Mobile giants bailing out of hardware

On Thursday, Ericsson announced that Flextronics, a Singapore-based contract manufacturer, will take over its handset plants in Brazil, Malaysia, Sweden, the United Kingdom and the United States. The Ericsson brand will survive -- the company will just no longer make the phones itself.

The number three mobile phone maker's move follows on the heels of two other recent announcements.

Qualcomm was the first major player to get out of handset making, announcing in December that it was selling its manufacturing arm to Kyocera. And last week, Motorola announced its decision to halt cell phone manufacturing at its plant in Harvard, Illinois, and lay off about 2,500 workers in an attempt to improve profits.

Such decisions have left analysts concluding that others will follow.

Even though Nokia's market share has been climbing, Dataquest analyst Paul Dittner predicts that the company will make some adjustments. "I'd expect Nokia to do outsourcing as well," he said. "It can be done cheaper by a company like Flextronics."

Nokia wouldn't comment on the speculation.

At least one analyst asserts that Ericsson's outsourcing deal may also have an effect on the number of handsets manufactured industrywide this year.

"We'll still be sticking with the forecast of 500 to 540 million handsets sold, but we're now looking closer to the lower end of the range," said Dan Downey, an analyst with The Yankee Group.

The two analysts added that the Ericsson announcement didn't go far enough to bolster the company's sagging market share. "Most people say it wasn't a big enough step to correct the problems," Dittner said.

Ericsson isn't completely out of the handset game. It retained its engineering, marketing and sales division, Downey pointed out.

"A lot of people expected them to ditch handsets altogether," Downey said. "This is a compromise of sorts." Ericsson cut its manufacturing arm at a time when its position as one of the top three mobile phone makers is threatened by Siemens, a dark horse that until six months ago was a middle-of-the-pack player, according to Dataquest.

Siemens has been boosting its market share and is expected to overtake Ericsson as the number three mobile phone maker perhaps as soon as two weeks from now, Dittner said.

You may have read that Ericsson is pulling out of the phone business -- Guy Kewney says it isn't. What it is doing is "the smart thing". According to Guy it's going to be a horrible mess; the data devices are horrible, the networks don't know how to charge for data, and the applications you might need, don't work yet. Go to AnchorDesk UK for the news comment.

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