Nokia reveals profit drop

July 16, 2009

, HELSINKI, Jul 16 – Finnish telecoms giant Nokia revealed a 66.0-percent collapse in quarterly net profit to 380 million euros (535 million dollars) on Thursday because of a drop in handset sales and weak prices.

Shares in Nokia were down 12.6 percent on the news to 9.75 euros on the Helsinki stock exchange at 1238 GMT in an overall market down 1.79 percent.

Analysts said the shares were falling because Nokia cut back its profit target for its devices and services unit, indicating it faces tough price competition from other mobile manufacturers.

"Competition remains intense," chief executive Olli-Pekka Kallasvuo said in a statement.

"But demand in the overall mobile device market appears to be bottoming out."

The company\’s share of the worldwide handset market fell to 38 percent, down from 40 percent 12 months earlier, the company said.

Nokia said the worsening global economic conditions were the key driver behind the drop in profits, citing "weaker consumer and corporate spending, constrained credit availability and currency market volatility" as examples.

It also said that global mobile phone volumes would fall by about 10 percent in 2009 from the level in 2008, and that growth for rest of this year would be flat.

"Nokia now expects its market share in mobile devices to be approximately flat in 2009, compared with 2008," the company said in a statement.

The Finnish firm cut the profitability guidance for its devices and service unit, the company\’s biggest division responsible for handset manufacturing. would be "around the same level as the first half 2009," — approximately 12 percent.

Industry watchers said that although the results were "well in-line with market expectations" they were disappointed that Nokia had lowered its profitability target.

"A lower margin target in (handset) devices for the second half indicates that there is a price competition ongoing" between mobile phone makers, FIM Bank analyst Michael Schroeder told AFP.

Markets were also disappointed "that the average selling price fell sharper than expected," Pohjola Bank analyst Hannu Rauhala noted.

For the period April 1 – June 30, the average price for a Nokia handset was 62 euros, compared to 65 euros in the first quarter.

The Finnish company sold around 103 million handsets worldwide in the second quarter.
Its revenues amounted to 9.9 billion euros, down by nearly 25 percent from 13.2 billion euros during the same period in 2008.

Nokia\’s operating profit fell by 71 percent to 427 million euros from a year ago.
In an attempt to boost profitability Nokia launched in January a restructuring programme aiming for 700 million euros savings over the next two years.

So far this year, it has announced reduction of about 4,000 employees, including 1,300 voluntary departure packages.

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