Sony, Ericsson Link Up For Joint Venture
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Confirming rumors first floated in April, Japanese electronics giant Sony Corp. and Swedish telecom equipment maker Ericsson Tuesday sealed a pact to merge their worldwide mobile phone businesses in an effort to unseat reigning mobile monarch Nokia and take on Motorola.
The two companies plan to establish the joint venture, Sony Ericsson Mobile Communications, on Oct. 1, 2001. Final approval of the boards of the two parent companies is still pending and the deal is also subject to regulatory approvals.
The joint venture's global management will be based in London, and the two companies anticipate that it will take over all design, marketing and sales operations from its parents. Ericsson and Sony said it will have an initial workforce of 3,500 employees.
Sony has said the joint venture will be capitalized at $500 million, and Ericsson has asserted it will be profitable from the start. Combined, the two companies sold about 50 million cellular phone units last year with pro forma profits of $7.2 billion.
The move comes in a soft period for the mobile phone market. Ericsson in particular recorded a $1.39 billion loss in the second quarter and announced earlier this year that it would layoff 20,000 workers, about 20 percent of its workforce. In January, when it recorded a 64 percent plunge in fourth quarter profits, Ericsson announced plans to outsource its handset manufacturing business through Singapore-based Flextronics International.