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Sony Ericsson Demonstrates How Clinging To Android Is Not A Silver Bullet

Sony (NYSE: SNE) Ericsson (NSDQ: ERIC), the joint venture combining the wireless expertise of Sweden’s Ericsson with the branding and media strength of Japan’s Sony, has always theoretically held a lot of promise. But an interview published today with the company’s CEO, Bert Nordberg, gives a frank rundown of some of the company’s problems, and underscores the fact that just because Android is a huge seller worldwide, it doesn’t mean instant success for all the OEMs pinning their hopes to it.

The interview, translated and published in the WSJ, walks through some of the bigger competitive challenges that have faced Sony Ericsson up to now, but also skirts some of the big issues that the company surely must have to face up to soon, if only to meet expectations from investors.

(At the end of Q2, Sony Ericsson had a 1.7 percent share of the worldwide mobile phone market, according to Gartner, down from 4.3 percent in Q3 2009, when Nordberg first took over. Moreoever, the company is currently loss-making — although it says the last quarter would have been profitable had it not been for the earthquake/tsunami disaster in Japan.)

Some of the key points covered in the interview:

On Apple. Nordberg seems to indicate that Sony Ericsson totally misread how influential the iPhone would be, both in terms of sales and also in terms of how it would shift market expectations for smartphones. “It’s safe to say that Sony Ericsson should have taken the iPhone more seriously when it arrived in 2007,” he admits.

On Android. Under Nordberg, the company swapped out Symbian and started to make smartphones using the Android OS. In theory, given how popular Android is, that should have been a great move. Indeed, the article notes that Sony Ericsson has ambitions to be the largest Android player (but then, who doesn’t). But at 11 percent of all Android OS sales, it is very far from that position, which is dominated by Samsung worldwide — although HTC has top position in individual markets.

Sony Ericsson has been trying to turn itself around into a smartphone-only company: currently 70 percent of its sales come from smartphones with the rest from feature phones, and Nordberg estimates that it will reach its all-smartphone goal by the middle of next year.

On Microsoft’s Windows Phone OS and new technology in general. Despite its rather weak position in the Android hierarchy, Nordberg is not exploring any OS alternatives for now, but nor is Sony Ericsson looking for ways of differentiating themselves on devices, it seems. If anything, the Sony Ericsson he describes comes across as disappointingly risk-averse.

On LTE in devices: “We are quite careful throwing ourselves into new technology, simply because there is no guarantee that consumers will buy, just because we develop it,” he says, and on WP7 in particular: “At this point I wouldn’t feel comfortable investing in a platform that isn’t as good as the one that we currently use. Therefore we have remained with Android, but I am quite curious about Windows Phone.”

On the U.S. market. Something that often gets overlooked when people talk about Nokia’s problems in the U.S. is that its European compatriot has fared no better, even without the supposed burden of Symbian OS.

Sony Ericsson’s missteps sound like they have come not just from a lack of compelling devices, but also a misreading of how significant it was to get the right operator relationships secured. “We have underestimated how fast we would be able to penetrate the U.S. market,” he admits. “We are a very tiny player in the US. Our Playstation device, the Xperia Play, has been a path for us to establish a relationship with U.S. operators, and we managed to get deals with both Verizon and AT&T (NYSE: T). Now we need to broaden our U.S. product portfolio.”

There is precedence for Sony Ericsson regaining its fortunes after a rough time. Back in 2002, Ericsson said it would consider pulling out of its JV with Sony if market share did not improve; however in 2003 both sides reinvested. Then, between 2004 and 2007, as Sony Ericsson launched Walkman and Cybershot handsets, leveraging some of Sony’s brands’ strength, they even saw net income growth.

That course changed after 2008 and the rise of new smartphones. Now what’s not clear now is whether either side have a limit to how much longer they would consider remaining in partnership going forward if the losses continue and market share continues to decline.

One possible resolution might come from Sony. The Japanese company has started to pursue more standalone products, and I’ve always thought it was the company’s way of seeing once again how it could fare in the wireless, handheld business alone: these include its wireless PS3 gaming devices, and now also tablets, which started to ship in September.

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