Sony Ericsson Mobile Music Strategy not working

Sony Ericsson and low profit expectations in 2008

On March 19, 2008, Sony Ericsson warned of a sharp decline in profit expectations. The No.4 player in the cell phone industry cut its current-quarter profit forecast ($276 million) to less than half the year-ago level ($571 million). Reasons given were a slowdown in consumer spending on its mid-priced and high-end phones. The growth in the mobile phone industry is expected to be at 15% in 2008, about half when compared to a high of 31% in 2004. Sony Ericsson expects to ship about 22 million phones in the first quarter. It shipped 30 million units in the fourth quarter and 21.8 million in the first quarter of 2007.

Sony Ericsson's announcement was expected when Texas Instruments cited fewer mobile phone chip orders for its lower guidance. Its key customer Nokia possibly has a inventory pileup. Sony Ericsson also said that certain component shortages for popular midprice phones had also contributed to modest unit-sales growth in the first quarter.

A low profit expectation is common in the first quarter - the slowest time of year for phone sales after the Christmas shopping season. However, the concern is the magnitude of Sony Ericsson's shortfall. The same can be expected from Nokia and Motorola might even lose its third place position as a mobile phone maker.

The Sony Ericsson joint venture

In 2001, Sony Ericsson was formed as a joint venture between Telefonaktiebolaget LM Ericsson of Sweden, and Sony Corporation of Japan. Both partners had 50% ownership in the company.

Ericsson was established in 1876 and was a major player in the telecommunications equipment and related services to mobile and fixed network operators worldwide with presence in 140 countries. Sony on the other hand was established by Masaru Ibuka and Akio Morita in 1946 in Japan. At the time Sony was the world's second largest consumer electronics company and famous for its innovative products like the Walkman, Playstation, and Aibo, the robot dog.

In the last quarter of 2000 and the first quarter of 2001, Ericsson made a loss of US$ 1 billion and US$ 558 million respectively. Shareholders of Ericsson wanted a sell-off. Sony was also making losses in its mobile phone business. Ericsson's board decided to form a joint venture with Sony instead of exiting the business. In 2001, this decision was rated as the fifth best management decision by Sunday Business.

Walkman phones are no longer popular?

In February 2005, at the 3GSM World Congress in France, Sony Ericsson had announced its mobile music strategy. It looked to integrate of high quality digital music players into stylish mobile phones under Sony's world famous Walkman brand. The strategy was to target a specific product portfolio and not look at providing various types of mobile phones across various price points.

In the third quarter of 2005, the Walkman phones were launched. The impact was visible in the subsequent quarter itself in terms of increased volumes, sales, and net income for the company. Similar to its success with its camera phones in 2004, Sony Ericsson reported a 36.4 per cent increase over its third quarter figures and 47.1 per cent higher than the figures for the same period in 2004. It even revived Sony's Walkman music player which had lost market share drastically after the launch of iPod by Apple in 2001.

However, mobile phone users are known to be quite finicky and generally choose the most popular or the next cool mobile phone in the market. Earlier, users replaced handsets every three years, but with the economy slowing down this is no longer the trend. And with the popularity of Apple's iPhone growing, Sony Ericsson may have reached the end of its good run with the popular Walkman phones. The general higher price of its phones than its rivals' devices does not help either.

Quote
Be Number 1 or Number 2. “When you’re number four or five in a market, when number one sneezes, you get pneumonia. When you’re number one, you control your destiny.“ - Jack Welch

Unquote
"Sony Ericsson will continue to try to reduce its dependence for growth on the European high-end sector and develop its presence in new markets. This strategy will continue, and our objective remains to become a top-three player globally by 2011" - Sony Ericsson President Dick Komiyama

Related Reading:
Case Study on Nokia in India [Pdf file]

Nokia and its growth strategy in China
Nokia's Acquisition Strategy and Restructuring
Nokia increases market share, Motorola Struggles
Nokia to exit expensive Germany, move production to low cost countries

Jamie Dimon - The man behind JPMorgan's Turnaround

Jamie Dimon (Dimon), president of JPMorgan is referred to as one of the best numbers men around, a Wall Street legend or the right-hand man to Sandy Weill - the titan of banking behind Citigroup. He is also known as an aggressive banker, savage cost-cutter, direct boss who eschews excessive wealth ($44.4 million or £22.2 million annual salary) and invests heavily in philanthropy. In 2007, he was ranked 15 on the 25 most powerful people in business by Fortune.

Dimon was born in New York to second-generation Greek immigrants. He has a degree in biology and economics from Tufts, and a MBA from Harvard. At Harvard he met Sandy Weill. Both went on to create the banking major Citigroup and emerged as a powerful force on Wall Street. In 1998, both separated after having worked together for 16 years. Rumor mills suggested that Dimon was fired by Weill for not promoting his daughter in the company.

After leaving Citigroup, Dimon became the chief executive of Bank One. In 2001, Dimon played a key role in the turnaround of Bank One. In January 2004, he negotiated the acquisition of Bank One by JP Morgan Chase & Company. After the merger, Dimon was appointed President and Chief Operating Officer of JP Morgan Chase. The merger was the third largest acquisition (at the time) in the US history at US$ 58 billion.

Dimon, since then has been aggressively involved with JPMorgan and aims to turn it into the biggest and best banking group in the US. So far, he has been successful in his endeavor and is emerging as one of the most successful navigators of the credit crunch. Over the last few years, he has focused strongly on cutting costs, improving technology and integrating JPMorgan’s disparate operations. But he also has been resolute about preparing the company for an economic downturn. While other investment banks are struggling, Dimon managed several accomplishments one after the other. He co-chaired the summit of world and business leaders in Davos, Switzerland. He even persuaded former Prime Minister Tony Blair to sign on as an adviser and ambassador for JPMorgan. And in what is being regarded as his biggest coup, he has plans to prop up Bear Stearns to avoid a full-blown banking crisis. This draws similar reference to John Pierpoint Morgan (JPMorgan’s founder). JP Morgan financed the US government and other large corporations during the Great Depression and the two world wars. In 1907 during the panic, his organization and personal funding for rescuing of the banking system was representative of the end of a long recession.

Similarly Dimon has played a key role in JPMorgan and the Federal Reserve guaranteeing the huge trading obligations of the troubled firm Bear Stearns. JPMorgan agreed to pay only about $270 million in stock for Bear’s big losses on investments linked to mortgages. Dimon negotiated the deal with Bear and government officials, sleeping only for a few hours over the weekend. Though Dimon had his doubts about the deal and has not been an aggressive acquirer since his joining the company, the quick decision making to buy Bear is outstanding.

Related Reading:

Backsourcing at JPMorgan

Will Tesco succeed in the U.S?

The British are coming

Tesco Group is UK’s biggest retailer and operates more than 2,500 stores in the UK and 12 other countries in Europe and Asia. For years, Tesco had plans to enter the U.S. retail market. It was believed that Tesco even looked into possibly acquiring key parts of the Albertson's grocery chain. But finally, Tesco announced that it would enter the US by 2007 and that its new stores would be based on its "Tesco Express" convenience store model. Tesco operates four different retail formats – Tesco Express, Tesco Metro, Tesco Supercenters and Tesco Extra. Tesco Express is a smaller store format of up to 3,000 sq. feet.

At the time many analysts predicted that the coming of Tesco - even though a new player was a quite accomplished retail entity - had the ability to impact the U.S. market over the long term. To the conventional supermarket channel and even Wal-Mart, Kroger, and Safeway it could only be viewed as a negative. For the traditional supermarket chains who were already struggling to compete with Wal-Mart and the growing popularity of organic food stores like Whole Foods (and other premium food chains), the competition was only going to get worse.

Taking on Wal-Mart

Tesco was serious about expanding into the U.S. as indicated by its initial plans to spend $400 million a year to build its U.S. stores. This investment could pay for 100 to 150 stores. It aims to build 1,000 stores in the US eventually. Tesco chose to enter U.S. through the West Coast first because that region of the country is not yet dominated by Wal-Mart. Like Wal-Mart, Tesco is nonunionised. Wal-Mart is planning to test similarly sized new grocery stores under the "Marketside" banner in the Phoenix area later this year.

Success of Tesco's launch in the US?

There was growing speculation that the initial performance of Tesco’s new Fresh & Easy discount grocery stores concept was not up to the mark and that internal sales targets were not being met. Some reports in the US suggested that the small neighbourhood groceries, similar in concept to an Aldi hard-discount store, have been failing to attract customers at the rate needed. (The hard discount store, pioneered by Aldi, is a small outlet with only 700 to 1,000 lines of stock compared with 100,000 in a big Wal-Mart. The shelves are mostly filled with own-brand goods.)

Even competitors like Stater Brothers, a supermarket chain in south California (and where the first 20 Tesco stores opened) felt almost no impact from Tesco. The Fresh & Easy concept was being questioned. Fresh & Easy had claimed to be up to 25 per cent cheaper than its main supermarket competition and had expectations of average sales to reach $200,000 per store per week.

Will Tesco succeed in the U.S?

A spokesman from Tesco however maintained that its failure claims were “a bit ridiculous, given that we only opened four months ago”. Tesco is continuing to push ahead with its ambitious US store plans, with another 150 stores expected to open over the coming year in its initial markets. The group has committed £1.25bn ($2.48bn) over five years to its US expansion plans. It is signing leases on additional store sites in northern California, where it is also planning to open a second large distribution centre outside Stockton.

In the past, retailers from the UK like Marks & Spencer, Next, Dixons, and Sainsbury’s have all tried to expand in the US and failed. Tesco has already made the first change to its executive management team at Fresh & Easy. Jeff Adams is heading back to US. He was the chief executive of Tesco’s Lotus business in Thailand. He will be second-in-command to Tim Mason, Fresh & Easy’s chief executive. Meanwhile, Tesco has other things to worry about in its home UK market after it was accused of setting up an elaborate offshore tax avoidance scheme.

Related Reading

Tesco takes on US Wal-Mart [Pdf File]
Wal-Mart's supply chain management practices [Pdf file]
Wal-Mart's Marketside or Tesco's Fresh and Easy stores in US
Corporate Social Responsibility at Tesco [Pdf file]
Of Wal-Mart price cuts, Struggling Retailers and Weak 2008 Retail Sales Forecast

Adidas Reebok Merger Case Study

The sporting goods industry has seen many mergers and acquisitions (M&A) driven by rising competition and industrial growth. In 1997, Adidas acquired the Salomon Group for $1.4 billion. In 2003, Nike acquired Converse for $305 million and in 2004 Reebok acquired The Hockey Company for $330 million.

Adidas and Reebok - Two mega brands, with great strengths

In August 2005, German adidas-Salomon AG announced plans to acquire Reebok at an estimated value of € 3.1 billion ($3.78 billion). At the time, Adidas had a market capitalization of about $8.4 billion, and reported net income of $423 million a year earlier on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4 billion. While analysts opined that the merger made sense, the purpose of the merger was very clear. Both companies competed for No. 2 and No. 3 positions following Nike (NKE).

Competition with Nike and Puma

Nike was the leader in U.S. and had made giant strides in Europe even surpassing Adidas in the soccer shoe segment for the first time. According to 2004 figures by the Sporting Goods Manufacturers Association International, Nike had about 36%, Adidas 8.9% and Reebok 12.2% market share in the athletic-footwear market in the U.S. Adidas was the No. 2 sporting goods manufacturer globally, but it struggled in the U.S. – the world’s biggest athletic-shoe market with half the $33 billion spent globally each year on athletic shoes. Adidas was perceived to have good quality products that offered comfort whereas Reebok was seen as a stylish or hip brand. Nike had both and was a favorite brand because of its fashion status, colors, and combinations. Adidas focused on sport and Reebok on lifestyle. Clearly the chances of competing against Nike were far better together than separately. Besides Adidas was facing stiff competition from Puma, the No. 4 sporting-goods brand. Puma had then recently disclosed expansion plans through acquisitions and entry into new sportswear categories. For a successful merger, the challenge was to integrate Adidas's German culture of control, engineering, and production and Reebok's U.S. marketing- driven culture.

The ADDYY and RBK Merger – Impossible is Nothing

On January 31, 2006, adidas closed its acquisition of Reebok International Ltd. The combination provided the new adidas Group with a footprint of around €9.5 billion ($11.8 billion) in the global athletic footwear, apparel and hardware markets.

Adidas-Salomon AG Chairman and CEO Herbert Hainer said, "We are delighted with the closing of the Reebok transaction, which marks a new chapter in the history of our Group. By combining two of the most respected and well-known brands in the worldwide sporting goods industry, the new Group will benefit from a more competitive worldwide platform, well-defined and complementary brand identities, a wider range of products, and a stronger presence across teams, athletes, events and leagues.”

Hainer also said, "The brands will be kept separate because each brand has a lot of value and it would be stupid to bring them together. The companies would continue selling products under respective brand names and labels."

Related Reading: Is the Adidas Reebok merger working?