Sony Ericsson doing U.S. spadework: New Sagem deal for emerging markets

ORLANDO, Fla.-The mantra of profitability remains the guiding principle at Sony Ericsson Mobile Communications, even as it invests in development efforts in the United States and moves ahead in emerging markets.
“Without profit, you’re nothing,” said Miles Flint, president of Sony Ericsson, in a private interview session. “It’s baked into our DNA: profit before growth.”
The company constantly reviews whether to take its 10- to 11-percent return on revenue as profit or as an opportunity to foster long-term growth by plowing it back into research-and-development, he said.
“We struggle with that everyday,” he said. “We’re delivering the bottom line and investing in R&D, while keeping costs under control,” he said. “You have to get a lot of things right.”
Chasing market share is perilous, per Motorola Inc.’s example, he said. Thus, focusing on growth prospects and incrementally addressing volume issues in emerging markets is key.
“GSM/UMTS is where the growth is,” he said.
In that specific category, Sony Ericsson has drawn close to Samsung Electronics Co., the next biggest vendor, now No. 3 in the world, Flint added, reflecting the relentlessness that drives competition at that level.
In the U.S., SEMC is aligning its efforts with network operator requirements. Flint pointed to the Z750 handset, announced Monday, which is a tri-band HSDPA clamshell with multimedia capabilities, push e-mail, browser and live RSS feeds on the handset’s deck, a term the vendor eschews in favor of “desktop,” reflecting the notion of convergence.
In terms of its international reach, SEMC announced that it had entered into a licensing and original device manufacturing relationship with Sagem Communications, an arm of French Safran Group. Sagem has been the focus of merger-and-acquisition speculation over the past year.
The two companies will make entry-level GSM/GPRS/EDGE phones for emerging markets and SEMC will establish a development team near Sagem’s base in Cergy, France.
“What we didn’t have was an entry-level line with the efficiencies of platform manufacturing,” Flint said. “When we looked at Sagem, they had a well-implemented software strategy, well-accepted by operators. A core element of the deal is our licensing of their software. They simply lacked (global) brand.”
Flint said one short-term goal is to have Sagem design handsets, but he demurred on his company’s plans for rolling out the resulting handsets across the world’s emerging markets. SEMC’s current electronic manufacturing service partners will have to bid to capture the manufacturing role, he said.
Beyond AT&T Inc.’s wireless business, where vendors’ offerings face brutal competition, SEMC seeks a stronger relationship with T-Mobile USA Inc. The vendor is developing 1.7 GHz products to serve the carrier when it goes live on spectrum acquired in last year’s advanced wireless services spectrum auction by the Federal Communications Commission.
Expect more SEMC handset launches in the U.S. in the second half of the year, said Najmi Jarwala, president of the vendor’s U.S. and Canadian operations.
Meanwhile, the vendor pursues “stealth” retail online and at Sony Style stores, due to deference to network operators’ position as the leading retail channel. That business model may change in time, Flint said. But Sony Ericsson clearly is not betting on that scenario; it has 37 Sony Style stores in the U.S. now and will add five more by year’s end.
With Nokia Corp. pushing “multimedia computing devices” and recasting itself as an Internet company, what is Sony Ericsson’s vision beyond music on its Walkman phones and imaging on its Cybershot brand?
“There’s loads more to be done with music and imaging,” Flint said.
The SEMC chief said that user-generated content is a “powerful opportunity” and that a set of tools for managing that content and facilitating its transfer from PC to phone and back would be forthcoming soon.
Flint sees “huge opportunities” in the concept of the “connected home” and “connected office” via IP multimedia subsystems but those are two to three years away.
The goals, however, remain offering consumers clear options among devices and features and delivering high average revenue per user value to network operators.