Sony Ericsson Sees Margins Squeezed

Sony Ericsson warned Friday that second-quarter earnings would be hurt by slowing demand for some products and a delay of new handsets, news that weighed on mobile device makers.

The Stockholm-based joint venture between Ericsson (ERIC Quote - Cramer on ERIC - Stock Picks) and Sony (SNE Quote - Cramer on SNE - Stock Picks), said sales and net income before taxes in the second quarter "continue to be negatively affected by moderating demand of mid-to-high end mobile phones," as well as the postponement of new products shipped during the quarter.

Sony Ericsson added that it plans to ship approximately 24 million phones during the quarter, which would be an increase from 22.3 million in the first quarter. However, the estimated average selling price is 115 euros, a sequential decline of 5%. Gross margin is expected to drop both year over year and sequentially, and net income before taxes is estimated to be about break-even.

In its first-quarter sales and earnings report, Sony Ericsson said income was slashed nearly in half from the same quarter a year ago. The venture plans to announce its second-quarter results on July 18.

Shares of Ericsson were tumbling 6.5% to $10.16 in early trading, and Sony was off 2.5% at $44.40. Other handset makers were falling hard. Nokia (NOK Quote - Cramer on NOK - Stock Picks) was losing 3.2%, and Motorola (MOT Quote - Cramer on MOT - Stock Picks) was off 0.1%.

Among smartphone makers, Palm (PALM Quote - Cramer on PALM - Stock Picks) was tumbling 4.7% early, and Research In Motion (RIMM Quote - Cramer on RIMM - Stock Picks) slid 3.6%.