Sony Ericsson posts surprising Q2 loss, blames Japanese earthquake

Many analysts and market watchers were expecting a strong Q2 earnings report from Sony Ericsson today, but the company took them by surprise, posting a net loss of some €50 million (about $70.5 million), compared with a net gain of €12 million (around $17 million) at the same time last year. The manufacturer also sold only 7.6 million phones during the quarter, marking a 31 percent year-on-year decrease, while overall revenue fell from €1.76 billion (about $2.5 billion) last year to €1.19 billion (almost $1.7 billion) during Q2 2011. CEO Bert Nordberg attributed much of the decline to the Japanese earthquake, which disrupted the venture's supply chain, resulting in the loss of around 1.5 million devices. The report comes after Sony Ericsson launched a widespread cost-cutting campaign and re-focused its efforts on smartphone production, which comprised more than 70 percent of all sales during Q2, compared with just 40 percent at the end of last year. For a more thorough breakdown, head past the break for the full press release.

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Sony Ericsson reports second quarter 2011 results

STOCKHOLM, Sweden, Jul 15, 2011 (Thomson Reuters ONE via COMTEX) -- Highlights:

- Supply chain constraints from the Japan earthquake significantly impact Q2 results

- Smartphones account for more than 70 percent of total sales

- Android-based Xperia(TM) volume up 150 percent year-on-year

The consolidated financial summary for Sony Ericsson Mobile Communications AB (Sony Ericsson) for the second quarter ended June 30, 2011 is as follows:

Bert Nordberg, President and CEO of Sony Ericsson commented, "Sony Ericsson's second quarter profitability was affected by the March 11 earthquake in Japan. We estimate that the impact of earthquake-related supply chain constraints on our portfolio was close to 1.5 million units, with most of the effect in the early part of the quarter. Our shift to Android-based smartphones continues with smartphone sales accounting for more than 70 percent of our total sales during the quarter. We have shipped more than 16 million Xperia smartphones to date. We have introduced eight new Xperia smartphones this year and we continue to see strong consumer and operator demand across the Xperia smartphone portfolio."

Units shipped during the quarter were 7.6 million, a 31% decrease year-on-year and a 6% decrease sequentially, due to a decrease in volume caused by constrained supply of critical components and an anticipated decline in the number of feature phones shipped.

Average selling price (ASP) for the quarter was Euro 156, a 3% decrease year-on-year but an 11% increase sequentially. The year-on-year decrease is due to product and geographic mix and price erosion. The sequential increase in ASP is attributed to favorable product and geographic mix, more than offsetting price erosion and unfavorable foreign exchange rates.

Sales for the quarter were Euro 1,193 million, a 32% decrease year-on-year and a 4% increase sequentially.

The gross margin percentage for the quarter was 31% with an improvement of 3 percentage points year-on-year that included restructuring charges, and a decrease of 2 percentage points from the previous quarter, which included the benefit of some larger than normal items relating to royalty matters and warranty estimates.

Loss before taxes for the quarter was Euro 42 million, compared to an income before taxes of Euro 31 million for the same quarter in the previous year, due to lower volume. Income before taxes for the previous quarter was Euro 15 million. The sequential change was reflective of lower gross margin and higher operating expenses.

The quarter ended in a net loss of Euro 50 million, compared to a net income of Euro 12 million in the same quarter in the previous year, and Euro 11 million in the last quarter. Tax expenses in this quarter included the impact of tax adjustments and the distribution of profits and losses between various jurisdictions.

Cash flow from operating activities during the quarter was negative Euro 224 million, mainly due to increases in accounts receivables and inventories, negative net income and timing of certain payments. New external borrowings of Euro 165 million were made during the quarter to enhance liquidity and growth, resulting in total borrowings of Euro 769 million at the end of the quarter. Total cash balances at June 30, 2011 amounted to Euro 516 million.

Sony Ericsson estimates that its share in the global Android-based smartphone market during the quarter was approximately 11% in volume and 11% in value.

Sony Ericsson maintains its forecast for modest industry growth in total units in the global handset market for 2011.

The liquid identity is a registered trademark of Sony Ericsson Mobile Communications AB. Xperia(TM) is a trademark of Sony Ericsson Mobile Communications AB. Sony is a registered trademark of Sony Corporation. Ericsson is a registered trademark of Telefonaktiebolaget LM Ericsson. Any rights not expressly granted herein are reserved and subject to change without prior notice.