What began as a rumor turned into an unpleasant reality last week for Sony Ericsson Mobile Communications L.P., 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. However, the company stopped short of saying it would leave the CDMA handset space, hoping to pursue other markets, especially in Asia.
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 about 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,” said Sony Ericsson spokesman Peter Bodor.
The decision also gives weight to lingering doubts about the company’s ability to forge ahead in the CDMA business.
“In the big scheme of things, it can’t be good for Sony Ericsson’s longevity in the market,” remarked industry analyst Iain 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.
Gillott predicts 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., while LG stands in fifth place. Sony Ericsson is sixth.
“I don’t think Sony Ericsson would have made that decision if they had a significant market in the U.S.,” he said.
In the wake of Sony Ericsson’s retreat from the CDMA mobile-phone business, Verizon Wireless and Sprint PCS are re-evaluating their plans to sell Sony Ericsson’s newly released CDMA phones.
A spokeswoman for Sony Ericsson said the two main CDMA carriers in the United States are re-evaluating whether they will sell the company’s new T608 and T606 phones. She said the carriers would likely decide on the issue in the next few days.
Verizon said it would not comment on forthcoming phones, and Sprint did not return a call for comment.
Christopher Ambrosio, director of wireless device strategies for research firm Strategy Analytics, said the carriers likely would not sell the Sony Ericsson phones unless the manufacturer offered a deep discount to move the devices. Such a discount could cost Sony Ericsson tens of millions of dollars, Ambrosio said. Overall, Ambrosio also said Sony Ericsson’s CDMA retreat means nothing but trouble for the company.
“The damage this can do to current and future carrier relationships should not be underestimated,” he said. “SEMC has some product design talent, but is beginning to look like a sheep in the blizzard of the wireless market, and this does not spell good things for SEMC participation in the market long term.”
Sony Ericsson released its T606 and T608 phones in March. The T608 was the first CDMA phone to include Bluetooth technology.
Sony Ericsson said it would continue to pursue its commitments to GSM/GPRS and UMTS technologies. Its CDMA research centers include facilities in Lund, Sweden; Beijing; Kista, Sweden; and Manchester, England.
“Regarding the CDMA products in the pipeline, we have informed our carrier customers and will look at finding the best possible solution,” explained Bodor.
Ericsson said the shutdown will not affect its relationship with Sony or its funding commitment to the joint venture. Ericsson recently committed $170 million to the venture.
“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 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.
