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Nokia loses market share, cuts jobs

October 25, 2010 Leave a comment Go to comments

Nokia’s third-quarter swing to profit came in ahead of analysts’ expectations, but the numbers published by the Finnish vendor on Thursday were overshadowed by the news that it plans to cut 1,800 jobs as part of a streamlining initiative.

In addition, Nokia revealed that its devices market share has fallen yet further, attributing that slide at least in part to a greater exposure to industrywide component shortages than rival handset makers, and announced that the first phone based on its new Meego operating system will not make it to market this year.

Presiding over his first results announcement as Nokia CEO, Stephen Elop admitted that the company faces some tough challenges, but described it as a “landscape of unpolished gems”.

“There is an embarrassment of riches with Nokia,” said Elop, adding that there also are opportunities to create greater efficiencies and to streamline the business.

The changes will come at the vendor’s Symbian smartphones unit, where the focus will be on creating a common developer ecosystem and streamlining software development, and also in services, where the company will concentrate on creating an integrated Ovi experience across its entire device range.

But the process will also bring with it 1,800 job losses, “in devices and services, and corporate functions,” Elop said, without elaborating.

“Our devices and services business delivered, but we need to achieve more,” Elop said.

The vendor reported a profit of €322 million, compared with a loss of €913 million in the year-ago period; its profit attributable to shareholders came in at €529 million from a loss of €559 million. Operating profit stood at €403 million, compared to a €426 million loss. Net sales rose 4.7% to €10.27 billion.

Devices & Services accounted for €7.17 billion of that sales total, with the bulk of the remainder – €2.94 billion – contributed by Nokia Siemens Networks. Devices & Services was also the company’s main source of operating profit at €807 million, up from €785 million. NSN posted an operating loss of €282 million, a considerable improvement on its €1.11 billion operating loss in Q3 last year.

Nokia shipped 110.4 million devices during the quarter, an increase of 2% year-on-year, but down 1% sequentially. Of the total, 26.5 million were what it terms ‘converged devices’, that is, smartphones and mobile computers.

According to its own estimates, the industry as a whole shipped 364 million units, up 14% on-year and 8% on the previous quarter. As a result, Nokia’s market share slipped to 30%, down from 34% a year ago and 33% in Q2. It took 38% of the estimated 70.4 million global smartphone shipments in Q3, up one percentage point on-year, but down from an estimated 41% in Q2.

However, according to the latest figures from Strategy Analytics, which were published shortly after Nokia’s results announcement on Thursday, the Finnish vendor took just 34.4% of the smartphone market in Q3, down from 37.8% a year ago.

“We lost market share in Q3 as we were not able to keep up with the demand for our products,” particularly at the low end, Elop said.

“The [components] shortages we experienced were worse than expected,” added Nokia’s chief financial officer Timo Ihamuotila. Constraints “affected Nokia more” than other players since it has a significant market share at the low end, he said. “This simply happened where we are stronger.”

Nokia’s inability to meet demand for lower-end phones boosted its average selling price.

Overall ASP in Q3 was €65 including service revenues, up €1 on the year-ago quarter and up €4 on Q2. Lower-end handsets had an ASP of €42, up from €41 last year and €39 last quarter, but the average selling price for smartphones fell sharply to €136 from €190 this time last year and €143 in Q2. Nokia said the fall in smartphone ASP reflects its efforts to bring higher-spec devices to lower tiers of the market.

It is in the smartphone sector that Nokia has faced the most criticism as rival vendors such as Apple and those offering Android-based handsets have grown in popularity.

The company hopes that the N8 device, which came to market on the final day of the third quarter, and the C7, which launched this quarter, will boost its position.

“We are really pricing those devices to sell,” Ihamuotila said.

However, Nokia’s first phone based on its high-end Meego operating system will not make it to market this year as the industry originally expected.

“Our first Meego device will be a 2011 event,” Elop said, declining to give further information or timelines for the launch.

Following today’s numbers, Nokia now expects its total devices market share – both in unit sales and revenue terms – to fall slightly in 2010, having previously predicted it would remain flat. It predicts that mobile device volumes for the industry as a whole will grow more than 10% this year.

The vendor expects an operating margin for Devices & Services of 10%-12% in Q4; the unit’s operating margin came in at 10.5% in Q3, down from 11.4% a year ago, but up on the 9.5% it recorded in Q2.

Fourth-quarter net sales from Devices & Sales will be €8.2 billion-€8.7 billion, the company predicts.

 

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