23rd April 2008
LONDON (Dow Jones) - Sony Ericsson, the world's No.4 maker of mobile phones, on Wednesday posted a 48% drop in first-quarter profit, as slower sales, higher research and development costs and a component shortage took a toll on the bottom line.
Net profit at the joint venture of Japan's Sony and Sweden's Ericsson fell to 133 million euros ($212 million) from 254 million euros in the first quarter of 2007.
Sales slipped 7.6% to 2.7 billion euros due to slowing demand of mid- to high-end handsets, which make up the bulk of Sony Ericsson's portfolio.
Analysts surveyed by SME Direkt on average expected net profit of 118 million euros on sales of 2.6 billion euros.
The results didn't come as a surprise as Sony Ericsson last month warned that slower growth in its European markets would hit sales and profit in the first quarter.
Ericsson shares rose 0.6% in Stockholm morning trading. Sony shares closed down 0.2%. The report came after the close of trading in Japan.
Sequential market share loss
Sony Ericsson shipped 22.3 million phones in the quarter, up 2% compared to the year-ago period and in line with consensus forecasts. Still, shipments fell 26% sequentially, a bigger drop than the typical seasonal decline of 10% to 15%.
Gross margin slipped to 29.2% from 30.3% in the first quarter of 2007, reflecting a "less favorable business mix," the company said. The gross margin disappointed some analysts after the company assured them it would be stable when it issued its profit warning last month.
The average selling price declined to 121 euros from 123 euros in the fourth quarter and 134 euros in the year-ago period.
Sony Ericsson estimated its market share at around 8% in the quarter, down from 9.7% in the fourth quarter. Analysts for Enskilda Securities said they believe the market share losses were steepest in Asia. Sales in the region fell 25%.
Richard Windsor, analyst at Nomura International, said the market share loss "is a result of a significant shift to the low end and weakness in high-end phones rather than a competitive attack."
He added that Sony Ericsson is disproportionately exposed to the high end and particularly in Europe, where the economic slowdown has curbed spending.
Sony Ericsson, which made its name selling upscale phones with music capabilities, has recently started expanding its low- and mid-range portfolio to increase its market share in high-growth emerging markets.
But it retains a focus on high-end phones, which explains the high R&D expenses. At the Mobile World Congress, the industry's largest annual show, in February it unveiled a new sub-brand with the XPERIA X1, a high-end multimedia phone based on the Microsoft operating system Windows Mobile.
Nokia, the world's largest maker of mobile phones, saw it shares drop 13% in a single session last week after it reported a smaller-than-expected rise in first-quarter profit and said the mobile-phone market will shrink in euro terms this year.
(END) Dow Jones Newswires
