Nokia profit falls in third quarter

CEO Kallasvuo expects new products to boost competitiveness

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The global finance crisis has had a powerful effect on Nokia, the world’s largest manufacturer of mobile telephones.
      Turnover shrank in the third quarter by nearly EUR 700 million, while several hundred million disappeared from the company’s operating profit, compared with the same period last year.
      In spite of the dismal figures, Nokia is still in an overwhelming position compared with its competitors.
     
Uncertainly is so deep that CEO Olli-Pekka Kallasvuo will not make any predictions on the development of the mobile phone market next year.
      “It would seem clear that economic uncertainty has some effect on consumers. After all there are signs of it already. However, the market will grow in the fourth quarter”, Kallasvuo says.
      For years, sales of mobile telephones have exceeded the predictions made by manufacturers and market research institutions in the early part of the year. This year such positive surprises are seen as less likely.
      Nokia said on Thursday that it would stop buying its own shares, on which it has spent billions of euros in recent years. By changing its capital structure, Nokia is likely to be making preparations for tougher times ahead.
      “Usually in difficult economic situations, the strongest are the ones who succeed best”, Kallasvuo says.
     
Nokia predicted on Thursday that its market share would stay at the same level at the end of the year, or might even increase, compared to the July-September period. At that time Nokia sold 38 per cent of the world’s mobile telephones. In addition, Nokia repeated its previous assessment that the size of the market would grow by slightly more than ten per cent compared with last year, to 1.26 billion.
      If the estimate holds out, it would mean that worldwide sales would grow at the end of the year by only five per cent from a year earlier.
      Normal seasonal variations have indicated that Nokia’s market share tends surge toward the end of each year.
     
Kallasvuo expects that Nokia competitiveness will be boosted in this quarter by new products that are being introduced. These include the 5800, which has features very similar to that of the Apple iPhone, as well as the N96, and E71, of which nearly a million units were sold from July through September.
      Nokia will soon start selling the touch-screen 5800 phone in Asia, where the position of the American manufacturer Apple is weak.
      In Asia most mobile phones are sold by retailers, allowing Nokia to take advantage of its efficient logistics.
      In the United States, where Apple’s iPhone has been very successful, nearly all telephones are sold by telecommunications service providers, who deal with their own logistics. Also in Europe, telecommunications service providers account for a large proportion of handset sales.
     
The greatest cause for concern in Nokia’s sales figures is a serious dip in sales of smart phones. The company’s market share in the most expensive models declined in one year by 15 percentage points to 35%, although the market for smart phones grew by 40 per cent compared with the third quarter figures last year. The profit margin in high-range phones is significantly higher than that for a phone costing EUR 30.
      “The United States has been a bigger factor on the smart phone market for a year. In addition, we have one device with which we have not been able to respond to demand. It has also affected this situation”, Kallasvuo said.
     
Nokia’s market share in the USA remains at a low level, even though the company’s management been insisting for two years that the tide would turn. In July-September, Nokia sold as few phones in the country as it did at the same time a year ago.
      Nokia Siemens Networks considerably improved its profitability, even though its turnover declined. Navteq, which was bought by Nokia in the summer, and which is being reported in the Nokia results for the first time, had a turnover of EUR 160 million and an operating profit of EUR 30 million.
     
Nokia’s share price declined on the Helsinki Stock Exchange by slightly over four per cent on Thursday.
      Friday saw a sharp turnaround, however, as Nokia forged ahead by around 8% in morning trading, while the OMX Helsinki allshare index was up roughly 5%.
      Volatility in the markets has been high of late, for obvious reasons.


Previously in HS International Edition:
  Nokia Q1/2008: Weak dollar eating into value of handset market (18.4.2008)

Links:
  Nokia Q3 results

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