Sony Ericsson joins Nokia en route to the bottom

When Nokia announced a 90% dip in profit yesterday, the company and investment community celebrated the fact that it wasn’t any worse. But when Sony Ericsson today announced a 36% drop in sales for the first quarter of 2009, the optimism wasn’t as widespread. The company reported staggering losses, and while the bottom is in sight, it hasn’t hit it yet.

Compared to Nokia’s 93.2 million devices shipped in Q1, Sony Ericsson shipped only 14.5 million, down 35% year-over-year and 40% from the previous quarter. Sony Ericsson’s resulting market share fell 2% to only 6% of the global market. The handset maker said it would cut another 2,000 jobs to control costs after posting a net loss of 293 million Euros ($383 million) in Q1, compared to last year’s profit of 133 million Euros.

“It’s been a difficult quarter for the company, and we expect it to continue throughout 2009,” said president Dick Komiyama on today’s conference call, adding that Sony Ericsson is focused on turning things around as quickly as possible. “We are repositioning our organization to deal with the new challenges and our restructuring is on time…We are confident we have the right products in the roadmap to wow consumers again.”

Like Nokia, Sony Ericsson is forecasting that the global handset market will contract by 10% this year, and Komiyama said the company, which will focus on higher-end devices for 2009, will not make a profit in 2009. Nokia managed its cost more effectively, whereas Sony Ericsson lost 184 million Euros of operating profit, Juniper Research analyst Andy Kitson pointed out. Both companies were also hurt by not keeping up with the touch-screen trend in the past year. Komiyama said Sony Ericsson, which announced support for Android last year, would also take more time before it introduced its first Android-based mobile device as promised.

“Seemingly, customers are still unimpressed by Sony Ericsson’s continued reliance on mid-range products focused on particular functions (e.g. the camera-centric CyberShot line and the music-centric Walkman range) and are forsaking the vendor in favor of more exciting touch screen and multimedia-capable devices from other vendors,” Kitson wrote in his blog.

This quarter was bound to be a trying one for the mobile handset makers, but the good news is that they could be approaching rock bottom. That might not sound like optimism, but when you’re at the bottom, there is only one way to go – up. Considering that Nokia has historically been more resilient than its peers due to its global presence and compelling lower-tier devices, it and Sony Ericsson’s Q1 earnings should set the stage for the rest of the industry. It’s a safe bet that LG, Samsung and (less-so) Motorola will also be singing the ‘hurting, but hopeful’ tune when they report their earnings over the next two weeks.

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