Nokia [NOK.HE] has used the formidable financial muscle it has built up as mobile handset market leader to engage in a vicious price war to build its market share. The result, however, has been falling revenue and a sharp drop in profits, and there is apparently little sign of its pain easing.
Nokia has posted disappointing Q3 results.
In its third quarter to September 30, Nokia’s net income fell 20% to E660 million on revenue 1% higher at E6.9 billion. The company has been hit hard by the decline in value of the dollar and says that, on a constant currency basis, sales show an 8% increase. However the overall results were buoyed by a 21% increase to E1.47 billion in network equipment sales as carriers increased spending.
In its troubled handset business, the price cuts led to a 13% fall in sales to E4.4 billion and the operating margin was squeezed to 18.6%, compared with 28.8% a year earlier.
Moreover, the pain is set to continue. Nokia forecasts that sales in the current fourth quarter, traditionally boosted by pre-Christmas demand, will be in the range of E8.4 billion to E8.6 billion, down on the E8.8 billion achieved last year. The bottom line will be hard hit and it forecasts earnings per share for the quarter in the range of E0.16 to E0.18, compared with E0.25 recorded a year earlier.
While at one time, Nokia seemed on course to grab a 40% share of the market, it has badly lost its way this year. Far Eastern consumer electronics companies, led by Samsung, are snapping at its heels and, in a market where design plays as important a role as technology, it missed out on fashion trends.
Nokia estimates that it increased market share to 33%, from 31% in the previous three months, shipping 51.4 million units in a buoyant market where it estimated total sales were 158 million units.
Chief executive Jorma Ollila said the company expected continued strong growth in global mobile device market volumes in the fourth quarter.
Nokia forecasts that global sales this year will be 630 million handsets, up from its previous forecast of over 600 million and more than 20% up on the 2003 figure.
The major problem for the company is North America where it lost market share and the company is working on a strategy to recover its position there. Mr Ollila said, A total revamp will take a bit of time before we can say we’re in full force in that market place. Nokia claims substantial market share gains in the major Western European markets and says it maintained its leadership position in China.