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Nokia Reports Sharp Drop in Q3 Profits
Nokia has reported a sharp drop in third-quarter profits to €1.09 billion (US$1.48 billion) from €1.56 billion (US$2.12 billion) for the same period a year earlier. Net sales were down 5 percent to in the third quarter to €12.2 billion (US$16.58 billion) and were down 7 percent compared to the second quarter. At constant currency, group net sales would have increased 1% year on year and decreased 7% sequentially.
The company also revealed the cost of its settlement with Qualcomm over their long-running patent dispute. When the two companies announced the settlement in July, they said that the terms were confidential, but Nokia has now revealed that it will be making a payment of €1.7 billion (US$2.31 billion) in the fourth quarter of this year. The lump-sum payment made to Qualcomm will be expensed quarterly over the term of the agreement. As a result of the agreement with Qualcomm and certain other license agreements concluded during the third quarter 2008, Nokia incurred a slightly positive impact to its gross margin during the quarter, as the royalty provisions earlier recorded well covered the related obligations.
Nokia still expects industry mobile phone sales volumes in the fourth quarter 2008 to be up sequentially, and that it will maintain its market share. The company said that it expects industry mobile volume will be approximately 1.26 billion in 2008, up from approximately 1.14 billion units Nokia estimated for 2007.
In the third quarter 2008, the total mobile phone sales volume reached 117.8 million units, representing 5.5% year on year growth and a 3% sequential decrease. The overall industry mobile device volume for the same period reached 310 million units based on Nokia's estimate, representing 8% year on year growth and a 2% sequential increase.
Mobile Phone Sales by Geographic Area
| (million units) | Q3/2008 | Q3/2007 |
YoY Change |
Q2/2008 |
QoQ Change |
|---|---|---|---|---|---|
| Europe | 27.4 | 29.0 | -5.5% | 27.1 | 1.1% |
| Middle East & Africa | 21.5 | 19.3 | 11.4% | 21.1 | 1.9% |
| Greater China | 19.8 | 18.9 | 4.8% | 17.6 | 12.5% |
| Asia-Pacific | 33.6 | 29.5 | 13.9% | 36.4 | -7.7% |
| North America | 4.5 | 5.4 | -16.7% | 4.5 | 0.0% |
| Latin America | 11.0 | 9.6 | 14.6% | 15.3 | -28.1% |
| Total | 117.8 | 111.7 | 5.5% | 122.0 | -3.4% |
Based on its preliminary market estimate, Nokia's mobile device market share for the third quarter 2008 was 38%, compared with 39% in the third quarter 2007 and 40% in the second quarter 2008. The year on year market share decline was driven primarily by lower market share in Middle East & Africa, Greater China, North America and Europe. The sequential market share decline was driven primarily by lower market share in Latin America, Europe, Middle East & Africa and Asia-Pacific.
Multiple factors contributed to the sequential decline in Nokia's mobile device market share. The company cited its "tactical decision" not to meet certain aggressive pricing of some competitors, the overall market competition, including entry markets, and the temporary impact of a slower ramp-up of a mid-range Nokia device in the third quarter 2008.
The mobile device average selling price (ASP) in the third quarter 2008 was €72 (US$97.8), down from €82 (US$111.4) in the third quarter 2007 and down from €74 in the second quarter 2008.
Nokia and Nokia Siemens Networks however expects that the mobile infrastructure and fixed infrastructure and related services market to be flat in Euro terms in 2008, compared to 2007.
Posted to the site on 16th October 2008