Japanese electronics giant Sony will acquire Ericsson's 50% stake in the two companies' joint-venture Sony Ericsson, making the mobile handset vendor a wholly-owned subsidiary of Sony.
IHS Global Insight Perspective | |
Significance | Ericsson says the shift in the market from simple voice handsets to smartphones means the synergies in having a telecoms services portfolio and a handset operation have decreased. |
Implications | Sony Ericsson was late in jumping on the smartphone bandwagon, but its focus on Android has largely stabilised its fortunes—however, it faces strong competition in the sector. |
Outlook | Sony can now fully integrate its mobile handset business with its other device operations, as well as gaining a significant patent portfolio. |
Ericsson has revealed it will sell its 50% stake in its mobile handset joint-venture (JV) Sony Ericsson to partner Sony, for EUR1.05 billion (USD1.46 billion) in cash. Japanese electronics giant Sony will acquire Sweden-based network equipment vendor Ericsson's 50% stake in Sony Ericsson, making the mobile handset vendor a wholly-owned subsidiary of Sony.
Ericsson said the transaction gives Sony an opportunity to rapidly integrate smartphones into its portfolio of network-connected consumer electronics device, such as tablets, televisions and personal computers. Sony will also gain an intellectual property cross-licensing agreement, covering all products and services of Sony as well as ownership of five essential patent families relating to wireless handset technology.
Sony Ericsson was created in 2001, combining the then-unprofitable handset operations of Ericsson and Sony to become the sixth-biggest player in the global market, behind Nokia, Samsung, Apple, LG and ZTE. The sale of the handset unit has been approved by the boards of both companies, and is expected to close in January 2012, subject to customary closing conditions including regulatory approvals.
Outlook and Implications
- Sony Ericsson Performance Begins to Stabilise: Sony Ericsson has struggled in recent years, as new entrants such as Apple's iPhone and handsets based on Google's Android have leapfrogged the JV with dynamic smartphones, while Sony Ericsson was still largely relying on its legacy brands such as the Walkman and Cybershot ranges. However, while the JV saw overall handset shipments in the third quarter drop 8.7% y/y to EUR9.5 million, but it improved its smartphone mix due to a renewed focus on Android handsets, with the high-end devices accounting for 80% of sales, up from about 50% in the same quarter last year—driving the average selling price of handsets up nearly 8% y/y. This shift in strategy has seen Sony Ericsson's third-quarter revenues largely stabilise, dropping just 1.1% year-on-year (y/y) (see Sweden: 14 October 2011: Sony Ericsson Reveals Q3 Revenue Down 1.1%, Sees Smartphone Improvement). The vendor has also recently announced that it is offering users of all of its new Android smartphones a free upgrade to the latest version of the operating system—Android 4.0, or Ice Cream Sandwich (see World: 25 October 2011: Sony Ericsson Offers to Upgrade All New Smartphones to Android 4.0). Sony Ericsson was late in jumping on the smartphone bandwagon, but its decision to focus on Android handsets has largely stabilised its fortunes. However, competition in the smartphone market is reaching fever pitch ahead of the end-of-year sales boom, with Apple, Google, Samsung, RIM and Motorola all announcing new products this month (see World: 19 October 2011: Smartphone War Heats Up Prior to Holiday Season), while Nokia's long-awaited Windows phone has just been released (see World: 26 October 2011: Nokia Windows Phone May Miss 2011 Launch in US—Report).
- Ericsson Exits the Handset Market: Ericsson says the shift in the mobile market from simple voice handsets to smartphones means the synergies in having both a telecoms services portfolio and a handset operation have decreased. Ericsson CEO Hans Vestberg stated that the transaction marks a "logical strategic step" that takes into account the nature of this evolution, and the company will now focus on the global wireless market as a whole and how wireless connectivity can benefit people, business and society beyond just phones. Ericsson now says it aims to concentrate on the wireless market as a whole, using its research and development (R&D) and industry leading patent portfolio to "realise a truly connected world". Ericsson announced this week that its third quarter revenues were up 17% y/y, as it saw strong demand for mobile broadband networks, and increased services revenues (see World: 20 October 2011: Ericsson's Q3 Revenues Up 17% on Mobile Broadband Sales). However, the networks vendor still faces significant competition, not least from Nordic neighbour Nokia Siemens Networks and Chinese vendors Huawei and ZTE.
- Sony Builds its Devices Portfolio: Reports have been circulating for some time that Sony was looking to acquire Ericsson's 50% stake in Sony Ericsson, allowing the Japanese electronics giant to integrate its smartphone business with its operations in tablets, hand-held videogame players and personal computers (see Sweden: 7 October 2011: Sony in Talks to Buy Out Ericsson Stake in Sony Ericsson—Report). Sony CEO Sir Howard Stringer, says the acquisition will afford Sony operational efficiencies in engineering, network development and marketing, and it will "make the difference" for consumers, who want to connect with content wherever they are, whenever they want. He added that Sony will secure a broad intellectual property cross-licensing agreement covering all products and services of Sony, as well as ownership of five essential patent groups relating to wireless handset technology. Sony and Ericsson have also announced they have set up a wireless connectivity initiative aimed at driving and developing the market's adoption of connectivity across multiple platforms.