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Sony Ericsson sees better H2 after Q2 loss

Mobile phone maker Sony Ericsson forecast an upturn in the second half when posting a quarterly loss due to component shortages stemming from the March 11 earthquake and tsunami in Japan.

July 15, 2011 / 03:48 PM IST

Mobile phone maker Sony Ericsson forecast an upturn in the second half when posting a quarterly loss due to component shortages stemming from the March 11 earthquake and tsunami in Japan.

Chief executive Bert Nordberg said on Friday most of the hit was felt in early part of the quarter and the effect would be tiny in the third quarter.

"There might be some minor spillover. In our planning this is behind us," he told Reuters.

Sony Ericsson sold 7.6 million phones in the second quarter, compared with forecasts for 8-11 million, as earthquake-related supply chain constraints cut sales by 1.5 million phones.

"Volumes were even lower than we thought, and we were below consensus," said Hakan Wranne, analyst at Swedbank Markets.

"The product portfolio looks pretty good now ahead of the second half, and if they manage to increase volumes by a couple of million units, they should be back to making profits for the rest of the year -- not large profits, but a bit above zero where we have thought they would be," Wranne said.

Sony Ericsson's forecast for the second half was based on new smartphone models and an easing supply chain shortage, and Nordberg said that despite a weak quarter his ambition was still to report better results for 2011.

To do that, second-half profit would have to grow 73% to 176 million euros (USD 249 million).

Nordberg said demand for smartphones, whose prices have started to fall to below 200 euros, remained healthy and was hitting the sale of mid-range mobile phones, a market he said he was "nearly willing to call ... collapsing".

Sony Ericsson, owned 50-50 by Swedish company Ericsson and Japanese group Sony, made a pretax loss of 42 million euros (USD 59 million) after five consecutive quarterly profits, and in the low end of analysts estimates, which ranged from a 68 million loss to a 77 million profit.

The venture continued to bleed cash in the quarter and borrowed 165 million euros to balance its finances. Cash flow from operating activities was 577 million euros negative in the first half.

Continuing cash outflows raise the possibility its parents might need to inject cash -- the latest 165 million euros was raised externally.



The firm -- formed in 2001 -- thrived after its breakthrough with Walkman music phones and Cybershot camera phones before losing out to leaner rivals at the cheaper end.

Its share of handset sales dropped below 3% from more than 9% at its height.

Sony Ericsson has slashed costs -- including cutting around 4,000 jobs -- and refocused on higher-margin smartphones that link to social networking sites like Facebook.

Its smartphone sales grew from the previous quarter, and the share of smartphones in its sales rose to more than 70% from 40% at the end of 2010.

"Smartphone volume was reassuring but Sony Ericsson still faces a considerable task in rebuilding and sustaining profit margins," CCS Insight analyst Geoff Blaber said.

"Sony Ericsson is not alone in finding the smartphone transition a challenging one," he said.

Motorola Mobility has shifted its focus to smartphones, while Sony Ericsson's bigger rivals Nokia and LG Electronics could both report second-quarter losses due to their slow move into the high-end of the market.

"In many ways Sony Ericsson is going through the transition Motorola has gone through last year, but without the kind of support Verizon gave Motorola in the US," said Gartner analyst Caolina Milanesi.

Ericsson shares were down 1.2% at 88.90 crowns by 0925 GMT.

($1 = 0.706 euro)

first published: Jul 15, 2011 03:38 pm