Ericsson Hangs Up Mobile-Phone Manufacturing

ByTim Stevens While reporting a 64% decline in fourth quarter profits compared with last year on Jan. 26, Telefon L.M. Ericsson Telephone Co. also announced it will "transfer its complete supply chain for mobile phones" to Singapore-based Flextronics. Effective Apr. 1, 2001, Ericsson suggests the strategic alliance will lead to a rapid improvement in economies of scale, much smaller capital exposure, reduced risk, and better volume flexibility. Outsourcing its manufacturing will allow Ericsson to focus on its core competencies in R&D, design, and sales and marketing of mobile phones. The restructuring is expected to save the company $1.55 billion per year by 2002. Flextronics will take over all related Ericsson facilities in Brazil, Malaysia, Sweden, UK, and parts of the U.S. plant in Lynchburg, Va. Some 4,200 Ericsson employees will join Flextronics in the process, with a redundancy of 600 employees, who will be offered support in developing new careers outside the company according to Ericsson. By the end of this year, the Ericsson Consumer Products Division will employ approximately 7,000 employees compared with 16,800 at the end of last year. "In light of a significant change in the world market for mobile phones we have decided to fundamentally change the setup of our business," says Jan Wäreby, executive vice president, Ericsson Consumer Products Division. "With this new [arrangement], we respond to a much tougher business environment, and we create a sound basis for long-term profitability." Ericsson expects the world mobile-phone market to reach a volume of around 500 to 540 million units this year after 405 to 415 million units in 2000.