Nokia profits plummet by 40 percent

The Finnish mobile maker's second-quarter earnings show that Nokia is still struggling to compete in smartphones, as its lower-end devices keep sales afloat
Written by Ben Woods, Contributor

Handset maker Nokia's profits dropped by 40 percent in the second quarter, as the Finnish giant struggled in the smartphone sector.

On Thursday, the company reported a profit of €227m (£192m) in the three months to June, down from €380m a year earlier. Revenue grew slightly to €10m from €9.9m.

While the company managed to increase net sales by 3 percent year-on-year to €6.8bn, tough competition in the smartphone sector was partially responsible for the fall in net profit, according to Nokia. The company's N97, N97 mini and N900 handsets have not reached the level of success of Apple's iPhone or HTC's many Android devices.

The second-quarter earnings are in line with predictions made in May by Gartner analyst Carolina Milanesi, who forecast that Nokia's high-end products would not register an impact until the end of the third quarter 2010 at the earliest. Nokia lowered its second-quarter and 2010 outlook in June, citing "multiple factors".

Nokia said it saw a second-quarter fall in the average selling price (ASP) of its handsets — from €64 in 2009 to €61 this year. The prices of its smartphones also suffered in the same period, dropping by €38 to €143.

"The... declines in our converged mobile devices' ASPs were mainly driven by an increase in the proportion of such devices sold at lower price points, consistent with our strategy to reach wider groups of consumers, as well as price pressure in certain high-end smartphones in the second quarter 2010," said Nokia in a statement, adding that appreciation in certain currencies also contributed to the decline.

The handset maker estimated that its market share remained flat in the second quarter at 33 percent — the same as in the previous quarter and down from 35 percent a year earlier.

"Nokia has been compensating for a weak device portfolio by buying market share," said Nick Jones, a mobile research analyst at Gartner, in a post on the company's blog. "This is a short-term tactic and doesn't fix Nokia's fundamental problem, which is that everyone else in the business has got a lot better over the last year and Nokia just hasn't advanced fast enough."

Nokia said it hopes to turn around its smartphone fortunes with the impending release of the N8 and the introduction of phones based on the Symbian^3 operating system.

"In smartphones, we continue to renew our portfolio. We believe that the Nokia N8, the first of our Symbian^3 devices, will have a user experience superior to that of any smartphone Nokia has created. The Nokia N8 will be followed soon thereafter by further Symbian^3 smartphones that we are confident will give the platform broader appeal and reach, and kick-start Nokia's fight back at the higher end of the market," said chief executive Olli-Pekka Kallasvuo, who reportedly is set to be replaced, in the statement.

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