March 19 (Bloomberg) -- Sony Ericsson Mobile Communications Ltd., the smallest of the world's four main mobile-phone makers, said first-quarter earnings and revenue will fall on slower handset sales, higher research costs and a component shortage.
Pretax profit will drop to 150 million euros ($235 million) to 200 million euros, the London-based company said in a statement today. That compares with 362 million euros a year earlier. Sales will drop from the first quarter of last year, when revenue was 2.93 billion euros, said the venture between Japan's Sony Corp. and Stockholm-based Ericsson AB.
Ericsson lost as much as 12 percent in Stockholm, the most since Oct. 16. The comments add to concern the handset market may cool this year. Texas Instruments Inc., the second-biggest maker of chips for mobile phones, said on March 10 demand for chips in advanced phones was lower than anticipated. Nokia Oyj, the world's biggest handset maker, and researcher Strategy Analytics have also forecast growth will slow this year.
``This reflects the high-end that has been the sweet spot for Sony Ericsson,'' said Nicolas von Stackelberg, an analyst at Sal. Oppenheim Jr. & Cie in Frankfurt who rates Ericsson and Nokia shares ``neutral.'' ``The question is what will happen to consumer demand?''
Ericsson lost 1.3 krona, or 11.3 percent, to 10.18 kronor as of 12:27 p.m. in Stockholm. Sony shares had closed before the announcement, rising 6.8 percent in Tokyo trading. Nokia fell as much as 6.6 percent to 19.11 euros in Helsinki trading.
Widening Range
Sony Ericsson, the world's fourth-largest mobile-phone maker, has sought to expand its range of cheaper phones and increase its presence in new markets to cut dependency on more expensive models sold in Europe. The company still aims to become the third-largest handset maker by 2011, it said today, a title now held by Motorola Inc. New handsets will support earnings in the second half, it said.
The company said first-quarter shipments will be about 22 million units, compared with 21.8 million a year earlier and down from 30.8 million units in the fourth quarter. The average selling price of a Sony Ericsson phone will be about 120 euros, down from 134 euros a year earlier and 123 euros last quarter.
``The market is proving to be challenging,'' President Dick Komiyama said in the release. ``This has been more pronounced in the mid-to-high end replacement sector of the market in Europe, where Sony Ericsson has stronger than average market share.''
Component shortages will mainly hurt sales of mid-priced models, Sony Ericsson said. Its gross margin, or sales minus the cost of goods sold, will be little changed from a year earlier.
Effect on Ericsson
``It's no surprise that the expensive high-end phones are not selling,'' said Niklas Lund, a fund manager at Alandsbanken Asset Management in Helsinki, which oversees about $1 billion in assets. ``Market leaders like Nokia usually secure their supply of components, so others are forced to buy whatever is left.''
Ericsson said in a separate statement that Sony Ericsson's shortfall will cut earnings at its multimedia division by 200 million kronor ($33 million) to 300 million kronor. Ericsson gets about a quarter of its operating profit from Sony Ericsson. The Swedish company last year slashed its earnings targets twice, and has forecast ``flattish'' demand for this year.
``With network profitability under pressure, Sony Ericsson's importance for Ericsson's profit development has increased,'' said Evli Bank analysts Anders Berg and Michael Anderson in a note to clients today. ``It remains to be seen weather this is a temporary spending blip.''
`Aggressive' Nokia
Nokia, which also experienced component shortages in its fourth quarter, predicted in January the global handset market's growth will be about 10 percent this year, down from about 16 percent in 2007. The Espoo, Finland-based company raised its market share to 40 percent for the first time in the fourth quarter. It hasn't given a specific first-quarter outlook.
``This might in the end be a competitive positive for Nokia,'' Merrill Lynch analyst Andrew Griffin wrote in a note to clients today. He said Nokia has been ``aggressively attacking'' Sony Ericsson with phones that play music.
Strategy Analytics said in January global expansion would be about 10 percent this year as saturated Western markets will be sluggish because of ``weak'' economic growth. Sony Ericsson was formed in October 2001 after both Sony and Ericsson struggled to compete with Nokia and Motorola on their own. Komiyama took over from Miles Flint in November.
Sony Ericsson is scheduled to report detailed first-quarter earnings on April 23 followed by Ericsson two days later. Nokia plans to disclose earnings on April 17.
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