Japan’s Sony and Sweden’s Ericsson are preparing for the possibility of having to secure new financing at Sony Ericsson, their troubled joint venture that manufactures mobile phones.
Sony and Ericsson are considering a capital injection, or acting as guarantors on a loan for Sony Ericsson, to strengthen the joint venture’s balance sheet.
Carl-Henric Svanberg, chief executive of Ericsson, said a capital injection for Sony Ericsson was “not unlikely”, and that the Swedish company was preparing for the possibility. He declined to comment on the size.
Sony said it was premature to speculate on whether it was preparing to provide Sony Ericsson with financing, adding: “Should that become necessary we are, of course, prepared to support Sony Ericsson in that way.”
Sony Ericsson is burning up cash as it runs up losses. Nomura analysts estimate that Sony and Ericsson could have to make a capital injection of €500m each before the end of the year. Dick Komiyama, president of Sony Ericsson, is seeking to return it to profit after it last year recorded a net loss of €73m because of falling sales.
In the first quarter of 2009, Sony Ericsson’s handset unit sales fell 35 per cent, and JPMorgan analysts estimate it will record a net loss of €1bn this year. Sony Ericsson’s sales have been falling after it failed to produce handsets to compete with Apple’s iPhone, and its difficulties have been compounded by the global recession.
Mr Komiyama, while expressing confidence that he could restore Sony Ericsson to profit, admitted his target for the company to become the world’s third largest handset maker by 2011 might not be met until 2012. It was the fourth largest at the end of 2008, but has been losing market share.
Sony Ericsson‘s net cash position has deteriorated from €1.7bn at March 31 last year to €1.1bn at March 31 this year. JPMorgan analysts estimate the net cash position at December 31 will be €70m.
Mr Svanberg also hinted at Ericsson eventually selling out of the joint venture by saying Sony was “a logical buyer”.
Sony said: “Our first order of business, as is Ericsson’s, is the success of the joint venture. We are committed to supporting Sony Ericsson in this difficult economic environment.”
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