Ericsson is slowly building its wireless business by scooping up parts of struggling Nortel.
Ericsson announced Wednesday that it has won a bid to buy Nortel Networks' North American GSM business for $70 million in cash. The Swedish communications giant went into the deal with a partner, Austria-based Kapsch CarrierCom, which itself spent $33 million to buy Nortel's GSM operations in Europe and Taiwan.
This marks the second major deal in recent months between Ericsson and Nortel. In July, Ericsson won another bid to pay $1.13 billion for Nortel's CDMA and LTE wireless technologies.
GSM (Global System for Mobile communications) is one of two technologies used for mobile phones. It's the standard in Europe and is dominant around the world, while CDMA (Code Division Multiple Access) is more common in the United States. In recent years, however, GSM has grabbed a larger footprint among North American carriers.
Ericsson already holds a strong slice of the global GSM market, especially in Europe, and has been eager to expand its grasp in North America.
On its end, Nortel has gradually been selling its wireless operations as a way to stay afloat in the midst of declining business and rising debts after declaring bankruptcy almost a year ago. On Tuesday, the company announced it would sell its Metro Ethernet operations to telecom equipment maker Ciena.
As part of the purchase, Ericsson will bring on more than 350 Nortel employees in North America. With the addition of Nortel's business and a recent deal with Sprint, North America will become Ericsson's biggest operation, said the company, jumping to 14,500 employees from just 5,000 at the beginning of 2009.
Ericsson noted that its entire North American business captured revenue of around $2.7 billion in 2008, mostly from sales of GSM and WCDMA (Wideband CDMA) equipment and services. Nortel's North American GSM business generated around $400 million in 2008.
No date was given for closing the deal, which is subject to the usual regulatory approvals in both the U.S. and Canada.
Continuing its string of quarterly losses, Sony suffered a net loss of 26.3 billion yen ($292 million) for its second quarter, reported the company on Friday.
Compared with a profit of 20.8 billion yen a year ago, this marked Sony's fourth straight quarterly downturn.
Sales for the quarter that ended September 30 also took a spill, dropping 19.8 percent to 1.66 trillion yen ($18.26 billion) from 2.07 trillion yen in the year-ago quarter.
Recent cost cuts and hot sales of the PlayStation 3 game console both provided a shot in the arm.
But Sony was hurt by a downturn in sales for the venerable PlayStation 2 despite its recent claim that the PS2 was "showing no signs of slowing down." Weak demand for the Vaio line of PCs also dragged down the quarter.
As a result, revenue in the Networked Product and Services division, which includes Sony Computer Entertainment, fell 24.2 percent to 352.6 billion yen from 465.2 billion yen in the year-ago quarter.
Other segments also upset the bottom line.
The Consumer Products and Devices business, which includes TVs and cameras, watched its sales plummet 36.5 percent to 799.9 billion yen from 1.25 trillion yen a year ago. Sales were down for Sony's Bravia HDTVs due to intense price competition and the higher value of the yen. The company's Cybershot digital cameras also were impacted by a decline in unit sales and the appreciation of the yen.
Lower sales both in the theater and at home hurt Sony's Entertainment division, with revenue down 30.4 percent to 136.4 billion yen from 196.1 billion yen in 2008's second quarter.
Sony Ericsson also affected the quarter with sales of 1.6 million euros ($2.36 million), a 42 percent decline from 2.8 million euros in the year-ago quarter. An ongoing drag on Sony's earnings, the cell phone maker has struggled to turn a profit in recent years.
One bright spot was Sony's music business, which enjoyed a 147 percent boost in revenue to 124.5 billion yen, stemming in part from sales of Michael Jackson's product catalog, following the entertainer's death in June.
Despite the quarterly loss, results narrowly surpassed expectations, prompting Sony to boost its forecast for the full fiscal year. The company now is eyeing a loss of 95 billion yen for fiscal 2009 versus its prior forecast of a 120 billion yen deficit. Sony lost 98.9 billion yen in fiscal 2008.
Sony recently announced that the PlayStation 3 will offer Netflix streaming, a move it hopes will bump sales of the game console even higher.
Though stung by a higher net loss and lower sales for the third quarter, Sony Ericsson managed to beat expectations.
The mobile phone maker said Friday it lost 164 million euros ($243.7 million) in the quarter, compared with a loss of 25 million euros ($37.1 million) in the third quarter of 2008.
But analysts polled had been eyeing a net loss of 227 million euros. The company's results also showed an improvement over the second quarter when the company had a net loss of 213 million euros.
Sales for the third quarter fell to 1.62 billion euros versus 2.8 billion euros for the prior year's quarter.
Third-quarter results for Sony Ericsson
(Credit: Sony Ericsson)The latest results were aided by aggressive cuts. Since mid-2008, Sony Ericsson has been on a mission to reduce operating expenses.
Earlier this year, the company announced a series of layoffs to reduce its global workforce by 5,000.
A joint venture between Sony and Ericsson, the company has also received a lifeline in the form of external financing. A total of 455 million euros was made available this year, with 350 million euros guaranteed by its parents.
"Our business in the third quarter started to show the effects of our ongoing transformation program," Dick Komiyama, Sony Ericsson's outgoing president, said Friday in a statement. "We have cleared channel inventories and have continued to realign internal resources and improve efficiency. We have also arranged external financing to strengthen the company's financial position."
The struggling company has been grazed by sluggish consumer demand for mobile phones and intense competition. The company said it expects the global handset market to decline by about 10 percent for the year. And its share of that market has remained small, resting at around 5 percent for the third quarter.
Management at London-based Sony Ericsson is in transition, with Komiyama retiring as president at year's end and handing the reins to Bert Nordberg. The two have already started running the company together as co-presidents.
Sony Chief Executive Officer Howard Stringer has also taken a more active role, replacing Sony Ericsson CEO Carl-Henric Svanberg this week as chairman of the board.
Sony Ericsson leaders say they are optimistic.
"Transforming the business for future growth and returning Sony Ericsson to profitability is the focus of the senior management team and will continue under the new leadership," Komiyama said. "Having refreshed our brand, we are now better positioned to support the launch of new products such as Aino and Satio (phones) in Q4 2009."
In January, the Gartner analyst group said that 2009 would be a deciding year for Sony Ericsson between profitability and growth in market share.
Wireless equipment maker Ericsson said Wednesday it will cut 5,000 jobs after witnessing a 31 percent drop in fourth-quarter net profit year over year.
The Swedish company said profit plummeted due to a dramatic drop in sales in its handset unit, Sony Ericsson, and restructuring charges. Overall, net profit fell to $465 million (3.9 billion kronor) from $672 million (5.6 billion kronor) in the same quarter a year ago. The job cuts represent about 6 percent of the company's 79,000 employees.
"It remains...difficult to more precisely predict to what extent consumer telecom spending will be affected and how operators will act," said Carl-Henric Svanberg, CEO of Ericsson. "To date, our infrastructure business is hardly impacted at all, but it would be unreasonable to think that this would be the case also throughout 2009."
Still, Ericsson's core equipment business, along with a weaker kronor, helped quarterly revenue increase 23 percent to $8 billion (67 billion kronor) from the same quarter a year ago. The revenue figures beat analyst expectations, sending shares of the equipment maker up more than 10 percent in early European trading.
For the year, profits fell 48 percent to $1.3 billion (11.3 billion kronor), while sales grew 11 percent to $25 billion (209 billion kronor).
Sony Ericsson's latest quarterly results, which show a significant drop in revenue, have prompted analysts to suggest this year will be make-or-break for the mobile-phone manufacturer.
The company's results for the fourth quarter of 2008 were published on Friday. Sony Ericsson lost 187 million euros ($248 million) in that quarter--it lost just 25 million euros in the previous quarter. In the fourth quarter of 2007, Sony Ericsson made 373 million euros.
"In economic terms, 2008 has been a tumultuous year with world markets experiencing a serious downturn," said Sony Ericsson President Dick Komiyama in a statement. "The mobile-phone market has been greatly affected by this and as expected, the fourth quarter continued to be very challenging for Sony Ericsson. Our business alignment is progressing as planned, with the full effect of annual savings of around 300 million euros expected by the second half of 2009. We foresee a continued deterioration in the market place in 2009, particularly in the first half."
Gartner research director Carolina Milanesi said in a statement on Friday that Sony Ericsson's sales for the fourth quarter of 2008 came in "at the low end" of the analyst house's expectations. "The market in the last quarter of 2008 continued to be very challenging especially for Sony Ericsson which remains particularly exposed to the weakness of the Western European market," Milanesi wrote.
"We continue to believe that maintaining the third position in the worldwide ranking achieved in the third quarter of 2008 will be very difficult for Sony Ericsson," Milanesi said. "With sales in 2009 forecasted to slow down and the weakness in the European and Japanese market expected to continue, Sony Ericsson needs to build presence in markets such as North America where market share has historically been limited."
Milanesi added that Sony Ericsson's decision to join the Google-led Open Handset Alliance and the Symbian Foundation had been "the right steps," partly because Sony Ericsson has not had a significant presence in the smartphone market so far.
"We believe that 2009 will be a deciding year for Sony Ericsson as it battles between profitability and market share growth," Milanesi wrote.
The average selling price (ASP) of a Sony Ericsson handset in the fourth quarter of 2008 was 121 euros, up from 109 euros in the preceding quarter but down from 123 euros in the fourth quarter of 2007. The company attributed the quarter-on-quarter average selling price increase to "a positive impact of foreign exchange rate fluctuations and to the sale of a higher proportion of high-end models."
Currency fluctuations were also credited for a 4 percent quarter-on-quarter rise in sales (2.91 billion euros, up from 2.8 billion euros), but blamed for having a "large negative impact" on costs. Sales in the fourth quarter of 2007 totaled 3.8 billion euros, so the fourth quarter of 2008 showed a 23 percent year-on-year drop in sales. According to Sony Ericsson, this was "driven by lower volumes, due to the global economic slowdown that resulted in contracting consumer demand and decreased availability of credit."
In its statement, Sony Ericsson estimated that its market share in the fourth quarter of 2008 was around 8 percent. The company also forecast that "the global handset market will contract in 2009 and that the industry ASP will continue to decline."
David Meyer of ZDNet UK reported from London.
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