Friday, July 18, 2008

Sony Ericsson - 2,000 jobs lost

Sony Ericsson cuts 2,000 jobs as earnings plummet

Mobile phone maker Sony Ericsson announced Friday it was cutting 2,000 jobs worldwide after reporting an operating loss in the second quarter due to difficult market conditions and the global economic slowdown.

"We're going to cut 2,000 jobs within a year all over the world, out of 12,000 employees," spokeswoman Susanne Andersson told AFP.

Sony Ericsson posted an operating loss of two million euros (3.1 million dollars) in the second quarter, compared to a profit of 315 million euros in the same period of last year.

Net profit plunged by 97 percent to six million euros from 220 million a year earlier, while sales fell by 9.4 percent to 2.82 billion euros.

In a statement presenting its second quarter earnings, the group announced a restructuring programme aimed at cutting operating costs.

"Our target is to achieve a reduction in operating expenses of 300 million euros annually, with the full effect expected to appear within a year," Sony Ericsson chief executive Dick Komiyama said.

"The measures we are taking are aimed at becoming a faster, more agile and more cost efficient organisation that can continue to create innovative products that excite consumers," he said.

The group has for the past year been trying to develop its business on fast-growing emerging markets in order to reduce dependence on its traditional, near-saturation European outlets.

As a result it has sold more low-end phones, where prices are lower and the competition is tougher than in the high-end segment, the company said.

But Sony Ericsson has been hit by a double whammy: it is suffering from the economic slowdown in Europe, and at the same time it lacks the products and volumes necessary to make a splash in emerging markets such as China and India.

"The market in general is much, much worse than one or two years ago. And secondly the products Sony Ericsson has today are not as strong as they used to be," analyst Greger Johansson at Redeye told AFP.

"Sony Ericsson is not big enough in Western Europe and in the mid- to high-end segment. So we are seeing a slowdown in Western Europe and in this higher market," Michael Andersson, analyst at Evli Bank, said.

"That creates a problem right away because Sony Ericsson doesn't have (a strong enough) low-end or the global offering," he added.

Andersson said Finnish rival Nokia went through a similar phase several years ago, when sales of its high-end phones began to flag in Western Europe.

But it was able to compensate for the fall by strong sales in emerging markets, which made it possible to maintain strong margins.

With its late entry on emerging markets Sony Ericsson has been forced to reduce its average selling price for handsets, which fell to 116 euros from 125 euros in the second quarter last year, weighing down profits.

"It's a big problem for them because they are very dependent on the Western European market and Nokia is very dominant on the emerging markets," Andersson said.

The analysts said they saw Sony Ericsson's restructuring plan as "necessary."

At the end of June, Sony Ericsson had eight percent of the mobile phone market, compared to Nokia's 40 percent.

Sony Ericsson, which is not quoted on the stock market, was formed in 2001 through the merger of Ericsson of Sweden, world leader in mobile phone networks, and Japanese electronics giant Sony.

On the Stockholm stock exchange exchange, the Ericsson share closed up 3.58 percent at 72.30 kronor in late afternoon trading, in an overall market up by 2.64 percent.

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