Sony Ericsson takes a turn for the worse

Sony Ericsson said today that it expects to ship only 14 million mobile devices in the first quarter of 2009, marking a year-over-year decline of 36% and a more than 40% quarter-on-quarter fall. Blaming weak consumer demand and de-stocking in the retail and distribution channels, the number four handset maker said its gross margin will decline both YoY and from the previous quarter.

Device average selling prices will remain stable around 120 Euros (about $160), which is not necessarily good news for the OEM, according to Juniper Research analyst Andy Kitson. The high price tag means it’s the higher-end devices that are proving most popular with consumers, a sentiment echoed by the other handset OEMs. Sony Ericsson, which specializes in mid-range consumer products such as camera phones and music-centric handsets, hasn’t kept up in this category to date.

“It is the mid-range market segment that is being hit hardest as consumers switch either to low-cost budget phones with basic features or high-cost high-end units with more features on the premise that they’re getting better value for money,” Kitson wrote on the Juniper blog.

“Meanwhile, Sony Ericsson thinks its net loss could balloon to as much as EUR390, which would be a massive disincentive for the cash-strapped Sony to buy out its partner, as is currently being rumored,” Kitson added. The company hasn’t commented on the speculation, but here have even been rumors circulating that Sony would buy out Ericsson of its 50% stake in the joint venture, which melded Sony’s consumer electronics experience with Ericsson’s mobile business.

Reuters, which reported Sony Ericsson’s handset news as “stunning the mobile sector,” said the projection, alongside slumping sales from Palm, set shares across the wireless industry in motion, including for chipmakers. Sony Ericsson trails both LG and Samsung in the mobile handset rankings, both of which saw record quarters for their handset sales in Q4 of last year.

Sony Ericsson will announce its Q1 results on April 17, and it looks like it will only be more of the same. All players in the wireless industry are clearly feeling the effects of the economic recession, but Sony Ericsson’s news is more telling for the handset OEM than the industry as a whole. Sony Ericsson needs to make some quick changes and realize what its fellow handset makers already have – that smartphones, not feature-specific phones, may be the better path to recovery.

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