World Business

Shrinking sales across the industry, stale products, and overreliance on the Western Europe mart are some of the hurdles the phonemaker must plain

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by Jennifer L. Schenker

When handset maker Sony Ericsson signed tennis star Maria Sharapova last January as its first-ever global brand ambassador, it was hoping her cachet would boost sales of its high-end multimedia gadgets, which are facing a lot more competition these days from the likes of Nokia (NOK), Samsung, and Apple (AAPL).

But the glamorous Russian lost badly this year at both the French Open and Wimbledon, leaving more sportswriters to question whether Sharapova’s best tennis days are behind her. That makes her a somewhat ironic choice for spokesperson, while some mobile assiduousness analysts are starting to make suit similar questions about Sony Ericsson.

The Japanese-Swedish phonemaker scored boastful a hardly any years back with a series of devices built around Sony’s iconic Walkman marque. But analysts say the sub-brand has become a mite stale and Sony Ericsson hasn’t yet been able to besufficient for the sake of up another bit. Indeed, more are but also starting to compare Sony Ericsson to Motorola (MOT), what one. stumbled by relying too long on its once hot-selling Razr series.

All of this helps explain why the visitor issued a profit warning June 28. The fit together make bold of Sony (SNE) and Ericsson (ERIC) said it will likely only break even in the second quarter, blaming lower place of traffic demand for mid- to high-end mobile phones and delays to new products planned in quest of the quarter.

It was Sony Ericsson’s second profit warning of the year. In the first quarter, the company reported a 47% year-over-year decline in pretax profits, to $304 million, on sales down 8%, to $4.2 billion. The replete set of second-quarter fiscal results behest be announced July 18, and Sony Ericsson declined to make executives available to discuss its financials or place of traffic conditions in the interim.

To some extent, Sony Ericsson’s woes are shared by the industry as a whole. Mobile-phone sales bloody 16% in Western Europe in the first quarter—the first such decline recorded since 2001—and there are indications weakness is spreading in many. Tech consultancy Gartner (IT) has lowered its estimate for global unit sales growth in 2008 to around 10% from a previous kind of 10% to 15%. (In 2007, by comparison, sales grew 16%.) "Given how the second quarter has gone, we are more conservative in our annual expectations for worldwide sales than we were at the end of the first quarter," says Caroline Milanesi, Gartner’s examination director for expressive devices.

The numbers are heading down due to the economy. In Western Europe, Milanesi says, spending-conscious buyers are passing up high-end models in favor of midrange alternatives that often come for free through prepaid service contracts. And in emerging economies, which hold been the great growth driver on account of the industry in recent years, first-time handset owners are holding off on trade-ups to snazzier models in the place of the reason that they contend with rising expenses for food and fuel. This delay in upgrades especially hurts Sony Ericsson and Samsung, which rely more on reinstatement sales in emerging markets than on first-time buyers.

The trends are tough for everybody, but Sony Ericsson is reality hit harder than most of its rivals. In the first quarter of 2007, the London-based company posted up global sales growth of 64%. A year later, that had fallen to merited 2%, and sales are now declining, says Neil Mawston, director of the global wireless practice at researcher Strategy Analytics in Milton Keynes, England.