Gartner: 2009 a 'deciding year' for Sony Ericsson

Sony Ericsson's worsening losses make 2009 a make-or-break year for the company, say analysts
Written by David Meyer, Contributor

Sony Ericsson's latest quarterly results, which show a significant drop in revenue, have prompted analysts to suggest this year will be make-or-break for the mobile-phone manufacturer.

The company's results for the fourth quarter of 2008 were published on Friday. Sony Ericsson lost €187m (£125m) in that quarter — it lost just €25m in the previous quarter. In the fourth quarter of 2007, Sony Ericsson made €373m.

"In economic terms, 2008 has been a tumultuous year with world markets experiencing a serious downturn," said Sony Ericsson president Dick Komiyama in a statement. "The mobile-phone market has been greatly affected by this and as expected, the fourth quarter continued to be very challenging for Sony Ericsson. Our business alignment is progressing as planned, with the full effect of annual savings of around €300m expected by the second half of 2009. We foresee a continued deterioration in the market place in 2009, particularly in the first half."

Gartner research director Carolina Milanesi said in a statement on Friday that Sony Ericsson's sales for the fourth quarter of 2008 came in "at the low end" of the analyst house's expectations. "The market in the last quarter of 2008 continued to be very challenging especially for Sony Ericsson which remains particularly exposed to the weakness of the Western European market," Milanesi wrote.

"We continue to believe that maintaining the third position in the worldwide ranking achieved in the third quarter of 2008 will be very difficult for Sony Ericsson," Milanesi said. "With sales in 2009 forecasted to slow down and the weakness in the European and Japanese market expected to continue, Sony Ericsson needs to build presence in markets such as North America where market share has historically been limited."

Milanesi added that Sony Ericsson's decision to join the Google-led Open Handset Alliance and the Symbian Foundation had been "the right steps", partly because Sony Ericsson has not had a significant presence in the smartphone market so far.

"We believe that 2009 will be a deciding year for Sony Ericsson as it battles between profitability and market share growth," Milanesi wrote.

The average selling price (ASP) of a Sony Ericsson handset in the fourth quarter of 2008 was €121 (£95), up from €109 in the preceding quarter but down from €123 in the fourth quarter of 2007. The company attributed the quarter-on-quarter ASP increase to "a positive impact of foreign exchange rate fluctuations and to the sale of a higher proportion of high-end models".

Currency fluctuations were also credited for a four percent quarter-on-quarter rise in sales (€2,914m, up from €2,808m), but blamed for having a "large negative impact" on costs. Sales in the fourth quarter of 2007 totalled €3,771m, so the fourth quarter of 2008 showed a 23 percent year-on-year drop in sales. According to Sony Ericsson, this was "driven by lower volumes, due to the global economic slowdown that resulted in contracting consumer demand and decreased availability of credit".

In its statement, Sony Ericsson estimated that its market share in the fourth quarter of 2008 was around eight percent. The company also forecast that "the global handset market will contract in 2009 and that the industry ASP will continue to decline".

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