Nokia Q3 earnings drops 28 percent, revenue drops 5 percent

Nokia reported third-quarter earnings down 28 percent on a year earlier, and revenue down 5 percent. Its share of the mobile phone market slipped too.

Revenue for the quarter ended September 30 totalled €12.24 billion (US$17.68 billion), a figure which will disappoint analysts who had expected something nearer $18.59 billion.

The company reported net profit of €1.09 billion, down from €1.56 billion a year earlier.

During the quarter Nokia closed its acquisition of Navteq, a distributor of digital maps for GPS (Global Positioning System) terminals, bringing it additional sales of €156 million but an operating loss of €80 million.

Nokia sold 117.8 million mobile devices in the third quarter, giving it 38 percent of a market it estimates at 310 million devices. That's down from a share of 39 percent a year earlier, and 40 percent in the second quarter, it said.

Phone sales rose 13.9 percent year on year to 33.6 million in Nokia's largest regional market, Asia-Pacific, but declined 5.5 percent to 27.4 million in Europe. Nokia sold 19.8 million phones in Greater China, up 4.8 percent year on year despite a dip there in the second quarter.

The company had warned in early September that it expected its market share to drop as it refused to engage in a price war with other manufacturers.

"We will move to maximize our bottom line with the right combination of margin and market share," said President and CEO Olli-Pekka Kallasvuo in a conference call with analysts.

One factor affecting Nokia's results is a move to cheaper handsets: handset sales for the quarter rose 8 percent by volume compared to a year earlier, but dropped 7 percent by value.

"There's only one way average selling prices can go -- and that's down," said Gartner research director Carolina Milanesi.

The average selling price of Nokia's phones slipped to €72 in the third quarter, from €74 in the second quarter and €82 in the third quarter of 2007, the company said.

Nokia's flagship N96 smartphone will be struggling in this market, Milanesi said. Its over-long feature list, including a digital TV receiver that won't work in many European countries, makes it expensive to manufacture at a time when operators are being more careful about how they subsidize phones for new customers.

Despite the economic downturn, Nokia sees itself as "well positioned for the current times," it said.

The company still expects the mobile phone market to grow -- to 1.26 billion units this year from 1.14 billion in 2007, and it sees its share of that market remaining steady or rising in the fourth quarter.

Despite the broader trend towards cheaper handsets, there is keen interest in Europe in high-end touchscreen models, Milanesi said, with the mid-year arrival of Apple's iPhone 3G, High Tech Computer's Touch Diamond and Samsung's Omnia.

Nokia unveiled its first touchscreen model, the 5800, on Oct. 2.

"They missed a great opportunity with the 5800 in not selling it across Europe in time for Christmas," said Milanesi.

Nevertheless, Kallasvuo remained confident about the company's range of phones.

"Our smartphone portfolio has improved and is gaining momentum this quarter," he said.

At its infrastructure joint venture, Nokia Siemens Networks, the company expects market share and sales for the full year to remain broadly unchanged from 2007, an outlook Nokia has maintained since reporting its second-quarter results in July.

Kallasvuo refused to be drawn on the company's prospects for 2009. "The uncertainty is much more than typically," he said.

Milanesi sees little good news ahead, though. There's evidence that Western European buyers are waiting longer before replacing their phones because of uncertainty about their finances, an uncertainty that will continue to affect mobile phone vendors through the first half of 2009, she said.

Nokia's finances are less constrained than those of its customers, said CFO Rick Simonson.

"We have a very comfortable level of instant liquidity. Since 2007 we have focused on short-term, high-quality investments," he said.

"People in the supply chain are more reliant on short-term credit, and we have a very sophisticated analysis of the liquidity of our distributors and suppliers. We do extend short-term credit based on that," he said.

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