Sony Nears Deal to Buy Ericsson’s Stake in Mobile-Phone Venture, WSJ Says

By Diana ben-Aaron and Jonathan Browning - Oct 7, 2011 12:54 AM GMT+0700

Sony Corp. (6758) is getting closer to an agreement to buy Ericsson AB’s stake in their mobile-phone venture, the Wall Street Journal reported, citing people familiar with the matter.

The talks between the two companies, which held regular discussions in recent years about the ownership structure of Sony Ericsson Mobile Communications AB, may still fail, the newspaper said. Ericsson spokesman Ola Rembe and Sony Ericsson spokeswoman Holly Rossetti declined to comment. Sony’s spokesmen in Japan couldn’t be reached outside regular office hours.

Full control of London-based Sony Ericsson Mobile Communications AB would add smartphones using Google Inc. (GOOG)’s Android system to Sony’s device business, while freeing Ericsson to concentrate on sales of wireless transmission equipment and services. Sony Ericsson already makes a smartphone with a slideout gaming keyboard that overlaps with Sony’s Playstation games.

“This would make sense for both Ericsson and Sony,” said Haakan Wranne, a Stockholm-based analyst at Swedbank Markets, who said a deal may value Ericsson’s 50 percent stake at as much as 1.4 billion euros ($1.9 billion) “The current venture doesn’t maximize the potential of Sony’s presence and assets in gaming, and is diluting what could be a bigger-profile Sony offering.”

The 50 percent stake could be valued at between 1 billion euros and 1.25 billion euros, the Wall Street Journal said, citing unidentified analysts.

‘No Point’

“‘There is no point” for Ericsson to “remain involved and bear the risk of having to pay additional funds to the joint venture,” Sanford C. Bernstein analyst Pierre Ferragu said.

Ericsson and Sony formed the joint venture on Oct. 1, 2001, giving themselves five years to dethrone Nokia Oyj as the world’s biggest mobile-phone maker. Nokia is still the biggest handset maker by units, while Apple Inc. (AAPL) and Samsung Electronics Co. passed it in the smartphone market in the second quarter, according to Strategy Analytics.

Sony Ericsson on July 15 reported its first quarterly loss in more than a year. Chief Executive Officer Bert Nordberg said at the time the company was ramping down its feature phone business as the worldwide market for handsets without smartphone software was “collapsing.”

The company’s efforts to replace its aging smartphone portfolio with updated models such as the Xperia Arc were dented by supply chain disruptions following the Japanese earthquake and tsunami in March. The company shipped 7.6 million handsets in the second quarter, falling short of the 9.1 million estimated by analysts.

Sony Technologies

The company’s phones use Sony technologies produced in northern Japan, such as camera sensors, displays and batteries.

Sony Ericsson was the world’s tenth biggest handset manufacturer in the second quarter with a 1.7 percent share according to market researchers Gartner Inc. It had a 3 percent share a year earlier. Bigger competitors in the Android segment include Samsung, HTC Corp. (2498), and Motorola Mobility Inc., which was acquired this year by Google for $12.5 billion.

Ericsson can’t expect “to get anywhere close to that amount,” Swedbank’s Wranne said. Google was keen to get Motorola’s intellectual-property holdings “and was prepared to pay up for it.” Sony is also the only realistic buyer for the stake and Ericsson therefore “doesn’t have the opportunity to play this one out.’’

Sony Ericsson has over 4,000 of its own telecom patents and has a license to all the Nortel Networks Corp. patents that were auctioned this year, Gustaf Brusewitz, a spokesman for the joint venture, said in August. Both Ericsson and Sony were part of a group, which also included Apple and Microsoft Corp., that agreed in July to pay $4.5 billion for a portfolio of patents from the breakup of Nortel to keep them out of Google’s hands.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net