Sony Ericsson Has a Lot of Work to Do

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Trying to Change the Company Culture

Getting there won't be easy. Sony Ericsson already is in the midst of a cost-cutting program that will see it eliminate 2,000 jobs globally in order to save €300 million ($400 million) a year by the second half of 2009. Komiyama says he also has to shake up the company's culture because even after seven years employees from the two parent companies still don't act in unison. At Sony, Komiyama says, "people all pull together in the same direction." He sees one of his biggest challenges at the joint venture to establish "one brand and one team."

Komiyama already has merged the sales and marketing divisions, fused three product groups into one, and altered priorities at Sony Ericsson's global research and development facilities to better fit the company's overall strategy. The entry-level phone division, for example, was aiming too many of its phones at well-heeled customers, which ended up cannibalizing revenue from the company's mid-range product portfolio.

Another big challenge is making sure there are no gaps in the product pipeline—especially so that Sony Ericsson can seize the gaping opportunity in emerging markets. But even with more focus on low-end phones, the company can't match Nokia's economies of scale and global distribution for handsets priced at $30 or less. That has hampered its growth in markets such as India and China (BusinessWeek.com, 6/30/08).

"Underrepresented" in Smartphones

To fix the problem faster, Sony Ericsson struck a licensing agreement last year with French electronics maker Sagem (SAF.PA) to help it produce low-end phones. But the first models won't be released until the fourth quarter of 2008, some 21 months after the deal was signed. Meanwhile, Sony Ericsson's new Microsoft (MSFT) Windows-based Xperia smartphone is the only such high-end device the company now offers (BusinessWeek.com, 9/15/08).

Surprisingly, although Sony Ericsson is a shareholder in mobile software consortium Symbian and says it remains committed to the relationship, it does not have any smartphones based on Symbian's operating system in its current portfolio—and is unlikely to for some time. This means the company is "underrepresented in one of the few markets in the mobile sector that is growing at a healthy clip," says Richard Windsor, a financial analyst at brokerage Nomura Securities.

Sony Ericsson also badly needs to change the perception that it is a follower rather than a leader, analysts say. The Xperia, announced in February at mobile industry trade show, generated a lot of buzz at the time because of its touchscreen, rich graphics, and ability to switch easily between different screens and menus. But in the six-month lag between announcement and launch, analysts say, the new product already has lost its edge to rivals.

London-based Sony Ericsson is relying on a third-party manufacturer, Taiwan's HTC, which has experience working with Windows. But in the meantime, HTC has come out with its own Windows-based high-end phone, the Diamond, which uses a lot of the same technology and has some of the same look and feel. Apple, meantime, has launched the iPhone, and Samsung and Nokia have introduced high-end models that compete directly with the Xperia.