LONDON Swedish communications equipment maker Ericsson should dispose of its 50 percent stake in its mobile handsets joint venture Sony-Ericsson (SEMC), according to equity research house S&P.
However, S&P is warning that that any agreement for the sale of its interest in SEMC would bring Ericsson "limited proceeds given the venture's current market position and expected losses."
The equity research group was responding to news that, in an interview with the Nikkei English News Sony CFO Nobuyuki Oneda said Sony Ericsson will need to raise at least Euros 100 million this year.
Oneda indicated the venture would explore its options for securing the capital including debt and a share issuance.
S&P said the disclosure comes as little surprise, "given the weak results delivered by SEMC in Q1 09, our outlook for handset industry fundamentals, SEMC's weak market position, and our forecast for further losses."
"We believe access to outside capital for SEMC would be at a steep price, which we see weighing against our belief that Ericsson has limited interest in injecting its own cash into the venture. We view the strategic value of SEMC to Ericsson as minimal and believe a resolution requiring cash from Ericsson would be viewed negatively by Ericsson investors,” the equity research group said in a note.
"On top of our market concerns, we believe SEMC's portfolio is poorly positioned for areas of stronger customer demand, the low-end and high-end smartphone segments. While our 2009 global handset forecast calls for an 8.6 percent year-on-year decline
in industry volumes, we see SEMC's volumes falling 32 percent in 2009 with market share loss exceeding 200 basis points," the note expanded.
S&P is forecasting an adjusted operating loss xceeding Euros 600 million at Sony Ericsson for 2009, with an additional Euros 357 million in restructuring expenses, all eating away at its net cash balance of Euros 1.1 billion.
Questions about an eventual split between Sony and Ericsson have surfaced before. The most recent , in March this year, suggested the Japanese group had approached its Swedish partner about acquiring total control, but that funding the deal would be a major issue.
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