Earnings Report: Sony Ericsson feels the pain

Noah Kravitz
 from Oakland, CA
Published: April 22, 2008

Sony Ericsson's Q1 earnings report must have felt like a shot to the midsection of company investors worldwide.  SE's profits dropped some 47 percent as compared to -- and sales were off 8% as compared to the same quarter one year ago and a whopping 29% or so from Q4 '07 (which, of course, is the busy holiday shopping season).

SE blames the massive drop in profits on high R&D costs as well as the declining average cost of handsets.  According to SE data, the average handset sold for 134 euros a year ago, but only rings up 121 euros today.  SE's marketshare is holding at around 8 percent, which is about the same as it was one year ago.

I'm no economist, but I blame two SE trends for their possibly mounting financial woes - relative to the fact that a slowing global economy impacts the entire industry, of course:

First, SE has gained a reputation amongst handset enthusiasts for huge delays between the time a new phone is announced and its actual ship date.  Higher end handsets are also gaining a bad rap for being launched with all sorts of bugs plaguing their firmware.  Last year's flagship SE cameraphone, the K850i, is a prime example of both negative trends. 

Second, SE's product line has grown oddly confusing.  This probably isn't so apparent to most US customers since very few SE handsets are carried by American operators right now (T-Mobile should be getting back on the SE bandwagon by late 2008).  But in the global marketplace, SE's got something of an oddball lineup right now, with a lot of phones that look very similar, have similar specs, and are differentiated by minutiae lost on the average customer.

The Xperia X1 generated a ton of buzz at MWC and CTIA earlier this year, and is the kind of premium device that could do a lot to get SE back in the handset game.  Along with the w760 3G Walkman phone, SE is looking at the X1 to mark a renewed push in the North American market, which is really just now starting to come of age in terms of consumer knowledge and desire for higher end phones.  But the w760 was launched at CES in January and no US carrier plans have been announced yet, and mum's still the word on when the X1 will actually hit the streets, as well. 

Granted, it's standard practice for handsets to be launched months before they ship, but given the recent "on again, off again" debacle surrounding the K850 coming to AT&T, SE really needs to move things into high gear if they want to maintain (regain?) their status amongst the leading makers of mobile phones.  For my money SE makes the most user-friendly handsets this side of iPhone, but the game has changed in the past year or two and mid-range phones with pretty menus aren't going to cut it much longer. 

Want to turn those sales and profit numbers around, Sony Ericsson?  Let's see those long-awaited high end devices!  Phone geeks want 'em, consumers are ready for 'em, and accountants and investors love their high profit margins (just ask Apple).  Enough with the music playing, 2MP photo taking mid-range candybars.  Where's the touchscreen-based multimedia maven?  Where's the UIQ smartphone for the masses?  Where's the new Cyber-Shot flagship with US-spec 3G and WiFI?

Come on, SE ... we're all rooting for you.  Just step up and do it - give the people what they want.  And soon!