Sony Ericsson Issues Profit Warning

More bad news for the mobile device sector: Sony Ericsson Mobile Communications has issued a profits warning, and predicts it will ship only 14 million handsets during the first quarter of 2009.

The vendor, jointly owned by Ericsson AB (Nasdaq: ERIC) and Sony Corp. (NYSE: SNE), said its sales are being "negatively affected by weak consumer demand as well as de-stocking in the retail and distribution channels."

The figure represents a significant decline compared with a year ago and with the end of 2008. In the first quarter of 2008 Sony Ericsson shipped 22.3 million devices, while it sold 24.2 million in the fourth quarter of last year. (See Sony Ericsson Reports Q4.)

As a result, Sony Ericsson expects to report a first-quarter net loss of between €340 million and €390 million (US$462 million and $530 million) before restructuring costs of up to €20 million ($27.2 million).

The handset firm initiated a restructuring program last year that will cut operating costs by €480 million ($652 million) by the end of 2009 but cost €300 million ($408 million) to implement.

Sony Ericsson had warned in January that trading was going to be tough this year. When it announced its fourth-quarter 2008 results, the vendor's president, Dick Komiyama, noted: "We foresee a continued deterioration in the market place in 2009, particularly in the first half." At that time the company believed the global aggregate market would shrink by about 5 percent from the near 1.2 billion handsets shipped by all vendors in 2008 -- now it believes the market will shrink by about 10 percent, according to this Reuters report.

Global handset leader Nokia Corp. (NYSE: NOK) also predicted tough times when it announced its fourth-quarter 2008 results, stating: "Nokia now expects 2009 industry mobile device volumes to decline approximately 10% from 2008 levels. Nokia expects the decline to be greater in the first half than in the second half of the year." (See Nokia Reports Q4.)

Since then, Nokia has cut handset production and announced job losses. (See Nokia to Cut Phone Production and Nokia Cuts 1,700 Jobs.)

Today's news sent Ericsson's share price down 8.8 percent to 69.10 Swedish kronor ($8.46), while Nokia's stock fell 5.5 percent to €8.41 ($11.46).

Sony Ericsson will unveil full details of the impact on its business when it reports its first-quarter financials on April 17.

Today's news comes just days after reports that Ericsson wants to sell its 50 percent stake in the mobile phone maker to Sony. Read more about that in this InformationWeek article.

Sony, though, is having financial problems of its own, and has just initiated a pay freeze for the next fiscal year starting April 1, according to reports from Japan.

— Ray Le Maistre, International News Editor, Light Reading

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