Sony Ericsson: Back on track? Tweet

The manufacturer has had a tough two years, but is Sony Ericsson finally on the mend?

Sony Ericsson’s strategy of streamlining its portfolio, focusing on high-end devices and restructuring its organisation has paid off.

The company is back on track, with a triumphant return to profitability in Q1 this year, well ahead of analysts’ expectations.

Delivering an £18m profit in the first quarter of 2010 was a remarkable achievement after losing £257m in the same period last year, and £147m in the fourth quarter.
However, chief executive Bert Nordberg says the company is by no means out of the woods yet.

‘An operating margin of 1.4% is obviously not where we need to be to build sustainable profit,’ he says, adding: ‘We have never made it a secret that this company should operate at least 10% operating margins, going forward, and that is what we are aiming for.’

With this target in mind, Nordberg says the restructuring programme, which Sony Ericsson began in 2008, will continue.

He warns of another 850 job cuts, which will bring the total number of cuts to 4,000 under the programme.

Lines of management will continue to be streamlined, too, to make the joint venture ‘a flatter, leaner and more responsive company’.

And, not surprisingly, Sony Ericsson will also continue to address quality control, following the disastrous software problems the company faced with the launch of its Satio and Aino handsets at the end of last year.

Sony Ericsson’s R&D division has been overhauled, but more needs to be done. Nordberg says: ‘A focus on quality must underpin everything we do in the organisation, and I have seen positive signs of improvement since I joined the company, but I am not yet satisfied.’

The company has learnt lessons, refusing to rush out new products at the cost of quality (see box, below).

But despite this continuing efficiency drive, Nordberg gives a clear sense that the worst is over, and that Sony Ericsson is on an upward trajectory.

Nordberg points to this year’s Mobile World Congress as a ‘turning point’ for the company, with the new smartphone portfolio winning rave reviews and resulting in ‘a series of positive operator meetings’.

This was followed by the successful launch of its flagship handsets the Xperia X10 and the Vivaz this spring.

Nordberg recounts scenes of massive queues, ‘right around the block’, in Japan and Sweden when the X10 was launched. Sales have been particularly strong in the UK, too (see box, left).

He says Sony Ericsson’s move to streamline its portfolio and focus on high-end handsets has paid off, attributing most of the 12% rise in ASP, to £117, in Q1 to strong sales of the new portfolio of smartphones.

Sony Ericsson has also shifted its OS strategy to focus on Android, although Nordberg insists the joint venture will carry on supporting the Symbian and Microsoft platforms, as well as its own operating system.

He dismisses the view that supporting four platforms is expensive. ‘We look at the total experience, and the operating system is becoming a less important part of that. It isn’t that expensive to keep an operating system up and running – so we have no change of strategy.’

Plans are also afoot to work more closely with Sony, a move which Nordberg flagged up last year but remains coy on, declining to give any details. However, he adds: ‘You will get it soon.’

He also says he is working towards a more stable management structure, replacing the revolving-door strategy that has seen a succession of secondments from both parent companies. ‘It is beneficial to have a stable management team, and I am aiming to get that,’ he says.

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