Sony Ericsson's Cuts Spark Phone Rumors

Sony Ericsson's recent job reductions have sparked rumors that the troubled handset maker may be forced to wind down production of both high- and low-end devices as major losses loom.

Sony Ericsson recently reiterated its commitment to achieve 300 million euros ($414 million) in cost savings over the next year, which includes a total head-count reduction of 2,000 employees and consultants worldwide. This announcement has spread fear that the handset maker may abandon both its high-end smartphone and low-end cell phone business, severely shrinking its portfolio.

Nearly three months ago, the Stockholm-based joint venture between Sony (SNE Quote) and Ericsson (ERIC Quote) said second-quarter income plummeted 97% while the company's operating margins dove to zero, generating concern over Sony Ericsson's ability to compete with rival handset makers such as Motorola (MOT Quote) and Nokia (NOK Quote).

In late September, Sony Ericsson took the first step toward realizing those 2,000 job cuts, acknowledging that market conditions have changed very rapidly. The company added that "action must be taken to ensure that it can remain competitive in the dynamic and fast-paced telecommunications industry."

The cuts were centralized in research and development areas, prompting a firestorm of speculation about the company's future. Questions arose about the fate of the UIQ software platform, which is at the heart of Sony Ericsson's high-end smartphone R&D effort. UIQ is based on the Symbian mobile operating system, which was formed by a partnership between Ericsson, Motorola and Nokia, and it is used on Sony Ericsson's high-end phones.

Tero Kuittinen, senior director of research with Global Crown Capital, says that software developers in Europe are increasingly concerned that Sony Ericsson is now planning to end its involvement in the Symbian development program, which would involve the possible axing of an entire UIQ development unit in Ronneby, Sweden.