Nokia's Numbers a Big Relief for Investors

The Finnish phone giant turned in solid yet hardly spectacular fourth-quarter results. But CEO Kallasvuo has a plan for greater growth in '07

Nokia's fourth-quarter numbers beat expectations Jan. 25, but gee, were they really that good? Apparently so. The shares shot up nearly 7%, in part because some investors, worried the Finnish mobile handset maker would come out with an unpleasant surprise, instead breathed a sigh of relief after seeing the upbeat results. "Markets were really scared of what kind of figures Nokia would be posting," says Jari Honko, an analyst at eQ Bank in Helsinki.

They needn't have been. Nokia (NOK) sales rose 13%, to $15.2 billion, vs. the fourth quarter of 2005, while net profit rose 19%, to $1.7 billion. Nokia's solid earnings stood in contrast to rival Motorola (MOT), which a few days earlier reported its worst profit since 2004. Nokia was "one of the few companies that stayed stable through the quarter," says Niek van Veen, an analyst with Forrester Research in Amsterdam.

But there are some concerns about Nokia's future performance. The average selling price for Nokia devices fell to $116 from $121 in the third quarter of 2006, as the company continued to move into emerging markets dominated by lower-cost phones. In addition, Nokia wasn't able to increase its global market share of 36% from the previous quarter of 2006, though share did increase from 34% a year earlier. "I'm a bit unsatisfied about that," says eQ Bank's Honko, who thinks Nokia should have able to take advantage of the exit of some smaller manufacturers from the market.

Design for America

Still, Nokia stuck to a prediction it will increase its market share during 2007. One way the company will do that, Nokia Chief Executive Officer Olli-Pekka Kallasvuo told BusinessWeek, is by focusing on the middle market, with some 30 to 40 new handset models in the coming year. "We can improve in terms in our product portfolio. We will pay a lot of attention to that market," Kallasvuo says.

Another area of concern is the U.S., where market share slipped. To address that, Nokia is rolling out a fleet of new phones using the CDMA standard, which accounts for about half of the U.S. market. "We aren't that happy with the position in North America," Kallasvuo told reporters at a press conference in Helsinki. "We're taking concrete and clear action to improve." One measure: Nokia will design more products for the U.S. at its design center in San Diego.

Media Marvel

A few problems aside, the fourth-quarter numbers were a reminder that Nokia remains a well-managed company with a dominant position in a growth industry. And it shows Nokia is succeeding in getting back its design edge, too (see BusinessWeek.com, 11/29/06, "Nokia Gets Design-Conscious—Again").

Even as average sale prices declined, operating profit margins on mobile phones rose to 17.8%, vs. 17.1% a year earlier, as the company kept costs under control. And Nokia, which is now the world's largest maker of digital cameras as well as the largest maker of MP3 players, is ahead in high-end, multimedia handsets, which are selling well even in emerging markets such as China. "This is the market where we aren't easy to beat, by anybody," Kallasvuo says.