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Sweden: Sony Ericsson Reports Swing to Net Loss in Q4
|19 января 2009|
Sony Ericsson is blaming weak sales for net losses in both fourth-quarter and full-year 2008, and the handset manufacturer predicts further market deterioration in 2009.
Sony Ericsson has reported a net loss of 187 million euro (US$245 million) in the fourth quarter of 2008, compared with a previous profit of 373 million euro in fourth-quarter 2007 year-on-year (y/y). It also reported a loss for full-year 2008, at 73 million euro, down from a previous profit of 1.1 billion euro in full-year 2007. Income before taxes for the quarter showed a loss of 133 million euro, excluding restructuring charges of 129 million euro, compared with the profit of 501 million euro in fourth-quarter 2007 y/y. The average analyst income forecast was a loss 77-million euro in a Reuters poll.
Sony Ericsson reports that sales in the fourth quarter of 2008 came to 2.9 billion euro, down 23% from 3.8 billion euro in the same period y/y in 2007. The handset manufacturer said it shipped 24.2 million units in the quarter, down 21% from the fourth quarter of 2007, while the average selling price for its handsets dropped to 121 euro, from 123 euro in fourth-quarter 2007 y/y.
The joint venture of Japan's Sony and Sweden's Ericsson has been forced to cut its estimate for 2008 to 1.19 billion units, representing 6% growth. It had previously estimated growth of 10% for the year. However, the company predicts its global market share for fourth-quarter 2008 will stay at around 8%.
Outlook and Implications
Telecoms in Recession: Sony Ericsson is largely blaming weak sales for the poor financial showing, saying contracting consumer demand and decreased availability of credit have hit it hard. Sony Ericsson President Hideki "Dick" Komiyama stated: "In economic terms, 2008 has been a tumultuous year with world markets experiencing a serious downturn. The mobile phone market has been greatly affected by this and as expected, the fourth quarter continued to be very challenging for Sony Ericsson." The company said it now expects the global handset market to contract as well as expecting a continued fall of the average selling price, resulting in a further deterioration of market conditions in 2009, particularly in the first half.
Further Cost Cutting Planned: The company says its 300-million-euro cost-savings plan is running "on track", but that it plans to increase the saving by shaving an extra 180 million euro off its operating costs. President Komiyama stated: "Our business alignment is progressing as planned, with the full effect of annual savings of around 300 million euro expected by the second half of 2009." Sony Ericsson has not given details on how these extra savings will be achieved; however, one can expect further restructuring efforts and consolidation of research and development facilities and organisational structure—meaning job losses could very well be on the cards.
Building the Brand: Sony Ericsson has steadily built sales since its inception, through the targeted branding approach of its high-value Walkman and Cybershot handsets, boasting impressive music and camera capabilities. As other manufacturers move into the music market and more and more phones feature high-end cameras, however, the company is seeing significant pressure from the competition. The company has been slow in coming out with distinctive updates to its range, and its average selling price remains significantly higher than its competitors in its key markets. Sony Ericsson will be hoping the release of its new flagship Xperia X1 handset—which features a high-resolution 800x480 pixel touch screen, hard QWERTY keyboard, and optical joystick—and its latest C902 Cybershot phone will boost sales, but with both operator and consumer spend set to plummet, the manufacturer is facing a tough challenge against strong competition.
Fierce Competition in a Shrinking Handset Market: Competition at the high end of the market and a growing number of lower range handset sales, particularly in emerging markets, have pressured average selling prices and margins, forcing several key operators into a highly aggressive price war. Although all the major handset manufacturers are seeing a decline in business, Nokia has stated that the global financial crisis could benefit the Finnish handset giant, as its sheer size will shelter it from the worst of the storm. Sony Ericsson is having difficulties matching the low-cost manufacturing models that have helped Nokia to remain seriously profitable with mass-market handsets at lower selling prices. As Sony Ericsson's key European markets stagnate and handset replacement rates slow because of lengthening operator contracts, IHS Global Insight believes the manufacturer may need to consider serious reinvention if it hopes to expand its business elsewhere into growth markets in emerging regions.