2nd UPDATE: Sony Ericsson JV Deepens Ties With New Xperia Arc

Mobile phone maker Sony Ericsson Thursday launched its latest attempt to grab a major share of the market for Android smartphones with a new flagship device, the Xperia arc, which also marks deeper collaboration between the handset maker and Sony.

The Xperia arc, which succeeds Sony Ericsson's previous Xperia X10 flagship phone, is based on Android 2.3, the latest version of Google Inc's (GOOG) open mobile platform, and is the first of a new generation of handsets the company plans to launch this year. It will be available in selected markets, including Japan, from the first quarter.

The device integrates several features direct from Sony, including the Mobile Bravia engine that improves image quality and the Exmore R sensor that boosts photo and video quality in low light conditions, signalling a deepening integration between Sony Ericsson and the Japanese consumer electronics giant, according to Sony Ericsson spokesman Aldo Liguori.

The closer ties are in sharp contrast to speculation in early 2009 that the two parent companies in the joint venture, Sweden's Telefon AB L.M. Ericsson (ERIC) and Japan's Sony Corp. (SNE), would split the partnership, amid continued losses and poor sales.

Last year the company returned to profitability following several loss-making quarters during which rivals including Apple Inc. (AAPL) and Research In Motion Ltd. (RIMM) took the lead in developing new smartphones. Industry experts have long called for Sony Ericsson to more effectively exploit Sony's technical expertise, particularly in gaming, stoking speculation that it will soon launch a gaming smartphone that integrates Sony's PlayStation platform.

"There's a lot of smoke and I tell you there must be a fire somewhere," Sony Ericsson Chief Executive Bert Nordberg said in an interview in November regarding the speculation.

Sony is becoming "an increasingly important business partner," Liguori said, noting that while the company previously used Sony functionality and sub-brands, chiefly Walkman and Cybershot, in its phones, the features in the Xperia arc take the collaboration to a deeper level.

Sony spokespeople in Europe weren't immediately available to comment on the partnership.

Still, it faces tough competition in the Android smartphone sector from South Korea's Samsung Electronics Co. Ltd. (005930.SE), Taiwan's HTC Corp. (2498.TW), and U.S.-based Motorola Mobility Holdings Inc. (MMI).

Sony Ericsson launched the Xperia arc at the Consumer Electronics Show in Las Vegas, where Motorola Wednesday also showcased two new Android smartphones. Meanwhile, HTC Thursday said its unaudited fourth-quarter net profit almost tripled from a year earlier, driven by strong handset shipment growth.

The Android platform had a 25.5% share of the market for smartphone operating systems in the third quarter of 2010, up from just 3.5% a year earlier, according to research firm Gartner. Still, Sony Ericsson's global market share of the entire mobile device market fell to 2.5% in the quarter from 4.3% a year earlier.

The Xperia arc will sell at about the same price as the Xperia X10 when that device was launched last spring, at around 5,000 Swedish kronor ($735) in the Swedish market, said Sony Ericsson spokesman Gustaf Brusewitz.

The Xperia arc "ticks most of the right boxes" with a big 4.2 inch touchscreen, nice hardware design and a fast processor, said Neil Mawston, director for wireless devices strategies at research firm Strategy Analytics.

-By Gustav Sandstrom, Dow Jones Newswires; +46-8-5451-3099; gustav.sandstrom@dowjones.com

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