Is it time for Sony to ditch Ericsson?

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The joint venture once sold 103 million handsets in a year, but has been in decline since. An expected comeback failed to spark, and Mobile News asks the industry where the problems lie

Back in 2001, the joint venture between Sony and Ericsson seemed like a perfect match. Ericsson was, and remains, the world’s largest telecommunication equipment vendor with 35 per cent share, while Sony is the fifth-biggest media conglomerate in the world.

Both manufacturers arguably needed each other in equal measure. Japanese firm Sony, despite its success in its electronic products, had just one per cent share in the mobile space.

Meanwhile Swedish firm Ericsson had already established itself as a credible handset manufacturer with a number of devices such as the popular business phone the T28, launched in 1999.

Ericsson effectively provided the hardware, while Sony was able to use its technology and exclusive products to help differentiate itself from rival manufacturers.

And the partnership brought immediate success. Shipments increased annually to an all-time high in 2007, topping 103 million.

The first device to launch under the Sony Ericsson brand was the T68i, also the first by Sony Ericsson to feature a colour screen; it included an attachable camera and email capabilities for the first time, too.

In 2003 it launched the iconic T610, which was its first to include a built-in camera and sold well to the consumer and business market alike. In 2005 Sony began to heavily promote its own brands through its devices, with the K750, by including its exclusive Cyber-shot camera technology, and its globally recognised and understood Walkman brand with the W800i, shortly after.

But the feeling within the industry is, following its initial successes, Sony Ericsson sat  back for too long, releasing handsets such as the W810i and K800i, which but for a few tweaks, were virtually identical to previous models.

This led to a dramatic decline in fortunes, both financially and through unit sales. In 2008, sales had dropped to 96 million, but would plummet to 43 million within the next two years.

According to recent statistics obtained by  Mobile News, it’s now sixth for UK market share with about five per cent, behind Samsung (24 per cent), Nokia (16 per cent), BlackBerry (15 per cent), Apple (14 per cent) and HTC (10 per cent).

The reasons for its decline in sales draw a range of opinions. Many suggest it has become too focussed on high-end handsets, having previously been a big player in the mid-tier space, effectively removing itself from a large market segment.

Sony Ericsson is also effectively a non-player in the B2B market, something it committed to changing this year.

Others claim Sony Ericsson suffered as a result of failing to keep up with its competitors, highlighting HTC and the launch of the Apple iPhone in 2007 as taking its share of sales.

Back to black

But its performance in 2010 improved substantially in the second quarter, following the launch of its Xperia range of devices, powered by Android. These included the Xperia X10, the Mini, Mini Pro, Vivaz and the Vivaz Pro.

Internally, the company made a number of changes to help balance the books. In June 2008, it launched a £765 million cost-cutting programme, which saw about 8,000 staff made redundant by the end of 2010.

The cost cutting helped give the company a platform to build on. A fresh start. Ahead of the 2011 Mobile World Congress it announced it was back in the black financially, crediting its focus on Android as a major factor. Its net income for the year to December 31 came in £78 million compared with a loss of £727 million in 2009 and £64 million the year before.

And expectancy for 2011 was high, with the launch of the game-centric PlayStation- certified handset Xperia Play, which received more than 90 million searches on Google before its release.

It also updated its Xperia range with the Neo, Pro and Arc. More Sony brands were leveraged, such as its camera sensor Exmor R and image processor Bravia Engine, to give it market differentiation.

But its problems have again returned after reporting losses of £37 million in its Q2 results last month. It blamed the effects of the Japanese earthquake, which saw four of its sites close and production stall. Shipments were down from 11 million to 7.6 million year-on-year.

Time for change?

There is increasing speculation Sony is growing impatient with the lack of progress made from its mobile business, compared with its rivals. Samsung, for example, recently announced handset sales increased 45 per cent in Q2, shipping more than 19 million units.

And with handsets becoming more integrated with other appliances such as computers, cameras and televisions – all of which Sony manufacture – the importance of mobile to its brand has increased.

Some analysts suggest the joint venture could soon end, with Sony looking to take full control. The agreement is understood to be up for renewal in October.

Speculation of this was further fuelled by last month’s news that the chief creation officer for Sony Ericsson Mobile Communications Rikko Sakaguchi, who has been a prominent figure in the joint venture, will be leaving to take up a position at Sony Corporation.

Its UK and Ireland managing director Nathan Vautier is also to leave the business in the coming months.

Perhaps this is the change it needs. As with Motorola, featured in these pages last issue, the quality of the devices is not in question – so what does it need to do to reach the heights of 2007?

Full article in Mobile News issue 495 (August 15, 2011).

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