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Sony Ericsson: Big Loss, 'Intense' Competition. Can Sony Turn This Around?

Not great results out today from handset maker *Sony* *Ericsson*, but also no surprise if you’ve been following the troubled fortunes of the company of late: the joint venture, which makes devices based on Android, reported declines almost across the board in its Q4 earnings released today: lower handset sales, lower margins, and a net loss as the company faced what it called “intense” competition in the mobile market. The news begs the question of how, exactly, Sony (NYSE: SNE) will turn things around when it takes full control of the operation later this quarter.

Sony Ericsson (NSDQ: ERIC), which produces both feature phones and Android-based smartphones, said that it shipped only nine million phones in the quarter — a decrease both on last year (by 20 percent) and the quarter (by five percent): that’s also a dire state of affairs considering that most handset makers rely on the Q4 sales bump over the holiday period to improve overall performance. Revenues, meanwhile, were also down to €1.3 billion ($1.7 billion), 16 percent lower than a year ago.

Sony Ericsson says that these declines were down to a number of factors: in the words of its president and CEO Bert Nordberg, “intense” competition, plus the wider, difficult economic climate, and natural disaster in Thailand, where the company manufactures devices.

The company is currently trying to shift its product base to smartphones from feature phones, but so far that smartphone lineup has failed to really ignite the market, or make up for the reduced lineup of feature devices.

To be fair, Sony Ericsson’s Android-based smartphone sales have actually grown by a very healthy 65 percent over the same quarter a year ago. But in terms of actual volumes it is still far behind the likes of Samsung, currently the market leader among the many Android-based handset makers out there: Sony Ericsson says that works out to a total of 28 million Xperia devices sold to date, while Samsung says that it sold 300 million in 2011 alone. That makes for about a ten percent share of the worldwide Android market in volume, and only seven percent in value, according to Sony Ericsson’s own estimates.

Even HTC — a top Android vendor — is finding it hard to compete against the market leader; that makes the prospects for a middling competitor even more daunting.

Another key issue for the company is that it did not launch any new products in Q4, making it even harder to compete against newer devices from the likes of Apple (NSDQ: AAPL), Nokia (NYSE: NOK) and Samsung. Partly because of this Sony Ericsson also noted that the average sale price for its devices in the quarter was €143 ($184), only a rise of five percent on a year ago, and a decline of 14 percent compared to Q3.

With a corresponding decline in sales margins, the company said its net loss for the quarter was -€207 million, compared to a modest net income of €8 million for Q3 2010.

The company last month started a restructuring program that will include job losses and other cuts. These accounted for restructuring charges of €93 million for the quarter and may continue to weigh on its balance sheet for the year ahead: they are not expected to be completed until the end of 2012.

All this makes for a very tall order ahead for Sony, which, after many years of will-they-won’t-they speculation, is finally buying out Ericsson from the JV. That process is expected to be completed by February this year, although it’s not clear how soon we will see the fruits of that change.

Clearly, Sony sees a brighter future investing in a phone business to better compete against the likes of Apple and Samsung, which are progressing by leaps and bounds not just in smartphones but in the consumer electronics segment that is Sony’s traditional bread and butter. That competition is sure to become even more heated in the year ahead with the launch of connected TV services and other multi-platform offerings that rely on smartphones not just to give “stickiness” to those services, but to their brands, too.