Sony Ericsson defies supply setbacks with Q1 profit

Booming smartphone demand and cost cuts kept cellphone venture Sony Ericsson in the black in the first quarter as it battled supply disruptions from Japan's earthquake and tsunami.

"The Japan earthquake made it a challenging quarter operationally and we are experiencing some disruptions to our supply chain," Chief Executive Bert Nordberg said in a statement.

Sony Ericsson posted a pretax profit of 15 million euros (USD 21.31 million), beatings an average analyst forecast for a loss of 24 million, but within a wide range of estimates.

Revenue missed forecasts as Sony Ericsson sold just 8.1 million phones in the quarter, below all expectations, and giving it market share of just over 2%, the lowest level since the venture was formed 10 years ago.

"These results point to a significant and ongoing impact on Sony Ericsson's supply chain and operations caused by the Japan earthquake with shipments falling a considerable way short of expectations," said CCS Insight analyst Geoff Blaber.

"This is a challenging situation for Sony Ericsson, but with lowered operating expenses and continued improvement to gross margin, it is at least in a better position to weather the storm than it was 12 to 24 months ago," Blaber said.

Tough period

Sony Ericsson said in early April the March 11 quake, which hit component supplies for electronics firms around the globe, was limiting volumes in its new smartphone offerings and delayed the wider launch of its neo model to the third quarter.

Analysts have said this makes 2011 another tough period for the 50-50 venture of Sony and Ericsson, which only returned to profit a year ago after seven straight quarters of losses.

"The second quarter and possibly third will be difficult because of Japan," said Gartner analyst Carolina Milanesi.

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.

The share of smartphones in Sony Ericsson sales rose to 60% from 40% in the previous quarter.

But analysts say it still takes too long for the group to bring new products to market and it has been left trailing by the likes of Apple's iPhone and PC-like smartphones from the likes of Samsung and HTC.

IDC analyst Francisco Jeronimo said the firm -- which dropped behind HTC to ninth largest phone maker by volume -- risks to remain a niche player if it does not expand its offering beyond top end of the market.

"They are not Apple. I do not see a bright future for them if they do not do more," Jeronimo said.

Shares in Ericsson were 0.3% higher at 76.65 crowns by 0848 GMT, in line with slightly firmer European technology shares.