SONY ERICSSON CASE STUDY On January 18, 2006, Sony Ericsson Mobile Communications AB (Sony Ericsson) announced that its pre-tax profit in the last quarter of 2005 (Oct '05 - Dec '05) was 206 million euros with total revenues of 2.31 billion euros. The key driver for this strong performance was the worldwide success of its Walkman 4 branded mobile phones (Walkman phones), launched in the third quarter of 2005. The success of the Walkman phones series on Sony Ericsson's profit and revenues was significant. The company shipped an overall 16.1 million mobile phone units for the last quarter of 2005.
HISTORY Sony Ericsson was established in 2001 as a joint venture between Telefonaktiebolaget LM Ericsson (Ericsson), Sweden, and Sony Corporation (Sony), Japan, with both partners having 50% ownership in the company. Ericsson, a leading provider of telecommunications equipment and related services to mobile and fixed network operators globally, was established in 1876 and its headquarters were in Stockholm, Sweden. The company was present in 140 countries and it was estimated that 40 percent of all mobile calls were made through systems supplied by Ericsson. Sony was established in 1946 in Tokyo, Japan, by Masaru Ibuka and Akio Morita. sony ericsson faced problems during the initial period and posted a loss of US 136 million dollars in last quarter of 2001 and continued to make losses in 2002 and 2003. The loss has so much impact that even Ericsson¶s officials threatened to defer payments of the promised investment of US 500 million dollars for 2002. In 2003 company showed turn aroun and EBIT of 39 million euros for third quarter of 2003 which is mainly due to introducton of new handsets models especially the lower end models. In 2004 company introduced digital camera phones having 1.3 megapixel camera integrated with phone,which become success and the Sony Ericsson V800 was voted the best 3g handset for 2004. On dec 13,2005 the company raised its stake in Bejing Suohong Electronics Co Ltd. From 10% to 74.5%. which helped them to consolidate its position in China,one of the high growth mobile phone market in the world.
In February 2005, the company announced its 'mobile music strategy' at the 3GSM World Congress, Cannes, France. The focus of the strategy was to integrate of high quality digital music players into stylish mobile phones under Sony's world famous Walkman brand. The music phones were integrated with advanced feature that not only satisfy consumer needs but also offered great oppurtunities for network operator to develop new and exiting services. W800 handset which was introduced in March 2005 enabled the user to listen to music ,handle phone calls and take great pictures and videos. It was the first product to combine a mobile phone ,a music player and 2 mega pixel camera. Sony Ericsson W800 and K750 become a success. World wide phone market share in 2005.(in %) Company NOKIA MOTOROLA SAMSUNG SONY ERICSSON
Q4 35 17.7 12.1 6.9
Q3 33 16.3 12.2 6.3
Q2 32.5 17.7 12.7 6.3
Q1 30.7 15.4 12.6 6.2
Effect of Music phone on Brand value: The success of the Walkman phones was also seen as a major boost for Sony's Walkman branded music players. Ever since the iPod was launched by Apple Computer Inc. (Apple) in 2001, the Walkman had been steadily losing market share and popularity in the music player market.
PRESENT
SCENARIO:
Highlights: y y
y
Four
consecutive quarters of profitability during 2010 Improvement of Euro 1.1 billion of income before taxes, excluding restructuring charges, for the full year Over 9 million Android-based Xperia phones shipped since launch The consolidated financial summary for Sony Ericsson Mobile Communications AB (Sony Ericsson) for the fourth quarter and full year ended December 31, 2010 is as follows:
Q4 2009 Q3 2010 Q4 2010 FY 2009 FY 2010 Number of units shipped (million)
14.6
10.4
11.2
57.1
43.1
1,750
1,603
1,528
6,788
6,294
Gross margin (%)
23%
30%
30%
15%
29%
Operating income (Euro m.)
-181
63
39
-1,018
159
-10%
4%
3%
-15%
3%
-150
-4
-3
-164
-42
Operating income excl. restructuring charges (Euro m.)
-32
67
43
-854
202
Operating margin excl. restructuring charges (%)
-2%
4%
3%
-13%
3%
Income before taxes (IBT) (Euro m.)
-190
62
35
-1,043
147
IBT excl. restructuring charges (Euro m.)
-40
66
39
-878
189
-167
49
8
-836
90
120
154
136
119
146
Sales (Euro m.)
Operating margin (%) Restructuring charges (Euro m.)
Net income (Euro m.) Average selling price (Euro)
Worldwide Mobile Terminal Sales to End Users in 1Q10 (Thousands of Units) Company Nokia Samsung LG RIM Sony Ericsson Motorola Apple ZTE G-Five Huawei Others Total
1Q10 Units1Q10 Market Share (%) 110,105.6 35.0 64,897.1 20.6 27,190.1 8.6 10,552.5 3.4
9,865.6 9,574.5 8,359.7 5,375.4 4,345.0 3,970.0 60,418.1 314,653.50
1Q09 Units 97,398.2 51,385.4 26,546.9 7,233.5
1Q09 Market Share (%) 36.2 19.1 9.9 2.7
3.1 14,470.3 3.0 16,587.3 2.7 3,938.8 1.7 3,369.6 1.4 1.3 3,217.9 19.2 44,972.2 100.0269,120.10
5.4 6.2 1.5 1.3 1.2 16.5 100.0
Source: Gartner (May 2010)
During 2010 Sony Ericsson completed its company-wide transformation programme, improving its cost of sales ratio, reducing its global workforce by approximately 4,000 people in total, consolidating its facilities worldwide and decreasing annual operating expenses by more than Euro 880 million. The total restructuring charges for the transformation programme were Euro 381 million. Units shipped during the fourth quarter were 11.2 million, a year-on-year decrease of 23%, consistent with the streamlining of the portfolio to focus on higher-end smartphones. The sequential increase of 8%, related to seasonal factors, was somewhat constrained by a lack of new product launches during the quarter. Average selling price (ASP) for the quarter was Euro 136, a 13% increase year-on-year. ASP decreased 12% sequentially, mainly due to price erosion, foreign exchange and product mix. Sales for the quarter were Euro 1,528 million, a decrease of 13% year-on-year and a decrease of 5% sequentially. The gross margin for the fourth quarter was 30%, an increase of 7 percentage points year-on-year and essentially flat sequentially, including the benefit of some one-time items, relating to certain royalty matters and warranty estimates. Income before taxes for the fourth quarter, excluding restructuring charges, was a profit of Euro 39 million, an increase of Euro 79 million year-on-year and a decrease of Euro 27 million sequentially, mainly due to lower sales. Sony Ericsson¶s net cash position as of December 31, 2010 was Euro 375 million. The negative cash flow from operating activities for the quarter was Euro 128 million, mainly due to increases in inventory due to seasonal factors as well as payments related to the transformation programme.
During the quarter term loan facilities of Euro 150 million matured and were repaid in full. Sony Ericsson estimates that the global handset market for the full year 2010 increased slightly in volume to almost 1.2 billion units. The company estimates that the global handset market for the fourth quarter was essentially flat year-on-year and its market share for the fourth quarter was approximately 3% in units and approximately 5% in value. Sony Ericsson estimates that its market share for the full year 2010 was approximately 4% in units and approximately 6% in value.
Annual shipments of units 2003 to 2009
Comparison to Sony Ericsson Sales Figures in 2009 The Sony Ericsson phone sales volume grew over the first quarter but with a modest 4.8 percent . However, it is well up to the 2009 quarter volumes varied between 13.8 and 14.6 million units .
PRESENT
SCENARIO: Sony Ericsson is altering its mobile strategy to focus on lucrative, high-
end smart phones according to iSuppli senior analyst Tina Teng, the company is (wisely) positioning itself to cash in on the fastest growing and most profitable segment of the global wireless market. "Given that cell phones penetration has [already] reached 73.4 percent of the [world's] population, shipment growth is slowing markedly," Teng told TG Daily in an e-mailed statement. "Meanwhile, average pricing for mobile phoneshas declined to extremely low levels and will continue to decrease in the coming years. In contrast, smartphones and feature phones continue to offer fast growth and strong profit margins." Teng explained that Sony Ericsson was "mirroring" rival Motorola's strategy, which has seen the manufacturer withdraw from the mainstream cell phone market to promote its high-end Droid line. To be sure, Sony Ericsson only recently entered the crowded smartphone marketplace with devices like the Xperia (X10) - which is powered by Google's popular Android mobile OS
VIEWS:
Sony-Ericsson is moving into the high-end segment of the cell phone market but it is also losing total share because it just wants higher margins. That's not a longer-term winning strategy. By focusing on the high-end alone, Sony-Ericsson is forcing telecommunication companies to view it as a source that does not have a complete lineup. It obviously won't be the first choice of the telecom companies looking for a wide range of products. That's the first problem with its strategy. The second problem is even more daunting. Even with its focus on the high-end market, Sony-Ericsson does not have a product anyone can remember instantly, like Apple's iPhone. By the way, the iPhone is all high-end and the volume is going up. Sony is still a big name in Asia, particularly in the developing countries. One thing they can do easily to get back to the high end market is adopt Google's Android OS(very small cost) and invest some money to create some decent apps. Then they can put the new high-end phone in, let's say, China. If everything works out including they can make good partnership with major wireless carriers, Sony can make good profit.