Wireless

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.

Sony Ericsson's president, Hideki "Dick" Komiyama, is to retire at the end of the year, the company said Monday.

Sony Ericsson's Bert Nordberg

(Credit: ZDNet UK)

The new president for the loss-making handset maker will be Bert Nordberg, who will move over from Ericsson. Nordberg, who currently heads up Ericsson's networking research and development wing in Silicon Valley, will become co-president of Sony Ericsson at the start of September, to allow for a smooth transition.

"In the two years he has been at Sony Ericsson, Dick Komiyama has made some very important changes to their organization and laid the foundation for the company's turnaround," Ericsson chief executive Carl-Henric Svanberg said in a statement Monday. "Although we are sorry to see him leave Sony Ericsson, we fully respect his decision."

Sony Ericsson has been losing money since the middle of last year, and is in the process of laying off thousands of workers in a bid to return to profitability. The company is pinning its hopes on a new entertainment-centric strategy. The new multimedia handsets that form part of that strategy are due to appear later this year.

The timing of Komiyama's departure is "strange" given the imminent release of Sony Ericsson's new handsets, Gartner analyst Carolina Milanesi told ZDNet UK on Monday.

"A lot at the moment is resting on those new products coming in the fourth quarter," Milanesi said. "It seems to me that they've not given the products the opportunity to show something. If they are thinking that the new products might start to turn things around, it is a bit of strange timing [for Komiyama to leave]."

Komiyama said in the statement that he felt it was the right time "to begin transferring the leadership of the company to a person who is able to complete the transformation program and lead Sony Ericsson through its next phase of development."

Meanwhile, Howard Stringer, Sony's chief executive, chairman and president, will take on an additional role, replacing Svanberg as chairman of the board at Sony Ericsson.

David Meyer of ZDNet UK reported from London.

A spring of Sony Ericsson phones

The mobile handset market is set for recovery after the worst economic downturn since the Great Depression, according to Nokia, the world's largest maker of cell phones.

The cell phone market has been hit particularly hard by the worldwide economic slowdown. And companies such as Nokia and Sony Ericsson have taken a beating.

The second quarter of 2009 was particularly hard for Nokia. The company's earnings were ugly with a 25 percent drop in revenue, a 15 percent drop in handset shipments, and a more than 70 percent decline in operating profits, compared to the same quarter in 2008.

Sony Ericsson, which reported its second quarter earnings just hours before Nokia, also had a poor showing in the second quarter. The company posted a 213 million euro ($301.4 million) net loss for the second quarter, which was down from a profit of 6 million euro ($8.5 million) during the same quarter a year ago.

But for Nokia and Sony Ericsson there are glimmers of hope in their results. Sequentially, Nokia's revenue and profits improved slightly compared to the first quarter of this year. And Sony Ericsson posted a narrower net loss than analysts had forecast.

These bits of positive news are likely contributing to a growing sense that the worst of the recession may be over.

"Competition remains intense," said Nokia's CEO Olli-Pekka Kallasvuo. "But demand in the overall mobile device market appears to be bottoming out."

This is good news for an industry that some market research firms have predicted will see at least a 20 percent drop in product shipments for 2009 compared to 2008. Nokia admits that neither its company nor the industry as a whole is out of the woods just yet. It reiterated on Thursday that it expects the industry to shrink about 10 percent in 2009 compared to last year.

But news that Nokia, which sells about 40 percent of all handsets in the world, is seeing the light at the end of the tunnel is a major positive for the industry and the economy as a whole. Even though unemployment rates are still rising in the U.S. and abroad, there are other signs from the technology industry that consumers and businesses are starting to spend again.

Earlier this week, Dell said it's seeing demand for its products--PCs, services, servers--"stabilizing." And Intel released an upbeat outlook during for its second-quarter report on Tuesday. Intel's feel for the market is an important bellwether for the tech industry, and the chipmaker reported its best first-to-second-quarter growth in almost two decades. CEO Paul Otellini declared it a "clear expectation for a seasonally stronger second half."

These are all good signs that the economy is headed for recovery. But the climb back to robust growth could be a slow one. And there's no guarantee that a rising tide will lift all boats, especially in the mobile handset business.

Right now, the mobile handset market is going through a massive transition. Cell phones that were once used simply to make phone calls have evolved into jack-of-all-trade devices. Increasingly, cell phones are being used to provide Internet connectivity that allows people to use new forms of communication, such as social networking sites. Olli-Pekka acknowledged this trend during Nokia's second-quarter conference call with analysts and investors, noting that in the future more people will connect to the Internet via a cell phone than a computer.

"A new industry is emerging as the Internet and communications converge," he said. "And consumers will increasingly demand products that are more integrated."

Nokia has been at the forefront of developing devices that do just that. The company has led the market with its 3G wireless portfolio and it has led the market in terms of worldwide shipments with its smartphone devices, the N-series and E-series phones. On Thursday, it reported that some of these devices have been doing quite well worldwide. For example, it shipped 3.7 million 5800 series handsets during the quarter. And it also noted I has sold a total of 5 million units of its popular E71.

Smartphones are key
Smartphones in general are expected to lead growth in the industry as consumers look for more advanced features and easier access to the Internet and online applications.

But recently Nokia has lagged in terms of innovation here. Meanwhile, Apple is now viewed the leader in terms of innovation with its iconic iPhone. And other companies like as Research In Motion and Palm are also making advances with their own products. The new Google Android operating system, which will be on a whole slew of devices in the second half of 2009 and into 2010, is also expected to push the industry forward in terms of innovation.

Nokia and Sony Ericsson, each recognize that they need new products in the smartphone market to excite consumers. Sony Ericsson's flagship smartphone, Xperia, has so far not been particularly strong. But the company is working on other new products. And during a conference call with investors, Sony Ericsson Chief Executive Dick Komiyama said his company's new product portfolio should contribute to "healthier topline development" once shipments start later in 2009.

Nokia's Olli-Pekka also noted that the company plans to increase its focus on developing more advanced phones.

"The line between handsets and PC will not exist in the future," he said. "And our ambition is to become the leading provider for these integrated mobile devices."

But Olli Pekka also emphasized the need to address the low and mid-range of the mobile market as well. And he emphasized the need for Internet connectivity and sophisticated technology in these devices as well.

"As we have said before, one size doesn't fit all," he said. "Nokia will continue to address all price points and all markets globally."

This is exactly the market that INQ Mobile, a new handset maker backed by Hutchison Whampoaa, is addressing. Smartphones may offer more growth, but basic Java-based feature phones still make up the bulk of the market. Today about 40 percent of the cell phone market is made up of phones that operators buy for between $36 and $99, according to Strategy Analytics. These are typically basic feature phones. Smartphones, which sell to carriers for more than $300 a pop, make up about 17.8 percent of the market currently, says Strategy Analytics.

In terms of market share, these figures are not expected to change much over the next few years. Mass market devices, which are in the mid-tier in terms of pricing, will continue to make up about 40 percent of the overall cell phone market well into 2014, the firm has said. But this doesn't mean that the average consumer will settle for me-too low-functioning devices. They are increasingly demanding more advanced functionality in lower-priced devices.

"The market is going through a huge seismic shift right now," said Frank Meehan, CEO of INQ Mobile. "People want more functionality in their phones, even the less expensive phones. They are demanding a good user interface. And they're refusing to put up with a bad Internet experience."

Meehan believes that this market has been largely overlooked by the major cell phone manufacturers, which have done a poor job integrating Internet-based applications and social networking into their devices. His company is trying to address this void with new, inexpensive devices that make it easier to access Internet based applications like Facebook with a single click.

The challenge for companies such as Nokia and Sony Ericsson over the next couple of years as the industry moves out of the recession and toward Internet-enabled devices is to address the high-end of the market as well as the low and mid-tier of the market. For these companies it will require a balance between controlling costs and adding innovative new features. As Nokia's Olli-Pekka pointed out during the conference call, the winners in this new era in the cell phone market aren't apparent yet. But he is confident that Nokia can rise to the occasion.

The Sony Ericsson W995a is packed with features, but at about $600 it may not provoke much of a clamoring among U.S. consumers.

(Credit: Sony Ericsson)

Nokia and Sony Ericsson are targeting the U.S. with a new set of unlocked phones. But without hefty carrier subsidies, will they ever be able to crack the U.S. market?

There's no question that when it comes to features, Nokia and Sony Ericsson's new U.S.-ready phones can easily compete against the hottest new phones on the market.

Nokia's N97, a touch-screen phone that supports both 3G and Wi-Fi, has a 5-megapixel camera and 32GB of memory. It's a clear competitor to the new Apple iPhone 3G S and the Palm Pre.

The Sony Ericsson W995a, also a 3G and Wi-Fi enabled phone, comes with an 8.1-megapixel camera, a brilliant display screen, a good media player and features such as stereo Bluetooth, and GPS. In terms of features and functionality, this phone could easily compete with other high-end feature phones like the LG enV3, which is sold by Verizon Wireless or the Samsung Memoir T929, sold for T-Mobile USA's network.

But even though these phones may have the features to compete, they're not sold through a wireless operator, which means that they are not subsidized, making them too expensive for most mainstream customers. The N97's suggested retail price is $700, and Sony plans to start selling the W995a for $600.

Meanwhile AT&T charges $99 for the 8GB iPhone 3G, $199 for the 16GB iPhone 3GS, and $299 for the 32GB iPhone 3GS. In exchange for the subsidy, AT&T requires that customers sign a two-year service contract. The price of the service, which includes voice and data services, is a minimum of $70 per month. But regardless of whether a device is subsidized, users will have to purchase some kind of voice and/or data plan, depending on the type of device they buy.

"In the U.S. market, price is a huge factor in determining which phones people buy," said Will Stofego, an analyst with the market research firm IDC. "Why pay $500 or more for a phone when you can get an iPhone for $100? Of course you have to agree to the two-year service plan, but I think that's a trade-off most consumers are OK with."

Up until recently, unlocked phones--handsets that can be used on multiple carrier networks--were only available in "gray" markets where Americans bought phones from overseas. Now manufacturers are selling them on their Web sites, in their own retail stores, and through some big retail chains, such as Best Buy. Nokia has opened several retail stores in the U.S. And Sony Ericsson sells unlocked phones through Sony Electronic retail channels.

As part of their push to address the U.S. market, Nokia and Sony Ericsson are also making sure that the phones they sell in the U.S. operate in the frequency bands used by AT&T and T-Mobile, the two main GSM carriers in the U.S. While these operators have built GSM networks just like carriers in Europe and parts of Asia, not all GSM networks operate on the same frequency, which means that some unlocked GSM phones bought in Europe or Asia won't work in the U.S. on a GSM network.

Another benefit to buying a U.S.-friendly unlocked phone is that Sony Ericsson is now offering warranties for customers who buy their U.S. unlocked phones through a Sony retail channel. The company doesn't offer a warranty for phones designed for other countries and brought to the U.S. through the gray market.

Roadblocks for unlocked phones
Despite these efforts to create a stronger retail presence for these unlocked phones, the market remains small. In the U.S., only about 5 percent of the phones sold each year are unlocked and available from somewhere other than a carrier. This differs greatly from other markets. Worldwide, unlocked phones account for about 50 percent of phones sold. In Asia, about 80 percent of cell phones are sold independently of a carrier. And in Europe, roughly 70 percent of cell phones are sold unlocked.

There are several reasons for this difference. For one, two of the four big nationwide U.S. cell phone operators in the U.S. use CDMA, which does not use SIM cards that can be interchanged between phones. Most of the world's cell phone carriers use GSM, which does allow for SIM cards. And because people buy unlocked phones in order to swap out SIM cards to use on other carrier networks, phones made by manufacturers such as Nokia and Sony Ericsson, which have concentrated efforts on developing GSM phones, can only be used on two of the big four nationwide wireless networks in the U.S.: AT&T and T-Mobile.

Nokia's N97 features a touch screen, supports both 3G and Wi-Fi, and has a 5-megapixel camera and 32GB of memory. It'll set you back $700.

(Credit: Nokia)

But the biggest reason that unlocked phones haven't taken off in the U.S. is that they are much more expensive to buy than locked phones that are subsidized and typically require a two-year service contract.

That said, Nokia and Sony Ericsson see opportunity in the U.S. market. And the consumers they're targeting are unlikely to be buying their first smartphone. Steve Medina, product and business manager for Sony Ericsson unlocked phones, says that unlocked phones in the U.S. appeal to a very niche market of tech-savvy consumers.

"Unlocked phones aren't for every consumer," he said. "They are really for the phone junkies; the geeks. It might seem crazy to some people that someone would drop $600 or $700 on a phone. But you'd be surprised at how many actually do."

Medina said a lot of the people buying unlocked phones either frequently travel internationally, or they have lived in Europe and Asia where people typically buy unlocked phones at full retail price. For these consumers, Medina says the benefits of an unlocked phone far outweigh the hefty price tag.

Swapping SIM cards
The biggest benefit of an unlocked phone is that users can simply pop in SIM card to get service. And unlike GSM phones bought through U.S. operators, these phones don't require a special unlock code to be able to swap SIM cards.

Medina says that's an important distinction, because when wireless subscribers from AT&T and T-Mobile unlock their phones, the locking software is still on the phone. The code that is used to unlock the device simply overrides that software. What this means is that when phones are updated, they can be relocked, forcing consumers to once again override the lock code.

Another big benefit of buying an unlocked phone is that all the features that the manufacturer has included on the phone will work. U.S. cell phone carriers sometimes disable some functionality on phones that they sell. And with many phones, they often integrate their own software and branding onto the phone.

But as Medina points out, unlocked phones are not for everyone. Aside from the cost, unlocked phones are often more difficult to set up. Users must configure their messaging functions and Internet functionality on their phones. Phones sold through carriers are already pre-configured for these functions.

And when a carrier upgrades its network and sends out an automated update to phones on the network, unlocked users must handle the updates on their own. And if there is ever a problem with the phone or the service, an AT&T or T-Mobile service representative may not be able to help because he or she isn't trained to deal with these specific phones.

While Sony Ericsson's Medina acknowledges that it's unlikely that the unlocked market will grow with respect to the overall cell phone market in the U.S. right now, he believes that eventually more U.S. consumers will buy unlocked phones.

"We believe that at some point, the U.S. market will become more like the European and Asian markets where unlocked phones are the norm," he said. "The U.S. wireless market will eventually evolve from a carrier-led market to one that is more open. And consumers will select a phone and then select a carrier."

But as long as mobile phone carriers continue to subsidize handsets, most consumers will opt for a subsidized phone rather than paying for a non-subsidized phone.

"The problem in the U.S. is that people have been trained to buy on price," Stofega said.

Government intervention looming?
But not all hope is lost for Sony Ericsson and Nokia in their quest to crack open the unlocked cell phone market in the U.S. These companies may get a little help from the government. Congress and the Federal Communications Commission are already investigating exclusive deals made between wireless carriers and handset makers. And some officials are even questioning the carrier practice of disabling certain features.

It's difficult to say if either the FCC or Congress will actually do something to limit this practice, which could help open up the unlocked market. While a move like this would certainly increase choice for consumers, it could also drive up costs for consumers. Given this consequences and the fact that the phone companies have a strong lobbying organization in Washington, it seems unlikely that government intervention will happen any time soon.

That said, the government has imposed unpopular rules on the phone companies previously. For example, wireless phone companies are now required to allow consumers to take their phone numbers with them when they switch carriers, which was a move that was initially highly unpopular with carriers.

The best solution for cracking the unlocked phone market is for phone manufacturers to develop new business models that will keep consumer costs low, but still reward carriers and phone manufacturers. Medina suggests that Sony Ericsson could subsidize the cost of its phones by charging for mobile games and applications. This is a model that has worked well in the game console market. And there are already indications that consumers are hungry for mobile applications. The success of Apple's App Store is proof of that.

But again price is a big factor in the success of such a plan. Through the App Store, consumers are already being conditioned to get applications for free or for 99 cents.

"Right now unlocked phones will likely not appeal to the mainstream market," Sony Ericsson's Medina admits. "Whenever you have a subsidized model, it is always going to be cheaper to buy a subsidized product. But there are different ways to address this, and we think right now we have a strong offering for hard core cell phone enthusiasts, who want the flexibility of an unlocked phone. But we are also looking at other revenue streams to subsidize unlocked phones."

Swedish-Japanese phone maker Sony Ericsson on Thursday announced targets for reducing CO2 emissions.

The initiative, part of its pre-existing GreenHeart program launched in September 2008, is intended to reduce emissions by 20 percent across internal operations and by 15 percent over the full life cycle of its products by 2015.

Sony Ericsson plans to roll its green strategy into its entire portfolio over time, which is different from focusing on individual green products, such as Nokia's Green 3110 or Motorola's Renew W233.

"We would rather have mainstream models that we sell in large quantities than one particular green model," Jon Mulder, who heads the company's product marketing in North America, told CNET News. "Our customers should first and foremost be able to buy a great phone, and--by the way--find that it's a green phone, too".

One of three new products launching under Sony Ericsson's GreenHeart program is the C901, shown here.

(Credit: Kent German/CNET)

Methods for cutting emissions include providing e-manuals for products to reduce paper usage, and using smaller packaging to decrease the transport-related CO2 footprint, recycled plastics, low-power chargers, and water-based paint that uses local water in the manufacturing process.

Sony Ericsson is launching three products initially: the C901 GreenHeart, a new version of the Cybershot phone C901; Naite, a basic GSM and 3G phone; and the MH300 GreenHeart headset.

Sony Ericsson's approach is pragmatic and low profile, Mulder said. There will be no GreenHeart logo on the hardware, only indications in some of the software.

Sony Ericsson was ranked No. 3 out of 17 manufacturers of electronics in Greenpeace's latest version of its Guide to Greener Electronics from March 2009, earning 5.7 out of 10 maximum points.

The company slipped from its No. 1 position with 5.1 points in June 2008.

In March the same year, Greenpeace awarded Sony Ericsson's T650 the greenest rating among 37 products at the Cebit international electronics fair in Hannover, Germany.

Will the touch-screen Idou phone, expected in the fourth quarter of this year, come too late for Sony Ericsson? This is a deciding year for the company, according to a Gartner analyst.

(Credit: Sony Ericsson)

Sony Ericsson plans to lay off a further 2,000 employees in the wake of deeper quarterly financial losses.

The staff cuts, announced on Friday, add to the 2,000 cuts the handset maker outlined in July. They came the same day that Sony Ericsson reported its first-quarter earnings results, which showed that the company had a pretax loss of 358 million euros ($467 million) for the first three months of 2009. The company's earnings slipped into the red in the third quarter of 2008, and its losses have deepened ever since.

"As expected, the first quarter of this year has been extremely challenging for Sony Ericsson, due to continued weak global demand," Sony Ericsson President Hideki "Dick" Komiyama said in a statement. "We are aligning our business to the new market reality, with the aim of bringing the company back to profitability as quickly as possible."

Komiyama indicated that there would be more cost cuts to come. "The management intends to pursue an additional cost-saving program targeting a further annual operating-expense reduction of 400 million euros, to be completed by mid-2010," he said.

Sony Ericsson estimates that it will lay out 200 million euros in restructuring charges associated with the latest staff reduction. It did not give a business unit and geographical breakdown of the latest layoff. However, a company representative told ZDNet UK on Friday that the cuts, as in the previous layoff round, would affect both permanent employees and contractors.

Sony Ericsson, which has seen losses worsen for the past three consecutive quarters, now has a declared net cash position of 1.1 billion euros. Asked whether this trend means that the handset maker might run out of money by the end of the third quarter of 2009, a company representative responded, "That, perhaps, could be one conclusion."

"We're obviously reviewing the situation regularly," the representative told ZDNet UK on Friday, adding that parent companies Sony and Ericsson "have always maintained their commitment to the joint venture."

Sony Ericsson noted that it now has a 6 percent share of global handset market--down two percentage points, or 25 percent, since the previous quarter. It also said it expects the global handset market to contract by 10 percent over the course of 2009. That prediction is precisely in line with estimates made by Nokia on Thursday.

In February, Sony Ericsson announced an Entertainment Unlimited strategy to integrate various elements, such as imaging and media, into a new generation of handsets. The first new model will be the touch-screen Idou handset, expected in the fourth quarter of this year.

Idou is "certainly a step in the right direction for Sony Ericsson, but one cannot help but wonder if it will be too little, too late, given (that) it will only be on the market at the end of the year," Gartner analyst Carolina Milanesi said in a statement on Friday. In January, Milanesi predicted that 2009 would be "a deciding year" for Sony Ericsson.

Sony Ericsson's representative noted that the company intends to focus this year on "high-end open-(operating system) devices"--a reference to the company's ongoing work on an Android phone and its membership of the Symbian Foundation--and on "(tapping) into the 3G market opportunity in such emerging markets as China."

David Meyer of ZDNet UK reported from London.

The U.S. market has been a struggle for Sony Ericsson's well-reviewed but expensive smartphones, such as the Xperia X1.

(Credit: CNET Networks)

Sony Ericsson's struggling handset business is losing its top North American executive.

Najmi Jarwala, president of Sony Ericsson USA and head of the company's North American operations, is leaving Sony Ericsson "to pursue other career opportunities," the company said in a statement Monday. Last week Sony Ericsson revealed that it expects to lose between $460 million and $528 million during the first quarter of the year, as demand falls for its phones.

Sony Ericsson has had some success in the U.S. with its Cybershot and Walkman phones, but hasn't come up with a major breakthrough in the U.S. and continues to emphasize the entertainment capabilities of its lower-end feature phones through carriers such as AT&T and T-Mobile, rather than its smartphones. For example, Sony Ericsson's Windows Mobile-based Xperia X1 has received positive reviews but no U.S. carrier offers the phone, which means it costs a prohibitively expensive $799.99 in this country.

The company plans to announce a replacement for Jarwala "in due course."

The Sony Ericsson C905.

(Credit: Sony Ericsson)

Sony Ericsson has warned of worsening losses in its upcoming quarterly financial results, blaming weak consumer demand for a drop in sales.

In a statement released by the handset maker Friday, Sony Ericsson said its results for the first quarter of 2009 would probably reflect losses of 340 million to 390 million euros ($460 million to $528 million). Those results will come out on April 17. In the previous quarter, the company lost 187 million euros.

Sony Ericsson estimated it would ship around 14 million handsets during the quarter, with an average selling price of 120 euros.

Gartner analyst Carolina Milanesi said in a separate statement that the global handset market "continues to be challenging," despite some signs of quarter-on-quarter improvement in China and India.

"Imaging and music are now features that most vendors have in their portfolio and this is making it more difficult for Sony Ericsson's products to stand out," Milanesi said. "Increased competition in Western Europe coupled with a slower market and the delay in adopting touchscreen devices are heavily impacting Sony Ericsson's performance."

In January, Milanesi warned that 2009 would be a deciding year for Sony Ericsson, after the manufacturer announced its losses for the fourth quarter of 2008. A week later, Ericsson--one of the joint venture's two parent companies--cited a "dramatic drop in the contribution" from Sony Ericsson as one reason why its profits for that quarter showed a 31 percent year-on-year fall.

David Meyer of ZDNet UK reported from London.

BARCELONA--Sony Ericsson has been hit hard by the global recession, but the company says it has a new strategy focused on services and entertainment that it hopes will get it back on track.

Steve Walker, head of product marketing for Sony Ericsson, and Lennard Hoornik head of global marketing for Sony Ericsson show off the Idou phone at the company's press conference at Mobile World Congress.

(Credit: Marguerite Reardon CNET News/CBS Interactive)

On Sunday evening here on the eve of GSMA's Mobile World Congress, the cell phone maker, which is a joint venture between consumer electronics maker Sony and telecom equipment maker Ericsson, unveiled a new strategy that it says fuses "communication and entertainment."

At the core of its new strategy is something Sony Ericsson calls "Entertainment Unlimited." Executives were thin on details at the press conference here, but the company is planning a strategy that will bring together cell phones with PCs and the TV to share entertainment content.

As part of this strategy, the company announced MediaGo, which is an extension of its PlayNow Music service. MediaGo adds a service that lets users download movies onto their PC and then transfer them over to a Sony Ericsson device. The company announced the W995 Walkman phone, which will be able play the feature-length movies.

The service will also allow the transfer of other media, such as music, photos, and podcasts. The service will also allow users to sync their phone's music library automatically, subscribe to podcasts, and auto-convert files for the best quality playback.

The company also gave a sneak peek at a new high-end, touch-screen phone, called the Idou. This 12.1-megapixel camera phone is supposedly designed for all kinds of multimedia functionality. But details about the product are scarce until it launches in the second half of next year.

The Sony Ericsson Idou under lock and key at the press conference.

(Credit: Marguerite Reardon CNET News/CBS Interactive)

That said, executives alluded to the fact that these two new phones will play a much larger role in the company's "new" strategy to better integrate entertainment on mobile devices and other devices throughout the home.

What's interesting about this supposedly new strategy for the company is that it doesn't sound terribly new. Sony Ericsson was formed in 2001 as a joint venture between a media company and telecommunications equipment maker. And since 2005, it has been selling its Sony Walkman phones, which allow people to listen to digital music on the go.

But now the company claims that its "Entertainment Unlimited" strategy takes things to a new level, where consumers can share and access media across multiple products from cell phones to PCs to their TV screens.

"Everything that we have done to date has brought us to this point," said Lennard Hoornik, head of global marketing and a vice president at Sony Ericsson. "We created the music phone category in 2005 selling over 100 million Walkman phones, and we are now ready to unveil the next chapter in the evolution of the company."

The idea sounds like a good one, but it happens to be one that its competitors share. Nokia, the world's largest cell phone maker, has been developing an entire service platform called Ovi for more than a year that allows users to share files from the PC to the phone and vice versa. And one of the things that has made Apple's iPhone so successful has been its integration with the existing iTunes media store, where users get access to music, videos, and podcasts.

While Sony Ericsson's strategy may not be revolutionary, adding more value to its products is likely a necessary move. The entire cell phone market took a beating in the second half of the year, as consumers bought fewer cell phones due to economic concerns. And that trend is expected to continue until the market starts to pick up.

The recession hit Sony Ericsson particularly hard. For the fourth quarter of 2008, the company lost 187 million euros or about $248 million. This is compared with a profit of about 373 million euros in fourth quarter of 2007.

But it's difficult to say if this "new" strategy will help the company much. The one bright spot in the mobile phone landscape for the next couple years appears to be smartphones. Market research firm IDC recently reported that while overall cell phone sales declined by 12.6 percent worldwide in the fourth quarter, sales of smartphones were actually up 22.5 percent.

The problem that Sony Ericsson faces is that it's not competing very well in the smartphone category. Last year at Mobile World Congress, the company made a lot of buzz with its first Windows Mobile device, the Xperia X1. As of November, the phone has been available in North America.

But the problem is that it's not offered by any major carrier in the U.S. And the $800 price tag for an unlocked and unsubsidized phone is way too high for consumers who can get an iPhone 3G from AT&T, a BlackBerry Storm from Verizon Wireless, or a Google Android G1 from T-Mobile USA for the subsidized price of $200 with a two-year contract.

Given that the smartphone market is where all the action is expected to be over in the next couple of years, it's surprising that Sony Ericsson would choose high-end feature phones to anchor its new "Unlimited Entertainment" strategy.

The details are still too scarce to know exactly how this will shake out. But Sony Ericsson needs a compelling and affordable smartphone that can take advantage of these entertainment and communication features. And to effectively compete in this market, it's going to need to expand its distribution beyond Europe and Japan. Namely, it needs to bring an affordable and cool smartphone to North American consumers.