Sony Ericsson profits slump on low sales and high costs

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Sony Ericsson has reported an eight per cent drop in revenue and a 48 per cent slump in operating profits for the first quarter of 2008.

Its results were in line with the profit warning it gave in March. Handset shipments for the quarter were up just two per cent, to 22.3 million, on the same period a year ago. Revenue was down to €€2.7 billion, a drop of eright per cent from a year ago, and operating income was €€181 million, down 48 per cent.

The average selling price of handsets dropped from €134 to €121 due to slowing growth in mid-to-high end phones in developed markets.

Sony Ericsson president Dick Komiyama said: "Our product announcements during the first quarter have been well received by the industry, and we expect to see a positive effect from these announcements during the second half of 2008."

“Ovum analyst Martin Garner said: "The shipment volumes and revenues are as expected. The volumes were affected by lower demand caused by inventory build up in the channels around Christmas, plus strong competition from high-end offerings from Nokia, Lg and Apple, as well as component shortages on two of its best-selling models. The revenues were further hit by currency movements.”

“"Roughly half of the drop in profits came from a shortfall in handset sales, with the other half being accounted for by a rise in R&D expenditure to support the new product launches announced during the quarter. Worryingly, the company also said that it is seeing some inflation in component costs, and will be looking to improve its operating efficiency to compensate this.”"

He added: "The other really worrying factor in these results is the slip in profitability, dropping from a healthy average operating profit per phone of around €€15 during 2007 to €€8.1 in Q1, from being one of the highest to the lowest of the profitable vendors in the market.”"

 

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