Sony takes full control of Sony Ericsson joint venture

Sony has issued a riposte to Apple and Nokia in the smartphone wars by spending more than £1bn to take full control of its handset manufacturing joint venture, Sony Ericsson.

Hot on the heels of the launch of Apple's iPhone 4S and Nokia's announcement this week of a renewed foray into the market in partnership with Microsoft, the Japanese electronics corporation pledged to create an integrated approach to its smartphones and push its content across "four screens" – smartphones, PC, TVs and tablets – all manufactured by Sony.

Speaking in London, Sony's chief executive Sir Howard Stringer said that the £1.05bn purchase of Ericsson's 50% stake in the manufacturer, ending a decade of partnership, would enable it to ramp up its smartphone efforts and defend its TV and PC manufacturing franchises by letting consumers connect with content "wherever they are, whenever they want".

While 2012 is predicted to deliver record smartphone sales, Stringer has now ensured it will also trigger a battle to sell consumers whole "families" of devices. Apple is expected to fulfil Steve Jobs's long-held dream of creating an internet television, with analysts at Jefferies estimating an initial manufacturing run of between 5 and 10 million units in the second half of next year. Apple will seek to persuade customers to build up a library of films and music stored on Apple's servers via its iCloud service, which can then be accessed from any of the Californian company's devices.

Sony has been developing its answer to iTunes, the Sony Entertainment Network, which streams Sony-produced films, games and music to a devices including its Bravia TV sets, Vaio PCs, PlayStation consoles and Sony Ericsson phones.

"We have metamorphosed from an analogue to a digital company," Stringer said. "Admittedly it's taken us a long time, but we now have the potential to do the things that American companies like Microsoft and Apple have. It would have been quicker if we hadn't had to fight our way through the lethal attacks from Mother Nature such as earthquakes and tsunamis… We felt that we had all the elements, we deliver more entertainment than anybody – we do billions of discs, many many movies, millions of devices, and the PlayStation Network surprised everybody when they found out we had 90 million members. The fact that we have tied all this together, the last piece of the puzzle, makes me very optimistic that we can catch up very quickly."

Analysts say the smartphone market will grow by 32% in 2012, to 612m handsets worldwide.

"I would hope this will give Sony Ericsson a new lease of life," said Richard Windsor, electronics sector analyst at Nomura. "One of the themes that's emerging from the smartphone and tablet markets is the importance of content and apps to build loyalty. It's no secret that there have been conflicts limiting Sony Ericsson's access to Sony content from its film and TV studio and record labels while it was a joint venture. I hope that by taking complete control it will be able to put this content onto these devices more easily."

Analysts at Liberum Capital said in a note that Sony Ericsson's share of less than 2% of worldwide handset sales left it in a "fragile" position. "While Android-based smartphones are not yet seeing a very aggressive pricing environment due to very strong consumer demand, the situation could change very rapidly in the event of a weakening of the market. This could easily push the business back to significant losses as seen in the past."

For Ericsson, the payment means that it can exit the mobile phone business effectively without ties, and focus on building mobile and wireless networks, where its expertise lies.

Sony Ericsson was created in 2001 from "two companies which were bleeding" in the handset business, said Stringer, who was not in charge of Sony at the time. For a while the joint venture was profitable, but the advent of Apple's iPhone in 2007, and then of cheap handsets running Google's Android software, destroyed its high-end market share as it struggled to attract customers with Nokia's Symbian software. It abandoned that for its smartphones and has now thrown in its lot with Google.