Investment in R&D is critical to developing new products and services, and hence profits, Ericsson technology chief, Hakan Eriksson, has told a Sydney business breakfast.
Fourth generation telephony may be 10 years away, he warned, but the killer application for the current 3G networks will be speed.
Eriksson, the telephony company's chief technical officer and president of research and development, was responding to the company's latest financial results, which showed global sales up nine per cent to $US3.6 billion, over the same period last year. Gross margins had improved to 44.7 per cent.
Profits of $US560 million beat the Swedish firm's own expections and contrasted with a $US362 million loss over the same period last year. "Things look good. The market is coming back and we have had a successful cost-saving programme since 2001," Eriksson said.
Ericcson's number of mobile phone uses surpassed fixed line subscribers in 2002.
The company predicted it would have about two billion mobile phone users by 2008, compared with 1.3 billion fixed line users. Broadband users were expected to quadruple from about 100 million users today to 400 million in 2008.
The company has reduced its research and development sites from 80 to 25. It is now working on fewer platforms, but Eriksson said the company had kept the development going.
"We haven't gone that hard on R&D," he said. "One-in-four worked in R&D, but now this is one-in-three." This represented 16,000 out of Ericsson's 47,000 staff.
However, what Eriksson failed to mention was that Ericsson CEO, Carl Henrik Svanberg, has slashed Ericsson staff numbers by more than half, a move many analysts say also drove the financial turnaround.
Nonetheless, Eriksson told the Sydney gathering that research led to the company setting industry standards and dominating market share. Ericsson's research into GSM in the 1980s led to its dominance in that market a decade later. Furthermore, investment in WCDMA, CDMA 2000, EDGE, GPRS, WAP and Bluetooth would bring Ericsson's leadership in mobile Internet.
The Swedish company said such research into 2G, 2.5G and 3G led to Ericsson being awarded more than 10,000 patents worldwide and the largest portfolio of contracts.
Now, Ericsson sells the phone insides to its own Sony Ericcsson mobile division, plus more than 20 other telephone producers. Five of the 10 top selling 3G phones are also Ericsson-based.
"All suppliers need a license from Ericsson," Eriksson said. "We don't intend to be an operator. We aim to supply the best end-to-end ownership. We will not compete with our customers."
Last year, Ericsson began research into Beyond 3G or 4G technology. This next generation technology aims to provide up to 100 mbs, by smoothing or optimising the shape of radiowaves to increase its carrying capacity, but the laws of physics will prevent such speeds being available everywhere.
Eriksson, who has worked in telephony research at the company for more than 15 years, said you may wonder whether you actually might want such speeds, but he recalled people in the mid-1980s doubting the need for just 2.4kbs. However, the users of mobile devices wanted better security, personalisation, memory storage, reduced power use and more features.
Recalling how he used his mobile phone to read a Swedish newspaper the night before, Erikson concluded: "The killer application for 3G is speed. Who after using ADSL will go back to dial up?"
Nobody in the room put their hand up.