The figures do not give a reliable picture. The results were above expectations, and Nokia is vastly outperforming its rivals. Its 15% growth targets for this year look ambitious, but it should be able to maintain its dominance (and astonishing margins) in the handset market. Growing the infrastructure business will be harder, but far from impossible.
Mobile giant Nokia has reported a 7.9% fall in Q4 profits.
Nokia has made an operating profit for Q4 2001 of E1.63 billion, down 7.9% on Q4 2000. Sales fell 5% to E8.79 billion. The full year profit was E5.2 billion, a 10.6% fall on 2000. The figures were significantly above Wall Street expectations. Nokia shares rose 5% in New York on the news.
Nokia is undisputed king of mobile handsets, with a margin of 22% where many barely make a profit. Its 37% market share is an advantage, bringing serious economies of scale. And despite Nokia’s prevalence, consumers perceive its handsets as premium items – especially important in a market where 55% of new handsets will be replacements.
The handset business faces competition from revitalized rivals Motorola, whose handsets were a bright spot in Tuesday’s gloomy results, and Sony Ericsson, whose color T68 was a smash hit pre-Christmas. However, Nokia is reacting quickly to innovations, launching over 20 new models in the first half of 2002.
Although the delayed roll-out of 3G in Europe (which accounts for 49% of Nokia’s sales) will slow handset market growth, it could help Nokia: many Asian players will only prove a serious threat once 3G launches. In the meantime, Datamonitor expects 27 million GPRS handsets will be sold this year. Together, these factors give Nokia a strong chance of meeting its 15% handset sales growth target.
The company also expects over 10% growth in its network infrastructure business, following a 16% fall in sales this year. Although Nokia is a major infrastructure player, its advantages here are smaller: an operator is unlikely to pay more for Nokia’s kit than Ericsson’s because it looks pretty. This makes it harder to outperform the market – which even Nokia expects will remain flat.
TDMA to GSM/EDGE conversion in the US is both a Nokia stronghold and a major growth industry, and growth in the mobile infrastructure market is expected to outstrip fixed-line infrastructure. But even so, Nokia will need to work hard to meet this target.