Sony and Ericsson announce pact

(Telephony) In an effort to boost their sagging market shares in the mobile-phone business, Ericsson and Sony announced plans to combine their handset businesses to create a new company called Sony Ericsson.

"We've been looking at possible ways to strengthen our mobile-phone business," said Jan Wareby, president of Ericsson's consumer products division. "We're convinced we found the perfect partner for a perfect match. Many observers describe it as the 'Dream Team.'"

Wareby said Sony's consumer electronics expertise combined with Ericsson's knowledge of the wireless handset market will give the joint venture a winning combination moving into more data-intensive third-generation handsets.

Some analysts did not see the possibilities. "Ericsson has suffered by not having consumer-friendly phones, and Sony can't seem to manufacture or design reliable phones," said a First Union Securities research note. "We don't see how this [joint venture] gives near-term visibility in stemming the losses at Ericsson's handset division."

Investors were hoping Ericsson would completely exit the handset business. The company's handset sales fell 52% in the first quarter, while operating losses in the division dipped to $555.7 million.

Sony, while the leader in the consumer electronics world, has failed to develop a successful handset business. The company's handset market share worldwide is 2%, primarily in Japan.

"Theoretically, it's a good match, but if you look under the covers, there are a lot of red flags that need to be either better addressed or fully articulated to the analyst community," said Bryan Prohm, senior analyst with Dataquest.

Wareby declined to tell analysts how much each company would contribute to the joint venture, which will commence operations Oct. 1 and launch its first products in 2002. He predicted the Sony Ericsson business would become profitable from the start.