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SonyEricsson JV may still work out

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CIOL Bureau
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By Eriko Amaha



TOKYO: Sony Corp and Swedish telecom giant Ericsson aren't about to hang up on their mobile phone handset joint venture despite early teething problems, Sony's chief operating officer, Kunitake Ando, said on Wednesday. Questions about the future of the venture arose last week when Ericsson said it might withdraw if the arrangement didn't yield satisfactory results in the next two to three quarters.



Ando said, however, that the 50-50 venture, Sony Ericsson Mobile Communications Ltd., had potential for "substantial power". "We are now in the process of getting into one and trying to harmonize," he told reporters. "Once we are back on the attack, then that would have substantial power."



Ericsson's financial problems, an increasingly competitive handset market, stalling demand are all weighing on the venture. But analysts agreed with Ando that the combination of the world's largest consumer electronics maker and the biggest producer of mobile networks offered a good chance of success.



The joint venture to make and develop mobile phone handsets was set up with much fan fare in October 2001. Since then, sales have been disappointing, competition has become tougher and the world economic outlook has darkened. The venture posted a net loss of 139 million euros ($138.4 million) in the first three months after its launch, a profit of three million euros in January-March and a net loss of 83 million euros in April-June.



Hi-tech industry research firm Gartner Dataquest said last month Sony Ericsson's market share shrank to 5.4 percent in the second quarter from 7.7 percent in the same period last year. Analysts were optimistic, however. "Normally it takes at least a year for any joint ventures to produce their first products," said Hitoshi Kuriyama, analyst at Merrill Lynch. "I believe they have potential," he added.



Important now


Even if Ericsson decided to withdraw, some analysts said, Sony would likely go it alone as the mobile business is a key part of its grand scheme of home electronics networking. "If they outsource everything and it's only being sold under Sony's brand and technology, I don't see the big disadvantage of doing it by themselves," said Richard Chu, analyst at ING.



Chu said Ericsson's expertise in telecom infrastructure may be important now for Sony's handset strategy, especially for third-generation (3G) phones, but the relationship would become less critical once 3G technology becomes standard.



"Look at Sharp Corp, look at Sanyo Electric Co," Chu said, referring to Japanese electronics makers whose camera phones have been a big hit. "They are doing well in the handset business and they don't have base station technology whatsoever," he said. "As long as (Sony) can have distinguishing products, it's very Sony-like to go ahead and make money," Chu added.



Analysts said the future of the joint venture depended on new models and how they were received in the market. Sony Ericsson has said it will start selling four new, low-end phones in the third and fourth quarters, hoping to beef up its profitability and market share after the success of its T68i colour screen handset.



Analysts also said attention was also focused on the venture's flagship model P800 phones, expected to be out in September.



Kazuharu Miura, analyst at Daiwa Institute of Research Ltd, said growing popularity in color-screen mobile phones and camera phones would likely spur replacement demand and also help Sony leverage off its expertise in audio and video technologies.



"Sony makes key devices for the feature-rich mobile phones," he said. "Sony will more opportunities to flex its muscle in those areas." Miura estimated that the venture's capital of $500 million should be sufficient enough to keep the business above water.



"The venture is not likely to exhaust capital this fiscal year and I don't think it needs any immediate funding," he said. Both Sony and Ericsson have committed to inject 500 million euros each into the firm by October 2003.



But Ericsson's Chief Financial Officer, Sten Fornel, said on August 13 that Ericsson would not put any more cash into Sony Ericsson this year and that investment next year was likely to be limited. ($1=117.97 yen) ($1=1.004 euros)



© Reuters

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