Swedish mobile manufacturer Ericsson may be running out of patience with its handset joint venture with Sony. According to a report in The Wall Street Journal, Ericsson’s CEO, Kurt Hellstrom, has warned that he will not continue ‘pouring money’ into the venture unless sales of its products improve quickly.

Hellstrom is quoted as saying that his company wants to see real acceptance of the new range of handsets within the next two quarters, or he may be forced to pull out of the loss-making venture. Recent reports from the Swedish giant indicate that it may have to back the venture to the tune of EUR 500 million over the next twelve months.

Insight

PMN’s article of 22nd August ‘Ericsson signs additional W-CDMA license‘ suggested the Swedish manufacturer may be forced to pull out of the handset business if the performance of SonyEricsson did not improve quickly. The fundamental problem is that SonyEricsson has been unable to adjust its operations to reflect its new position as a ‘tier two’ manufacturer. With estimates ranging between 5% and 7% global market share, SonyEricsson simply cannot afford to support the sort of handset portfolio boasted by the likes of Nokia and Motorola.

Its high-end T68 and T39 handsets, both Ericsson legacies, have been relatively successful, but there is a limited market for such products. The P800 smartphone is a potential cash cow, promising high margins and, if SonyEricsson can get it out this month, a relatively benign competitive landscape. The real test, however, will be the forthcoming range of low- and mid-range handsets with colour screens and advanced messaging capabilities. If these don’t enable SonyEricsson to climb back towards 10% market share, it is difficult to see how the company can survive without radical restructuring to reflect a long-term position as a niche, tier two manufacturer.

Ericsson is a genuinely innovative company, but its handsets have never been able to capture the mass market imagination in the way Nokia’s have. Sony’s involvement was supposed to help deliver that mass consumer appeal, but if the world’s leading telecommunications and consumer electronics manufacturers combined cannot succeed in the Nokia-dominated handset business, it might be time to consider quiting manufactuting altogether (as suggested in PMN’s previous article) or refocusing on the narrow, high-margin executive smartphone sector.