UPDATE: Sony Ericsson Plans 2000 Job Cuts

STOCKHOLM -(Dow Jones)- Sony Ericsson struggled to break even in the second quarter amid continued weak sales of mid-to-high-end phones and increased competition, and said it would cut costs.

The company Friday said second-quarter net profit fell to EUR6 million from EUR220 million a year prior due to slowing growth in mature markets, including Europe and the U.S.

Sony Ericsson's results were largely prefigured in its June profit warning - its second this year - when it said slower growth in Western Europe would hurt earnings.

Unlike Finnish rival Nokia, which dominates emerging market sales, Sony Ericsson has only recently attempted to broaden its emerging market portfolio, making it more susceptible to slipping demand for high-end devices in developed regions.

The company said conditions are expected to remain challenging through the second half of the year, particularly in the third quarter.

As a result, Sony Ericsson said it would cut costs by EUR300 million annually, with the full effect expected in a year. Sony Ericsson President Dick Komiyama said some 2000 jobs would be cut from across the business. He declined to give further details.

Restructuring charges will be at the same level as the reduction in operating expenses, the company said.

"It's tough to see how the economy is going to change," Komiyama told Dow Jones Newswires. "Today, what we see is more competition in Europe and slowing consumer demand, even in India."

He said total unit volume growth in India was 25% to 30% last year, but is now at about 17% to 18%.

Still, new products set to be released later this year, plus its growing presence in India and China will help the company going forward, he said.

Komiyama said it would be between six to twelve months before its ramped up Indian operations would begin to show "significant results."

The firm shipped 24.4 million phones in the quarter, down 2% from a year earlier, while its market share rose to 8% in the second quarter from 7.5% in the first quarter.

The figures were in line with the company's recent warning, said Dresdner Kleinwort analyst Janardan Menon, who said the sour tone regarding the rest of the year likely means profits will be even lower than the market expected.

The company faces "a tough second half," Menon said.

Sony Ericsson said it still expects the global handset market to expand by about 10% in 2008, largely in fast-growing areas such as India and China.

Nokia said Thursday during its second quarter results that it sees the global handset market growing by 10% or more in 2008, slightly ahead of previous guidance of 10% growth.

Sony Ericsson's net sales fell 9.4% to EUR2.82 billion from EUR3.11 billion. The average selling price for its handsets fell to EUR116 from EUR121 in the first quarter and from EUR125 a year earlier.

The company is rolling out several new products in the second half, including the XPERIA X1, a high-end device that runs on Microsoft's Windows Mobile operating system.

The company slipped to the No. 5 spot globally in terms of units shipped in the first quarter - the latest available according to research firm Gartner which compiled the list - and now ranks behind Nokia, Motorola, Samsung Electronics and LG Electronics.

Ericsson reports second quarter results July 22.

-By Adam Ewing, Dow Jones Newswires; +46 8 545 130 95; adam.ewing@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 18th July 2008