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Ericsson to Exit Sony JV if Products Don’t Sell Fri Aug 30, 5:30 AM ET

By Jan Strupczewski

STOCKHOLM (Reuters) – Swedish telecoms equipment maker Telefon AB LM Ericsson ( news – web sites) said on Friday it would pull out of handset-making and end its cooperation with Sony Corp ( news – web sites). if their mobile phone joint venture does not deliver satisfactory results in the next two or three quarters.

“The message is clear. We will not make the same mistake again,” Ase Lindskog told Reuters.

“We will not put any more capital into the joint venture if it does not show results. This means unless its products quickly catch on,” she said.

She declined to specify what results Ericsson would consider acceptable.

A retreat from the now unprofitable handset production, which Ericsson confirmed was still part of its core business on August 13, would mark a further shrinking of the once mighty company whose operations span from telecoms cables to defense systems.

Loss-making Ericsson, the world’s biggest producer of mobile networks, is now struggling to return to profit some time in 2003 amid sagging demand for its products. It recently said a rebound for weak markets was nowhere in sight.

Trading in the group’s pivotal $3.2 billion rights issue to pay off debt and finance restructuring ended on Thursday.

At 4:50 a.m. EDT Ericsson traded 2.1 percent stronger on a slightly weaker Stockholm bourse, outperforming the DJ Stoxx technology index by 2.4 percentage points.

Sony Ericsson, owned 50-50 by the loss-making Swedish mobile network company and the Japanese consumer electronics giant, was created in October last year to salvage the loss making handset units of both firms.

It aimed to be profitable in the first year of its operations, but made an 800 million crown ($86.02 million) loss in the second quarter and Ericsson said it would not return to the black this year.

Data from Gartner Dataquest showed earlier this week the firm’s market share had fallen to 5.4 percent in the second quarter from 7.7 percent in the second quarter of 2001. It sold five million phones in April-June worth 8.8 billion crowns.

At the same time the world’s biggest mobile phone maker, Finland’s Nokia ( news – web sites), increased its market share and is making one out of every three handsets sold globally.

Sony Ericsson said it would start selling four new, lower-end phones in the third and fourth quarters, which it hoped would boost its profitability and market share after the success of its advanced T68i color screen handset.

“By having these products out before the end of the year we definitely hope to see a favorable development in both profitability and market share,” said Sony Ericsson spokesman Peter Bodor.

A year ago, the joint venture was presented by both companies as a dream team combining Ericsson’s technical expertise with Sony’s consumer focus, but its sales continued to suffer from distribution problems.

The venture’s flagship model, the highly advanced P800 phone, will only hit shops in September.

Sony spokesman Gerald Cavanagh told Reuters the company’s position on the handset venture had not changed.

“We are fully committed to the joint venture and we want to make it a success,” he said.

Both Sony and Ericsson have committed to inject 500 million euros each into the firm by October 2003, but Ericsson’s Chief Financial Officer Sten Fornel said on August 13 that Ericsson would not put any more cash into Sony Ericsson this year and that investment next year was likely to be limited.