Sony Ericsson exits CDMA market in U.S.

Users of mobile phones in North America will see less of Sony Ericsson Mobile Communications, following a decision to drop a key product line in the region.

The company, a joint venture between Sweden’s Telefonaktiebolaget LM Ericsson and Japan’s Sony, has decided to phase out production of handsets based on CDMA (Code Division Multiple Access) technology in North America and focus instead on phones using GSM (Global System for Mobile Communications) and 3G (third-generation) technologies, Sony Ericsson said Tuesday in a statement.

GSM is the most widely used mobile phone technology in the world and one in which Sony Ericsson holds a relatively strong position. The U.S. is one of the few countries in the world where rival CDMA technology has achieved a higher market penetration, thanks in large part to local manufacturers including Qualcomm and Motorola.

Despite its retreat from North America, Sony Ericsson will continue to develop and market CDMA phones and CDMA machine-to-machine devices for the Japanese market, the company said.

As part of its ongoing efforts to streamline operations, Sony Ericsson has also decided to close its CDMA-focused research and development center in North Carolina and another in Munich, affecting about 500 people.

The moves aim to help the company achieve profitability, said Sony Ericsson President Katsumi Ihara in the statement.

Katsumi needs to take quick action; Sony Ericsson has been performing poorly in recent months. The company saw first-quarter net sales fall 28 percent year-on-year to €806 million ($885 million), while net losses were €104 million against a profit of around €3 million a year ago; unit shipments in the quarter were 5.4 million units, down 400,000 units on the year.

While most analysts weren’t expecting Sony Ericsson’s North American CDMA exit, they weren’t surprised by the move.

“By focusing on GSM, Sony Ericsson is concentrating on a market it feels comfortable in,” said Carolina Milanesi, an analyst with Gartner Inc. “The move could help the company regain market share in the huge European market.”

Sony Ericsson, according to Milanesi, wasn’t able to break into the fiercely competitive North American CDMA market, dominated by Motorola and others. “Sony Ericsson needs to cut costs to achieve profitability and a good start is to stop investing money in a market in which it is highly unlikely to succeed,” she said.

When Sony Ericsson was formed in late 2001, the venture said it aimed to become the world’s largest maker of mobile phones. That position is still held by Scandinavian rival Nokia.