Nokia Reports $1.36 Billion Loss - Global Sales Fall Astounding 20%

Nokia Reports $1.36 Billion Loss

By KEVIN J. O'BRIEN
Published: October 15, 2009

BERLIN — Nokia, the world’s largest mobile phone maker, reported a $1.36 billion loss in the third quarter as the company wrote down the value of its wireless networks venture by $1.35 billion and global sales declined 20 percent.

The company said that its leading share of the global cellphone market remained unchanged at 38 percent. But it acknowledged that its lead in smartphones, the fastest-growing segment of the market, had fallen to 35 percent from 41 percent, losing ground to Apple’s iPhone and Research in Motion’s BlackBerry devices.

Nokia’s quarterly loss, the equivalent of $1.3 billion, compared with a €1.1 billion profit a year earlier.

Analysts said Nokia was being hurt by the slowing global economy, ferocious price competition and a weak portfolio of smartphones.

“Apple and RIM are really starting to eat into Nokia’s lead in smartphones,” said Jan Dworsky, an analyst at Handelsbanken Capital Markets in Stockholm.

Nokia said the average sale price for one of its mobile phones fell by 14 percent to €62 from €72 a year earlier. The company’s operating margin for the phones — basically its profit before taxes — fell to 11.4 percent from 12.2 percent in the second quarter and 18.6 percent a year earlier.

Nokia’s shares fell by up to 8 percent on the news in Helsinki trading.

“The big drop in Nokia’s operating profit margins, coupled with the significant loss in market share for smartphones, is what the market is really concerned about,” Mr. Dworsky said.

In a statement, Olli-Pekka Kallasvuo, the Nokia chief executive, noted that the company had sold more mobiles in the third quarter than in the second quarter and tied the ongoing problems at Nokia Siemens, the wireless network venture with Siemens of Germany, to “challenging competitive factors and market conditions.”

“We continue to support Nokia Siemens Networks’s actions to improve its performance,” Mr. Kallasvuo said.

The write down at Nokia Siemens pushed the venture, which started in April 2007, to an operating loss of €1.1 billion in the third quarter, compared with a €1 million loss a year earlier.

Over all, Nokia’s sales fell to €9.8 billion in the third quarter from €12.2 billion a year ago, led by setbacks in Latin America, North America, Asia-Pacific and Middle East-Africa, where declines were 31 percent, 29 percent, 25 percent and 25 percent, respectively.

“It’s obviously tough times in the industry,” said Chris Jones, an analyst at Canalys, a research firm in Reading, England. “There is huge price competition in the mobile phone market and Nokia is trailing its rivals, particularly Apple and R.I.M., in the race to make easy-to-use and fun smartphones.”

Mr. Jones said Nokia Siemens was losing network equipment business to low-cost Chinese makers Huawei and ZTE, whose gains in Europe and Asia have also caused problems for Alcatel-Lucent, the Paris-based equipment maker.