Sony Ericsson’s return to a full-year profit in 2010 has been overshadowed by disappointing fourth-quarter results and a poor outlook for the start of 2011.
The mobile phone maker admitted on Thursday that its fourth-quarter results had fallen short of expectations because it had to cut the price of its rapidly ageing range of devices.
The results underlined the challenges confronting the joint venture between Japan’s Sony and Sweden’s Ericsson, as it strives to compete with rivals led by Apple, Research in Motion and HTC.
Bert Nordberg, Sony Ericsson’s chief executive, said the company was facing
a “weak” first quarter because its new products were only due to go on sale in March.
Sony Ericsson reported net income of €90m ($121m) for 2010 on the back of its decision to focus on making smartphones using Google’s Android mobile operating system, together with aggressive cost cutting. It recorded losses of €836m in 2009 and €73m in 2008.
Mr Nordberg hailed 2010 as Sony Ericsson’s “turnround year”. It ran into problems in 2008, as consumers bought fewer handsets during the economic downturn, but Sony Ericsson’s difficulties were also rooted in its failure to make smartphones.
Sony Ericsson reported sales of €1.5bn for the three months to December 31, down 13 per cent compared with the same time in 2009. Net income was €8m for the fourth quarter, compared with a loss of €167m in the last three months of 2009.
The average selling price of Sony Ericsson’s devices fell from €154 in the third quarter of 2010 to €136 in the last three months of the year.
The company felt obliged to cut the prices of its products in order to buttress sales.
Sony Ericsson is one of several handset makers using Android as its smartphone operating system, and Mr Nordberg described the market as “super-competitive”. He said Sony Ericsson had overestimated the length of time it could release a product to the market before it was then obliged to cut the price on the grounds of it ageing.
The company had thought the price cut would happen after nine to 11 months, but it had turned out to be necessary after six to seven months.
Mr Nordberg highlighted the challenges of keeping pace with overhauls of Android – given that Google issued several software updates for the operating system last year – as well as rapidly evolving consumer tastes.
Stuart Jeffrey, analyst at Nomura, said Sony Ericsson had to start growing its revenue in order to sustain research and development and long-term profitability.