Business Watch: Nokia results

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Finnish phone giant Nokia reported a smaller-than-expected dip in second-quarter earnings but fears that its long-time dominance is under threat have sent investors running for cover. The company said second-half underlying operating profit margin at its handset division – its biggest business – would be flat compared with the first-half – or around 11.3 per cent.

Up until last week the company had been forecasting a second-half margin of between 13 per cent and 19 per cent. The group also cut its forecast for its share of the handset market in 2009. Having previously told the market it expected to claw back market share, it now expects its share to be on a par with 2008.

Nokia shares tumbled almost 15 per cent on the news, the stock’s largest one-day fall in more than five years. Analysts seemed unsure whether the changed forecasts were a genuine cause for concern or just the Nokia management managing market expectations.

What is clear is that competitive threats to Nokia have never been greater, thanks to the popularity of the Apple iPhone and Research in Motion’s BlackBerry – the two iconic devices of the decade.

Add to that the threat from Asian manufacturers like Samsung and LG Electronics and the slew of new gadgets to be powered by Google’s Android operating system and you can see why times are tough in Helsinki.

The shares have already shed a third of their value over the past 12 months thanks to the global recession and its impact on profits and sales. The first quarter of 2009 may prove to have been the industry’s darkest hour as the global financial crisis put every company’s margins under pressure.

Nokia chief executive Olli-Pekka Kallasvuo has now given some cause for hope saying that while competition remains intense “demand in the overall mobile device market appears to be bottoming out.”

Nevertheless, Kallasvuo stuck to his previous forecast for a 10 per cent drop in industry volumes in 2009 compared with last year.

And while Nokia’s market share edged up from 37 per cent to 38 per cent in the second quarter compared to the first, its average selling price fell by €3 to €62 as wary consumers had to be lured with cheaper prices.
Every major handset maker has been affected by global recession but some experts say Nokia’s been struggling to make smartphones that can compete with those by Apple and Samsung.

Full article in Mobile News issue 444 (July 27, 2009).

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