Sony Ericsson reports fat Q1 losses and cuts 2000 jobs

Sony Ericsson has reported poor first quarter results and so has announced it will make an additional 2000 job cuts to help balance the books. The job losses come on top of 2000 staff already laid off by the handset manufacturer.

Income before taxes for the quarter excluding restructuring charges was a loss of Euro 358 million, within the range announced on 20 March 2009 (loss of Euro 340 to 390 million).

Units shipped in the quarter were 14.5 million, a decrease of 35% compared to the same period of last year and in line with our March 20, 2009 interim announcement of approximately 14 million units. Sales for the quarter were Euro 1,736 million, a decrease of 36% from a year ago. Sales decreased primarily as a result of continued weak consumer confidence, and de-stocking in the retail and distribution channels, the company stated.

Gross margin declined both year on year and sequentially, reflecting a change in the product mix, material write offs, and exchange rate volatility.

Dick Komiyama, president at Sony Ericsson, stated: “As expected, the first quarter of this year has been extremely challenging for Sony Ericsson due to continued weak global demand. We are aligning our business to the new market reality with the aim of bringing the company back to profitability as quickly as possible. The management intends to pursue an additional cost saving program targeting a further annual operating expense reduction of Euro 400 million, to be completed by mid 2010.”

The company’s initial cost saving program targeting annual operating expense reductions of Euro 300 million by the end of the first half of 2009, including a workforce reduction of 2,000 headcount, has now been completed. A total of Euro 187 million restructuring charges have been recorded compared to the initial estimated costs of Euro 300 million.

In January 2009 an additional cost saving program was initiated to target annual operating expense reductions of Euro 180 million by the end of 2009. The cost of this program will be covered by the initial Euro 300 million restructuring costs announced in July 2008.

The additional cost saving program announced with the results will include a further reduction in the global workforce of approximately 2,000 people. It is estimated that new restructuring charges of Euro 200 million will be needed to complete this program.

Gartner research director, Carolina Milanesi, commented: “As per the interim results announcement, Sony Ericsson confirmed that the market remains very challenging for it. Sales reached 14.5 million units, a 35% decrease over the same period last year. Although Sony Ericsson continued to blame lower demand and inventory de-stocking for the weak performance, Gartner believes that the company’s current portfolio is contributing to these factors.

“Imaging and music are now part of most of the competitors’ portfolios and Sony Ericsson is finding it more and more difficult to have its products stand out,” Milanesi continued. “Furthermore, consumers want more than that nowadays. Touchscreens, good web browsing, and navigation are moving up the wish list. Because of the current economy consumers are becoming more demanding when they do decide to upgrade their phone and are less willing to settle for something that does not fully meet their needs. The ‘idou’ device presented in Barcelona is certainly a step in the right direction for Sony Ericsson but one cannot help but wonder if it will be too little too late given it will only be on the market at the end of the year.”

As of March 31, 2009, Sony Ericsson retained a strong net cash position of Euro 1.1 billion.

Market share in the first quarter decreased and is now estimated to be around 6%, down two percentage points sequentially. Sony Ericsson forecasts that the global handset market for 2009 will contract at least 10% from around 1,190 million units in 2008.

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