Nokia Q4 Revenues Up 6%, But 2010 Market Share Slips to 32%

Nokia has reported its fourth-quarter revenue rose 6% year-on-year (y/y) to 12.65 billion euro (US$17.3 billion), despite continued falling sales across its key European and Asian markets. The Finnish handset vendor also reported operating profit had plunged 26% y/y in the quarter to 1.09 billion euro, as it saw its share of the global market slip to 32% in 2010 from 34% at the end of 2009.

Nokia's key Devices and Services unit saw fourth-quarter revenue up 4% to 29.1 billion euro, boosted by a 24% y/y jump in revenues in China, despite seeing a 2% decline in sales in Europe and a 9% y/y drop in the rest of the Asia-Pacific region.

For the full-year 2010, sales were up 4% y/y to 42.5 billion euro, however, these were well below its 2008 level of 50.71 billion euro. For 2010, operating profit dropped 9% y/y to 3.2 billion euro, while Devices and Services revenues were up 5% to 29.1 billion euro. Nokia sold a total of 123.7 million phones in the full-year 2010, down 3% y/y.

The vendor now counts Apple and Research In Motion (RIM) among its key rivals, following double-digit growth at the smartphone specialists.

Elsewhere, Nokia's equipment joint venture (JV) Nokia Siemens Networks (NSN) saw fourth-quarter revenues increase 9% y/y to 3.96 billion euro, while operating profit fell 28% y/y to 145 million euro. NSN, a 50/50 JV with German engineering giant Siemens, also reported its full-year 2010 revenues were up 1% y/y to 12.66 billion euro, but saw full-year operating profit jump to 95 million euro, up from just 28 million euro in 2009.

Outlook and Implications

• A Fair Performance, but Nokia Faces Serious Challenges Ahead: Nokia's fourth-quarter results largely beat market expectations, quashing some dire talk in recent days about losses, and the Finnish handset vendor saw fair revenue growth in most of its sectors. Chief executive Stephen Elop stated that growth trends in the mobile devices market continued to be encouraging, but acknowledged that "Nokia faces some significant challenges in our competitiveness and our execution". Elop, who replaced Olli-Pekka Kallasvuo in September following a series of disappointing quarters, said "In short, the industry (has) changed—and now it's time for Nokia to change faster". Nokia has embarked on a ruthless programme of cost-cutting in recent years, and recently managed to reduce the number of redundancies it had planned to make in Finland by 300, due to the transfer of some employees to open positions (see Finland: 17 January 2010: Nokia Scales Back Job Losses by 300 by Transferring Staff). The job cuts have come mainly from the teams working on Symbian smartphones, and as a result of the consolidation of other projects and functions. However, such cost-cutting has not been enough to fend off increasingly fierce competition, particularly in the key smartphone market. CEO Elop has now said that Nokia will unveil a major plan to revamp its strategy on 11 February, but said it expects first-quarter sales at its dominant Devices and Services segment of 6.8-7.3 billion euro, down from 8.5 billion euro in the fourth quarter—and the general feeling is that things will get worse before they get better.
• U.S. Performance Continues to Disappoint: The appointment of Canadian former Microsoft employee Elop to the helm has been seen as a key statement of Nokia's intentions, and the CEO has made no secret of his desire to drive the vendor into the North American market, where it has traditionally struggled. Nokia also recently announced the appointment of American Jerri DeVard as its new Chief Marketing Officer, which it hopes will help to bring "fresh thinking" to efforts to reinvigorate its performance in the United States (see World: 25 November 2010: Nokia Hires American Marketing Head to Build U.S. Presence), where it has failed to gain traction in the key smartphone market against rivals such as Apple's iPhone, RIM's BlackBerry and Google's Android handsets. However, Nokia saw its fourth-quarter revenues plunge 9% y/y in the North American region, and Elop indicated that the vendor has seen "a pattern of disappointments" in the United States, adding that Nokia "very much needs to address" its weakness in the region. While market competition has intensified, Nokia has clearly benefited from improved financial conditions as markets recover from the global economic slowdown—meaning the vendor no longer has any excuse for its haemorrhaging market share.
• Nokia Loses Out in Both the Smartphone and Standard Handset Sectors: Nokia's share of the key smartphone market fell to 31% in the fourth quarter, from 38% in the previous quarter, as the vendor once again failed to put up any meaningful competition to the likes of RIM's Blackberrys, Apple's iPhone, and leading handsets using Google's Android platform. Nokia has lost serious ground in the high-end smartphone market and has recently been forced to delay the launch of its flagship E7 handset, missing the lucrative pre-Christmas shopping season (see World: 15 December 2010: Nokia Delays Launch of Flagship E7 Handset). Meanwhile, the handset vendor has recently delayed the launch of its X7 handset in the United States following the breakdown of a deal with AT&T, amid reports the network giant had declined to fund a sufficiently large marketing campaign—a further blow to Nokia's aspirations for expansion in the region (see United States: 21 January 2011: Nokia Will Not Launch Flagship X7 Handset in the U.S. Following AT&T Spat—Report). While handset sales in the fourth quarter increased, and average selling price (ASP) was up 7% y/y to 69 euro, the ASP in the vendor's converged device (smartphone) sector had plunged 17% y/y, to 156 euro. Meanwhile Nokia's sales of non-smartphones—its traditional stronghold—fell 10% y/y, dropping for a second consecutive quarter, at a time when the overall market continues to grow. The Chinese manufacturers in particular are eating into Nokia's once dominant position in low-price emerging markets—and the double-whammy of declining market share and a failure to make inroads into the smartphone market means Nokia is in dire straits. Nokia also faces a continuing challenge from the counterfeit market, stating it believes that one out of every five mobile handsets sold in the world are fakes, and that the trend is spreading beyond China to other emerging markets across Asia, Latin America, and even some parts of Europe (see World: 24 January 2011: Nokia Estimates One in Five Phones Is Counterfeit). In March 2010 Nokia dropped its estimated global market share for 2009 to 34% from an earlier 38%, as it revised its measuring methods to take account of the huge rise in counterfeit handsets.
• Platform Woes Continue: The last year has been marred not only by the late arrival of a number of Nokia's smartphones but also by delays to its Symbian and MeeGo operating systems (OS), the latter of which is only expected to make an impact this year. Nokia recently announced it is taking its Symbian OS back under full control, which it had given to the open source community to run only a few years ago, as the platform has failed to win wide adoption, with both Samsung and Sony Ericsson recently abandoning it in favour of Google's Android (see World: 9 November 2010: Nokia Admits Defeat As Symbian is Brought Back In-House). Nokia has stressed it remains committed to making the OS the most used smartphone platform in the world, and continues to invest in its emerging MeeGo OS—but said it will reveal its future strategy in this area during the announcement next month.
• Nokia Siemens Not Yet Out of the Woods: Although NSN has shown significant growth over the past year, Nokia has warned that the networks JV would at best reach breakeven in the current quarter, with sales falling to between 2.8 and 3.1 billion euro. NSN has struggled to make a profit since its 2007 start, amid falling operator spending and fierce competition from local rivals Ericsson and Alcatel-Lucent, and the Chinese giants Huawei and ZTE. However, NSN's largest rival Ericsson earlier this week forecast strong demand for mobile broadband equipment in 2011 after its sales grew for the first time in two years. Owner Siemens has recently played down rumours of a possible floatation of NSN, saying that there currently "aren't any plans" to bring the equipment vendor to the market, as both the German giant and Nokia look to reduce their stakes in the JV (see Europe: 18 January 2011: Siemens Says No Plans to Float Nokia Siemens in 2011). However, neither Nokia nor Siemens is thought to be looking to exit NSN completely, as the equipment vendor is seeing signs of improvement in the deflated networks market. Meanwhile, rival Huawei has recently managed to delay NSN's US$1.2-billion buy of Motorola's telecoms network-equipment business, in an ongoing row over the transfer of intellectual property (see World: 26 January 2011: Huawei Wins Temporary Injunction Against Motorola-NSN Deal).