Ericsson rethinks mobile phones

L.M. Ericsson Telephone Co.’s decision to outsource its mobile phone handset production may indicate a shift toward fewer models but more services offered to consumers.

Sweden’s L.M. Ericsson Telephone announced Friday plans to have Flextronics International take over several handset facilities. Earlier last week, Ericsson enlisted Taiwan’s GVC to cover the production of phones that were, until now, made at Ericsson’s own factories.

Ericsson hopes the move will improve the fortunes of its consumer products division while letting it focus more time on research into faster 3G (third generation) wireless networks and other wireless products. Ericsson’s announcement follows poor earnings news from handset rival Motorola, leading some analysts to predict fewer low-end phone models and more premium wireless services and high-priced convergence smartphone devices.

Smarter, Costly Phones

With consumer phones becoming nearly commodities, phone manufacturers are reconsidering the market, suggests Theresa Nozick, a wireless industry analyst and vice president of publishing at Mobile Insights.

She expects handset makers will likely turn their energies to convergence devices. “Ericsson is working with Symbian; everyone is looking at what will happen when you bring personal digital assistant functionality into a phone,” Nozick says.

And while handset makers move toward convergence phones with PDA capabilities, carriers will add service options like location-based services.

“Let’s face it, a cell phone is just not a cell phone anymore,” Nozick says. “It’s going to be much more down the line.”

But as handset makers move into device convergence, you can expect those phones to cost more, Nozick warns. “You’re adding more functionality and more expensive, computer-like components,” she adds.

Service plans, however, are where you’re going to see the most change in pricing, Nozick says. “Location based services, I think, will be the hottest area.”

Market Settles

In addition to restructuring manufacturing, Ericsson also says it plans to cut the number of types of phones it markets. The portfolio revision includes phones currently on the market in the United States using the TDMA (Time Division Multiple Access) standard, as well as GSM (Global System for Mobile communication) phones used elsewhere, says Lotta Wiklund, spokeswoman for Ericsson.

Although Wiklund wouldn’t be more specific as to which phones will be cut, Nozick expects all handset makers to streamline their selection of models. “It’s probably similar to what happened in the notebook market a few years ago when there were huge lineups with so many choices,” she says. “Over the years, each manufacturer streamlined their models down to a few solid ones to meet each market segment.”

“I wouldn’t be surprised if cell phones go down to three basic models,” analyst Nozick suggests. “You might have a basic function consumer model, a flagship do-everything phone with Internet and PIM capabilities, and something in between.”

Cheap Phone Follies

“The results in our mobile phones business, while in line with expectations, remain unsatisfactory,” said Kurt Hellstr