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Sony Ericsson might lose Ericsson

Representatives of Telefon AB LM Ericsson, well-known Swedish carrier, made a sensational anouncement yesterday. Being even ultimate, it states that Ericsson is ready to cancel the joint venture with Sony, if Sony Ericsson doesn´t show satisfactory results in two or three quarters.

As you know, Sony Ericsson joint venture was created in October last year at 50%-50% participation, mainly to bring more life into unprofitable mobile phone departments of both companies. It was expected to become profitable already during the next year, but brought 800 million crowns ($86.02 million) losses in Q2 2002. Gartner Dataquest confirmed that company´s market share reduced to 5.4% in the last quarter from 7.7% of Q2 2001. From April to June 2002 they company sold only 5 million phones for 8.8 billion crowns. At the same time Finnish Nokia grew its market share, selling the 1/3 of all phones sold in the second quarter.

What can Sony Ericsson do to regain profitability? In addition to the successful T68i the company plans to release four new phones in the third-fourth quarter. The most advanced model — P800 — is expected for sale already in September. So, before the year ends, the joint venture has all chances to grow the market share and even avoid losses. Then what are the reasons of such an announcement from Ericsson?

The thing is that currently Ericsson is unprofitable itself and strives to regain profits already in 2003. For this it launched a serious expense restructuring program. However, it´s not a secret that both Sony, and Ericsson promised to invest additional 500 million euro into Sony Ericsson before October 2003. The announcement of August 13 from Ericsson´s Chief Financial Officer Sten Fornel that Ericsson wasn´t going to invest into Sony Ericsson this year and planned to limit the next year investments seems to be a first sign. The yesterday announcement about a real chance of Ericsson leaving the joint venture in case of unprofitability during the closest quarters proves that Ericsson still considers the joint venture as an additional expense source.

Sony position is more optimistic. Interviewed by Reuters, Sony representative said that company hasn´t changed its position about the joint venture.

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