Nokia Corp posted net income for the third quarter of this year down 4%, at 845m euros ($1.06bn), on revenue that was up 20% at 10.1bn euros ($12.7bn).
For the first nine months, the Espoo, Finland-based equipment vendor reported net profit up 17% at 3.08bn euros ($3.88bn) on revenue that rose 23% to 29.4bn euros ($37bn).
The fall in margins actually started at the operating level in the third quarter, profit there also dwindling by 4%, which Nokia attributed fundamentally to two factors, namely: (1) it has been making a concerted push into emerging markets like China and India with low-cost phones, i.e. sub-$50 devices, on which margins are always going to be lower, but also (2) the fact that operators in Europe in particular have not been pushing 3G (i.e. W-CDMA) with the intensity that it had anticipated, so sales of those devices, which carry higher margins, have been below initial expectations.
CEO Oli-Pekka Kallasvuo also noted that there had been considerable price cutting by competitors during the quarter, to which Nokia had responded in kind, such that it was able to take market share but took the hit on margins.
The increased focus on low-cost phones was also reflected in the company’s average selling price during the quarter, which dropped to 93 euros ($117) from 102 euros ($128) a year earlier.
CFO Rick Simonson commented that Nokia was disappointed that Enterprise Solutions had not moved nearer to profitability with the speed it had hoped during the quarter, again in part due to tough competition. It took some solace from the fact that revenue there was up 27%, and that sales of the Eseries business smart phone line were up 60% during the period. Kallasvuo predicted significantly higher volumes from that portfolio during the fourth quarter.
On the handset side, in fact, the one bright spot in terms of profitability was the Multimedia division, where not only did revenue increase 45% but operating profit was up 49%.