Sony Ericsson president cool on 3G prospects

Despite the hype and billions of dollars about to be spent on 3G (third-generation) networks around the world, shipments of 3G handsets are expected to make up less than a third of all phones shipped by Sony Ericsson Mobile Communications AB in 2005, the company’s president said Tuesday.

In 2005 the company expects around 20 perbcent to 30 per cent of its handsets to be 3G telephones, with most of the rest being made up of terminals for GPRS (General Packet Radio Service) and CDMA-1x (Code Division Multiple Access) networks, so-called 2.5G services, Katsumi Ihara, president of the newly established joint venture, said at a briefing for foreign correspondents in Tokyo.

The first 3G handset to carry the new company’s name, a UMTS (Universal Mobile Telecommunications System) model for the European market, is expected to appear in the second half of 2002, said Ihara. A handset for the Japanese market, where commercial 3G service was recently launched by NTT DoCoMo Inc., is expected to be available in the first half of 2002 although it will not carry the name of Sony Ericsson because of restrictions placed on the company by NTT DoCoMo.

Much of the launch schedule of 3G handsets will depend on the availability of suitable chip sets with which to manufacturer the phones. Sony Ericsson is currently in discussions with chip suppliers, although Ihara would not reveal the identity of those companies.

Sony Ericsson Mobile Communications was born on Oct. 1, when Sony Corp. and L.M. Ericsson Telephone Co. merged their cellular handset businesses.

The company has the goal of becoming the number one supplier of cellular handsets worldwide within its first five years of business. “If we can properly manage the core competences of each company, we can create the number one company in five years,” said Ihara.

Managing those core competences, identified as Sony’s strength in industrial design and product planning and Ericsson’s experience in the cellular telecommunication business, will be one of Ihara’s biggest jobs. The price of not managing them properly and keeping costs down is clear: Ericsson’s handset business has been generating losses and Sony has been hit with a string of recalls and bugs in handsets that cost the company dearly.

Still, the company is expecting to turn a profit in fiscal year 2002, which corresponds to the calendar year – its first full year in business – said Ihara, despite the slowing economic conditions. The imminent introduction of GPRS services, which offer higher data transmission speeds over a packet-based network, is expected to help the company meet this goal.

“As we go to the new standard (GPRS), new applications will emerge to stimulate growth in the replacement market and the industry will grow,” Ihara said, adding that he expects to see growth of between 10 per cent and 15 per cent in the handset market. For the current year, Sony Ericsson expects worldwide handset shipments to be around 410 million, rising to 450 million next year.

One of the company’s advantages, said Ihara, comes from Sony’s significant strength in the Japanese market, where virtually all handsets are made by domestic manufacturers. Even Nokia Corp., which has the largest share of the world handset market, is procuring its latest Japanese handset from Sanyo Electric Co. Ltd.

“Those other companies do not have market coverage in Japan,” he said of European and U.S. competitors.

If all does not go according to plan, an exit clause allows either party to withdraw from the joint venture after five years with an earlier withdrawal possible if both parties agree, said Ihara.

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