The warning is the latest evidence that cash-strapped consumers are clinging on to their existing handsets in order to qualify for cheaper call tariffs from their network provider. In the mass market, Sony Ericsson’s initial lead in music phones (with the Walkman range) and camera phones (with its Cyber-shot devices) has been lost to rivals such as second-placed Samsung and there is little to differentiate it from other manufacturers.
Some mobile phone customers are “trading up” to feature-rich smartphones such as the iPhone, but that market is still small and Sony Ericsson will not have an obvious answer to the Apple device until the second half of this year.
The profit warning is the third in the space of a year from Sony Ericsson, a joint venture between Sweden’s Ericsson and Japan’s Sony. It comes just days after market leader and bitter rival Nokia announced plans to cut 1,700 jobs, on top of 600 losses already announced, as it also battles with the slowing handset market. The Finnish company, which makes roughly four out of every ten mobile phones sold worldwide, warned earlier this year that it reckons global handset sales will be down 10% in 2009 to just over a billion. Some analysts now believe that prediction looks overly optimistic as the global recession bites.
“Despite some signs of improvement in the first quarter of 2009 compared with the fourth quarter of 2008 in markets such as China and India, the market overall continues to be very challenging,” Carolina Milanesi, research director at the industry specialists Gartner, said. “Imaging and music are now features that most vendors have in their portfolio and this is making it more difficult for Sony Ericsson’s products to stand out. Increased competition in western Europe coupled with a slower market and the delay in adopting touchscreen devices are heavily impacting its performance.”
In a trading update ahead of its results next month, Sony Ericsson warned that first-quarter sales and profits “continue to be negatively affected by weak consumer demand as well as de-stocking in the retail and distribution channels”.
It now expects to ship about 14 million phones in the three months to end March, down from 22.3 million last year and analysts’ forecasts of about 18 million. Profits are being squeezed as intense competition pushes down prices. In the first quarter of 2009, the average selling price of a Sony Ericsson phone was €120 (£110). That is down €1 from the previous three months despite the increasing complexity of its handsets, which now include the sort of digital cameras that a few years ago would have cost several hundred pounds.
The company now expects to make a quarterly loss of between €340m and €390m, excluding restructuring charges of €10m to €20m, meaning it is heading into its second year of losses.
Part of the problem faced by Sony Ericsson is its failure to produce a compelling alternative to the Apple iPhone at a time when internet-enabled touchscreen phones, which can be personalised by downloading applications, are about the only devices being snapped up by consumers. HTC and Samsung have rushed into this market in the wake of the iPhone, while Nokia and RIM – makers of the BlackBerry corporate email device – have had only limited success with their alternatives, the Nokia 5800 and BlackBerry Storm.
A report from the industry consultants Juniper Research, released this month, forecast that so-called smartphones will account for 23% of all new handsets sold, or about 300 million devices, by 2013.
