Ericsson said Thursday it will exit the modem business and redirect its resources into the network side, specifically small cells. The world’s biggest infrastructure firm said it would deliver the M7450 LTE modem as planned but that would be the last such product and the relevant workforce would be redeployed.

The company is now entering into local negotiations with employee representatives to determine next steps. Ericsson said that in order to capture opportunities in radio networks, especially within small cells, energy efficiency and M2M, it has an immediate need to increase its R&D resources by approximately 500 people and parts of the Modems organisation have a relevant R&D competence base to support this growth.

The modem business currently employs 1,582 people distributed across Sweden (689), India (235), Germany (216), China (206), Finland (122).

The Swedish firm will discontinue future development of modems and shift parts of resources in modems to radio network R&D to better capture growth opportunities in this area. The announcement will lead to a significant reduction in costs related to the modem business in the first half of 2015 and Modems will have no impact on group P&L from the second half of 2015.

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Ericsson took over the LTE thin modem operations as part of the breakup of the doomed joint venture with STMicroelectronics in August 2013. But the modems market has developed in a direction that has reduced the addressable market for thin modems. In addition, there is strong competition, price erosion and an accelerating pace of technology innovation. Success in this evolved market requires significant R&D investments.

Hans Vestberg, President and CEO of Ericsson said: “We have concluded the first phase of the modems strategy by successfully delivering the Ericsson M7450 modem. However, given the modem market dynamics and the development in small cells and indoor coverage markets, we believe resource re-allocation is more beneficial for the Ericsson Group and our customers overall.”