Earnings: Nokia Profit Down 30 Percent; Sales, Market Share Down
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Nokia (NYSE: NOK) reported third quarter earnings today, which saw its net income fall 30 percent to 1.09 billion euros ($1.47 billion), from 1.56 billion euros ($2.10 billion), compared to a year ago. Third quarter earnings per share came in at 0.29 euros, down from 0.40 euros year on year, missing analyst forecasts of 0.31 euros. Sales were down 5 percent to 12.2 billion euros ($16.4 billion), falling short of analyst expectations of 12.7 billion euros ($17.1 billion). The handset maker shipped 117.8 million units, up 5 percent year on year and down 3 percent sequentially.
SEE ALSO: Earnings Call: Nokia Confirms Touch Coming This Year; Raises 2008 Phone Forecast; Progress In U.S.
Market share also fell, with Nokia’s global share now at 38 percent, down from 39 percent in Q3 2007 and down from 40 percent in Q2 2008. Nokia reported it had lower market share in Middle East & Africa, Greater China, North America and Europe, and blamed its “tactical decision not to meet certain aggressive pricing of some competitors, the overall market competition, including entry markets, and the temporary impact of a slower ramp-up of a mid-range Nokia device in the third quarter 2008” for the slide. But Nokia also said it expects mobile device volumes to increase in the fourth quarter, and for its market share to either stay the same or increase slightly.
Other Earnings Highlights:
—Mobile device average selling price: Q3 ASP was 72 euros, down 10 euros from 82 euros year on year, and down from 74 euros sequentially. Nokia said the lower ASP was caused by a higher proportion of lower priced products and the negative impact of the weaker US dollar. In fact, it estimates that 50 percent of the year on year decline in ASP was caused by the impact of changes in exchange rates. Meanwhile, lower quarter on quarter ASP was blamed on the higher proportion of lower priced products.
—Emerging markets to the rescue: Latin America and China produced the strongest net sales growth in Devices & Services. Nokia still can’t seem to crack the North American market, where sales remain stalled at a miniscule 4.5 percent of its total sales, a 16.7 percent decline year on year, and staying flat sequentially. Net sales were also down in Europe, and to a lesser extent in Asia-Pacific and Middle East & Africa.
—Converged mobile devices: Nokia estimates that volumes in the converged mobile device or smartphone industry grew in the third quarter 2008 to 44.2 million units, compared with an estimated 31.7 million units in Q307. Competition in the smartphone market it taking its bite with Nokia shipping 15.5 million units in Q308, down from the 16.0 million units it shipped in Q307. It reports shipping 9 million Nokia Nseries and 3 million Nokia Eseries devices during Q308.
Conference call highlights after the jump
—Qualcomm (NSDQ: QCOM) deal: The July agreement with Qualcomm means lower royalty payments for Nokia. Nokia will pay 1.7 billion euros to Qualcomm during the fourth quarter 2008, which will be expensed quarterly over the term of the agreement.
—Price war? CEO and chairman Olli-Pekka Kallasvuo: “When we spoke about the aggressive competition in the third quarter, we decided tactically not to participate in the price competition. We have a responsibility as the market leader, when the market leader moves, the market moves. We will continue to manage the business tactically, will look at it quarter by quarter. It’s a combination of margin and markets. Some competitors can be pretty competitive at times, but it’s market position and it’s brand and it’s distribution that count. Economic gravity will prevail with overly aggressive pricing.”
—Smartphone Volumes: Quite confident that position is stronger than it has been in last couple of quarters. Will continue to renew the portfolio in next quarter. It’s quite clear that we had too low a number when it comes to new product revenues in Q2 and early part of Q3.
—Operator subsidy strategies in uncertain times? OPK: Been a stable situation in the markets where the subsidy is a relevant concept, because they compete against each other, and need to promote their sale. With Comes With Music operators feel the need to promote something new, rather than just device only. This has been a stable situation in the past.
— Market share going into Q4: OPK: In Q4 we are trying to maximize the bottom line. In that way, there is tough competition out there. We need to see where we can get to. It’s quite clear that we believe in the market share. At the same time, we need to manage this quarter in the best possible way, that why we are giving estimate [of stable or slight increase]. Price aggression changing? Refer to the fact that [price] is not the only dynamic. Not acting on daily basis, the fine art of managing mobile handset business comes into play here. Lot of volatility when it comes to pricing. Let’s see how things develop.
—Market share in China? Normal economic rules not applicable. China’s economy growing nicely. In that way, it’s not one size fits all. The inflation in China is easing. We need to see what the other dynamics are—when it comes to Q4 overall, see the situation quite stable. One of the markets in Q3 we maintained our market share.
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