Business Watch: Sony split is latest act in handset sector drama

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Dominic White looks at the latest development in the manufacturing sector, and reckons Sony has gained a handset business with big potential to improve

Almost 10 years to the day since they announced the wedding of their mobile businesses, Sony Corp and Ericsson have decided to get a divorce. By the standard of most telecom joint ventures, a decade is a decent innings.

The Japanese electronics-to-entertainment giant will foot the bill for what is actually a remarkably amicable separation. It is shelling out some $1.05 billion euros ($1.5 billion) to buy out Ericsson’s 50 per cent of the Sony Ericsson joint venture.

What it gets in return is an under performing handset business that has big potential to improve its fortunes by virtue of being freed from the inevitable constraints imposed by joint control. It will also secure ownership of five key patent families – essential weaponry in the increasingly litigious handset industry.

The joint venture has not been a complete flop. It pioneered early camera phones and in the mid-noughties captured the imagination with its line of Walkman- and Cybershot-branded phones.

The group’s Xperia handsets have gained some traction too, stealing about 11 per cent of the market for handsets using Google’s Android operating system in the most recent financial quarter.

But the company has failed (like all of its rivals to be fair), to invent a smartphone that captures the public’s imagination like Apple’s iPhone, which was first released in 2007.

Smartphone focus
Sony Ericsson’s share of the global handset market was just two per cent for the second quarter of 2011, according to industry watchers IDC, putting it  outside the top 10 device makers.

That’s something that Sir Howard Stringer (pictured), the British-born Sony Corp chief executive, is determined to change for the better.

Stringer’s vision for Sony is his “four-screen strategy”, by which he means he wants the company to deliver hardware and services across smartphones, PCs, televisions and tablets.

He says that, with full control, Sony will be able to move faster and more cost-effectively in the all-important, higher-margin smartphone market.

“With a vibrant smartphone business and by gaining access to important strategic IP – notably a broad cross-licence agreement – our four-screen strategy is in place,” he declared.

“We can more rapidly and more widely offer consumers smartphones, laptops, tablets and televisions that seamlessly connect with one another and open up new worlds of online entertainment.”

Like Vodafone’s Vittorio Colao, Howard likes to have full equity control of the businesses Sony owns stakes in. A few years back he bought German media giant Bertelsmann out of their struggling music joint venture Sony BMG.

Sony’s buyout of Sony Ericsson is also the latest in a spate of frenzied mobile corporate activity in the handset sector, which has also seen Google buy Motorola’s handset business for $12.5 billion,

Nokia get into bed with Microsoft on operating systems and takeover speculation continue to circle around troubled BlackBerry maker Research in Motion.

For investment bankers struggling for fees because of the global economic downturn, the telecoms sector has been a great way to stay in yachts and fast cars.

It looks probable that the Sony Ericsson brand will go pretty quickly, although Stringer said that a task force had been set up to decide how to brand the mobile business.

Full article in Mobile News issue 501 (November 7, 2011).

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