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Sony Ericsson Tops Profit Target, Phone Prices Dip

Reuters
Thursday, 11 Oct 2007 | 4:28 AM ET

Mobile phone maker Sony Ericsson posted surprisingly strong earnings on Thursday despite a steeper-than-forecast drop in the average selling price for its phones.

Sony Ericsson, owned by Ericsson and Sony , said it made a pretax profit of 384 million euros ($542 million) versus 327 million euros in the second quarter and 427 million a year earlier.

Analysts surveyed by Reuters had expected third-quarter pretax profit of 358 million euros. The company had sales of 3.11 billion euros versus a forecast of 3.29 billion.

Sony Ericsson said the average selling price (ASP) of its mobile phones, a key indicator for the firm's profitability, declined to 120 euros.

That was down from 125 euros in the second quarter and from 147 a year earlier. Analysts in the Reuters poll had predicted a third-quarter ASP of 124.

Hakan Wranne, analyst at Swedbank, said the average selling price was disappointing.

"But on the other hand they managed to keep and actually increase margins in the quarter," he said, adding this was surprising given the trend in volumes.

Overall Sales Broadly Unchanged

The company shipped 25.9 million units in the third quarter versus 24.9 million in the second quarter and overall sales were broadly unchanged from the prior quarter.

Sony Ericsson said its gross margin in the quarter increased to 30.7%. That exceeded a market forecast for 29.8% and was up from 29.6 three months earlier.

"Of course, it's a good sign going forward that gross margins are increasing in Q3 compared to Q2 considering ASPs are going down," Wranne said.

Analyst Francois Duhen at CM-CIC Securities said the report would be seen neutral to slightly positive. "Slightly positive because the margin held up a little bit better than people were expecting," he said.

Wranne echoed that view, saying: "I would think that this will be received as neutral to perhaps slightly positive because of the strength in margins."

Sony Ericsson's results have become increasingly important to co-parent Ericsson's bottom line in recent quarters.

Analysts say the venture, the world's number four phone maker, has been grabbing market share from rivals Samsung Electronics and Motorola, the third and second-biggest phone makers behind market leader Nokia.

Sony Ericsson's lower prices reflect its strategy of moving into lower-priced markets.

Units shipped in the quarter reached approximately 26 million, a 31% increase from a year earlier and in line with what analysts had forecast.

"The quarter has seen Sony Ericsson continue to generate significant year-on-year volume growth with a portfolio of products spread across the widest variety of price points in the company's history," said Sony Ericsson President Miles Flint.

Flint, who is stepping down and will be succeeded by Sony veteran Hideki Komiyama from Nov. 1, said products such as the W200 Walkman phone and simple "talk and text" phones have been key volume drivers.

"We are confident that the remainder of the year will see us further capitalise on this new broader portfolio," Flint said in a statement.

He said the firm's Cyber-shot K850 camera phone will launch in time for the holiday season.

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