Swedish Telecoms group Ericsson today announced its was pulling out of making its own mobile phones and shedding thousands of jobs in the handset business after reporting a worse than expected fourth-quarter group operating loss of 1.5 billion crowns ($155 million).
Ericcson employs 2,500 people in Ireland and last September announced plans for a $200m investment in its Irish operations in Dublin and Athlone and the plan to set up a new facility in Cork.
But fears that the decision might lead to Irish job losses, following Motorola's similar action which saw 750 Irish job losses, were quashed by an Ericsson spokesman. He confirmed to RTE that today's announcement would have no impact on the Irish operation which has no manufacturing element.
He also said the Cork facility was due to open soon and plans to recruit a further 600 staff across all four Ericcson locations in Ireland were continuing.
Ericsson, the first big mobile phone maker to abandon handset making, said it was fully outsourcing mobile production to the world's third largest electronics manufacturer Flextronics International Ltd in a deal which will also see it transferring plants and staff in several countries to Flextronics.
By the end of this year the company said it will have reduced the workforce at its Consumer Products Division, its mobile handsets business, to 7,000 from 16,800 at the end of 2000, with 4,200 due to join Flextronics.
The move showed Ericsson had finally thrown in the towel to Finnish rival Nokia, the market leader in the segment, whose own mobile phone business remains highly profitable thanks to better design and lower prices. The company has been losing money on mobiles since the second quarter of 2000, citing component shortages and an uncompetitive product mix. As the losses mounted, pressure grew to sell or merge the division with another mobile phone manufacturer.
Ericsson cut its forecast for global handset demand this year to 500-540 million units, below that of Nokia and the second biggest manufacturer Motorola of the US.
Ericsson said it is selling its mobile plants in Brazil, Malaysia, Sweden, Britain, and parts of the US to Flextronics, which will take over production and supply, leaving Ericsson with responsibility for research, design, sales and marketing.
Singapore-based Flextronics, which already has an outsourcing agreement with Motorola and makes phones for Germany's Siemens, builds electronics for computer, cell phone and consumer electronics makers. Ericsson also signed another agreement with Taiwan's GVC to develop and produce phones.
Ericsson, the world's third largest maker of mobile phones, told analysts it would only break even in the first quarter and cut its forecast for global mobile phone demand this year. It expects group sales to rise by around 15% in the first quarter with strong growth in its profitable mobile telecoms network systems business, where it is a world leader, but lower sales for handsets.
