Sony Ericsson unveils India gambit, takes aim at Samsung with tiered strategy

Sony Ericsson Mobile Communications L.P., the world’s fastest-growing mobile handset maker, announced it will work with Flextronics International Ltd. and Foxconn to make 10 million handsets in India within two years.
The news of Sony Ericsson’s ardent pursuit of market share-in contrast to its focus on profitability during its first five years of business-may well be the tip of the iceberg for Sony Ericsson’s global plans. The India announcement could signal plans for a rapid expansion in GSM markets with original design manufacturer partners and a two-tier portfolio strategy of low-cost, basic handsets and mid-tier feature phones.
The vendor’s president, Miles Flint, said today in Chennai, India, that his company’s goal is to become the third-largest handset maker globally, which requires overtaking Samsung Electronics Co. Ltd. in market share.
Samsung now holds nearly 11 percent market share to Sony Ericsson’s nearly 9 percent market share. Last year, Sony Ericsson shipped nearly 75 million handsets to Samsung’s 118 million, but the Japanese-Swedish partnership earned more revenue and profit.
Earlier this month, NPD analyst Neil Strother said “with average selling prices and margins falling, Samsung has to ask itself how it will stay in a volume-based game.” Sony Ericsson, on the other hand, has built the healthiest margins in the handset business and may now be prepared to sacrifice in that area to grow market share and overtake Samsung.
Flint also said that his company would pursue key growth markets around the world with “greater manufacturing flexibility.” The model of working with ODMs such as Flextronics, with which Sony Ericsson (as well as Nokia Corp. and Motorola Inc.) has worked in the past, may well extend to local manufacturing in other, high-growth GSM markets.
For the Indian market, Sony Ericsson said it plans to make low-cost, color-screen phones with local content and customized keypads as well as mid-tier, music-enabled phones. Sony Ericsson executives have previously debated how to grow market share without eroding average selling prices and profit margins; the two-tier strategy appears to be their answer.
Sony Ericsson’s ambitions may bode well for Singapore-based Flextronics. The company yesterday announced fiscal third-quarter revenue of $5.4 billion, a 32-percent jump from the year-ago quarter. It has manufacturing and supply chain activities in dozens of countries around the world. Taiwan-based Foxconn manufactures handsets for Motorola, as well as other products for Apple Inc., Microsoft Corp., Dell Inc. and Hewlett-Packard, among others. Foxconn is the trade name for Hon Hai Precision Industry Co.