Wide Loss for Nokia on Writedown, 20% Sales Dip
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Nokia (NYSE: NOK) today reported a wide operating loss from anemic smartphone sales and swallowed a massive writedown from its joint venture.
The world's largest mobile phone maker reported a third-quarter operating loss of 426 million euros, compared with an operating profit of 1.5 billion euros in the same period a year earlier.
Before charges, Nokia reported earnings of 17 euros, or $0.26, a share -- a 48 percent decline from last year, but still above the $0.18 analysts had forecast.
But after absorbing a 908 million euro ($1.35 billion) wiredown on its Nokia Siemens Networks venture, the company posted a earnings per share of -0.15 euros ($0.22 per share).
Third-quarter sales totaled 9.8 billion euros, or $14.6 billion, a 20 percent decrease from the same period last year, narrowly beating analysts' estimates of $14.2 billion, according to Thomson Financial.
Despite the decline in sales, Nokia held onto its dominance in the worldwide mobile market -- it claims a 38 percent share of the market, flat with a year ago. The company said it sold 108.5 million phones during the quarter, down 8 percent year-over-year, but up 5 percent sequentially.
But sales slipped in the high-end smartphone segment, with Nokia reporting 16.4 million solid in Q3, compared with 16.9 million units last quarter -- though the figure is up from the 15.5 million smartphones it sold a year earlier.
The news comes as Nokia is moving to compete with aggressive growth from North American rivals Apple (NASDAQ: AAPL) and BlackBerry maker Research In Motion (NASDAQ: RIMM), while other players -- like Palm (NASDAQ: PALM) and Motorola -- are pushing hard on their own terms with new models.
While Nokia said it retained its 38 percent share of the overall phone market -- consistent with a year ago -- the company said its share of the smartphone market dropped to an estimated 35 percent, down from 41 percent in the second quarter 2009 and flat with the third quarter of 2008.
It also said it shipped 4.5 million Nokia Nseries and 4.4 million Nokia Eseries devices during the third quarter 2009, down from the combined 9.3 million Nseries and Eseries devices shipped in the second quarter 2009.
Kevin Burden, practice director of mobile devices at ABI Research, noted that this is Nokia's first quarterly loss in a decade, and thinks there's more to the sour numbers than flagging phone sales and global recession.
"The volume of Nokia smartphone shipments declined to 16.4 million units for the third quarter, from 16.9 million units in the previous quarter," Burden wrote in a research note. "This is not a trend you would expect during a time when consumers are finally recognizing the value that smartphones can deliver. Nokia's decade-old legacy in smartphones is clearly not helping it hold up against consumers' new expectations about how a smartphone should look and function."
Smartphones make up only 15 percent of the Finnish company's quarterly handset unit volume, he added -- a fact that indicate it has more systemic problems.
"A year-over-year decline in overall handset volume in every geographic region where Nokia operates is far more disturbing than its performance in the smartphone segment alone," Burden said. "Although improving its performance in that segment could make all the difference in some regions, such as its home European market where it posted a 1.1 percent decline, it wasn't going to help much in most of its other regional markets."
Additionally, Burden said one of Nokia's few bright spots -- a sequential 5 percent increase in mobile phone shipments -- isn't surprising because it follows Nokia's traditional pattern of growing volume throughout the year.
While the Finnish company's phone sales posted some jumps, component shortages hampered overall cash take-in.
For its part, Nokia placed a portion of the blame on shortages of necessary parts.
"Our volumes and net sales were ... somewhat constrained by component shortages we encountered across the portfolio," Nokia CEO Olli-Pekka Kallasvuo said in a statement.
Despite having written down a whopping goodwill impairment to the tune of 908 million euros for its Nokia Siemens Networks division, the company added that it remains committed to the joint venture.
"The challenging competitive factors and market conditions in the infrastructure and related services business necessitated non-cash impairment charges at Nokia Siemens Networks," Kallasvuo said. "We continue to support Nokia Siemens Networks actions to improve its performance."
Nokia also delivered some dour news for fourth quarter: The company's mobile device market share will remain flat, while Nokia Siemens Network will continue to lose share more steeply that previously expected.
Nokia, however, has made several bold moves as of late to strengthen its position in the wireless sector. This month it will start selling a netbook, the Nokia Booklet 3G, in partnership with AT&T and Best Buy and is prepping an open source tablet device, the N900.
It also recently updated the Ovi SDK for apps built on its Symbian OS after revamping the Ovi Store. In addition, Nokia in the past month bought several small tech firms specializing in geo-targeted ads and private social networking to complement its suite of mobile offerings. Overseas, Nokia continues to expand the launch of its online music service.