Ericsson has announced it will spin off its Bluetooth operations into a separate company.
Swedish telecoms equipment manufacturer Ericsson announced on Wednesday that it would form an operationally independent company to market products based on Bluetooth wireless technology. The deal is part of a major restructuring of Ericsson’s poorly performing consumer division, which accounts for around 25% of its total revenues.
Bluetooth is a short-range wireless technology standard that allows users to connect peripherals, effective over a range of 100 meters. A communications device, for example, could work over a landline when its user is at home, as a mobile phone when away, and a walkie-talkie when communicating with a nearby user of the same device. If the standard is successful, all electronic devices a consumer owns will be able to communicate with each other.
The new company’s success is clearly dependent on the take-up of Bluetooth. A few products, such as Ericsson’s hands-free mobile phone controller, already use the technology, but cost is a major obstacle to its wider implementation. Incorporating it in a device currently costs around $25. While this is acceptable in a laptop computer or a high-end PDA, it is less acceptable in devices such as fridges and central heating controllers. Ericsson’s new unit and other developers must get the price down below $5 with innovative new designs for the technology to take off. As more firms join the Bluetooth consortium, this is starting to look more likely.
But why has Ericsson decided to separate Bluetooth, which it has always strongly supported, from the rest of its consumer operations rather than making it a crucial part of them? After all, it seems unlikely that it has lost hope in the technology just as many in the industry are starting to believe it will be a major force.
The main reason is to encourage licensing of Ericsson’s products to other companies. Whilst the standard is openly available on a royalty-free basis, there will be a large market for intellectual property based on it; the new company will license designs based on the technology to microchip manufacturers (using the same business model as companies such as Parthus and ARM), as well as to manufacturers of mobile consumer devices.
The decision to shift one of the consumer business’ highest-potential operations away from products to chipset design raises questions about Ericsson’s future consumer products strategy. It is possible that Ericsson may decide not to focus on consumer products in the future, instead concentrating on higher-margin network infrastructure and technology licensing.
