Sony Ericsson posts loss, predicts gloomy 2009

Losses at Sony Ericsson Mobile Communications widened in the fourth quarter, as the company sold 6.6 million fewer phones than during the same period in 2007

The company made a net loss of €187 million (US$247 million) for the quarter, worse than its third-quarter loss of €25 million, it said Friday.

The figure contrasted with the net profit of €373 million Sony Ericsson made in the year-earlier quarter, and dragged it to a net loss of €73 million for the full year 2008, compared to a net profit of €1.11 billion in 2007.

Despite the end-of-year holiday shopping season, it sold only 24.2 million phones during the fourth quarter, down from 25.7 million in the third quarter and 30.8 million during the fourth quarter of 2007. Sales in the fourth quarter totalled €2.91 billion, down from €3.77 billion a year earlier, while full-year sales dropped to €11.2 billion from €12.9 billion in 2007.

Sony Ericsson blames the global economic slowdown for its problems, and expects the difficulties to continue this year, especially during the first six months.

Analysts are equally pessimistic: "Sony Ericsson's results cast a gloomy picture for 2009. Following Motorola's preliminary announcement it's already looking like the market slowed more dramatically than expected in the fourth quarter," said Geoff Blaber, analyst at CCS Insight via e-mail.

To turn things around it will look for ways to cut costs by a further €180 million each year, in addition to the €300 million it already expects to save through, for example, the elimination of 2,000 jobs it announced in July.

But cost cutting won't be enough to turn things around; more new, cool phones are also needed. Part of Sony Ericsson's plan is to intensify its efforts at the top end of the market, combining music, imaging and Internet services, said Anders Runevad, corporate executive vice president, speaking in a conference call.

Among those high-end phones will be one running Android, the operating system backed by Google and the Open Handset Alliance, which Sony Ericsson joined in December. However, Sony Ericsson won't say when its Android phone will ship, or whether an announcement can be expected at next month's Mobile World Congress in Barcelona.

Accelerating its push in the high end segment is the right decision for the company to make, according to Blaber.

"Given that the market is becoming polarized around the high and low end I think they've got to refocus on the high tier. This is Sony Ericsson's core competency and gives them the best chance of restoring profitability," he said.

But that won't be enough, according to Carolina Milanesi, research director at Gartner.

"On the product side they will need to increase usability, diversify applications support and work on the services side. They will [also] need to show that they are moving from imaging and music to Internet services," she said via e-mail.

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