Sony Ericsson Maxes the Mix

The Walkman and Cyber-shot sub-brands are leading the joint mobile company close to its goal of being one of the top three in five years

by Dan Carlin

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Only a few years ago it would have sounded very nearly crazy. But when Sony Ericsson Mobile Communications President Miles Flint told the press last October that his company would be among the top three mobile phone makers within five years, it seems he wasn't just blowing smoke.

Sony Ericsson's recently released fourth-quarter results confirm that in the last two and a half years, the joint venture between Japan's Sony (SNE) and Sweden's Ericsson (ERIC) has transformed itself into the rising star of the mobile industry. Boosted by sales of its Walkman and Cyber-shot phones last year, the London-based company posted record quarterly revenues of €3.78 billion ($4.9 billion), up 64%, and more than tripled its quarterly net income to €447 million ($581 million).

For the year, revenues hit nearly €11 billion ($14.25 billion), up 51%. Perhaps best of all, Sony Ericsson managed by yearend to increase its market share by two percentage points to 9%, according to company estimates. That put it right on the heels of the No. 3 global mobile phone manufacturer, Samsung.

Over 50 Models

All this for the company that in 2003 was hemorrhaging money, hampered by a limited product portfolio and dogged by a reputation for late delivery. Since 2005, however, Sony Ericsson has vastly expanded its offerings to include over 50 models. It skillfully transferred the appeal of the Walkman and Cyber-shot sub-brands into the mobile phone world. And it reformed its production process to create a faster and more flexible supply chain.

When sales of Walkman phones soared in 2006, it was relatively easy for Sony Ericsson to ramp up production to meet the increased demand, something it had struggled to do in the past. "One question I often got from vendors was, 'You've got a fantastic portfolio, but can you really deliver?'" says Flint. "In 2006 we proved we really could."

Sony Ericsson can't afford to coast yet. To grow volume, it must focus more on fast-growing, but fiercely competitive, emerging markets such as China and India. And it will face rivals both old and new—including Apple (AAPL), with its much-hyped iPhone—who hope to bump the Walkman off its perch as the premiere mobile music phone brand (see BusinessWeek.com, 1/22/07, "Turning Cell Phones On Their Ear").

"Exceeded Everyone's Expectations"

For now, analysts say Sony Ericsson is in a sweet spot, with a judicious product mix—ranging from handsets of modest cost to $800 smartphones—plus powerful brands and a happy marriage of mobile technology and attractive product design. Even industry experts admit they are surprised.

"It was always well known that Sony would bring marketing and branding to the table and Ericsson would bring cellular experience," says Neil Mawston, senior analyst with market researcher Strategy Analytics, near London. "But the success with which the two have mashed together has exceeded everyone's expectations."

In the end, a large part of Sony Ericsson's success in the last two years can be summed up in a single word: Walkman. Just like Motorola (MOT) did with the ultra-thin Razr phone in late 2004, Sony Ericsson codified a new mobile sub-genre in August, 2005, by launching its first Walkman phone, the W800i. Though not the first handset to offer an integrated MP3 music player, the W800i was the first phone to put music playing at the heart of the product; Sony Ericsson even packaged each handset with a pair of earphones to convince consumers it was sincere.

Ripe for Imitation

The massive sales that followed have proved that the nearly 30-year-old Walkman brand still has plenty of life.