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Sony Ericsson forecasts first-quarter profit could plunge by more than half

German Chancellor Angela Merkel looks at a cellphone at the Sony Ericsson booth during the CeBIT fair in Hanover, Germany, on March 4. PHOTO: AP

Sony Ericsson, the world's No. 4 mobile phone maker, warned yesterday that first-quarter earnings and revenue will fall on slower handset sales, higher research costs and a component shortage.

Pretax profit is expected to drop to 150 million euros (US$235 million) to 200 million euros, the London-based Sony Ericsson Mobile Communications Ltd said in a statement yesterday. That compares with 362 million euros a year earlier.

Sales are also estimated to drop from the first quarter of last year, when revenue was 2.93 billion euros, the venture between Japan's Sony Corp and Ericsson AB of Sweden said.

Ericsson shares plunged 8.4 percent in Stockholm trading after the announcement.

The comments added to concern the handset market may cool this year. Texas Instruments Inc, the second-biggest maker of chips for mobile phones, said on March 10 that demand for chips used in advanced handsets was lower than anticipated. Nokia Oyj, the world's biggest handset maker, and researcher Strategy Analytics have also forecast growth will slow this year.

"The market is proving to be challenging," Sony Ericsson president Dick Komiyama said in the statement. "This has been more pronounced in the mid to high end replacement sector of the market in Europe, where Sony Ericsson has stronger than average market share."

Sony Ericsson has sought to expand its range of cheaper models and increase its presence in new markets to cut its reliance on more expensive models sold in Europe. The company still aims to become the third-largest handset maker by 2011 -- a title now held by Motorola Inc -- with new models supporting earnings in the second half, it said.

The company said first-quarter shipments will be about 22 million units, compared with 21.8 million a year earlier and down from 30.8 million units in the fourth quarter. The average selling price of a Sony Ericsson phone will be about 120 euros, down from 134 euros a year earlier and 123 euros last quarter.

Component shortages will mainly hurt sales of mid-priced models, Sony Ericsson said. Its gross margin, or sales minus the cost of goods sold, will be little changed from a year earlier.
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