Nokia Earnings Plummet 90% as Demand Sours

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Nokia CEO Olli-Pekka Kallasvuo
Source: Nokia

Earnings for the world’s largest cell phone maker plummeted to €122 million — down from €1.2 billion a year earlier — on a decrease in revenue that saw Nokia’s (NYSE: NOK) sales drop from €12.6 billion to €9.2 billion compared to a year ago.

On a per-share basis, Nokia reported a €0.03 profit, down sharply from the €0.32 profit it posted a year ago and below financial analysts’ expectations of a €0.06 profit, according to Reuters Estimates.

Citing an “exceptionally tough environment,” Nokia CEO Olli-Pekka Kallasvuo said that the global recession is significantly decreasing the demand for mobile handsets.

“Regarding the health of the overall mobile device market, the inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors,” 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.”

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

Moving forward, Nokia expects sales to fall at least 10 percent this year compared to 2008 levels, with the majority of the dip expected in the first half of the year.

One cause for relief might be that the company said it expects sales volumes in the second quarter to be flat or slightly up from what it saw in the first quarter. Nokia also said that its 37 percent market share remains unchanged, which it had predicted in January.

Yet Nokia’s financial woes come at a time when, at least in the U.S., the handset maker may have more than the economy to worry about. This summer, it’s facing renewed competition from players like Palm (NASDAQ: PALM), which is poised to roll out its Pre mobile device.

BlackBerry maker Research In Motion (NASDAQ: RIMM) also plans updates to its Storm smartphone, while Apple (NASDAQ: APPL) is rumored to be releasing new iPhones. There are also a slew of vendors pledging to release new handsets based on the Google-led Android mobile operating system.


These developments and Nokia’s bleak financial news has opened the door to criticism in the blogosphere that the company lacks innovation during a critical moment in the smartphone market, with white-hot competition and advanced devices like the BlackBerry becoming hits by crossing over from the enterprise to the mainstream.

But the Finnish company isn’t asleep at the wheel, IDC analyst William Stofega told InternetNews.com.


“People knock them for not being out there with a bunch of marketing campaigns and hype,” Stofega said. “But they really do their research, they’re very careful about where they put their money, and from a financial perspective, that’s not a bad thing.”

“And they are superior in their production and supply chain — there’s not an equal in that regard, so it bodes well for them though it may not seem that way today,” he added.

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Stofega also cited the company’s global presence, success with its music-oriented smartphone offerings and the N97 — a promising QWERTY/touchscreen hybrid to be released in June — as answers to the critics.

“You have to look at them as a worldwide company, and to their credit, I see some stabilization,” he said. “Going forward, they do have some good things in store — they are working to expand their services and applications, they had some success with the Xpress Music phone, [Nokia’s] best seller in the first quarter, and everyone forgets they have a strong presence in the developing markets.”

“They’re not Apple — they’re selling phones to people in India. At the end of the day, Nokia is the leader in making all types of mobile phones as opposed to just the high-end with a rabid fan base.”

Still, not everyone seems to be suffering as badly as Nokia. RIM beat earnings estimates across the board, suggesting that its efforts to gain a greater foothold in the consumer market may be working. Recent reports have also suggested that Apple may be holding up even during the downturn in the economy.

However, another mobile analyst, Meredith Eitt of Current Analysis, said that Nokia doesn’t necessarily have to create an iPhone-killer right away to succeed, though she warned that Nokia could be ceding the U.S. market if it fails to do so in the future.


“Nokia’s current performance probably won’t be affected much by the upcoming U.S. smartphone releases because Nokia’s presence is largely in Europe,” she said. “Its U.S. presence is sparse and, though they offer some unlocked phones, they have little distribution via U.S. carriers. What handsets they do offer are low to mid-range phones. Thus, smartphone releases will not impact those sales.”

“However, the new releases may have some impact on Nokia’s potential future in the U.S., as Nokia has been trying to expand its footprint in the U.S. and the upcoming releases will make it all the more difficult for Nokia to penetrate the U.S. smartphone market,” she added.

Despite the brutal economic climate and looming competition, however, Nokia’s Kallasvuo cited some signs of hope for future growth at his company.

“In what has been an exceptionally tough environment, we continue to invest in a focused manner in consumer Internet services delivered across our broad portfolio of mobile devices,” he said in a statement. “Combined, these solutions will drive our future growth.”

“As an example in Q1, I am especially pleased with the performance of our first mass-market touch product, the Nokia 5800 XpressMusic,” Kallasvuo said, referring to last year’s launch of a music-oriented smartphone that features a service, Comes With Music, that’s designed to rival Apple’s iTunes store.

“Together with Comes With Music, it is a great example of Nokia providing solutions that consumers value,” he said.

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