There may be more mergers to come between international mobile handset players and Japanese counterparts in the wake of the recent move by Nokia and Sanyo Electric Co to run their CDMA businesses together.
It still hasn’t got a name, with pundits divided between Sanyo Nokia because it looks a bit like Sony Ericsson, and Nokia San because it sounds more Japanese, but either way, the recent announcement by the two handset manufacturers has led to speculation that further such marriages of convenience may be afoot.
The backdrop to the deal is, in part, Nokia’s inability to replicate in the CDMA world its dominance in GSM, its market share being 13.3% and 33% overall. It trails behind Samsung in the worldwide market (with 20%) while in the US (the world’s largest CDMA market), leadership is disputed by Samsung, LG and Motorola. To beef up its challenge, therefore, particularly on the smart phone side where it is weakest, the deal with Sanyo makes sense to the Espoo, Finland-based vendor.
Sanyo, which hails from Osaka, is strongest in high-end feature and quasi-smart phones. None of its devices currently run an open, extensible operating system, however, so the Symbian platform, which is pushed by a consortium whose majority shareholding is in the hands of Nokia, could be the solution there.
The other part of the rationale for their union in CDMA, however, is the parlous state of the Japanese handset manufacturing sector. There are 10 major names in the market, struggling to meet the requirements of three operators with different technology infrastructures. Only KDDI runs CDMA, both Vodafone Japan and NTT DoCoMo having opted for the GSM route to 3G, deploying W-CDMA. Then there is the added complication that most of DoCoMo’s phones need to comply with its proprietary i-mode mobile internet platform.
Furthermore, market penetration is approaching 100% in all but the over-60s and under-14 segments, manufacturers from Korea and China are moving in to compete, and there are three new 3G licensees planning to enter the market, two of them in W-CDMA and the third with yet another radio access technology, TD-CDMA from IPWireless.
To make matters worse, the Japanese vendors have failed dismally to take the international market by storm, despite the apparent advantage Europe’s going to W-CDMA represented for them. Collectively they hold no than 10% of the world market (all radio access technologies), outstripped by Samsung single-handedly, with 13%. In fact, Sony is the only Japanese name in the top five vendors for 2005, with 6.2% through its joint venture with Ericsson.
While Sony merged with Ericsson in handsets, Germany’s Siemens gave up and sold its business to Chinese manufacturer BenQ. Motorola’s CEO Ed Zander, on the other hand, recently went on record as stating that a partnership with a local vendor was a distinct possibility in order for his company to penetrate the Japanese market.
The other two names on his list are actually more significant players in Japan, ranking joint second with 15.7% each of the country’s overall market (all technologies). None of these vendors are particularly significant on the international stage, so perhaps one could be wooed by a tie-up with the inventor of the hugely successful Razr phone and the world’s number two overall, with 17.1%.
Motorola is stronger in CDMA than Nokia, but could probably still use a partner with some high-end, business phone offerings for that radio access technology to counter Samsung.
Meanwhile, the eventual Japanese partner might be enticed by the Schaumberg, Illinois-based vendor’s development of ultra-low cost (ULC) phones in the sub-$300 bracket to address the emerging Chinese and Indian markets. Certainly, part of the rationale for Nokia’s initiative with Sanyo was that the latter could focus on high-end development, where economies of scale count less, and leave the mass market for CDMA to Nokia’s developers.
Another question is whether Motorola would choose to ring-fence such a joint venture to CDMA, as Nokia has done with Sanyo, or embark on a broader union. The former seems likely, since Motorola would appear to have little to gain from sharing the spoils of its worldwide market just to get into Japan.