BBH may get a poor signal from Ericsson

Bartle Bogle Hegarty is poised to take on the task of creating global consumer advertising for Ericsson just as the telecoms company pulls out of manufacturing mobile phone handsets.

Ericsson has finally bowed to the demands of analysts worried by the poor performance of its consumer products division, which made a £1.1bn loss last year despite recording a 38 per cent increase in sales of mobile phones to 43.3 million units.

The company’s overall profits fell from £603m to £326m in the last three months of 2000. It announced on Friday that it will end the production of mobile phones, leaving it to focus on technology, design, branding, marketing and sales of handsets which will bear the Ericsson name.

According to some commentators the lack of profitability of mobile phones, which account for about 20 per cent of Ericsson’s business, had threatened to jeopardise the rest of the company.

Ericsson can now concentrate on developing its position as a leading player in wireless infrastructure. It claims to be the world leader in secondand third-generation mobile systems, having secured more than 50 per cent of all GPRS (General Packet Radio Service) and third-generation infrastructure orders so far.

As the third biggest producer of mobile phones, after Nokia and Motorola, Ericsson claims a ten per cent share of an estimated world market of 405 to 415 million units in the year 2000. Nokia claims to have sold 128 million units, pushing its global share for 2000 to 32 per cent, up from 29 per cent for 1999.

Ericsson blames delivery failures by key suppliers and an inadequate product mix in the entry-level market for the losses incurred by its consumer products division. It also blames an increasingly competitive market in which renewal and upgrade rates have been slower than expected, as consumers were disappointed by the much-hyped launch of WAP phones.

Ericsson’s sales and marketing departments have already been scaled down. One-third of jobs in this area across the globe disappeared at the end of last year, according to UK marketing director Alex Rodrigues.

He adds: “We made some changes, 15 [sales and marketing staff] in the UK have moved into other roles within Ericsson .”

Ericsson estimates that the consumer products division will end up employing 7,000 people by the end of 2001 compared with 16,800 last year. More than 4,200 of these staff are expected to join Flextronics, which will take over the bulk of Ericsson’s mobile phone manufacturing.

Ericsson claims that the cutbacks and its “back-to-profit programme” for the consumer products division are on track and that the division is expected to reach profitability by the second half of the year.

One industry expert says: “The marketing expenditure is to be cut right back too. Ericsson is looking at considerable savings.”

Rodrigues refuses to confirm that BBH has even won the pitch for the business and will not to be drawn on whether marketing expenditure is likely to decrease or not.

One agency insider says: “Ericsson is a bit like Philips in a way: it is engineering rather than marketing-led. It has a lot of good products but it hasn’t given marketing a high enough priority and it hasn’t spent enough.”

Another says: “It could go two ways. Ericsson could say: ‘Now is the time to tighten our belts,’ or it could take advantage of the new product launches due this year and the reduced overheads provided by the new manufacturing structure.”

Another analyst agrees, but warns that the demands of shareholders may dampen any desire for a major marketing drive.

TC Robillard, wireless equipment analyst at Salomon Smith Barney, says: “Ericsson has really not been operating as a consumer-focused business. A new advertising campaign is long overdue and so is a fresh portfolio of handsets.”

He praises Nokia for taking an “aggressive stance” on handset pricing and gearing its portfolio to price and style so that it can appeal effectively to the whole market, including the budget end, which historically has seen the most growth.

One agency insider says: “Nokia is savvier in working out what products people want. Nokia would launch something sooner than Ericsson, although it may not be as sophisticated and many people would take the first to market.”

But Ericsson hopes to launch its first GPRS (General Packet Radio Service) mobile phone ahead of Nokia. Called the R520, it incorporates the Ericsson-developed Bluetooth technology which enables it to communicate with other devices. The new GPRS standard bridges the gap between the slow current GSM standard and the forthcoming third-generation ultra-fast mobile telephony system (UMTS).

One industry insider says: “Ericsson thinks the GPRS model will save it. That’s the plan – to introduce that and be seen as the expert in the field.”

But some analysts fear that even the new manufacturing structure will not work in the long run.

Robillard, who does not put much faith in alliances and joint ventures, says: “The best thing for Ericsson to do is to sell the business.” But given Ericsson has made it clear that its continued involvement with the design, technological development and marketing of mobile phones remains important for its other applications and systems businesses, a new campaign aimed at consumers remains a high priority.