Sony Ericsson sees profits falling in face of declining demand, increasing competition

Sony Ericsson Mobile Communications Ltd., the smallest of the world's top five mobile-phone makers, said yesterday that declining sales of higher-priced handsets and delays to new products has wiped out second-quarter earnings, only a week after its global marketing head offered contrary opinions.

London-based Sony Ericsson, which is owned by Sweden-based Ericsson and Japan-based Sony Corp, said in a statement profits had been affected by moderating demand for mid- to high-end phones and product delays. It said the market was "challenging".

The news drove shares in Ericsson down 7.8 per cent to 60.70 Kronor in Stockholm trading by 1301 GMT, having sunk as low as 58.50 Kronor, or 11 per cent. This was the stock's maximum fall in the last three months and also managed to drag down rival Nokia's shares by 4.5 per cent in Helsinki. Finland-based Nokia is No.1 in the list of mobile pone sellers, with Samsung and Motorola occupying the next two positions.

Sony Ericsson, which said for the second time this year that profit would fall, lost its ranking as the fourth-biggest handset maker to LG Electronics Co. in 2008 as higher living costs prompted European consumers to buy cheaper models.

Sony Ericsson has suffered as consumers opt for cheaper models and rivals including Nokia and Apple Inc. introduce more expensive phones. Some of the ``handful'' of new handsets Sony Ericsson had planned to sell early in the quarter only started shipping at the end of the period, spokesman Aldo Liguori said.

Sony Ericsson said it plans to ship about 24 million phones during the quarter at an estimated average selling price of €115. One analyst said this average price was disappointing.

"Gross margin is expected to decline both year over year and sequentially. Net income before taxes is estimated to be about breakeven," the firm said.

The company focused on upgrading existing models rather than new products, Liguori said. Most of the handsets introduced cater to the mid-end of the price range for phones, he said.

Although, Sony Ericsson has made a visible effort to expand in emerging markets, analysts say the shift has not been fast enough and that the firm is too exposed to European markets, which are considerably saturated and do not offer much scope for growth.

The news is a fresh blow to mobile network maker Ericsson, which has struggled since the third quarter of last year. It had a better-than-expected first quarter but its shares are still down more than 50 per cent in the past nine months. Only a year ago, Sony Ericsson results were considered an added bonus for the flagship Swedish firm.

Sony Ericsson second-quarter results are due on 18 July.

In the first quarter, Sony Ericsson posted a pretax profit of €193 million, 47 per cent down year-on-year. It blamed falling demand for its more expensive camera and music handsets.

Sony Ericsson was formed in October 2001 as a venture between Japan's Sony Corp. and Sweden's Ericsson. The companies combined their handset operations after failing to entice consumers with their separate lines. The cooperation has allowed the manufacturer to market its phones with the help of popular Sony brands including Cybershot cameras and the Walkman.