Sony Ericsson results declared ‘disasterous’

As Sony Ericsson announced its results for the second quarter of 2009 yesterday, research firm IDC stated the results are catastrophic for the business.

Shipments declined 43% from the previous year to 13.8 million units, and sales declined 40.3%. Net income sank to -€213 million from +€6 million in 1Q08. Gross margin declined from 23% to 12% from 1Q08, but improved 8% sequentially.

IDC stated that despite the fact that the economy is challenging all vendors, Sony Ericsson’s results are catastrophic and worse than expected. Shipments declined dramatically due to very poor low end device performance in emerging markets.

Sony Ericsson has not understood that the three main opportunities for growth are emerging markets, smart phones, and services, claimed the research firm. It said that while the company is doing well in terms of services with the Playnow Plus available in more than 17 countries, it still lacks an attractive portfolio of low end devices for emerging markets.

In terms of smartphones, the strategy is even more astonishing, said IDC. Smartphones are the only segment with healthy growth in developed markets, such as Western Europe, the US or Canada, and in the first quarter of 2009, smartphones grew more than 20% in these regions. All major vendors are launching several smartphones this year.

Where is Sony Ericsson’s smartphone portfolio for the second half of the year, asked IDC? It has two high end and very expensive devices: Satio, a 12 megapixel phone running Symbian, and the new Xperia 2, running Windows Mobile. An Android device was announced, but will probably not be released until next year. Smartphones could be an enormous opportunity for Sony Ericsson to combine the music and imaging expertise with smart phone features, enabling it to differentiate itself from competitors.

Therefore, Sony Ericsson’s outlook does not look promising, concluded the analyst house. Focusing on restructuring and cost reduction is important, but without a competitive portfolio of low end and smart phone devices, it is not surprising to hear Sony Ericsson’s chief financial officer, Ulf Lilja, saying that Sony Ericsson will continue to operate with losses next quarter and will need more capital from parent companies. One question remains unanswered, however, how much longer the parents will be able to supply this capital.

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