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Sony Ericsson gains rare US deal, some light relief amid more losses

By CAROLINE GABRIEL

Published: 16 July, 2009

READ MORE: US | Sony Ericsson | AT&T | Handset | Components (camera) | Ericsson | Financial

Sony Ericsson kicked off the round of handset vendors' financial results with its fourth lossmaking quarter in a row, but offered a gleam of light in the shape of a rare US carrier deal with AT&T.

This raises hopes that the traditional US cellco hostility to Nokia and SEMC is breaking down - AT&T has recently launched the Nokia E71 and Surge 'social handset', and the Finnish giant is working on further developments with the GSM giant and even with Verizon Wireless.

Now SEMC, which has been forced to launch flagship products like its Walkman phones without carrier subsidy in the US, has signed AT&T to offer the Cybershot C905a cameraphone and the W518a Walkman music handset. Insiders said AT&T was attracted by the power of these two Sony brands - suggesting a rethink of SEMC's recent decision to defocus on these brands, in favor of new ones like Aino, might be in order, especially in the battle to penetrate north America.

The C905a features an 8.1-megapixel camera and 2.4-inch mineral glass screen with 16Gb of storage and USB connection. The W518a has a 3.2-megapixel camera and a social networking interface. Both of the phones will be available on July 19 - the C905a for $179.99 with a two-year contract and after a $50 mail-in rebate, and the W518a for $49.99, also with a two-year contract and after a $50 mail-in rebate.

But it will take more than a couple of minor slots in the AT&T portfolio to reverse the declining demand for SEMC's handsets, which blighted its second quarter. The joint venture reported a net loss of €213m ($300m), smaller than analysts anticipated, compared with net income of €6m a year earlier. But sales were below analyst consensus, down 40% to €1.68bn.

Cashflow has been negative since the beginning of 2008, and Ericsson has said it will support the venture with more capital if necessary, while both partners have recently denied any plans to break up the partnership. "We still believe the remainder of the year will be difficult for Sony Ericsson," said CEO Dick Komiyama in a statement. "Our performance is starting to improve due to our cost reduction activities."

The results put huge pressure on new fourth quarter launches, notably the Satio superphone, which is optimized for movies, and the Rachael Android debut, to revive SEMC's revenues and consumer appeal, having spent too long in the dangerously stagnant handset midrange. Now that smartphones with full web services and OSs are moving down into this midmarket, it will be even more vital for SEMC to refresh its range.

The handset maker's gross margin plummeted to 12% from 23% a year earlier, and it shipped 13.8m units, a 43% drop, dragging its global market share down further, from 6% to 5%, even as nearest rival LG moves further ahead. The average selling price of its handsets rose however, to €122 from €120 in the first quarter and €116 a year earlier, indicating some progress in its flight from the midmarket. SEMC reiterated its forecast that global handset unit sales would shrink by at least 10% this year from the 1.19bn sold in 2008.

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