What began as a rumor turned into an unpleasant reality today for Sony Ericsson Corp. as the handset maker announced it will shut down its CDMA research and development site in North America, reflecting the company’s poor performance in the region.
Sony Ericsson also said it plans to close its R&D site in Munich, Germany, for GSM and UMTS handsets.
A source close to the situation told RCR Wireless News that the rumor had heightened tension among the staff of the R&D center for the past two weeks, although management denied any such issues.
The company said the shutdown of both R&D centers will affect approximately 500 employees.
“We will focus on the network technology in which we have been able to grow-GSM, and the ones in which we will need to grow-EDGE and UMTS,” wrote Sony Ericsson spokesman Peter Bodor in response to RCR Wireless News inquiries.
The decision also confirms lingering industry doubts about the company’s ability to forge ahead in the CDMA business. In addition, it poses the question of whether the network company, L.M. Ericsson, will reconsider its commitment to CDMA technology, although the company has tried to dispel any such doubts.
“In the big scheme of things, it can’t be good for Sony Ericsson’s longevity in the market,” remarked industry analyst Ian Gillott, noting that the handset maker is leaving when rivals Nokia Corp., Samsung Electronics and LG Electronics are stepping up their businesses in North America.
He said the company will wave goodbye to the U.S. CDMA subscriber market, nearly 60 million users strong, plus Canada, which will place a large dent in its already dwindling market share. Nokia leads the handset market worldwide. Samsung has jumped to third place behind Motorola Inc, and LG electronics stands at fifth. Sony Ericsson is sixth.
“I don’t think Sony Ericsson would have taken that decision if they had a significant market in the U.S.,” he said.
L.M. Ericsson, however, leads the world in the infrastructure business, although softness in that market has affected the company’s network gear revenue.
“The actions reflect our strong forward momentum as we intensify our business focus and work to achieve profitability,” said Katsumi Ihara, president of Sony Ericsson.
The company is a joint venture between Sony and Ericsson, and the marriage was meant to enhance the aesthetic shortcomings of Ericsson’s phones with the Japanese player’s tasteful designs. Sony Corp. entered the venture because it lacked market share that Ericsson had aplenty as the No. 3 or No. 4 handset vendor at the time, depending on the survey.
Gillott said the union has not been successful for either company, especially Sony, which failed in its first effort to launch CDMA phones, and questioned whether the Japanese player might walk out of the JV. But if Sony leaves Ericsson, there is no guarantee Ericsson will make it on its own either, said Gillott.
