Ericsson says it will save over £1bn a year from 2002 by outsourcing handset production to Singapore-based Flextronics International. (Ericsson waves goodbye to handsets) The company recently announced a loss of £1.1bn for the last quarter of 2000. Up to 100 redundancies will initially be made in the UK, the company says.

Rival handset maker Motorola has also posted disappointing results.

Ericsson’s move will mean fewer types of basic Ericsson handsets while the company concentrates on increasing the services it provides to customers using forthcoming 3G (third-generation) wireless networks.

Mobile handsets are now commodity products. According to a recent National Opinion Poll survey, half of Britain's seven- to 16-year olds own a mobile phone. With European markets reaching saturation, handset makers are finding it hard to make a profit. To survive they will have to outsource manufacturing, as Ericcson has done, and move upmarket to provide more sophisticated smartphones, personal digital assistants and other mobile computing devices which will be able to take advantage of 3G broadband wireless networks.

But a recent report by market research firm Forrester suggests that the demand for 3G services such as mobile internet access will be much smaller than phone operators predict, triggering a shakeout in the mobile market.