Nokia still choked by recession; stock falls 11% in Helsinki and New York

Nokia Siemens Networks posts EUR 908 million write-down on goodwill; Nokia Group shows reported loss of EUR 426 million

Olli-Pekka Kallasvuo

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The world's largest manufacturer of mobile phones Nokia released its Q3/2009 interim figures at lunchtime on Thursday.
      The numbers showed the handset maker's profitability had slipped dramatically in the third quarter from the same period in 2008.
      Operating profit (non-IFRS, excluding special items for all periods) was down by 57.8% at EUR 741 million, on sharply reduced net sales of EUR 9,810 million (down 19.8% year-on-year).
      Operating profit was also down 4.4% on the previous quarter, and net sales declined marginally from Q2/2009.
     
Even though the profit figure was markedly weaker, it still beat analysts' forecasts by some EUR 11 million.
      Operating margin stood at 7.6%, barely half of the 14.3% recorded in the same period of 2008 and a shade lower than the 7.8% returned in the previous quarter.
      Quarterly earnings per share (diluted) were down by 48.5%, from EUR 0.33 to EUR 0.17. Once again, however, this was better than had been forecast by analysts polled by Reuters.
     
Nokia's President and CEO Olli-Pekka Kallasvuo commented that the company's handset sales volume and the net sales figure had been somewhat constrained by a shortage of components.
      Nokia sold 108.5 million mobile phones in the third quarter of 2009, down 8% year on year but up 5% sequentially.
      Sales to China and Asia-Pacific markets accounted for nearly half of all the mobile device sales volume.
     
The market reaction to the interim report was to send the stock sharply downwards.
      Within minutes it had shed 5 or 6% of its value, and by around 14:30 on Thursday the Nokia share was off more than 9% in Helsinki at EUR 9.26.
      Although it then rallied somewhat to touch EUR 9.50, there was more heavy selling before the close and the share ended the day at EUR 9.18, down by 10.9%.
      The fall on the New York Stock Excahange was equally steep and the Nokia stock closed 11.1% lower.
     
The fall in the share price was probably attributable to the weakened profitability in Devices and Services, and particularly to the sharp collapse of the result from Nokia Siemens Networks, which posted a Q3 reported operating loss of EUR 1,107 million, primarily driven by a huge EUR 908 million write-down of goodwill.
      Without this, the unit produced a non-IFRS operating loss of EUR 53 million, as sales declined by 21.2% year-on-year and by nearly 14% from the previous quarter.
     
When the special items from NSN and others are factored in, Nokia actually reported an unfamiliar operating loss of EUR 426 for the period, compared with profit of nearly EUR 1.5 billion in Q3/2008 and a profit of more than EUR 400 million in the previous quarter.
      Nokia CEO Kallasvuo stated: "The challenging competitive factors and market conditions in the infrastructure and related services business necessitated non-cash impairment charges at Nokia Siemens Networks. We continue to support NSN's actions to improve its performance".
      He went on to note that the company must now look carefully at what can be done to improve the fortunes of the networks arm of the business. No plans for new job cuts have yet been made.
     
Investors were also unimpressed with the outlook for the future, for while Nokia continues to enjoy a mobile device market share of 38%, it is at present a large slice of a shrinking cake - the company forecasts global industry mobile device volumes to be approximately 1.12 billion units in 2009, down approximately 7% from the approximately 1.21 billion units forecast by Nokia in 2008.
     
Nokia did not apparently manage to increase its market share in smartphones, at the more lucrative "converged" end of the business.
      Between July and September, the company sold 16 million of the converged devices (among them the N-series and E-series phones) to guarantee a market share of 35%.
      This is the same as twelve months ago and actually some 6%-points smaller than in the previous quarter of 2009.
      Many eyes will now be watching to see how this segment performs in Q4, as and when many of Nokia's more recent devices start hitting the market and are weighed up as possible Christmas presents.
     
Nokia badly needs to make inroads into this market; the average price of Nokia handsets sold remained stable during this quarter at EUR 62, but that is ten euros down on 12 months ago, as the company takes measured steps to hold on to market share.
      Now we are approaching the pain threshold, and without an expansion of sales of the more expensive devices - which carry a fatter margin - things do not look very rosy.
      Furthermore, without positive signals on the smartphone front, Nokia risks losing image, and this in turn could spill over into its other products.
     

More on this subject:
 Sales of smartphones up around one million year-on-year
 Majority of device sales comes from cheap models
 Largest sales volumes from Asian markets
 Changes in roles in Nokia management team

Links:
  Nasdaq OMX: Nokia Oyj Share Information
  Nokia Q3/2009

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