Sony Ericsson's Transformation Takes Shape

Sony Ericsson Mobile Communications reported its first profitable quarter in nearly two years today as it cut costs and streamlined its portfolio. The company bounced back from a year-ago loss of $396.8 million to post a profit of $28.4 million in the first quarter, but its transformation from niche feature-phone maker to smartphone competitor is far from over.

The handset maker first instituted its transformation program in mid 2008 with the goal of reducing operational expenses, but President Bert Nordberg doesn't expect to see the full benefit of it until mid 2010. He attributed the profitable quarter to the company's new product launches, specifically its first Android-based phone, the Xperia X10, and the Symbian-based Vivaz touchscreen phone. The company launched a total of six new phones in the quarter, including this week's launches of two lower-end Walkman phones, the Zylo and Spiro. (See Sony Ericsson Android Lands at Orange.)

"We have worked hard to get our head above the water line," Nordberg said, adding that the company has no plans to further decrease volume as it did in the first quarter.

January's Mobile World Congress was the turning point for Sony Ericsson, Nordberg added. At the show, he said the company's handset portfolio was well received by the wireless operators on which it will rely for distribution, along with non-operator distributors like Best Buy. To date, however, the company hasn't named any US carrier partners for its new phones.

Sony Ericsson's transformation program also included reducing its global workforce by 3,150 people to reduce operating expenses, cuts that have been followed with shake-ups in senior level management. Today, Bill Glaser, former Sony Corporation vice president and head of Sony Group Risk Office, was appointed to chief financial officer of Sony Ericsson, taking over for Ulf Lilja, who will return to Ericsson at the end of July. Nordberg also recently appointed Kristian Tear to head of Global Sales and Marketing.

To prove that the first-quarter profitability wasn't a fluke, Nordberg assured investors that Sony Ericsson will focus on higher-margin smartphones. While the company's strong suit has always been less-expensive feature phones, this has hurt it as smartphones have captured the lion's share of attention. The company will continue to focus primarily on Android, but Rikko Sakaguchi, Sony Ericsson's chief creation officer, said it won't be abandoning other operating systems like Windows Mobile and Symbian anytime soon. Instead, its main objective is to continue to improve the user experience to drive its transformation into a smartphone maker.

"It's really the system we are looking at," Sakaguchi said. "There are a number of things that sit on the open operating system, and we are very confident we can manage this in a very cost efficient manner."

— Sarah Reedy, Senior Reporter, Light Reading Mobile