Sony (NYSE: SNE) has decided to buy out its 50% partner in the Sony Ericsson smartphone joint venture. That is another bad decision, one that will cost the Japanese company in money and reputation. Sony Ericsson is too far behind in the smartphone business to catch up. It has not produced a hit product since the joint venture was formed.
The price of the buyout was set at $1.45 billion. That is nearly nothing when compared to the market caps of Apple (NASDAQ: AAPL), and even Research In Motion (NASDAQ: RIMM) and Motorola Mobility (NYSE: MMI), all of which compete with Sony Ericsson. The price says a great deal about the value of a very troubled operation. Sony will get some patents in the transaction. The Japanese firm has not said what those may be worth or whether they create an intellectual property moat around the smartphone enterprise.
Sony believes that it can count on “synergy” among its VAIO laptops, its game consoles and Sony Ericsson smartphones. That might work if the VAIO line-up had been a success. Its sales were overwhelmed by those of Apple, Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ) and Lenovo. VAIO has not introduced a product that has enticed customers away from its rivals.
Sony Ericsson broke even in its latest quarter. It shipped only 9.5 million units worldwide. That was down from 10.4 million in the same quarter a year ago. The drop was sickening in a smartphone industry that continues to grow by double-digits worldwide.
Sony thought it could sell PCs because consumers had been drawn to its game console. The market does not work like that. Dell has been able to market PCs successfully since it was founded. It has been unable to produce a successful smartphone. The same can be said for Hewlett-Packard.
Sony will waste more money based on a theory that its brand is powerful enough to create demand for all of its products. That has not been true for years.
Douglas A. McIntyre
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