Sony Ericsson losing ground: Revenue and profit down, as expected

Sony Ericsson Mobile Communications said it lost a point of market share in the first quarter, following a warning it gave last month.
The Japanese-Swedish JV reported a year-on-year increase of only 2% in the number of handsets shipped (22.3 million), despite what one analyst said was probably robust, double-digit growth for the global handset market in the first quarter.
Sony Ericsson’s net income dipped a whopping 48% year-on-year to $212 million. Revenue was down to about $4.3 billion, a 7% drop year-on-year. Average selling prices declined sharply to $192, from $213 in the year-ago quarter.
The company called attention to the strength of its first-quarter 2007 results, which it said was partially responsible for the large, year-on-year disparities.
The company said its revenue dipped due to a slowing market growth in mid- and high-tier handsets. Net income dropped due to higher investment in research and development as a percentage of sales. ASPs declined due to softer sales in high- and mid-tier handset sales, according to the company.
The company said it held 8% global market share in the first quarter, down more than a point from the full year in 2007.
SEMC remained bullish on industry-wide handset volume shipments this year, echoing Nokia Corp.’s forecast for 10% growth over 2007. And the JV implied that its high-end Xperia handset line and other mass market models launching later this year would lead to better results.
Indeed, the company today announced two new HSDPA-enabled devices, with one -the Z780 – likely destined for the U.S. market.
Losing ground
Analyst Ittai Kidron at Oppenheimer said the results were unsurprising, given SEMC’s recent warning. But, he said, the JV is losing ground to competitors, based on its need for a refreshed portfolio. The analyst pegged SEMC’s global market share in the first quarter at 7.6%, below the handset vendor’s own estimate. He said SEMC’s revenue declined in every region of the world, led by Western Europe. Progress in the United States, an opportunity for growth, remained “limited,” according to the analyst.
“From a (market) share perspective, we believe LG, Samsung and Nokia have gained the most at Sony Ericsson’s expense,” Kidron wrote in a research note. “A product portfolio in transition could continue to hold back shipments near term, although Sony Ericsson is broadening its lower-priced portfolio, which should help it better tap the strongest growth segment later in the year.”
A healthy market
In the bigger picture, overall handset volume growth in the quarter appeared healthy, according to analyst Tero Kuittinen, a RealMoney.com columnist, who estimated 17% growth for the quarter. Motorola Inc. and Samsung Electronics Co. Ltd. are still to report in the next two days.
Kuittinen suggested that LG Electronics Co. Ltd., which last week reported a robust first quarter, had better positioned itself with handsets offering larger, high-resolution displays – a trend in Europe and Asia that Sony Ericsson has been slow to capitalize on. That trend may also explain Nokia’s relative weakness in high-tier handsets in Europe and Asia as well, the analyst said.
Consumers may well be attracted to “far dumber but much sleeker rival phones,” Kuittinen wrote in a RealMoney.com column yesterday.
“We know from past experience how quickly the handset upgraders can grow jaded with old feature sets when they sense something new and exciting arriving soon,” Kuittinen wrote. “(And) LG and Samsung are fanning out new selections of big-screen models at an astonishing speed.”
“If demand for expensive handsets is softening at the same time that large touchscreens are capturing the imagination of consumers,” Kuittinen added, “it could mean a nasty double whammy for companies that bet on relatively pricey phones with relatively small displays this summer. That would include Nokia, Motorola, Sony Ericsson and Texas Instruments.”