Sony Ericsson Results Disappoint Ahead of New Products

Sony Ericsson's sales dropped in the final quarter of 2010 due to tough competition in the smartphone segment and a lack of new products.

Sales for the fourth quarter were €1.5 billion (US$2.0 billion), a decrease of 13 percent year-on-year. Net income was €8 million, compared to a €167 million loss in the fourth quarter of 2009. During 2010 Sony Ericsson completed a company-wide reorganization, which included reducing its workforce by approximately 4,000 people.

Sony Ericsson shipped 11.2 million phones during the fourth quarter, an increase of 8 percent over the third quarter. Growth was "somewhat constrained by a lack of new product launches during the quarter," Sony Ericsson said in statement.

In another worrisome trend, the average selling price (ASP) of phones in the quarter continued to drop compared to the previous two quarters, and ended up at €136, after topping out at €160 during the second quarter.

The drop in ASP isn't all that surprising, and is down to two factors: the breadth of the competition -- there is a huge number of devices in the market for consumers to choose from -- and the fact that Sony Ericsson didn't get a boost from new products, according to Geoff Blaber, analyst at CCS Insight.

Carolina Milanesi, research vice president at Gartner, agrees that the decline in ASP is symptomatic of the fact that the company had a refresh of its product portfolio. As a result, Sony Ericsson was forced to compete with more aggressive pricing, she said.

The company needs a range of new products. It announced the Xperia Arc at CES, a phone that is seen as a step forward compared to the existing Xperia X10, in part because it comes with Android 2.3. The Xperia X10 was criticized by many reviewers because it came with an old version of Android at launch. Even if it is a step forward, when the Arc ships, Sony Ericsson will likely have to compete with phones that have far better specifications, Blaber said.

For example, the Arc lacks a dual-core processor, which is expected to be one of the major hardware trends in 2011. Sony Ericsson is planning to launch dual-core smartphones, but isn't detailing when that will happen.

More smartphones will be announced at Mobile World Congress. The company will hold a press conference on Feb. 13. Rumored devices before the show include successors to the Xperia X10 mini and mini pro; an Android-based successor to the Vivaz, which now uses Symbian, and last but not least the PlayStation smartphone.

Blaber expects to see all of the above. During a conference call Sony Ericsson's chief creation officer Rikko Sakaguchi said it plans to reinforce the mini line. Sony Ericsson is keeping mum on other details. But the company is planning to a launch a larger number of Android-based smartphones in 2011 than the four products it shipped during 2010. The competition in the smartphone sector will force vendors to launch more products at shorter intervals, it said.

Sony Ericsson was also asked about the possible launch of a tablet. The company's thinking is not to bring out yet another tablet, but it will be working on "a unique and exiting proposition," Sakaguchi said without providing any details.

It remains to be seen if future tablets would be released using the Sony Ericsson or Sony brand, but the company will need a product in that space, according to Milanesi. But, for now, Sony Ericsson should focus on its core competency, and make sure that the smartphone product line is up to speed with its competitors, she said.

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