Sony Ericsson to cut 2,000 jobs as profits tumble

Gartner fears the company's management has 'given up' for the remainder of the year, after the handset maker barely broke even in the second quarter

Sony Ericsson barely broke even in the second quarter of 2008, prompting fears among analysts over the company's prospects for the rest of the year.

On Friday, the handset manufacturer announced a quarterly net profit of just €6m (£4.8m), down from €220m (£174.6m) in the same quarter last year. Sony Ericsson is going to shed 2,000 jobs as a result, although this figure includes contractors and consultants. Gartner analyst Carolina Milanesi told ZDNet.co.uk after the announcement that, during the ensuing analyst call, the mood surrounding the results was downbeat.

"We knew what to expect from Q2," she said. "Sony Ericsson has moved into the lower segment of the market, but timing was not on their side. [The economy has had an] impact on replacement sales in emerging markets, where [people are sticking with] the ultra-low-cost handsets that Sony Ericsson is not addressing. But the problem they have is also that, while that is not happening, the softening of the high-end market in Western Europe is not helping them."

Milanesi said that the analyst call had surprised her, even though she had gone in knowing the issues that Sony Ericsson faced. "What I'm more concerned about is the outlook for the rest of the year," she said. "Listening to the call today, it's as if [the Sony Ericsson management team] have already given up on the rest of 2008. They don't believe upcoming products will make a considerable difference in the current [economic] situation."

"For me, we've always been a believer that Sony Ericsson has done a lot in the past and had a good portfolio," Milanesi added. "But they've got settled in a comfort zone; they do music and digital imaging very well, but these are now a given for consumers. People are looking for something else now, and that's GPS and browsing and internet services. Sony Ericsson is going there with the X1 [due in the fourth quarter] but that's just one product."

On the subject of Nokia's results, issued on Thursday, Milanesi was more upbeat. "Considering the current environment, they were decent results," she said. "From a volume perspective, they were in line with our expectations, as was their average selling price [ASP]. In emerging markets, Nokia is basically the sole provider in ultra-low-cost handsets; that's not helping their ASP, but it's still helping their sales."

ZDNet.co.uk contacted Sony Ericsson for comment on Friday, but the company said there were no spokespeople available at the time of writing.

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