13th October - Mobile handset vendor Sony Ericsson had some disappointing news to announce on Thursday, with profit for the third quarter dropping from Eur298m a year ago to Eur267m.

Sales on the other hand, increased 7 per cent from Eur2.9bn a year ago to Eur3.1bn in the third quarter,

Units shipped in the quarter reached approximately 26 million, a 31 per cent increase compared to the same period last year. Although the average sale price of a handset dropped from Eur147 in the third quarter last year to Eur127.

"Low- and mid-tier priced models such as the W200 Walkman phone and simple 'talk and text' range of phones have been key volume drivers during the quarter, while the high-spec P1 smartphone and W580 slider Walkman phone have been well received and strengthen the portfolio at the higher-end," said Miles Flint, outgoing president of Sony Ericsson.

But Ovum analyst, Martin Garner, said after a very strong run of the last few quarters, "this is disappointing stuff from Sony Ericsson.

"Now the company has flipped the concerns with margins improving but sales growth proving more challenging," he said.

Garner believes shipment growth has slowed because of two main factors. First there has been growing channel inventory in China as local vendors have priced aggressively during the last couple of quarters. This is likely to affect several vendors. Second Sony Ericsson's portfolio is ageing, especially at the high end. The effects of this have been felt mostly in Japan and Western Europe. "The launches it did during May and June of this year should fix that but those products are only just coming onto the market now," Garner said.

"These results should be a blip - Sony Ericsson is still doing well and - as the new phones come through - should have a stronger portfolio.but our earlier prediction that Sony Ericsson could overtake the troubled Motorola by the end of this year now looks a bit too optimistic," he said.