Will This Phone Brand Fall Apart?


Pop quiz: When's the last time you thought about buying a Sony Ericsson handset? I'm betting it's been years.

The joint venture between Japanese gadget guru Sony (NYS: SNE) and Swedish telecom equipment specialist LM Ericsson Telephone (NAS: ERIC) was the fourth-largest global handset provider for a while. Now, the brand has fallen to ninth place with a lousy 1.9% market share. First, Sony Ericsson failed to capture the low-cost market for simple handsets that Nokia (NYS: NOK) still dominates. Then, the brand fell behind in the smartphone race as the Apple (NAS: AAPL) redefined what a phone can do.

So what's a network equipment builder doing in a handset venture anyway? The Wall Street Journal and Reuters report that the partnership is due for renewal in October but Sony might as well just buy out its decade-long partner and grab the steering wheel with both hands.

An Ericsson spokesperson told Reuters to go fish: "We have a long-term commitment to our joint ventures."

OK, fine. Ten years is a long time -- it just happens to be in the rearview mirror now. Analyst firm Bernstein says that selling its half of the equation would be good for Ericsson, "whatever price they agree on." Ouch.

As for Sony, those ubiquitous secret insiders say that the company has held back the handset venture for fears of diluting established brands like PlayStation and Walkman, paired with an unwillingness to share profits with the Swedes. Yes, Sony Ericsson is profitable today thanks to a newfound love of Android gadgets; no, the profits might not last long. While even failing, flailing Research In Motion (NAS: RIMM) is still growing unit sales year over year, Sony Ericsson's volume is fading.

The deal rumors were met by Ericsson investors with open arms, sending shares up by nearly 8% on Thursday. Sony, on the other hand, barely kept pace with the market.

Smartphones outsell PCs these days, and their projected growth rate in the coming years looks stunning. While I wouldn't bet real money on Sony in this market, camera-chip maker OmniVision Technologies (NAS: OVTI) is one great way to ride that trend, and a mouthwatering one at these unreasonably panic-tainted prices. And in our free report "5 Stocks The Motley Fool Owns -- And You Should Too," we highlight another mobile leader that our analyst believes is one of the strongest ways to profit in smartphone growth in China and beyond. To get a copy of the report, just click here now -- it's free!

At the time thisarticle was published Fool contributor Anders Bylund owns shares of OmniVision Technologies but holds no other position in any of the companies discussed here. The Motley Fool owns shares of Research In Motion and Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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