Sony Ericsson Venture To Get Cash Injection
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STOCKHOLM -- Telefon AB L.M. Ericsson and Sony Corp. agreed Wednesday to inject €300 million ($324.7 million) into Sony Ericsson Mobile Communications, signaling the start of a renewed push to make a success of their unprofitable 15-month-old partnership.
The companies said each partner will contribute €150 million to Sony Ericsson, which has been struggling to reverse a slumping market share. The new capital will buy Sony Ericsson some time, say analysts, some of whom have predicted that Ericsson may eventually back out of the partnership as it tries to return its overall operations to profitability.
"This is the make-or-break year for Sony Ericsson," Ben Wood, a London-based analyst at research firm Gartner Dataquest, said last week. He said the logic of the mobile-phone partnership, with the Swedish company supplying technological know-how and Sony marketing expertise, remains intact. "I don't know why they can't deliver."
The two companies created the joint venture in October 2001 by combining their struggling phone operations, which together accounted for around 9% of global sales. Despite critical acclaim for the T68 color-screen phone that Sony Ericsson launched last year, market share slumped to 5% in the first year, hurt by product delays and a thin lineup of phones.
Ericsson said late last year the company must get to a market share of 10% to break even, which it is aiming to do this year. It has since said that Sony Ericsson may manage profitability with a share as low as 7%.
For the fourth quarter, the two companies said the joint venture lost €69 million on sales of €1.24 billion, bringing its cumulative loss over 15 months to around 3.8 billion Swedish kronor ($444.6 million €410.83 million). It said it shipped 7.1 million phones in the quarter, meaning its market share was around 6%, slightly higher than in the third quarter.
To gain momentum, Mr. Wood said, Sony Ericsson must show a compelling range of new phones by spring trade shows. It must gain a spot in the range of phones that Vodafone Group PLC, Europe's largest mobile operator, is promoting as part of its Live! program and begin to rebuild its market share.
"The real breakthrough point is the 10% [market share] point," Mr. Wood said. "It's what Samsung managed to achieve in 2002, and it's certainly where they need to be heading. It's at that point that you can start to leverage the economies of scale that you get."
Ericsson executives said late last year that they planned to put more money into the joint venture, and the companies described Wednesday's injection as a sign of their "continuing commitment" to the partnership.
Peter Richardson, an analyst at SoundView Technology Group, said last week that, with Ericsson now providing phone technology to all comers through a licensing arm, Sony no longer needs the Swedish company as an ownership partner. For its part, Ericsson would be better off without the cash drain, despite its frequent insistence that having phones to offer is an important part of its sales pitch for its systems business, he said.
Sony Ericsson estimated Wednesday that around 395 million phones were sold industry-wide in 2002, five million more than in 2001. It projected industry sales of around 435 million phones for 2003. |
