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Sony Ericsson Misses Estimates, Hurt By Old Products

Sony Ericsson Chief Executive Officer Bert Nordberg
Sony Ericsson Mobile Communications AB Chief Executive Officer Bert Nordberg said, “The impact of new launches will be minimal in the first quarter, but ongoing it will have an effect.” Photographer: Tomohiro Ohsumi/Bloomberg

Jan. 20 (Bloomberg) -- Sony Ericsson Mobile Communications AB, the mobile-phone venture of Sony Corp. and Ericsson AB, missed analyst estimates for fourth-quarter sales and profit, hurt by an outdated product portfolio during the holiday season.

Net income was 8 million euros ($10.7 million), rebounding from a loss of 167 million euros in the year-earlier period, the London-based company said in a statement today. Analysts had estimated net income of 56.4 million euros, according to the average estimate of 17 analysts surveyed by Bloomberg. Sales fell 13 percent to 1.53 billion euros.

“The results reflect the fact their product refresh has been slower than other manufacturers,” said Carolina Milanesi, an analyst with Gartner Inc.’s Egham, U.K.-based unit.

Chief Executive Officer Bert Nordberg is struggling to increase sales as the popularity of Google Inc.’s Android software intensifies competition in smartphone hardware. Sony Ericsson this month announced its first high-end product in almost a year, Xperia Arc, which has an 8 megapixel camera and runs Gingerbread, the latest version of Android.

Sony Ericsson said it sees “modest” global handset growth this year. The company expects a “weak” first quarter, Nordberg said on a teleconference. It sees the declines in selling prices continuing before new products start shipping, Chief Financial Officer Bill Glaser said on the call.

“The impact of new launches will be minimal in the first quarter, but ongoing it will have an effect,” Nordberg said.

Handsets Shipped

Sony Ericsson shipped 11.2 million handsets in the quarter at an average selling price of 136 euros, down from 154 euros in the third quarter Analysts had estimated volume at 12.2 million units and average selling price at 148 euros.

“The gross margins were in line, so it’s nothing to do with the cost side or profitability of the handsets, they’re just selling fewer of them at lower prices,” said Martin Nilsson, a Stockholm-based analyst at Handelsbanken.

Sony Ericsson’s previous high-end model, the Xperia X10, was announced in November 2009, shipped in the spring of 2010, and doesn’t run the most recent Android versions. The Arc is expected to ship this quarter.

“There’s a very fast pace of product introduction in the Android market now -- from a consumer perspective there’s more choice and that’s what they’re paying the price for,” Gartner’s Milanesi said.

The company was profitable in all four quarters of 2010 after six quarters of losses.

Android Rivals

“The fourth quarter had a weakness in volume base due to the aging product portfolio and the lack of variety in models,” Nordberg said in an interview. “It’s a very competitive market based on the latest version of the software, the highest clock speed of hardware and a lot of features. We have worked in the second half of the year to make sure we are on the edge of being first with a number of things.”

Sony Ericsson has a 14 percent value share of the Android market, he said. The company is expected to introduce a handset with functions from parent Sony’s Playstation game consoles. Nordberg said he couldn’t discuss future products.

At the Mobile World Congress in February 2010, the company introduced miniature touchscreen and slide-out keyboard phones while rivals like HTC Corp. and Samsung Electronics Co. focused on bigger screen sizes. It shipped a midrange Xperia model, the X8, and upgraded the Android software in the second half.

‘Back to Growth’

“You can do a software refresh when the product is still current but when it’s starting to feel a little dated, customers are not going to get excited, because there are other products with the same software version they can pick from,” Gartner’s Milanesi said.

In the latest quarter, sales had been expected to be 1.79 billion euros, according to the mean estimate from 21 analysts.

Sony Ericsson estimated its market share at 3 percent in units and 5 percent in value for the quarter, below its full-year shares. It was the sixth-largest handset maker in the third quarter according to Gartner figures.

“I had a theme in 2010 which I called ‘Back to Black,’ returning to profitability,” Nordberg said. “The theme for this year has to be ‘Back to Growth,’ restoring our position in the market.”

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 in Paris at vroot@bloomberg.net

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