Feeds

Nokia held back by falling prices

But longer term outlook strong

  • alert
  • submit to reddit

Internet Security Threat Report 2014

Falling handset prices and the weak dollar hit Nokia's results, leading to a 5% decline in third quarter sales, although net income climbed 35% year-on-year and the company remained strong in market share and margins.

The company reported net income of €823m, up 35% from a year ago when profit was curbed by a €306m charge related to bad debt. Stripping out that charge and other exceptional items, Nokia's net profit would have slipped 2%. Sales were down 5% to €6.87bn.

Nokia's shares, which have boomed since it announced its recent reorganisation, dropped back 3.5% on the results announcement. As usual, the market was focusing on the short term, something that increasingly frustrates CEO Jorma Ollila, who has threatened to curtail his company's mid-quarter updates to leave his executives more free to focus on the strategic.

In the next two quarters, Nokia will be pressurised by falling prices and currency fluctuations, but longer term, its reorganisation demonstrated a company positioning itself strongly to succeed in a changed market, and it has the most detailed and creative product roadmap of any of the handset makers bar, perhaps, Samsung.

Lower average phone prices are no surprise to anyone, especially as Nokia is seeing increasing proportions of sales from India, China and other developing markets, where model prices are low. However, we have to remember that the Finnish giant is specifically targeting these territories and is creating low cost ranges for them that will preserve respectable margins, while spinning the high end smartphones and digital media gadgets into a separate division that will look for maximum profit.

Investors reacted strangely as always, getting highly excited about Sony Ericsson's turnaround, even though the company warned that next quarter would be hit by the release of a larger number of cheap phones; but slamming Nokia, which has well documented plans for increasing its margins – through more sophisticated models at the high end and even more efficient production cycles at the low end.

However, Nokia's massive dependence on handsets, which are over 80% of its revenue, is always a cause for concern, and one reason for its recent restructuring. Not that it has any problems with market share - its unit shipments rose 23% in Q3 to 45.5m, which equates to almost 40% share, but prices fell 19% year-on-year. Ollila said about half of this fallback was because of the dollar and said that, combined with the launch of new models, he was "confident that we can have double digit revenue growth in a matter of quarters". A confident prediction from a notoriously cautious CEO.

Nokia predicted that mobile phone sales would be flat or slightly up year-on-year in the current fourth quarter and that group earnings would be flat or up to 10% down. The ailing Networks division made a small profit but Olilla believes turnaround will be long term in this unit. "I think we can get into reasonable margins in the next two to three years," he said.

©Copyright Rethink Research Associates 2003

Related Research
Get the Wireless Watch Report and Weekly Newsletter, click here

Beginner's guide to SSL certificates

More from The Register

next story
Download alert: Nearly ALL top 100 Android, iOS paid apps hacked
Attack of the Clones? Yeah, but much, much scarier – report
Broadband sellers in the UK are UP TO no good, says Which?
Speedy network claims only apply to 10% of customers
Virgin Media struck dumb by NATIONWIDE packet loss balls-up
Turning it off and on again fixes glitch 12 HOURS LATER
BEST EVER broadband? Oh no you DIDN'T, Sky – ad watchdog
Rival BT moaned that claim was misleading
Fujitsu CTO: We'll be 3D-printing tech execs in 15 years
Fleshy techie disses network neutrality, helmet-less motorcyclists
Facebook, working on Facebook at Work, works on Facebook. At Work
You don't want your cat or drunk pics at the office
Soz, web devs: Google snatches its Wallet off the table
Killing off web service in 3 months... but app-happy bonkers are fine
prev story

Whitepapers

Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.
Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Getting ahead of the compliance curve
Learn about new services that make it easy to discover and manage certificates across the enterprise and how to get ahead of the compliance curve.
Top 5 reasons to deploy VMware with Tegile
Data demand and the rise of virtualization is challenging IT teams to deliver storage performance, scalability and capacity that can keep up, while maximizing efficiency.