Nokia Whistles (Softly) Past Global Slowdown

 
 
By Roy Mark  |  Posted 2008-07-17 Print this article Print
 
 
 
 
 
 
 

Nokia is the first of the world's top handset makers to announce its quarterly results since research firm Gartner slashed its forecast for the cell phone market to 10 to 11 percent growth from a May estimate of 10 to 15 percent. Samsung, LG Electronics, Sony Ericsson and Motorola come next. Despite robust sales of Apple iPhones and RIM BlackBerrys, the smart-phone market may feel the squeeze.

Finnish cell phone maker Nokia temporarily eased market fears of the global economic downturn slicing into handset sales with quarterly results in line with predictions. The world's No. 1 handset maker also slightly increased its forecast for global handset market growth, predicting volume growth of a little more than 10 percent.

Nokia is the first of the world's top handset makers to announce its quarterly results since research firm Gartner slashed its forecast for the cell phone market to 10 to 11 percent growth from a May estimate of 10 to 15 percent. In 2007, cell phone growth margins were 16 percent.

Carolina Milanesi, Gartner's chief of mobile device research, said the economic environment is beginning to "negatively impact emerging markets as well as mature."

Despite a 61 percent plummet in profits from a year ago (blamed on one-time charges), Nokia shipped 122 million handsets in the second quarter, beating predictions of 120 million sales. Nokia's second-quarter handset sales were 21 percent higher than a year ago, representing a 6 percent increase over first-quarter sales.

The growth was led by sales of inexpensive handsets in Latin America and the Asia-Pacific region. North America, one of Nokia's smallest markets, saw an impressive 73 percent increase in sales from the first quarter. Nokia said its U.S. sales growth was driven by its 5310 model, available from T-Mobile, and the 6565 model marketed by AT&T.

Nokia's success in the low-end market was underscored by the average selling price of its mobile devices, which fell from $124 in the first quarter to $116. Nokia said more than 40 percent of the decline in average handset prices was the result of exchange rates.

"Nokia delivered increased device market share and strong underlying profitability in the quarter," CEO Olli-Pekka Kallasvuo said in a statement. "Looking at the rest of the year, we are optimistic and have had good feedback about the broad range of new products we expect to sell in our device business."

Nokia's sales gained despite the fact the company did not introduce any new models in the second quarter, although Nokia plans to introduce a new smart phone by the end of 2008. Nokia hopes the new device can make some dent in the smart-phone sales of Apple's iPhone and Research In Motion's popular wireless devices.

Nokia's good news may be tempered over the next few weeks, though, as Sony Ericsson issues quarterly results July 18, followed by LG Electronics July 21, Samsung July 25 and Motorola July 31.

Sony Ericsson issued a profit warning in June, downgrading its projected handset sales to 24 million units with an average selling price of $181, well below its previous forecasts. Sony Ericsson said its sales "continue to be negatively affected by moderating demand of mid-to-high end mobile phones, in combination with a delay of new products shipped during the quarter."

Also hamstrung by plummeting handset sales, Motorola predicted April 24 that second-quarter losses would be wider than originally projected.

Motorola said it shipped 27.4 million handsets in the first quarter, a 40 percent decline from fourth-quarter sales of 40.9 million handsets. Motorola hit its historic high in handset sales in late 2006 with 65.7 million units sold. Most of those sales came from the then widely popular RAZR line of phones.

Overall, the handset division, which Motorola is trying to spin off, put up a quarterly loss of $418 million, accounting for just 44 percent of sales for Motorola. Two years ago, handset sales accounted for two-thirds of Motorola's revenue.

 
 
 
 
 
 
 
 
 
 
 

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