Sony has struggled since taking on full ownership of its handset business

Following its acquisition of Ericsson’s 50 per cent share in Sony-Ericsson, Sony’s mobile unit has posted a whopping €1.15bn ($1.48bn) loss for the year ending March 31, 2012. This is in contrast to the €74m profit that Sony-Ericsson made a year earlier.

Sony Mobile Communications, as the business is now called, saw sales for the year decrease by 12.4 per cent year-on-year to €5.3bn. The firm blamed this on component shortages resulting from the Great East Japan Earthquake and its aftermath, as well as floods in Thailand.

The firm said that sales were also affected by a lower number of feature phones shipped as a result of its decision to focus on smartphones— and intense smartphone price competition. In addition, restructuring charges were €88m, compared to €51m in the previous year.

As a result, and due to poor performance in various other units within the company, shares in Sony tumbled to a 30-year low, falling by 6.7 per cent to 1,132 yen on the Tokyo Stock Exchange.

The Xperia range will form the cornerstone of Sony-Ericsson's smartphone portfolio in 2012

Sony will face a tough time turning around the fortunes of Sony Ericsson, which it will soon own outright, after the handset manufacturer posted a staggering net loss of €207m ($265m) for 4Q11. The loss is in contrast to the €8m profit the firm posted in the same quarter a year earlier.

Revenue for the quarter also dropped by 16 per cent year-on-year, to €1.29bn from €1.53bn, and the firm said that the poor performance was due to intense competition, price erosion and restructuring charges.

The company also posted a loss of €247m for the full year, compared with the profit of €90m it made in 2010, while revenues stood at just €5.2bn for the year, compared with €6.3bn in 2010.

“Our fourth quarter results reflected intense competition, unfavourable macroeconomic conditions and the effects of a natural disaster in Thailand this quarter,” said  president and CEO Bert Nordberg.

Ex-parent Ericsson released a statement on Thursday, warning that the handset vendors results will impact its own fourth quarter and full year 2011 results due out on January 25.

“We are aligning our business to drive profitability and to meet customer needs. In spite of these challenges, throughout 2011 we’ve shifted our business from feature phones to smartphones, and our Android-based smartphone sales in the quarter increased by 65 per cent year-on-year.”

He added that the firm’s Xperia portfolio will serve as a cornerstone of its smartphone lineup in 2012; it has shipped 28 million Xperia smartphones to date.

Last month, Sony Ericsson launched a restructuring program including global workforce reductions to reduce costs and drive competitiveness. Restructuring charges for the quarter stood at €93m and the program is estimated to be completed by the end of 2012.

Whether or not the timing of these two announcements was a happy coincidence is known only to Sony and Ericsson themselves, but it was an unusual press conference. The invite didn’t come until just before half past seven Thursday morning – for a conference starting at ten the same day –  and the whole affair was resolutely low-key, with Hans Vestberg and Howard Stringer on a temporary stage in a subterranean conference room in a hotel by Tower Bridge. This isn’t the way these things normally work.

The vast majority of handset industry analysts were at NokiaWorld for the second day so the audience at the SE do was thin. Is this what the two firms had in mind? It doesn’t require an Olympic leap of the imagination to reach this conclusion. For all the noise being made about ongoing collaboration, this event marked an end, not a beginning.

That said, it’s not necessarily a downbeat ending; not for Ericsson, anyway. Vestberg said that the time had now come when it no longer made sense for Ericsson to be a player in the front end of the handset market, which is why this decision had been taken. In truth, though, ownership of a handset vendor hasn’t made sense for Ericsson for a long while.

After the presentation Vestberg told me that Ericsson has not been looking to exit the JV for several years, as many have believed. It has always been the company’s focus, he said, to get Sony Ericsson to a position of relative health. It seems likely that Sony set targets that needed to be met before it would relieve Ericsson of the burden, for just over €1bn.

Vestberg conceded that the JV had endured more than its share of ups and downs, phases of profit and phases of loss. Over ten years, he pointed out in a bid to accentuate the positive, the firm has turned cumulative profit of €1.5bn. But how much has Ericsson sunk into it over that time? He said there had been “a lot of infusion of capital”.

Either way, Ericsson is better off out of it. There was an interesting moment towards the end of the Q&A. Vestberg said that he and Stringer were tired, having signed the agreement very early on Thursday morning. That, he said, was why they might be looking a little gloomy. A final question from the floor asked how Sony Ericsson (the brand stays in the short term) will differentiate itself from here on in. Vestberg smiled in what looked a lot like relief as he deferred that question to his opposite number. It’s not his problem any more.

Analysts agree the Sony Ericsson split is good news

Handset player Sony Ericsson seemed to have caught the telecoms analyst and press community off guard on Thursday morning, calling an early press conference to announce its joint venture split, just as most interested parties were making their way to Nokia World in London.

The owners of the handset joint venture, Sony and Ericsson, are to part company, with the Japanese electronics firm acquiring the 50 per cent share of the JV held by Sweden’s Ericsson for €1.05bn.

But the surprise London press conference was vying for attention with Nokia World day two, kicking off just a few miles away. Still, most of the big news from Nokia came out on Wednesday, leaving the way open for Sony Ericsson to take the headlines today.

Speaking to telecoms.com this morning, Ovum analyst, Adam Leach, said the move was “Good news for both parties and not entirely unexpected especially considering the trend towards services and content. This is where we’re seeing Google and Apple make moves,” he said.

“Sony has a large content portfolio, so it makes sense to be able to control the devices this content is accessed on. It used to be that a phone was a phone and this was the area of focus for Sony Ericsson, while Sony concentrated on consumer electronics. But now that you can put a radio in anything this is not the case,” Leach said.

Ericsson is on solid ground in the infrastructure space, so it doesn’t really need the handset division any more, especially as it’s not a core offering, while Sony is now better placed to integrate the Sony Ericsson offerings with its consumer electronics portfolio.

So, it’s interesting times in the handset space. “Nokia is coming over as a more multicultural company, it’s definitely less Finnish and a testament to Elop that he’s transforming the culture of the company,” said Leach. “It’s a complete restart for them.”

According to Paul Lambert, senior analyst at Informa Telecoms & Media, Sony Ericsson’s failing, in a sense is that it has focussed on the mid section of the market, and while doing so hasn’t reacted to the trend of consumers gravitating to either the high-end (Apple and BlackBerry, and increasingly Samsung), or the low end. As such, Sony’s first task needs to be to focus Sony Ericsson clearly at a certain point in the market, rather than trying to offer something for everyone.

“The move makes sense for Sony as the company will try and capitalise on full-ownership of the handset JV by aggressively integrating Sony Ericsson smartphone technology into its range of network-connected consumer electronics devices – including tablets, televisions and PCs. Although Sony has sufficiently good technology and expertise to make a success of a cross-device connectivity integration strategy, the market will wait to see if it can tap into consumer taste better than rivals, Apple and Samsung to name just two, and deliver incremental value to them as well as to its bottom line. Sony’s content assets could enable it to offer something to consumers rivals can’t, especially in the gaming arena.

“For Ericsson, exiting the Joint Venture will result in a gain not only of €1.05bn in cash, but also an intensified focus on its core business – selling and managing telecoms infrastructure. Although Sony Ericsson was very much a separate entity from the day-to-day running of Ericsson, selling out of the company will inevitably consolidate the operator’s corporate identity and outlook around networks.”
Malik Saadi, principal analyst at Informa added: “Three or four years ago, when feature phones were prominent and smartphones were just a small niche, the centre of Sony Ericsson’s development was around Ericsson’s mobile platform (EMP). Ericsson was quite influential in the JV back then, but as the market switched to smartphones, EMP started to become redundant. So now the focus of development has shifted from Ericsson to Sony.”

The new smartphones are all around media; video, pictures, music and gaming. That’s why it makes sense for Sony to absorb the business, because they have been putting more effort in than Ericsson.

This latest development has also cast a spotlight on Ericsson’s chip JV, ST Ericsson.

“The move will shake a big company, which is already making losses as it is going through a restructuring, and this will be a big blow for them. I think ST Ericsson is very highly likely to be absorbed by or merged with another company, as its only customers now are smaller Chinese handset vendors,” said Saadi.

Hans Vestberg, CEO, Ericsson

The owners of handset joint venture Sony Ericsson are to part company, with Japanese electronics firm Sony acquiring the 50 per cent share of the JV held by Sweden’s Ericsson for €1.05bn. The announcement comes ten years after the formation of Sony Ericsson, which saw two struggling handset units combined in the hope of marrying Sony’s consumer electronics expertise and Ericsson’s telecoms experience.

Sony Ericsson has endured mixed fortunes over the past decade and a repositioning in early 2010, together with a commitment to the Android OS in the high end was the latest in a line of strategic overhauls designed to secure a consistent and improved performance. Earlier this month the firm reported net profit of zero for the third quarter of 2011, down from the €49.9m it made for the same period in 2010, but up from a loss of €50m for the second quarter of this year. Such ups and downs have typified its performance.

Ericsson’s commitment to the JV has long been questioned and Sony’s move earlier this year to release two Android tablets under its solo brand hinted that it might be preparing to go it alone.

Still, there are some that find today’s development surprising, given that there were rumours not so long ago that Sony was looking for a way out of the JV, as its consumer electronics business suffered and mobile phones were not considered a core opportunity. Informa analyst Dave McQueen suggests that Sony may see value in creating a unified experience across its device range, incorporating TV, Blu-ray, PlayStation 3, tablets and mobile devices, as part of a wider connected home strategy whilst also leveraging on its music, video and film assets to create rich content ecosystem.

Ericsson’s announcement supported this suggestion. A shift in the nature of the handset space to content and service-oriented smartphones meant that “the synergies for Ericsson in having both a world leading technology and telecoms services portfolio and a handset operation are decreasing, “the Swedish firm said.

As part of the deal, Sony will gain an intellectual property portfolio of five patent families, and a “broad IP cross-licensing agreement. The Japanese firm believes it will be able to better position handsets as part of its wider product portfolio, said chairman and CEO Howard Stringer.

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

“We will now enhance our focus on enabling connectivity for all devices, using our R&D and industry leading patent portfolio to realize a truly connected world” said Hans Vestberg, president and CEO of Ericsson.

The deal is expected to close in January 2012.

The X10 is among the smartphone handsets Sony Ericsson has shifted its focus toward

Sony Ericsson has reported a net profit figure of zero for the third quarter of 2011, as company continues to struggle in the increasingly competitive handset market.

The figure is down from the €49m ($67.6m) it netted in the same period a year ago, but an improvement on the loss of €50m it recorded in the second quarter of this year.

Third quarter sales fell only very slightly to €1.59bn compared to the €1.6bn from 3Q10.

The firm explained that several factors contributed to this disappointing performance, and one key reason is that the company is in transition as it looks to gain a stronger grasp of the smartphone market.

“Our feature phone shipments declined year on year by 49 per cent, but this is consistent with our shift to smartphones,” explained a Sony Ericsson spokesperson.

“We are making the shift to smartphones; our smartphone share of total sales were up from nearly 70 per cent in Q2 to more than 80 per cent in Q3.  We have said that we will shift the portfolio to entirely smartphone during 2012.”

The spokesperson added that the firm has shipped 22 million smartphones to date and will continue  bring new phones to market.

“The Xperia arc S and the Xperia Ray have been well received.  In addition, the Xperia PLAY continues to gain momentum. We have nearly tripled the gaming ecosystem to 150 titles since we introduced the product. In addition, today we announced that the Playstation Certificated experience will be broadened within the portfolio.“

“We will continue to differentiate by leveraging our Sony’s entertainment assets such as Video and Music Unlimited,” said the spokesperson.

Sony Ericsson is backing Android

What does it mean when the executives start jumping ship from Nokia to Sony Ericsson? This week Tommi Laine-Ylijoki, who worked until recently as VP of materials management at Nokia, joined Sony Ericsson as head of operations, reporting directly to CEO Bert Nordberg.

Like many Nokia execs, Laine-Ylijoki was a veteran of the firm, having worked there for 17 years in the fields of research in microelectronics, operations capacity management, direct sourcing and supply chain. In his last position he was responsible for all operational inbound supply-related activities for the company.

Trumpeting Sony Ericsson’s shift to Android, Nordberg said: “Tommi Laine-Ylijoki’s track record in the area of operations and supply chain management in our industry is second to none. As we shift more and more of our product portfolio to Xperia smartphones based on the Android platform, we continue to look for ways to achieve a cost efficient operational framework on which to build future growth.”

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First out of the blocks and over the crash barrier was German enterprise software giant SAP, with its announcement that it had partnered with Amazon to roll out its applications on the EC2 compute cloud. Mammoth it might be, but SAP demonstrated none of the elephant’s famed capacity for memory. Proudly punting the bookseller’s new status as a “certified global technology partner” it had clearly forgotten that, a mere two weeks ago, one of the company’s biggest wigs, Sanjay Poonen, said Amazon’s recent outages were making it harder for companies to sell cloud services to businesses.

Perhaps the close proximity of Disney’s Magic Kingdom – the announcement was, after all, made at SAP’s user conference jolly in Orlando – had an osmotic, feel good effect, but according to SAP, the pair are now whistling while they work on benchmarking and testing Amazon’s cloud to make ready for the arrival of BusinessObjects along with ugly sisters CRM and ERP. Presumably, the powers-that-be at SAP are hoping that Amazon’s cloud carriage doesn’t turn into a pumpkin, as it did in April, when EC2 went offline, taking high-traffic sites such as FourSquare and Reddit with it.

Sony Ericsson wasn’t so much looking for the reverse gear as pulling into the lay-by, as it announced the dropping of its lawsuit against Clearwire this week. In January this year, the Swedish kit maker claimed that Clearwire’s swirl logo looked far too similar to its own and it sought an injunction to prevent the carrier from using it as it moved towards a launch into the smartphone space. In a move that surely has nothing to do with a managed services deal between the Clearwire and SE parent Ericsson, Sony Ericsson has now said that it will drop the suit, although it can fire it up again in the future should Clearwire start to get stroppy. Also extremely unlikely to have had any bearing on the decision is Clearwire’s announcement that it had decided against launching any smartphone device for the time being.

The managed services deal between Ericsson and Clearwire suggests that further U-turns are in the offing; Ericsson’s disinterest in WiMAX seems to suggest that both Clearwire and its parent company Sprint are about to switch nags and abandon the technology in favour of LTE, which is now established as a global standard. The two carriers’ impending technology shift has been all but an open secret in the industry for some time, with only the timing up for debate.

The deal will see Ericsson absorb some 700 Clearwire employees and assume responsibility for network engineering as well as operations and maintenance of Cleawire’s core, transmission and access networks. It will no doubt come as a welcome respite from some of Clearwire’s financial pressures, not least in terms of human resources. As well as bolstering Ericsson’s already sizeable managed services customer base, the deal further entrenches the Swedish vendor in the US market where, just five years ago, it was a bit player.

Apple is also apparently readying itself for a turnover. The next iPhone now seems unlikely to hit the market in its usual summer time slot. It’s also unlikely to ship with LTE. The only thing that seems less likely than improvements beyond the cosmetic is the notion that the herds of iSheep will hold off buying it and wait for the LTE-enabled version. While St. Steve is rumoured to be champing at the bit to get an LTE iPhone into the market, the company has, apparently, decided to park things for a while until it’s happy that chipmaker Qualcomm’s offering is beautiful, sorry, good enough to grace Apple’s devices.  This hasn’t stopped China Mobile from announcing that it has “reached a consensus” with Cupertino regarding the use of a future iPhone on the carrier’s TDD-LTE network, however. While chairman Wang Jianzhou said that talks with Apple were ongoing, he wouldn’t be drawn on the specifics of a release date for an LTE iPhone.

If Apple haven’t completely closed the door on LTE this year, it’s far to say that Nokia is all but slamming it in the face of its Ovi service. Hot on the heels of Symbian, Ovi (which is the Finnish word for door) is being, er, metamorphosed into the “powerful master brand” that is Nokia, according to the Finnish giant’s marketing department. From July this year, Ovi will be known as Nokia services, which The Informer thinks will probably be just in time for the manufacturer to be swallowed whole by the Borg over at Redmond.  Whether a beautiful butterfly or a toad emerges before the end of the year is anyone’s guess, but Nokia says users of Ovi services will see no difference beyond branding once software updates start to kick in.

Speaking of strange metamorphoses, Korean vendor Samsung, better known for its devices than its network prowess, announced this week that it was going to try to break into the European LTE network equipment market. Maybe the promise of a revenue stream and product range that Apple can’t accuse it of ripping off is too tantalising a prospect for the company, but the cellular infrastructure market is one of the toughest operational spheres in the world. The exit of once substantial players like Motorola and Nortel and the enforced mergers of Alcatel-Lucent and Nokia Siemens Networks are testament to this, and the rise of Chinese players Huawei and ZTE has turned the market into a small pond full of big fish.

If some think Samsung unwise to engage in handbags with Apple, it’s likely that even more will view the company’s optimism regarding its chances in the European market as wildly misplaced. Talking about its newly-formed task force for European network domination (a.k.a European Network Operations, or ENO), Youngki Kim, EVP and general manager of Samsung’s Telecommunication System Business said that “We believe that ENO will play a pivotal role for Samsung in helping us achieve significant 4G LTE success in Europe, through the introduction of our advanced LTE technologies.” The world loves a tryer, as The Informer’s granddad used to say.

Pop Quiz: What’s Orange and wants you to pay?

If you’re Arnold Schwarzenegger the answer is Mildred Patricia Baena, but if you’re not Arnie, whose American Dream triumvirate of Hollywood, power and disgrace is now complete, and you live in the UK, then the answer is QuickTap.

QuickTap is the new NFC mobile wallet service launched by Orange UK on Friday, a day after O2 tried to steal its thunder by announcing the partners it will be working with on its competing service when it launches later this year. Orange has buddied up with Barclaycard and Gemalto for its service, which lets users load up to £100 onto a payment app, which can be used to make purchases at participating retailers up to the value of £15.

Sounds good, but it’s not without restrictions. First up, the only compatible phone for the time being is the Samsung Tocco, an entry level touch screen toy that doesn’t even have 3G. If carriers, including Orange, are to be believed, mobile data is a mass market phenomenon. But if that really is the case, who the hell’s going to want a touch screen handset that can’t go over the EDGE? That’s the first problem with the new offering.

(Come to think of it, the Informer has a touch screen handset that is restricted to EDGE, but that’s because it’s an iPhone 3GS on the O2 network.)

The second restriction is that you have to be a Barclays Bank customer, or owner of a Barclaycard or Orange Credit Card in order to load money onto the application in the first place. And that counts a lot of people out of the equation. The only conclusion the Informer can reach is that Orange must be wanting to limit uptake in the initial stages of the service offering.

The firm said that more handsets “are expected to follow”, a choice of words that makes it seem as if Orange is not sure if and when that will actually happen. A press office lady told the Informer that Orange is “in discussions” with a number of vendors, so if the discussions are still ongoing, that Samsung Tocco might have the stage to itself for a little while.

So where can you use QuickTap? The handful of name-checks that Orange supplied included McDonalds, Subway and roadside slop house Little Chef. Hey, Orange: we’ve got enough of an obesity crisis in this country without you trying to get everyone eating fast food all the time! The carrier seems to be going after that segment of the market that was once memorably described to the Informer by a One2One (later T-Mobile) executive in a Gerry Ratneresque moment as “Johnny White Socks”.

And with that lovely image to occupy your mind for the weekend, the Informer bids you adieu for another week.

Take care,

The Informer

Sony Ericsson has launched its own Android Market channel

Sony Ericsson has launched its own channel on the Android Market. The handset maker claims that it is the first manufacturer to offer such a service, which will be operator-dependent. Owners of Sony Ericsson handsets will now see the “my apps” feature on their Android phone replaced with the Sony Ericsson channel, although they will still be able to access “my apps” from the phone’s menu. While this last change may cause consternation among some users, Xperia users may find direct access to software geared specifically towards them handy.

According to Sony Ericsson’s blog, the channel will be used to, among other things, offer personalised recommendations for games and applications, offer exclusive games and apps available only on the Sony Ericsson channel and offer developer partners “a highlighted market space to our consumers.”

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The X10 is among the handsets credited with Sony Ericsson's improved performance

Handset vendor Sony Ericsson has reported net profit of €8m for the Q4 2010, marking its fourth consecutive quarter in profit. Net income for full year 2010 was €90m, the firm said, compared to a loss of €836m for 2009. President and CEO Bert Nordgberg described 2010 as “a turnaround year” for Sony Ericsson, and attributed improvements in the firm’s fortunes to its “shift towards an Android-based smartphone portfolio.”

Sony Ericsson’s determination to focus on quality in the higher end of the market appears to be paying dividends. Average selling price for the quarter was up year on year, from €120 to €136, and also for the full year, from €119 to €146.

But the firm’s new direction also necessitated a thinning of its portfolio as it stripped out lower end products, causing shipment volumes to drop to 43.1 million for the year, down from 57.1 million in 2009. Quarterly shipments were down to 11.2 million from 14.6 million year on year and, while there was a sequential improvement, it was only eight per cent; something Sony Ericsson attributed to “a lack of new product launches during the quarter”.

2010 saw Sony Ericsson complete its corporate overhaul, which involved reducing headcount by some 4,000 and decreasing annual Opex by more than €880m, the firm said.

As it did in 2010, Sony Ericsson will be holding a press conference on the eve of Mobile World Congress in February, where it is widely expected the long-awaited ‘Playstation Phone’ will be unveiled.

In another development, Sony Ericsson is suing US WiMAX player Clearwire over a perceived similarity in the two companies’ logos. It is thought that the action was brought because of fears that Clearwire’s plans to launch own-brand handsets into the market might cause confusion.

Sony Ericsson’s 2010 results. (Source: Sony Ericsson)

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