Ericsson, Sony ink venture
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April 24, 2001: 8:26 a.m. ET
Sweden's Ericsson, Japan's Sony sign accord to form mobile phone joint venture
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LONDON (CNN) - Sweden's Ericsson agreed on Tuesday to form a mobile phone joint venture with Japan's Sony in a bid to stem losses at its handset unit.
The venture, to be called Sony Ericsson Mobile Communications, will produce, develop and market handsets using current network technology.
Ericsson Chief Executive Kurt Hellstroem, who has rejected calls from investors to sell the mobile phone business, will become chairman of the new company.
Ericsson's handset business has proven to be a major burden to the Swedish company and lost more than $1 billion in the final quarter of 2000 and $558 million in the first quarter of 2001.
Over the last two-and-a-half years the company has failed to match the more fashionable product line of cross-boarder rival Nokia, which has become the world's biggest maker of cellular phones.
The new venture, which will be based in London and employ 3,500 people worldwide, will begin on October 1 and produce its first phones early next year. Katsumi Ihara, the head of Sony's cellular phone unit, will be president of the business.
"Sony brings vast experience in consumer electronics and entertainment – music, pictures and games – and Ericsson contributes with our mobile technology, " Hellstroem said.
Ericsson, the world's largest mobile phone network maker, said on Friday it expects a second-quarter loss and plans to slash up to 12,000 more jobs. It also posted a pretax loss of 4.9 billion crowns ($488 million) for the first quarter ended March 31.
In an effort to reduce costs Ericsson, the world's third-biggest mobile phone maker, has farmed out the production of handsets to Singapore-based Flextronics, but has kept the costly research and development business.
Fund managers were broadly positive about the deal, although a little sceptical about the extent of any positive impact from the venture on the bottom line at Ericsson, which has already announced plans to cut thousands of jobs.
"I think that in the short term it is not really a quick fix," Simon Kirton with Aberdeen Asset Management told Reuters. "I am still a little bit sceptical and from choice would be a seller of Ericsson on strength."
Ericsson's stock rose more than 9 percent to 60 crowns after the announcement and was last up 1.8 percent at 56.00 crowns.
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