Ericsson stands to gain more by exiting its Sony Ericsson handset joint venture than Sony, analysts say.
The Swedish equipment vendor yesterday revealed it is selling its 50% stake in the device business to partner Sony for €1.05 billion ($1.49 billion) in cash. The sale will allow the firm to focus on its core networks business, and comes as the benefits of covering all bases in wireless technology – namely infrastructure and devices - decline, chief Hans Vestberg said.
“We will now enhance our focus on enabling connectivity for all devices, using our R&D and industry leading patent portfolio to realize a truly connected world," Vestberg explained.
Informa Telecoms & Media principal analyst Paul Lambert believes the sale is something of a win-win for Ericsson, boosting its cash pot while clearing the decks for an “intensified focus on its core business – selling and managing telecoms infrastructure.”
The cash injection couldn’t come at a better time for Ericsson, which saw its cash flow plummet by 10.2 billion kronor ($1.61 billion) year-on-year in the third quarter on the back of poor performances by its joint ventures.
Benefits of the deal for Sony appear obvious. It can now integrate handsets more closely with its other consumer electronic products, and begin to leverage its huge stock of multimedia content. Ericsson has included key handset patents and associated licenses in the sale, which could help Sony avoid the patent litigation currently pervading the global handset industry.
“[O]ur four-screen strategy is in place,” Sony boss Howard Stringer says, referring to the firm’s laptop, tablet and TV businesses. Enabling seamless connections across the four product categories will “open up new worlds of online entertainment” for consumers, and bring the firm “operational efficiencies in engineering, network development and marketing,” he explains.
CCS Insight analyst Ben Wood tweeted that the deal “gives Sony important mobile asset,” but questioned if the buyout is “too little too late” given the joint venture business has struggled to compete in the business over the past twelve months.
The joint venture broke even in 3Q11, overturning a €50 million loss in the second quarter. However, the flip side is the business generated profit of €49 million in 3Q10.