Nokia's net profit falls 90 percent

If you were wondering how bad things have gotten for the mobile handset market, just take a look at Nokia, the world's largest maker of cell phones.

The company on Thursday reported a 90 percent fall in first-quarter net profits as the global recession took a big bite out of demand for mobile devices.

For the first quarter, which ended March 31, Nokia said that net profits fell to 122 million euros ($161.3 million). A year earlier the company reported net profits of 1.22 billion euros. Analysts had expected the company to report net profits of about 306 million euros.

The company's sales fell to 9.27 billion euros from 12.66 billion euros last year. This was also below analyst expectations, which were counting on sales of around 9.80 billion euros.

The first quarter was hard on profits for Nokia, but the company found some cheer in sales of its touch-screen 5800 XpressMusic device.

(Credit: Nokia)

Nokia said that it shipped about 93.2 million handsets during the quarter, a decline of 19 percent from a year earlier and down roughly 18 percent compared to the fourth quarter.

"The inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors," Nokia Chief Executive Olli-Pekka Kallasvuo said in a statement. "This adversely impacted our sales volumes in the quarter. However, it has also resulted in the demand picture becoming more predictable as we enter the second quarter."

The company reiterated that it expects sales to fall at least 10 percent this year based on 2008 levels. But much of the decline is expected in the first half of the year. The company said that it expects sales volumes in the second quarter to be flat or slightly up from what it saw in the first quarter.

The company also said that it has held its 37 percent market share, which it had predicted in January. But pricing on individual handsets fell to 65 euros from 71 euros during the previous quarter.

The sharp decline in sales and net profit is a direct result of the financial meltdown that has plagued the world market over the past two quarters. And as the economy begins to recover, Nokia's fall is likely to bottom out, too.

But now the company has other problems. While it has managed to hold onto its overall market share, the company is still losing ground at the high end of the market to companies such as Apple, with its iPhone, and Research In Motion, with the BlackBerry. And competition is only expected to intensify as others, like Palm, enter the market with new devices.

That said, Nokia says it is seeing great success with its "budget smartphone," the touch-screen 5800 XpressMusic. The company claims it shipped 2.6 million units during the first quarter. The device has a touchscreen and is specifically designed as a music player.

[jkohut]

Nokia and AT&T just got the Nokia E71 smartphone to market. This should help make both companies some more money, but it seems ridiculous that it took them as long as it did. Blackberry was selling large numbers of similarly capable phones while AT&T took it's sweet time getting this phone to market. Both Nokia and AT&T should make sure that doesn't happen with phones in the future.

[ApostolApostolov]

Nokia reaps what it sew, basically nothing new for the last two years. While iPhone sweeped the market, while Blackberry rose into power, while HTC beat them at the high-end market, they kept pouring the same boring, degrading if quality hardware packed with nothing but a anachronistic SymbianOS. Pathetic. Nokia needs to feel the bite in their ass in order to innovate again. And that resistive stepchild 5800 Tube won't cut it. It may be cheap and classy on the outside, but inside it's end of 90ies old. Symbian must die already and a better OS is due!

[Mark_Anderson]

Really?

Shall we compare how many units the iPhone shifts this quarter outwith the US to how many the 5800 has shifted?

Hmm?

[S R]

@ Mark_Anderson

You mean you want to compare the "last" quarter sales of iPhone 3G when it is due for a refresh with the first quarter sales of 5800. Sure. By all means. Also compare this quarter sales of 5800 with the next quarter sales of iPhone (when the new one arrives).

[Mark_Anderson]

Well, S_R why don't we compare the N97 to it since that's the model that'll be competing in Summer?

Now here's the thing: the iPhone sells half its units in the US where the smartphone market is, frankly, rubbish. Nokia have no meaningful presence there at all. So, if the iPhone sold 4.4 million last quarter - over Xmas - it sold, say, 2.2 million outside the US.

Do the math, sport! :)

[Ilgaz]

Thanks to my "never throw away a working thing" principle, I got Symbian S60 V3, UIQ3 and a Series 80 phones. 2 from Nokia, UIQ3 from SE.

I actually use them all, e.g. use my Nokia 9300 (micro laptop) for business, P1i for mmedia and S60 V3 for huge amount of utilities.

I never liked the idea of iPhone as a smart phone so I have even rejected/diverted a free one.

So let me tell one thing with a person with such background. If Nokia doesn't make a huge revolution, they will become irrelevant in smart phone business. Their S40 (non smart) sales won't get hit, their "mostly multimedia" stuff like 5800 won't get hit but say bye to real smart phones and the open mentality behind them.

I don't take Sony Ericsson enough serious to comment about them but... Nokia will either fix or we will end up with smart multimedia, locked devices which we treat as smart phones. It means travelling back 10 years or more in time.

[MorphMan2020]

"""I never liked the idea of iPhone as a smart phone so I have even rejected/diverted a free one.""" The IPHONE is a Personal/Smart computer that does everything.. including making a phone call. People like you who can't adapt to new technology will basically die off like NOKIA.

[Mark_Anderson]

The iPhone does everything?

LOL!

[Splashes]

Profits down 90%? Ouch!

Kinda funny, too, considering that all the Apple haters have repeated stats re: Nokia's market share ad nauseam in any discussion of the iPhone's success. Apparently market share isn't everything? Y'think? Similar to the PC market, where Apple has a huge share of the high end (such as 50%+ of the high-end laptop market), Apple is now running away with the high end in the smartphone market as well, leaving all the other companies to squabble for scraps from the low-margin market.

Honestly, I would love to see some true high-end competition for Apple. Even a fanboie like me gets irritated by some of Apple's policies. Here's hoping the Pre is as good as the previews suggest.

[seven7dust]

RIM is doing well too and providing some good competition for Apple
it's only on the Pc side where everyone is compromising with cheap plastic notebooks
netops and netbooks now even net all in ones
and leaving the high end to Apple ! very strange strategy indeed !

[J.G.]

I wonder if Nokia will continue to do business in the U.S. market, where its single digit market share has eroded. (If Nokia maintained 37% world market share that was by picking up a percentage or two internationally.) The company could save some operating and promotional costs by withdrawing from the U.S. and focusing on its strong European and Asian markets.

[Jack2point0]

This is a touch misleading right? I mean, it's not great news for sure, but they still made a profit in this economy. How many companies are doing that?

Other than that, I agree with their need to adapt to the smartphone market...

[Splashes]

Just curious -- misleading how, exactly?

The article mentions a number of facts, such as huge decline in profits, moderate decline in shipments, minor decline in ASP, etc. The only arguable opinion specific to Nokia is in the second-to-last paragraph, which says, "But now the company has other problems." And not many people would argue with the content of that paragraph.

[jakeZ2]

"Other than that, I agree with their need to adapt to the smartphone market..."

Adapt how? They have some of the most powerful / versatile phones on the market, and this year will see the release of the N86 and N97. If you want something other than a locked down out of the box consumer device, check out an N series phone.