Ericsson gave up making phones itself to survive the telecom crash

Ericsson had grown into one of the world's largest telecom equipment and mobile-handset makers through the 1990s, but the collapse in carrier capital spending after the dot-com bust hit hard. Ericsson posted its first-ever annual loss in company history, reported as nearly $2 billion for 2001, including a $333 million loss in the fourth quarter alone, per wire reports carried by multiple outlets in January 2002. Its handset business, competing against Nokia and Motorola, was losing money and dragging down an equipment division that still had real demand once carriers resumed spending.

Rather than keep funding an unprofitable handset business alone, Ericsson combined it with Sony's mobile phone operations to form Sony Ericsson Mobile Communications, a 50/50 joint venture that began operating October 1, 2001. The move let Ericsson exit direct handset manufacturing while keeping a stake in any recovery, and freed it to concentrate resources on network infrastructure. Ericsson also cut its workforce sharply, from roughly 107,000 in 2001 to about 47,000 by 2005, per its own account of the period.

The combination of the joint venture and cost cuts turned the company around within a few years. Ericsson's own results announcement in February 2005 reported full-year 2004 net income of SEK 19.0 billion, reversing a SEK 10.8 billion net loss in 2003.

Ericsson's 2001 handset JV with Sony and workforce cuts from 107,000 to 47,000 by 2005 reversed a SEK 10.8b 2003 net loss to SEK 19.0b net income in 2004.

Merging the handset business into a joint venture split the cost of an unprofitable unit with a partner instead of Ericsson absorbing the losses alone while carrier spending was frozen.

Exiting direct handset manufacturing let Ericsson concentrate capital and engineering on network infrastructure, the business with stronger long-term demand once telecom spending recovered.

Cutting headcount by more than half while orders were depressed matched Ericsson's cost base to the smaller business it was becoming, instead of waiting for revenue to catch up first.

When one product line drags down a stronger core business in an industry-wide downturn, merging or exiting the weaker line can free enough capital to survive until demand returns.

Ericsson's net income reached SEK 19.0 billion in 2004, reversing a SEK 10.8 billion loss the year before, according to the company's own results announcement, after a nearly $2 billion loss in 2001 that was the first in its history. The Sony Ericsson joint venture ran until 2012, when Sony bought out Ericsson's remaining stake, while Ericsson itself grew into one of the two dominant global suppliers of mobile network infrastructure alongside Nokia in the years after the restructuring.