It’s all about messages and audiences these days.
Sony Ericsson Mobile Communications L.P. sent forth multiple messages in the past two weeks, all emphasizing that the Japanese-Swedish joint venture is on the move in the wake of an impressive performance last year.
The messages were easily discernible and the possible audiences included investors in Sony Ericsson’s parent corporations, competing handset vendors, wireless analysts and, of course, the messenger, also known as the media.
The degree to which these messages were consciously coordinated is likely to remain unanswered, given the vendor’s internal discipline. That critical audiences would be receptive and, in fact, tuned for news from the handset vendor, however, appears to be a given, based on the JV’s results.
Last year, Sony Ericsson overtook LG Electronics Co. Ltd. as the world’s No. 4 handset vendor by unit shipments. In the fourth quarter, it surpassed its targeted rival, No. 3 Samsung Electronics Co. Ltd., in revenue. Net income for the Japanese-Swedish joint venture in the fourth quarter nearly tripled over the year-ago quarter, nearly reaching the level of a limping Motorola Inc. on less than half the latter’s handset volume. The JV’s average selling prices (ASPs were about $188) and margins (net margins reached nearly 12 percent) were among the strongest in the business.
Balancing modesty, swagger
Having earned the spotlight, Sony Ericsson has delivered a series of messages, somehow combining the company’s apparent penchant for modesty with a bit of carefully contained swagger.
The unified message appeared to be that the JV, if not exactly putting the pedal to the metal, is carefully accelerating as it ponders how to pass Samsung on the road ahead. LG, though not far behind Sony Ericsson in shipment volumes, has none of the JV’s financial momentum; a blur has passed, only exhaust fumes remain.
The vendor’s multiple messages unfolded in rapid succession, beginning with a muscular announcement, later tempered, about manufacturing plans in India. The details are well-known-Sony Ericsson, last among its peers, will manufacture handsets in Chennai, India, in tandem with two leading electronic manufacturing services-as is the thrust: India’s burgeoning market offers an opportunity for unit volume and, therefore, market-share gains. Thus, message one: we’re competing for volume (10 million handsets in two years), if not significant local share (Nokia Corp. claims a staggering 60 percent of the Indian market), which should add to overall global market share.
But the robust language of the vendor’s announcement called attention to itself: “As part of a strategic and longer-term growth plan, (Sony Ericsson) will increase its presence in important growth markets around the world . the decision to manufacture in India is part of this strategic decision.”
Given the circumstances, one could be forgiven for taking the language at face value, though Sony Ericsson’s global spokesman, Aldo Ligouri, only days later cautioned that the India announcement focused only on India. Rather than a forward-looking statement of a possible global ramp-up, India simply reflected the JV’s past manufacturing model, Ligouri said. Sony Ericsson has used EMSs for regional, hub manufacturing elsewhere and its partners’ plants in India may serve the same purpose. As for broader implications, Ligouri said, “we tend not to announce until we announce.”
Ligouri took the opportunity to send another message as well, perhaps to quell any questions among investors or analysts raised by the India news.
“For us, it’s not about manufacturing cheap phones,” Ligouri said, emphatically. “India is a strong market for our entire portfolio, including high- and mid-tier phones. It’s about bringing the Sony Ericsson brand to a wider group at a lower price point-but not cheap, sub-$40 handsets. We will never go there.”
Ligouri’s comment might well have been a reference to Motorola. The No. 2 vendor in 2005 won a GSM Association contract for ultra low-cost handsets in emerging markets and last year shipped large volumes of C series handsets disparaged by analysts as too basic. It then suffered late last year from low margins and earnings on high volumes.
New portfolio
Sony Ericsson’s strategic messages were accompanied by tactical ones. Last week, the JV announced eight new phones, including a high-end, 9.4 millimeter-slim Walkman-perhaps in answer to Samsung’s anorexic Ultra Edition, or simply the global market’s expectations-as well as four entry-tier models, some with FM radios only, designed for emerging markets. Message: we can expand our portfolio across tiers and four out of eight new phones for emerging markets signals market share ambitions.
Quietly, through personal contact with reporters last week, North American spokeswoman Cherie Gary mentioned that Sony Ericsson would soon add 100 new engineering positions to its global research-and-development facility in Research Triangle Park, N.C., a more than 10-percent addition to the vendor’s 750-member North American team.
“We’ve always said the U.S. market was a priority and now that the company is stable, we are ramping up R&D to focus specifically on the needs of North American operators,” Gary wrote in an e-mail on the topic.
Message: we’re plowing profits into R&D, increasing headcount and making inroads in the United States, where we’ve lagged due to our GSM-only stance, and thus, fewer potential customers. Context: Motorola, chastened by low profits and missed targets, is cutting 3,500 jobs, despite its leading U.S. position.
Whether thought through and carefully planned, or merely a reflection of a company with well-aligned goals and messages, Sony Ericsson has managed to suggest that it is on the move in a carefully calibrated attempt to gain market share while retaining high ASPs and margins.
Clearly impressed by Sony Ericsson’s results but mindful of Motorola’s own slide from giddy glory last summer to its chastened stance last month, at least one analyst-Ittai Kidron at CIBC World Markets-suggested recently that the Japanese-Swedish JV’s reward for its current success is the one facing all rising stars: can the company sustain its roll?
