Handset maker Sony Ericsson warns of 1Q loss
Friday March 20, 10:04 am ET

Mobile phone maker Sony Ericsson warns of 1Q loss, says hurt by continued weak consumer demand STOCKHOLM (AP) -- Mobile phone maker Sony Ericsson on Friday warned it expects to post a first-quarter pretax loss as it continues to be hurt by falling consumer demand amid the global financial crisis.

In a brief statement, the Sony Corp. and LM Ericsson AB joint venture also said it is taking a hit from distributors and retailers reducing their inventories. It predicted a first-quarter loss of between euro340 million and euro390 million ($465 million to $533 million).

Ericsson shares fell nearly 9 percent to 69.20 kronor ($8.64) in Stockholm after the announcement.

Sales are forecast to be weak in the three-month period, it said, and the gross margin -- a measure of profitability -- is expected to fall both year-on-year and compared with the fourth quarter.

The company plans to ship around 14 million handsets in the period, at an average selling price of about euro120 each, it said.

In the fourth quarter, the group recorded a loss of euro187 million loss from a previous profit of euro373 million, mainly because of declining sales.

Sony Ericsson is due to release its first-quarter results on April 17.

Ericsson is reportedly looking to leave the Sony Ericsson handset joint venture, and Sony is interested in buying out Ericsson's stake.

German magazine Manager, citing insider sources, claimed that Sony has expressed an interest in securing financing from banks to buy out Ericsson's 50% stake.

But the deal could be hampered by the current economic crisis. With Sony recently posting its first loss in 14 years, the company could be hard pressed securing the resources or the justification for such a large purchase, gadget news site Electronista speculated.

And in the current economic climate, the deal could be worth little in terms of cash to Ericsson, and depending on the timing, Ericsson could lose money on the deal, Mobile Burn commentator Ricky Cadden said.

Electronista said the JV had been beset by rumors about in-fighting over the design of the company's future handsets and Sony's apparent reluctance to release a PlayStation-branded phone.

Sony Ericsson posted a $247 million loss in 2008. At the time, Sony CEO Howard Stringer said the company is considering leaving the JV. Sony Ericsson this month said the company expected to return to profit by year-end.