Sony buys out Ericsson

Sony and Ericsson have split after a decade-long marriage, in a deal analysts say will allow Sony to move its handset unit closer to its consumer-orientated offerings and grow market share.

This morning, the companies said Sony will buy out Ericsson's 50% stake in the joint venture for EUR1.05 billion. After the deal has been wrapped up, Sony Ericsson will become a standalone division within Sony.

However, the split will not end the working relationship, as the companies will continue to liaise with each other around wireless connectivity.

Sony will have the opportunity to quickly integrate smartphones into its range of network-connected consumer electronics devices - including tablets, TVs and PCs, it says. The four devices are collectively referred to as its “four-screen” strategy.

Its Xperia smartphone, which runs on Android, will serve as a cornerstone to its "four-screen" proposition, integrating the Xperia portfolio to its existing tablet, TV, videogame and personal computer businesses.

The Japanese company says this will enable it to “deliver a more powerful 'four-screen' experience, enabling a connected PC, TV, tablet and smartphone experience for consumers”.

Sony manufactures audio, video, communications, and IT products for the consumer and professional markets. In the year to March, it reported sales of $87 billion and employs 168 200 people worldwide.

However, its handset unit - Sony Ericsson - has lagged behind its peers. According to Gartner, it only had 1.7% of the market in the second quarter of this year, down from the 3% it owned a year before. Nokia is currently the market leader, with 22.8%, while Samsung accounts for 16.3% of the market.

During its 10 years in operation, the unit has generated about EUR1.5 billion in profit and paid out dividends of about EUR1.9 billion. When the firms merged, Sony was not making money from its phones, and Ericsson handsets were loss-making.

Ericsson president and CEO Hans Vestberg says the latest move is “logical”, as Sony will make the unit a part of its broad range of consumer devices.

The deal gives Sony an opportunity to “rapidly integrate smartphones into its broad array of network-connected consumer electronics devices - including tablets, televisions and personal computers”, which will aid growth of the business.

In a joint statement, the companies say the deal gives Sony access to a broad intellectual property cross-licensing agreement and ownership of five essential patent families. Sony and Ericsson will create a wireless connectivity initiative to drive connectivity across multiple platforms, they say.

Sony chairman and CEO Howard Stringer says “this acquisition makes sense for Sony and Ericsson, and it will make the difference for consumers, who want to connect with content wherever they are, whenever they want”.

Over the past decade, the mobile market has shifted focus from simple mobile phones to rich smartphones that include access to Internet services and content, say the companies. “The transaction is a logical strategic step that takes into account the nature of this evolution and its impact on the marketplace.”

As a result, the benefit to Ericsson of having a telecoms portfolio and a handset operation are decreasing. The company is now focusing on the global wireless market as a whole, it says.

Ericsson provides 2G, 3G and 4G mobile technologies and support for networks. Its portfolio includes mobile and fixed network infrastructure, telecoms services, software, broadband and multimedia solutions for operators, enterprises and the media industry.

In Sony Ericsson's statement on its third-quarter results, released earlier this month, president and CEO Bert Nordberg said Xperia accounted for more than 80% of total sales. The company, which has shipped more than 22 million units so far, would “continue to invest in the smartphone market, shifting the entire portfolio to smartphones during 2012”, he added.

However, while sales rebounded 33% quarter-on-quarter, units shipped dropped 9% year-on-year due to a decline in feature-phone shipments, which was partially offset by an increase in smartphone shipments, the company said.

Stringer says the company does have some catching up to do to grow market share. He explains it has not previously had a good working relationship with US operators, which will change, and has battled several unexpected events such as the earthquake and tsunami in Japan earlier this year.

It took Sony Ericsson a long time to build an infrastructure like Apple and Microsoft, says Stringer. He says the company would have changed more quickly were it not for the global recession and natural disasters.

However, with the platform the company has built over the past three years, it is now in a position to deliver entertainment and content across its devices, says Stringer.

Sony Ericsson turned over EUR6.3 million in the 2010 financial year and reported a net profit of EUR90 million. The company says it has 11% of the Android market, which accounts for 43.4% of the market, leaping from 17.2% in the second quarter of 2010.

Spiwe Chireka, IDC's African region programme manager for telecoms, says Sony Ericsson has not been one of the top companies in the handset market. She says the combined venture failed to push devices on the back of Ericsson's infrastructure roll-out in the same way that Chinese companies have done in Africa.

Chireka is not surprised that Ericsson wants to exit handsets and focus on infrastructure. Sony will be able to leverage its other consumer offerings, such as its PlayStation, she adds.

Richard Hurst, Ovum's emerging markets analyst, says the deal gives Sony the opportunity to capitalise on its market share. He says it could result in interesting developments in the smartphone market.

Hurst says Sony Ericsson has not capitalised on the opportunities it has had, and to survive in the battleground of the smartphone market, companies must innovate.

The deal, which is subject to regulatory approval, is expected to wrap up in January next year.