Thursday, January 27, 2011

HELSINKI -- Nokia Corp. on Thursday said net earnings fell 21 percent in the fourth quarter as competitors clawed market share away from the world's top cell phone maker.

The company gave a meager outlook, saying that it expects flat or little growth in phone sales in the first quarter. Its share price fell 1 percent to euro7.71 ($10.55) in late afternoon trading in Helsinki.

Net profit was euro745 million ($1.02 billion), down from euro950 million in the last quarter of 2009. Sales rose 6 percent to euro12.6 billion ($17.2 billion), but the Finnish company's profit margins were down - meaning it earns proportionally less from every sale - and its market share shrank to 31 percent from 35 percent a year earlier.

The company's new CEO, Stephen Elop, said growth trends in the market remain encouraging but acknowledged that "Nokia faces some significant challenges in our competitiveness and our execution."

Nokia - once on the cutting edge of the mobile industry - has increasingly faced fierce competition, particularly in the market for more expensive smart phones. Apple Inc.'s iPhone has set the standard for smart phones for many design-conscious consumers, while Research In Motion Ltd.'s BlackBerrys have been the favorite of the corporate set.

"In short, the industry changed, and now it's time for Nokia to change faster," said Elop, a Canadian who took over as the company's first non-Finn chief executive in September. Nokia said it would outline its new strategy next month in London.

Apple sold more than 16 million iPhones in the quarter, 86 percent more than a year ago, while Nokia shipped about 28 million smart phones. Research in Motion Ltd. hasn't released fourth-quarter numbers yet.

Nokia's market share in smart phones fell from nearly 40 percent in the fourth quarter of 2009 to just over 30 percent a year later. Its grip on the lower-end mobile phone market is also loosening as copycat handsets and dozens of small competitors in Asia are posing problems for the industry leader.

"Americans are ramping up the pressure in smart phones and the Asian vendors are doing so in entry level devices," said Neil Mawston, from Strategy Analytics in London.

He called Nokia's result "lackluster" and said it had suffered from parts shortages which likely caused higher costs.

Nokia expects to be troubled by a components shortage in the first quarter too, said CFO Timo Ihamuotila, both with expensive touch screen models as well as "in the lower end."

"(Nokia's) results were broadly in line with expectations, volume was a little bit down, operating margin was a little bit less than we had expected so that was a little bit disappointing," Mawston said, adding that an increase in the average cost of Nokia phones was "a bright spot."

Nokia said the average selling price of its phones jumped to euro69 in the quarter, from euro63 a year earlier and euro65 in the third quarter, meaning it is increasingly selling more expensive models.

Phone sales grew 4 percent to euro8.5 billion during the period, with a 13 percent increase in smart phones which accounted for more than half of total device sales. Ihamuotila said the average selling price of its smart phones grew 20 percent in the period, but gave no figures.

Nokia's strongest growth areas were China - its third-largest market - at 35 percent, and Latin America with a 20 percent increase.

But device sales in the Asia-Pacific region, traditionally a fast growth area for Nokia, fell by 10 percent and by 2 percent in Europe, its largest market.

Nokia's network unit, Nokia Siemens Networks - a joint venture with Siemens AG of Germany which had seen revenue gradually fall in recent years - reported a 9 percent increase in net sales to euro3.9 billion in the quarter.

In the full year, Nokia said total global industry handset sales grew by 13 percent compared to 2009 while its own share of the market fell to 32 percent from 34 percent in 2009.

The Espoo-based company, near Helsinki, employs 132,500 people - up 7 percent on a year ago.


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