Challenges for Sony Ericsson's new chief

Jennifer L. Schenker
15 Nov 2007
00:00

The first week of November should have been a time for celebration at Sony Ericsson. The Japanese-Swedish handset maker announced a slew of glitzy new gizmos for early next year and had a coming-out party in London for its new chief executive, Hideki 'Dick' Komiyama, a 64-year-old Sony veteran, on Nov. 6.

The change in leadership comes at a time when Sony Ericsson has successfully established itself as the world's No. 4 mobile phone maker. Revenues and unit sales have doubled in the past three years, and the company has increased its global market share by three points, to 9.5%, overtaking Korea's LG Electronics, in the face of intense competition on all fronts.

Alas, Sony Ericsson's festivities were overshadowed by developments elsewhere in the mobile business. Google (GOOG) at last revealed plans for its much-anticipated foray into mobile phone software (BusinessWeek.com, 11/6/07). Nokia (NOK) announced a major strategic deal on services with Vodafone (VOD), a move analyst say will thrust the rival handset maker into a leading position as a content provider. And Apple (AAPL) launched its iPhone in Europe.

A rocky start to the partnership

The week's news was a harsh reminder of the competition that Komiyama faces in hardware, services, and software as he takes over the top job. 'Hideki Komiyama has a daunting challenge,' says Ben Wood, director of telecom consultancy CCS Insight.

To be sure, Sony Ericsson has come a long way since 2001 when Japanese consumer electronics maker Sony (SNE) and Swedish telecom equipment manufacturer Ericsson (ERIC) pooled their floundering handset businesses into a 50-50 joint venture. The company started life with a weak and fragmented product portfolio, struggling during the first few years to establish its identity, and suffering several money-losing quarters. Eventually, Sony Ericsson delivered some of the world's earliest camera phones, but serious shortcomings in manufacturing left it unable to fulfill orders for its most popular models.

When Miles Flint, a British national and Sony veteran, took over as CEO in 2004, he tackled the problem by increasing the company's control over manufacturing, supply chain, and procurement activities. He also spearheaded the successful move to borrow iconic Sony brands such as Walkman and Cyber-shot for handsets to help differentiate them in the market. The branding program was a masterstroke: Sony Ericsson has sold some 46 million Walkman phones to date.

Competition is picking up

Flint, now 54, also is credited with impressive revenue and profit growth. In the first nine months of this year, Sony Ericsson earned €741 million ($1.08 billion), up 35% from the same period in 2006, on revenues up 27% to €9.15 billion ($13.4 billion). Unit shipments in the first three quarters totaled 72.6 million, up 49%. 'Miles Flint leaves very big shoes to fill,' says CCS Insight's Wood. 'People are watching with a great amount of interest to see how the succession works.'

It's not just a matter of the transition from Flint to Komiyama. Competition is picking up, especially in the part of the market where Sony Ericsson has thrived: high-end multimedia gadgets with cool design and youth appeal. The biggest threat here comes from Apple, whose iPhone launched in June in the U.S. and went on sale on Nov. 9 in Britain and Germany (BusinessWeek.com, 11/9/07). Nokia's N-series devices are also tearing up the track.

Low-end phones are another issue. Sony Ericsson can't come near to matching Nokia's economies of scale and distribution for phones priced at $30 or less, which are crucial to expansion in emerging markets, says Richard Windsor, an analyst at Nomura Securities in London.

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