of slightly more than SEK10 billion. This is mainly driven by revaluations of postemployment benefits and that’s due to the very low interest rates that we now see in many markets. For us, it’s mainly Sweden, U.K., and U.S. that impacts the postemployment benefits. Okay. With that, Hans, back to you.

Thank you, Jan. Then let me talk my segment networks and go through a little bit what happened there. Full-year, down 7% down there. We saw a year where we started a little bit weak and then had the second and third quarter a little bit stronger. And then the last quarter coming down again, overall down 7% down for comparable units. The main reason is, of course, the mobile broadband business in North America in the second half here. However, seven out of ten regions are growing in mobile broadband which is very good. Sequentially, that hadn’t hit on us since we only had a sequential growth of 7%. But the other regions that were coming up, the countries Japan, Taiwan, and Mainland China, strong. We still, of course, we declined on the quarter-on-quarter, 27% on that North America. We actually made SEK4.3 billion with better software sales and the efficiency enhancement where the negative impact from the hedges. Not only that, of course, here is the area where we’re having a high investment level, so the OpEx is higher. Still we make SEK4.3 billion with all of those. So we see the sixth consecutive quarter here of the above 10% operating margin. And as you can see in the left, in the lower part of this graph, full-year, 3% down. And of course, Middle East played a role here and as well as mobile broadband in the second half in North America. But clearly, significantly improved operating income with some headwinds from currency as well as higher investment levels. But that’s what I spoken about right now. Magnus Mandersson.

Very good. Thank you, Hans, and hello, everybody. So global services, we had a good sales of 30% up in the quarter. We are growing nine out of ten regions and we continue to be very strong in professional services, see demand’s increase in both on managed services where we had 18% growth on. And professional services was 12% in the quarter. We sold managed services with 17 contracts. So very strong quarter for PS. Network rollout, sales was flat. And if we do the organic FX adjusters, say, it’s increased 20% quarter-on-quarter unless we see a very high activity on NRO and as we said on professional services. Operating income is basically flat. The same level as of last year, had though some negative impact from hedges. That’s explained by Jan before. And of course we had a high share of new managed service contracts coming in as well. Remember, we had the first half, was intense on managed services. They are now in full transition and transformation and that takes a little bit out of the bottom line. On the full-year, professional services, slow in first half, came back very strong in second, and network rollout declined almost with SEK6 billion. So we have had a big portfolio shift here in global services. And we see continuous demand for our professional services. So all in all, flat income as we said. With that, I hand it back to you, Hans.

Yes.

[Indiscernible] today.

Yes. Support solutions, segments of support solutions, down 5% in the quarter when it comes to sales for adjusted, meaning comparable units. We are transiting. But you’re also see when we hit sort of the SEK4 billion mark in sales here, we clearly have a good model because that’s suddenly turns into an 11% operating margin and a way higher EBITDA level of segment solutions, support solutions. So that’s very important. We have a good portfolio and we have a good development across the portfolio. We are just constantly working in this area. And we can see that we have good grip on the cost here and we have good gross margins. It’s more about getting the volumes on support solutions. Modems, I’m not dwelling too much on that. We’re ahead on the plan. This is, as we have communicated, this is discontinued business. We are ending our commitment on this 7450. We have an agreement on that; very important. That means that we can do this rapidly. Then the two last slides before the summary. The board met yesterday and discussed the dividend. As usual, we will start policy for dividend which it reflects on the earnings in the balance sheet of the current year of 2014 in this case. And then looking into the coming years when it comes to business plan and expected economic development. Doing that, the board then suggest to the AGM for dividend of SEK3.4, which is a growth of 13% from last year. And recording date of that is April 16, 2015. And as you Jan said, we basically remained on a growth cash even though we made repayments of loans, dividend last year of SEK3 and also CapEx, acquisitions. That’s why the board, when they look at that and looked at the future, then decided to grow the dividend with 13%, and sort of suggested that for the AGM. Good, then I end up with two measurements that we used to show when we talk about the transformation. First we have talked about the target areas. We defined them as IP networks, cloud, OSS/BSS, TV and media, and industries aside, which include three verticals. We grew in that business with more than 10% last year. And as we said at the Capital Market Day, the combination on the market here is growing 10%. But we grew clearly above the 10%. And we see the good momentum in the company. We are managing the resource and capital allocation between the core areas and target areas in order to make this happen. Now the parameter for transformation, of course, that’s where we allocate our people, where they are, and what type of competence that they have. That has meant that last year, we increased with 4,000 employees but on the other hand, we lost 15,000 people that left the company last year. And we hired 19,000 people, partly on other locations but also managed services and acquisitions is included in 19,000 people that entered Ericsson for the first time during 2014 and being part of the transformation that we’re doing. To sum it up, I think we showed in the year 2014 that our strength in scale both in the different business segments as well as scale of different regions has turned out to also manage the differences between regions and products. We see then improved profitability, very much focused for the management. As we said now for two years that we have not been satisfied with the profitability, now we see that coming back. Two major markets - Mainland China, the majority of the business is related to the LTE coverage rollout that is happening right now in China at a high pace. When we then talk about North America, we say that with the current visibility, we anticipate the North America mobile broadband business to remain slow in the short-term. And that’s with the current visibility. And as announced at the Capital Markets Day, we are now working with our cost plan proactively in order to reduce our cost which we believe we have a good opportunity given the changes and the transformation we have done in the company. By that, I hand back to Mr. Nyquist.

Thank you, Hans. So, operator, we are now ready for questions.

Yes, thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] As always, please limit yourselves to one question at a time and please keep your question at a broad level. Featured information is provided in the report at Ericsson’s Investor Relations and Media Relations. The team will be happy to take additional questions and discuss further details for you after the call. Our first question is coming from Mark Sue from RBC Capital markets. Please go ahead, sir.

Thank you. Good morning, gentlemen. I was wondering just on your comments on the duration of the downturn in North America, the carrier centers of the U.S. seems to always reduce their CapEx. They can only do that to a point until the churn increases. Your comment that it’s actually going to be short-term, maybe proof points that things will return quite quickly to North America and your confidence that you’ve actually maintained your market share in North America, please.

Yes, in either way, of course, there are - we have a hard time to say exactly. Our customers need to communicate with - to the market what they are planning to do. But that’s why we say with the current visibility, we believe this will prevail in the short-term. That’s what we’re saying. So that’s the visibility we have at the moment. But as you also mentioned, we feel that we have a good solid position in North American market, both in mobile infrastructure but also in services. And now, also in the BSS and OSS area and TV and Media. So we’re a much broader company today in North America compared to five years ago. So we have more legs to stand on. We talk more about mobile infrastructure in this case when we talk about this short-term that it will prevail.

Okay, understood. And then, Hans, you saw a decent bump in software. I guess some of that is OSS/BSS. Are customers taking a broader solution set from Ericsson? Are there synergies in the acquisition that you made more, so are the deal sizes getting larger for you? Maybe just quantitative comments as we work to improve your revenue growth and also work to improve you overall margins. Thank you.

That’s an excellent question because you’re right. I mean, of course, in the new - in the target areas, we’re both acquiring companies and doing organic growth. What we’re doing right now is what we’re doing in every business we’re doing. We’re putting these two systems so it hangs together. And of course, being able to give our customers a much stronger solutions that where our OSS/BSSs are connected with the system integration in totally different way and it can be connected to our mobile infrastructure. And of course, this takes some time to do but it should involve [ph] that we have good solutions for our customers that we can provide something more. And you’re right, in the beginning, you sell them in smaller portions and then you have the chance to sell something more. And that’s our ambition, of course, to be part of transforming, especially the OSS, BSS when it comes to the next generation data mining from OSS/BSS point of view.

Thank you. Good luck.

Thank you. Next question, please.

Next question is coming from Edward Snyder from Charter Equity Research. Please go ahead, sir.

Thanks a lot. Hans, do you see North America as kind of a leading indicator of the trends you can expect in the mobile broadband going from coverage to capacity then kind of the cash generation? And what does that say for similar timing which are a view of the same kind of trends maybe occurring in Asia? Is that several years out? And then I’ll have a follow-up. Thank you.

I think that in general, you’re right. And one needs to think about - and of course, this is a little bit different but it’s 7.1 billion mobile subscriptions in the world and it’s 400 million 4G. So of course, it’s quite a lot outside U.S., Japan, Korea and China when it comes to 4G that needs to happen even though the networks always are ahead of subscribers. Because the networks need to be there before you can be a subscriber on 4G. So of course there are coverage base that Jan has talked so many times before, that we have a coverage base and then off comes the capacity phase [ph]. We have talked about that in Europe. In the Europe case, we had our toughest part of the coverage probably in 2010, 2011, and into 2012. And then 2013 and 2014, we had another structure of it. So it is moving a little bit different from region to region, depending on how they deploy from the beginning.

And then do you expect the investments that you’re making immediately generates sufficient growth to offset some of this lower performance in hardware or will there be an extended time where top line performance kind of lags as those investments have to grow given the relative size of the different groups?

Our ambition, of course, is in - you may know [ph] the acquisition we’ve done in OSS, BSS, and TV and Media. They have been adding to our portfolio so that we can build a holistic system. Then some of the acquisition in services like the Red Bee and Technicolor, they are adding to the top line much more. Service acquisitions are adding to the top line much quicker. In the support solutions, what we acquired there is more components that we need for a full system to deliver. So of course, that takes a little bit longer time before it adds to our growth. But what we try to prove today is that the target areas is now generating above the 10% from the market and, of course, we will continue the focus to see that we are growing that more than 10%.

Great, thank you.

Next question, please.

Our next question is coming from Achal Sultania from Credit Suisse. Please go ahead.

Hello, thanks. Hans, just a question on your European performance of your European business. Obviously, we’ve seen three, four quarters in a row where revenues have actually grown in Europe. Can you just give us some color as to - is it mainly driven by just one key customer which has been spending on editing and upgrades or is it more broad-based and what kind of signals you are seeing from other operators at this stage about increasing spend as we go into LTE networks?

Okay, I can take that question. It’s Jan here. So if you look at Europe and look back to the whole of 2014, of course, what has been important for us is that we have seen good development on capacity, whether it’s add-ons on LTE or densification improvements on the network modernization footprints that we invested in for a few years, and I think that’s good. Then of course, we also had the Vodafone Spring Project announcement that has, of course, supported growth as well in Europe especially when it comes to the second half of the year. Then we have also been successful in signing many important managed services contracts in Europe in the beginning of the year that is now part of the revenue mix. And then finally, of course towards the end of the year, we have also been a little bit supported by the development of the euro versus the Swedish krona, but that’s more towards the end of the year. So over all, I think Europe is developing well. But there is of course always potential to continue to improve both quality in the networks and so forth. But I think those are the - the things I mentioned are the main drivers for the business in Europe.

Great. And then just a follow-up, Jan, just on the OpEx side, if I remember at the Analyst Day you talked about SEK9 billion of restructuring of which SEK4.5 billion was going to be in OpEx. And I presume like at that time, the idea was to retain all of these OpEx savings in your numbers. With this FX movement, is it still - like you’re still looking at SEK4.5 billion of OpEx reduction in Swedish krona terms or that number is going to be slightly lower given the volatility in FX?

So what we’ve said at the Capital Market Day still holds. What we said was that we are going to reduce the cost base with SEK9 billion. Of course, currency is what it is. But we should know that currency is not the main driver within - for OpEx. It was a little bit of OpEx impact in the fourth quarter because we have quite a lot of development in U.S. dollar predominantly related to our IP investments. But I think when we come back to the capital market message, it’s SEK9.5 billion we think is related to cost of sales and half is related to operating expenses. We can rest assure that we are going to do our utmost to make sure that we deliver on the OpEx savings as soon as possible. You’ll also see in the report that we have guided for restructuring charge this year of approximately SEK3 billion to SEK4 billion. And that is then including what we see and the visibility we have for this program and the impact for restructuring charges for 2015.

Thanks a lot.

Next question please.

Next question is from Gareth Jenkins from UBS. Please go ahead.

Yes. A couple of quick ones if I could. I wonder if you could talk about the Chinese market. It looks like China is flattish year-over-year after very strong prior two quarter’s growth. And I guess, should we end up in a situation with CapEx to sales of 35% with a similar situation that we’ve seen in Korea, Japan and North America? Maybe we take a bit of a pause of breath. And then I have a follow up and a different question please.

When it comes to China, if you look at the full-year, it was a little bit slower the first half year. But the second half year, of course, we saw some growth in China when it comes to their business. I don’t do any guidance for next year for 2015 when it comes but they’re all on the big technology transformation that we’ve seen on 4D. But I guess you better look at what they are guiding for the Chinese operators than asking us because we usually don’t want to speak on their behalf.

Okay, thanks.

Can I ask you a clarification question there? When you talked about mainland China, which number are you looking at?

Well, I think we only have the 7% of sales both year, and that is a lot of rounding error in that. But I don’t --

All right. Okay. So let’s comeback to - if you look at the region Northeast Asia, they’re obviously the main driver of the business in region Northeast Asia in terms of networks for 2014 has been mainland China. Then towards the end of the year, we have had also business coming from the new customer that we managed to acquire in Japan which is good. But the main drivers of the business in Northeast Asia this year if I look at the full-year is absolutely mainland China. And also a little bit Taiwan, but it’s not as big as mainland China obviously. So that’s the big picture.

All right. And just to follow up one, really quick one is on capitalized R&D looks to have gone up at least substantially in the quarter, I just wonder whether on a going forward basis, it will remain at elevated levels or whether there’s a change in accounting policy there. Thank you.

No changes whatsoever in any accounting policy. What we do here in terms of capitalized R&D is that we look at the different projects that we have and since we follow the accounting rules, we capitalize and then we depreciate then over the course of the lifetime of these projects, it’s not the material item so it’s nothing to think about in particular any model. If you look at fully the numbers, we have had the last three years a little bit slowing trend in terms of capitalization that had to do with smaller shorter projects that didn’t really make sense to capitalize anything. Now when we look forward, we have some capitalized R&D in this quarter. But it’s nothing that you should model in going forward.

Thanks.

Okay. Thank you, Gareth. Next question please operator.

Next question is from Sandeep Deshpande from JP Morgan. Please go ahead.

Thanks for letting me on. My question is regarding your IPR revenue and then I have a follow up question. Clearly, you think, even if you exclude that one off, you see an improvement in IPR revenues in the year. Is this mainly because of foreign exchange or are there renegotiated contracts, so within your IPR business revenues in 2014?

No. I think we have the strategy we outlined in 2011 at the Capital Market Day that we felt we have a strong portfolio, the market is growing with handsets. So this has been the way for us to grow. And you’re right, I mean, of course, our portfolio has been growing and already has been growing as well but it’s nothing with current in here. So I just have to wait, we’re all working hard with that. I think we were very good position as well as we’re following the front rules that are in the market and we have basically agreement with anyone in the industry of cross license agreement which is very important in these discussions. So there’s nothing unusual there. As Jan said at the press conference today when they got the question about distribution of the year is that we have problems on seasonality in the fourth quarter but nothing special when it compared in the fourth quarter. We have a fairly equal distribution, can go up and down a little bit in quarter depending on our cross licenses or performing when it comes to their sales of handsets or if it’s infrastructure.

And then if I ask you a quick question on support services, I mean, support solutions. In support solutions, it’s a very rocky sort of quarter-to-quarter your margin change and Hans, you’ve talked about OSS, BSS being a big portion of those sales going forward. Do you see margin progressions in that business as well as potentially in the network rollout being better in 2015.

What we’ll say about support solution is that there’s not a gross margin problem, so it’s about solution. We need more volumes. But remember with our Capital Markets Day, for us, OSS/BSS for example is consistent of businesses which is with Magnus in services as well as a network. That is to hold up from having OSS/BSS. That is a very sizable business. And that’s how it hangs together. Of course, when we single out in the support solutions, we need a certain amount of volume and that’s you see in the fourth quarter then we make money. I think that’s a very important for us. What we’re saying about network rollout was that we see a very good job there. One is of course that we’re concluding some of the more challenging projects. The other is that Magnus and his team are implementing a lot of efficiency improvement in network rollout, everything from [tools], et cetera. And that’s why Jan and I said that we see the light in the tunnel. We are not seeing when we’re going to have that profitable business. But clearly our aim is to get that a neutral to the bottom line at least not having a negative impact. And that have been a huge focus for the team in services working on daily and we see the progression. That’s why Jan and I say we see a good progression here.

Thank you.

Thank you, Sandeep. Next question please operator.

Next question would be from Alexandre Peterc from Exane/BNP. Please go ahead.

Hi, thank you. I’d like you to comment a little bit on the seasonality in gross margins. You usually have a weaker Q4 and a stronger Q1 and that’s mainly pertaining to software delivered in the quarter. So against the backdrop of the strong growth margin we had in Q4, should we still see positive seasonal impact sequentially into the current period? And then the second question, just a quick follow up on the restructuring, can you tell us more about which business areas will be affected by the SEK3 billion to SEK4 billion that you got for this year? Thank you.

Okay. I’ll take the first one on gross margin, the second one, I didn’t hear what was --

Restructuring in which segments they will go.

Okay. Okay. Interesting. All right. So in terms of - let’s start with the restructuring then. So when you look at that - I think when it comes to implementation of the service delivery strategy that is going to continue to be something we do of course in 2015 as well, that’s going to be related to cost of sales. And such that’s a segment service system. Other activities we will obviously communicate as we announce things. And we have a principle in our company that we always communicate these things to the employees that are concerned first. And when that happens, then we can also guide a little bit more on segments. But I think when it comes to an assumption on operating expense is more to have it, perhaps, spread across all segments as an assumption. Then on gross margins, then, yes, thank you for recognizing the good gross margin for Q4. I think it was a good performance for the reasons that I mentioned. So we had a recovery in the network rollout business in the quarter. You can see that. So we had project completions. We also had coverage projects that were quite hardware-heavy into Mainland China and so forth in the quarter. Despite that, we did have a good gross margin development in the fourth quarter driven by software then and also other efficiencies. So if I look at the first quarter, we don’t obviously guide for the first quarter. But I think it’s important that you listen to what we say there around the mobile broadband business in North America. I think it’s important that you also look at and understand that we say that we have a good pace on 4G deployments in China. At the same, the first quarter sometimes have a good input in terms of software and so forth. And then we have FX that yesterday when I looked at the U.S. dollar versus Swedish krona, I think it was at 8.25 or something like that. So let’s see. There are a few moving parts but then we have been trying in the CEO comments to highlight the most important things that we want you to consider and that’s really North America and also the fact that we have a quite big share of 4G deployments in Mainland China. Okay?

Thank you.

Okay, operator, next question, please.

Next question will come from Alban Cousin from Arete Research. Please go ahead.

Hi, thanks for taking my question. Maybe a question for Jan. And I just wanted - I was looking at the operating income reconciliation and that SEK3.7 billion adjustment for IPR versus the SEK4.2 billion you reported last year, is the delta simply the backdated part of the payment that’s received then or what’s the big driver for the delta?

I think what we have done here is that last year in Q4, we obviously booked the whole what we call initial payment from Samsung. It was SEK4.2 billion. There was an element obviously of the past in that initial payment. The reason that we used SEK2.1 billion is that that’s the same adjustment that we have used when we - that we communicated at the general assembly when it comes to adjusting also our stock - our share program for management. And I think that’s then relevant to use the same adjustment here. The reason that we adjust with SEK3.7 billion in Q4 is, of course, that we have divided it equally by quarter, so it’s nothing else than that.

Okay, thanks. And, Hans, perhaps just a clarification as well. When you talk about short-term, do you mean - what kind of timeframe? Is it up to a year or is it shorter than that?

Now, we have not quantified short-term as an exact month or quarters here but with the current visibility, again, we believe it will remain short-term but, of course, there are many portraits [ph]. Maybe Jan wants to comment.

I think - I mean, it’s so important then that we highlight this, the drivers beyond what we call then as slow net short-term. One is, of course, that our customers are in the finalization, I think, in terms of the big spectrum auctions that is ongoing in the U.S. And I think what is important is, of course, to track the progress there and also the progress in terms of their build-up plans for the required spectrum. So I think that by doing that tracking, I think your guess is as good as our guess. What we then will do, of course, is that we will come back after Q1 and report on any progress into this visibility. But that’s to look at the drivers and follow those drivers and then I’m sure your guess will be as good as ours.

Okay, thanks very much.

Okay. Thank you. Operator, we are now ready for next question.

Our next question comes from Tim Long from BMO Capital Markets. Please go ahead.

Thank you. Just two quick ones if I could. Back to the IPR line, you have given the litigations or the negotiations with Apple, could you give us a little bit of color on how we should think about that line into 2015? Obviously, there’s going to be a revenue and margin hit, so if you could try to maybe give us some scale or if we should just think about it as Apple’s percent of industry revenues is a good proxy, that would be helpful. And then on the gross margins for the full-year in ‘14, just curious when you look year-to-year, how much of that do you think was the end of the network modernization deals? It was obviously a big jump year-to-year, so I’m just trying to get how much was just the network modernization and how much was just normal business efficiency improvements. Thank you.

Many questions in one. So on the network modernization projects in Europe, if you look at the - our commentary for the last, I guess, two years, we started to see the business mix shifting and the projects coming to an end here in mid-2013. And since then, if you look at the gross margins, of course, we have had an improvement thanks to that impact. But in addition, of course, we have also seen good capacity business on that footprint but it doesn’t explain the whole improvement. One should know that. The whole improvement is explained by overall work on efficiency. And that goes both to commercial questions as well as cost of sales reductions in combination with a better business mix in general for 2014 than 2013. And the third element, and that’s more towards the end of - or second half of 2014, then we started to see some positive impact driven by the development of the currency as well. On the question around IPR revenue then, so we have a portfolio of very important customers and we obviously will not disclose anything in regards to a particular customer. We felt last year when we did this big agreement with Samsung that we had to communicate something because it was such material numbers. But of course, both the Samsung and Apple are very important players in this market. When it comes to the total patent revenue for 2015 and ‘16, I think you just have to come back to the fundamentals. We are working with a portfolio that is very strong. We follow the fundamentals which means that we look - you should look at smartphone growth and the penetration of 4G phones and so forth as very important indicators. And then at the same time, understand, of course, that if we have a discussion with one of the bigger customers that might get - that might have an impact or at least there’s an uncertainty on the revenue line. I will not disclose more than that for now at least.

Thank you.

Thank you. Next question, please.

Next question is coming from Kai Korschelt from Merrill Lynch. Please go ahead.

Hello, Kai.

Yes, good afternoon, gentlemen. Thanks for taking my question. I have two. The first one was just a follow-up on the capitalized on the - I think, Jan, you said it’s not that material but it looks like it’s about SEK800 million so it’s quite a big number. And it also looks like, at the same time, the modem R&D - or the other modem OpEx has come down materially. So I just wanted to clarify because I think we all expected the modem OpEx to get larger in structure to - and not transfer to the balance sheet that this is unrelated and that the modem OpEx decline is really due to cost saving. That was my first question. The second one was for Hans. And I think in devlos [ph] last week, I believe you said that M&A does impact negatively. As more of these deals are announced, I think there was on - recently in Europe, maybe some of the other places, how long do you think that that impacts CapEx spend in these regions and when, from your experience, shall we expect then CapEx to pick up again once the integration and merger dynamics have happened? Because presumably, we expect an improvement in CapEx once that M&A has happened. Thank you.

Okay. So I will start then. So the progress in terms of the decision to discontinue the modem development is going well. The progress is slightly ahead of the plan. The people that we sent we’re going to transfer to the - radio development have been transferred. So operating expense obviously have been shifted over there. Secondly, consultants have left the company and quite a lot of employees as well. Obviously we have then used the provisions that we have for the modems for that. So it’s an operating expense that is a positive development that is structurally, if I may use those terms. And on the capitalized R&D, I don’t have any comments than what I have already answered before. Then, Hans.

So it was a general comment on how Ericsson is impacted on conservation between operators. And my experience and Magnus’ experience as well which is working is usually short-term depending on how big the M&A is or the conservation is. Of course operator looks into what assets to have and - or a little bit less hungry for investments. They wait a little bit. So we have a short-term impact. Medium-term, we usually see more opportunities as they need to combine the networks. So we have service opportunities to combine the network. Long-term, neutral to positive. A stronger operator that bites more of our full portfolio, that won’t address the bigger market as a consolidated company. Both are in three stages. That’s a generous statement that, of course, could be a little bit different with different consolidation. But it does work pretty good for us when we look into consolidations where we have been part with.

Okay, thank you.

Thank you, Kai. Operator, we are now ready for the last question for this session please.

Okay. The last question will come from Stuart Jeffrey from Nomura. Please go ahead sir.

Hi, thank you very much. Sorry to end with a sequential effects question. Because of the way you do your accounting treatment for FX, it looks like it’s going to be an 18% tailwind into Q1 on the dollar-krona rate. Assuming that’s going to be half of your revenues, could we argue that maybe you should see an 8% to 9% sequential benefits and revenues? So is that something that we should factor in or am I exaggerating some of the trends and are there some other trends that I should be aware of? Thanks.

You’re exaggerating some of the trends, Stuart. Typically, when I look at the revenue mix for dollars, typically it is between 38% and 42% so it’s not half of the revenue. That’s correct. So it’s slightly less than half. It’s rather towards 40%. So that’s important. It is correct to assume that we reset the clock in terms of how we do averaging. So we will then start with a more favorable dollar versus Swedish krona rate if the rate persists. That’s also why we have started to disclose the closing rates of our investor relations homepage in each quarter. So I think there will be positives hopefully coming from the U.S. dollar so we’ve shown development. But there were also some more challenges which we have talked about and that is, of course, related to the mobile broadband business in North America. So some short-term challenges in terms of the actual volumes and hopefully some tailwinds in terms of currency. That’s how we see it.

Okay, thanks.

Okay, thank you, Stuart. Before handing it over Hans for his closing remark, I would just welcome you all to the Mobile World Congress, March 2nd to 5th this year in Barcelona.

Now just a quick closing remark. As we have said on the earlier call, we are in transformation. We’re trying to manage this company and the ongoing concern, the new concern and generating both cash flow and operating income as we are transforming and strengthening the target area and fully defining our core areas. And that’s what you’re going to see from us in 2015 as well. We will continue to work with that. We have a great leadership team that is very experienced. And we’ll see that we’ll take good care of that. And I hope to see you in Barcelona where we most hopefully will have a lot of good news when it comes to products and solutions that we always launch when we come to Barcelona.

Thank you.

Thank you.