Nokia's net profit drops by 69 percent

Poor sales in China, the Middle East and Africa prompt analysts to call on Nokia to introduce more 'iconic' high-end smartphones

Nokia has reported a 67 percent drop in net quarterly profit, prompting analysts to call for it to introduce more 'iconic' smartphone models.

On Thursday, the Finnish communications company released its financial results for the fourth quarter of 2008, showing net profits of €576m (£543m) — down from €1.84bn in the same quarter of 2007. Operating profits were down 80 percent, and net sales fell by almost 20 percent in all its businesses: that is, the Devices and Services, Navteq and Nokia Siemens Networks divisions.

The Devices and Services business saw a sharper year-on-year decrease in net sales of almost 27 percent, alongside a drop in operating profits of just over 61 percent.

Nokia's chief executive, Olli-Pekka Kallasvuo, said in Thursday's results statement that the economy was to blame for the lower profits, but claimed Nokia had a great opportunity in the web-services market — an area where the company has been increasingly active over the past year.

"In recent weeks, the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry," Kallasvuo said. "We are taking action to reduce overall costs and to preserve our strong capital structure. However, it is important for Nokia to continue investing at the proper pace in future growth. We believe Nokia has a tremendous opportunity to capture value as the internet-services market evolves and grows."

Gartner analyst Carolina Milanesi told ZDNet UK that Nokia's reported sales had fallen short of analyst expectations. "I expected flat quarter-on-quarter sales rather than a drop, and that is a sign that things are tough," she said.

Milanesi pointed out that Nokia had seen a particularly sharp decrease in device sales in the Greater China region (36 percent down year-on-year) and in the Middle East and Africa (23 percent down). "[Sales in] emerging markets are slowing down, and that's where Nokia has a lot of market share," she said.

"For China, we're still looking at where has this all gone — so far, we haven't seen [sales] going to other vendors," Milanesi said. "So, either the market is getting smaller, or [manufacturers of cheap, unbranded handsets are picking it up]. When people are on tighter budgets, they will go for a phone that might look like a Nokia but costs 10 times less."

Smartphone sales
Milanesi also noted that Nokia's smartphone sales had dropped, with sales of high-end, consumer-oriented N-series devices faring worse than the business-oriented E-series.

"This underlines the fact that, on the N-series side, Nokia has to step up," Milanesi said, adding that, in 2009, consumers would become less interested in specifications such as the megapixel count of a phone's camera, and more interested in "rich experience" features such as widgets. "They really need to get more iconic products in the high end. The N97 will not ship before May or June — what will they do in the meantime? What are we going to see at Mobile World Congress?"

In its forecast for the coming period, Nokia said it expected industry handset volumes to fall further in the first quarter of 2009 "to a greater extent than the seasonal sequential decrease in the first quarter of the past few years". It said that, across the industry, around 10 percent fewer handsets would be shipped in 2009 than in 2008 — a revision of its original estimate of a five percent drop in volumes.

Nokia also said it expected its global market share — now at around 37 percent — to remain more-or-less static in the first quarter of 2009, but said it hoped to build market share overall during the year.

The 2008 dividend for Nokia shareholders was 40 euro cents (38p) per share, down from 53 euro cents the previous year. At the time of writing on Thursday, Nokia's share price on the Frankfurt stock exchange had fallen by just over six percent.