Android smartphone vendors struggle with losses

Sony Ericsson reported sales were down 16% in Q4, while HTC and Motorola Mobility also had difficult quarters; an exception is Samsung with its Galaxy smartphones

Sony Ericsson reported a net loss and a fall in revenue for the fourth quarter, further highlighting the struggles of many vendors who rely on Google's Android to power its smartphones.

Sales for the quarter were approximately €1.3 billion ($1.7 billion), down 16 percent year-on-year. The net loss amounted to €207 million, compared to a profit of €8 million in the same quarter of the previous year, the company said.

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Sony Ericsson shipped 9 million phones, a 20 percent decrease year-on-year, citing fierce competition and price erosion as reasons for the abysmal result.

Sony Ericsson isn't the only company that blames increased competition for its struggles. HTC and Motorola Mobility have both to pointed to intense competition as a reason why their respective fourth quarters were difficult. The exception is Samsung, which has seen success with its Galaxy family of smartphones.

Sony Ericsson and Motorola have been fluctuating between losses and profits for about two years, according to Geoff Blaber, analyst at CCS Insight.

"I think, the fact that we are now also seeing HTC beginning to struggle indicates that all is not well for a large proportion of Android manufacturers. It is very, very difficult for them to make money," said Blaber.

The companies that make money on Android hardware are HTC, despite its current struggles, Samsung and, perversely, Microsoft, from its Android-related licensing deals, Blaber said.

Samsung became the biggest smartphone vendor by volume in the third quarter last year, according to Strategy Analytics.

There are several reasons for Samsung's success. The fact that it makes many smartphone components itself gives the company control and cost advantages, according to Blaber. It has also had a good relationship with Google, and received early access to new versions of Android, he said.

"It is classic Samsung, as well. It has executed phenomenally well on hardware, particularly at the top-end, and created a very strong franchise in the Galaxy family," said Blaber.

As the company sells more Android-based smartphones, Google becomes more reliant on Samsung. That will help Samsung get even better support, according to Blaber.

But Samsung is still hedging its bets. Last year, it joined Intel on the development of Tizen, a new open source operating system, announcing the move shortly after Google's plan to acquire Motorola became public. This week, reports circulated that it is considering merging Tizen with its own platform, Bada.

"It is very clear that Samsung is nervous about its reliance on Android, and is looking to reduce it," Blaber said.

Apple's continuing success is of course also hurting many vendors in the Android camp. The company will report on its results for the last quarter of 2011 next week, and is expected to sell about 30 million iPhones, which would be a new record.

At the end of October, Sony announced it will acquire Ericsson's 50 percent share in their Sony Ericsson mobile phone joint venture, turning the company into a subsidiary. The transaction is expected to close in late January to February, Sony Ericsson said.

Send news tips and comments to mikael_ricknas@idg.com.

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