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Sony Ericsson Shifts Focus to High-End Cell Phones

El Segundo, Calif.–{complink 5117|Sony Ericsson Mobile Communications}in the second quarter saw its smart phone shipments soar even as its overall cell phone shipment ranking declined, reflecting the company’s strategic shift away from lower-margin, higher-volume products and toward more profitable devices, according to iSuppli Corp.

The company’s overall cell phone shipment ranking fell to sixth place in the second quarter, down from fourth in the first quarter. This marked the first time in at least three years that Sony Ericsson didn’t rank among the Top 5 global cell phone brands. While shipments rose 4.8 percent compared to the first quarter, close rivals {complink 4644|Research In Motion Ltd.} and {complink 6419|ZTE Corp.} surpassed Sony Ericsson because their growth rates were larger.

On the other side of the equation, Sony Ericsson achieved a 15.4 percent increase in smart phone shipments during the second quarter. This made Sony Ericsson the fourth fastest growing smart phone brand during the second quarter.

“With its shift in focus from volume to value-add, Sony Ericsson is positioning itself to cash in on the fastest growing and most profitable segment of the global wireless market,” said Tina Tang, senior analyst for wireless communications at iSuppli. “Given that cell phone penetration has reached 73.4 percent of the earth’s population, shipment growth is slowing markedly. Meanwhile, average pricing for mobile phones has declined to extremely low levels and will continue to decrease in the coming years. In contrast, smart phones and feature phones continue to offer fast growth and strong profit margins.”

Global shipments of all kinds of cell phones are set to rise at a Compound Annual Growth Rate (CAGR) of 6.9 percent from 2009 to 2014, down from the 13.9 CAGR for the period of 2003 to 2008. In contrast, smart phone shipments will rise by 22.7 percent from 2009 to 2014. The attached table presents supply’s global cell phone market share in the second quarter.

With its shift to the higher-end phone market, Sony Ericsson is mirroring the strategy of {complink 3538|Motorola Inc.}, which has been withdrawing from the market for mainstream cell phones in order to focus on its high-end Droid smart phone line. Sony Ericsson in 2010 entered the Android smart phone marketplace, and it has offered phones like the Experian line that uses the Android operating system.

The strategic shift is already apparent in Sony Ericsson’s second- and third-quarter results.

For the second quarter, the company’s gross margin amounted to 28 percent, more than double the 12 percent the same time a year ago. Its average selling price in the second quarter of 2010 also rose to 160 Euros, up 31.1 percent from 122 Euros during the similar year-ago period.

Overall, smart phones represented 13.6 percent of Sony Ericsson’s total mobile handset shipments in the second quarter of 2010, more than double the 5.8 percent seen during the second quarter of 2009. And although the Average Selling Price (ASP) slipped by 3.8 percent in the third quarter compared to the second quarter, its gross margin and operating profit rose again. The company’s gross margins amounted to 30 percent in the third quarter, compared to 16 percent a year earlier. Sony Ericsson’s third-quarter operating profit market equaled 4 percent, up from 2 percent in the second quarter and a 4 percent decline in the third quarter of 2009.

The company said smart phones comprised more than 50 percent of its total sales in the third quarter.

To learn more about this topic, see supply’s new report, entitled: 4G Handsets Hit Stride with a Robust 2010: iSuppli

3 comments on “Sony Ericsson Shifts Focus to High-End Cell Phones

  1. Anna Young
    October 21, 2010

    So Sony-Ericsson is moving into the high-end segment of the cell phone market but it is also losing total share because it just wants higher margins. That's not a longer-term winning strategy. By focusing on the high-end alone, Sony-Ericsson is forcing telecommunication companies to view it as a source that does not have a complete line-up. It obviously won't be the first choice of the telecom companies looking for a wide range of products. That's the first problem with its strategy. The second problem is even more daunting. Even with its focus on the high-end market, Sony-Ericsson does not have a product anyone can remember instantly, like Apple's iPhone. By the way, the iPhone is all high-end and the volume is going up. What's missing in Sony-Ericsson's strategy.

  2. maou_villaflores
    October 24, 2010

    What's missing in Sony-Ericsson's strategy–? Innovation…Sony has nothing new to offer in the cellphone industry. My fear for Sony focusing in high end market is that they might end up losing too much investments. The best thing they can do is to focus on their LCD TV's, Camera's and MP3 players or do some OEM projects at least the risk is low.

  3. hwong
    November 7, 2010

    Sony is still a big name in Asia, particularly in the developing countries. One thing they can do easily to get back to the high end market is adopt Google's Android OS(very small cost) and invest some money to create some decent apps. Then they can put the new high-end phone in, let's say, China. If everything works out including they can make good partnership with major wireless carriers, Sony can make good profit.

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