Sony Ericsson’s loss widens though Nokia offers some handset optimism

By Caroline Gabriel

Sony Ericsson reported third quarter results hard on the heels of Nokia’s, claiming its restructuring plans are starting to take effect, a claim not yet reflected in the figures, which saw a widened loss and a sharp decline in unit shipments.

The key patterns in Nokia’s handset results were stronger, once the impact of the huge shock writedown on Nokia Siemens is excluded, and the market leader’s upgrading of its forecast for the phone industry as a whole (from a 10% slide in 2009 to just 7%) implies a very buoyant fourth quarter, which should benefit both European vendors.

However, both have critical near term challenges to make the most of the expected holiday boom, notably in making an impact with key smartphone launches – Nokia N900 and N97, Sony Ericsson Satio and Aino – in an overcrowded segment where Apple and Google currently have the PR upper hand. And looking ahead to 2010, Nokia needs to make its software strategy convincing, from its decision – reiterated again yesterday – to move to multiple OSs, but not Android, up to its expansion of Ovi web services.

And Sony Ericsson (SEMC) has an even tougher task to convince investors and customers that it is on the turnaround track. The joint venture reported a loss of €164m ($245m) in the third quarter, larger than the €25m loss of the same period a year ago, but up on the Q209 deficit of €213m. Reduced operating expenses pointed to the start of some impact from the reorganization, while gross margins also improved despite the ongoing price wars, as SEMC starts to reduce its damaging over-reliance on the pressurized midrange market and release true smartphones. Its channels and experience in the midrange should stand it in good stead to take advantage of the shift of smartphone capabilities into the mass market from this quarter.

But, although SEMC satisfied analysts’ admittedly weak expectations, its sales still fell 42% year-on-year to €1.62bn, as unit shipments dropped 45% to 14.1m. However, the average selling price edged up to €114 from €109.

The venture was less sanguine about the Q4 recovery than Nokia, only saying that the global handset decline is “starting to slow” – it still expects the 2009 market to shrink by 10% in unit terms. In that contracted market, it had about 5% market share in Q3.

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