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Sony Ericsson looks for a new lease of life

When Dick Komiyama, president of Sony Ericsson, was questioned by the Financial Times last month about the company’s plans for the rest of the year, he sounded downbeat, almost depressed.

“Well,” he sighed, “there’s always Christmas. Christmas always comes.”

Mr Komiyama’s mood was clearly not helped by Sony Ericsson’s results, which made uncomfortable reading.

Pre-tax profits for the joint venture were down 97 per cent year-on-year.

The company slipped to fifth in the global handset makers list.

Back in February, Mr Komiyama had expressed his desire to see Sony Ericsson in the top three handset makers, and saw the emerging markets as an area of growth.

But the company’s strategy is still predominantly concentrated on mid to high-end phones, a product with diminishing margins, in a market – Europe – that is contracting.

Can it avoid becoming what analysts and some people at the company are now openly discussing: another Motorola?

The comparison is certainly painful. Motorola was the world’s second-biggest handset maker, with its successful Razr handset.

Sony Ericsson had its hit with the Walkman, a brilliant brand reinvention of the Sony tape player from the 80s.

For Motorola, innovation dried up and the competition got better; handset sales fell off a cliff, and there was the inevitable round of cost savings and job cuts.

For Sony Ericsson, handset share is falling, and the job cuts have just been announced – 2,000 out of 11,900, or about 17 per cent of the workforce.

To add to Mr Komiyama’s mood, the same week that Sony Ericsson announced its results Apple launched its 3G version of the iPhone, with the predictable fanfare and media coverage.

The iPhone is still a small proportion of the handset market.

But with BlackBerry looking to increase its consumer sales, and the launch of other smart phones such as the Samsung Tocca, the high-end mobile handset market is a tough place to be.

What can Sony Ericsson do about it? One problem the company has is there are too many similar products.

Mr Komiyama acknowledged this, saying that the the company “needs to sharpen its portfolio”.

A research note from Dresdner Kleinwort, entitled “Sony Ericsson – On the brink,” raised the spectre of Motorola, saying the company was at a “dangerous point where it could enter a significant downward slide”.

Janardan Menon, research analyst at Dresdner Kleinwort, says: “They need to start experimenting with different designs.

“Sony Ericsson is too dependent on the Walkman and Cybershot brands. Just doing more of what you think you’re good at is the wrong strategy.”

As part of the efforts to turn things around, Sony Ericsson appointed Matthew Costello in mid-June as the head of corporate development and planning.

He talks a good game of “our vision is innovation”, but is in charge of a team whose task is to transform the company and combine the competing divisions.

Mr Costello knows it is going to be tough. “We need to create positive momentum. We need to capture the next wave. Any time you announce these types of actions there is some internal noise, but realignment is the right thing to do.”

In the meantime, there are new phones in the pipeline. Three new Walkman phones were launched in late July, pitched at different points in the market.

The company also has plans to expand emerging markets sales with a radio phone targeted at the Indian market.

But the bigger test will come later in the year when Sony Ericsson launches the X1, a touchscreen smartpone and the first model of the new brand Xperia.

However, the market for phones is contracting in western Europe, according to research from Gartner.

Sales of mobile phones were down 7m to 35.9m units in the first quarter of 2008, a decrease of 16.4 per cent from the first quarter of 2007.

As the market is contracting, competitors are looking to combine services with products.

Sony Ericsson has its PlayNow Arena music download service, which will launch initially in the Nordic region in mid-August. The service will offer music from all four of the big music labels in a pay-per-track model.

What can halt Sony Ericsson’s slide? Much depends on the success of the X1 in the US, and the take-up of the new Walkman in Europe.

Richard Windor, analyst at Nomura, suggests that with the reduction in staff and costs, Sony Ericsson’s capability to “address the broader market will be reduced”, with the company becoming more of a “niche player”.

Whether the company can rise from fifth place in the global handset maker list is debatable, and perhaps not even a realistic priority any more.

As one company insider put it: “It’s not about being third or fourth. It’s about profitability.”

Источник: Financial Times

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