Sony Ericsson warns on profits, handset demand

Sony Ericsson Mobile Communications warned today that it would only break even in the current quarter and that handset shipments will be nearly flat over the first quarter, reflecting “moderating demand” for its mid- and high-tier phones.
The joint venture also acknowledged that new products scheduled to ship in the current quarter were delayed.
The news is likely to hurt SEMC’s reputation for execution and add to concern that demand is weakening for new handsets, particularly in the mid- and high-tier categories that SEMC specializes in.
One analyst pegged SEMC’s weakness to a failure to join rivals in producing large display feature phones now in demand in Europe and Asia and to its nominal penetration of developing markets.
“Sony Ericsson’s rapid deterioration continues,” said Tero Kuittinen, analyst at Global Crown Capital, L.L.C. “As we expected, the negative trends that emerged in 1Q 2008 for SEMC have only accelerated. Sony Ericsson lacks models featuring large, advanced displays … the focus of European and affluent Asia’s upgrade demand. (And) Sony Ericsson lacks the low-end presence that offers Nokia a buffer from the vagaries of the high-end business. This leaves SEMC uniquely exposed to the aggressive new upgrade rollouts of Samsung, LG, Apple and HTC.”
In April, SEMC blamed softness in European demand for its mid- and high-tier handsets as contributing to its flat results. Gartner found that, while global handset shipments grew in the first quarter by nearly 14% over the year-ago quarter — suggesting that overall demand remained strong — it also found that European demand had dropped by 16%. Last quarter, SEMC slipped to the No. 5 position among global vendors, ceding the No. 4 position to LG Electronics Co.
While Nokia Corp., the world’s largest handset vendor, and Brightpoint Inc., a leading distributor, have stuck with their forecast for 10% and 9% to 10% handset shipment growth, respectively, this year, some analysts have reduced their forecasts to single digits.
Sony Ericsson reports current quarter earnings July 18.