Back in the day, when it came to mobile infrastructure, there were three large companies: Motorola, Ericsson and Nortel. They were collectively called M.E.N. And often, thanks to their monopolistic practices, they were essentially M.E.N behaving badly. Nevertheless, in time two of them fell victim to change in technologies and their own corporate actions while market forces in the form of competition from Huawei changed the landscape forever.
However, one of them survived: Ericsson. The Swedish telecom giant has managed to transform itself by betting big on one simple trend — the demand for wireless broadband is going to be huge. In doing so, the company kept building leading edge 3G+ products, bet heavily on LTE and pushed harder into emerging telecom markets such as India and China. Today, when it comes to mobile, they are one of the two major players, Huawei being the other. (Alcatel-Lucent is also a player, but it is mostly because it gets support from carriers in its home markets of the U.S. and France.)
Today Ericsson announced that it is selling off its stake in the ill-fated Sony Ericsson phone handset venture to Sony for about $ 1.5 billion. It is a great move by Ericsson — they invested close to a billion dollars over the past 11 years and still made money on the money-losing venture. I am even more impressed that they were able to get money out of the Japanese giant (even if it’s for IP that is being licensed.)
Sony Side Up
The Sony Ericsson joint venture has always been a mess and hasn’t been able to realize its full potential. This unshackles Sony and allows them to leverage its brand and push more phones in places like India and parts of Latin America. It still has an immense retail presence and with some focus they can start to compete with Samsung, HTC and Motorola. From the looks of it, this is the last chance for Sony. If they blow it, then they will be relegated to the status of a niche domestic Japanese handset maker.
On paper, the Sony Ericsson divorce may seem like a win-win for both companies, but Ericsson is the real winner because it will allow them to focus on its core strengths — broadband — as it competes with China’s Huawei, its biggest and scariest competitor. The next thing Ericsson needs to do is get rid of their joint venture with Siemens called ST Ericsson. And they need to do it really fast.
In doing so, Ericsson becomes a pure play broadband company — selling wired broadband and wireless broadband hardware along with providing managed services. (See: Ericsson to manage Sprint’s network.) It is also time for Ericsson to start thinking about the evolution of the mobile cloud and how they can build hardware for that shift. In doing so, Ericsson will remain the other viable option against Huawei, which has become the PacMan of telecom.
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