Swedish mobile developer Ericsson announced today that it is abandoning its handset manufacturing arm, after posting fourth quarter pre-tax profits that fell below expectations, slumping by #284 million (4 billion Kronor).
The company said that it is to outsource its mobile handset manufacturing business, and instead concentrate on the networking sector, where it is already steaming ahead in building a third-generation infrastructure. The handset manufacturing process will be transferred to the world’s third largest electronics manufacturer, Flextronics International.
Previously, Ericsson had been the third largest handset producer in the world but has been forced to cut its production owing to lack of demand, paving the way for Nokia and Motorola to gobble up market share.
Ericsson chief executive, Kurt Hellstrom, said that the company would only break even in the first quarter, predicting group sales to rise by 15% from strong growth in its mobile network business. “The results in our mobile phones business, while in line with expectations, remain unsatisfactory,” said Hellstrom, “therefore we have decided to completely outsource supply and production of mobile phones”. He added that the decision had been taken to cut handset production over a “more uncertain economic environment and a more cautious capital market”.
The company has been losing money hand over fist in the handset division since the second quarter of last year, with fourth quarter losses of #732 million (10.3 billion Kronor). The bad news echoed around the rest of the telecoms equipment industry, dragging down other developers’ share prices after a worrying year with industry concerns about the financing of third-generation roll-outs and falling demand for mobile phones. As a result Nokia shares were down 2.6%, Siemens lost 3.6%, Alcatel lost 3.8% and Marconi was down by 3.2%, and Ericsson’s own shares plummeted by 12.2%.