Sony Ericsson's portfolio hang-up

[HenryTo]

Analysts are still currently attributing the miss to company specific issues. I personally have not read up on this but with the commodization of cell phones, I would not be surprised if this is more of an industry-wide problem than initially thought.
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Sony Ericsson's portfolio hang-up
Quarterly earnings fell on lower volumes and prices

By Aude Lagorce, MarketWatch
Last Update: 4:30 AM ET April 15, 2005


LONDON (MarketWatch) -- Mobile phone-related stocks fell on Friday after handset maker Sony-Ericsson posted lower-than-expected profit and sales in the first quarter, but analysts said the softer results didn't necessarily point to an industry-wide problem.



Sony-Ericsson, a 50-50 venture of Sony Corp. (SNE: news, chart, profile) and Swedish telecoms gear maker Ericsson (ERICY: news, chart, profile) , said pretax profit dropped to 70 million euros as sales slipped 4%, pressured by lower average selling prices and tough market conditions. Analysts polled by AFX News had expected pretax profit of 111 million euros.

"The big question now is to understand whether the bad results are company specific or whether this is a warning on the wider handset market. My answer is that it's due to Sony-Ericsson's portfolio," Enskilda Securities analyst Mats Nystrom said.

Net profit plunged 61% to 32 million euros. Sales fell to 1.289 billion euros from 1.338 billion euros a year ago, even as the number of units shipped rose to 9.4 million from 8.8 million a year earlier.

"The results were pretty disastrous, both on volumes and average selling prices," Nystrom added.

Ericsson shares were down 2.9%. Among related mobile stocks, Nokia (NOK: news, chart, profile) , the leading mobile phone market, was down 1.9%. Handset chipmaker STMicroelectronics (STM: news, chart, profile) (FR:012970: news, chart, profile) dropped 2.5%. Most tech stocks in Europe were under pressure after IBM's quarterly results disappointed on Thursday. See European Markets

Sony Ericsson said market growth was moderate during the quarter as a result of "more normal seasonality." In Western Europe, the phone maker noted the market also slipped as it witnessed a shift to pre-paid products.

"Sony-Ericsson is mostly targeting the mid- to high-range market. Its products are doing well, but some are priced too high. Over time we're going to see more of this type of earnings," said Inge Heydorn an industry analyst at Deutsche Bank Securities.

Better second half seen

Sony-Ericsson maker attributed the decline in the average selling price to 137 euros from 159 euros to its mature product line-up and said it launched fewer models during the period.

Nystrom said the company is currently in between two product cycles as it seeks to bolster its presence at the lower end of the market. He expects Sony Ericsson is likely to see better average selling price in the second half.

"I am very excited about the products the company unveiled in March. Unfortunately they probably won't bear fruit until the second half," he said.

Sony-Ericsson said the "exciting and innovative products" it launched in the first quarter were well received and will give it a stronger portfolio during the rest of the year.

"We believe there is good growth potential in the market, both from new subscribers and from consumers who are upgrading their mobile phones, so the increased investments we are making now will build our brand and strengthen our product portfolio," said Sony-Ericsson President Miles Flint in a prepared statement.

Regarding the company's mostly unforeseen miss, Nystrom, however, said he was mainly surprised by the sharp decline in sales of existing products.

"They didn't lower the prices enough for consumers to buy the handsets because there are very attractive alternatives out there," he said.


Aude Lagorce is a reporter for MarketWatch in London.