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Sony Ericsson Posts Profit on Higher-Priced Handsets, Beating Estimates

Sony Ericsson Mobile Communications AB, the mobile-phone venture of Sony Corp. (6758) and Ericsson AB, posted a first-quarter profit as it shipped more high-priced models, beating analyst estimates of a loss.

Net income was 11 million euros ($15.7 million), the London-based company said in a statement today. Profit declined from 21 million euros a year earlier when the company had a tax benefit. Analysts had estimated a net loss of 27.1 million euros, according to the average of 10 estimates compiled by Bloomberg.

Chief Executive Officer Bert Nordberg is working to accelerate product rollouts after slow updates of its smartphone models running Google Inc. (GOOG)’s Android software hurt sales last quarter. His job is made tougher by the March 11 Japanese earthquake, which disrupted component supplies for new Android models. Its unit share of the global Android market is currently 11 percent, Nordberg said in an interview, adding that he isn’t happy with it.

“We haven’t seen a clear sign from Sony Ericsson that makes us believe it will remain a top player,” Francisco Jeronimo, an analyst at IDC, said in an e-mailed report. “The risk of being a niche player and a second-tier supplier means its devices need to deliver better experience, better hardware and better services for a lower price, otherwise operators will prefer a first-tier supplier.”

Gross Margin

Average selling prices gained to 141 euros in the first quarter from 134 euros a year earlier as Sony Ericsson’s product mix tilted toward higher-priced smartphones and away from midrange feature phones. Sales slipped 19 percent to 1.15 billion euros, compared with the 1.26 billion euro average estimate of 16 analysts.

“We managed to get out quite a few units of our new portfolio that made a jump in the gross margin and then we could report a profit,” Nordberg said.

The earthquake has affected supplies of batteries, displays, printed circuit boards and connectors and the situation is stabilizing as alternative sources are found, he said.

“We might not reach what we would like to have in the second quarter but at least the trend from the suppliers is in the right direction,” Nordberg said. “A lot of raw material is also coming from Japan into displays and other things, so even if you buy components outside Japan it doesn’t mean you aren’t hurt by this situation.”

Changing Product Mix

Sony Ericsson, the sixth-largest handset maker last year, shipped 8.1 million handsets in the first quarter, compared with 10.5 million a year earlier. Analysts had estimated 9.6 million units. The company estimated its market share at 5 percent in units and 3 percent in value for the quarter.

The company announced its first high-end model in almost a year in January: the Xperia Arc, a slim touchscreen model with an 8-megapixel camera. It followed up with the Xperia Play, which has a slideout Sony PlayStation keyboard, and the Xperia Neo and keyboard-equipped Xperia Pro.

Volumes of these models have been affected by the earthquake, and the broad rollout of the Neo has been pushed back to early in the third quarter, the company said April 8. Shipments of the Play to Verizon haven’t been affected by the earthquake, Nordberg said on a teleconference. The company has a second U.S. carrier lined up for the gaming handset, he said in the interview.

Sony Ericsson aims to expand its global share of Android handsets to at least 25 percent from 14 percent at the beginning of this year, Nordberg said in March.

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

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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