[July 18, 2008]

Sony Ericsson profit tumbles, plans to cut 2K jobs

(AP Online Via Acquire Media NewsEdge) STOCKHOLM, Sweden_Mobile phone maker Sony Ericsson on Friday posted a 97 percent drop in second-quarter earnings and said it would slash 2,000 jobs worldwide in a move to cut costs.

The LM Ericsson and Sony Corp. joint venture blamed the earnings decline on tougher market conditions, higher development costs and negative effects from exchange rate fluctuations.

Company spokeswoman Lisa Canning in London said the company would cut 2,000 jobs "within the next 12 months" as part of an effort to reduce operational costs by 300 million euros ($470 million) per year.

In a statement, Sony Ericsson President Hideki Komiyama said his company estimates restructuring charges to "be of the same magnitude as our reduction in operating expenses."

Net profit in the quarter fell to 6 million euros ($9.5 million), down sharply from 220 million euros in the same period a year ago.

Sales were down about 9 percent to 2.8 billion ($4.4 million), from 3.1 million euros in the second quarter in 2007.

The company had warned already last month that it expected to just break even before taxes in the quarter because of tougher competition and a continued slowing market growth in its mid- to high-end phones.

It was the second profit warning this year from Sony Ericsson, which usually ranks fourth or fifth among the world's biggest mobile phone makers.

"Challenging market conditions are expected to prevail for Sony Ericsson for at least the rest of 2008," the company said, "in particular for the third quarter."

Sony Ericsson's results were in stark contrast to the better-than-expected earnings report by market leader Nokia Corp. on Thursday. Nokia, which makes four of 10 handsets sold worldwide, said it expected the global market for cell phones to grow by 10 percent or more in 2008, upgrading an earlier estimate.

Sony Ericsson forecast the global market to grow at around 10 percent but with a continued decline in average selling prices.

The average selling price for Sony Ericsson handsets fell in the second quarter to 116 euros ($185), from 125 euros, because of a wider range of cheaper phones in its product portfolio and price competition on more expensive phones.

The company said its gross margin dropped to 23.1 percent, from 29.6 percent in the second quarter of 2007, while research and development costs jumped by 22 percent to 344 million euros ($545 million).

Shipped units reached 24.4 million in the quarter, Sony Ericsson said.

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