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Ericsson won't divest its handset business

(IDG) -- Ericsson Telephone President Kurt Hellström said, contrary to recent industry speculation, Ericsson has no plans to divest its handset business.

In a meeting with reporters following his keynote presentation at Comdex, Hellström said the handset division is necessary to Ericsson to ensure that the company has a complete portfolio of mobile products.

"We are going to continue to have mobile handsets in our portfolio. It's an integral part of our offering," Hellström said. "Many of the 3G (third-generation) contracts that we have signed or are about to sign require that we also provide phones. If we didn't have the handsets, we would not be in a good position to receive those contracts." 3G networks offer high-speed wireless data communications.

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Ericsson is the world's third-largest supplier of mobile phone handsets, but the handset unit is on track to post a loss of 16 billion kronor (US$1.6 billion) for 2000 as a whole, the Stockholm-based company said last month when it announced its third-quarter results. As part of an effort to restore profitability, Ericsson is transferring handset production from Sweden and the U.S. to low-cost manufacturing units in Asia, Eastern Europe and Latin America.

The company's financial woes fuelled speculation that Ericsson might divest its handset business and focus on infrastructure products like base stations for mobile phone networks. Ericsson derives 80 percent of its revenue from selling infrastructure products, Hellström said.

"It is very well known that we have problems in the handset area," Hellström said, adding that one of the reasons he was named company president in July 1999 was to bring the handset business "back on track."

Ericsson has analyzed the problems it is having in the handset market, Hellström said. The company now has a strategy to go after the huge market of low-end phones, which Ericsson has not targeted sufficiently previously. "We served that market by lowering prices on ailing high-end devices," he said. "The problem was that it reduces our margin."

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The entry-level market accounts for about 60 percent of the total handset market, Hellström said.

"We will develop attractive phones with a low cost which gives us a handsome margin," Hellström said, adding that the company will enter into partnerships with others to produce these cheaper phones. "We don't have the R&D (research and development) resources we need to address that segment," he added. "That's why we will go to others to create the terminals." Hellström did not name any of Ericsson's current or prospective partners, but he did say low-cost producers are found in "places like Taiwan and Korea."

Hellström was also asked whether Ericsson is considering putting Microsoft's Windows CE operating system on its handsets thus expanding its venture with Microsoft and effectively terminating its relationship with Symbian, a joint venture of Psion, Nokia, Motorola, Matsushita Electric Industrial Company and Ericsson. Symbian makes the EPOC operating system for mobile devices.

Answering with caution, Hellström said, "We take one step at a time. We built a company with Microsoft (Ericsson Microsoft Mobile Venture AB) and it's working very well. We are of course discussing further expansion of that collaboration, but I'm not in a position to disclose that."

Ericsson currently equips phones with Microsoft's Mobile Explorer and is working with the software giant on a mobile e-mail application. The R380 handset runs on the EPOC OS.

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