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Nokia Slows

Posted on Thursday, Oct 23rd 2008

While Apple had a great quarter, Nokia lost market share and reported a disappointing quarter last week. The loss in market share follows its decision not to match aggressive pricing from its competitors at the cost of profitability. While market share slid to 38% from 40% last quarter and 39% last year, gross margin was 35.6%, up from 34.2% last year. Revenue for the third quarter was €12.2 billion, down 5% y-o-y and 7% q-o-q. Net profit was down by 30% to €1.09 billion. Diluted EPS, excluding charges, was €0.33, down 20% y-o-y and 11% q-o-q. 

Nokia bought back 14 million shares for 250 million during the quarter. It currently does not plan to buy back shares in the next quarter. Cash and other liquid assets were €7.2 billion at the end of the quarter. 

By segment, Devices & Services revenue was €8.6 billion, down 7% y-o-y and 5% q-o-q. Lower priced products and the weaker dollar drove the mobile device ASP down to €72, from €74 last quarter and €82 last year. Nokia Siemens Networks revenue also declined 5% y-o-y and 14% q-o-q to €3.5 billion. The new segment NAVTEQ had net sales of €156 million. 

During the quarter, Nokia shipped 117.8 million units, up 5.5% y-o-y but down 3% q-o-q. Converged mobile device shipments were 15.5 million units versus 16 million in Q307 while converged mobile device industry saw shipments increasing to 44.2 million units, versus 31.7 million units in Q3 07. Nokia recently started shipping the Tube, its iPhone challenger, and the next quarter should reveal how it is faring against the iPhone, which sold 6.9 million units in the recent quarter. 

By region, Nokia had the strongest mobile device revenue growth in Latin America, followed by Greater China. Net sales were down y-o-y in North America, Europe, and to a lesser extent in Asia-Pacific and Middle East & Africa.

Nokia and Qualcomm recently entered into a new 15-year agreement ending their three-year patent dispute. Nokia will be paying Qualcomm a lump-sum of €1.7 billion ($2.3 billion) as per the agreement, which covers various standards including GSM, EDGE, CDMA, WCDMA, HSDPA, OFDM, WiMAX, and LTE. 

Nokia also announced its plans to acquire OZ Communications to strengthen its position in consumer mobile messaging. On the messaging front, Nokia is beta testing its push email solution and plans to roll it out soon – a critical functionality to compete with the iPhone and Blackberry.

For the fourth quarter, Nokia expects its mobile device market share to be at the same level or slightly up sequentially. It is currently trading around $15 with a market cap of $56 billion. It hit a 52-week low of $14.70 on October 16 when it reported its Q3 results.

I am holding on to my Nokia holdings based on the assumption that its global channel is going to be an asset as the smartphone and convergence device movement goes beyond the early adopter segments in North America.

Chart for Nokia Corp. (NOK)
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