It's an end of an era. Ericsson is abandoning the mobile handset business.
Ericsson (NASDAQ:ERIC) confirmed that Sony will buy its 50 percent stake in their decade-old handset joint venture Sony Ericsson for around $1.47 billion, giving the Japanese electronics maker control over the company.
The companies said Sony Ericsson will become a wholly-owned subsidiary of Sony and will be integrated into Sony's platform of network-connected consumer electronics products. Sony will also get a broad intellectual property cross-licensing agreement and ownership of five essential patent families relating to wireless handset technology. Ericsson and Sony said they will set up a wireless connectivity initiative to bring mobility to a wide range of products. The deal is expected to close in January.
"During the past ten years the mobile market has shifted focus from simple mobile phones to rich smartphones that include access to Internet services and content," the companies said in a statement. "The transaction is a logical strategic step that takes into account the nature of this evolution and its impact on the marketplace."
"We can more rapidly and more widely offer consumers smartphones, laptops, tablets and televisions that seamlessly connect with one another and open up new worlds of online entertainment," Sony Chairman and CEO Sir Howard Stringer said in a separate statement.
Earlier this month the Wall Street Journal reported that Sony was close to buying Ericsson out of the joint venture, in a bid to integrate the handset company with its tablets and gaming consoles. Buying Ericsson's stake could cost between $1.3 billion and $1.7 billion, the report said, citing analyst estimates.
A top Sony executive said last week that Sony Ericsson is key to the company's plans to get games, email and other features into more mobile devices. Speaking at AllThingsD's Asia:D conference, Kazuo Hirai, Sony's executive deputy president, said that "the Sony Ericsson management team understands how important it is to be a part of this Sony strategy" and that the two are in lockstep whether it is part of a joint venture or not. He also said Sony's videogame unit is "in discussions" to expand PlayStation Suite, its smartphone and tablet application for Google's (NASDAQ:GOOG) Android operating system platform, to a more devices not made by Sony or Sony Ericsson.
Sony Ericsson, based in London and with 7,500 employees, posted a net profit of around $126 million in 2010 after quarters of losses. The company, which has undertaken a transition to smartphones by relying on Android, has watched its market share shrink from 4.3 percent in the third quarter of 2009 to 1.7 percent in the second quarter this year, according to research firm Gartner.
There have also been recent indications that Sony Ericsson is moving more toward a product alignment with Sony. The handset maker's Xperia Play Android phone is essentially a mobile Sony PlayStation device married to a phone, and has access to Sony's video game library. Additionally, Sony Ericsson's flagship Android phones, including the Xperia Arc, connect to Sony TVs through DLNA technology. Sony will now become one of a few companies, including LG and Samsung, to house both home entertainment and mobile phone operations, and will likely try and tie together all of its offerings even more tightly than it already has.
'"Sony now has all the components to compete with Samsung and Apple (NASDAQ:AAPL)," Canalys analyst Pete Cunningham told Reuters. "The big question now is...can it execute?"
"Sony should be a big player in the digital home," BDA China anlayst Duncan Clark told Bloomberg. "The mobile phone is becoming much more central to electronics. If they are going to be successful and fend off Samsung, they need to do this."