| C3 | Segment information |
Operating segments from October 1, 2017
When determining Ericsson’s operating segments, consideration has been given to the financial reporting reviewed by the Chief Operating Decision Maker (CODM). Markets and what type of customers the products and services aim to attract has been considered, as well as the distribution channels they are sold through. Commonality regarding technology, research and development has also been taken into account. To best reflect the business focus and to facilitate comparability with peers, four operating segments are reported;
| • | Networks |
| • | Digital Services |
| • | Managed Services |
| • | Other (includes Emerging Business, iconectiv, Media Solutions and Red Bee Media). |
Segment Networks includes mobile radio access networks, transport solutions and site solutions, as well as related services such as network rollout, network tuning and customer support. 82% of the IPR licensing revenues are reported as part of segment Networks.
Segment Digital Services includes products and services for service providers in the areas of OSS & BSS, Packet Core, Communication Services, NFV and Cloud Infrastructure. It also includes ADM and consulting services. 18% of the IPR licensing revenues are reported as part of segment Digital Services.
Segment Managed services covers vendor agnostic services to manage service providers networks and includes networks managed services, IT managed services and network design and optimization.
Segment Other includes Emerging Business, iconectiv, Media Solutions and Red Bee Media. Emerging business are investment areas to support service providers in finding new revenues streams, examples being connectivity services and platforms for Internet of Things. Iconectiv is an interconnection solution for service providers and enterprises coming from the former Telcordia business. In both Media Solution and Red Bee Media, Ericsson is exploring strategic opportunities.
Market areas
The market areas are the Company’s primary sales channel with the responsibility to sell and deliver customer solutions.
The Company operates worldwide and reports its operations divided into five geographical market areas:
| • | Europe and Latin America |
| • | Middle East and Africa |
| • | North America |
| • | North East Asia |
| • | South East Asia, Oceania and India. |
In addition, licensing revenues and the majority of segment Other are externally reported as market area Other.
Major customers
The Company does not have any customer for which revenues from transactions have exceeded 10% of the Company’s total revenues for the years 2017, 2016 or 2015.
Ericsson derives most of its sales from large, multi-year agreements with a limited number of significant customers. Out of a customer base of more than 500, mainly consisting of network operators, the 10 largest customers accounted for 45% (46%) of net sales. The largest customer accounted for approximately 7% (7%) of sales in 2017.
For more information, see Risk Factors, “Market, Technology and Business Risks.”
Previous segment structure, between January 1, 2017 and September 30, 2017
During this period, there were three operating segments: Networks, IT & Cloud and Media/Other. As from Oct 1, 2017, the segment structure as described above (Networks, Digital Services, Managed Services, Other) was introduced. Financials for the period between January 1 and September 30, 2017, has been restated to the present segment structure.
Segment Networks. Products and services with a focus on evolving and managing our customers’ telecom networks. The portfolio of radio networks and backhaul solutions are based on industry standards and can also be industrialized and adjusted to meet the demands of other industry verticals as utilities, transport and public safety. In addition, Ericsson services capabilities address operator demand in an increasingly complex network environment.
Segment IT & Cloud. Products and services providing solutions for our customers’ digital transformation journeys across the Support Systems, Telecom core and IT Cloud domains through a combination of products, technology and expertise in networks, software, cloud and business processes.
Segment Media/Other. Products and services that enable content owners, broadcasters, TV service providers and network operators to efficiently deliver, manage and monetize new TV experiences.
Operating segments 2017
| Networks | Digital Services |
Managed Services |
Other | Total Segments |
Unallocated | Group | ||||||||||||||||||||||
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Segment sales |
127,966 | 40,981 | 24,494 | 7,862 | 201,303 | — | 201,303 | |||||||||||||||||||||
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Net sales |
127,966 | 40,981 | 24,494 | 7,862 | 201,303 | — | 201,303 | |||||||||||||||||||||
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Gross income |
40,622 | 4,361 | –1,816 | 1,378 | 44,545 | — | 44,545 | |||||||||||||||||||||
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Gross margin (%) |
32 | % | 11 | % | –7 | % | 18 | % | 22 | % | 22 | % | ||||||||||||||||
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Operating income (loss) |
7,644 | –27,672 | –4,274 | –13,824 | –38,126 | — | –38,126 | |||||||||||||||||||||
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Operating margin (%) |
6 | % | –68 | % | –17 | % | –176 | % | –19 | % | — | –19 | % | |||||||||||||||
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Financial income |
–361 | |||||||||||||||||||||||||||
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Financial expenses |
–843 | |||||||||||||||||||||||||||
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Income after financial items |
–39,330 | |||||||||||||||||||||||||||
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Taxes |
4,267 | |||||||||||||||||||||||||||
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Net income (loss) |
–35,063 | |||||||||||||||||||||||||||
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Other segment items |
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Share in earnings of JV and associated companies |
22 | 8 | –6 | — | 24 | — | 24 | |||||||||||||||||||||
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Amortization |
–1,104 | –2,465 | –14 | –765 | –4,348 | — | –4,348 | |||||||||||||||||||||
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Depreciation |
–1,883 | –1,268 | –193 | –759 | –4,103 | — | –4,103 | |||||||||||||||||||||
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Impairment losses |
–1,413 | –9,349 | –108 | –8,571 | –19,441 | — | –19,441 | |||||||||||||||||||||
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Restructuring expenses |
–4,828 | –2,513 | –675 | –485 | –8,501 | — | –8,501 | |||||||||||||||||||||
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Gains/losses on sale of investments and operations |
316 | –56 | 1 | –67 | 194 | — | 194 | |||||||||||||||||||||
Operating segments 2016
| Networks | Digital Services |
Managed Services |
Other | Total Segments |
Unallocated | Group | ||||||||||||||||||||||
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Segment sales |
140,984 | 45,298 | 27,501 | 8,825 | 222,608 | — | 222,608 | |||||||||||||||||||||
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Net sales |
140,984 | 45,298 | 27,501 | 8,825 | 222,608 | — | 222,608 | |||||||||||||||||||||
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Gross income |
47,099 | 16,081 | 1,062 | 2,123 | 66,365 | — | 66,365 | |||||||||||||||||||||
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Gross margin (%) |
33 | % | 36 | % | 4 | % | 24 | % | 30 | % | — | 30 | % | |||||||||||||||
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Operating income |
17,570 | –6,663 | –507 | –4,101 | 6,299 | — | 6,299 | |||||||||||||||||||||
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Operating margin (%) |
12 | % | –15 | % | –2 | % | –46 | % | 3 | % | — | 3 | % | |||||||||||||||
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Financial income |
–115 | |||||||||||||||||||||||||||
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Financial expenses |
–2,158 | |||||||||||||||||||||||||||
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Income after financial items |
4,026 | |||||||||||||||||||||||||||
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Taxes |
–2,131 | |||||||||||||||||||||||||||
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Net income |
1,895 | |||||||||||||||||||||||||||
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Other segment items |
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Share in earnings of JV and associated companies |
11 | 22 | — | –2 | 31 | — | 31 | |||||||||||||||||||||
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Amortization |
–1,526 | –1,923 | –18 | –998 | –4,465 | — | –4,465 | |||||||||||||||||||||
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Depreciation |
–2,532 | –1,061 | –341 | –487 | –4,421 | — | –4,421 | |||||||||||||||||||||
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Impairment losses |
–90 | –38 | –12 | –101 | –241 | — | –241 | |||||||||||||||||||||
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Reversals of impairment losses |
5 | 2 | 1 | — | 8 | — | 8 | |||||||||||||||||||||
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Restructuring expenses |
–3,413 | –3,176 | –382 | –596 | –7,567 | — | –7,567 | |||||||||||||||||||||
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Gains/losses on sale of investments and operations |
72 | 27 | 18 | 6 | 123 | — | 123 | |||||||||||||||||||||
Operating segments 2015
| Networks | Digital Services |
Managed Service |
Other | Total Segments |
Unallocated | Group | ||||||||||||||||||||||
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Segment sales |
157,791 | 49,443 | 30,597 | 9,089 | 246,920 | — | 246,920 | |||||||||||||||||||||
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Net sales |
157,791 | 49,443 | 30,597 | 9,089 | 246,920 | — | 246,920 | |||||||||||||||||||||
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Gross income |
59,653 | 21,264 | 1,655 | 3,246 | 85,818 | — | 85,818 | |||||||||||||||||||||
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Gross margin (%) |
38 | % | 43 | % | 5 | % | 36 | % | 35 | % | — | 35 | % | |||||||||||||||
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Operating income |
28,290 | –3,389 | –19 | –3,077 | 21,805 | — | 21,805 | |||||||||||||||||||||
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Operating margin (%) |
18 | % | –7 | % | — | –34 | % | 9 | % | — | 9 | % | ||||||||||||||||
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Financial income |
525 | |||||||||||||||||||||||||||
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Financial expenses |
–2,458 | |||||||||||||||||||||||||||
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Income after financial items |
19,872 | |||||||||||||||||||||||||||
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Taxes |
–6,199 | |||||||||||||||||||||||||||
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Net income |
13,673 | |||||||||||||||||||||||||||
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Other segment items |
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Share in earnings of JV and associated companies |
–1 | –33 | 10 | –14 | –38 | — | –38 | |||||||||||||||||||||
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Amortization |
–2 042 | –2 469 | –47 | –960 | –5 518 | — | –5,518 | |||||||||||||||||||||
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Depreciation |
–2 865 | –1 012 | –388 | –440 | –4 705 | — | –4,705 | |||||||||||||||||||||
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Impairment losses |
— | — | — | –20 | –20 | — | –20 | |||||||||||||||||||||
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Reversals of impairment losses |
10 | 3 | 1 | 2 | 16 | — | 16 | |||||||||||||||||||||
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Restructuring expenses |
–2 765 | –1 875 | –238 | –162 | –5 040 | — | –5,040 | |||||||||||||||||||||
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Gains/losses on sale of investments and operations |
–32 | –10 | –7 | — | –49 | — | –49 | |||||||||||||||||||||
Market areas
| Net sales | Non-current assets 5) | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
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South East Asia, Oceania & India |
30,568 | 32,597 | 32,155 | 512 | 690 | 668 | ||||||||||||||||||
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North East Asia4) |
23,506 | 27,185 | 28,106 | 1,516 | 1,556 | 2,005 | ||||||||||||||||||
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North America3) |
49,621 | 52,003 | 55,063 | 8,387 | 14,650 | 14,870 | ||||||||||||||||||
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Europe & Latin America1)2) |
56,175 | 62,543 | 73,603 | 39,559 | 59,737 | 55,325 | ||||||||||||||||||
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Middle East & Africa |
25,073 | 28,104 | 33,002 | 63 | 86 | 139 | ||||||||||||||||||
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Other1)2)3)4) |
16,360 | 20,176 | 24,991 | — | — | — | ||||||||||||||||||
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Total |
201,303 | 222,608 | 246,920 | 50,037 | 76,719 | 73,007 | ||||||||||||||||||
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1) Of which in Sweden6) |
2,989 | 3,123 | 3,796 | 34,381 | 53,111 | 48,467 | ||||||||||||||||||
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2) Of which in EU6) |
36,072 | 38,525 | 45,585 | 37,895 | 57,759 | 53,759 | ||||||||||||||||||
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3) Of which in the United States6) |
52,322 | 56,748 | 64,299 | 7,092 | 11,053 | 12,325 | ||||||||||||||||||
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4) Of which in China6) |
14,937 | 19,156 | 18,977 | 1,123 | 530 | 1,547 | ||||||||||||||||||
| 5) | Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets. |
| 6) | Including IPR revenue reported under Other above. |
For employee information, see Note C28, “Information regarding members of the Board of Directors, the Group management and employees.”