Sony Ericsson Axes Feature Phones, Plans to Shift to Smartphones in 2012

Sony Ericsson Wants to Shift to Smartphones Starting Next Year

by Anton Shilov
10/14/2011 | 10:33 AM

Sony Ericsson may not be the most successful mobile phone vendor these days, but the company will become the first traditional handset company who will shift its product portfolio completely to smartphones starting from 2012. The company particularly pins a lot of hopes onto Google Android operating system that currently powers devices that account for 80% of SE's sales.


“We delivered a solid €73 million improvement in income before taxes as we rebounded from the previous quarter with a 33% increase in sales. Android-based Xperia smartphone sales now account for more than 80% of sales and we have shipped 22 million Xperia smartphones to date.  We will continue to invest in the smartphone market, shifting the entire portfolio to smartphones during 2012,”  said Bert Nordberg, president and chief executive officer of Sony Ericsson.

Sony Ericsson estimates that its share of the global Android-based smartphone market during the quarter was approximately 12% in volume and 11% in value.

The joint-venture between Sony and Ericsson will be the first major traditional maker of phones in the world to do the inevitable: phase-out low-end feature phones and shift customers to more advanced smartphones. Thanks to the fact that the company’s sales are already dominated by rather expensive smartphones, the transition should proceed smoothly.

It is pretty clear that in the mid-term future many companies – including Sony Ericsson – will be unable to compete against China-based ZTE and other makers on the emerging markets with cheap handsets. Therefore, the trend towards smartphone shift is evident, but it remains to be seen when other manufacturers of handsets, such as Nokia Corp. and Samsung Electronics, transit to advanced mobile phones.

Sony Ericsson shipped 9.5 million handsets during the quarter, a 9% decrease year-on-year due to a decline in feature phone shipments, partially offset by an increase in smartphone shipments. The 25% quarter-on-quarter increase was due to the higher volume of smartphones shipped. Average selling price (ASP) for the quarter was €166 ($230), up 8% year-on-year and 6% sequentially. The year-on-year increase was due to the shift to smartphones and geographic mix despite a negative effect from foreign exchange rates. The sequential increase was due to product and geographic mix.

Sales for the quarter were approximately €1.6 billion ($2.219 billion) and essentially flat year-on-year. The gross margin percentage for the quarter was 27%, a decrease of 3% year-on-year and 4% points from the previous quarter.  The year-on-year decrease in margin is attributed to product and geographic mix.  The sequential decrease in margin was due to inventory-related adjustments and product and geographic mix. 

Income before taxes for the quarter was €31 million ($43 million), compared to income before taxes of €62 million ($86.02) for the same quarter in the previous year.  Loss before taxes for the previous quarter was €42 million ($58.275 million). The sequential improvement was reflective of higher sales and lower operating expenses, while the year-on-year decline was due to lower gross margin percentage offset by lower operating expenses.