STOCKHOLM, Sweden—Sony Ericsson Mobile Communications L.P., at five years old, is pursuing two trends in the rapidly changing mobile handset market—a worldwide thirst for music and imaging—and is profiting handsomely in its chosen markets.
The partnership between the Japanese consumer electronics whiz and the Swedish mobile telecom giant—which has leveraged the Sony brand to its advantage—posted impressive third-quarter numbers on the fifth anniversary of its founding: 19.8 million handset shipments (a 43 percent, year-on-year increase), $3.7 billion in sales (a 42 percent year-on-year increase) and $374 million in net income (nearly tripling year-on-year earnings).
The shipment number far outpaced CIBC World Markets’ estimates of 16.3 million for the quarter and, indeed, Sony Ericsson itself reaffirmed its own forecast that the industry as a whole would ship a total of more than 950 million handsets this year.
The arc of Sony Ericsson’s recent success reflects a company that has initially pursued profitability over market share and, now that that coveted profitability is being realized, has set its sights on expanding its market share as well. Yet the Japanese-Swedish vendor has strategically avoided plunging into head-to-head competition with the industry’s top two heavyweights, Nokia Corp. and Motorola Inc., which are pursuing emerging markets with low-cost handsets.
In fact, Sony Ericsson said its average selling price (ASP) rose over last quarter due to its emphasis on mid- and high-priced handsets in its portfolio, including its latest camera phone, the K800. If sustained, this trend would buck the industry’s slide toward lower ASPs—though in a note to investors, CIBC World Markets analyst Ittai Kidron suggested that the vendor’s higher ASP would be only temporary.
Sony Ericsson attributed its success to its line-up of Walkman brand music phones and Cyber-shot camera phones, and to full track, over-the-air downloadable music via its PlayNow service. Sony Ericsson also claimed to have grown its global market share by more than 1 percent to about 8 percent. If true—and depending on results to be reported by other handset vendors—this market share might boost Sony Ericsson into fourth place globally, ahead of LG Electronics Co. Ltd. and behind Nokia, Motorola and Samsung Electronics Co. Ltd.
Sony Ericsson’s apparent success is difficult to dial into sharper focus, however, because it does not break out its numbers by region. The vendor produces only GSM handsets, ignoring the CDMA technology that comprises some 60 percent of the market in the United States. And Sony Ericsson has only one tier-one carrier partner in the United States—Cingular Wireless—that carries only a handful of Sony Ericsson handsets. Otherwise, the vendor counts on its big-box retail partners and its own branded retail outlets to reach American consumers.
This approach could mean that success in the United States—which Sony Ericsson has claimed—does not depend on addressing the country’s 60 percent CDMA market, nor capitulating to the carrier-centric retail sales model that affects most handset vendors here. Conversely, Sony Ericsson’s success globally may reflect that the bulk of its sales take place in markets other than the U.S. That would be akin to Nokia’s currently modest position in the U.S. market relative to its dominance globally—though Nokia too emphasizes both its intent to win in the U.S. and its current market position here.
Kidron at CIBC wrote today that he believes Sony Ericsson’s success has come at Nokia’s expense in Europe and at Nokia and rival Motorola’s shares in Asia.
