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Sony Ericsson posts Q2 loss, blames Japan earthquakes

Updated Dec 19th, 2018 7:21PM EST
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Sony Ericsson on Friday posted a net loss of €50 million in the second quarter of 2011, blaming supply constraints resulting from devastating earthquakes that shook Japan earlier this year for the difficult quarter. The steep loss was not expected by the Street, and it is down from a profit of €12 million in the second quarter of 2010 and €11 million last quarter. Sony Ericsson’s shipments fell 31% from the same quarter last year to just 7.6 million units, while analysts expected shipments ranging from 8 million to 11 million handsets. Revenue for the quarter totalled €1.19 billion, down from €1.76 billion in the same quarter a year prior. “Sony Ericsson’s second quarter profitability was affected by the March 11 earthquake in Japan. We estimate that the impact of earthquake-related supply chain constraints on our portfolio was close to 1.5 million units, with most of the effect in the early part of the quarter,” said Sony Ericsson President and CEO Bert Nordberg in a statement. “Our shift to Android-based smartphones continues with smartphone sales accounting for more than 70 percent of our total sales during the quarter. We have shipped more than 16 million Xperia smartphones to date. We have introduced eight new Xperia smartphones this year and we continue to see strong consumer and operator demand across the Xperia smartphone portfolio.” The struggling phone vendor did say it expects business to improve in the second half of 2011, and it forecasts modest industry growth for the full year. Sony Ericsson said is share of the global Android smartphone market during the second quarter roughly 11%. The company’s full press release follows below.

Sony Ericsson reports second quarter 2011 results

15 July 2011

Highlights:

  • Supply chain constraints from the Japan earthquake significantly impact Q2 results
  • Smartphones account for more than 70 percent of total sales
  • Android-based Xperia™ volume up 150 percent year-on-year

The consolidated financial summary for Sony Ericsson Mobile Communications AB (Sony Ericsson) for the second quarter ended June 30, 2011 is as follows:

Q2 2010 Q1 2011 Q2 2011
Number of units shipped (million)
Average selling price (Euro)
11.0
160
8.1
141
7.6
156
Sales (Euro m.) 1,757 1,145 1,193
Gross margin (%) 28% 33% 31%
Operating income (Euro m.) 36 19 -37
Operating margin (%) 2% 2% -3%
Restructuring charges (Euro m.) -32
Operating income excl. restructuring charges (Euro m.) 68 19 -37
Operating margin excl. restructuring charges (%) 4% 2% -3%
Income before taxes (IBT) (Euro m.) 31 15 -42
IBT excl. restructuring charges (Euro m.) 63 15 -42
Net income (Euro m.) 12 11 -50

Bert Nordberg, President and CEO of Sony Ericsson commented, “Sony Ericsson’s second quarter profitability was affected by the March 11 earthquake in Japan. We estimate that the impact of earthquake-related supply chain constraints on our portfolio was close to 1.5 million units, with most of the effect in the early part of the quarter. Our shift to Android-based smartphones continues with smartphone sales accounting for more than 70 percent of our total sales during the quarter. We have shipped more than 16 million Xperia smartphones to date. We have introduced eight new Xperia smartphones this year and we continue to see strong consumer and operator demand across the Xperia smartphone portfolio.”

Units shipped during the quarter were 7.6 million, a 31% decrease year-on-year and a 6% decrease sequentially, due to a decrease in volume caused by constrained supply of critical components and an anticipated decline in the number of feature phones shipped.

Average selling price (ASP) for the quarter was Euro 156, a 3% decrease year-on-year but an 11% increase sequentially. The year-on-year decrease is due to product and geographic mix and price erosion. The sequential increase in ASP is attributed to favorable product and geographic mix, more than offsetting price erosion and unfavorable foreign exchange rates.

Sales for the quarter were Euro 1,193 million, a 32% decrease year-on-year and a 4% increase sequentially.

The gross margin percentage for the quarter was 31% with an improvement of 3 percentage points year-on-year that included restructuring charges, and a decrease of 2 percentage points from the previous quarter, which included the benefit of some larger than normal items relating to royalty matters and warranty estimates.

Loss before taxes for the quarter was Euro 42 million, compared to an income before taxes of Euro 31 million for the same quarter in the previous year, due to lower volume. Income before taxes for the previous quarter was Euro 15 million. The sequential change was reflective of lower gross margin and higher operating expenses.

The quarter ended in a net loss of Euro 50 million, compared to a net income of Euro 12 million in the same quarter in the previous year, and Euro 11 million in the last quarter. Tax expenses in this quarter included the impact of tax adjustments and the distribution of profits and losses between various jurisdictions.

Cash flow from operating activities during the quarter was negative Euro 224 million, mainly due to increases in accounts receivables and inventories, negative net income and timing of certain payments. New external borrowings of Euro 165 million were made during the quarter to enhance liquidity and growth, resulting in total borrowings of Euro 769 million at the end of the quarter. Total cash balances at June 30, 2011 amounted to Euro 516 million.

Sony Ericsson estimates that its share in the global Android-based smartphone market during the quarter was approximately 11% in volume and 11% in value.

Sony Ericsson maintains its forecast for modest industry growth in total units in the global handset market for 2011.

The liquid identity is a registered trademark of Sony Ericsson Mobile Communications AB. Xperia™ is a trademark of Sony Ericsson Mobile Communications AB. Sony is a registered trademark of Sony Corporation. Ericsson is a registered trademark of Telefonaktiebolaget LM Ericsson. Any rights not expressly granted herein are reserved and subject to change without prior notice.

Zach Epstein
Zach Epstein Executive Editor

Zach Epstein has been the Executive Editor at BGR for more than 10 years. He manages BGR’s editorial team and ensures that best practices are adhered to. He also oversees the Ecommerce team and directs the daily flow of all content. Zach first joined BGR in 2007 as a Staff Writer covering business, technology, and entertainment.

His work has been quoted by countless top news organizations, and he was recently named one of the world's top 10 “power mobile influencers” by Forbes. Prior to BGR, Zach worked as an executive in marketing and business development with two private telcos.