Sony's deal with Ericsson is beneficial.
A version of this article originally appeared on our US site, Fool.com.
Sony (NYSE: SNE.US) is back in the phone business. And what do I make of it? First, I am sceptical if it will ever make a dent given that the competition includes the likes of Apple (NASDAQ: AAPL.US), Samsung, Nokia (NYSE: NOK.US) and HTC that not only have solid market share but have significant growth plans in place. On second thought, however, Sony does have the background, the technology, the ecosystem and the brand to try it.
In a strategic move, Sony completed the buyout of Ericsson's (NASDAQ: ERIC.US) share in February for $1.5 billion. The joint venture was suffering from losses primarily because it lacked organisational flexibility and agility and was also largely disintegrated with Sony, hampering cross-exchange of platforms and technologies. This became apparent when the venture captured just 1.8% share of the worldwide mobile phone market in 2011, even lower than the 2.6% it had in 2010.
With Ericsson out of the picture, management expects to gain complete ownership of valuable wireless handset patents and also to fully integrate Sony Mobile Communications with Sony as a whole. That might just make the difference.
The company has a diverse range of successful products and applications, including camera and gaming businesses that could be combined to develop better phones that would attract consumer interest.
In fact, Sony's buyout of its joint venture is also a part of its overall plan to implement a "four-screen" strategy. The four screens referred to are its televisions, computers, smartphones and tablets. The strategy aims at integrating these products using a common platform. In the process, the company would provide consumers access to a diverse range of content and services, such as movies, music and games. Now that could be a real advantage.
Dealing with competition
It certainly won't be a smooth ride as there is competition to deal with. The four-screen strategy is somewhat similar to the product integration Apple has achieved through its Mac computers, iPads and iPhones. In a way, this integration makes a buyer of an Apple product prefer to buy another Apple product because of the compatibility between these products. So Sony has stiff competition from Apple, which is leaps and bounds ahead of it in the smartphone race.
If that were not enough, there are others, too. Samsung has made massive strides in the smartphone business over the last couple of years, capturing a significant slice of the pie. The company's mobile phone business makes up approximately half of the company's profits. Don't forget HTC, which has become the world's No. 5 smartphone maker. The company has also recently launched a new "One series" of smartphones at the Mobile World Congress, with an increased focus on its music and camera functions. Nokia, too, seems to have staged a comeback of sorts in the smartphone arena with its Lumia series in partnership with Microsoft.
The Foolish bottom line
So why Sony? Well, it's difficult to predict moods of the consumer and no company can be sure of success. I feel Sony's move to enter the mobile phone market on its own seems to be a step in the right direction. There are umpteen opportunities in the smartphone world, and it may well redeem the losses from its flagging television business.
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