You know you’re in trouble when industry pundits start comparing you to Motorola (NYSE: MOT). That’s the fate that’s befallen Sony (NYSE: SNE) Ericsson, the joint venture between Japanese electronics maker Sony, and Swedish telecoms equipment maker Ericsson (NSDQ: ERIC). Once riding high on handsets built around Sony’s Walkman brand, it has since fallen to the number five handset maker in the world, after being overtaken by Korean rival LG (SEO: 066570) in the first quarter. Even worse, the company has been forced to issue two profit warnings this year. The last one, on June 28, warned that slowing handsets sales and delays in new products would mean the company would break even at best in the second quarter. How bad is it? In Q1 2007, Sony Ericsson posted global sales growth of 67 percent. In Q1 2008, that same figure was a mere 2 percent.

SEE ALSO: Sony Ericsson Warns Slowing Handset Sales And Delays To Hit Q2 Earnings

Businessweek takes a closer look at what’s going wrong for Sony Ericsson, and concludes some of the problems are due to economic pressures affecting the entire industry, and some are self inflicted.

First off, mobile phone sales across the industry are going south, as the economy puts pressure on people’s pocketbooks across the world. Sony Ericsson relies on consumers in emerging markets to trade up to a fancier phone, but many are hanging to their old handsets for longer.

Sony Ericsson, too, has also made mistakes. Unlike its Finnish rival, Nokia (NYSE: NOK), it hasn’t tried to “spread its bets” around the globe, but relies heavily on Western Europe for sales. Not a good move when analysts are calling it the “weakest globally today.”
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It has also missed the market’s biggest growth area—the low end of the market—with its concentration on mid-to-high end phones. But then, given its size, it hasn’t been able to get Nokia’s scale and distribution—necessary if you want to enter emerging markets.

It’s also been stuck in a rut with its products—all the while its old rivals and new ones like Apple and HTC—have been busy pumping out every imaginable phone iteration possible. In a mistake Nokia made in the North American market and is still trying to fix, Sony Ericsson has stuck to the classic candy bar shape, while Samsung and LG especially have been churning out clamshells, sliders, and touchscreens. Lastly, the pressure is on for Sony Ericsson to figure out how to get revenues from added services, like Nokia and Apple (NSDQ: AAPL). 

So what’s Sony Ericsson doing to stop the slide? It struck a deal with French electronics maker Sagem last year to produce entry level phones, but products from the tie-up won’t come out till later this year. The company is also hoping Nokia’s decision to buy and set Symbian free will give it a much-needed boost. First, it won’t have to pay royalties anymore –which added up in the millions of dollars. The new Symbian platform will also use a software interface designed and used by Sony Ericsson that will make it easier for it to create entry-level models. The handset maker has also made headway in the North American and South American markets with better distribution deals.