Sony Ericsson Says Low-End, Mid-Range Phone Market Is Collapsing

Sony Ericsson Mobile Communications AB said demand for low-end and mid-range handsets called feature phones is shrinking as consumers shift to smartphones.

“The feature-phone market is collapsing much faster than I anticipated,” Chief Executive Officer Bert Nordberg said in a phone interview. The drop in western Europe is "enormously big," he said.

The mobile-phone venture of Sony Corp. (6758) and Ericsson AB today reported its first loss in six quarters. Sony Ericsson’s efforts to renew its portfolio with new models were slowed due to component shortages following the Japanese earthquake and tsunami in March.

Sony Ericsson aims to return to profit in the next two quarters, the CEO said, adding he expects “modest industry growth,” led by smartphones.

“It’s a two-tier market,” Tero Kuittinen, an analyst at Greenwich, Connecticut-based MKM Partners, said in an interview July 13. “Lower-income families in Europe have stopped upgrading phones, have stopped spending, while affluent people are still buying and upgrading smartphones.”

The loss of 50 million euros ($71 million) in the second quarter compares with profit of 12 million euros a year earlier, the London-based company said in a statement. The average estimate of 17 analysts surveyed by Bloomberg was for profit of 7.1 million euros.

Nokia Warning

Total revenue declined 32 percent to 1.19 billion euros, missing the 1.34 billion-euro average estimate from 21 analysts. The company shipped 7.6 million handsets, less than the 9.1 million expected by analysts. The average price fell to 156 euros from 160 euros a year earlier.

Nokia Oyj (NOK1V), the world’s largest maker of handsets by volume, said in May that it may report a loss in its main handset business due to tougher competition in both smartphones and feature phones. Nokia reports earnings on July 21.

The earthquake cut about 1.5 million units from sales, Sony Ericsson estimated. That reduced revenue by about 400 million euros, Chief Financial Officer Bill Glaser said on a conference call.

The company’s phones use Sony technologies produced in northern Japan, such as camera sensors, displays and batteries, Nordberg said in the interview.

“The beginning of the quarter was a disaster for us and then it slowly got better toward the end of the quarter,” Nordberg said. Sony Ericsson had to redesign some products with different components because of shortages.

Slide-out PlayStation

The number of phones Sony Ericsson sold with Google Inc.’s Android operating system more than doubled in the second quarter, the company said. The phone venture got 70 percent of its sales in the period from smartphones powered by Android, compared with 60 percent in the first quarter.

Sony Ericsson estimated its market share in Android smartphones at 11 percent in units and 11 percent in value for the quarter. Sony Ericsson still aims to expand its share of Android handsets to at least 25 percent, Nordberg said, without specifying a time frame.

During the quarter the company increased production of the Xperia Play, which has a slide-out Sony PlayStation keyboard. Sony Ericsson also announced an Xperia model for athletes that’s resistant to water and dust and has a wireless heart-rate monitor.

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 at kwong11@bloomberg.net

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