Ericsson Buyout Won’t Put Sony Over the Top

Sony EricssonThe grand unification of Sony (NYSE:SNE) continues. A Friday report at The Wall Street Journal said Sony is trying to buy out Ericsson (NASDAQ:ERIC) from their shared joint venture, mobile phone maker Sony Ericsson. Sony will pay an estimated $1 billion to Ericsson, giving SNE control of both the company and its full array of mobile technology patents, which analysts value somewhere between $1.3 and $1.7 billion.

With Sony’s overall plans for the mobile technology business — which include advanced gaming devices, tablets and more media services than you can shake a stick at — it’s unsurprising that the company wants full control over its smartphone enterprise. Still, it might be too late for Sony to change the shape of that market with its own phones.

At the moment, Sony is preparing to release the PlayStation Vita handheld into the market, as well as the PlayStation Suite — a digital games service supported by Android phones and tablets. It also recently entered the tablet game with the S1 and S2 tablets. With Apple (NASDAQ:AAPL) tightening its grip on the market, Google (NASDAQ:GOOG) repositioning itself as a manufacturing force by acquiring Motorola (NYSE:MMI), and Nokia (NYSE:NOK) preparing to re-enter the market with backing by Microsoft (NASDAQ:MSFT), it’s difficult to imagine that Sony could quickly and effectively take on the smartphone businesses with its own line of handsets.

Sony’s resources have been placed in other developing mobile products, and Sony Ericsson’s existing business has eroded to the point where it needs to be completely restarted. Since Sony also has tied itself closely to the Android platform, it needs to consider how to best leverage that operating system without trying to live on the scraps left by Android phone makers like Samsung (PINK:SSNLF), HTC and Google itself in the future.

With a majority of the worldwide smartphone market, Google’s Android operating system has caused other phone makers like Research In Motion (NASDAQ:RIMM) and Nokia to decline in prominence, but it also has created a fractured market for manufacturers using the platform. In the overall mobile market, smartphones and feature phones included, Sony Ericsson’s Android business plays an ever-diminshing role.

According to an August report on the worldwide mobile market from Gartner, Sony Ericsson controls below 2% of the mobile market, down from 4.3% in 2009. Given, earnings juggernaut Apple only controls 4.6% of the market by number of phones sold, so a small share doesn’t equate small business — but it’s important to remember that Apple sells just a couple of smartphone models, whereas Sony Ericsson sells many different types of phones.

In the current market, Sony’s ability to rehabilitate and later grow the Sony Ericsson smartphone business is questionable at best. It would be better served at this point by focusing on specialty devices like the PlayStation Vita and a variety of digital services to milk the most revenue out of the mobile business.

Buy out Ericsson and license Sony Ericsson mobile patents where applicable. Then establish the PlayStation Suite as a central force among all Android devices. Make HTC, Samsung and Google/Motorola-made Android phones PlayStation-certified devices, and use the brand to milk users for every dime they’ve got on small games and Sony-branded classics. Then incorporate Sony’s numerous other entertainment services — streaming music service Qriocity, music video channel VEVO, Sony Pictures content, etc. — and make your mobile business about service and not phone sales.

Is there a scenario in which Sony could take its Sony Ericsson business and turn it into a player? Maybe, provided it could make a device that was as pretty and functional as an iPhone that cost half as much to make and could sell for even less. Why bother, though, when the company has the potential to redefine its role in the mobile space, which eventually could prove more poriftable?

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

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