STOCKHOLM (Dow Jones)--Sony Ericsson, the world's sixth-largest mobile phone maker, Tuesday said it gained market share in the fourth quarter but saw margins held back by increased spending on marketing and product development.
The company, a joint venture of Sweden's Telefon AB LM Ericsson (ERICY) and Japan's Sony Corp. (SNE), sold 12.6 million mobile phones in the fourth quarter of 2004, up 58% from a year earlier. Pretax profit jumped to EUR140 million from EUR46 million, but was little changed from EUR136 million in the third quarter. Revenues rose almost 40% from a year ago to EUR2.01 billion.
The pretax profit margin of 7% more than doubled from the fourth quarter of 2003, but slipped from 8.1% in the third quarter. One analyst at a Nordic bank said high costs for marketing are likely to remain, making it hard to achieve margin improvement going forward.
Sony Ericsson Executive Vice President Jan Waareby told Dow Jones Newswires some of the higher expenses in the fourth quarter could be considered "extra," but that spending to enhance market position would continue.
"We will use a good momentum to further build our position in a tougher market," he said.
The company, which focuses on the more lucrative mid to high price range of the market, faces fiercer competition in that segment from Nokia Corp. (NOK), the world's largest handset manufacturer, which is filling gaps in its product range after losing ground in early 2004. Higher spending on marketing and development comes as the market is expected to slow significantly from an exceptionally strong 2004.
"We expect market growth (in unit sales) in 2005 to be less than 10%," said Waareby. He added that measured in revenue, any growth will be marginal.
Sony Ericsson's initial forecast of the total market size in the fourth quarter is 175 million units sold. For the full year, Waareby said he estimates the market at 620 million units.
Waareby said he reckons Sony Ericsson has gained around two percentage points of market share to 7.2% since the last quarter of 2003.
In the fourth quarter, Sony Ericsson saw the average selling price for its phones fall to around EUR159 from EUR180 in 2003. Compared to the third quarter however the so-called ASP - a key benchmark for financial analysts - increased slightly.
South Korea's Samsung Electronics Co. Ltd. (005930.SE) earlier this week reported a quarter-on-quarter drop in sales and ASP. Samsung said it expects to regain lost ground in the coming quarters.
Sony Ericsson plans to expand its product range in 2005, but Waareby declined to say how many handsets his company expects to launch.
New third-generation mobile phones will become more important and should reach 10% of total unit sales this year, he said. Music players will be key additions to features in new mobile phones, he added.
Analysts had expected Sony Ericsson to reach a fourth-quarter pretax profit of EUR165 million, according to a poll of 17 analysts by SME Direkt.
"Revenues were in line with expectations but pretax profit was a disappointment," said the Nordic bank analyst.
Rival Nokia reports its fourth-quarter results Jan. 27.
Company Web site: http://www.sonyericsson.com
-By Magnus Hansson, +46 8 545 130 91, magnus.hansson@dowjones.com
(END) Dow Jones Newswires"
Posted to the site on 18th January 2005
Posted to: www.cellular-news.com/story/11721.php