Sony Ericsson Net Rises Less Than Estimated on Parts Shortages

Sony Ericsson Mobile Communications AB’s third-quarter revenue and profit fell short of analyst estimates as component shortages capped sales.

Shares of the mobile-phone venture’s parents Sony Corp. and Ericsson AB slid after the London-based company said in a statement that net income was 49 million euros ($68.8 million) compared with a loss of 164 million euros a year earlier. That fell short of the 59 million euros analysts had predicted, according to the median of 13 estimates collected by Bloomberg.

Sony Ericsson turned profitable in the first quarter after six quarters of losses as more consumers embraced phones based on Google Inc.’s Android as an alternative to Apple Inc.’s iPhone. Printed circuit boards and LED screens were in short supply owing to the explosive growth of smartphones, and that caused the company to lose orders it couldn’t fill, Chief Executive Officer Bert Nordberg said on a teleconference.

“Christmas might be tougher than they want it to be as the new Windows Phone 7 products hit the market and add to the Android competition,” said Carolina Milanesi, an analyst at Gartner Inc.’s U.K. unit.

Ericsson fell as much as 1.9 percent in Stockholm and was 1.3 percent lower at 71.25 kronor at 12:14 p.m. Sony closed down 1 percent at 2613 yen in Tokyo.

Sales in the quarter were little changed at 1.6 billion euros, missing estimates. Revenue had been predicted at 1.82 billion euros, based on 16 analysts’ estimates.

Sony Ericsson is pushing Android smartphones as it targets a 10 percent operating margin, up from 4 percent in the quarter.

Selling Prices

The company’s average handset price for the quarter was 154 euros, a third more than a year ago and less than the 160 euros in the previous quarter. The company added the Xperia X8, a mid- priced model suitable for prepaid plans, to its high-end X10 line, which also includes pocket sized touchscreen and slide-out keyboard models.

“I expect volumes will gain and average selling price will come down on the lower priced Xperia models and the A8i for China Mobile,” said Daniel Djurberg, a Stockholm-based analyst for Nordea Bank.

Sony Ericsson cited “product and geographical mix” as the reason for lower sequential selling prices. The company has added China and the U.S. to its Android markets, launching the Xperia X10 with AT&T Inc.

“Though they have nice products, competition is very tough as the refresh cycle on Android is very quick and the X10 by now almost seems dated,” said Gartner’s Milanesi.

Android World

CEO Nordberg estimated that Sony Ericsson had about 19 percent revenue share of the Android market.

Sony Ericsson plans to diversify into Windows Phone 7, Nordberg said on the call, without giving any details. The company is phasing out the Nokia Oyj-dominated Symbian platform after deciding the service and application “ecosystem” isn’t as good as Android.

“They will need a successor to the X10, which I expect to be announced this quarter, and they also need to launch on Windows Phone 7 quite soon,” Nordea’s Djurberg said.

He also expects the company to announce a device incorporating PlayStation Pro functions and content to capitalize on its connection with Sony.

The Xperia handsets compete with Android models from Samsung Electronics Co. Ltd., LG Electronics Inc., HTC Corp., and, especially in the U.S., Motorola Inc. Last month Sony Ericsson opened a new Americas headquarters in Atlanta.

‘Healthy Sales’

The company didn’t do “fire sales” of old products in the quarter, choosing to preserve profits over unit volume, sales chief Kristian Tear said.

It also planned production conservatively so as not to end up with big stocks, Nordberg said in an interview on Bloomberg Television. “We didn’t have more so we couldn’t sell more,” Nordberg said. “We expect to improve the top line.”

Units shipped fell to 10.4 million in the quarter from 14.1 million a year earlier. Last quarter, Sony Ericsson was the fifth largest in worldwide mobile phone sales by units with a 3.4 percent share, down from 4.7 percent a year earlier, according to Gartner.

More than 50 percent of the company’s sales now come from smartphones, the industry’s fastest growing segment.

“I see a healthy growth in smartphones and a decline in feature phones in the market,” Nordberg said on the call.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net.

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