Sony Ericsson Slump Strengthens Buyout Rumors

Sony Ericsson announced it will manufacture only smartphones next year, as earnings stall and rumors of Sony's buyout of the Swedish half of the joint venture ramp up.

Sony Ericsson's sales held steady in the past quarter, mostly due to the success of Android-based Xperia phones, which account for 80 percent of the company's sales. However, the handset manufacturer took a big hit in the European market, where sales dropped more than 40 percent as a result of the debt crisis, according to the Wall Street Journal.

Reports of stagnant third-quarter earnings comes as Sony mulls a possible buyout of Ericsson to take control of the company.

A successful Sony buyout may give the Swedish handset-maker access to coveted Sony content, services, and games, potentially insulating Ericsson from an increasingly competitive and volatile smartphone market. Earlier this year, Sony Ericsson released the Xperia Play smartphone, which combines the gaming functionality of Sony's PlayStation with Ericsson's best-selling Android phone, showing potential for further crossover product development in the event that Sony takes control.

On Sony's side, a deal may likely help the Japanese electronics giant gain ground against top mobile sellers from Apple and Samsung, and strengthen its position in the mobile device market, where it commands only a small share.

Potential deal aside, Sony Ericsson's plans to shift entirely to smartphones next year may prove a difficult path. Smartphones are growing in popularity, with more users moving away from basic handsets to choose feature-rich devices.

However, the cutthroat and crowded market is dominated by big players. For example, Apple's iPhone 4S is selling out in its first week, and Android-powered phones are hitting the market at a rapid pace, making it difficult for newer companies looking to make their mark to find traction in a growing field of competitors.

Currently, Sony Ericsson controls about 11 percent of the Android-based smartphone market, lagging far behind top makers like Samsung and HTC.

Slowing sales and a fierce and crowded smartphone market may make it difficult for Sony Ericsson to get ahead in the mobile device world, though Sony's rumored buyout may increase its chances of success.