IHS Global Insight Perspective | |
Significance | Sony Ericsson will launch its new stable of high-end phones on the market in the fourth quarter, but incoming CEO Nordberg has said it may need to develop more in order to regain lost market share. |
Implications | With similar pressures at its rivals, there is no doubt competition will be tough for Sony Ericsson going into 2010—but the vendor is showing early signs of recovery, and some fresh thinking at the top may well accelerate this. |
Outlook | The appointment of a former Sony man as chair of the Sony Ericsson board has fuelled more rumours concerning a possible takeover; however, IHS Global Insight believes it would be a poor business decision for either partner to exit the joint venture at the current time. |
Sony Ericsson has announced its president and chief executive, Dick Komiyama, will step down in October to make way for Bert Nordberg as part of a management overhaul at the struggling handset vendor. Meanwhile, Sony's chief executive Howard Stringer will replace Ericsson CEO Carl-Henric Svanberg as chairman of Sony Ericsson's board, as Svanberg leaves to chair U.K. oil giant BP.
Sony Ericsson, a joint venture (JV) between Sweden's Ericsson and Japan's Sony, stated that Komiyama has decided to retire, but the announcement comes only part-way through a restructuring programme implemented by the current CEO to try and return the ailing handset maker to profitability.
Incoming chief executive Bert Nordberg has stated that his priority will be to turn things around at Sony Ericsson, and return to building lost market share as soon as possible. Nordberg joins the JV from his role as the head of Ericsson's U.S.-based broadband and Internet protocol unit, while incoming chairman of Sony Ericsson's board, Howard Stringer, is currently CEO at parent company Sony Corp.
Outlook and Implications
- A Long Road to Recovery: Sony Ericsson reported losses of 213 million euro (US$300 million) in the second quarter of this year, from profits of six million euro a year earlier, as it saw its market share at leading suppliers plummet from nearly 10% in the second quarter of 2008, to barely 6% at the end of June this year (see World: 4 August 2009: Handset Market Sees Q2 Bounce). The only ray of light for Sony Ericsson this year has been the improvement in average selling prices, which while down 8.4% year-on-year (y/y) in the second quarter, have begun moving back up. The vendor claims its flagship Walkman and Cybershot brands are still showing demand, and has recently announced a raft of new handsets, including the long-awaited PlayStation-branded gamers phone, and a apps store (see World: 5 June 2009: Sony Ericsson Launches Green Handsets, Releases App Store Details). However, Sony has been slow to enter the smartphone market, with the touchscreen and QWERTY keypad format Xperia handset not launching until late 2008, and failing to capture the public wave of interest created by earlier launches, with a fairly high price tag and using the clunky Windows Mobile operating system (OS). Sony Ericsson will launch its new stable of high-end phones, the Aino, Yari, and Satio, on the market in the fourth quarter, but CEO Nordberg has said the company may need to develop more in order to regain lost market share.
- What Can We Expect from Incoming CEO Nordberg? Although there is some speculation that current CEO Komiyama may have been pushed, there is no real reason to think Sony Ericsson's cliché that the 67-year-old wants to spend more time with his family is anything but the truth. The transformation programme, launched in 2008 is showing some early signs of bearing fruit, and Sony Ericsson is well on the way to its target of cutting operating expenses by 880 million euro by the second half of 2010. Incoming CEO Nordberg has pledged to continue with the final stage of the programme, with an aim to fix the profitability and market-share problem as soon as possible—but no sweeping new changes or fresh strategies are expected. Sony Ericsson has lost significant market share to higher-end rivals such as Nokia and Apple's iPhone, who have launched an increasing number of advanced smartphones. With similar pressures at its rivals, there is no doubt competition will be tough for Sony Ericsson going into 2010—but the vendor is showing early signs of recovery, and some fresh thinking at the top may well accelerate this.
- Is Sony Moving for a Possible Takeover? The move of appointing former Sony CEO Howard Stringer as chair of the Sony Ericsson board has once again fuelled the rumour mill concerning a possible takeover of the JV by its Japanese parent. Both companies have pledged their continued support for the JV (see World: 27 July 2009: Ericsson Pledges Continued Support for Sony Ericsson JV—Report), and there is a feeling that Ericsson particularly would have jumped ship before now—especially as neither company will be able to negotiate a decent price for Sony Ericsson in current market conditions. However, as the mobile handset industry becomes more distant from Ericsson's primary business of telecoms infrastructure, and the Swedish vendor seeks to focus on core growth sectors such as fourth-generation network roll-out, Ericsson has seen little appetite for investment in its troubled handset JV. Meanwhile, Sony has expressed interest in further building its PlayStation, audio and video brands through Sony Ericsson, with a possible tie-up with its "Play Now Arena" download service on the horizon. The handset business comes more naturally to Sony, especially given the increasing device convergence in the high-end and niche music and gaming markets that Sony Ericsson is targeting. However, with the worst appearing to be over, and the depressed state of the market, IHS Global Insight believes it would be a poor business decision for either partner to exit the JV at the current time.