Ericsson to Form Wireless Email Company

Microsoft will be a minority partner in the venture.
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Mobile phone maker

Ericsson

(ERICY)

said Wednesday it will form a new company to develop and promote wireless email, taking software giant

Microsoft

(MSFT) - Get Report

as a minority partner.

Shares of Ericsson gained 5 3/8, or 9%, to 64 1/16, while Microsoft shares were down 5/16 at 92 11/16. (Ericsson settled up 5 7/16, or 9%, to 64 1/8, while Microsoft finished down 1 3/16, or 1%, to 91 3/4.)

Though wireless Internet technology itself is in its early stages and domestic marketing of the services has only recently begun, analysts said Microsoft is trying to catch up in a sector it has ignored until recently.

The software giant announced overnight that it had developed Microsoft Mobile Explorer, a software package designed to provide access to email as part of a so-called microbrowser.

Just hours later, Ericsson caved to rumors of the deal, which it confirmed in a news release.

The deal gives Microsoft passage into the booming wireless technology sector, where stock prices have been soaring. Ericsson rival

Nokia

(NOK) - Get Report

last week predicted that a billion people would use mobile phones by 2002.

Less than five months ago, Microsoft approached Ericsson to discuss a possible partnership, said Torbjorn Nilsson, vice president for marketing for Ericsson. Exact stakes in the new company are still under legal discussions, he said.

"Microsoft has increased dramatically their interest in wireless and mobile," Nilsson said. "They found out that they have to be somewhere in that industry. Either they'd have to start to compete with the standards or they'd have to join."

He added that Ericsson also needed jointly developed software standards because Microsoft software dominates the systems used in desktop computers, where customers would presumably want to receive e-mail from wireless senders.

Ericsson is already affiliated in a mobile technology alliance with

International Business Machines

(IBM) - Get Report

, IBM subsidiary

Lotus

,

Oracle

(ORCL) - Get Report

,

Palm Computing,

(a subsidiary of

3Com

(COMS)

), and British software developer

Symbian

, of which Ericsson is a founding partner. The cross-industry alliance, announced in June, is intended to advance the design and testing of standards for the exact same technologies the newly formed company would design and test.

Shares of

Psion

, Symbian's majority stakeholder, fell more than 12% after the new company was announced. Nilsson said the new company's mission was unrelated to the alliance's goals.

Microsoft's Mobile Explorer includes a microbrowser, which is a small Internet browser designed for handheld devices, as well as the Windows CE operating system, a version of Windows designed for handheld devices.

But the partnership will focus exclusively on providing wireless email, Nilsonn said, not the full range of Internet applications trumpeted in Microsoft's announcement.

"We think we have to be focused," he said. "If you say wireless Internet, it's so broad."

And so premature, some analysts said, raising the question a

Sprint PCS

(PCS)

spokesman asks in a commercial for wireless Internet services: Are they ready?

"Wireless as we see it right now is not necessarily the environment to start putting Internet access," said Brad Williams, who covers Ericsson for

Legg Mason

. "It's all a very early market."

"Particularly in the states, you still have quality and coverage issues," he added.

Still, early adapters -- industry parlance for technology mavens -- will probably begin to use wireless email, and others will inevitably follow, said Williams, who rates Ericsson shares outperform. The rating is a recommendation to buy the stock. His firm hasn't done underwriting for either company.

While partnerships are generally helpful, it is hard to say exactly what, if anything, customers could want from such an arrangement or the resulting technological capabilities, said Paul Dravis,

Banc of America Securities'

Microsoft analyst.

"There's still a lot of work to be done as far as what types of technologies are going to be needed," he said.

Asked why mobile phone users would want to check email in, say, Central Park, Nilsonn said the wireless connection could also be linked to a portable computer.

While mobile text messaging already exists, the new company will strive to make such services "convenient, easy, seamless and secure," he said.