Mobile Makers Not Immune to Hard Times

Faced with slowing demand for products and a slowing economy, the major cell phone and handheld computer makers spent the end of last month cleaning house

Faced with slowing demand for products and a slowing economy, the major cell phone and handheld computer makers spent the end of last month cleaning house.

Telefon Ericsson AB, Nokia Corp., Motorola Inc. and Palm Inc. have laid off employees and shuttered facilities in an effort to ride out what some are calling the wireless slump.

The tough times are forcing the vendors to rethink their philosophy of wanting to provide everything from back-end infrastructure to client-side devices, resulting in a potential polarization that could stifle innovation and ultimately the functionality of wireless products and services.

"People do not exchange their mobile phones as often as before," Kurt Hellstrom, president and CEO of Ericsson, told shareholders last week. "Many people [will] wait to get a new one until GPRS [General Packet Radio Service], Bluetooth and other new technologies are on the market. That is how the state of the market can be explained."

In preparation for its annual shareholders meeting last week, Ericsson, of Stockholm, Sweden, said it is cutting 3,300 jobs in Europe and halting production at two phone plants in Carlton and Scunthorpe, England. The move will save the company $2 billion next year, officials said.

In January, Ericsson announced plans to outsource its mobile phone production to Singapore-based Flextronics Inc., which will hire 4,200 Ericsson employees and relocate handset production to Asia.

Ericssons back-end infrastructure products have remained profitable, but handset sales continue to lag behind those of Nokia. Investors have said Erics- sons best tack would be to get rid of its handset division entirely, divesting it to an Asian phone manufacturer such as the Panasonic division of Matsushita Electric Industrial Co. Ltd. or Samsung Electronics Co. Ltd.

Meanwhile, Nokia last week said it will lay off 400 employees in its broadband unit. But the Espoo, Finland, company has remained comparatively successful with its client-side products by selling mass quantities of inexpensive handsets, as opposed to Ericsson with its expensive, high-end devices.

Motorola late last month cut 4,000 jobs from its networks sector, part of a plan the company announced in December to cut 22,000 employees across the board—on client and infrastructure sides.

Hellstrom insists that Ericsson will remain in the handset business, a move that angers investors but pleases some consultants.

"You need people to design these things," said Fran Rabuck, practice leader for mobile technology at Alliance Consulting, in Philadelphia. "If everyone gets out of the business, thats a dangerous thing. Well all end up succumbing to the Japanese consumer market, and there wont be any innovation."

Rabuck acknowledged Hellstroms point that too much innovation can keep customers waiting for whats coming down the road—especially if it means investing in hundreds of devices and back-end software to match. He said this has been true of products from vendors such as Palm.

"Id advise [clients] to wait for the new [Secure Digital] chip to come out," Rabuck said, referring to the two new devices Palm recently announced but has yet to ship.

The Santa Clara, Calif., vendors recent financial results seem to back up that wait-and-see approach. Palm last week said it was laying off 250 employees and contract workers and has delayed construction on its new headquarters building in San Jose, Calif.

The Palm m500 and m505, which will ship later in the spring, have Secure Digital expansion slots that enable users to add and swap cards supporting more memory and maps and other applications. Meanwhile, Palm is trying to sell several other models that are still in inventory.

Palm also faces the problem of trying to appease enterprise customers from both ends. The company has gotten heat from investors for acquiring synchronization and wireless middleware company Extended Systems Inc. in the midst of an economic slowdown. And companies such as Ericsson, Motorola and Nokia continue to try to balance client-side and server-side products.