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Sony Corp ADR SNE
Q2 2011 Earnings Call Transcript

Transcript Call Date 07/15/2011

Operator: Welcome to the Sony Ericsson's Media and Analyst Conference Call. To view visual aids for this call, please log on to www.sonyericsson.com/press or www.ericsson.com/investor or www.sony.net/ir. As a reminder, a replay will be available one hour after today's conference.

Cathy Davies, Corporate Vice President and Head of Global Communications and PR for Sony Ericsson will now open the call.

Cathy Davies - Corporate VP, Global Communications and PR: Good morning, and good afternoon to some of you joining us here today. With me here today in Sweden are Bert Nordberg, President & CEO of Sony Ericsson; Rikko Sakaguchi, Executive Vice President and Chief Creation Officer; Kristian Tear, Executive Vice President and Head of Sales and Marketing; and Bill Glaser, Chief Financial Officer.

We will be making forward-looking statements today during the call. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call. We encourage you to read about these risks and uncertainties in our financial results announcement.

So, with that out of the way, I should like to hand the call over to Bert Nordberg.

Bert Nordberg - President and CEO: Very good morning, everyone, and welcome to the Sony Ericsson’s business update for the second quarter of 2011. When we reported our Q1 financials in April, we were in the process of assessing the March '11 Japan earthquake overall impact on our business. We now have the full picture of its affect and it shows that Sony Ericsson’s second quarter was negatively impacted and profitability suffered.

Let me share some highlights from the quarter. Our Q2 sales was €1.2 billion, income before taxes was negative €42 million. This is disappointing giving our previous five consecutive quarters of profitability. Average selling price was €156 for the quarter, a 3% decrease year-on-year and 11% increase sequentially. Our gross margin was 31% and OpEx has decreased by 12%.

In Q2, we shipped 7.6 million units and announced four new Android-based smartphones. Earthquake related supply chain constraint affected the number of units we have been able to produce and deliver to the channel. Northern Japan is one of our largest producers of components and sub-components.

In Q2, earthquake related impact on volume was significant. We estimate that due to the component shortages and supply chain implication, we lost the sales of 1.5 million units, resulting in a loss for the quarter. We experienced the shortage of key components such as camera modules, LCDs, and batteries.

We believe that if the impact of earthquake had not have been significant, we would have delivered a profitable quarter. The severest impact occurred in the early part of the quarter, particularly in April, where scheduled shipment and distribution were affected. Volume was impacted in many markets specifically in Western Europe and Japan, two of our most important markets.

The situation stabilized in May and we were able to satisfy increased demand and customer order. In June, we shipped a record number of Xperia smartphones. We have adjusted lead times and medium term business plan to minimize further exposure. Our second half product roadmap and delivery schedule for 2011 therefore remain unchanged. In spite of the challenges outlined, our shift to our Android-based smartphone is driving success and consumer adaption.

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