Sony Ericsson posted a quarterly loss that missed all forecasts after losing in the battle for smartphone sales in the key year-end period, showing the challenge for Sony as it prepares to take full control of the joint venture.
The world's ninth-biggest handset maker, which got left behind in the boom that powered smartphone growth at rivals such as Apple and Samsung Electronics, has also been struggling with high costs in the global slowdown.
Sony Ericsson should fare better under Japanese group Sony which aims to integrate phones with its other consumer electronic products – PlayStation game consoles, Bravia TVs and Vaio computers. Sony faces a battle against Apple's iPhone and Samsung's Galaxy smartphones.
"Volume and profitability (at Sony Ericsson) are both considerably worse than expected, illustrating not only the intense competitive environment, but the huge challenge facing Sony as it embraces the mobile business," Geoff Blaber at CCS Insight said on Thursday.
Sony Ericsson reported a fourth-quarter pretax loss of €247-million, compared with a forecast for a €42-million profit in a Reuters poll in which estimates ranged from a €130-million loss to a €94-million profit.
Taiwanese group HTC and BlackBerry-maker Research In Motion Ltd. have both warned of weak sales in the holiday season, a key period for mobile firms.
Sony Ericsson chief financial officer Bill Glaser told Reuters that being wrapped into Sony would allow for deeper integration, with a continued focus on smartphones run on Google's Android operating system.
Sony aims to take full control by early February.
For the full year, Sony Ericsson slipped to a 243 million euro loss, forcing 50 per cent parent Ericsson to say it would take a 1.1 billion crowns ($160-million U.S.) hit to its operating income in the fourth quarter.
Ericsson shares were up 2.1 per cent at 10:30 a.m. BT.
Key to success going forward will be Sony's ability to gain traction in the smartphone market, which Sony Ericsson estimated grew 60 per cent to 463 million units in 2011.
The firm said it expected strong growth in phones with PC-like functions this year, despite the global slowdown.
While the iPhone revolutionized the sector, late-starter Samsung has become the leading smartphone maker. That has given Sony a glimmer of hope that it can make a quick impact if it gets its products right.
Sony Ericsson said it shipped 9 million units in the fourth quarter, down 20 per cent on last year, with smartphone shipments failing to compensate for falling feature phone sales.
Although the company will shift all its production to smartphones during 2012, feature phones still make up some 20 per cent of Sony Ericsson's sales volumes.
Fourth-quarter sales fell 16 per cent year-on-year and 19 per cent quarter-on-quarter.
"Fourth quarter sales were negatively impacted by macroeconomic challenges in advanced economies contributing to weaker holiday sales, and certain component shortages from the flooding in Thailand in late October and early November 2011," Sony Ericsson chief executive officer Bert Nordberg said.
World number one handset maker Nokia, also struggling in the smartphone market, was set to report results on Jan. 26.