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Sony Ericsson sees Q4 rebound after weak Q3 shipments

STOCKHOLM/HELSINKI (Reuters) - Mobile phone maker Sony Ericsson said volumes should rebound in the run-up to Christmas after blaming component shortages for holding back handset shipments and profits in the third quarter.

A model displays a newly unveiled SonyEricsson Satio phone during a media event in Singapore June 17, 2009. REUTERS/Vivek Prakash/Files

The firm, owned by Ericsson and Sony Corp., has pinned its hopes for profit growth on a surging market for smartphones, but is in a tough fight against Nokia, the biggest player, and Apple, the most profitable.

Sony Ericsson has cut costs and revamped its portfolio with phones like the Xperia X10, Vivaz, X10 mini and X10 mini pro, which offer PC-like functions, pulling itself back into the black this year after seven-straight quarters of losses.

However, third-quarter sales were hurt by a component shortfall. They were flat year-on-year, but dipped to 1.6 billion euros from 1.76 billion in the previous period and trailed the average estimate of 1.8 billion in a Reuters poll.

“There have been some shortages of LCD screens and printed circuit boards on the market. I wouldn’t say I had seen a demand decrease,” Sony Ericsson Chief Executive Bert Nordberg said, adding, “I expect higher volumes in Q4, a rebound.”

Market leader Nokia warned in July that component shortages were a problem for the industry, echoing telecom gear maker Ericsson which said its second-quarter sales were hurt by competition for core parts.

Nokia reports on Oct. 21 and Ericsson on Oct. 22. Ericsson shares were down 1.5 percent after Sony Ericsson reported.

Sony Ericsson shipped 10.4 million handsets in the period, missing all 27 analyst estimates in the Reuters poll. Their figures ranged from 10.5 million to 13.9 million.

The average forecast was for Sony Ericsson to ship 12 million phones during the July-September period compared to 11 million in the second quarter.

Pretax profit for the firm was 62 million euros ($87.3 million), versus a loss of 199 million a year ago and well below a mean forecast for a profit of 72 million in a Reuters poll.

“It was clearly weaker than expected -- 8 percent below my expectations on EBIT (earnings before interest and taxes) -- and it is mainly lower volumes that explain it,” said Per Lindtorp, analyst at Eric Penser.

SMARTPHONE DEMAND

Smartphone makers are benefitting from skyrocketing demand for the handsets. Global sales of smartphones are expected to grow more than 50 percent this year against overall market growth of around 11 percent.

Smartphone suppliers HTC and Blackberry maker Research in Motion have both reported a strong increase in quarterly profits on rising demand.

However, competition in the segment is fierce. Market leader Nokia had to issue a profit warning in the second quarter as it slashed prices to fight Apple’s iPhone and smartphones using Google’s hot Android software.

“Sony Ericsson has turned the ship around but will need to maintain a balanced portfolio, improve time to market and increase differentiation if it’s to avoid losing its way amidst a swathe of aggressively priced Android devices,” CCS Insight analyst Geoff Blaber said.

Apple, No.6 in volume but the most profitable handset maker, will report on Oct. 18 and No.7 Motorola on Oct. 28. Korean cellphone vendors Samsung and LG Electronics 066570.KS are due to report at the end of the month.

Chief Executive Bert Nordberg said Sony Ericsson’s overall performance was “stabilising” and repeated that the firm aimed to be the number one supplier of Android-powered phones, though he declined to say when this would happen.

He said Sony Ericsson would release a continuous flow of new products to battle rivals, which are upgrading their portfolios.

“We are working a lot on the refresh,” Nordberg said. “We are very, very aware of what is coming and the competitive situation.”

Sales of Android-powered smartphones helped support Sony Ericsson’s handset average selling price, which was 154 euros in the quarter against a forecast of 149 euros and 160 euros in the previous three month period.

The company said it continued to focus on value rather than volume in sales.

Additional reporting by Victoria Klesty and Helena Soderpalm; Editing by Karen Foster

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