STOCKHOLM (Reuters) - Reports that Sony could take control of Sony Ericsson are likely to overshadow the handset maker's third-quarter results on Friday, when it is expected to show that a beefed-up smartphone line helped it to make a small profit.
The handset firm has been losing market share -- and money -- for a while. Leveraging Sony's portfolio of consumer gadgets and entertainment assets is seen as its best chance of success.
Last week a source told Reuters Sony was discussing a buyout with Ericsson, which would help it recoup ground in the battle against Apple Inc and Samsung Electronics, where it has been hampered by a disjoined strategy on mobile gadgets and online content.
Sony Ericsson's recent focus on smartphones based on Google's Android platform has been gaining traction, pulling the company back into the black.
In the longer term, however, many analysts see a bleak future for Sony Ericsson if it cannot differentiate itself from a growing crowd of handset makers operating on Android.
For Ericsson, a sale would insulate its profit and loss account from the volatility Sony Ericsson has brought and allow it to focus resources on its loss-making chip venture ST-Ericsson.
"Right now, I think, a sale of Sony Ericsson would be well-received," said Thomas Langer, analyst at WestLB.
However analysts said they did not expect Sony Ericsson to comment on a possible buyout of Ericsson by Sony when it posts its results on October 14 at 0630 GMT.
A Reuters poll put the price of Ericsson's 50 percent stake in Sony Ericsson at around $1.5 billion.
The hefty price tag for Ericsson's stake reflects in part the recovery in Sony Ericsson's business since it decided to focus on smartphones based on Android.
Analysts said that the third quarter results would reflect the recent improvement in profitability, interrupted in the April-June period by the effects of the earthquake in Japan on parts supply.
"We should see a turnaround in Sony Ericsson so that it delivers a profit this quarter," said Morten Imsgaard, analyst at Sydbank. "There have been some strong introductions, and the whole shift toward the Android ecosystem has been very successful."
On average analysts forecast Sony Ericsson's third quarter profit at 27 million euros ($37 million) after a 42 million loss in the preceding three month period.
While the global cellphone sales volumes are on average expected to have grown 15 percent in the third quarter against the same period a year ago, Sony Ericsson's sales are expected to have dropped by a similar factor.
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(Reporting by Simon Johnson; Editing by Sophie Walker)