This High-Tech Marriage Is Working

Its genesis came from somewhere between inspiration and desperation. Sony Ericsson Mobile Communications -- a 50-50 venture launched in 2001 by Swedish wireless equipment maker Ericsson (ERICY ) and Japan's Sony Corp. (SNE ) -- united two companies whose existing mobile-phone businesses were struggling. Boosters hailed Sony Ericsson's potential to link the best of the East and West. Skeptics wondered if the parents could ever make the partnership work and reach their goal: to overtake industry leader Nokia Corp. (NOK ) in sales of multimedia phones.

For two years, the doubters held sway. But since mid-2003, Sony Ericsson has been on fire. The big sellers are the sleek, compact T610 camera phone and a successor, the T630. "A year ago, there were questions about whether the company could survive," says Ben Wood, mobile analyst for researcher Gartner in Egham, England. Now, the company can't keep up with demand. "I never doubted our eventual success," says President Katsumi Ihara, a former Sony exec who runs the company with the help of Swedish No. 2 Jan Wäreby.

No question, Sony Ericsson has found its groove. Unlike earlier phones based on Sony and Ericsson designs, the T610 and other hits were created from scratch. That quantum leap in features and aesthetics helped London-based Sony Ericsson sell 27 million phones last year, up from 23 million in 2002. The company announced its first profit, a modest $72 million, in the third quarter of 2003. For 2003 as a whole, Sony Ericsson booked sales of $5.9 billion, up 12%.

Still, the company's market share remains below the combined position of its parents when the venture began, and it lost a sliver more in 2003, ending with 5.2% of worldwide sales, according to researcher Strategy Analytics. Blame a lack of low-end phones and parts shortages that throttled deliveries. Ihara says those problems are past. Models rolled out on Mar. 9, including the S700 camera phone, will fill gaps in the portfolio. And tighter supplier relationships should limit back orders. Richard Windsor of Nomura Securities in London thinks Sony Ericsson could notch a global market share of 9% this year. That's a long way from Nokia, which still sells more than a third of the world's mobile phones. But it's enough to send the doubters into retreat.

By Andy Reinhardt in Paris

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