Should Motorola And Sony Ericsson Merge?
The usual aim of our columns is to present ideas generated using our own febrile brainpower, but this one about handset consolidation and Droid phones is an unashamed borrow from Pierre Ferragu at Sanford Bernstein, with some of our take on the story added in. Call it a remix if you like.
The idea: in view of Motorola’s and Sony Ericsson’s low global handset market share - less than 5% each - shouldn’t they merge? The geographies work: Sony Ericsson has a decent market share in Europe (12.4%), Motorola has a good share of the U.S. (17.3%), Sony Ericsson does OK in India (10%), while Motorola is fine in China (10%).
There would naturally be cost savings from merging R&D and marketing functions. Currently, Sony Ericsson will spend around 15% of revenue on R&D and 13% of revenue on SG&A, and it’s estimated that Motorola spends around 33% of revenue on operating costs for devices.
Sanford Bernstein estimates, that by merging, the companies could reduce operating costs by 10%. This would be a useful uplift as last quarter - admittedly a poor one for all industry players - Sony Ericsson had an operating margin of minus 12%, while Motorola’s was 2.3% after being slightly negative the previous quarter.
Such a deal would also be helped by the fact that, despite delays, it remains Motorola’s aim, as stated around two years ago, to separate its mobile device unit from enterprise mobility solutions and home and networks mobility.
But there may be another factor: Next year, there will be a whole new raft of phones based on Google’s Android operating system.
Android has only been up and running commercially since the summer and is a long way behind Apple Inc.’s iPhone by any metric. But only around a dozen handsets have been available so far and around 30 more are expected next year, many of which will come from Asian suppliers.
There were around 300 million netbooks and smartphones shipped last year, the leader unsurprisingly being Nokia with around 24% market share, but the fastest-growing being Apple, which now has 10% of this market, according to Morgan Stanley analysts. [Read the Morgan Stanley Mobile Internet Report here.]
It would be fair to expect a widening of the Android product range to appeal to different pockets, depending on the graphics cards, accelerometers, GPS, touch screens and keyboards on the device. The general expectation is that they will appeal more to the mid-market than the high-end market.
The Android system also differs from Apple as it is a more open ecosystem, with less control of the applications. Not the same as the old ‘walled garden versus internet debate‘ of a few years ago, but with enough elements for commentators to draw comparisons. While walled-garden approaches tend to be short-to-medium term winners due to the ease of integration and use, open systems have always eventually taken over.
The upshot is that while Motorola has its Droid, and it’s likely Sony Ericsson will soon have Android phones as well, they will be competing against a raft of new handsets all of which will be utilizing the same operating system.
All this suggests that next year when Android really gets into its stride, there will clearly need to be consolidation between manufacturers of mobile handsets.
source
The idea: in view of Motorola’s and Sony Ericsson’s low global handset market share - less than 5% each - shouldn’t they merge? The geographies work: Sony Ericsson has a decent market share in Europe (12.4%), Motorola has a good share of the U.S. (17.3%), Sony Ericsson does OK in India (10%), while Motorola is fine in China (10%).
There would naturally be cost savings from merging R&D and marketing functions. Currently, Sony Ericsson will spend around 15% of revenue on R&D and 13% of revenue on SG&A, and it’s estimated that Motorola spends around 33% of revenue on operating costs for devices.
Sanford Bernstein estimates, that by merging, the companies could reduce operating costs by 10%. This would be a useful uplift as last quarter - admittedly a poor one for all industry players - Sony Ericsson had an operating margin of minus 12%, while Motorola’s was 2.3% after being slightly negative the previous quarter.
Such a deal would also be helped by the fact that, despite delays, it remains Motorola’s aim, as stated around two years ago, to separate its mobile device unit from enterprise mobility solutions and home and networks mobility.
But there may be another factor: Next year, there will be a whole new raft of phones based on Google’s Android operating system.
Android has only been up and running commercially since the summer and is a long way behind Apple Inc.’s iPhone by any metric. But only around a dozen handsets have been available so far and around 30 more are expected next year, many of which will come from Asian suppliers.
There were around 300 million netbooks and smartphones shipped last year, the leader unsurprisingly being Nokia with around 24% market share, but the fastest-growing being Apple, which now has 10% of this market, according to Morgan Stanley analysts. [Read the Morgan Stanley Mobile Internet Report here.]
It would be fair to expect a widening of the Android product range to appeal to different pockets, depending on the graphics cards, accelerometers, GPS, touch screens and keyboards on the device. The general expectation is that they will appeal more to the mid-market than the high-end market.
The Android system also differs from Apple as it is a more open ecosystem, with less control of the applications. Not the same as the old ‘walled garden versus internet debate‘ of a few years ago, but with enough elements for commentators to draw comparisons. While walled-garden approaches tend to be short-to-medium term winners due to the ease of integration and use, open systems have always eventually taken over.
The upshot is that while Motorola has its Droid, and it’s likely Sony Ericsson will soon have Android phones as well, they will be competing against a raft of new handsets all of which will be utilizing the same operating system.
All this suggests that next year when Android really gets into its stride, there will clearly need to be consolidation between manufacturers of mobile handsets.
source
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