Sony Ericsson Q3 loss narrows on cost cuts, margin

STOCKHOLM, USA:  Mobile phone maker Sony Ericsson posted a smaller than expected third-quarter pretax loss on Friday, boosted by big cost cuts, but said it expected the market to remain tough for the rest of the year.

The global handset market has been slammed by the recession and Sony Ericsson expects the market to have contracted around 10 percent by end-2009, an even more pessimistic view than the 7 percent forecast by market leader Nokia.

Sony Ericsson, owned by Sweden's Ericsson and Japan's Sony Corp, reported a quarterly pretax loss of 199 million euros ($297 million), an improvement on the 283 million euro loss in the second quarter.

The mean forecast in a Reuters poll of 16 analysts had been for a 274 million euro loss.

"The reduced loss was due to better gross margin, as well as reduced operating expenses," Sony Ericsson said in a statement.

Sony Ericsson is in the process of cutting costs by 880 million euros, with the full effect due in late 2010.

The company's gross margin was 16 percent versus a forecast of 13.9 percent and 12 percent in the second quarter.

The result helped boost parent Ericsson's share price by 2.5 percent to 73 crowns at 0851 GMT, outperforming the wider Stockholm bourse.

"Expectations that they (Sony Ericsson) will make big losses next year have to be revised to show that they maybe won't make any money, but that at least they will break even," Martin Nilsson, analyst at Handelsbanken Capital Markets, said.

"In that way it affects Ericsson a little as they won't be a burden at least."

Downturn

Sony Ericsson has reported big losses in recent quarters, but also seen its market share shrink leading to speculation its parents might want to cut their ties with the firm.

However, Sony and Ericsson guaranteed 350 million euros of a 455 million euro loan facility Sony Ericsson signed in the quarter.

"On the funding side I think that was more or less expected that the parents will have to commit something with a guarantee or capital," said Thomas Langer, analyst at WestLB.

"And that should be seen as just giving Sony Ericsson a lifeline to exist. Make or break for this company will be in the first half of 2010," he said.

Sony Ericsson, known for its phones focusing on music and imaging, has missed out on recent mobile phone trends such as full keyboards, Internet browsing and navigation.

It has lacked a strong smartphone offering to rival Apple's iPhone and Research in Motion's BlackBerry.

Bert Nordberg, who will take over as the company's chief executive at the end of the year, said he would look for a strategic revamp of the firm's product portfolio.

"We have cleared channel inventories, and have continued to realign internal resources and improve efficiency," Dick Komiyama, the outgoing head of Sony Ericsson said.

Restructuring charges in the third quarter were 2 million euros against an average forecast of 70 million euros.