Rethink Wireless [ ] 2010-07-24

Nokia suffers 40% profit drop, but worst may be over

Maintains smartphone share, but selling prices and NSN unit under intense pressure Smartphone accelerometers, gyroscopes, magnetometers and pressure sensors: New Report Nokia suffered a 40% year-on-year profit decline as it continues to sit in a confidence sapping holding pattern, waiting for the new products that it claims will change its fortunes from this fall. Even with an old product line, though, it managed a 42% increase in smartphone sales, maintaining share in an increasingly competitive sector and tapping into the trend to move into the mass market. And investors were cheered that Nokia did not reduce its full year guidance, as many had expected. However, the volume growth was offset by increasing pressure on margins in other handset segments. Nokia needs showstopping smartphones to reverse the erosion of its market lead here, under siege from Android in particular. These are necessary to restore investor belief in the firm, since the markets place far more wait on these devices than on other aspects of the mobile business. And they are required to arrest the slide in Nokia's margins and average selling prices (ASPs). However, the firm's shares gained because, even without its new high end products, Nokia hung onto its 'magic number' of over 40% smartphone share. The Finnish giant said its second quarter profit fell 40% to €227m ($290m) on revenue up only 1% to €10bn. A lackluster quarter had been expected, though the scale of the profit drop was more than most analysts had expected, even though CEO Olli-Pekka Kallasvuo had issued two results warnings during the quarter. A consensus published by Bloomberg had looked for a 24% profit decline, on flat revenues. The drop was not down to declining volumes but the intense squeeze on ASPs. While Nokia shipped higher volumes of handsets in nearly all categories and markets (with the notable exception of north America), it saw its ASP down to €61, from €64 in 2009 and €62 in the first quarter of 2010, while that of smartphones dropped by over 20% year-on-year to €143. However, sales in the critical smartphone market were better than predicted, even though Nokia had no new models during the quarter. It is pinning its hopes of a recovery at the high end on the launch of the N8 this fall, running the new open source version of Symbian, plus mobile internet devices based on its cloud-oriented MeeGo OS. Nokia's overall market share fell to 33% from 35% in the quarter 2010, on sales of 111m handsets in the quarter, up 8%. And it maintained the same market share in smartphones as last year, at 41%, selling 24m open OS handsets, a 42% year-on-year improvement. Nokia may disappoint observers with its lack of a big hitting superphone like those of Apple or HTC, but it successfully fends off the challenge from its rivals in volume terms, adapting rapidly to the trend to push smartphones at midmarket users - where its economies of scale and broad channels to market come into play.