Sony Ericsson reports first quarter results

Sony Ericsson has returned to profitability in its first quarter results in 2010.

Units shipped in the quarter were 10.5 million, a decrease of 28% compared to the same period last year, reflecting the streamlining of the portfolio over the past 12 months to focus on higher end phones.

Sales for the quarter were Euro 1,405 million, a decrease of 19% year on year. Average selling price (ASP) increased 12% both sequentially and year on year to Euro 134 during the quarter due to good sell through of existing models, new flagship phones starting to ship at the end of the quarter and a positive currency effect.

Gross margin rose both sequentially and year on year, reflecting a more favourable product mix and the benefit of cost of sales improvements in the past year, including the resolution of certain royalty matters during the quarter.

Income before taxes for the quarter excluding restructuring was a profit of Euro 21 million, illustrating the positive impact of the cost reduction programme.

Carolina Milanesi, Gartner research vice president for mobile devices, technology and service provider research, commented: “ASP and margins up for SEMC is certainly an encouraging sign. Sales delivered according to our expectations as key products such as Vivaz and X10 only started shipping at the end of the quarter. This is the start of SEMC turn around.

“The company will have to continue to focus on growing the new product portfolio and not get distracted by products, such as the latest two Walkman products announced last week,” she warned. “Although music and imaging remain important for consumers, they have started to be seen as hygiene factor features. Browsing, ease of use and attention to social networking are higher up in the wish list when looking to upgrade a phone.”

The transformation programme, which started in mid-2008, with the aim of reducing annual operating expenses by Euro 880 million is continuing with the full benefit expected during the second half of 2010. Since the start of the programme, Sony Ericsson has reduced its global workforce by approximately 3,150 people to reach a total of 8,450 by 31 March 2010. The total restructuring charges taken to date are Euro 342 million.

As of 31 March 2010, Sony Ericsson retained a net cash position of Euro 563 million.
During the first quarter of 2010, Sony Ericsson obtained additional external funding of Euro 150 million. The funding was guaranteed by the parent companies on a 50/50 basis.

Market share in unit base for the quarter decreased by one percentage point sequentially and is now estimated to be around 4%.

Sony Ericsson maintains a forecast of slight growth in units in the global handset market in 2010.

Bert Nordberg, president at Sony Ericsson commented: “We are pleased to see the positive impact of both the launch of new products and the business transformation programme improving the company’s results. The Xperia X10, our first android-based Communication Entertainment device featuring signature Sony Ericsson applications Timescape and Mediascape, and Vivaz, a beautifully designed, touchscreen Symbian phone, started shipping towards the end of the quarter. Both models have been well received by global customers.”

He added: “Increases in both gross and operating margins show that we are on the right track to build the correct cost structure for our business organisation and strategy. We will continue to work through the transformation programme to ensure that we are competitive.”

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