Sony Ericsson losses prompt job cuts

Sony Ericsson losses prompt job cuts
Mobile phone maker Sony Ericsson announced plans on Friday to slash 2,000 more jobs after posting a loss of €293 million ($384 million) in the first quarter of 2009.

The group, which reported losses in the third and fourth quarters of last year, had warned in March that its first-quarter figures would be weak because of recessions in major economies that have hit demand for its handsets.

With sales in the fourth quarter down by a third, it vowed to deepen job cuts announced last year in a bid to reduce costs and return to profitability.

“The additional cost saving programme announced today will include a further reduction in the global workforce of approximately 2,000 people,” the company said in a statement.

Sony Ericsson had announced a cost-cutting programme in July 2008 that included 2,000 job cuts by the end of the first half of 2009 which was expected to bring its work force to around 10,000.

The global economic slowdown has cut demand for consumer electronics and established handset makers such as Sony Ericsson and market leader Nokia must also contend with the runaway success of Apple’s iPhone, which dominates the high-end segment of the market.

Nokia reported a 90 percent drop in its first-quarter net profit and a more than 25 percent decline in sales on Thursday.

Sony Ericsson, created in 2001 in a merger between Ericsson of Sweden and Sony of Japan, has been trying to focus its business on fast-growing emerging markets in order to reduce dependence on the nearly saturated European zone.

As a result it has entered the low-end market where prices are lower and the competition is tougher, analysts say, but it has lacked the products to make a splash in emerging markets such as China and India.

“As expected, the first quarter of this year has been extremely challenging for Sony Ericsson due to continued weak global demand,” company president Dick Komiyama said in a statement.

“We are aligning our business to the new market reality with the aim of bringing the company back to profitability as quickly as possible,” he said.

In the first quarter, Sony Ericsson’s sales plunged by 35.7 percent to €1.73 billion from €2.7 billion a year earlier.

It sold 14.5 million mobile phones during the period, at an average price of €120, compared to 22.3 million for an average €121 a year ago.

By comparison, Nokia, which dominates the low-end sector, said its average selling price was €65 in the first quarter.

Sony Ericsson’s operating margin plummeted from 7.0 percent in the first quarter a year ago to minus 21 percent.

The weak results were expected.

Sony Ericsson had issued a profit warning on March 20, saying it expected to report a pre-tax loss somewhere between €340 million and €390 million. The loss amounted to €370 million, it said on Wednesday.

The company said its new cost-saving programme is expected to yield annual savings of €400 million and be completed by mid-2010.

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