The idea: in view of Motorola’s and Sony Ericsson’s low global handset market share – less than 5% each – shouldn’t they merge? The geographies work: Sony Ericsson has a decent market share in Europe (12.4%), Motorola has a good share of the U.S. (17.3%), Sony Ericsson does OK in India (10%), while Motorola is fine in China (10%).

There would naturally be cost savings from merging R&D and marketing functions. Currently, Sony Ericsson will spend around 15% of revenue on R&D and 13% of revenue on SG&A, and it’s estimated that Motorola spends around 33% of revenue on operating costs for devices.

Sanford Bernstein estimates, that by merging, the companies could reduce operating costs by 10%. This would be a useful uplift as last quarter – admittedly a poor one for all industry players – Sony Ericsson had an operating margin of minus 12%, while Motorola’s was 2.3% after being slightly negative the previous quarter.

But there may be another factor: Next year, there will be a whole new raft of phones based on Google’s Android operating system.

Android has only been up and running commercially since the summer and is a long way behind Apple Inc.’s iPhone by any metric. But only around a dozen handsets have been available so far and around 30 more are expected next year, many of which will come from Asian suppliers.

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