17 October 2008
Handset maker's loss smaller than analysts expected; higher Q4 volumes likely to be offset by lower prices.
Sony Ericsson Friday said it swung to a third-quarter net loss on weaker sales and slowing consumer demand, but cost-cutting steps helped the phone maker lose less than expected.
The company said it sees the global handset market growing about 10% this year from 1.1 billion units in 2007, with growth highest in emerging markets."As expected, the third quarter has continued to be challenging for Sony Ericsson," said Chief Executive Dick Komiyama, He added,"We have moved forward with our plans to align operations and resources with the consolidation of R&D facilities into a more agile and cost efficient organizational structure."Analysts said the loss was smaller than expected and, at 0835 GMT, Telefon AB L.M. Ericsson shares traded up 6.5% at 50.90 Swedish kronor, outperforming a broadly higher Stockholm market.Sony Ericsson, a joint venture between Sony Corp. of Japan and Ericsson of Sweden, posted a net loss of EUR25 million compared to a EUR267 million net profit a year ago as slowing growth in mature markets weighed on earnings.It said its gross margin, which fell to 22% from 31% a year earlier, was hit by increased price competition and higher costs from suppliers. While new products helped offset some of the loss, strong competition, especially in Europe, weighed on earnings.Nomura analyst Richard Windsor said that, although the gross margin suffered, cost control helped minimize the impact on the operating margin. He said the situation for the company isn't likely to change in the fourth quarter as higher volumes will likely be offset by lower prices.The company shipped 25.7 million phones in the period ending Sept. 30, up 5.3% from the previous quarter. Its market share remained flat at 8% in the second quarter.It said sales were down slightly in the Americas and Asia, while Western Europe sales increase 5% from the second quarter.Handelsbanken analyst Jan Dworsky said the earnings were better than expected, given the low expectations. He said many expected a sharper loss and lower volumes."I'm not sure how they did it, but it paid off," he said. He reiterated his reduce rating and SEK50 target price for Ericsson.After two profit warnings this year, Sony Ericsson in July flagged the third quarter as particularly challenging, and said it aimed to cut operating costs by EUR300 million annually by mid-2009 to help the company become more agile and efficient.Unlike its Finnish rival Nokia Corp., which dominates emerging market sales, Sony Ericsson is largely dependent on developed markets sales, making it more vulnerable to slipping demand for high-end devices in mature markets, where it has greater exposure.Sony Ericsson's net sales dropped 9.7% to EUR2.81 billion from EUR3.12 billion. The average selling price for its handsets dropped to EUR109 from EUR116 in the second quarter and from EUR120 a year earlier, due in part to sales of more lower-priced phones.
