NEW YORK-Through manufacturing outsourcing and layoffs designed to return Ericsson Inc. to profitability, the company’s Consumer Products Division will wind up this year with about 5,000 employees. That compares with 13,000 on staff at the end of 2000, Jan Wareby executive vice president of the business unit, said at a media and analyst briefing May 23.
Of those remaining, 2,500 will go to work for the Sony-Ericsson joint venture, which is scheduled to begin operations Oct. 1. The rest will work for Ericsson Technology Licensing AB, a division established last year to develop and market Bluetooth applications, and for a new Mobile Technology Platforms unit, which develops application specific integrated circuits for mobile communications devices.
The Sony-Ericsson joint venture, which is to be the primary but not exclusive buyer of the ASICs, will market all of each companies’ existing wireless consumer communicators under their respective brands. However, the venture partners will develop new handsets, smart phones and other multimedia wireless devices that will bear a discrete brand, as yet undetermined, Wareby said.
Ericsson will maintain research and development spending at 15 percent of revenues this year, but the amount spent “will not grow in absolute or relative terms to sales,” said Jan Uddenfeldt, chief technology officer.
With 90 million wireless phones of all brands and kinds sold worldwide during the first quarter, Ericsson has revised its forecast for the full year to a range of 430 million to 480 million, down from more than 500 million, Wareby said.
“This year will be the first in the history of wireless when more replacements than new phones are sold. More than half the market in 2000 will be replacements. In the next two-to-three years, we will see a big shift to replacements driving the market,” he said.
Mergers among wireless operators also have upped the ante for equipment providers, which want the biggest of the big as customers, said Torbjorn Nilsson, senior vice president of marketing and strategic business development. The 10 largest carriers in the world control 50 percent of the subscriber base today, and that trend is accelerating, he added.
“If you sell mobiles first and networks second, will you ever sell any handsets?” said Einar Lindquist, executive vice president of the Multi-Service Networks Division.
In GPRS, Ericsson has signed agreements to provide network infrastructure to 69 carriers, of which 13 have launched commercial service as of May, Nilsson said.
“There were a lot problems initially with GPRS terminals. For the first time in cellular, the terminals came first, from Motorola, Ericsson and a few others,” said Kurt Hellstrom, president and chief executive officer.
“But several major operators in Europe and elsewhere have launched GPRS, and other competitors are entering. There will be about 20 (million) to 30 million GPRS phones available by year-end, but they won’t necessarily be using GPRS.”
In UMTS/W-CDMA, Ericsson has captured 30 of the 51 agreements carriers have signed so far, Nilsson said.
“We continue to be selective about vendor financing agreements, and our energy is focused on helping our customers find third-party lenders. We have only signed financing agreements for two of our 30 W-CDMA contracts,” said Sten Fornell, executive vice president and chief financial officer.
Earlier in May, Ericsson improved its financial position by obtaining a credit line extension of $2.1 billion.
“There is a more active bond and equity market lately, for the time being,” he said.
Uddenfeldt termed “minor” the delays in the rollout of W-CDMA, which Ericsson now expects to be in the mode of “pre-commercial full system launch” by late this year in Europe and Japan.
“This is a more realistic timetable, and we have a lot of production planned for this year,” the chief technology officer said.
Despite third-generation wireless’ reputation as being costly to build out, Uddenfeldt said W-CDMA voice networks would require 40 percent of the cell sites needed for GSM 1800 voice, while W-CDMA data will require 60 percent.
“All factors make the infrastructure cost of deployment for 3G appealing to existing and greenfield operators,” he said.
A phased deployment of W-CDMA also is easily possible because of its easy “hand-over” to GSM/GPRS, he said. “Ericsson has more than 40 percent of the GSM market, so it’s natural for operators to continue with the same vendors,” Uddenfeldt said.
