Sony Should Fly Solo

Japan's Sony knew when to call time on Sony BMG, its joint-venture record label with Bertelsmann, when last year it took full control of the unprofitable entity. Although the mobile-phone industry is not in as bad a shape as the music industry, Sony would do well to buy out its mobile-phone partner Ericsson also.

On Friday, their Sony Ericsson partnership warned of yet another quarterly loss, in the range of $475.6 to $543.6 million, on the back of some pretty dismal quarterly unit sales. Given that there is not much technological rationale for network-supplier Ericsson to stick with its consumer-electronics pal Sony, and even fewer financial benefits, it might be better for the company if the two went their separate ways.

Having full control of the company would allow Sony (nyse: SNE - news - people ) much greater leverage of its brand, according to Nicolas van Stackelberg, an analyst with Sal. Oppenheim. He told Forbes that even though Sony Ericsson already used Sony's Walkman brand to promote music phones, as well as its Cybershot digital-camera brand, a third step might be to use the Playstation name to promote mobile gaming.

The joint venture's profit warning socked shares of Ericsson (nasdaq: ERIC - news - people ), down 9.0%, to 69.00 Swedish kronor ($8.45), in Stockholm, and didn't spare rival Nokia (nyse: NOK - news - people ) either. Shares of the Finnish mobile-phone champion ended the day flat, at 8.35 euros ($11.32), after recovering from a midday sell-off.

"You have to suspect that Nokia will have very, very poor volumes this quarter too," said Lars Soderfjell, an analyst with Kaupthing. "We don't know how much is Sony Ericsson-specific, and how much is the market, but Nokia won't get the benefit of the doubt from investors."

Sony Ericsson said quarterly unit shipments were expected to fall to 14.0 million phones, a 36.4% drop over the year. The company is on track to hit its target of 2,000 job cuts and an initial 300.0 million euros ($408.1 million) in cost savings by the second half of this year.

A divorce might take some time to work out, however, given that Ericsson won't want to give up its 50.0% stake at fire-sale prices in a rapidly deteriorating market. Sony Ericsson's expected quarterly loss would be the third in a row, and the company is burning cash at an alarming rate -- a capital injection from both parents may be a necessary prelude to any divestment on more reasonable terms.

A spokeswoman for Sony Ericsson told Forbes that both Sony and Ericsson had reiterated their commitment to the joint venture on Friday, and that both saw it as "a strategic pillar" of the business. "That includes sufficient funding, if necessary," she added.