Sony prepares to take control of the struggling unit, which has fallen from 4th to 9th in last three years

One of the quieter Android phonemakers has been Sony Corp.'s (TYO:6758) and Ericsson Telefonab's (OMX:ERIC-B) joint-venture Sony Ericsson.  Sony Ericsson -- currently the world's ninth largest global phone maker -- has kept a relatively low profile as it has been one of the few larger Android phonemakers to not be harassed by Microsoft Corp. (MSFT) over licensing or by Apple, Inc. (AAPL) in its anti-Android crusade.

I. Sony May Not be Prepared for the Mess It's Diving Into

But with Sony preparing to take Ericsson's stake in the joint venture off its hands, the situation is looking increasingly dire for the London-based phonemaker. Sony Ericsson reports losing €207M ($266.9M USD) in Q4 2011 and €247M ($318.4M USD) for the total fiscal year.  

The average selling price of the cash-strapped JV's handsets remained relatively stable between 2010 and 2011 (albeit fluctuating on a quarterly basis).  But sales and gross margins distinctly declined, leading to the net loss.  Sony Ericsson blames this on "intense competition" and complains in its earnings report of "price erosion".

The firm moved €1.28B ($1.65B USD) in product in calendar Q4 2011, down almost €300M ($386.8M USD) from a year before.  Overall, Sony Ericsson in 2011 dropped in global revenue from €6.3B ($8.12B USD) to €5.28B ($6.81B USD), a decline of approximately €1.0B ($1.29B USD).  Sony Ericsson shipped nearly 2 million units (phones) less than it did the year before.

Sony Ericsson is having its very own Eurozone debt crisis. [Image Source: The Hibernia Times]

There is mild interest for the company's smartphones, which play on some of Sony's most iconic historical products, such as the Walkman and the Sony PSP.  However, these devices -- while well differentiated in legacy and form factor -- have curiously weak (sort of the opposite of Altoids™) hardware.

Sony Ericsson brags that the company has moved 28 million Xperia phones since the platform's introduction in mid-winter 2008.  However, most of these sales came during the more prosperous 2009 and 2010 seasons.

Sony Ericsson does have the unique advantage of being able to throw Sony's unique titles from its older PlayStation/PlayStation 2 console gaming library at its mobile devices.  But at the end of the day, it's simply not selling enough product to stay viable.

II. The Road to Recovery

Sony, the new full owner as of this month, will have its work cut out for it trying to restore the firm to its prosperity it enjoyed before the smartphone era -- at a time when its color screen and built-in digital camera were novel enough to earn the company's lineup substantial market share.  Sony Ericsson was once the world's fourth largest phone maker in 2009, but much has changed for the worse.

The next big thing for Sony Ericsson hardware-wise is the Xperia NXT family of Android phones.  Unveiled at CES 2012, the first of these phones -- "ion" -- is Sony Ericsson's first legitimate Android "superphone", packing a 1.5 GHz dual-core processor, 16 GB of NAND storage, a 12 MP camera capable of shooting 1080p HD, and a 1280x720p display to view your work on.  It will land on AT&T, Inc.'s (T) U.S. network, likely in Q2 2012 [source].

The Sony Ericsson Xperia NXT ion
The Sony Ericsson Xperia NXT ion is the phonemaker's first serious Android superphone to make its way to America. [Image Source: Euronews]

The big question will be whether this slick and powerful handset and the company's new ownership will be enough to right the ship at Sony Ericsson.  The company was forced to take a €93M hit on "restructuring costs" aka "layoffs".  While Sony is doing much better -- respectively -- compared to its struggling JV, Sony is also lagging key smartphone competitors like Samsung Electronics Comp., Ltd. (KS:005930) in research.

Source: Sony Ericsson

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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