Sony Ericsson to cut 2,000 jobs after losses

Mobile phone maker Sony Ericsson is to cut 2,000 more jobs after it swung to a loss of €293 million in the first quarter of the year.

The group, which reported losses in the third and fourth quarters of last year, had warned in March that its first-quarter figures would be weak because of recessions in major economies that have hit demand for its handsets.

With its margins eroded, sales in free-fall and a lack of new products in strategic sectors, Sony Ericsson vowed to deepen job cuts announced last year in a bid to reduce costs and return to profitability.

"The additional cost saving programme announced today will include a further reduction in the global workforce of approximately 2,000 people," the company said in a statement.

Sony Ericsson had announced a cost-cutting programme in July 2008 that included 2,000 job cuts by the end of the first half of 2009 which was expected to bring its workforce to around 10,000.

The global economic slowdown has cut demand for consumer electronics and established handset makers such as Sony Ericsson and market leader Nokia must also contend with the runaway success of Apple's iPhone, which dominates the high-end segment of the market.

Nokia reported a 90 per cent drop in its first-quarter net profit and a more-than-25 per cent decline in sales on Thursday.

Sony Ericsson, created in 2001 in a merger between Ericsson of Sweden and Sony of Japan, has been trying to focus its business on fast-growing emerging markets in order to reduce dependence on the nearly saturated European zone.

As a result it entered the low-end market, where prices are lower and the competition is tougher, analysts say, but it has lacked the products to make a splash in emerging markets such as China and India.

The move was "not a good idea at all", Evli Bank telecoms analyst Michael Andersson told AFP, explaining that it was hard to make money in that segment without huge volumes.

Company president Dick Komiyama acknowledged that "as expected, the first quarter of this year has been extremely challenging for Sony Ericsson due to continued weak global demand."

"We are aligning our business to the new market reality with the aim of bringing the company back to profitability as quickly as possible," he said.

The fourth-biggest handset maker behind Nokia, Samsung and LG Electronics, Sony Ericsson said its first quarter sales plunged by 35.7 per cent to €1.73 billion.

It sold 14.5 million mobile phones during the period, at an average price of €120, compared to 22.3 million for an average €121 a year ago.

By comparison, Nokia, which dominates the low-end sector, said its average selling price was €65 in the first quarter.

Sony Ericsson's operating margin plummeted from seven per cent in the first quarter a year ago to minus 21 per cent.

The weak results were expected, after the company issued a profit warning on March 20.

It said its new cost saving programme would yield annual savings of €400 million and be completed by mid-2010.

"The additional restructuring programme is of course not positive, but not that surprising either," Mr Andersson said.

Greger Johansson, an analyst at Redeye, said the company needed to rethink its strategy.

The new restructuring was "a good first step but not the whole solution. The problem Sony Ericsson has is basically that it is not attractive. If you look at the future I don't see any attractive mobile phone," he said.