Saturday, April 28, 2012
Nokia warns against growth expectations for handsets
Nokia sees profits drop 66% as competition and cost-cutting undermine its promise to strengthen market share
Nokia, the world's largest mobile phone manufacturer, has warned that it will not increase its share of the handset market this year because of fierce competition. The Finnish technology company also said its profit margins will continue to come under pressure as it battles the impact of the global recession.
Nokia today announced a 66% drop in second quarter profits to €380m (£326m), sending shares down almost 10%. The company, which makes roughly four out of every 10 phones sold worldwide, had previously reassured investors that it would strengthen its dominance in the market this year.
Nokia also said it now expects profit margins in its mobile phone business in the second half of the year to be the same as the 10.3% recorded in the first six months. It had originally promised margins of at least 13%.
There was some relief, however, as Nokia reiterated its forecast that the overall mobile phone market will only fall 10% this year, to just over a billion devices, having cut its forecast twice in the past nine months.
Chief executive Olli-Pekka Kallasvuo said the company had "put in a solid performance" during a "tough quarter" and signalled that conditions show some signs of improvement as retailers and mobile phone networks have run down their stocks of phones and are ordering again. "Competition remains intense, but demand in the overall mobile device market appears to be bottoming out," he said.
The Finnish company, which is cutting jobs as it looks to reduce costs, has suffered as cash-strapped consumers hold on to their existing handsets and opt for cheap SIM-only deals, leading to a dramatic drop in sales of mid-range phones. Sales in emerging markets have also been falling as a result of the economic turmoil, with consumers looking for ever cheaper phones.
Businesses are also reining in their spending and laying off staff, which has had an impact on sales at Nokia as a major supplier to corporate customers. Meanwhile, many consumers in more developed markets who are willing to sign up to another long-term contract have been looking for a so-called smartphone such as the Apple iPhone or BlackBerry Storm in return.
Nokia said the average price of its phones in the second quarter was €62, down from €74 last year and €65 in the first quarter as a result of intense competition and higher sales of lower-priced products.
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The smartphone threat
Nokia has been playing catch-up in the smartphone category, where the iPhone has made touchscreens all the rage. Its first mass-market touchscreen device, the Nokia 5800, was launched last year and has been selling well and Nokia recently expanded its touchscreen range with the release of the N97, which comes with a slide-out qwerty keyboard. The company sold 3.7m 5800s in the second quarter, meaning more than 6.8m have shipped since launch. Nokia did not separate sales of the N97, saying only that total shipments of its N-series phones – which include other devices such as the N96 and N95 – were 4.6m in the quarter and it sold 4.7m of its E-series business devices, such as the E71 which is aimed at business people who are used to using a BlackBerry.
In the three months to end June, Nokia shipped a total of 103.2m phones, down 15% year on year and 11% on the first quarter, while the industry as a whole shipped an estimated 268m phones, down 12% year on year and a decrease of 5% on the first quarter. Nokia reckons shipments of smartphones – or "converged mobile devices" as the company calls them – increased to 41m units in the second quarter from 36m in the first quarter. Nokia shipped 16.9m smartphones compared with 13.7m in the first quarter of the year, giving it a 41% share of the market.
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Sony Ericsson struggles
The news came as ailing rival Sony Ericsson announced a loss for the same period – its fourth consecutive quarterly loss – as it continued to lose market share to rivals such as Samsung, HTC and Apple. The joint venture between Sweden's Ericsson and Sony of Japan made a loss of €213m for the three months to the end of June compared with a profit of €6m last year.
The company, which is looking to slash costs by cutting 2,000 jobs on top of the 2,000 that went last year, shipped 13.8m phones in the quarter, down 43% on the same period last year, giving it a 5% share of the market. That is down from 6% in the first quarter of 2009.
"As expected, the second quarter was challenging and we still believe the remainder of the year will be difficult for Sony Ericsson," said the firm's president Dick Komiyama. "Our focus remains on bringing the company back to profitability and growth as quickly as possible, and our performance is starting to improve due to our cost-reduction activities."
The company also hopes that new devices to be launched this year will help it increase sales and raise its market share. Its recently launched W995 is selling well, but gadget fans are eagerly awaiting its first phone using Google's Android platform, a touchscreen device apparently codenamed 'Rachael'.
There is intense speculation that Nokia is also working on a phone that uses Google's Android operating system, although a spokeswoman for the Finnish company stressed that there is "no truth" to the rumours and Symbian, the software joint venture that Nokia bought out last year, remains its "platform of choice for smartphones".
There has also been a lot of buzz about another Sony Ericsson device – nicknamed Kiki – with pictures on the internet showing that the phone has a revolutionary see-through screen. One phone that definitely will be out later this year, however, is the Satio, which has a mammoth 12.1 megapixel camera and was unveiled earlier this year under the Idou code name.
But IHS Global Insight telecoms analyst Peter Boyland pointed out that the average selling price of Sony Ericsson's phones – at €122, up from €116 in the second quarter of 2008 – "is still well above that of its key rivals, and its smartphone portfolio has not gained enough traction to justify this".
"Sony Ericsson has been hit by a double whammy of a drop in consumer spend, and a loss of interest in the company's high-end, often niche handsets, which have seen particularly sluggish take-up in emerging regions such as Latin America," he added. "The joint venture has also been criticised for dragging its feet in its entry to the smartphone market, allowing key rivals such as Apple, Palm and RIM's BlackBerry to leap ahead."
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