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From MS/NBC:
Lego to lay off 1,200, end U.S. production
Toymaker, struggling to compete with gadgets, seeks to cut costs

Lego Group, whose iconic plastic building blocks have entertained millions of children for more than 70 years, said Tuesday it will shed 1,200 jobs to remold itself in an era when kids prefer playing with electronic gadgets.

The Denmark-based company, which is one of the last to produce toys in the United States, plans to close its U.S. manufacturing plant and lay off 300 people there in early 2007. About 900 employees in Denmark also will be sacked over the next three years.

Production will be moved from Enfield, Conn., to Mexico, where costs are lower, the group said in a statement. The company�s distribution facility in Enfield will also be affected, Lego said, without providing details.

At Lego�s headquarters in Denmark, up to 900 production employees will lose their jobs over the next three years as nearly a third of the domestic production will be moved to the Czech Republic, the company said.

Some Lego products, including the popular Lego Technic and Bionicle, will still be made at Lego�s headquarters in Billund, 160 miles west of Copenhagen, which presently has a staff of 3,000 employees.

The production of the basic Lego bricks will be handled by Flextronics, a Singapore-based electronics manufacturer, which operates factories in Mexico and in eastern Europe. Flextronics also is taking over Lego�s factory in Kladno, in the Czech Republic, beginning Aug. 1.

�This is the last essential element in the restructuring of the group�s supply line,� Lego chief executive officer Joergen Vig Knudstorp said in a statement. �This way we can achieve great financial advantages in a very difficult market."
This actually could be a good move -- more from the article: ("Byrne" is Chris Byrne, a New York-based independent toy analyst.)
Byrne also said that Lego had suffered as it started to offer too many types of products, like radio-controlled toys, chasing the latest fads. Under Knudstorp, who took the reins in late 2004, Lego has refocused on compelling construction toys and pared down operations.

One of Lego�s expected hot toys this year is Mindstorms NXT � a robotic kit that enables the user to create an even more powerful robot than the original Mindstorms introduced in 1998. It is due to be released this summer.

Those efforts have helped Lego�s profits. In 2005, the privately owned company reported a net profit of 505 million kroner ($86 million), compared with a net loss of 1.93 billion kroner ($327 million) n 2004.

�They are redefining themselves as a core construction brand,� said Byrne.
Outsourcing the low-tech stuff and paring down to their core competencies. The two questions are, will they loose their edge and will the build-quality of their basic blocks suffer from being outsourced. Kids start with the blocks and move up from there. If they have an unsatisfactory experience at the entry level, they will not be inclined to continue with the brand.

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