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Spillikins No 128. The Performance of Sony Ericsson and Nokia

Summer weather turns days into the mix of heat waves and attempts to get somewhere on time. Last week was not that packed, which is good. Read on about the main events attracting my attention.

Sony Ericsson Reveals True Figures, Which Show Downward Trend

The company reported its second quarter results with the losses of 50 million Euros. The President of Sony Ericsson Bert Nordberg put all the blame on the earthquake in Japan for not reaching the planned figures. The true explanation is different and as we have mentioned it many times Sony Ericsson is dying and nobody can hide this fact. Sony Ericsson fools both the external market and its own employees. Moreover, until recently the company was trying to hide the true sales figures, which are catastrophic. Even the press release provides much food for thought.

Look at the figures first:

	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

Sales in absolute numbers are going down and the fall in comparison with the same period last year reached 31%. Against the background of the ongoing restructuring and jobs cuts it means the following. First, new models do not sell as well as previous handsets. I have already quoted the figures, while discussing first quarter results. Each new model sells worse than its predecessor a year ago. You can read about it here.

Let's look at the results proudly presented by Bert Nordberg. In the second quarter of 2011 the share of smartphones reached 70% and ordinary Sony Ericsson phones are disappearing from shops. We are made to believe that this trend is positive, because the company bases its strategy on Android smartphones. Is it positive news? Analyze the average price of sold handsets. In the second quarter of 2010 it was 160 Euros and the company sold more various models. With the increase of smartphones share the average price inexplicably lowered to 156 Euros. It is not logical and even means that Sony Ericsson cannot keep the margin on an acceptable level and has to lower prices of handsets. During the quarter we saw this sort of dynamics for Sony Ericsson Play. It is a contender for the title of the flop of the year. The same pattern was repeated for Arc as well. This flagship was in deficit and should not have suffered from the price pressure of other models, but the aggressive policy of Samsung, who lowered the price of Galaxy S and introduced Galaxy S i9003, made the model from SE less attractive and its price plummeted. Even uncertified Arc costs less than appropriate Samsung models. As a result the sales collapsed and the company has nothing to boast now.

Sony Ericsson is hiding negative performance with the help of sophisticated wording in reports. At the moment the company is not ready to show considerable losses and some lost funds are temporarily mentioned as stock losses, outstanding payments, etc. The cash flow for Sony Ericsson in the second quarter was minus 224 million Euros. To support its operating activities SE had to borrow 165 million Euros during this quarter. As of the end of the quarter the overall borrowings reached 769 million Euros. These are sensational figures, which highlight the managerial skills of SE stewards.

The company has already fired the lion's share of R&D department and now the time has come for sales managers and marketologists. More people will lose their jobs in 2011-2012, but exact figures are difficult to predict, because the payroll is too big. For example, in Russia the activities if SE can be carried out by 4-5 people instead of several dozens. The difficult period will be at the end of the year when all losses will be revealed. Prior to this or slightly afterwards SE will change its managerial team to show that Sony and Ericsson pay attention to their joint project. In fact Sony Ericsson is quickly falling apart and the worst days of the once celebrated manufacturer will come soon.

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Nokia Is Going Down

Nokia continues to surprise with exotic decisions of its president Stephen Elop. An attempt to sell Nokia Siemens Networks flopped and the company will stay burdened with its loss making asset. As a result Nokia share prices plunged lower and reached the level of 1987. The results of the second quarter will make matters worse.

Nokia is trying to cover up mistakes and show weakness as it strong points. Starting from October 2011 Nokia will spend $127 million worldwide during the following 6 months to advertise its Windows Phone 7 smartphones. Some people were amazed, but in fact the advertising budget is being cut. The promotion of Nokia N8 alone cost more than new WP7 handsets. The company does not expect its market share and income to be stable and decreases expenses. The PR department of Nokia is trying to show it as an advantage. Nokia is also planning to adjust its figures from the previous periods to make the results more appealing. People in the company claim it as better accuracy in reporting. To my mind the main parameter here is the number of sold models and the rest is beating around the bush, when things are not going well.

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Google Updates Android

The company launched an updated Android Market almost for all modern phones. The interface and apps representation were changed alongside with additional descriptions. The end product is improved and resembles App Store from Apple. The main innovation is the appearance of movies to be rented (once only for a period of 30 days). The feature is now available only in the USA, but will appear worldwide soon. We also have Google Books and in the electronic format you can order texts and read them on gadgets. You can evaluate the interface and its performance in this video from Google.

Google maps were updated. For versions of 5.7 and above you can benefit from offline navigation. You can download a particular section of the map with maximum details and navigate there offline. This solution is especially interesting for walking tours. If you download a 20 square kilometers section you will always have a map on your hands. The information is cached for 30 days, which is enough for the majority of users. I think maps from Google are useful for travel, when you do not have mobile Internet, which is a great leap forward.

These announcements are only previews of the major breakthrough coming this September when Google unveils new Android. It will be interesting indeed.

P.S. I wish you a nice week! I, meanwhile, will have to get back on the tracks – the last business trip has worn me down completely. Good luck, have a nice one!

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Spillikins No 128. The Performance of Sony Ericsson and Nokia

Contents:

Sony Ericsson Reveals True Figures, Which Show Downward Trend

Nokia Is Going Down

Google Updates Android

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