Friday, July 18, 2008

Nokia's profits drop by 61%

Nokia reported second quarter earnings today, which saw its net income fall 61 percent to 1.1 billion euros ($1.74 billion), from 2.83 billion euros ($4.49 billion), compared to a year ago despite its market share reaches 40% from 38%.

Nokia blamed among other items the 259 million euro ($411 billion) charges related to its Bochum, Germany-plant closure.

Mobile device volumes rose 21 percent year on year, or 6 percent sequentially, to 122 million units, which Nokia says gives it a total global market share of 40 percent. Average selling price (ASP) fell to 74 euros ($117) from 79 euros ($125) in the first quarter. Nokia blamed some of the fall on the declining dollar, noting that 40 percent of the average selling price decline was caused on exchange rates moving against them.

Emerging markets were once again Nokia's strongest growth areas, especially in Latin America and Asia Pacific, the company's two largest markets. China, usually a strong performer for Nokia, saw sales fall 16 percent quarter on quarter, while North America, still its tiniest market by a long way, saw a 73 percent increase in sales from Q1. China sales drop is expected in view of the many natural disasters that had taken place from snow storm in Feb, earthquake in May to the latest floods that had hit Southern China in June.

The further drop in profits must had also contributed by the reinvestments and maintaining the Services and Software division who has yet to turn a profit. The Services and Software div is spearheading the Ovi and overall internet strategy for Nokia and it will take sometime before we can see a real Ovi deployment though bits and pieces of the Ovi services had been rolled out here and there. Its going to be interesting to see how Ovi will be tastefully integrated and more importantly how it will rival the iPhone, Apple Store, iTunes and MobileMe strategy.

As of now, Nokia may have a more compelling range of devices but moving forward Nokia needs think ahead how to create innovative internet services and not being me-too. It has to also start recognising the innovation behind the whole iPhone device and its powerful ecosystem Apple has created. Nokia will need to also buck up on design to fend off the strong competition coming from the two Korean mobile device companies namely Samsung and LG who has made tremendous progress.

Nokia expects mobile device volumes in the third quarter to increase, and for its share of those volumes to remain at about the same level from the previous quarter. Overall, it believes mobile device volumes in 2008 to grow 10 percent or more from its 2007 estimate of 1.14 billion units.

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