Sony Ericsson challenged financially, but holding ground: Firm ships 25.7 million units in quarter

Sony Ericsson Mobile Communications posted solid unit shipments for the third quarter, but reported financial metrics that illustrated the company’s struggles with its portfolio in the current market.
Revenue for the seven-year-old, Japanese-Swedish joint venture reached $3.8 billion, down 10% from the year-ago quarter and flat sequentially. Net income reflected a loss of $33.6 million, a precipitous fall from the $359 million the company earned in the year-ago quarter and down from $8 million earned in the prior quarter.
Yet Sony Ericsson shipped 25.7 million units, down slightly from the 25.9 million units shipped in the year-ago quarter and up slightly on a sequential basis. That was enough to hold its market share flat at about 8%, analysts said.
As Sony Ericsson rose from an upstart with a winning formula of voice-plus-one in its music-centric Walkman and imaging-centric Cybershot line, it had contributed substantially to its corporate parents’ bottom line. Now that it is struggling to become a global player, with profitable low-tier offerings in emerging markets contributing to its volume shipments, the company has come under pressure to cut costs and retain its differentiated value proposition in a market crowded with touchscreens and smartphones.
Analyst Ittai Kidron at Oppenheimer declared shipments were “better than expected, relative to low expectations,” but pointed to the company’s product mix and competition in the high-tier segment as the source of trouble.
“The aging and relatively weak product portfolio, which has pushed Sony Ericsson out of its former strong position in the high end, is the root of the problem,” Kidron wrote in a note to investors. “We do not see a quick fix and would not look for much financial relief until the second half of 2009, when cost reductions are reflected.”
Kidron favorably cited SEMC’s new Xperia X1 touchscreen smartphone, but said the company was still losing ground to Apple Inc., Research In Motion Ltd. and Nokia Corp. During the quarter, the company launched a number of new phones worldwide, and expanded its music service. New phones include three new Walkman devices and its first models integrated with YouTube connectivity.
The company also announced it is expanding is music service with PlayNow plus. The download service for handsets and personal computers will be available in the final quarter this year. The company is planning to feature a special edition W902 Walkman phone with the new service in the fourth quarter. The company said its C902 Cyber-shot camera phone was its hit model of the quarter.
In the United States this fall, SEMC has introduced new handsets at both AT&T Mobility and T-Mobile USA Inc., the major GSM carriers in the U.S. SEMC makes only GSM products, which limits its market penetration here.
Challenging business conditions
The vendor’s average selling price declined to $147, from $161 in year-ago quarter. According to the company, that’s in line with historical declines and due to a greater mix of low-priced handsets in its portfolio and price competition in the mid- and high-tiers, a segment in which the company had profited in its best years.
Sony Ericsson in a statement cited “challenging business conditions” for its results. Macro-economic conditions are the stuff of headlines, but analysts have said SEMC has faced particularly stiff competition in Europe, formerly a source of high-tier product profits.
SEMC reiterated its dedication to cost management, including the consolidation of research and development facilities and job cuts (including 400 cuts at its North American R&D headquarters in Research Triangle Park, N.C.) trimming annual operating costs by more than $400 million, with material impact on earnings by the second half of 2009.
The company reiterated its own estimate for 10% annual growth for the handset industry this year, with the majority of growth expected in emerging markets where low-tier phones dominate, further eroding ASPs.
Gary E. Salazar contributed to this report.