Tuesday, February 14, 2006

 

Nokia-Sanyo venture

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Nokia, Sanyo to Form Venture to Make Mobile Phones (Update5)
Feb. 14 (Bloomberg) -- Nokia Oyj, the world's biggest cell- phone maker, and Sanyo Electric Co., the largest handset-battery producer, will form a venture to make mobile phones, targeting annual profit of 30 billion yen ($256 million) within two years.

The companies plan to make handsets based on the CDMA2000 standard, the main format used in the U.S., Osaka-based Sanyo and Espoo, Finland-based Nokia said in a joint statement today. The venture will begin operations as early as July in Osaka and Tottori prefectures in western Japan and San Diego, California. No financial details were provided.

Nokia and Sanyo aim to raise their sales by bringing together Nokia's dominance in low- to mid-range phones and the Japanese electronics maker's expertise in handsets with high- speed Internet access that can download music and video. The venture may also help Sanyo, which received a 300 billion yen bailout from banks, by improving the company's sales in the U.S.

An alliance ``would be positive news because there's severe competition in the North American market and grabbing market share has been an issue for Sanyo,'' Eiichi Katayama, an analyst at Nomura Securities Co., wrote in a report before the announcement. He rates Sanyo shares a ``sell.''

Nokia also expects to benefit from increased demand for more advanced phones, as markets in Europe and the U.S. near saturation and prices drop. Yesterday, Nokia said it will start selling a handset that lets customers make calls over the Web.

Goals

The venture plans to sell 35 million handsets in the first year, Takenori Ugari, the president of Sanyo's mobile-phone business, said at a news conference in Tokyo today.

``That's our goal for the first year, but the real challenge will be when we can reach 50 million units,'' said Ugari. Sanyo can compete globally by teaming up with Nokia, he said.

Ugari said the venture will also target sales in BRICs countries -- Brazil, Russia, India and China -- where mobile- phone penetration is lower than in the U.S., Japan and other parts of Europe.

Nokia's third-quarter U.S. market share was 13.7 percent, behind Motorola Inc.'s 33.5 percent, LG Electronics Inc.'s 19.8 percent and Samsung Electronics Co.'s 15 percent, according to Framingham, Massachusetts-based researcher IDC. For the CDMA standard, Nokia ranks third globally behind Samsung and LG, and Sanyo is fifth behind Motorola, Ugari said.

``Our goal is to grow faster than the market,'' Nokia Japan Co. President Tyler McGee told reporters. The alliance will combine ``Sanyo's expertise in mid to high-end phones and our strength in the low to mid-range phones.''

Job Cuts

The venture will have about 3,500 employees, Nokia Chief Financial Officer Rick Simonson said today at a press event in Barcelona, Spain. ``A couple of hundred'' jobs might be cut at Nokia as a result of the venture, Simonson said.

Nokia President Olli-Pekka Kallasvuo, who takes over as chief executive from Jorma Jaakko Ollila on June 1, in August said he expects to revive Nokia's fortunes in the U.S. Nokia aims to win clients with phones tailored to specific telecommunication companies to boost handsets kept in stock by operators, Jari Honko, an analyst at eQ Bank Ltd. in Helsinki, said last month.

Sanyo last month said it will sell preferred stock to Goldman Sachs Group Inc., Sumitomo Mitsui Financial Group Inc. and Daiwa Securities SMBC Co. to fund job cuts and other restructuring programs. The share sale will give the three banks 49.8 percent of Sanyo and five of nine board seats, and is pending approval from shareholders on Feb. 24.

Sanyo needs cash to pay for a three-year plan to cut 15 percent of its workforce, close factories and invest in solar panels, rechargeable batteries and other environment-related businesses. The company is also looking to raise money by selling real estate and shares of other companies it owns, and reducing executive salaries.



To contact the reporter on this story:
Daisuke Takato in Tokyo at dtakato@bloomberg.net

Last Updated: February 14, 2006 07:44 EST



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