Sony Ericsson to cut 2,000 jobs after losses

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 its margins eroded, sales in free-fall and a lack of new products in strategic sectors, Sony Ericsson 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% drop in its first-quarter net profit and a more than 25% 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 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.

While company president Dick Komiyama blamed the poor quarter on "continued weak global demand," analysts said the group's problem was its decision to target the low-end market.

The move was "not a good idea at all," Evli bank telecoms analyst Michael Andersson told AFP, explaining that it was hard to make money in that segment without huge volumes.

"The strategy launched two years ago was a wrong strategy and the team should go back to the original strategy focused more on the mid- and high-end segment," Greger Johansson, an analyst at Redeye, echoed.

Andersson agreed.

"They should focus more on their strong suit: multimedia, music, pictures and so on," he said.

"And if they go to China and India, they should just be in the high part of the market and not go to the mass market," he added.

The fourth-biggest handset maker behind Nokia, Samsung and LG Electronics, Sony Ericsson said its first quarter sales plunged by 35.7% to €1.73 billion.

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 euros in the first quarter.

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

The company, which said it had a six percent market share in the quarter, expected its new cost saving programme to yield annual savings of €400 million and be completed by mid-2010.

"The additional restructuring programme is of course not positive but not that surprising either," Andersson said.

The Ericsson share was up by 4.35% in late afternoon trades in Stockholm, as investors were buoyed by the joint venture's strong cash position of €1.1 billion, Andersson said.

Source: AFP

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