Sony, Ericsson eye cell phone joint venture

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By Martyn Williams

(IDG) -- Sony, one of the world's largest consumer electronics companies, and L.M. Ericsson Telephone, the world's No. 3 cellular telephone handset maker, are in talks regarding collaboration in the handset business, Sony confirmed Thursday.

"Both companies are in talks about potential collaboration in the mobile phone handset business, but nothing specific has been decided," said Sony in a statement.

The statement was issued in response to a report Thursday morning on Japanese public television network NHK that the two companies will announce a tie-up and a U.K.-based joint venture next week. The new company will cover aspects of the business from development to sales, the report said. The Nihon Keizai Shimbun reported in its Thursday evening edition that talks are in their final stages and will involve the spinoff of handset businesses from both companies.

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Despite its high world ranking in the handset business, Ericsson has been struggling to stop a river of red ink. Commenting on full-year results released in January, Ericsson President and Chief Executive Officer Kurt Hellström said results of the mobile phone business, although in line with expectations, remained "unsatisfactory." The consumer products division, which is responsible for the handsets, rang up a full-year loss of 16.2 billion krona ($1.6 billion).

At the same time, Ericsson announced a decision to outsource production of all handsets to Asian companies that can produce the handsets for lower cost. The reorganization will cost the company 8 billion krona.

In 2000 Ericsson sold 43.3 million handsets, up 38 percent from the previous year. Sales and gross margins, Ericsson said, were "severely impacted" by delivery problems from a key supplier. Ericsson said in a January forecast that in 2001 it expects the mobile market to reach between 500 million and 540 million units, compared to between 405 million and 415 million last year.

Sony, like many other Japanese handset makers, has always been frustrated by a lack of market clout in Europe and other GSM (global system for mobile communications) markets where companies such as Nokia and Motorola dominate. Japan's choice of the PDC (Personal Digital Communications) standard over GSM left Japanese companies behind in research and development and, as a result, Sony's worldwide market share is only about 1 percent.

Such an alliance, should the talks be finalized, would not be the first between Japanese and European mobile equipment makers. Toshiba and Siemens announced plans in November 2000 to work together on handsets for 3G (third-generation) mobile networks, while in May of the same year Fujitsu Ltd. and Alcatel SA struck a deal to work on 3G infrastructure equipment.

Ericsson, Sony in talks to team up in mobile handset business
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Ericsson
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