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Sony to acquire Ericsson’s share of Sony Ericsson

October 27, 2011

Sony and Ericsson have revealed that Sony will acquire Ericsson’s 50 per cent stake in Sony Ericsson Mobile Communications AB, making the mobile handset business a wholly-owned subsidiary of Sony.

The transaction gives Sony an opportunity rapidly to integrate smartphones into its broad array of network-connected consumer electronics devices – including tablets, televisions and personal computers – for the benefit of consumers and the growth of its business. The transaction also provides Sony with a broad 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.

As part of the transaction, Ericsson will receive a cash consideration of €1.05 billion.

According to Paul Lambert, Senior Analyst at Informa Telecoms and Media, Sony buying Ericsson out of the 50/50 Sony Ericsson handset joint venture marks the end of a relationship that has clearly struggled to make good on its ambitious objective – when it was set up in 2001 – to overtake market leader Nokia within five years.

“Although not succeeding in this, the companies have nonetheless overcome differences in strategic objectives and management cultures to make devices that have proven quite popular with a niche of consumers in the high, mid and low-priced segments, no small achievement given that each of these markets is becoming increasingly competitive with every passing quarter,” he noted.

Despite this, advises Lambert, Sony Ericsson posted net income in 2010 of €90 million – and claimed 11 per cent share, by value, of the Android smartphone market in 3Q11 – which can be counted a success for a vendor squeezed by Apple at the high-end and countless tenacious competitors in all segments of the Android market.

Lambert suggests that Sony Ericsson’s failing in a sense is that it has focussed on the mid section of the market, and while doing so hasn’t reacted to the trend of consumers gravitating to either the high-end (Apple and BlackBerry, and increasingly Samsung), or the low end. “As such, Sony’s first task needs to be to focus Sony Ericsson clearly at a certain point in the market, rather than trying to offer something for everyone,” he recommends.

“The move makes sense for Sony as the company will try and capitalise on full-ownership of the handset JV by aggressively integrating Sony Ericsson smartphone technology into its range of network-connected consumer electronics devices – including tablets, televisions and PCs. Although Sony has sufficiently good technology and expertise to make a success of a cross-device connectivity integration strategy, the market will wait to see if it can tap into consumer taste better than rivals, Apple and Samsung to name just two, and deliver incremental value to them as well as to its bottom line. Sony’s content assets could enable it to offer something to consumers rivals can’t, especially in the gaming arena,” he notes.

“For Ericsson, exiting the Joint Venture will result in a gain not only of €1.05 billion in cash, but also an intensified focus on its core business – selling and managing telecoms infrastructure. Although Sony Ericsson was very much a separate entity from the day-to-day running of Ericsson, selling out of the company will inevitably consolidate the operator’s corporate identity and outlook around networks,” he concludes.

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