Nokia's sales, profit and market share drop

Nokia Corp. reported fourth-quarter sales down about 19% from last year. The company sold fewer phones, and its market share also dropped, it said Thursday.

Sales for the last three months of 2008 totaled €12.7 billion ($17.9 billion U.S. as of Dec. 31, the last day of the period reported), which was lower than analysts had expected.

The economy has continued to worsen, and that has affected the mobile industry, according to Nokia.

The company is still making money, but a lot less than it did a year ago. It reported a net profit at €576 million, compared with €1.8 billion a year earlier.

Just like other vendors in the sector, Nokia aims to lower costs, by more than €700 million by 2010. The plan includes staff cuts, but Nokia isn't ready to announce any details, Chief Financial Officer Rick Simonson said during a conference call.

The company sold 113.1 million phones during the fourth quarter, 15% less than it sold a year earlier and also less than the 117.8 million it sold during the third quarter.

Those figures disappointed analysts.

"Volumes were a little bit lower than we expected. We predicted their sales to be flat quarter on quarter rather than down," said Carolina Milanesi, a research director at Gartner Inc., via e-mail.

The drop in volume reflects not only the current economic climate but also Nokia's relative weakness in high-end phones for markets such as Western Europe, according to Milanesi.

Nokia now estimates its market share at 37%, down from 38% in the third quarter and 40% in the fourth quarter of 2007.

In 2009, Nokia hopes to turn the situation around and increase its market share, Nokia CEO Olli-Pekka Kallasvuo said during a conference call.

The company had been expecting a less-than-rosy fourth quarter. It lowered sales expectations twice during the last months of 2008.

On Nov. 14, Nokia said it expected 330 million phones to be sold worldwide during the fourth quarter, and 1.24 billion for the whole of 2008. It had previously expected 1.26 billion devices to be sold. Then, on Dec. 4, Nokia had some more bad news: The mobile phone market had continued to deteriorate, and sales would be even lower than the November estimate.

In the end, Nokia estimates that 305 million phones where sold during the fourth quarter, a 9% drop compared with 2007. The company's estimates of overall sales are significant because it has such a huge share of the market.

To set itself apart from the competition, Nokia must now improve the usability of its phones so buyers can take advantage of the growing set of services it provides through its Ovi portal, Milanesi said.

To improve its high-end portfolio, Nokia needs to refresh the N series of smart phones, according to Geoff Blaber, an analyst at CCS Insight. Sales of its smart phones where down in the fourth quarter, according to Nokia.

The mobile phone market is becoming increasingly polarized around cheap entry-level phones and high-end smart phones. So Nokia needs to maintain its market-leading position at the entry level and at the same time improve its high-end portfolio, Blaber said.

Nokia has seen the traction that the smart-phone sector has experienced, and the company will now increase its investment in there, according to Kallasvuo.

The company aims to expand the definition of a smart phone, officials said during the conference call. Nokia expects to combine hardware and service offerings and develop smart phones at different price points for sectors that are not currently targeted. Product details were not provided.

Nokia expects mobile phone sales to continue to decline in the first quarter of 2009.

Copyright © 2009 IDG Communications, Inc.

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