Nokia Earnings Fall as Apple IPhone Competition Increases
Nokia OYJ CEO Olli-Pekka Kallasvuo. Photographer: Daniel Acker/Bloomberg
A customer tries out the Apple Inc. iPhone 4 smart phone. Photographer: Hannelore Foerster/Bloomberg
Nokia's new flagship handset the N8. Source: Nokia via Bloomberg
Nokia Oyj’s second-quarter profit plunged on competition from Apple Inc.’s iPhone. Chief Executive Officer Olli-Pekka Kallasvuo said a new device from the world’s largest mobile-phone maker will “kick-start” its comeback.
Nokia, which last month cut its forecast for margins, posted a steeper-than-expected 40 percent drop in net income to 227 million euros ($291 million), or 6 cents a share, from 380 million euros, or 10 cents, a year earlier. Analysts had predicted profit of 285 million euros. Sales rose 0.9 percent to 10 billion euros. The Espoo, Finland-based company maintained its outlook for margins for 2010.
“A lot of people including us were expecting the worst and while things obviously aren’t great, this may be the eye of the storm,” said Michiel Plakman, who helps manage 7 billion euros including Nokia shares at Rotterdam-based Robeco NV. “I’d expected them to take their full-year guidance down and they didn’t, so that leaves the third and fourth quarters as cliffhangers as well.”
Nokia’s margins have suffered from its failure to bring out a high-end handset to take on Apple’s iPhones and devices based on Google Inc.’s Android software. It cut forecasts twice in three months over delays in finishing the software for the N8, its new flagship handset. Nokia shares have lost two-thirds of their value since the iPhone’s June 2007 introduction, sparking speculation Nokia may seek a new CEO to replace Kallasvuo.
Nokia rose as much as 5.9 percent and traded 2.6 percent higher at 7.17 euros as of 6:04 p.m. in Helsinki. The stock has plummeted from 28.60 euros in November 2007. By contrast, Apple’s shares have more than doubled since it unveiled the iPhone in June 2007.
Management
“There are two triggers for the share price,” said Thomas Langer, a Duesseldorf-based analyst of WestLB. “One is the introduction of the new devices which will probably take place at Nokia World in September. And then there’s the big story about potential management change.”
The Nokia board led by Chairman Jorma Ollila reshuffled managers in May, shifting marketing chief Anssi Vanjoki to lead smartphones and naming a new chief technology officer, former Sun Microsystems executive Rich Green. Investors and analysts said the changes didn’t go far enough and called for Nokia to make bigger alterations such as hiring a CEO who had worked for a competitor and could bring change fast.
CEO Kallasvuo today said speculation on management changes hurts Nokia. It “must be brought to an end one way or another,” Kallasvuo said in an interview on CNBC, declining to further comment.
New Device
Nokia has struggled to finish the N8, its first phone using a revamped version of the Symbian software platform that has served the company for the past decade. The company is streamlining screens and menus to work faster on touch-screen phones and integrate new features such as television channels.
“The Nokia N8, the first of our Symbian 3 devices, will have a user experience superior to that of any smartphone Nokia has created,” Kallasvuo said in today’s statement. He said there were “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.”
Nokia’s smartphone market share remained at 41 percent and its overall market share remained at 33 percent for the second quarter in a row. The company shipped 111.1 million units, 8 percent more than last year, of which 24 million were smartphones, a 42 percent increase.
Market Share
“The shares may be up on expectations of a new CEO and stabler smartphone volumes,” said Neil Mawston, a London-based analyst with Strategy Analytics. “The only positive was the smartphone volumes were relatively high, holding share around that psychologically important 40 percent level.”
The third-quarter margin for handsets will be between 7 and 10 percent on sales of 6.7 billion euros to 7.2 billion euros, the company said.
It estimates a full-year margin of 10 percent to 11 percent. It previously said the margin would be “at the low end or slightly below” a range of 11 to 13 percent.
“It’s really a ‘prove me’ story in the fourth quarter,” said Scott Shiffman, a credit analyst with Chapdelaine Credit Partners in New York City. “Nokia has a track record of misreading the mobile-device marketplace and even if they execute 100 percent perfectly we still think it’ll be hard to compete with Apple and Android devices.”
The average selling price for Nokia handset declined to 143 euros for smartphones from 181 euros a year ago. The average for all its phones fell to 61 euros from 64 euros.
Apple, Google
Nokia “has single A credit ratings currently but we think it has a business profile more representative of a triple-B company and we think over the next 12 to 18 months ratings will continue to slip down to the triple B category as business risk rises,” said Shiffman.
Apple shipped 8.4 million iPhones in the most recent quarter and reaped average revenue of $635 per unit including extras. The Cupertino, California company this week reported a 78 percent jump in profit in the three months ended June 26 to $3.25 billion, beating analysts’ estimates, as customers flocked to the iPad tablet computer and the latest version of the iPhone. Sales surged 61 percent.
Industry smartphone sales grew 49 percent in the first quarter, according to industry researcher Gartner Inc., with Nokia’s Symbian phones declining by more than 4 percentage points as Apple and Google Inc.’s Android operating system gained.
In the latest period, the Nokia Siemens Networks joint venture with Siemens AG reported an operating loss of 179 million euros, roughly the same as last year. Nokia said the unit will maintain its market share in 2010, rather than outpacing the market as had been forecast previously.
To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net
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