Sony Ericsson exec’s mantra: disciplined growth

Sony Ericsson Mobile Communications has come of age in the past year and finds itself in an enviable, if somewhat dicey, position. No resting on your laurels in a what-have-you-done-for-me-lately industry.
The vendor’s disciplined focus on sales and profit, while carefully growing share, has brought it rapid, industry-beating growth in revenue, profit and market share. In the quarter just past, it announced deals with electronic manufacturing services to churn out handsets at the high-end of the entry-tier segment and with Sagem Communications for software platform development that could serve the value segment anywhere in the world.
Now, all eyes are on SEMC’s future performance as it attempts to maintain its enviable success as it plunges into the volume game.
Najmi Jarwala, CEO of North American operations for Sony Ericsson, discussed his company’s recent success and its prospects in an interview yesterday.
Jarwala’s current role, like his company’s overall situation, is double-edged. Sony Ericsson now breaks out its sales volumes by region in an effort at greater transparency. And that transparency means a clearer view of the North American market: it remains only about 15 percent of SEMC’s global sales, all of it in GSM handsets. SEMC does not break out figures for the United States in the context of the North American region.
Yet, through adroit product offerings at the top-tier and second-tier GSM carriers in the U.S., aggressive pursuit of alternative channels and success in the hot Latin American market, Jarwala’s operation managed to grow its North American volume by 46 percent year-over-year in the first quarter.
SEMC credits its successful quarter globally to mid-tier product gains and its performance in Latin America, the Asia-Pacific region and in Eastern and Western Europe, according to spokesperson Cherie Gary. SEMC’s momentum and future prospects are in part due to its success in garnering a larger market share in UMTS than in GPRS, Gary said.
In the North American market, Jarwala cited the close alignment of SEMC’s product lines with carrier requirements and their consumers’ needs.
“There’s been strong acceptance of our products in all parts of the Americas, including Latin America and Canada,” he said. “That’s generally lifted the contribution of this region to our global success.”
In perhaps the most difficult market for Sony Ericsson-the U.S.-Jarwala said that SEMC has expanded its portfolio to all price points. Long-term trends and the introduction of Apple Inc.’s iPhone and Nokia Corp.’s “multimedia computing devices” should favor vendors such as SEMC that have an emphasis on high-tier portfolio offerings. High-end Walkman and Cybershot models are being designed specifically for the U.S., he said.
“These new products (by competitors) improve the quality of the consumer experience in the U.S.,” Jarwala said. “Given the subsidy model here, we have trained the consumer to expect perhaps a higher subsidy level than the products would naturally merit. I think a shift in this expectation would be a win-win situation. The carriers would enjoy lower subsidies in controlling their cost structure and, ultimately, it would offer consumers more choice. That would act as a stimulus to drive innovation.”
Meanwhile, the global picture offers challenges and opportunities, he said.
“We’ve maintained very healthy margins as average selling prices have declined, as expected, as we grow our presence in emerging markets,” Jarwala said. “Sometimes we get a little fixated on the ASP. We try to focus on the value to the consumer and on profitability. We’ve been very strong in the mid- and high-tier and, inevitably, as we expand our portfolio as we grow in India, China, Brazil and Russia, ASPs will decline.
“The challenge to us as an industry is: can we continue to grow and maintain profitability? At Sony Ericsson, we’ve been very disciplined in not sacrificing profitability for growth.”
One key aspect of SEMC’s success appears to be the combination of a phone-plus-one model and “functional branding” captured by the company’s Walkman and Cybershot brands. “Functional branding” is the topic of a recent report from Current Analysis’ Avi Greengart, who suggested that naming the handset’s primary function beyond voice would clarify many vendors’ offerings.
“Conceptually, that makes sense,” Jarwala said. “These are world-class phones. How else do you communicate their other functions? Where do you focus the value proposition? Functional branding points to the primary value proposition. That explains a lot of the Walkman’s and Cybershot’s success.”
The vendor is expected to make new product announcements May 8, including new handsets for the U.S. market.