One of the driving forces behind L M Ericsson Telefon AB’s decision to put about half of its cellular telephone systems and equipment manufacturing and marketing into a joint venture with General Electric Co (CI No 1,049) is that while it is big in cellular switches and radio base-stations, it has only about 3% of the world market for cellular handsets, the area in which the biggest growth is expcted in the next few years. The joint venture, to be 60% owned by Ericsson, 40% by GE, is to be headquartered in the US and will be called Ericsson-GE Mobile Communications: it is expected to employ 4,750 people and have annual turnover of about $1,000m, will include all of GE’s cellular interests – with sales of $300m to $400m last year, and all Ericsson’s cellular interests in the US and Canada: the businesses Ericsson is contributing had sales of about $475m last year. Ericsson retains all its European cellular interests, but is putting all its non-cellular radio communications businesses in Sweden into the joint venture. The market for cellular phones, where the market leaders are Motorola Inc, Nokia Oy, Matsushita Electric Industrial Co and NEC Corp, is estimated to be worth about $2,000m a year and to be growing at about 30% annually. But Ericsson has manufacturing capacity of only 80,000 cellular telephones a year, and expects to need at least 500,000 to fill the demand available to it in 1991, which is where GE’s capacity will fill the gap; it makes perhaps 100,000 phones a year, and has the manufacturing skills to ramp up output of the things quickly. A further reason for Ericsson going into the joint venture is that major additional capital expenditure will be required to develop new digital cellular equipment.
