Ericsson set to quit handset production as losses mount
By Christopher Brown-Humes in Stockholm, Dan Roberts in London and Richard Waters in New York
Published: January 25 2001 21:16GMT | Last Updated: January 25 2001 23:08GMT
Ericsson, the world's third biggest supplier of mobile phones, is expected to announce on Friday it is pulling out of handset manufacturing to stem huge losses in its consumer products division.
It would be the first leading mobile phone maker to abandon production and comes when growth in demand for mobile phones is slowing sharply and there are concerns about delays in the introduction of third generation mobile internet services.
The company will stress it remains committed to mobile phones. It will continue research, development and marketing activities, and phones will still carry the Ericsson brand name.
Ericsson is believed to have ruled out any withdrawal from the handset market on the grounds that knowledge of the market is integral to its telecom infrastructure business - by far the biggest part of its operations - and is crucial to its ability to be able to offer telecom operators a full service.
But it has acknowledged that the need to restore profitability to its beleaguered handset division is paramount when the market is deteriorating.
Other big handset makers, including Motorola, the biggest US producer, have contracted out some of their production.
When Ericsson presents its full-year figures on Friday, analysts are braced for a handsets loss of at least SKr16bn ($1.7bn), an estimate given by the company last October.
Some fear the total could be even higher because of additional inventory write-downs. They expect handsets to remain in the red this year.
Analysts expect an overall profit at Ericsson of about SKr24bn in 2000, excluding fourth quarter capital gains, due to a strong showing by the systems side. Last year the group made a SKr16.4bn profit.
The group declined on Thursday to comment on its strategy. Ericsson, which has about 10 per cent of the global handsets market, makes phones in Europe, Asia and Latin America.
It is believed that about 12,000 employees are involved in manufacturing and related work. However, it is unclear whether Ericsson is outsourcing production to a single partner or several.
The group has launched a range of measures to improve performance, including switching production from Sweden and the US to lower-cost countries in Latin America and eastern Europe. It has already outsourced some low-end production and concentrated on fewer models.
But analysts are not convinced the measures will be enough to get the group's handsets operations back into profit by the second half of this year in line with the company's target. Some believe the group may pull out of mobile phones altogether. |
