Systems
Orders and sales have gradually declined during the year, reflecting
lower volumes and more competitive pricing for both mobile systems and
multi-service networks. The Systems order backlog remains strong at 43%
of annual sales, almost unchanged from 44% at the end of 2000. However,
new order development is essential to secure our operational targets in
2002.
The Systems operating margin remained at 1% with improvements in Mobile
Systems offset by further deterioration in Multi-Service Networks.
Excluding the increased risk provisions for Latin America, our Systems
margin increased sequentially to 4%, mainly reflecting cost savings from
our Efficiency Program.
Mobile Systems
In 2001, we again outperformed the competition in our GSM business. GSM
sales for the full year rose 9%, even with a 7% decline in the quarter,
demonstrating our strong performance under difficult market conditions.
Orders for GSM increased in North America and Asia Pacific but were weak
in Western Europe. Overall, orders for 2G systems continued to decline
in the fourth quarter, primarily reflecting lower demand for TDMA and
PDC as these operators prepare to migrate to next generation networks.
In 2.5G, we have signed 78 commercial GPRS agreements out of a total 162
announced industry-wide to date. Thirty of our customers have already
launched commercial services and we have taken the lead in the North
American transition to GSM/GPRS. Recently we also signed our first
global contract for MMS (Multi-Media Messaging) for initial deployment
in nine countries beginning this year. The availability of attractive
MMS services with color images, animations and sounds will be an
important driver for GPRS traffic.
In 3G, we are currently shipping systems to more than 30 operators. We
have been named in 60% of the 3G/UMTS agreements announced so far, which
we believe will represent at least a 40% global market share in terms of
value. We have further strengthened our position with important contract
wins in North America, giving us the best position for the follow-on
upgrade to 3G/EDGE.
PHONES
Our Phones business has been restructured with the establishment of the
Sony Ericsson joint venture for mobile multi-media products and the
formation of technology licensing businesses for mobile phone platforms
and Bluetooth. With this, we have repositioned Ericsson to capitalize on
the opportunities in the new handset market structure, which is shifting
from a few complete suppliers to a chain of specialized companies.
As previously announced, our 50% share of income from Sony Ericsson
Mobile Communications is included in "Earnings from Joint Venture and
Associated Companies." The retained activities, including technology
licensing and phone manufacturing in China, are now reported as part of
"Other Operations."
MARKET VIEW
By year-end 2001 the number of mobile subscribers had grown to 940-950
million, within our forecasted growth of 25-35%. We expect about 200
million new subscribers to be added in 2002, a solid growth rate of 20-
25%. Our long-term forecast of 1.6 billion mobile subscribers by the end
of 2005 remains unchanged.
The number of mobile phones sold in 2001 was approximately 390 million,
close to our forecasted 400 million, reflecting a slower than expected
replacement rate. In 2002, we anticipate up to 10% unit volume growth,
driven by increased availability of replacement phones with GPRS,
Bluetooth, color screens and multi-media messaging.
The slowdown in the telecommunications equipment market continued during
the fourth quarter, resulting in a more or less flat mobile systems
market for the full year. The wireline systems market contracted
significantly and is likely to shrink further during 2002.
These market conditions are expected to persist well into 2002 with a
much weaker first half. We maintain our view that the global market for
mobile systems will be flat to down 10% in 2002. However, the North
American market may show modest growth as operators upgrade to GSM/GPRS
and 3G/EDGE.
The build-out of several 3G/UMTS networks in Europe and Asia has begun
with the commercial launch of services planned for later this year. The
number of 3G/UMTS subscribers could reach well over one million by the
end of the year, depending on the availability of phones.
Our market view is based on discussions with our customers and the
current macro-economic outlook. We have assumed that the market downturn
will last well into 2002, that there will be significant net subscriber
additions with increasing usage per subscriber, that GPRS traffic will
gradually build up of over the next 12 months and that deployment of 3G
systems will accelerate during the second half of 2002.
