A Fire in Albuquerque Sparks Crisis For European Cell-Phone Giants
Nokia Handles Shock With Aplomb As Ericsson of Sweden Gets Burned
By ALMAR LATOUR
Staff Reporter of THE WALL STREET JOURNAL
Caused by a lightning bolt, the blaze in an Albuquerque, N.M., semiconductor plant burned for just 10 minutes last March. But far away in Scandinavia, the fire touched off a corporate crisis that shifted the balance of power between two of Europe's biggest electronics companies, both major players in the global electronics industry.
Nokia Corp. of Finland and Telefon AB L.M. Ericsson of neighboring Sweden both bought computer chips from the factory, which is owned and operated by Philips Electronics NV of the Netherlands. The flow of those chips, crucial components in the mobile phones Nokia and Ericsson sell around the world, suddenly stopped.
Philips needed weeks to get the plant back up to capacity. With mobile-phone sales booming around the world, neither Nokia nor Ericsson could afford to wait.
But how the two companies responded to the crisis couldn't have been more different. Nokia, which was Europe's largest corporation by market capitalization at the time, met the challenge with a textbook crisis-management effort -- the kind companies of all stripes are finding essential as the pace of global commerce quickens.
Nokia officials outside Helsinki noticed a glitch in the flow of chips even before Philips told the company there was a problem. Nokia's chief supply troubleshooter, an intense 39-year-old Finn who runs marathons and plays rock guitar in his spare time, was on the case within days. Within two weeks, a team of 30 Nokia officials fanned out over Europe, Asia and the U.S. to patch together a solution. They redesigned chips on the fly, sped up a project to boost production, and flexed the company's muscle to squeeze more out of other suppliers in a hurry. "A crisis is the moment when you improvise," says Pertti Korhonen, Nokia's top troubleshooter, a man whose electric-guitar collection includes two classic Fender Stratocasters.
Ericsson, Sweden's largest company, with annual revenue of more than $29 billion, moved far more slowly. And it was less prepared for the problem in the first place. Unlike Nokia, the company didn't have other suppliers of the same chips, known as RFCs, for radio frequency chips. In the end, Ericsson came up millions of chips short of what it needed for a key new product. Company officials say they lost at least $400 million in potential revenue, although an insurance claim against the fire may make up some of it.
"We did not have a Plan B," concedes Jan Ahrenbring, Ericsson's marketing director for consumer goods.
On Friday, the fallout from the New Mexico fire and other component, marketing and design problems reached a climax, as Ericsson announced plans to retreat from the phone handset production market. It said it plans to outsource all its handset manufacturing to Flextronics International Ltd.
Ericsson said a slew of component shortages, a wrong product mix and marketing problems sparked a loss of 16.2 billion kronor ($1.68 billion) last year for the company's mobile phone division. Overall, the company reported an operating loss of 1.5 billion kronor. The company will take an additional restructuring charge of eight billion kronor to finance further restructuring of its mobile-phone unit. The news sent Ericsson shares falling 13.5% and shook other high-tech stocks around the world.
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