Sony Ericsson miss worries wireless investors

June 27, 2008, 4:20 PM UTC

By Scott Moritz

Sony Ericsson added a little more static to the troubled mobile phone market Friday with a sales report that was below expectations.

The joint venture between Sony (SNE) and Ericsson (ERIC) said it shipped 24 million phones with an average selling price of about $172 apiece in the second quarter. That compares with 22 million phones shipped at an average price of $189 in the prior quarter. Some analysts had been looking for 25 million phones to be shipped in the $172 average price range. The company also cautioned that its margins had narrowed, which contributed to a pretax profit that it said was about break even. The company did not release profit details.

This is the second warning in as many quarters from the Stockholm phone giant, and also the latest sign of a continued cooling trend in wireless.

“It’s three things in a nutshell,” says IAG Research analyst Roger Entner. “The global market is slowing down, Sony Ericsson’s handset portfolio is getting a little stale and Nokia (NOK) continues to make it hard for the smaller players.”

Even as sales slow, competition is heating up. Apple’s (AAPL) iPhone aims directly at the mid-priced and higher music and camera phones that are Sony Ericsson’s specialty.

The No. 5 phone maker’s latest slip comes two days after Research in Motion (RIMM) delivered less-than-dazzling results, which have since sent its shares down 15%.

Friday’s bad news from Sony Ericsson took a 3% bite out of Nokia shares, as concerns grow over whether the No.1 handset maker will feel some of the pinch of a global phone sales pullback combined with rising material and shipping costs.

“Nokia will have a challenging quarter. The question is how much it will be affected,” says Entner, who adds that Nokia is better than its competitors at controlling costs.

As the largest buyer of phone parts in the world, Nokia is known for throwing its weight around and exerting its influence on suppliers. That’s not good news for big chip shops like Texas Instruments (TXN) or wireless component makers like RFMD.

“We would expect large vendors like Nokia to increase pressure on component vendors to try to offset underlying inflation but this is only a short term fix at best,” JPMorgan analyst Ehud Gelblum wrote in a research note Friday.

Ironically, Motorola may be the least vulnerable to signs of slugglishness in the wireless industry, says Entner. Motorola (MOT) has lost so much of the business, “there’s so little left to lose.” Motorola shares were trading flat Friday.