Sony Ericsson Earnings: Troubled Phonemaker Posts Profit

In the handset wars, three large players control most of the global handset market: Nokia (NOK), Samsung and LG Electronics. In the U.S., Apple (AAPL) and Research in Motion (RIMM) have become the hot companies in the smartphone industry, providing expensive handsets with a wide variety of functions. Meanwhile, Google (GOOG) Android-powered handsets like the Droid are gaining popularity, too, and that trend may be the salvation of troubled cell phone firm Motorola (MOT).

Then there's Sony Ericsson, the "lost" handset company, which has been bleeding market share for the past several years and said its unit sales dropped another 28% in the first quarter to 10.5 million units. In the global handset market, it's estimated that around 1.1 billion units will be shipped this year: The joint venture between Sony (SNE) and the giant Swedish telecom Ericsson (ERIC) is barely a factor.

But Sony Ericsson finally became profitable again in the quarter that ended in March. Revenue for the first quarter fell to 1.4 billion euros ($1.9 billion) from 1.74 billion euros ($2.36 billion), but net income hit 21 million euros ($29 million) from loss of 293 million euros ($398 million) in the same period a year ago. Sony Ericsson said that its bottom line was lifted by the introduction of its Xperia X10 and Vivaz smartphones, but the real key to its rediscovered profitability is that the firm cut its staff by just over 3,000 people to 8,450.

If Sony Ericsson plans to become more profitable by attacking the high-end smartphone market, it will find that the sector is already crowded, and getting more so. Aside from Apple and Research in Motion, which are expanding outside the U.S., Nokia, Samsung and LG are all trying to go "up market" with smartphones of their own. Sony Ericsson is likely to find that running near the back of the pack won't save it.