Old world fades
October 7, 2011
In a push to enhance its smartphone business, Japanese electronics giant Sony is nearing a deal to buy out Swedish telecom firm Ericsson's stake in their mobile phone joint venture, The Wall Street Journal reported on Friday.
By wresting full control of the 50-50 partnership, Sony aims to integrate its smartphone operation with its tablet, hand-held game console and personal computer businesses to save on costs and better synchronize development of mobile devices, the paper quoted people familiar with the matter.
"Sony had not been able to carve out its presence globally (in smartphones) with Ericsson," said Okasan Securities strategist Hideyuki Ishiguro.
"Even if it gets full control of the venture, the competitive landscape of the smartphone industry already seems mapped out," he told Dow Jones Newswires.
Sony is pushing for a deal as competitors such as Apple and South Korean Samsung Electronics forge ahead with closely coupled strategies for smartphones and tablet computers, The Wall Street Journal said.
Sony in Tokyo declined to comment on the report, and it remains unclear how much Sony would pay Ericsson because of the complexity of a possible transaction that could involve Ericsson's mobile-technology patent portfolio, the report said.
Good for Sony, anyway
Mikko Ervasti, telecommunications analyst at the Swedish investment bank Evli, says the deal is fundamentally good news for both sides of the partnership. "For Sony, it makes a lot of sense, anyway," he told Deutsche Welle. "If Sony takes it on board, it will be a whole new product branding that will be tighter together on entertainment, games, and high performance platforms."
In response to The Wall Street Journal report, Citigroup said the news was long overdue.
"We believe Sony Ericsson is in a weak position in the high end smartphone market segment given its lack of a strategic partner," the report said. "Nokia has Microsoft (for now), Motorola will have Google (should the deal be approved) and Samsung has Intel (lead partner for TIzan the next version of MeeGo) and potentially Microsoft."
Shift out of the old world
The move continues the long-acknowledged shift of the mobile phone industry away from Europe. This week, on the same day that Apple launched the fifth generation of its ubiquitous iPhone, once mighty Nokia was still weeks away from mounting a fightback.
Stephen Elop, chief executive of the Finnish phone maker, had promised to unveil its first Windows-based smartphones on Tuesday. It remains to be seen whether the company will start shipping in time for Christmas.
Nokia – one of the former innovators in the field – was forced in June to dispute rumors that it would end up being consumed by its partner Microsoft. Analysts speculated that the US computer giant would make a bid for the Finnish company after its profit estimates dropped sharply and its shares plunged by as much as 18 percent.
"The ecosystems that drive the business are made in America," Ervasti said. "The Android ecosystem, the Apple ecosystem and the Windows software services are all designed and built over there, while the hardware side is flowing to the high-quality Asian makers, so there's not much left in Europe except for the markets."
European complacency
Numerous experts contend that Apple and Google simply saw the future of mobile devices ahead of European manufacturers.
Were the Europeans too complacent? "Yes, definitely," Ervasti said. "Both Sony Ericsson and Nokia have said this more or less openly. A certain market share and a certain positioning sometimes give the false feeling of security. These companies often think if they're big enough, they can define the industry, but they realize now when you're too big, there's a lot to fall from."
Sony and Ericsson established their joint venture in 2001. Today, the company is the world's sixth-largest cellphone manufacturer with a global workforce of 7,600.
But while competitors have been setting trends, the Swedish and Japanese partners have butting heads, often over their ownership structure and the difficulty in accurately valuing Ericsson's mobile patents.
Analysts agree the move will accelerate Sony's efforts to push its vast library of content through its game consoles, smartphones and tablet computers.
Author: Ben Knight
Editor: John Blau