It's Game on for Sony Ericsson's Xperia Play

 |  Includes: ERIC, SNE
by: Investment U

By Tony D'Altorio

Sony Ericsson, the joint venture between Sony (NYSE:SNE) and Ericsson (NASDAQ:ERIC), never did enjoy significant mobile phone sales in the United States.

That’s not a failure to shrug off. Research company Strategic Analytics calls the U.S. the world’s most valuable mobile phone market, with sales of $38.8 billion in 2010.

Much of that comes from Apple’s (NASDAQ:AAPL) iPhone and the like, a tough market to crack. But Sony Ericsson believes it now stands a chance against that competition.

It certainly needs a push to reach its goal of selling the most phones that run off the Android operating system by Google (NASDAQ:GOOG). The company wants to increase its market share in Android phones from 14% to around 25% within three years.

That’s a lofty venture to undertake… especially for a badly outclassed business.

Xperia Play: The New Smartphone for Mobile Gamers

Sony Ericsson plans to take over the Android market with a new smartphone meant for mobile gamers.

Surprisingly, the new product isn’t named after the PlayStation, since Sony wants to retain that brand exclusively. So instead, Sony Ericsson settled for Xperia Play.

The Xperia Play has a slide-out Playstation control board and 60-frame-per-second playback. So mobile gamers who want a faster response time than what other smartphones offer have something to smile about.

The device has many PlayStation console features, but doubles as a smartphone. Several carriers should begin offering it in April, including Verizon (NYSE:VZ) Wireless, the leading U.S. mobile phone operator.

For its part, Sony seems to have finally recognized the opportunities of mobile gaming.

Kazuo Hirai, executive vice-president in charge of Sony’s games business believes the company can’t ignore the market any longer. It’s enabling many of its popular games for its smartphone and creating a new PlayStation site where users can download them.

Of course, all that puts Sony Ericsson into direct competition with Apple and Xbox Live from Microsoft (NASDAQ:MSFT), which is available through Windows Phone 7.

Can Xperia Play Help Turnaround Sony Ericcson?

Sony Ericsson wants the Xperia Play to be a milestone in its turnaround after its 2008 flub. Back then, it failed to spot the touchscreen trend… and suffered for that mistake.

Profits fell that year and the next. Though the company did report a 2010 net profit of $122 million.

But Sony Ericsson’s fourth quarter unit sales fell short. It only released four new Android-based models before the holidays, an error it plans to rectify this year by doubling that amount.

That wasn’t its only mistake though, as it also struggled to keep up with Google’s updates. Customers want smartphones with the latest Android software, a demand Sony Ericsson couldn’t always meet.

As for today, Android-based smartphones are hot, with fierce competition. Companies like HTC, Samsung and Motorola Mobility (NYSE:MMI) are all utilizing that operating system.

And they all face the potential for commoditization. As they struggle to make their products stand out, they risk slashing their prices enough to seriously undermine their profits.

Sony Ericsson hopes the Xperia Play will help it avoid that fate. Customers, the company is betting, will gladly pay a higher price for such unique capabilities.

PlayStation or No, Sony Ericsson Has a Lot of Ground to Cover

Sony Ericsson certainly believes its smartphones will stand out with their unique PlayStation assets.

Its CEO, Bert Nordberg, forecasts it could reach a 10% operating margin by 2013, up from 3% last year. But it was once as high as 12% before the smartphone problems set in.

In order to succeed, the company has to maximize its PlayStation advantage. And that window will close fast, as competitors inevitably rush to offer a better gaming experience.

The gaming console wars are definitely moving to the world of mobile phones. But Sony Ericsson has a ways to go if it wants to make Apple sweat.

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