Struggling handset maker needs to get smart - and fast

Hideki (Dick) Komiyama, president of Sony Ericsson, admits he is in the toughest job he has ever had.

The eight-year joint venture between Japan's Sony and Sweden's Ericsson is running up losses following a steep slide in handset sales - and the situation cannot be blamed solely on the recession.

Mr Komiyama, 66, is grappling with a company that has not kept up with technological developments in the mobile phone business.

In particular, Sony Ericsson has so far failed to develop a smartphone - a mobile that doubles as a mini computer - to compete with Apple's much-hyped iPhone.

Some industry analysts make unfavourable comparisons between Sony Ericsson and Motorola, the deeply troubled US handset maker that has also failed to come up with an alternative to the iPhone. They say both risk financial collapse if they do not come up with popular new mobiles soon.

Mr Komiyama, president of Sony Ericsson since November 2007 and a veteran from Sony with 42 years service, is part-way through a turnround strategy for the handset maker that has been made far more challenging by the global recession.

"If we do not adapt to this new technology or new market environment, we're going to lose," he says at the company's global headquarters in London.

He paints a picture of near-anarchy at Sony Ericsson when he arrived. There was no effective strategy to come up with a smartphone and no profitable plan to sell cheap mobiles in emerging markets.

Instead, the three planning and development units responsible for the company's low, mid and high-priced mobiles had fallen into the trap of competing with each other.

They were effectively developing the same mid-priced mobiles because little or no progress had been made with smartphones for western countries or handsets for emerging markets.

It meant Sony Ericsson was churning out scores of similar looking phones, and the organisation became highly inefficient. Mr Komiyama says it was a "rather serious situation".

To make matters worse, Sony Ericsson's rivals were matching its strength in making so-called feature phones.

Sony Ericsson enjoyed success in 2005 and 2006 by making mobiles with music players and cameras that were marketed with Sony's Walkman and Cybershot brands, but its rivals soon copied these feature phones.

By 2007, and the iPhone's launch, western consumers increasingly chose smartphones over feature phones. Finally, as the downturn took hold, many consumers simply stopped buying new mobiles.

Mr Komiyama's most visible response to Sony Ericsson's deep seated problems is the axe he has taken to the cost base.

He has earned a reputation as an aggressive cost cutter by removing 4,000 jobs - or 30 per cent of the workforce - at Sony Ericsson, as part of a programme that seeks to reduce the company's annual operating expenses by €880m ($1.2bn) by the middle of next year.

He has also centralised decision making, to try to end internal rivalries. But all Mr Komiyama's internal change will be rendered meaningless if Sony Ericsson does not start producing mobiles that sell.

Last year, Sony Ericsson's X1 smartphone failed to capture the public's imagination, and Mr Komiyama now says

it was "a kind of experiment".

Sony Ericsson is hoping to begin selling at least two new smartphones by the end of this year, and a third early in 2010, and they could well be make or break for the company.

These smartphones will use operating systems developed by other companies - Nokia's Symbian, Google's Android and Microsoft's Windows Mobile - and the reliance on third-party technology highlights Sony Ericsson's shortcomings.

It underlines how it has abandoned efforts to develop a graphic interface for smartphones based on software from UIQ, a Swedish technology company bought by Sony Ericsson in 2006. Mr Komiyama describes UIQ as a "bad bet".

Some analysts fear Sony Ericsson is spreading its efforts too thinly, and raising its costs, by using three different operating systems for smartphones.

Mr Komiyama says the company may decide to use less than three, but is confident that customers "will be pleased" with the new smartphones.

He expresses interest in Sony Ericsson carving out a niche for itself based on Sony's strength in gaming. He says a PlayStation mobile, building on the Walkman and Cybershot phones, "could happen".

While admitting his role at Sony Ericsson has proved his toughest job, and that it can be a "pain in the ass sometimes", he says he is enjoying himself. But he acknowledges the scale of the turnround task when he adds: "And if I lose, what the hell?"

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