What does Sony control of Sony Ericsson really mean?

Sony has just announced that it’s buying out the remaining 50 percent of the world’s sixth-largest handset maker, Sony Ericsson, from its Swedish partner, in a deal worth €1.05 billion ($1.46 billion).

It’s 10 years since the two companies came together to try and build out a joint venture that played to the strengths of each — Sony’s reputation for devices, Ericsson’s wireless business. Now, it seems, they’re ready to go their own directions once again with the business becoming a fully-owned subsidiary of the Japanese electronics giant.

The two companies painted today’s announcement as a logical move given the changes over the last few years, and Sony said full ownership would give it more control — and said it would drop lower-end handsets to focus purely on smartphone production from now on.

“We can more rapidly and more widely offer consumers smartphones, laptops, tablets and televisions that seamlessly connect with one another, and open up new worlds of online entertainment,” said Sony boss Sir Howard Stringer in a statement.

“Ten years ago when we formed the joint venture… it was a perfect match to drive the development of feature phones,” said Ericsson CEO and president Hans Vestberg. “Today we take an equally logical step as Sony acquires our stake in Sony Ericsson and makes it a part of its broad range of consumer devices.”

The truth is that the road has been fairly rocky for a long time, and taking this step may be the only way to save it in the long term. In the very early days, Ericsson threatened to pull out of the partnership because it didn’t think there was enough money in the market.

The arrival of a couple of hit models in 2005, the W800 and the K750, turned things around, however, and saw Sony Ericsson shoot up the leaderboard and start shipping serious volumes. But just as it did for many others, the arrival of the iPhone has hurt Sony Ericsson — and over the past couple of years handset sales have dropped by around 75 percent. In 2009, the company’s mounting losses required a $375 million cash injection from the parents to see it through.

All this makes the deal, which the two companies expect to close in early 2012 subject to regulatory approval, interesting for a variety of reasons. Here are five issues it raises:

A gamble on control

The success of Apple over recent years has been in part because it has filled the position that Sony once occupied: making a range of devices that are pretty high-end, designed with consideration and hooked into a broad ecosystem. Sony Ericsson might have helped the two companies elbow their way into the market, but it’s been increasingly clear that the joint venture wasn’t so good at giving customers the context they were looking for. Bringing it in house may allow Sony to focus on making future devices really work with the rest of its products.

A bet on brand awareness

In reality, Sony Ericsson’s best successes have been when it used Sony brands: incorporating the Walkman music player or its Cybershot cameras into handsets. Over time Ericsson was bringing less and less to the table, and earlier this year analysts were suggesting that a Sony buyout was the best way forward. We’ve already seen Sony Ericsson trying to move into the gaming market, where Sony has a strong history — but expect things to switch up fairly quickly once the deal is closed.

Victory for Android

Early on, Sony Ericsson was an adopter of Nokia’s Symbian operating system but as the market drifted away from the Finns, it went with the flow and dropped it in favor of Android. Today’s news doesn’t change much — it is unlikely to drop Android — but it may allow the company to push it in new directions, and customize its Android software as it moves closer to Sony’s systems. That could prove important for both the Japanese company and Google.

Patent ownership

The deal includes a direct cross-licensing agreement for Sony that covers a number of patents and technologies owned by its partner, and ownership of a broad set of patents for wireless handsets. While this doesn’t change much for the mobile business — it is highly unlikely that Sony Ericsson did not already have access to this IP — it does make it easier for Sony to integrate those technologies in its other devices without complex licensing deals. It also gives the parent company more weight in the current mobile patent wars.

Europe slipping

As far as the bigger picture goes, the move also further underlines how Europe’s mobile credentials have fallen away in the last few years. Two years ago the world’s top four mobile manufacturers were split evenly between Europe and South Korea: Nokia (1) and Sony Ericsson (4), alongside Samsung (2) and LG (3). Today, Nokia’s share is falling so fast it’s been forced into an alliance with Microsoft, while Apple, China’s ZTE, HTC and Research in Motion have all overtaken it — and in smartphones it’s even further off the pace. Europe might be a voracious consumer of mobile, but it’s clinging on by its fingertips in the technology race.