Ericsson's state stands in stark contrast to arch cell-phone rival Nokia, which reported a 10 percent improvement in pre-tax profits for the first quarter of 2001, and said it is on track to meet its lowered targets despite a "demanding economic environment".

Ericsson also confirmed it was in advanced talks to establish a joint venture in mobile phones with Japan-based Sony Corp.

Ericsson would not reveal where the latest round of job losses would fall, but suggested over half would be made outside Sweden. The number of employees at its mobile handset division would fall to fewer than 5,000 by the end of the year, as it completes the transfer of its cell phone manufacturing operations to Flextronics International under a deal announced earlier this year.

While Ericsson said it does not anticipate losing any full-time R&D staff, it plans to merge some of its R&D centers and will cut its use of consultants by as much as 50 percent.

The scale of the cutbacks was worse than analysts expected, though the company's first-quarter pre-tax loss of roughly $485 million was in line with estimates. Ericsson reported profits of $604 million during the same period last year.

First-quarter sales of $5.53 billion were 5 percent lower than in the corresponding quarter last year.

The company also warned of declining handset sales and a continuing slowdown in its network infrastructure division into the current quarter. Ericsson said the mobile phone market this year is expected to reach between 430 million and 480 million units — almost the same as last year, but significantly less than previously projected. Growth in the mobile network infrastructure this year market is expected to slow to between 5 to 15 percent over 2000, when the sector grew between 20 to 25 percent.

"Even in this slowing business environment, we have increased mobile systems sales by 9 percent," said Kurt Hellstrom, president and chief executive of Ericsson. "In GSM, sales were up over 30 percent and continued to outpace the market, while TDMA and PDC sales were affected by declining demand. With no signs of a short-term turnaround, we are adjusting to these challenging circumstances by reducing our cost base by more than [$1.98 billion]."

Talks between Ericsson and Sony have been mooted for some time. The venture, which is expected to combine the two companies' loss-making handset operations, could trigger a wave of consolidation in the mobile handset sector. Motorola and Mitsubishi are also believed to be discussing combining parts of their cell phone activities.

Ericsson's share of the global mobile handset business has fallen to 10.7 percent, according to recent estimates from Goldman Sachs, trailing Motorola's 16 percent and Nokia's 31.5 percent. Sony is still a minor player, with about 1.5 percent of the world market and about 10 percent of the Japan market. Like other Japanese suppliers, Sony hopes to make a move with third-generation mobile technology, and a link with Ericsson should strengthen those ambitions. "As 3G is rolled out, if you want to maintain your presence in the market, cooperation with a company like Ericsson can provide an advantage," a Sony spokesman said.

Meanwhile, Nokia's first-quarter results indicate that the Finnish-based company is taking market share from its established rivals in both mobile handsets and wireless infrastructure. The company said it was on track to take the lead from Ericsson in the provision of infrastructure for third-generation mobile networks.

It posted a 10 percent rise in pre-tax profits to $1.32 billion. Sales increased to $7.14 billion, up 22 percent over the last year's first quarter. Sales of handsets were up 20 percent over last year, to $5.18 billion, but margins were lower and operating profits in the sector only went up by 4 percent. Nokia says it still aims to take a 40 percent share of the global cell phone business this year.

John Walko is community leader of CommsDesign.com, an EDTN Web site.