Sony Ericsson Q4 Profit Down 17%, Margins Remain Strong

LONDON -(Dow Jones)- Mobile phone maker Sony Ericsson Wednesday beat market forecasts, increased market share and said it planned to grow its presence in the North American mobile phone market.

Sony Ericsson, the world's fourth-largest phone maker, a joint-venture between Japan's Sony and Sweden's Ericsson, increased the number of handsets it shipped during the fourth quarter by 18% year-on-year to 30.8 million, but net profit fell 17% on higher operating costs as it expanded its handset portfolio in emerging markets.

"Sony Ericsson finished a very good year, which highlighted how the company has strategically positioned itself to capture market share with an expanded product portfolio," said the company's new President Hideki Komiyama, who joined on Nov 1. "Our target remains to become one of the top three players in the industry, and the momentum we established in 2006 and 2007 makes this a realistic and achievable ambition," he said.

Still, the "strategic shift" to sell more low-priced handsets, as well as greater development and marketing costs, meant operating costs increased to EUR724 million from EUR623 million. Net profit fell to EUR373 million (US$555 million) from EUR447 million the previous year.

ING analyst Damien Chew said that the results were: "Pretty much in line with sales and profitability slightly better than expected."

Richard Windsor, an analyst at Japanese investment bank Nomura, said that Sony Ericsson's market share gains, alongside Korean mobile maker Samsung's yesterday, point towards further market share loss for U.S. handset company Motorola in the fourth quarter.

"The new businesses of smartphones and low-end (for Sony Ericsson) should make a meaningful contribution in 2008 and should allow earnings to grow beyond 2007's good level," said Windsor.

On Tuesday, rival Samsung Electronics said that its telecommunications unit increased earnings by 67% to 580 billion. Shipments increased 41% year-on-year to 46.3 million units.

Komiyama, who recently joined from Sony Electronics in the USA, where he was Chairman, told Dow Jones Newswires that he planned to make North America an increasing focus in 2008.

"It's very important for us to make an inroad into the U.S. market," said Komiyama in an interview. "In the largest market, the U.S., our position is weak."

Sony Ericsson says that it its strengthening its relationships with North American operators, as well as increasing its distribution and supply chain. The development of high-speed internet phones will also be a priority, Komiyama said.

Last week the mobile phone maker unveiled three new phones at Consumer Electronics Show in Las Vegas, including the Z555, a clamshell design popular in the region.

Revenue and pretax profit for the three months to Dec. 31 remained relatively flat year-on-year at EUR3.77 billion (US$5.6 billion) and EUR501 million(US$745 million) respectively, with an 18% drop in Asian sales impacting revenue, the company said.

Changing market conditions in Japan and China, as well as political unrest in Pakistan hit sales in the region, Sony Ericsson said.

Facing stiffer competition in its core high-level and mid-tier Walkman-music and Cybershot-camera phone business, the company has extended its operations to make less expensive, simpler handsets targeted at highly populated regions, such as India, China and Brazil. This helped the London-based company sell more than 100 million phones during the 2007 financial year, with 30.8 million of them shipping in the fourth quarter.

"Investments are being made in both research and development and brand building, to deepen the portfolio and strengthen Sony Ericsson's presence in new and developing markets around the world," said Komiyama.

Sony Ericsson also increased its market share by two percentage points to take more than a 9% share of the global mobile phone market in 2007.

Despite lowering average selling prices, or ASPs, of handsets to EUR123 from EUR146 the previous year, the company said that it continued to see market share gains and profitable growth, while maintaining strong operating margins of just below 13%. Sony Ericsson's phone ASP increased quarter-on-quarter by three euros. Analysts had expected ASPs of EUR121 and shipments of 31.5 millions.

Speaking to analysts and media after the results Wednesday, Komiyama said that he was cautiously optimistic of the global mobile phone market growing by 10% in 2008.

At 1245GMT shares in parent company Ericsson traded up 2.0% at 15.34 Swedish kronor.

"We're cautiously optimistic despite the increasingly challenging economic conditions," he said.

For the full financial year, Sony Ericsson saw net profit increase 12% to EUR1.1 billion and revenue increase 18%, despite average selling prices of handsets dropping 15% to EUR125.

Sony Ericsson's expansion into the lower-end handset market to some extent has been a result of rivals Nokia Corp.'s (NOK) and Apple Inc.'s (AAPL) push into music phone sales, a sector previously dominated by Sony Ericsson in the Western music-phone market.

-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; dan.thomas@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 16th January 2008