Should Sony Ericsson throw in the towel?

Should Sony Ericsson throw in the towel? The joint venture began its downslide in 2007 as the average selling price of its handsets began to fall and it has continued to struggle. Last week, the company issued a profit warning [1] saying that its first quarter net sales and net income before taxes continue to be negatively affected by weak consumer demand. Specifically, Sony Ericsson said it expects its first-quarter pretax loss to be between $464.9 million to $533.2 million, well below market expectations. The company also said it plans to ship around 14 million phones during the quarter.

Sony Ericsson in 2004 and 2005 saw its profits soar. It focused on the high-end market and positioned itself as the premier music phone using the Walkman brand. Today, the economic downturn is hurting demand for high-end devices and Apple's iPhone is now synonymous with music phones.

Now Sony Ericsson's bailout plan appears to be more high-end phones with high quality cameras. The company reasons that consumers want to have a high-quality camera all the time as posting photos on Facebook and other social networks is a favorite pastime. It seems like a creative niche, but will consumers bite in an ailing economy? Right now, there appears to be a chasm in the market. Feature phones--those that have features like music and cameras and are cheaper than smartphones--are in limbo. The replacement handset market has clearly slowed down in this bad economy, but when people are replacing phones, it appears they are either upgrading to smartphones such as the iPhone or trading down to prepaid and lower-end phones. Sony Ericsson needs some tight relationships with operators to get them to promote its devices.

One thing is for sure, 2009 will be a bumpy ride for all of the handset players. I'll be amazed if everyone is left standing at the end of the year. --Lynnette [2]