Ericsson pulls plug on handset manufacturing

Ericsson has decided to outsource the mobile phone production to Flextronics, an electronics manufacturing services provider. With this new alliance, Ericsson will achieve economies of scale, lower capital exposure and better volume flexibility. Furthermore, an agreement has been reached with the Taiwanese manufacturer GVC to complement the partnership with Arima.

Ericsson has decided to team up with Flextronics and outsource its complete supply chain for mobile phones. Ericsson has signed a memorandum of understanding with Flextronics that establishes a strategic alliance, and will lead to a rapid improvement of economies of scale, a much smaller capital exposure and reduced risk.

Effective April 1 and subject to final agreements, Flextronics will take over all related Ericsson facilities in Brazil, Malaysia, Sweden (Linköping and Pilängen), UK (Carlton and Scunthorpe) and parts of the US plant in Lynchburg, Virginia. Ericsson’s joint ventures in China will not be affected.

4,200 employees will join Flextronics. In Linköping and Lund 600 employees will be made redundant and will be offered support in developing new careers outside Ericsson. Ericsson has made restructuring provisions that will be reflected in the financial accounts for 2000.
Ericsson will focus on R&D, design and sales and marketing. R&D will be concentrated in Lund and Kista (Sweden), Raleigh (US) and Basingstoke (UK). In Basingstoke less than 100 employees will be made redundant. By the end of this year, the Consumer Products Division will employ approximately 7,000 employees compared with 16,800 at 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 of Ericsson Consumer Products Division. “The alliance with Flextronics will enable us to achieve economies of scale and volume flexibility.”

“We are committed to remain a top player in mobile phones,” says Jan Wäreby. “With this new set-up, we are responding to a much tougher business environment, and are creating 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 compared with 405 to 415 million units in 2000.

In addition to the Flextronics agreement, Ericsson has signed an agreement with the Taiwanese electronics manufacturer GVC, complementing the partnership with Arima. This cooperation includes outsourcing of product development and production (ODM).


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