Sometimes it’s easier to stay in a troubled marriage than to undergo a costly and messy separation. Consider Sony Ericsson, the world’s fifth-largest maker of mobile phones. The eight-year-old joint venture between Japanese consumer electronics giant Sony and Swedish telecom equipment maker Ericsson has weathered more than its share of ups and downs. But now, with sales tanking and losses soaring, rumors abound that one — if not both — of the companies may be pushing for a breakup.
Both partners insist divorce isn’t an option. Even after Sony Ericsson warned on Mar. 20 that first-quarter shipments would be down by nearly half from the previous quarter and that losses could be as high as $530 million, the two parents continued to affirm their commitment to the venture. “Sony and Ericsson are determined to work with Sony Ericsson’s management team to turn the situation around and return the company to profitability,” the companies said in a joint statement.
That’s a huge challenge. To give Sony Ericsson a chance to engineer a turnaround by 2010 will require an infusion of at least $1.4 billion in additional capital, figures brokerage Nomura International. Without it, the company could burn through most of its current $1.6 billion cash pile as soon as August, estimates Richard Windsor, Nomura’s global technology specialist in London. “The situation at Sony Ericsson is relatively precarious,” Windsor says. “The perception is that it could easily become the next Motorola.”
Midrange Handset Sales are Plunging
That’s a far cry from where Sony Ericsson was as recently as two years ago. After a rocky start to the joint venture, the company’s hip brand image and products such as the Cybershot camera phones and Walkman range of handsets proved popular with consumers, helping to propel it to the No. 3 position among cell-phone makers for a brief…