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Sony Ericsson Warns on First-Quarter Sales

Reuters
Wednesday, 19 Mar 2008 | 5:01 AM ET

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 a fresh blow.

A global economic slowdown is starting to crimp consumer spending, hurting the whole sector.

Ericsson shares fell 5.8 percent to 10.82 Swedish crowns by, having hit 4-1/2 year low of 10.52 and bringing losses in the last few months to around 60 percent. Nokia fell 2.5 percent.

"The market is proving to be challenging," said Sony Ericsson President Dick Komiyama, who took the job late last year.

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

That compared with 362 million in the year-yearlier 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 Visible in Europe

The world's No. 4 cellphone maker, which trails Nokia , Samsung and Motorola , 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 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.

"In addition, certain component shortages for popular mid-priced phones have contributed to modest unit sales growth in the first quarter."

Last week, chip maker Texas Instruments cut its first quarter forecasts, citing weaker demand for chips used in higher priced 3G phones, and hitting mobile industry stocks in Europe.

"Worries voiced by Texas Instruments about the mobile phonemarket appear to be further validated. With the high mobile penetration in Europe the problem will focus on the longer replacement cycle," Glitnir bank said in a research note. "Worries over the mobile market are not likely to go away in the next few months, due to which also Nokia's share may face
pressure."

Glitnir said Nokia volumes may stay strong and margins were excellent thanks to its presence in China and India, but average selling prices for phones was clearly sliding.

Sony Ericsson said it now plans to ship approximately 22 million phones during the first quarter of 2008 with an average selling price at around 120 euros.

Ericsson said in a statement that besides the smaller earnings contribution from Sony Ericsson, sales and operating income at its Mobile Platforms unit, a part its Multimedia segment, would be negatively affected by 200 million to 300 million Swedish crowns ($33.4-$50.1 million).

This was due to lower sales to the joint venture from Ericsson, a company spokesman said.

Nokia declined to comment on the news from its rival.

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