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Ericsson Lifts 2020 Sales Target

Ericsson (ERIC) said it would hold its Capital Markets Day 2018 in New York. The company will give an overview of its turnaround, strategy, and plans for future growth as well as details about its business segments and market trends. The ambition for net sales is increased to 210 billion Swedish kronor - 220 billion kronor by 2020, mainly driven by Networks. Previously, it was expected to be in the range of 190 billion kronor -200 billion kronor.

Of the increase in the sales ambition, 5 billion kronor is explained by currency and 2 billion kronor is explained by the inclusion of Red Bee Media, previously not included in the sales ambition.

In Networks, increased investments in R&D for technology and cost leadership will continue. Growth is expected to come from a stronger market, selective market shares gains, and expansion of the product portfolio into close adjacent markets. In 2019, investments in 5G trials will continue. The operating margin target for 2020 is unchanged at 15% - 17%.

In Digital Services, the top priority is returning to profitability. Continued cost reductions and efficiency improvements will contribute to reaching the target of a low single digit operating margin by 2020. Investments in a 5G-ready and cloud-native product portfolio continue. There is a strong market demand for the new portfolio driven by virtualization and 5G acceleration. At the same time, the legacy product sales decline faster than the new portfolio uptake. The lower net sales ambition for the segment is fully explained by the internal transfer of a business line to Managed Services.

In Managed Services, where a turnaround has been completed, focus is shifting to further improving profitability through investments in automation and Artificial Intelligence. Consequently, the operating margin target 2020 is increased to 5% - 8%.

In Segment Emerging Business and Other focus is on establishing new businesses for organic growth. The strategy is to capture new revenues through rapid and disciplined innovation building on 5G and IoT. For the current business portfolio, the target of break-even by 2020 is unchanged. However, in case of attractive new business opportunities, we may decide to scale up investments. We will manage emerging business initiatives for growth, based on positive NPV case-by-case and within 2022 Group targets.

As previously communicated the long-term profitability target for the Group is an operating margin of more than 12% excluding restructuring. While the target level remains unchanged, the timing is now set to 2022 at the latest.

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