A softening economy and competitive pressures are changing the mobile-phone industry.
Telefon AB LM Ericsson said Jan. 26 it will transfer mobile-phone production to Flextronics International Ltd., effective April 1.
The change means processors that now supply housings and assembly services to Ericsson will find themselves working instead with a large electronics contract manufacturer.
Key Ericsson suppliers Nolato AB of Torekov, Sweden; Mikron Holding AG's Iplast Norabel AB unit of Nora, Sweden; and Perlos Oyj of Nurmijarvi, Finland, may face price pressures from Singapore-based Flextronics, which itself operates 675 injection molding machines.
Under a pending alliance, Flextronics will take over all related Ericsson facilities in Brazil; Malaysia; Linkoping and Pilangen, Sweden; Carlton and Scunthorpe, England; and parts of a plant in Lynchburg, Va. The alliance will not affect Ericsson's joint ventures in China.
About 4,200 employees will join Flextronics. Ericsson intends to eliminate 600 other positions in Linkoping and Lund, Sweden. Ericsson will retain research and development, design, sales and marketing functions.
"In light of a significant change in the world market for mobile phones, we have decided to fundamentally change the setup of our business," Jan Wareby said in a statement.
Wareby is executive vice president of Ericsson's consumer products division.
By year's end, the division expects to employ about 7,000, vs. 16,800 as of Dec. 31.
Kurt Hellstrom, Ericsson president and chief executive officer, said the mobile-phone results "remain unsatisfactory" although in line with expectations.
Stockholm, Sweden-based Ericsson reported an operating loss of $155 million for the quarter ended Dec. 31.
"The losses are caused by delivery failure from key suppliers and an inadequate product mix in the entry-level market," Hellstrom said. "The delivery failures have led to loss of large sales volumes and serious under-utilization of production capacity."
Mobile-phone suppliers reported huge sales gains in 2000, but are suffering from a glut of product and slowdown in sales this year.
During 2000, Ericsson sold 43.3 million phones, up 38 percent from the previous year. Industry leader Nokia Oyj of Finland said it sold 128 million phones, up 64 percent, and estimated the global market at 405 million units.
Three injection molders already hit by the market slowdown are Mikron Holding AG; Eimo Oyj of Lahti, Finland; and Perlos Oyj.
Biel, Switzerland-based Mikron announced last week that it will delay its purchase of a U.S. toolmaker until later this year and that it will close a plant in Europe and shift more production to Asia. [See story, Page 7].
Eimo Oyj announced Jan. 26 that its pretax profit in 2000 was 12.7 million euros ($11.7 million), 2 million euros short of its previous expectations. Eimo supplies Nokia, Ericsson and Alcatel SA, and has a deal pending to buy Triple S Plastics Inc. of Vicksburg, Mich.
Perlos announced Jan. 26 that it will reduce the number of employees at its Nurmijarvi technical plastics unit, which currently employs 200. Perlos will centralize Finnish functions at plants in Ylojarvi and Northern Karelia. Perlos employs 3,854 and operates 15 plants.