Mobile handset maker Sony Ericsson Thursday surprised the market with a €207 million ($266.3 million) loss due to increased competition and headwinds in Europe in the three months to Dec. 31.
The loss came in the company's last quarter as a joint venture before electronics giant Sony Corp takes full ownership. It compares with a €8 million profit in the same quarter last year and against market expectations for a €31 million profit. Sales came in at €1.29 billion, down from €1.53 billion in the same period of the previous year.
"Our fourth-quarter results reflected intense competition, unfavorable macroeconomic conditions and the effects of a natural disaster in Thailand this quarter," Chief Executive Bert Nordberg said in a statement.
The company faced restructuring charges for the fourth quarter of €93 million, due to a restructuring program initiated in December that included work force reductions. The dismal economic landscape in Europe also took a toll, with sales in the Europe, Middle East and Africa region down 28% year-to-year to €517 million, as consumer sentiment slumped.
Outgoing joint venture partner Ericsson said the large quarterly loss will strike 1.1 billion Swedish krona ($160.7 million) from its fourth-quarter operating income. Sony said it will take a ¥33 billion ($429.5 million) special loss on its holding.
Sony Ericsson is the first major handset maker reporting fourth-quarter earnings but some of its larger rivals provided updated earnings guidance earlier this month. Samsung Electronics said it is expecting record-high quarterly earnings in the fourth quarter, boosted by brisk smartphone sales, while HTC and Motorola Mobility Holdings warned they will be reporting weaker-than-expected sales due to heightened competition on the market
Sony Ericsson shipped 9 million handsets during the quarter, down 20% year-to-year and 5% lower than the previous quarter. "The year-on-year and sequential declines reflect a significantly lower number of feature phones shipped, partially offset by an increase in smartphone shipments," the company said.
The company has previously said that it intends to stop selling cheaper, lower performance feature phones by mid-2012. The increased share of high-margin smartphones in Sony Ericsson's sales mix raised the average price of the handsets it sold to €143 in the fourth quarter, from €136 in the same quarter last year.
Alandsbanken analyst Lars Soderfjell expressed strong disappointment at the results. "One would have hoped for a better finale than this," he said. "One wonders how it could get this bad? It seems a case of 'my dog ate my homework'."
However, shares in telecom network equipment maker Ericsson were up after the result, recently trading 1.9% higher at 68.25 krona, with markets viewing the result of a joint venture that will soon be wound up as unimportant.
"[The quarterly result] makes me even more convinced that the deal to sell Sony Ericsson was a very compelling for Ericsson," Cheuvreux analyst Odon de Laporte said.
Last year was a tough one for Sony Ericsson. It was hard hit by its exposure to Japanese component suppliers who were forced to halt production after the earthquake and tsunami that struck Japan in March. Additionally, the company has continued to lose market share under intense competition from Apple's popular iPhone and high-performance Android smart phones from the likes of Samsung and HTC.
The unlisted Swedish-Japanese joint-venture is due to be taken over by Sony next month, ending an 11-year tie-up with Ericsson. Sony's €1.05 billion buyout, announced in October, will give the Japanese firm valuable mobile assets to integrate with its array of consumer electronics devices such as laptops and tablets, and with its music and video content.
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