Mobile phone maker Sony Ericsson swings to third quarter loss

STOCKHOLM, Sweden — Mobile phone maker Sony Ericsson on Friday said it swung to a loss in the third quarter, hurt mainly by weaker sales, continued price pressure on its handsets and negative effects from exchange rate fluctuations.

The LM Ericsson and Sony Corp. joint venture said it booked a net loss of euro25 million (US$33.6 million) for the quarter, compared with a profit of euro267 million in the same period last year.

It said it shipped 25.7 million units during the third quarter, which was lower than the quarter before but a flat development year-on-year.

The company said that although it expects the global handset market for 2008 to grow at a rate of around 10 per cent, from more than 1.1 billion units in 2007, it believes the industry average selling price will continue to drop.

Most of the growth is expected to come from emerging markets where the cheaper phones dominate, it said.

Sales dropped about 10 per cent in the July-September period, landing at euro2.81 billion (US$3.8 billion).

Sony Ericsson President Dick Komiyama said the quarter had "continued to be challenging."

He said the company's target to cut operating costs by euro300 million (US$405 million) a year by the end of the second quarter next year - with the full effects expected to appear in the second half of 2009 - "are progressing in line with expectations."

Evli Bank analyst Mikko Ervasti said that even though the mobile phone maker dipped into the red in the quarter, the results were still more or less in line with the market's expectations - or at least "less on the negative side."

The key, he said, was that Sony Ericsson had maintained its guidance for the global handset market.

With regards to the global financial crisis, Ervasti said he did not think the company would suffer a harsh blow in the shorter term, but may be hurt once weaker economic growth affects spending habits.

"It won't be the financial crisis so much in itself," as much as the impact on sales once consumers start adjusting their wallets to their own new economic situations, he said.

On Thursday, the world's largest cellphone maker Nokia Corp. posted a sharp drop in its third-quarter net profits and said its market share had shrunk to 38 per cent from 39 per cent in the same period in 2007 and from 40 per cent in the previous quarter.

The market share decrease was mainly due to weaker sales as rivals keep on cutting their prices, it said.

Ervasti said he believed Sony Ericsson counts among one of those price cutters.