Sony Ericsson Cuts 2,000 Jobs

Sony Ericsson reports a Q2 operating loss of $3.1 million and calls the worldwide handset market a "challenge" as its smart phone sales slump. Sony Ericsson falls to No. 5 in worldwide unit sales behind leaders Nokia, Samsung, Motorola and LG Electronics.

Sony Ericsson will cut 2,000 jobs, it announced July 18, as the company reports a second quarter operating loss of $3.17 million.

Sony Ericsson said it has been pinched by plummeting demand for its high-end smart phones and inflation eating away at margins for inexpensive cell phones.

The joint venture between Sony and Ericsson AB said to expect more bad news in the third quarter. "Challenging market conditions are expected to prevail this quarter," the company said in a statement.

The world's No. 5 handset maker reported net income fell from $347.6 million a year ago to $9.48 million while sales slumped 9.4 percent to $4.4 billion. Unit sales in the quarter reached 24.4 million, down from 24.9 million units a year ago. The closely watched average selling price per unit was $183. A year ago, Sony Ericsson's average price per unit was $197.50.

The July 18 results marked the second consecutive quarter that Sony Ericsson issued a profit warning before issuing quarterly results.

A little more than a year ago, Sony Ericsson was the No. 4 handset maker that was pushing Motorola for the No. 3 spot. Since then, though, the company has fallen to fifth while LG Electronics has taken over the fourth spot.

"We are aligning our operations and resources worldwide to meet an increasingly competitive business environment and to help restore our capability for profitable growth," Sony Ericsson CEO Dick Komiyama said in the statement.

Komiyama said the 2,000 job cuts among the company's 11,900 employees will save Sony Ericsson $474 million annually.

Sony Ericsson is the second of the world's handset makers to announce its quarterly results since research firm Gartner slashed its forecast for the cell phone market to between 10 percent and 11 percent growth from a May estimate of 10 percent and 15 percent. In 2007, cell phone growth margins were 16 percent.

Finnish cell phone maker Nokia issued second quarter results July 17 that were in line with analyst predictions. Despite a 61 percent plummet in profits from a year ago (blamed on one-time charges), Nokia shipped 122 million handsets in the second quarter, beating predictions of 120 million sales. Nokia's second-quarter handset sales were 21 percent higher than a year ago, representing a 6 percent increase over first-quarter sales. The average selling price per unit fell from $124 in the first quarter to $116.

The world's No. 1 handset maker also slightly increased its forecast for global handset market growth, predicting volume growth of a little more than 10 percent. Sony Ericsson also predicts an approximate 10-percent growth in worldwide unit sales in 2008.

LG Electronics will announce its second quarter results July 21, followed by Samsung July 25 and Motorola July 31.

Also hamstrung by plummeting handset sales, Motorola predicted April 24 that second-quarter losses would be wider than originally projected.

Motorola said it shipped 27.4 million handsets in the first quarter, a 40 percent decline from fourth-quarter sales of 40.9 million handsets. Motorola hit its historic high in handset sales in late 2006 with 65.7 million units sold. Most of those sales came from the then-widely popular RAZR line of phones.

Overall, the handset division, which Motorola is trying to spin off, put up a first-quarter loss of $418 million, accounting for just 44 percent of sales for Motorola. Two years ago, handset sales accounted for two-thirds of Motorola's revenue.