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Summary:

On paper, the Sony Ericsson divorce is a win-win for both companies. However, it’s a winning move for Ericsson because it allows the company to focus on its core strengths — broadband — as it competes with China’s Huawei, its biggest and scariest competitor.

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Back in the day, when it came to mobile infrastructure, there were three large companies: Motorola, Ericsson and Nortel. They were collectively called M.E.N. And often, thanks to their monopolistic practices, they were essentially M.E.N behaving badly. Nevertheless, in time, two of them fell victim to changes in technologies and their own corporate actions, while market forces in the form of competition from Huawei changed the landscape forever.

However, one of them survived: Ericsson. The Swedish telecom giant has managed to transform itself by betting big on one simple trend: the demand for wireless broadband is going to be huge. In doing so, the company kept building leading edge 3G+ products, bet heavily on LTE and pushed harder into emerging telecom markets such as India and China. Today, when it comes to mobile, they are one of the two major players, Huawei being the other. (Alcatel-Lucent is also a player, but it is mostly because it gets support from carriers in its home markets of the U.S. and France.)

Thursday, Ericsson announced it’s selling off its stake in the ill-fated Sony Ericsson phone handset venture to Sony for about $1.5 billion. It’s a great move by Ericsson; the company invested close to a billion dollars over the past 11 years and still made money on the money-losing venture. I’m even more impressed it was able to get money out of the Japanese giant (even if it’s for IP that is being licensed.)

Sony Side Up

The Sony Ericsson joint venture has always been a mess and hasn’t been able to realize its full potential. This unshackles Sony and allows it to leverage its brand and push more phones in places like India and parts of Latin America. It still has an immense retail presence, and with some focus it can start to compete with Samsung, HTC and Motorola. From the looks of it, this is the last chance for Sony. If Sony blows it, the company will be relegated to the status of a niche domestic Japanese handset maker.

On paper, the Sony Ericsson divorce may seem like a win-win for both companies, but Ericsson is the real winner because it will allow it to focus on its core strengths — broadband — as it competes with China’s Huawei, its biggest and scariest competitor. The next thing Ericsson needs to do is get rid of its joint venture with ST Microelectronics called ST Ericsson. And it needs to do it really fast.

In doing so, Ericsson becomes a pure play broadband company: selling wired broadband and wireless broadband hardware along with providing managed services. (See: Ericsson to manage Sprint’s network.) It’s also time for Ericsson to start thinking about the evolution of the mobile cloud and how it can build hardware for that shift. In doing so, Ericsson will remain the other viable option against Huawei, which has become the PacMan of telecom.

  1. Its is just not possible for a Chinese company to be even regarded as a competitor as the Chinese are many generations behind us. I have never heard of this little huawei, who are they – making dangerous toys.

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    1. if you have never heard of them, maybe it is a problem with your hearing..

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      1. well huawei is the dragon in telco gear which is starting to show its might

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  2. To me, it’s a shame. The Sony-Ericsson phones are surprisingly good quality for the price. In India (and possibly China), they are pretty popular and well-loved. I hope this divorce does not affect the quality and pricing of these phones.

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    1. They might get better!

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      1. C’mon Om, The old Sony is gone don’t you think?

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  3. The next thing Ericsson needs to do is get rid of its joint venture with Siemens called ST Ericsson.

    Its not Siemens , the joint venture is with STMicroelectronics.

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    1. Thanks for catching that. I had NSN on my mind :)

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  4. Om, are you sure that describing Ericsson as a “pure play broadband company” is actually helpful? I am always on for analysts trying to simplify things to aid comprehension but I reckon you’ve taken it too far. Describing Ericsson as a broadband firm makes them sound like a cable operator or a telco and really doesn’t do justice to the wide range of products & services they offer. The main point here is Ericsson has at long last exited the consumer business which I agree is a positive step. Why do you think they should also exit their chip JV as you don’t provide any explanation for that
    thanks

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  5. Ericsson has always been the leader player in broadband (arround 40-60% of the market share). Huawei is a big player, but the Network industry is not only about installation and that’s where Ericsson is aiming with the Business Units Global Services and Multimedia.

    When you say Ericsson’s finally becoming broadband player, it always has been, the difference now is that they are pulling out of hardware to focus on more added-value Services.

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  6. brad nicholas Friday, October 28, 2011

    It certainly made no sense anymore for them to bet on Sony Ericsson devices exclusively. For the record Huawei and ZTE are both very active mobile device manufacturers, not just suppliers of network equipment.

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  7. You say: “The next thing Ericsson needs to do is get rid of its joint venture with ST Microelectronics called ST Ericsson. And it needs to do it really fast.”

    With the motivation: “In doing so, Ericsson becomes a pure play broadband company”

    I disagree. While selling Sony Ericsson was the right decision, ST-Ericsson is a totally different story. It is of significant strategic importance, it secures end-to-end control of the wireless systems.

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