A Big Deal in Smartphones
The 10-year-old joint venture between Sony (NYS: SNE) and Ericsson (NAS: ERIC) is up for renewal. It was this collaboration that gave the world the Walkman music phones and Cyber-shot camera phones, and marked a net profit of approximately $124 million last year.
At this point, while Sony is keen on exploring the smartphone segment, Ericsson plans to concentrate on its wireless transmission devices. Sony plans to make the best of its partnership with Ericsson by buying out its stake. Valued at around $1.9 billion, this buyout, if successful, could spell good news for all.
What's in store for Sony?
As Sony gets ready to seal the deal with Ericsson, I feel this buyout will rope in profitable opportunities for the company. As of the second quarter of 2011, Sony Ericsson ranked 10th in the world as a handset manufacturer. This suggests that the company has immense potential in the handset manufacturing segment.
If and when Sony successfully takes over Sony Ericsson, it will form a strong patent portfolio, which will enable it to compete with its main competitors singlehandedly.
Sony Ericsson has an impressive 4,000 telecom patents in all. Additionally, Sony and Ericsson both belonged to a cluster of companies that included big players like Apple (NAS: AAPL) and Microsoft (NAS: MSFT) , which owned a patent portfolio worth a whopping $4.5 billion. Other companies have used the acquisition strategy to strengthen their competitiveness, too. For instance, when Google (NAS: GOOG) took over Motorola Mobility (NYS: MMI) for $12.5 billion, it scaled up its patent portfolio. Hence, if the joint venture is converted into an acquisition, I see more good news for Sony in terms of its mobile-technology patent portfolio.
According to Sony Ericsson President and Chief Executive Officer Bert Nordberg, Sony is working on improving and strengthening its smartphone business. This situation calls for the company to cope with the dynamic market of smartphones. It intends to further develop its high-end smartphone segment where Sony's products, games, and network services need to match up to other industry giants' product packages. It is also planning on integrating its smartphone operations with its other offerings like tablet computers and hand-held game consoles.
These steps will help in cost reduction and improve synchronization of the mobile device development. Being a new player in the handset manufacturing segment, Sony will also need to buckle down to face strong competitors like Nokia (NYS: NOK) , Samsung, and Apple. This will help the company grab a larger market share of users who are looking for the latest technology in their phones, which in turn, is likely to boost its shares.
To sustain the fierce competition in the smartphone segment, the company is working on the bottlenecks that are holding it back. For instance, after the earthquake in Japan, the company had to face many logistics and supply chain issues. Also, in the second quarter of 2011, it managed a shipment of only 7.6 million handsets, whereas a shipment of 9.1 million handsets was expected by the analysts. These steps indicate Sony's strong intention of building strategies to boost its smartphone portfolio.
If Sony succeeds in a complete takeover of Ericsson's operations, it will certainly boost its overall product portfolio. Its extensive product line, which includes advanced mobile content, gaming devices, consumer electronics, and tablets, will be enhanced, too. Also, it will receive the much-needed push in its smartphones' portfolio. These factors have me convinced that my money would be safe and grow steadily, if invested in Sony's shares.
Vibhuti Shah does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Microsoft, Google, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple, Google, and Microsoft.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
At the time this article was published