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Sony Ericsson feels margins pinch

Net profit slips

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Sony Ericsson has started to feel the margins pinch from its shift to lower-priced handsets, although it is still managing to keep a more successful balance than most of its rivals. Strong demand for its phones were the highlight of mixed third quarter results at Samsung, which remains hobbled by weakness in the semiconductor division.

Samsung said it earned 2.19 trillion won, or $2.38bn, in the quarter, up from a revised net profit of 2.17 trillion won a year earlier. Revenue was 16.7 trillion won, up 10 per cent from a year earlier, but future results may be hit by continuing oversupply in its memory chip sector. The performance was better than analysts' expectations of a slight decline in net profit.

The operating margin in the cellphone division improved to 11.6 per cent from 11 per cent a year ago, a critical gain at a time when phonemakers are fighting for margins in an increasingly price competitive midrange and low end market.

Meanwhile, Sony Ericsson earned $380m in its third quarter, reflecting the first results of its recent push into low and mid-tier devices. The manufacturer shipped 25.9 million units, up by one million from the previous quarter and by six million on a year earlier, giving the joint venture nine per cent of the global cellphone market, a valuable boost of one per cent. However, the impact on margins was clear, and the company saw profits decline by 11 per cent year-on-year. Its average selling price per device has steadily fallen from $209 a year ago to $171 at the quarter's close, although this remains well above the industry average.

Analysts were disappointed with the revenue and profit figures, especially coming after a string of stellar quarters from the fourth largest handset maker. But Sony Ericsson remains a strong performer, provided its bid to usurp the positions of Motorola and Samsung in volume does not precipitate too sudden a change in its margins structure - a factor that has hit Moto badly.

Also in handsets, Sanyo is now in final negotiations to sell its mobile phone operations to Kyocera for an as-yet undisclosed sum, under pressure from Goldman Sachs, which last year led a $2.6bn rescue of Sanyo.

Copyright © 2007, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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