Ericsson to exit wireless-modem market, cut 1,000 jobs

Ericsson (NASDAQ: ERIC) is exiting the wireless-modem business and will most likely slash about 1,000 jobs as a result. The decision comes as pricing pressure builds in the stand-alone-modem business and more device makers choose to buy system-on-a-chip solutions with modems married to application processors, which Ericsson does not offer.

The Swedish vendor said it will discontinue future development of modems and shift parts of its resources in modems to radio-network research and development. Ericsson had said it would evaluate the future of the modem unit within 18 to 24 months of taking over the ST-Ericsson LTE thin-modem business in 2013, after the dissolution of the joint venture with STMicroelectronics.

The modems unit has close to 1,600 employees across sites in China, Finland, Germany, India and Sweden. Ericsson CEO Hans Vestberg told Reuters that as a result of the shift Ericsson will lose about 1,000 workers. The company said it will use some modem employees to increase its R&D efforts by around 500 people in radio networks, especially within small cells, energy efficiency and M2M.

Vestberg told Bloomberg that price pressure on the modems business is "enormous."

"In order to have the next generation of modems you would need to pour in even more R&D spending," he said. "We came to the conclusion that we're going to have a tough time to really see that we are going to succeed in the modems business."

Ericsson's decision to exit the modem business comes shortly after Broadcom said it would cut 2,500 jobs, about one-fifth of its total work force, as part of a winding down of its cellular-baseband-chipset unit. The cellular-baseband market is largely dominated by Qualcomm (NASDAQ:QCOM), and Intel has a goal of being second in LTE-modem volumes by the end of 2014.

"The market dynamics have changed," Vestberg told Bloomberg. "The total addressable market has gone down" as customers want integrated chipsets and not just modems. "It's a few high-end phones that are taking modem-only chips."

"In addition, we believe we can use this money in a better way," Vestberg told Reuters.

In August Ericsson launched the M7450 LTE Advanced thin modem with support for carrier aggregation, which Ericsson continues to deliver to customers. Vestberg told Reuters that some workers would also continue working with the M7450 but that it is difficult to say how long Ericsson would go on making the modem, because of uncertain customer demand.

"It was about time," Forward Concepts analyst Will Strauss told FierceWireless in reference to Ericsson's announcement. "They weren't doing anything with what they had."

He noted that "they've actually had a very good workable 4G modem," for LTE and LTE Advanced, but that Ericsson "had no application processor to go with it since the breakup of ST-Ericsson."

Strauss said the market for cellular modems is "a very tough game unless you've got an apps processor to go with it."

For more:
- see this release
- see this Reuters article
- see this Bloomberg article
- see this GigaOM article

Related Articles:
Broadcom to slash 2,500 jobs in winding down of cellular baseband biz
Ericsson not giving up on chipsets and modems, but faces tough competitor in Qualcomm
Ericsson, STMicro to shutter ST-Ericsson chipset joint venture
Report: Ericsson, STMicro fail to find buyer for ST-Ericsson venture
ST-Ericsson: Battery issues not a problem for newer VoLTE devices
Ericsson to take $1.2B charge in Q4 related to ST-Ericsson venture

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