This column was originally published on RealMoney on July 13 at 11:23 a.m. EDT. It's being republished as a bonus for readers.

Sony Ericsson

put in a dazzling performance in the second quarter, providing evidence of strong upgrade demand in Europe. And its raised guidance is in clear contrast to the muted comments coming from other tech sectors lately.

However, although there's little doubt the mobile-phone sector is doing better than PC and corporate software makers, investors' growing expectations for a consumer spending slowdown and a recession in the U.S. are likely to drag mobile-phone stocks down with the rest of tech, no matter how much healthier they appear to be.

Sony Ericsson's phone volumes rose to 15.7 million units, more than a million above consensus, and up a giddy 33% year over year. The average sales price of 145 euros matched expectations; it was a tick lower than the stellar 150 euros of the first quarter but still 30 to 40 euros above the industry average.

The joint venture of




LM Ericsson


is reaping the benefits of getting a couple of key products into volume production ahead of its rivals. Sony Ericsson was the first vendor to get both a 3-megapixel camera phone and a series of reasonably priced music phones into major Western European markets. These 2006 numbers would seem to indicate that European handset upgrade sales remain robust.

Sony Ericsson's numbers don't tell us much about developing markets, where the brand is relatively weak, but recent monthly figures from Taiwan, India and Japan suggest the strong momentum we saw in May continued in June, particularly in India and China. There are few signs of demand weakness in developing markets; the rumors about component order cancellations are still difficult to reconcile with what seems to be strong country-specific mobile subscriber growth and phone sales information.

The problem for telecom stocks now is that the avalanche of analyst downgrades and negative news flow on companies such as





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threatens to engulf the entire



Earlier Thursday, SAP's comment about 8% licensing growth triggered a nearly 8% tumble in Frankfurt. Dell, Microsoft,


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and other PC names have been hammered over the past three months on fears of sluggishness in the PC market. U.S. home electronics retail chains have been blasted for months.

It's clear the markets are prepping for a U.S. consumer recession, which is expected to swamp tech companies across the board. The recession probably is coming next winter; the clock started ticking in September when the U.S. housing market peaked after one of the biggest property runups in history.

Consumer recessions following major property bubbles have often started roughly 12 months after the housing peak, so June's weakness in U.S. retail and car sales probably was a harbinger of the coming consumer crash. Not all housing peaks trigger recessions -- that's the element of uncertainty. But the blowoff phase of this housing cycle was so incestuously linked to overall consumption growth that it's hard to believe retail won't get hit hard this winter.

The trouble in evaluating the mobile-phone sector is that it may well flourish months after PC, video game and television sales have started to weaken. U.S. sales probably account for less than 18% of the global phone market now. The average sales prices in China and Russia are surprisingly high because of the cultural status of the mobile phone as a signifier of household wealth.

So we may now be in the weird twilight land where handset sales and projections still glitter with the pixie dust of the U.S.-driven global manufacturing frenzy that is fueling European, Indian and Chinese consumers, but investors are already modeling in a winter recession spilling over from Santa Barbara to Guangzhou.

This would mean the phone sector is not a good long-term investment, no matter how hot the numbers are from Sony Ericsson and other vendors in coming days. But it also means that this sector has the most rebound potential on the days when the Nasdaq is a stage for short-covering rallies, because the internal strength of the mobile-phone market remains better than that of the PC or software sectors.

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At the time of publication, Kuittinen held no positions in any of the stocks mentioned, although holdings can change at any time.

Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback;

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