Sony Ericsson warns of fall in sales in Q1

The warning late last week of a slump in hand set sales issued by the fifth largest manufacturer of mobile handsets, Sony Ericsson,  has shaken mobile handset industry leading to a fall in the share prices of industry leader Nokia and others declining Friday.

The joint venture company of Sony and Ericsson established in 2001, said that its net sales and net income before taxes in the first quarter of 2009 continue to be negatively affected by weak consumer demand as well as de-stocking in the retail and distribution channels.

It said that it plans to ship approximately 14 million phones during the first quarter of 2009 with an estimated average selling price of €120 and expects a loss in net income in the range of €340 – 390 million before taxes, excluding restructuring charges of approximately €10 – 20 million.

This warning on slump in global mobile handset sales comes, when last week the world's largest maker of cell phones, Finland-based Nokia announced that it was slashing 1,700 jobs worldwide in response to "pruned" demand from consumers. (See: Nokia slashes 1,700 jobs in response to declining demand)

Nokia said in January it aimed to cut annual costs at its key handset unit alone by more than €700 million ($909.3 million) to counter the plunging demand.

A month later, Nokia said it would offer resignation packages to employees and encourage them to take unpaid leave to cut costs but with a goal to eliminate 1,000 jobs.

With the number one and number four ranked mobile handset manufacturers warning of low sales for 2009 after a weak Q4, (See: Global mobile phone sales grew 6 per cent in 2008, despite 5 per cent decline in Q4) just goes to show how the global economic crisis is soon catching up with what was a fast growing industry especially in the emerging markets, said an industry expert.

The company that could be credited with invention of the cell phone and once the largest wireless handset maker Motorola, last month posted a $3.6 billion loss, skipped its dividend and pruned it workforce by 4,000. (See: Motorola skips dividend amid $3.6 billion loss)

The global economic downturn had a significant impact on the mobile phone industry as worldwide mobile phone sales to end users totalled 314.7 million units in the fourth quarter of 2008, a 4.6 per cent decline from the fourth quarter of 2007, as manufacturers continued to struggle against low consumer confidence in both emerging and mature markets.

The mobile handset market has also been affected by limited access to credit, which in turn has resulted in customers putting off their purchase even if they wanted to buy a newer model over an existing older handset.

The top five mobile phone vendors all experienced a decline in sales in the fourth quarter of 2008 although the industry did experience growth for the year, with worldwide mobile phone sales to end users surpassing 1.22 billion units in 2008, a 6 per cent increase over 2007 sales.