Ericsson says backing out of handset business is not an option
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Story Filed: Friday, April 20, 2001 11:11 AM EST
LONDON, Apr 20, 2001 (AFX-Europe via COMTEX) -- LM Ericsson AB rejected suggestions that it should get out of its underperforming handset
business in the wake of its weak first quarter figures today, saying instead that alliances -- such as the one currently under discussion with Sony --
are what will breathe life back into its mobile phone sales.
During an analysts' conference call to discuss the figures, Ericsson said that even though some smaller handset players are looking to sell up or close
down, that is not an option for Ericsson.
"Even with a small operation it's important for our total offering" to stay in the handset business, said Kurt Hellstrom, the company's chief executive
officer. "If we can't provide end to end solutions we will start to count down the overall operations as well, so we have to find people... to complement
our strengths."
Hellstrom admitted that Ericsson's share of the mobile handset market is declining, standing at present at about 7 pct. He said the programme of "back
to profits" should produce a turnaround, but warned that the process has already taken 18 months and will take longer to come to fruition.
But he promised that over and above the 20 bln skr already announced in cost savings, the company will find another 3 bln skr in the handset
business alone.
On the network side, Hellstrom told the press conference that orders are still coming in both for GSM and CDMA equipment and for GPRS and 3G
networks.
He admitted that the orders for U.S. TDMA networks -- used by AT&T Corp nationwide in the U.S. and by many operators in Latin America -- have
"come to a standstill" much faster than anyone had expected.
AT&T and other TDMA operators are switching to GSM so as to have a common upgrade path towards 3G, and Hellstrom said he looked forward to
beginning shipments of GSM equipment to AT&T during the second half of this year.
In any case, he assured analysts on the call that the company's difficult financial position will not get in the way of further systems orders -- a key
point, given that the systems business underperformed in Q1 to the extent that operating profits were half what analysts were expecting and the
networks operation has always been seen as the jewel in Ericsson's crown.
"We have a lot of incumbent operators who are Ericsson customers and many of the (2.5G and 3G) deals with them are already settled," he said,
fending off criticisms that Nokia's ability to offer better vendor financing to cash-strapped and debt-burdened operators could be a deciding factor in
deal-making.
"I don't think that anyone can buy these contracts with very generous vendor financing. On the contrary: it's not financing that's going to decide, it's the
ability to deliver."
Ericsson is keen to retain its single A debt rating, Hellstrom said, mentioning that divestment of non-core assets is likely to be a key focus going
forward. But he hinted that in the current climate that may be an impossible task however highly Ericsson prioritises it.
"It's very important to us to give the highest priority to balance sheets and cash flow," he said. "That said, though, we are also living today in an
environment that is pretty uncertain... if the whole industry is undergoing a change that's impacting credit ratings, that will affect us as well."
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