Ericsson's single-sourcing bet: one plant fire killed the mobile phone business

On March 17, 2000, a lightning strike ignited a fire at Philips' semiconductor plant number 82 in Albuquerque, New Mexico, contaminating the sterile cleanroom. The plant was a critical source of radio-frequency chips used in mobile phones, and two of its biggest customers were the Swedish telecom giant Ericsson and the Finnish rival Nokia. What happened next became the defining case study of supply chain concentration risk.

Nokia detected the disruption within days. It sent a team to Albuquerque within 72 hours, pressed Philips for realistic recovery timelines, and when it became clear the plant would be idled for months, Nokia rapidly re-engineered its products to accept chips from alternative Philips facilities and other suppliers, including Japanese and American semiconductor makers. Nokia secured its supply chain and absorbed the disruption with minimal lost production.

Ericsson reacted slowly. Its procurement system did not flag the shortage for weeks. By the time Ericsson realised the severity, Nokia had already booked the world's alternative capacity. Ericsson had no backup — it had single-sourced from the Albuquerque plant to save cost. The result was a production halt that caused a SEK 24B loss in Ericsson's mobile phone unit in 2000. In October 2001, Ericsson spun off its handset business into a joint venture with Sony (Sony Ericsson), exiting the market it had created. Nokia's market share grew during the same period.