Having helped triple his company’s year-on-year profits in the third quarter, Najmi Jarwala, Sony Ericsson’s chief executive officer for North America, can afford to wax philosophical about his company’s future.
“Innovation is our differentiator,” he said last week. “If we continue to innovate-and execute flawlessly-profits and market share will follow.”
Jarwala’s confidence appears well-justified, based on the earnings report Sony Ericsson Mobile Communications L.P. just posted on the fifth anniversary of the joint venture between the Japanese consumer electronics firm and the Swedish telecom vendor.
The company shipped nearly 20 million handsets during the quarter, a 43-percent, year-on-year increase. That brought in $3.7 billion in sales, a similarly sized increase, nearly tripling year-on-year net income to $374 million. The company suggested that the increase in handset shipments-which it attributed in part to the popularity of its Walkman and Cyber-shot brands of music and imaging devices-was nearly double the rate of industry growth.
The company singled out its high-end K800 and W810 models, its mid-range K610 and low-priced W300 and K310 handsets as contributing the most fire to its strong shipments, sales and earnings. (W models are Walkmans, high-numbered K models are Cyber-shot phones.)
How Sony Ericsson’s Tier-One rivals fared in the third quarter will be known this week, as Samsung Electronics Co. reports results today, Motorola Inc. and LG Electronics Co. report Tuesday and Nokia Corp. announces results on Thursday.
In the increasingly zero-sum handset market, gains in share must come at the expense of other players. Sony Ericsson’s recent gains may have eaten into Nokia’s European sales and possibly Nokia’s and Motorola’s shares in Asia, according to CIBC World Markets analyst Ittai Kidron.
Last week, Finnish and British mobile-phone retailers told Reuters that Nokia had cut its prices on new N-series models to boost disappointing sales. And last month, Elcoteq SE and Perlos Corp.-two firms that have largely served Nokia-revised downward their earnings guidance, leading Tero Kuittenen at Nordic Partners Inc., a brokerage specializing in Scandinavian businesses, to suggest that Nokia’s Western European sales weakened in the third quarter.
Pressed to articulate any misgivings that might concern him, Jarwala acknowledged that keeping Sony Ericsson’s internal supply chain delivering the volumes that will sustain the company’s momentum remains crucial-particularly now that Sony Ericsson has an (albeit self-proclaimed) 8-percent global market share, passing its nearest volume-based competitor, LG, to garner fourth place in global handset-vendor rankings.
Jarwala also discussed Sony Ericsson’s approach to the United States, its product portfolio and the psychology of consumer-oriented product and service development. As is often the case with well-practiced executives, Jarwala only hinted, through his choice of words, at what lies beyond corporate talking points.
While he suggested that Sony Ericsson’s success has been fairly uniform around the world, Jarwala also said his firm’s efforts in the United States-an “incredibly important market”-were akin to “a journey.” His language perhaps was an oblique acknowledgement that the GSM-only vendor can address just 40 percent of the U.S. market (the other 60 percent is CDMA-based) and, among the Tier-One carriers, has but a couple of handsets at Cingular Wireless L.L.C. Instead, Sony Ericsson has forged close relationships with regional carriers and pursued big-box partnerships to reach the U.S. consumer.
“We’re bullish on alternative channels,” Jarwala said.
Sony Ericsson’s interest in a brand-based, retail presence to complement carrier relationships parallels the efforts of the two other strongest brands in the handset business; Nokia and Motorola also have begun establishing retail stores in selected markets worldwide.
Jarwala noted that Sony Ericsson would open a retail store in London next month with more European and Asian cities to follow-the company has no plans to open branded retail outlets in the United States.
Sony Ericsson continues to invest heavily in product development, with 11 new products introduced in the third quarter and eight more announced. Nearly one-quarter of the 19.8 million handsets sold in the third quarter were Walkman phones; the company has sold 15 million since that handset’s introduction a little more than a year ago.
Jarwala said that although his firm’s current smart-phone offerings are based on the Symbian operating system, which so far has made little inroads in the United States, it is actively looking at other OSs, including Linux and Microsoft’s Windows Mobile. As for mobile television, he said, too many standards currently fragment the market and “a settling” is needed before Sony Ericsson takes the plunge.
As for Sony Ericsson’s view of how to innovate in a manner that resonates with consumers, Jarwala articulated what has become a holy grail in the handset business.
“Sony Ericsson is intensely focused on the consumer experience, on how consumers interact with media overall,” he said. “We’re developing unique access technologies. We seek a unified view of consumer behavior toward media with simplified access.”
Asked whether Sony Ericsson’s recent, strong profitability would lead it to shift focus to gaining market share, Jarwala said the company would seek to broaden its product portfolio to include less-expensive Walkman units and affordable units for emerging markets. Whether to invest in the design and manufacture of low-end phones has been a matter of “significant internal reflection,” he said, but so far the company is determined to protect its brand strength, margins and profits by not making “extremely low-end” phones.
“We won’t sacrifice our DNA, if you will,” Jarwala said. “We won’t drift too far below the sub-$100 category.”
