Sony Ericsson warning hits Ericsson shares

Sony Ericsson, the Swedish-Japanese mobile phone maker, warned on Wednesday that its profits would be lower for the first quarter as sales growth slowed.

“Moderating sales growth of mobile phone units is expected to negatively impact net sales and net income before tax for the first quarter of 2008,” the joint venture between Japanese electronics giant Sony and Ericsson of Sweden, said in a statement.

The company said it expected to report a pre-tax profit of €150-200 million ($235-310 million) for the first quarter “due to increased research and development expenses as a percentage of sales.”

Analyst estimates were for pre-tax profits of €305-409 million before the statement.

On the Stockholm stock market, Ericsson B shares plunged in midday trading by 10.03 percent to 10.31 kroner ($1.72), in an overall market down by 1.15 percent. The Sony Ericsson group is not listed on the stock exchange.

Sony Ericsson said higher research and development costs were “in line with the company’s strategy to meet future growth ambitions” and that it expected gross margins to remain “relatively stable” for the first quarter of 2008 compared to the same period a year earlier.

It said it expected to ship some 22 million mobile phones during the first quarter at an average selling price of €120.

In the first quarter of 2007, the group shipped 21.8 million phones, according to Thomson Financial News.

Sony Ericsson said sales were affected by slowing market growth in mid- to high-end phones in markets where Sony Ericsson has a strong presence, such as Europe.

“In addition, certain component shortages for popular mid-priced phones have contributed to modest unit sales growth in the first quarter,” it said.

The group’s president, Dick Komiyama, said Sony Ericsson has for the last year been “focused on expanding the breadth of its portfolio and developing its presence in new markets to lessen its historic reliance on the European high-end sector for growth.

“This strategy will continue, and our objective remains to become a top three player globally by 2011,” he said.

As part of this strategy, the group this year launched 15 new phones and introduced a new platform to its portfolio, Windows Mobile.

“We expect to start seeing a positive effect from these announcements during the second half of 2008,” Komiyama said.