UPDATE: Sony Ericsson Warns Slowing Demand to Hit 2Q Profit

STOCKHOLM -(Dow Jones)- Mobile phone maker Sony Ericsson said Friday its second-quarter sales and net income would be hit by slowing demand for mid-to-high end mobile phones and a delay of new products shipped during the quarter.

The profit warning is the second in as many quarters, as the company continues to suffer from its higher exposure to the downturn in the high-end handset market compared with peer Nokia, which has a much broader portfolio of devices in the low and mid-tier.

The company, a joint venture between Sweden's Ericsson and Japan's Sony, said it plans to ship approximately 24 million phones during the period with an estimated average selling price of EUR115, for a total of EUR2.76 billion.

In the first quarter, Sony Ericsson shipped 22.3 million units with an average selling price of EUR121, and reported revenue of EUR2.7 billion.

Gross margin is expected to decline both year-on-year and from the first quarter and net income before taxes is estimated to be about break-even, the company said.

Sony Ericsson's Vice President of Communications Aldo Liguori told Dow Jones Newswires that a number of new products expected for release during the second quarter "started shipping later than we had originally planned," without elaborating further.

He said further details would be provided with second-quarter results July 18.

Liguori said the company continues to invest in research and development in high-end products. He said the first product in the company's new sub-brand, the EXPERIA X1 slider phone, will ship in the fourth quarter.

Despite a growing global cell phone market, research firm Gartner said western European mobile phone sales fell 16.4% in the first-quarter compared with the year-earlier period, the first fall in the region since Gartner began tracking device sales in 2001.

With its reliance on western Europe, Sony Ericsson slipped to fifth-largest mobile phone maker in terms of units shipped in the first quarter behind Nokia, Motorola, Samsung Electronics and LG Electronics, according to Gartner.

Market leader Nokia increased its share to 39% in the first quarter while Sony Ericsson saw its market share drop to 7.5% from 9% in the fourth quarter.

Sony Ericsson President Hideki Komiyama has said the company planned to expand its sales networks and take other steps to boost sales in Europe and emerging markets. The mobile-phone maker, which focuses on high-value music and camera phones, issued a profit warning in March citing slower growth in western European markets.

Nomura analyst Richard Windsor said investors had expected Sony Ericsson to recover in the second half of the year despite challenges from its high exposure to the weak Western European market and competition from Korean peers such as Samsung and LG. Windsor has a buy rating on Ericsson.

Still, it may no longer be just European markets that are the problem.

"In the past few weeks we've been having more negative reports from emerging markets" where growth may not now be as much as anticipated, said Gartner research director Carolina Milanesi. At 1345 GMT, Ericsson shares traded down 8.5% at SEK60.20, while the broader Stockholm market was down 2%. Shares in Finnish peer Nokia fell 4.8% to EUR15.34 in a flat Helsinki market.

-By Ian Edmondson, Dow Jones Newswires; +46-8-5451-3094; ian.edmondson@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 27th June 2008