Sony Ericsson Maintains Profitability in Q3 But Sees Unit Sales Slip 26%

Sony Ericsson has reported a third consecutive quarter of profit, announcing third-quarter 2010 profits of 49 million euro (US$70 million), compared to losses of 164 million euro in the same quarter last year, as the handset manufacturer has been boosted by ongoing cost-cutting and smartphone growth. However, while its smartphone shipments increased, the joint venture (JV) of Japanese giant Sony and Sweden's Ericsson shipped only 10.4 million handsets in the third quarter of 2010, down 26% year-on-year (y/y) and well below market expectations.

Sony Ericsson's third-quarter revenues remained virtually flat y/y at 1.6 billion euro, while operating income came in at 63 million euro, up from an operating loss of 193 million euro in the same quarter of 2009.The handset vendor also reported that its average selling price per unit jumped by 34% y/y to 154 euro, but this could not make up for the lower shipping volumes, resulting in a revenue drop of nearly 9% compared to the second quarter of 2010. Sony Ericsson said its unit-base market share remained flat compared to the second quarter at around 4% of the global market, while it estimates its share of the high-end value market remaining at around 6%. Sony Ericsson also maintained its forecast for units in the global handset market for 2010, saying it expects slight growth.

Outlook and Implications

• Cost-Cutting Continues to Pay Off: Sony Ericsson has largely managed to reverse its fortunes and return to profitability due to a stringent cost-cutting programme, which has seen it cut staff numbers by 4,000 people to around 7,800 over the past two years (see World: 16 July 2010: Sony Ericsson Reports Second Successive Profitable Quarter, Driven by Smartphone Growth). Chief executive Bert Nordberg remains positive, saying the company's overall performance is stabilising, but he did admit third-quarter unit volumes were disappointing, saying that this was partly due to ongoing component shortages, in particular printed circuit boards and liquid crystal displays.

• Sony Ericsson Aims for Number One Android Spot: Sony Ericsson says its strategy is to continue to focus on the smartphone segment, revealing that smartphones now comprise more than half of its total sales The company has recently launched its Android-based Xperia models in new markets, including both China and the United States, notably signing a distribution deal with AT&T in the latter. Sony Ericsson has now stated its ambition is to become the global number one handset provider on the Google platform, and claims a share of around 19% of the global Android market. However, the JV denied any rumours that it plans to launch any devices based on Nokia's Symbian platform, and stated it won't launch any handsets based on Microsoft's recently launched Windows Phone 7 platform before the end of the year. Sony Ericsson continues to face stiff competition in the smartphone segment, not least from traditional rivals Nokia and Samsung, as well as newer players Apple, Microsoft, and Research in Motion (RIM). RIM recently revealed shipments of 12.1 million BlackBerry units, an increase of 45% y/y in its fiscal second quarter, and a net addition of 4.5 million net BlackBerry subscriber accounts (see World: 17 September 2010: RIM's Revenues Up 31%, Net Additions Lower). However, the Canadian giant faces security issues and increased competition in the higher-spending corporate segment (see World – United States: 12 October 2010: Windows Phone 7 Comes to Town).

• Sony Ericsson's Future Seems Secure: Sony Ericsson has recently stated that it does not expect any changes in company ownership "for a while", adding that it now aims to at least break even in 2010, while owner Ericsson has stated that it is committed to its handset JV following the reversal in its fortunes (see World: 2 September 2010: Sony Ericsson Does Not Expect Ownership Change "For a While" and 22 September 2010: Ericsson Confirms Commitment to Sony Ericsson, Sees Signs of Recovery). Elsewhere, Sony Ericsson recently signed an alliance with communication solutions provider Aastra to market complete mobile unified communication solutions for enterprises in the MENA region (see Middle East and North Africa: 29 September 2010: Aastra and Sony Ericsson Offer Mobile Unified Communication Solutions in Middle East). Sony Ericsson appears to be well on the road to recovery, pulling off an impressive turnaround following widespread doubts about its very survival in the handset market.