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Sony Ericsson Has Slowest Profit Growth in Two Years

July 12 (Bloomberg) -- Sony Ericsson Mobile Communications Ltd. reported the slowest profit growth in almost two years, underscoring increased competition in the $166 billion mobile- phone market that triggered a loss at larger rival Motorola Inc.

Second-quarter net income at the venture between Sony Corp. and Ericsson AB gained 54 percent to 220 million euros ($302 million), the London-based company said in a statement. That's the slowest growth since the third quarter of 2005, when profit rose 16 percent. Pretax profit missed analysts' estimates, and the average price of phones sold dropped more than they expected.

Sony Ericsson Chief Executive Officer Miles Flint forecast the market will remain ``competitive'' this year, after Motorola reported a second-quarter loss yesterday as customers chose other brands. Sony Ericsson, the world's fourth-largest handset maker, plans to offer new models to counter falling prices and the introduction last month of Apple Inc.'s iPhone.

``Global sales of mobile phones are peaking,'' said Kazumasa Kubota, who rates Sony ``outperform'' at Okasan Securities Co. in Tokyo. ``Over the next year or two, the iPhone may be a direct threat to the No. 3 and No. 4 players in the industry.''

Sony Ericsson's pretax profit rose 55 percent to 327 million euros. Sales climbed 37 percent to 3.11 billion euros, with phone shipments rising 59 percent gain to 24.9 million units. Analysts had anticipated pretax profit of 383 million euros, sales of 3.09 billion euros and unit shipments of 23.3 million handsets, based on a survey of 29 analysts by SME Direkt.

Parent Earnings

Sony Ericsson has boosted earnings at its parent companies. Sony reported a threefold increase in its share of the venture's income to 85.3 billion yen ($698 million) last fiscal year, according to the Tokyo-based parent's earnings statement.

Stockholm-based Ericsson said in April that Sony Ericsson added about 1.6 billion kronor ($240 million) to its first- quarter operating profit. Ericsson, the world's largest maker of wireless networks, also got an advance dividend payment of 3.5 billion kronor from Sony Ericsson. Ericsson's first-quarter net income was 5.82 billion kronor.

In five years, the company turned from an unprofitable venture into a business now challenging Samsung Electronics Co.'s No. 3 slot. Sony Ericsson has sought to capitalize on rising demand for cheaper handsets in markets including India by teaming up with France's Sagem Communication to make low-cost devices.

Shares of parent Sony rose 0.3 percent to 6,350 yen in Tokyo. Ericsson shares haven't opened yet in Stockholm.

Cheaper Phones

The push for what Sony Ericsson called phones with ``low and mid-tier'' prices weighed on the average selling prices, which fell to 125 euros in the second quarter from 145 euros a year earlier. That's short of an estimate of 132.7 euros by JP Morgan Securities Inc. analysts including Rod Hall.

Market leader Nokia Oyj's average selling price in the first quarter was 89 euros, unchanged from the preceding three months and down from 103 euros a year earlier. Apple began sales of two iPhone models priced at $499 and $599 on June 29. The company sells the phone at more than double production costs, researcher iSuppli Corp. said July 4.

Schaumburg, Illinois-based Motorola said yesterday its second-quarter net loss was as much as 4 cents a share after sales missed its forecasts for the third time this year. Sales fell to between $8.6 billion and $8.7 billion, short of a $9.4 billion company forecast made on April 18.

Popular Models

Handset makers are expected to generate $166 billion in combined global sales this year, up from $150 billion in 2006, research company Strategy Analytics predicted in February.

Sony Ericsson said its share of the worldwide handset market gained about 3 percentage points in the second quarter to more than 9 percent as handsets with music players and cameras attracted buyers.

The company overtook South Korea's LG Electronics Inc. as the fourth-largest handset maker last year, according to figures released by researcher Gartner Inc.

The W880i model, which is as thin as a CD case and can store as many as 900 songs, is among the company's best-selling phones. Other popular devices include the K810i, which comes with a 3.2- megapixel camera.

Sony Ericsson has the ``ability to develop high-function models, so it's expected to survive competition,'' said Hideki Watanabe, a Tokyo-based analyst at Shinko Securities Co. who rates Sony ``neutral.'' ``It is natural to see the pace of profit growth slowing down.''

CEO Flint will host a conference call for analysts and investors at 8 a.m. New York time to discuss the earnings. Participants can dial +44 20 7138 0809 to join the call.

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