Ericsson quits handset game

Swedish telecoms giant, Ericsson, admits defeat and abandons handset production amid the industries biggest slowdown in years. The company will continue to sell phones but has signed a deal to outsource production in Asia.

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By  Rania Adwan Published  January 28, 2001

Ericsson, the world’s third largest wireless handset supplier, is to abandon mobile phone production in a bid to rescue its plummeting shares

The Swedish telecoms equipment maker announced the sales of its factories to the Singapore-based Flexitronics after posting a wider-than-expected fourth quarter loss and a weak outlook for the year ahead.

“In light of a significant change in the world market for mobile phones we have decided to fundamentally change the set-up of our business,” said Jan Wareby, executive vice president of Ericsson’s consumer products division.

“We are committed to remain a top player in mobile phones. With this new set-up, we respond to a much tougher business environment, and we create a sound basis for long-term profitability.”

The move came after Nokia, the largest and most profitable producer of mobile handsets, extended its leadership in the marketplace gaining its shares at the expense of Ericsson and no. 2 ranked Motorola.

2000 proved to be generally a bad year for the high-tech sector with a slump in product demand and concerns as to how telecom operators are going to be financing the construction of costly new mobile networks offering voice, text and video communications.

The market had long speculated that Ericsson would merge or sell the unit completely. Analysts speculate the move will ultimately strengthen the company’s wavering position as a leading player in the industry.

Ericsson’s disappointments go beyond outsourcing its valued product. The bad news comes amid failures to strike a deal with big names Sony or Samsung.

“The market was expecting a 50-50 ownership of the company together with Sony or Matsushita, or someone else on the Asian market,” said Inge Andersson, fund manager at Handelsbanken in Stockholm. Sony would not comment, “we do not comment about market rumours and possible tie-ups with other firms,” declared a Sony spokesman.

Flexitronics, a leading electronics production service, is renowned for low-cost manufacturing with roots steadfast in Asia but with a definite view to expand worldwide. The deal would involve a net transfer of around $300 million to $800 million in business to Flexitronics.

As well as Flexitronics, Ericsson said it has signed a deal with Taiwanese manufacturer GVC for mobile phone development and production.

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