Motorola loses while Sony Ericsson gains

Motorola has issued a profits warning after a significant fall in handset sales during the past quarter.

The company sold fewer mobile phones in the past three months than it did in the previous quarter, and announced that its handset division is unlikely to return to profit this year, increasing the pressure on chief executive Ed Zander to quit.

Meanwhile, rival phone maker Sony Ericsson has reported significant growth in the number of phones sold in the same period.

Motorola's second-quarter sales fell to an estimated US$8.7bn from US$9.4bn in the first quarter, selling around 36 million handsets.

Things started to go wrong for Motorola late last year, according to telecoms analysts.

"The steepness of the fall at Motorola is scary," said Martin Garner, director of wireless intelligence at industry watcher Ovum.

"This quarter shipments are down 47 per cent on [the fourth quarter of 2006] when you would normally expect them to be up five to 10 per cent."

Garner added that a key problem is that Motorola does not have any new phones that appeal strongly to European and Asians.

"Motorola has had a rather US-centric view of what its portfolio should look like and we have seen no evidence yet of a coherent push to repair the damage, nor any sign that Motorola is currently able to differentiate in any segment (as it did with the Razr) by creating something truly new," he said.

The predicament could see Motorola dropping from its second place in the mobile market behind Nokia to fourth place as Samsung and Sony-Ericsson overtake.

That in turn could see Motorola shedding more jobs on top of the 10 per cent of the workforce cut earlier this year, Ovum predicts.

Sony-Ericsson sold just short of 25 million phones in the second quarter, 59 per cent up over the same period last year. This led to sales revenue of €3.1bn and a pre-tax profit of €327m.

This profit is 55 percent up over the year, but shows a slight decline over the pervious quarter because the company has sold more entry-level phones, reducing the average sale price of its handsets from €145 a year ago to €125 now.

"Sony Ericsson has always said that it will not make a headlong charge into lower priced segments and put its profitability at risk," added Garner.

"It has been very careful to extend its range progressively downwards, aiming to hold onto its margins.

"But Sony Ericsson needs to be careful here because Nokia is able to match its high-end margins with its low-end phones and has more degrees of freedom in competing."