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Sony to buy Sony Ericsson

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 Sony, Ericsson and Sony Ericsson 29th October 2010

Sony Corporation have announced that they are to buy out Ericsson's 50% share of Sony Ericsson Communications to make Sony Ericsson a wholly owned subsidiary of Sony, integrated fully into Sony's consumer electronics business.

Sony will also receive five key patent families from Ericsson, and there will also be a broad cross-licensing arrangement for other intellectual property assets. In exchange, Ericsson will receive €1.05bn (about $1.48bn) in cash and both companies will work together in delivering cross-platform connectivity initiatives.

This buy-out has been rumoured for several months, and indeed we predicted at the end of last year that Sony Ericsson would not survive in its present form past the end of 2011.

There is quite a lot of sense to this move. When Sony Ericsson was formed in 2001, it was at a time when handset manufacturers really just made handsets. Both Ericsson of Sweden and Sony of Japan had a shrinking market share based mainly on dumb phones, although Ericsson had been dabbling with Symbian devices with the R380. Merging the two manufacturers allowed Sony Ericsson to combine the technical strengths of both companies in handsets that tended to have a stylish splash of Scandinavian design.

Fast forward to 2011, and hardly anyone makes dumb phones any more, and 80% of Sony Ericsson's sales are Android handsets. Smartphones tend to be tied in quite heavily with downloadable content, and it is here that Sony has a particular strength. Sony's assets include music, movies, TV shows, gaming and eBooks which are available through several different content networks. And it is the ability to give consumers access to this content - for a price - which seems to be the driving force behind this change.

Over the past few years Sony Ericsson have grown ever closer to Sony, using Sony's Walkman, Cybershot and Playstation brands and technologies worldwide, and even using Bravia branded handsets in Japan. This integration is likely to get closer as Sony try to make their smartphone offering more distinctive.. and more profitable.

One question remains about branding. Although "Sony Ericsson" is a well-recognised name in the mobile phone market, it is really the "Sony" part that resonates with consumers. Although Ericsson continues to be a successful business, these days it concentrates on infrastructure and the business-to-business market. We think that it is very likely that "Ericsson" will be dropped from the name when the deal completes.

Subject to various legal processes and approvals, the deal should complete in January 2012. After that we might perhaps see a new (and old) brand in the smartphone market.

 

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