Sony Ericsson trumpets return to profit (restructuring charges aside)

The Xperia X10, one of Sony Ericsson's 2010 Android flagships

The Xperia X10, one of Sony Ericsson's new flagships, began shipping during Q1Japanese-Swedish handset joint venture Sony Ericsson trumpeted a return to profit Friday morning as it reported its first quarter 2010 results. The firm said that net profit for the quarter was €21m, but noted that restructuring costs were not taken into account.

The firm’s numbers tell the story of its recent strategic overhaul. A profit of €21m compares to a loss of €167m for the fourth quarter of 2009 and a loss of €293m from the first quarter of last year. Sales and shipments are down, however. Gross income for the first quarter this year was €1.4bn compared to €1.7bn for Q109 while unit shipments dropped year on year from 14.5 million to 10.5 million.

Sony Ericsson has realigned its portfolio to focus on higher end products that, naturally, shift in smaller volumes. Its Q110 numbers indicate that the strategy may be paying off, with gross margin up to 31 per cent from eight per cent in the same quarter last year and average selling price up to €134 from €120 a year ago. The vendor also made reference to benefits it derived from the resolution of “certain royalty matters” during the quarter. A Sony Ericsson spokesman was unable to elaborate on this on Friday morning, deferring to a conference call planned for 1300GMT.

David McQueen, principal analyst at Informa Telecoms & Media pointed out that Sony Ericsson had suffered in the mid-tier sector during the economic downturn and also made an ill-advised bid to establish itself at the lower end through a partnership with French vendor Sagem. Concentration on the higher end products – where Sony Ericsson originally pitched its products when the firm was created – looks like it’s paying off, he said.

“It’s important to note that Sony Ericsson is now getting to grips with its OS strategy,” McQueen added. “For a while, as its competitors were consolidating their OS portfolios, Sony Ericsson was spreading its efforts. Concentrating on Android looks like a good move,” he said.

But Sony Ericsson has also benefited from a cost cutting programme inspired by parent company Ericsson. The programme was initiated in 2008, with the aim of cutting annual opex by €880m. So far the firm has slashed 3,150 jobs and the restructuring charges currently sit at €342m.

“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,” said Sony Ericsson president Bert Nordberg, citing the Android-based Xperia X10 and the Symbian-based Vivaz, both of which began shipping towards the end of Q1. “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.”

One comment

  1. Avatar jeremiah 19/04/2010 @ 6:16 pm

    They have slashed jobs in Europe but created new ones in China and India. In my opinion they have lost their technological spirit. They are only interested in short term profits. They won’t survive very long.

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