Booming sales of mobile phones in the developing world are now driving growth at Nokia Corp, which has reported second-quarter net income up 43% at 1.14bn euros ($1.4bn) on sales up 22% at 9.8bn euros ($12.4bn).
Though the bottom line was boosted by a 276m euro ($348.8m) one-off gain from the sale of Turkish operator Telsim to settle a past debt, a 29% increase in device volumes to 74.8 million has led Nokia to believe it outpaced overall market growth of 26%.
It estimates its market share at 34%, down from the 35% in the previous quarter but up on the 33% achieved a year ago. It is sticking to its forecast that the overall market will grow at least 15% from the 795 million sales achieved last year. However, the emphasis that new CEO Olli-Pekka Kallasvuo put on the words at least, made it clear that the company would not be surprised if final sales hit the billion mark.
Mobile phones contribute 60% of Nokia’s revenue, and operating profit on the mobile phone business increased 24% to 979m euros ($1.2bn) on sales 20% higher at 5.87bn euros ($7.4bn).
Poor results recently by South Korean manufacturers Samsung and LG Electronics show that the third and fourth placed players are struggling in the face of competition from Nokia and its closest rival Motorola. Kallasvuo said he expects the smaller players to be driven into niches or fade away.
While mobile phone growth in the saturated European market rose a sedate 12.2% to 21.1 million, in China sales leapt 58.1% to 11.7 million, and Asia-Pacific increased 79% to 18.8 million.
With replacement phones expected to account for half of sales in developing markets this year, Nokia is hoping that its reputation will enable it to enjoy further growth in market share.
However, this push to market for sub-50 euros ($63.2) left Nokia with average selling price in the quarter of 102 euros ($128.9), down from 105 euros ($132.8) a year earlier.
The other big success story has been in the smartphone sector, and Nokia estimates that while total shipments of what it calls converged devices rose 25% to 18.3 million, its own shipments increased 34% to 9 million units, giving it a market share close to 50%.
North America has long been a problem area for Nokia, and the loss of an important contract for pre-pay phones saw sales in the quarter fall 13.3% to 5.2 million. Kallasvuo insists the relationship with the unnamed customer has now been returned to normal.
Kallasvuo said margins will benefit from the decision to restructure its CDMA business, following a decision not to proceed with a joint venture with Sanyo. He said it plans to keep a presence in the sector on an ODM basis.
The long shadow of Qualcomm hangs over Nokia with the two companies engaged in cross-licensing talks on a replacement to their current agreement with expires in 2007. Qualcomm is well known for playing hardball on licensing and has already launched legal action to step up the pressure on Nokia. For his part, Kallasvuo would only refer to Nokia’s own strengthened patent position.
A drive to building market share in developing countries saw Nokia’s networks business increase sales by 9% to 1.8bn euros ($2.27), though without the Telsim gain, operating profit fell 41% to 123m euros ($155.4m). The prospects for this operation have been transformed by its merger with Siemens’ carrier-related business.
Kallasvuo said he expects the whole sector to consolidate around two or three players and expects the huge market power of the new operation to give it the strength to crush smaller competitors.