Mobile-phone maker Sony Ericsson Friday said it would cut a further 2,000 jobs after poor customer demand and destocking by distributors and retailers pushed it into a loss in the first quarter. Executives said they believe the company has a plan and the right products to turn things around, and Sony Ericsson will focus on revenue rather than market share. You can check out the full Sony Ericsson Q1 FY2009 Earnings Announcement at Sony IR or directly at Ericsson’s website.
“As expected, the first quarter of this year has been extremely challenging for Sony Ericsson due to continued weak global demand. We are aligning our business to the new market reality with the aim of bringing the company back to profitability as quickly as possible,” Chief Executive Dick Komiyama said. “We are confident we have the right products and the roadmap to wow customers again,” he said.
All the world’s mobile device makers have been experiencing a slump in demand as the industry faces its worst-ever year. Nokia Corp., the world’s biggest maker of mobile devices, Thursday said the demand slump helped cause its first-quarter net profit to fall 90%. However, Sony Ericsson, a joint venture of Sweden’s Telefon AB L.M. Ericsson and Japan’s Sony Corp., has been one of the worst-hit manufacturers.
The company reported a €293 million ($385.9 million) net loss during the first quarter, from a €133 million profit a year earlier. Its pretax loss for the period ending March 31 was €370 million, in line with its profit warning last month when it said it expected a loss of between €340 million and €390 million. Sales slumped 36% to €1.74 billion from €2.7 billion a year earlier, as phone shipments fell to 14.5 million phones, 40% less than the 24.2 million phones shipped in the fourth quarter of last year. The average sale price was €120 compared with €121 in the fourth quarter. Its market share fell to 6% from 8% in the fourth quarter.
“We lost market share in Latin America, India and Africa, as these markets moved toward low-end phones,” Vice President Anders Runevad told a conference call. “We will look to focus on the revenue side rather than on market share.”
The company said the latest job cuts, from its workforce of around 10,000, will cost it €200 million, but it hopes its latest cost-cutting drive will cut operating expenses by €400 million by mid-2010. Some 2,000 workers left the company in a previous round of jobs cuts.
Sony Ericsson forecasts that the global handset market for 2009 will contract at least 10% from around 1.19 billion units in 2008, in line with Nokia’s prediction Thursday. Also echoing Nokia, Sony Ericsson executives said the de-stocking has eased but that doesn’t mean the fall in consumer demand has bottomed yet. Many in the market point to Sony Ericsson’s limited number of high-end converged devices similar to those that have been so popular to consumers, such as Apple’s iPhone and Nokia’s 5800 touchscreen as the root of its woes.
Although Sony Ericsson continued to blame lower demand and inventory destocking for the weak performance, Gartner said it believes that the company’s current portfolio is contributing to low-volume problems. “The ‘Idou’ device presented in Barcelona is certainly a step in the right direction for Sony Ericsson, but one cannot help but wonder if it will be too little too late, given it will only be on the market at the end of the year,” Gartner research analyst Carolina Milanesi said.
Another poor quarter has some suspecting that Ericsson is looking to reduce, if not get rid of, its 50% ownership in the handset company. Sony Ericsson says both parent companies continue to support it and are even willing to inject extra funding if needed.
“I think it is highly unlikely that Sony and Ericsson contribute more cash,” said West LB analyst Thomas Langer. “Giving Sony Ericsson more cash would be a big mistake because the only way out of this [poor profitability] is a closer connection to Sony. Mr. Langer said he expects that Ericsson is looking to minimize its exposure to Sony Ericsson and is aiming to offload or reduce its stake to Sony, possibly with the understanding that Ericsson contributes cash to Sony Ericsson as part of any deal.
Ericsson on Friday reiterated its support for Sony Ericsson, including giving more cash if needed.
