Ericsson, Sony to combine mobile handset businesses

The company will be based in London and is to begin operations on Oct. 1. Each company will take a 50 percent stake in the venture, which will leave Ericsson free to concentrate on mobile phone infrastructure equipment, a sector where it is a world leader.

The joint venture will initially employ about 3,500 workers worldwide, with 1,000 coming from Sony and 2,500 from Ericsson. Sony is putting between $300 million and $500 million into the venture, said Katsumi Ihara, a corporate executive vice president of Sony who has been tapped to serve as president of Sony Ericsson Mobile Communications.

The entity is to be self-contained, with responsibility for product research, design, development, marketing, sales, distribution and customer service. It will market existing product lines under the Ericsson and Sony brands, but is chartered to create a new range of future-looking products under a unified brand. Those new products are to appear in the second half of 2002.

Sony Ericsson Mobile Communications will hit the ground running, with its parents' sales in fiscal 2000 of about $7.2 billion, or about a 12 percent share of the global handset market. Ericsson holds a 10 percent share of the world market, and Sony has about a 1.5 percent share, almost all coming from Japan.

"This could be described as a dream team. Ericsson has had little presence in Japan, while Sony has limited sales in Europe and the U.S.," said Jan Wareby, president of Ericsson's consumer products division, and executive vice president of the joint venture.

The joint venture will manufacture current and future products at Sony's existing production facilities, and Ericsson's Mobile Technology Platform business unit is to remain a separate organization and supply its technology to the new company, Ericsson said.

The combination of the mobile phone operations of the two companies is part of the major steps being taken by Kurt Hellstrom, Ericsson's president and chief executive officer, to turn Ericsson around after disappointing results. Just last week the communications giant revealed plans to cut 10,000 jobs from across its operations, following a first-quarter pretax loss of over $480 million, a 5 percent decline in revenue and a 41 percent decrease in shipments from the year-ago quarter.

Ericsson currently ranks third behind Nokia and Motorola as a supplier of mobile phone terminals, but has been losing market share to Nokia.

"By combining the complementary strengths of Ericsson and Sony, the new company is uniquely positioned to become a world leader in telecommunications, as the industry moves rapidly toward mobile Internet," said Hellstrom.

Ihara said Sony badly needed Ericsson's basestation and 3G infrastructure know-how to bolster its plans to get back into the global mobile phone market, after withdrawing from the U.S. market for GSM terminals two years ago. Sony holds about 10 percent of Japan's mobile phone market, due largely to sales to NTT Docomo and KDDI, but Ihara said those sales weren't nearly good enough.

"We are not limiting ourselves to serving Docomo," he said. "Every month has its ups and downs, and some months we are number one [in Japan]. But Sony's success in the global market has been minor so far . . . We need a global presence."

The deal will also fill a missing link in the four-gateway product strategy Sony announced a year ago, said Kunitake Ando, Sony's president and chief operating officer. With strong sales in the PC, digital satellite TV and game segments, mobile communication devices have become a comparatively weak link for the company, Ando said.

"On March 29, 2000, I talked about Sony creating a ubiquitous value network. Ericsson has a strong global telecommunications presence while Sony is a leader in consumer electronics. Together we will realize the notion of this network and our combined strengths will increase its momentum," Ando said.

Ihara praised the deal as "a perfect match," while admitting that the joint venture will gear up only after Ericsson has completed the cost-cutting measures initiated by Hellstrom.

"Indeed, regarding the terminal business, there is quite a bit of red ink," Ihara said. "We are in no position to comment about Ericsson. Their restructuring will have ended by October.

"In terms of profitability we don't feel we'll face major problems," Ihara said, but he declined to cite sales or market share targets for the joint venture.

Wareby said the companies expect the joint venture "will be profitable from the start."

The venture will not alter the arrangement Ericsson made in January with Flextronics International Ltd., which took over Ericsson's handset manufacturing operations in a move projected to save up to $1.5 billion.

Some analysts said the Sony/Ericsson deal could trigger further consolidation in the increasingly competitive mobile phones business.

— Additional reporting by John Walko, editor of CommsDesign.com, an EDTN Web site.