Low-cost handsets provided Nokia with a lifeline, but not necessarily a future

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A sizeable chunk of Nokia’s operating result comes from the sales of low-cost basic mobile phones. These the Finnish company sells most of all in Asia, Africa, and in Latin America.
      In all other market areas, Nokia’s sales volumes decreased in the last quarter of 2011.
      If the sales volumes of Nokia’s high-end smartphones were higher, the company’s result would make better reading.
      Last year the smartphone sector’s net sales went down by 27 per cent, while the sales volumes were reduced by 25 per cent.
     
Nokia’s strength is that despite all the turmoil and the smartphone stumbling, it is still the world’s largest mobile phone manufacturer.
      Last year the company sold 417 million handsets. This translates to more than a million shipped phones per day.
      Nokia’s core strength is its highly effective manufacturing and distribution machinery, which enables the company to sell handsets at relatively cheap prices while still keeping the margins reasonably high.
      The contribution margin that measures the profitability of Nokia’s basic phones was 13.5 per cent in Q4.
      This means that the profitability of Nokia’s basic handsets is still relatively good, even when compared with the company’s peak years.
      In the low-end handset sector, the company’s greatest threat comes from manufacturers operating in the grey economy sector, who do not trouble themselves with the licence fees for patented technology.
      In the course of the autumn, the company improved its competitiveness by launching its dual-SIM-card handsets. However, as we have seen painfully often before, the models were introduced to the market more than a year behind the original schedule.
     
As far as Nokia’s future is concerned, credible signs of the company’s return to the very apex of the smartphone market continue to remain hard to find.
      With the company’s lack of presence in the lucrative high-end smartphone market, Nokia’s profitability cannot get even close to its dizzying figures of yesteryear.
      The company’s once-vaunted attractive power has been exhausted. The consumers are suspicious.
      If Nokia’s Windows phones fail to reap success, the company may revert to being a mere manufacturer of low-cost handsets, or even just a contract manufacturer.
      This would result in enormous job losses in Finland, as there would be far less need for product development.
     
Nokia Siemens Networks is another big question-mark.
      The company has long suffered from financial difficulties and changes have been introduced alarmingly often to its leadership and strategy.
      Towards the end of last year there was a glimpse of new light at the end of the tunnel for the Nokia & Siemens joint venture, a company that at times seems to have been more or less groping in the dark, but in early 2012 this hope once again seems to be dwindling.
     
Thursday's results showed Nokia raging against the dying of the light, as it were, but investors' initial enthusiasm for figures that came in above analysts' forecasts did not last through the trading day.
      After soaring around 6% immediately after the announcement of the Q4 and 2011 figures, the stock fell back in the course of the afternoon as investors ruminated on the uncertain outlook for 2012 and beyond, and Nokia eventually closed up 2.66% in Helsinki.
      Friday saw the decline continuing, and by 13:00 the Nokia share had shed a further 3% in value to hover around the EUR 4.00 mark.
     
Also on Thursday, the Nokia Board of Directors convened the Annual General Meeting for 2012, with a proposal for a dividend of EUR 0.20 per share (2010: EUR 0.40) and recommendations for changes in board membership, including the election of Risto Siilasmaa as the new Chairman of the Board to replace the outgoing Jorma Ollila and the election of Dame Marjorie Scardino as Vice Chairman of the Board.
      Siilasmaa has been a Nokia board member since 2008, and is founder and Chairman of the Finnish software security company F-Secure.
      Three new board members will be up for appointment at the AGM: Bruce Brown, Chief Technology Officer with Procter & Gamble; Mårten Mickos, CEO of Eucalyptus Systems, Inc., and Elizabeth Nelson, an independent corporate advisor who formerly worked with Macromedia.


Previously in HS International Edition:
  Nokia Q4 result exceeds analysts´ expectations; stock up in Helsinki following announcement (26.1.2012)

See also:
  Nokia – a heavy burden for new chairman (9.1.2012)

Links:
  Nokia Q4 and 2011 figures
  Nokia Board of Directors convenes Annual General Meeting 2012
  Nasdaq OMX - Nokia

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