Sony Corp. is considering taking a controlling interest in its 50-50 joint mobile phone venture with Ericsson of Sweden, sources said Friday.
By raising its stake in Sony Ericsson Mobile Communications AB, Sony could expand its content distribution business for smartphones amid intensifying competition in the mobile phone market, the sources said.
The companies are currently holding talks, with Sony eyeing even dissolving the tieup, the sources said.
“The deal could amount to a huge financial burden on Sony,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo with a “neutral” rating on Sony’s stock. “On top of that, there could be a costly fee for using patents reserved by Ericsson.”
Sony, Ericsson and London-based Sony Ericsson all declined comment.
The London-based joint firm, set up in 2001, has sales networks in and outside Japan and focuses on making and selling mobile phones and smartphones.
For the April-June quarter, the company reported a net loss of €50 million, or about ¥5 billion, as its parts procurement and sales were affected by the March 11 earthquake and tsunami.
The two companies have held regular discussions in recent years about the ownership structure of Sony Ericsson Mobile Communications AB, though they may fail to reach an agreement, the Wall Street Journal reported, citing other sources.
Full control of the venture would add smartphones using Google Inc.’s Android system to Sony’s device business, while freeing Ericsson to concentrate on sales of wireless transmission equipment and services. Sony Ericsson already makes a smartphone with a slide-out gaming keyboard that has functions similar to Sony’s PlayStation game system.
“This would make sense for both Ericsson and Sony,” said Haakan Wranne, a Stockholm-based analyst at Swedbank Markets, who said a deal may value Ericsson’s 50 percent stake at as much as €1.4 billion. “The current venture doesn’t maximize the potential of Sony’s presence and assets in gaming, and is diluting what could be a bigger-profile Sony offering.”
“There is no point” for Ericsson to “remain involved and bear the risk of having to pay additional funds to the joint venture,” said Pierre Ferragu, an analyst at Sanford C. Bernstein.
Ericsson and Sony formed the joint venture on Oct. 1, 2001, giving themselves five years to dethrone Nokia Oyj as the world’s biggest mobile phone maker. Nokia is still the biggest handset maker by units, while Apple Inc. and Samsung Electronics Co. passed it in the smartphone market in the second quarter, according to Strategy Analytics.
Nomura Holdings Inc. cut its target price for Sony by 41 percent to ¥1,650 and lowered the rating for the stock to “neutral” from “buy” in a report Thursday, citing macroeconomic pressure on earnings and difficulties for Sony in reducing costs further.
Nomura also lowered its industry outlook for the Japanese consumer electronics industry to “neutral” from “bullish.”
Sony Ericsson reported its first quarterly loss in more than a year on July 15. Chief Executive Officer Bert Nordberg said at the time the company was ramping down its feature phone business as the worldwide market for handsets without smartphone software was “collapsing.”
The company’s efforts to replace its aging smartphone portfolio with updated models such as the Xperia Arc were dented by supply chain disruptions following the earthquake and tsunami in March. The company shipped 7.6 million handsets in the second quarter, falling short of the 9.1 million estimated by analysts.
The company’s phones use Sony technologies produced in northern Japan, such as camera sensors, displays and batteries.
Sony Ericsson was the world’s 10th-biggest handset manufacturer in the second quarter with a 1.7 percent share, according to market researchers Gartner Inc. It had a 3 percent share a year earlier. Bigger competitors in the Android segment include Samsung, HTC Corp. and Motorola Mobility Inc.
Ericsson can’t expect “to get anywhere close to that amount,” Swedbank’s Wranne said. Google was keen to get Motorola’s intellectual-property holdings “and was prepared to pay up for it.” Sony is also the only realistic buyer for the stake and Ericsson therefore “doesn’t have the opportunity to play this one out.”
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