Back in the 1990s during cellphone boom, the 3 major companies were Motorola, Ericsson & Nokia. While Ericsson & Motorola were reputed for their highly reliable phones, Nokia was popular for its “Value for money” phones. The radio chips which went into phones of Ericsson & Nokia were supplied by Philips which manufactured them in a semiconductor plant in New Mexico.
In March 2000, a lightning bolt struck a high-voltage electricity line in New Mexico which led to fire in Philips plant and chips worth millions of dollars which were supposed to be shipped to Nokia & Ericsson were damaged. Philips assured them that situation was under control and normal production would resume within a week. But as soon as Nokia received information about the fire, it went into alert mode and began to monitor the situation closely on a daily basis. However, Ericsson chose to trust Philips and hence remained aloof.
Within a few days, Nokia realized that Philips was in deep trouble and would not be able to supply the required chips in time. Wasting no time, Nokia called for bids from other semiconductor companies to supply chips and quickly finalized deals with chip-vendors. However, Ericsson was still convinced with Philips’ assurances and decided to wait further.
After 2 weeks, Philips admitted that the plant would take 6-8 more weeks to return to normal and the top management at Ericsson finally woke up to the crisis. Ericsson had already lost 2 weeks of chip supplies, production had come to a halt and their factories had to remain in this state for 6 more weeks. Due to the complex policies at Ericsson, no alternate vendors were contacted and they began losing customers as well because phone production was almost nil. Sensing a great business opportunity (due to absence of Ericsson phones in the market), Nokia re-engineered some of its existing phone models so that generic chips (off the shelf) could be used from other semiconductor companies to quickly bring those new phone variants to market.
Over the next few months, Ericsson continued struggling under huge losses and lost most of it’s market-share to Nokia which had used this opportunity to churn out more low cost phones. Nokia realized that this window of opportunity was the golden moment for it to become aggressive and captured as much market-share as possible. Over the next few months, the popular 3210 phone model was improved with better build and launched as “Nokia 3310” in August 2000 which turned out to be the legendary robust phone, and there was no stopping for Nokia. The 3310 became an icon of Nokia’s durability and is still referred to in internet memes & cartoons.
By the end of the year, Ericsson’s mobile division incurred almost $1.7 billion of annual loss & started negotiating with Sony for a merger to rescue the division. By October 2001 the deal was finalized and thus Sony-Ericsson was born.
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