Focus is to improve profitability and create a strong base for future value growth

Ericsson Annual Report 2016

ericsson in brief

Net sales

SEK billion

222.6(2015: 246.9)

Operating income

SEK billion

6.3(2015: 21.8)

Cash flow from operating activities

SEK billion

14.0(2015:20.6)

Ericssons vision is a Networked Society where every person and every industry is empowered to reach their full potential. The potential of the Networked Society lies in transformation through mobility. Transformation in the way people organize their individual lives and carry out vital tasks. Transformation in the way we work, the way we share information, and the way we do business. Transformation in the way we consume and the way we create. To realize the vision of a Networked Society, Ericsson provides

industry- leading high performing solutions for Networks, IT & Cloud and Media. The aim is to develop, produce and offer products and services with excellent and sustainable performance, at the right cost. In the fast developing ICT (Information and Communications Technology) landscape, the ambition is to be a preferred transfor-mation partner for existing and new customers.

Ericsson has its headquarters in Stockholm, and the Ericsson share trades on Nasdaq Stockholm and on NASDAQ, New York.

Consumer Electronics Show in Las Vegas January 69

World Economic Forum Annual Meeting in Davos January 2023

STRATEGIC EVENTS 2016

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY 2017

Mobile World Congress in Barcelona February 2225

CEO Hans Vestberg steps down CFO Jan Frykhammar replaces July 25

The business Ericsson in brief

Changes in Ericssons organization and in the Companys reporting structure

Starting July 1, 2016, Ericsson has implemented a series of organizational and structural changes. The new organizational structure focuses on meeting changing customer requirements and on capturing market opportunities to strengthen strategy execution and drive growth and profitability.

The financial reporting during 2016 has been based on the same segment structure as 2015 with the three reporting segments Networks, Global Ser-vices and Support Solutions.

From January 1, 2017, financial reporting is done according to a new structure, with three new financial reporting segments, Networks, IT & Cloud and Media. The new segments contain both products and services and the structure aligns company reporting with strategy execution in a simpler and more transparent way.

In this Annual Report, Ericssons operations are described according to the new organizational structure, while all financial data except for impairment testing of intangible assets and goodwill are made according to the prior fin-ancial reporting structure Networks, Global Services and Support Solutions.

2017 segment structure

contents

Ericsson Investor Update in New York November 910

Brje Ekholm's first day as CEO January 16, 2017

Q4 report January 26, 2017

Contact Investor Relations

investor.relations@ericsson.com

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY 2017

Media and entertain-ment conference IBC in Amsterdam September 812

The business ..........................................CEO dialogue .................................................. 2This is Ericsson ................................................ 6Profit improvement ........................................... 8This is the market ........................................... 10The customers ................................................ 14Networks ........................................................ 16IT & Cloud ....................................................... 19Media ............................................................. 22Global presence .............................................. 24Customer Group Industry and Society ............. 26Customer Group IPR & Licensing .................... 28The People ..................................................... 30Sustainability and corporate responsibility ....... 32Reporting structure 2016 ................................ 35Letter from the Chairman ................................ 37

Results ...................................................Board of Directors report* ............................. 38Consolidated financial statements* ................ 53Notes to the consolidated financial statements* ..................................... 65Parent Company financial statements* .......... 100Notes to the Parent Company financial statements* ..................................... 106Risk factors* ................................................ 119Auditors report ............................................ 128Forward-looking statements ......................... 133

Corporate Governance ..........................Corporate Governance report, 2016 ............. 134Remuneration report .................................... 162

Shareholders .........................................Ericsson and the Capital market .................... 166Share information ......................................... 170

Other information ...................................Ten-year summary ....................................... 174Alternative Performance Measures (APM) ..... 176Financial terminology and Exchange rates ............................................ 181Glossary ...................................................... 182Shareholder information ............................... 183* Chapters covered by the Auditors report.

Networks Global services Support solutions

Networks IT & Cloud Media

2016 segment structure

Read more at page 36

1Ericsson | Annual Report 2016

THE BUSINESS CEO dialogue

shifting focus from growth to profitability

Whats your reflection on the year 2016?

Jan | The negative trend with low mobile broad band investments accelerated through 2016, especially in markets with a weak macro-eco-nomic environment. As a result, the leadership team and I have been fully committed to the work to reduce cost and improve efficiency, in order to secure resilience and competitiveness for the company. The cost and efficiency pro-gram, which was intensified in the second half of 2016, is expected to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 billion in the second half of 2017. This is to be compared with SEK 63 billion for full-year 2014.

Brje | Operators continued to be cautious with investments in equipment as their revenues overall have come under pressure. This was reflected in our results in 2016 which did not reach our expectations. The short-term reality is that growth is limited and we have to adjust to that and prioritize what to focus on. The first task is to establish profitability and adjust the size of our operations to the demand level.

What do you consider to be the most important event during 2016?

Jan | This has been a very special year for me. I took on the role as a CEO mid-year with the ambition to stay until the search for a new CEO was completed.

During 2016 our ambition was to unite the company around the shift in focus from growth to profitability. The successful execution of the intensified activities during the second half of the year is a clear sign that the mindset of the orga-nization has changed, enabling us to continue our work to improve profitability.

Brje | After 10 years as member of the board I got the question if I wanted to assume the day-to-day leadership of Ericsson. One of the major reasons to why I accepted was that I believe that Ericsson is a great company and that there is great business potential to exploit. This com-pany has connected billions of people and soon we will connect many machines. Another reason to accepting the job is that I do not have anything against challenges on the contrary. They trig-ger me. Thus, I look forward to refining the strat-egy to focus investments into areas where Ericsson both can and must win. Even if I have a decade of experience working for Ericsson as a board member, I am assuming this new responsibility with humility, understanding there is much left for me to learn.

How will Ericsson restore profitability?

Jan | As reported in 2016, the cost and effi-ciency program is progressing towards the target. During the year, we have pushed for strong accountability and focus on performance throughout the company. The program has been expanded to adjust the organization to lower sales volumes, and the priority has been to exe-cute on the cost-out activities and to reduce working capital.

During 2016, operating expenses were sig-nificantly reduced through headcount reduc-tions around the world. As the sales decline impacted the gross margin negatively, we also intensified the focus on reducing cost of sales, and thereby improving the gross margin.

Ericssons CEO Brje Ekholm and Jan Frykhammar, who served as CEO July 2016 mid January 2017, discuss a number of issues concerning 2016 and important topics for the Company going forward.

2 Ericsson | Annual Report 2016

The business CEO dialogue

New simplified structure optimized for different customer needs and accountability

Overview of new segments

Earnings per share, diluted

sek

0.52(2015: 4.13)

Brje | Only consistent profitab