Ericsson looks to jump ship from SonyEricsson as handset vendor’s fortunes go from bad to worse

Posted by Chris Garland Friday, March 20th, 2009

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The news that Ericsson is reportedly considering jumping ship from its device-manufacturing joint venture with Ericsson will not come as much of a surprise to most of the industry. Ericsson is thought to be keen to offload the 50% stake to partner Sony, however given the imperilled financial state of the company, such a sale could prove difficult.

The vendor is now expected to have shipped around 14 million phones during 1Q09 compared to 22.3 million shipped 1Q08. Average selling prices are expected to continue their downward trend: from EUr134 (US$182) in 1Q07 to Eur121 in 1Q08 and a forecast Eur120 in 1Q09. The company expects a 1Q09 loss in the range of Eur340-390 million, compared to a profit of Eur133 million in 1Q08.

The vital signs for the company are not good.

SonyEricsson could have problems in finding credit lines in the current climate, and does not have enough cash flow to make such a purchase, after reporting record losses for 4Q08. However, Sony is understood to be in discussions with a number of banks about funding the move.

Ericsson has in all probability been considering such a move since at least February when Sony Ericsson reported a loss of €187 million (US$255 million) for 4Q08, down from a profit of €373 million for 4Q07, as it felt the effects of the global economic downturn. The vendor’s device-shipment figure fell 21% year-on-year in the quarter, from 30.8 million to 24.2 million, and its total revenues fell 23%, from €3.77 billion to €2.91 billion.

“We have to work together again, as we did two years ago, or the joint venture will have to find its own solution,” Sony CEO Howard Stringer was recently quoted as saying, adding that “buying out a partner is never an easy thing.” In February Sony-Ericsson announced plans to make savings of €180 million in 2009, in addition to the €300 million in savings already unveiled by the company.

Sony Ericsson described 2008 as “tumultuous,” noting that “the mobile phone market has been greatly affected” by the global downturn. Whether or not Ericsson does jump ship remains to be seen, although at this stage it would appear at best hopeful on its part to expect Sony to get the necessary cash, or, for that matter to have much enthusiasm for taking full control of the ailing device unit in the midst of a global economic crisis that so far shows no signs of abating.