Sony Ericsson warns on Q1 as European markets slow

By Adam Cox

STOCKHOLM (Reuters) - Mobile phone maker Sony Ericsson warned on Wednesday first-quarter earnings could fall by more than half, adding to growing gloom in the handset sector and dealing co-parent Ericsson (ERICb.ST) a fresh blow.

A global economic slowdown is starting to crimp consumer spending, hurting the whole sector. Last week, chip maker Texas Instruments (TXN.N) cut its first-quarter forecasts, citing weaker demand for chips used in higher-priced 3G phones.

"It is natural in consumer electronics that when consumer uncertainty increases, they maybe postpone purchases or buy lower-end models," said Janne Rantanen, analyst at Swedish bank Carnegie.

Ericsson shares were down 7.3 percent at 5:17 a.m. EDT, hovering near a 4-1/2 year low and bringing losses in the last few months to around 60 percent. Nokia (NOK1V.HE) fell 3.4 percent. More than 67.6 million Ericsson shares traded in the first hour, over half the average daily volume this year.

"The market is proving to be challenging," said Sony Ericsson President Dick Komiyama.

Net income before tax at the venture, owned by Ericsson and Sony Corp (6758.T), is set to be 150 million euros ($237.2 million) to 200 million euros in the first quarter.

That compares with 362 million in the year-earlier quarter, although Sony Ericsson said its gross margin would remain the same on the year-ago level, which was 30.3 percent.

"This is clearly a big profit warning with earnings pretty much half of what was expected," said an analyst who asked not to be identified.

Francois Duhen, analyst at CM-CIC Securities, said the weakness should last at least one or two more quarters -- "depending on your macro scenario with the U.S. recession spreading to Europe or not".

MOST EFFECT IN EUROPE

The fourth-largest cellphone maker behind Nokia, Samsung (005930.KS) and Motorola (MOT.N), Sony Ericsson had been making steady progress and threatening to vault into the No. 3 slot. In the fourth quarter it beat profit forecasts and gained market share.

But Sony Ericsson said the market for more expensive phones -- its traditional stronghold -- had weakened.

"Slowing market growth of mid to high-end phones in markets where Sony Ericsson has a strong presence is affecting sales," the firm said, adding the effect was visible mostly in Europe, while it was also hit by some shortages of parts for popular mid-priced phones.

The company said it will continue to seek a bigger foothold in emerging markets in an effort to lower its reliance on Europe, where it has faced increasing competition from new music and cameraphones from Nokia and Samsung.

"For the last year, Sony Ericsson has been focused on expanding the breadth of its portfolio and developing its presence in new markets to lessen its historic reliance on the European high-end sector for growth," Komiyama said.