Sony Ericsson moves towards high-end smartphones

22 Oct 2010

Sony Ericsson’s increase in smartphone shipments soared in the second quarter even as its overall mobile phone shipment ranking slipped, which actually reflects a strategic shift away from lower-margin, higher-volume products and toward more profitable devices, an analyst claims.

The company’s overall mobile phone shipment ranking fell to sixth place in the second quarter, down from fourth in the first quarter. This marked the first time in at least three years that Sony Ericsson didn’t rank among the top 5 global mobile phone brands.

While shipments rose 4.8pc compared to the first quarter, close rivals Research in Motion and ZTE surpassed Sony Ericsson because their growth rates were larger.

On the other side of the equation, Sony Ericsson achieved a 15.4pc increase in smartphone shipments during the second quarter. This made Sony Ericsson the fourth fastest-growing smartphone brand during the second quarter.

“With its shift in focus from volume to value-add, Sony Ericsson is positioning itself to cash in on the fastest-growing and most profitable segment of the global wireless market,” said Tina Teng, senior analyst for wireless communications at iSuppli.

“Given that cell phone penetration has reached 73.4pc of the earth’s population, shipment growth is slowing markedly. Meanwhile, average pricing for mobile phones has declined to extremely low levels and will continue to decrease in the coming years. In contrast, smart phones and feature phones continue to offer fast growth and strong profit margins.”

Global shipments of all kinds of mobile phones are set to rise at a Compound Annual Growth Rate (CAGR) of 6.9pc from 2009 to 2014, down from the 13.9 CAGR for the period of 2003 to 2008. In contrast, smartphone shipments will rise by 22.7pc from 2009 to 2014.

Strategic shift

With its shift to the higher-end phone market, Sony Ericsson is mirroring the strategy of Motorola, which has been withdrawing from the market for mainstream mobile phones in order to focus on its high-end Droid smartphone line. Sony Ericsson in 2010 entered the Android smartphone marketplace, and it has offered phones like the Xperia line that uses the Android operating system.

The strategic shift is already apparent in Sony Ericsson’s second- and third-quarter results.

For the second quarter, the company’s gross margin amounted to 28pc, more than double the 12pc the same time a year ago. Its average selling price in the second quarter of 2010 also rose to €160, up 31.1pc from €122 during the similar year-ago period.

Overall, smartphones represented 13.6pc of Sony Ericsson’s total mobile handset shipments in the second quarter of 2010, more than double the 5.8pc seen during the second quarter of 2009.

And although the average selling price (ASP) slipped by 3.8pc in the third quarter compared to the second quarter, its gross margin and operating profit rose again. The company’s gross margins amounted to 30pc in the third quarter, compared to 16pc a year earlier.

Sony Ericsson’s third-quarter operating profit market equalled 4pc, up from 2pc in the second quarter and a 4pc decline in the third quarter of 2009.

The company said smartphones comprised more than 50pc of its total sales in the third quarter.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years