Lex: Ericsson
Published: January 25 2001 21:14GMT | Last Updated: January 25 2001 21:17GMT
Ericsson's decision to stop manufacturing mobile phones is overdue but welcome. The Swedish company is a first rate network infrastructure business, but all at sea when it comes to designing, producing and marketing consumer products. Its optimistically-named Back to Profit restructuring plan has failed to deliver: it rested on the flawed assumption that Ericsson could turn around the handset business quickly and carry on making high-end phones without economies of scale from mass production. Today's results are likely to show handset losses exceeded management forecasts of SKr16bn in 2000. Drastic action is unavoidable.
But should Ericsson go one step further and sell the business, rather than just outsourcing production? The exit is not clean, and may result in further restructuring charges. It is hard to make outsourcing work in an industry with rapid product cycles. However, retaining a consumer brand, knowledge of how mobile phones work, and the ability to guarantee supply of handsets may help support the infrastructure business. On balance, sale looks preferable, but not (yet) at any price; and companies are hardly queueing up to bid for the business.
Ericsson's rivals, meanwhile, will no doubt rejoice at the prospect of further disruption to its handset business, and the opportunity that presents to seize market share. But its withdrawal from production suggests a lack of confidence in mobile sales as a whole, which hardly bodes well for the sector. |
