STOCKHOLM, Sweden — LM Ericsson, the world's third largest mobile phone maker, said it is getting out of the business of making phone handsets so it can concentrate on offering more advanced mobile phone systems.
The announcement came Friday as Ericsson reported its fourth quarter earnings tumbled more than 63 percent. Ericsson trails only Nokia and Motorola Corp. in mobile phone production.
Technology stocks tumbled on the news, with Ericsson's shares down 15.6 percent to 100 kronor ($10.38) in midday trading on the Stockholm bourse.
The move out of handset production had been widely expected as Ericsson has long suffered weakness in that business. Analysts said the move will strengthen its position in the mobile systems market with technology that lets handsets connect to the Internet.
Ericsson said it had signed a deal under which Singapore-based Flextronics International will take over its mobile phone production facilities in Brazil, Malaysia, Sweden, Britain and parts of a U.S. plant in Virginia.
The deal with Flextronics, which will include the transfer of 4,200 employees and the layoff of about 700 others, is to take effect April 1, subject to final agreements.
It also signed an agreement to have the Taiwanese electronic manufacturer GVC handle some of its product development and production complementing its partnership with Arima of Taiwan on entry-level phones.
Chief executive Kurt Hellstroem said the moves are designed to save $1.6 billion in costs a year starting next year.
Ericsson's fourth-quarter net income dropped to 2.3 billion kronor ($239 million) from 6.3 billion kronor in the same three months in 1999.
Its consumer product division's profit fell to 13.9 billion kronor ($1.6 billion) from 16.6 billion kronor in the same quarter a year earlier.
The company blamed delivery problems and an inadequate entry-level product mix. Ericsson, which has more than 105,000 employees in 140 countries, said it expected continued strong growth for systems and lower sales for phones.