2011 Boston University Case Competition

Enhancing Quality of Life Through Technology Convergence

Team Budapest

Hussein Govani | James Larsen | Daniel Moro | Paul von Martels

2Source: Ericsson Annual Report 2010

Review of Situation

Why are we meeting with you today?

Define a Business Roadmap to 2015

Ericsson must leverage its position to;

1. Find unique opportunities to enhance people’s lives through a networked society

2. Create new, sustainable business opportunities

1 40% annual CAGR extrapolated from 2011 - 2015

1

2

2010 2011 2012 2013 2014 2015 2016

0.6 0.8 1.1 1.62.1

3.04.1

0.10.2

0.20.3

0.4

0.5

Handheld Devices Mobile PC and Tablets

Global Mobile Broadband Subscriptions (bns)

~ 40% 6 Yr CAGR

Summary of Business Strategy Recommendations

3. Integrate Emerging Markets with Developed• Convergence of developed market networks with

emerging market networks (geographic convergence)

Summary of Key Recommendations

As the market leader in broadband connection services, Ericsson is positioned to become the Architect of the Networked Society

End-to-End

Core Business

Emerging Markets

1. Up & Downstream: Become End-to-End ICT Manager• Build out data management capabilities (cloud integration)• Leverage partnership with Akamai• Strategic vertical partnerships and acquisitions

3. Expand Market Share Positions in Key Business Areas1

• Expand market share through large and small M&A• Expansion of consulting capabilities to support new

offerings

1

2

3

1Assume maintenance of operational and financial performance metrics

3

4Source: PriceWaterhouseCoopers, US Energy Administration

Vision 2015: Health Care and Energy

The Business Strategy Recommendations enable Ericsson to embark on its Vision 2015 mission: make a difference!

Vision 2015 Industry Focus Examples: Health Care Access and Energy Management

1. US Health Care market• Total annual expenditure > $2.3 trillion1

• Stakeholders want better access to care• Massive push for cost reduction

12008 total expenditures in US Health Care22010 total spend, Residential, Commercial, Industrial $618M Source: eia.gov

2. US Energy Distribution market• Total spend of $1.2 trillion2

• 4% 5-year CAGR on total expenditure

5

Information• Claims Data• Prescriptions• Medical Records• Analytics

Care Facilities• Data processing• Inventory Mgmt

Doctors

Appendix: Health Care Sector Alliances

Understanding the dynamics of the US healthcare market to optimize interactivity

Patients• Insured• Uninsured

Vision 2015: Health Care Opportunity

Patient Information• Claims Data• Prescriptions• Medical Records

- Laptop supported- Tablet / Smartphone- Specialized devices

Devices

6Patients

Pharmacies

Doctors

- Partnership with National and local pharmacies

Drug Distribution

- Analytics- proactive care- Real-time data

management

Data Management

System Benefits• Convenience• Efficiency• Lower cost

Vision 2015: Health Care Opportunity

How could this business work?

• Seamless patient experience- integration of handheld devices, cloud analytics, pharmacies

• Data management capabilities• American Well continues to sell model to

Insurers / payors1designed to lower overall medical costs

• Develop medical devices that integrate with the “cloud” and with A-W

• Integration of medical communities• Opportunity to deploy similar networks in

developing markets

7

The A-W and Ericsson partnership could be one of great synergy; A-W with the platform and Ericsson with the mobile capabilities

1I.e., Wellpoint, United Health Group, Aetna etc.

American Well Business Model

Potential Partners

8

Vision 2015: Health Care Opportunity

Health Care Competition

American Well has a unique business model in a highly fragmented market

• Different Business Model

• Highly fragmented

• Nascent ventures

OPPORTUNITY

9Source: US Energy Information Administration

Smart Meter PenetrationAvg. Retail Cost of Energy (Cents Per Kilowatt hour)

Smart meter penetration is approximately 40% across all sectors but two-way communication meter penetration is less than 10%

Vision 2015: Energy Usage

10

Vision 2015: Energy Acquisitions

Acquisition Plan For Energy Opportunity

Cavet Technologies created disruptive patented technology which allows for the instant reduction in lighting consumption by 30%

Analysis

Services

Ericsson EMA

Ericsson EMA

Database

Analysis

Remote Access Portal

Services

Vision 2015: Energy Business Model

Energy Consumption Management and Reduction Model

Acquisition of Cavet Technologies and development of complimentary energy consumption management system will provide additional EV of $1.3B

11

Vision 2015: Energy Opportunity

Energy Management Competition

Energy management market lacks differentiation, is highly fragmented and has great pricing flexibility

• Highly fragmented

• Lack of customer focus

• Pricing flexibility

• No I.P.

OPPORTUNITY

12

Source: Hoovers, 2010 Ericsson Annual Report, Santander, Yahoo Finance

Vision 2015: Focus on Core Business

• Opportunity to strategically deploy cash (ROIC>WACC)

• 2 new partnerships

Grow Faster than the Market Best in Class Operating Margins

STRONGSTRONG• R&D expense lower than major competitor (14.7% vs. 16.6%)

• ALU’s quarterly revenue growth at 23% vs. ERIC’s at 7.6%

• Competitors exiting market• Huge opportunity in emerging

markets (network LTE)

Ericsson is well positioned to capitalize on organic growth opportunities but can finance more aggressive ventures

• Industry leading and stable operating and NI margins

• Mature organization (stable earnings)

• 5 Year PEG at 1.59

Strong Cash Conversion • High debt capacity (currently low

debt)• Estimated to have $17B in cash

in 20121 (WACC at 10%) ROIC should be greater

ConcernSTRONG

1110,000M SEK, Santander 2011 Projections

• 25% decrease in unit sales on Sony Ericsson handsets

• New JV with ST-Ericsson producing cutting edge devices

• New partnership with Akamai

Growth in JV Earnings

13

Incremental EBITDA

Financials (I)

$300 million in incremental EBITDA by 2015, $1.6 billion in additional enterprise value, and a 65% overall IRR

2012 2013 2014 2015 2016 2017 2018 2019 2020 -

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

LumiSmart Device EBITDA

LumiSmart Service EBITDA

mHealth EBITDA

Year

U.S

. Dol

lars

14

Additional enterprise value

Total LumiSmart Device LumiSmart Service mHealth Service -

300

600

900

1,200

1,500

1,800

1575

405

890

280

Mill

ions

of U

.S. D

olla

rsFinancials (II)

$300 million in incremental EBITDA by 2015, $1.6 billion in additional enterprise value, and a 65% overall IRR

*Based on DCF analysis, and trading multiples

15

PHASE 1

Phase 1

Phase 2

Phase 3

On-going process for identifying Partners and Acg. targets

Further development of India market

Focus shift to China

Due Diligence

PHASE 3PHASE 2

Partnerships and Acquisitions 1 Developing MarketsEnhanced Core Offering

2011 2012 2013 2014 2015

1st Agreement

Developing market infrastructureHard focus on developed market infrastructure upgrades (4G)

Execution Roadmap

Due Diligence: Market profiling, target screening

16

Questions and Answers

Appendix Control Panel

Porter’s 5 Forces

Competitor Facts – Health Care

Competitor Facts – Energy Sector

US Health Care – Wait Times

Financial Projections

LumiSmart Adoption

American Well Adoption

Risks and Mitigation Plan

Risks and Mitigation Strategies

Risks of End-To-End Role Out For Health and Energy Opportunities

Primary risks concern the ability to scale and overall network security

PRIMARY RISKS MITIGATION STRATEGIES• Develop appropriate partnerships to gain access• Perfect model in developed economies

• Default power position for energy• “Safety” servers for health system• Develop premium customer support services

• Continuously invest to ensure best practices• Avoid sale of personal consumer data• Develop premium customer support services

• Communicate value add differentiation• Increase barriers to entry through partnerships and

development of intellectual property

1. Scalability• Data = Analysis = Services

2. Network failure• Consumer reliance on systems• Limited margin for error

3. Security and Privacy• Consumer sensitive data• Major cloud computing concern

4. Competitive Reaction• Fragmented market• Low barriers to entry for

applications

19

20Source:

-10 -8 -6 -4 -2 0 2 4 6 8 10

-10

-5

0

5

10

Health Care

-10 -8 -6 -4 -2 0 2 4 6 8 10

-10

-5

0

5

10

Energy

Supplier Power

Competitive Rivalry

Substitutes

Buyer Power

Threat of New Entrants

Supplier Power

Competitive Rivalry

Substitutes

Buyer Power

Threat of New Entrants

Appendix: Porters 5 Forces

21

Appendix: Competitor Facts

Energy Management Competition

Energy management market lacks differentiation, is highly fragmented and has great pricing flexibility

• Open Source• Free• Home use

• Free• Home use• BlueLine Hardware ($270 MSRP)

• Partnership with Cisco (Vancouver)• Commercial and Home• Fee = <50% of annual energy savings

• Home use• Fee for service and handset

KEY FACTS

Google PowerMeter

Microsoft Hohm

EnergyCAP

Pulse Energy

CISCO Home EM

• Industrial, Commercial and Home• Fee = 0.5%-1.5% of utilities cost

22

Appendix: Health Care Opportunity

Health Care Competition

American Well is a rare combination of real-time response, complete service offering, and online & telephone capability

• 28000 physicians, 4000 practices• Telephone and virtual site• Same functionality

• Real-time response time• All functionality• Based in waiting rooms

• Telephone and virtual site• 1 hour response time

KEY FACTS

Intuit Health

Cisco

Relay Health

MinuteClinic

TelaDoc

• 8 hour response time• Only basic functionality

• Pharmacy/grocery chain locations• 15 minute diagnosis• 25 states

Wait times greater than 20 days

Wait times between 10 – 20 days

Wait times between 1 – 10 days

American Well’s organizational structure and end product flexibility enable the company to meet the diverse demands of the US market

23Harvard Case: American Well: The Doctor Will E-See You Now

Appendix: US Medical Wait Times by States

23

Appendix: Summary financial projections

24

Appendix: Bass curve (I)

25

LumiSmart (U.S. Market) – Projected Adoption

Appendix: Bass curve (II)

26

mHealth (U.S. Market) – Projected Adoption