Ericsson AB and Sony Corp have given themselves five years to do together what they failed to accomplish for more than a decade on their own; become the biggest mobile-phone maker. They are set to disappoint again, analysts say.
After struggling for years with their phones separately, the companies started their handset venture yesterday. By combining Ericsson's skills in radio technology with Sony's experience in consumer products, they aim to dethrone Finland's Nokia Oyj.
It's a tall order. Nokia, the only one among the top handset makers that's making money on its phones, last year invested 1.3 billion euros (US$1.2 billion) in developing new models. Ericsson's and Sony's plan to invest 560 million euros may not be enough to put a dent in Nokia's 35 percent market share, analysts said.
"They want to attack Nokia but Nokia is in such strength that significant market share will be very difficult to reach," said Philip Taylor, a senior analyst at Yankee Group. "If this doesn't work for them and they continue hemorrhaging money, I think you'll be looking at a market exit."
Ericsson, the biggest maker of wireless telephone networks, and Sony, the No. 2 maker of consumer electronics, probably won't pour more cash into the venture, analysts said. Sony on Friday cut its full-year earnings forecast by 89 percent; Ericsson is heading for its first annual loss in at least four decades.
The timing also could be better. The companies are making their joint push at a time when industry sales of mobile phones may fall for the first time ever. That's prompted rivals including Royal Philips Electronics NV to either join forces with others or get out of the business altogether. Yet Ericsson and Sony say the introduction of technology that lets handsets tap the Internet at speeds about 40 times faster than today's give them an opportunity. Their London-based venture, Sony Ericsson Mobile Communications, aims to become the top maker of so-called "multimedia terminals" in five years.
With faster Web access, the cellular phone will morph into a device on which users watch soccer games and listen to music as well as make calls. Developing such gadgets requires merging cellular technology with features such as large color screens and built-in cameras, according to analysts and executives.
"This is a dream partnership," said Jan Waereby, head of Ericsson's handset division, at a Sept. 4 presentation to analysts, investors and reporters. Waereby is executive vice president of the venture, which targets profitability from the start.
The first jointly branded phones, named Sony Ericsson, will be shipped next year. Initially, the venture will sell existing Ericsson and Sony products. The companies sold a total 50 million handsets worth US$7.2 billion last year. Katsumi Ihara, head of Sony's cellphone unit, is chief executive of the venture.
For Stockholm-based Ericsson, the decision to team up with Sony came after years of losing ground to Nokia, which lured consumers with sleeker, more colorful handsets that had longer battery lives, wider displays and built-in antennas.
The Finnish company has boosted its market share to about 35 percent from 21 percent in 1997. Ericsson's market share halved to 8 percent in that period. Sony, after failing to win acceptance among European consumers for its phones, has about 2 percent.
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