Nervous Nokia

On January 22, Nokia reported fourth quarter results that missed analyst estimates due to weak consumer spending, currency volatility and credit tightness. Nokia had earlier warned that it is experiencing weak demand, but the actual impact of the dismal global economy was far greater than expected. Q4 profit slumped to the lowest level since 2001, and for the first time since 2001, Nokia has announced a cut in its annual dividend from €0.53 to €0.40. Its shares hit a 52-week low following the results release.

Q4 revenue was €12.66 billion versus €15.71 billion last year. Operating profit was down 80% to $492 million. EPS was €0.26 versus analyst forecast of €0.30 on revenue of €13.1 billion. Cash and other liquid assets at the end of the quarter were €6.8 billion versus €11.8 billion in Q407. Excluding the payment of €1.7 billion to Qualcomm, operating cash flow was €1.4 billion.

For the full fiscal year 2008, Nokia reported revenue of €50.7 billion versus €51.05 billion last year. Operating profit was down 38% to €4.9 billion. EPS was down 42.6% to €1.05.

Price competition led to market share loss; global market share fell to 37% from 40% earlier. Emerging markets, Nokia’s strongholds, were weaker than developed markets.

By segment, Devices & Services revenue in Q4 was €8.14 billion, down 27% y-o-y and 5.4% q-o-q. Higher sales of lower priced products and weak demand drove the mobile device ASP down to €71, from €72 last quarter. Nokia Siemens Networks revenue declined 5% y-o-y but was up 24% q-o-q to €4.4 billion. NAVTEQ had net sales of €205 million, up 31% q-o-q.

Nokia recently announced the Nokia N97 mobile computer, which has a high-resolution 3.5-inch touch screen, QWERTY keyboard, fully customizable home screen, and 32 gigabytes of built-in storage. It is scheduled to start shipping in the first half of 2009. The company also launched the Nokia messaging service for accessing email and instant messaging accounts. It is personalizing the Internet by adding a “social location” feature, which uses GPS and an electronic compass to auto-update social networks with a user’s present location. Much hinges on the N97 in the face of competition from Palm and Apple and their successful products.

Nokia plans to reduce annual costs at the Devices & Services unit by more than €700 million by the end of 2010. It announced that about 1,000 employees are expected to leave the company, half through divestments. Finally, it announced in Q4 that it is selling its Enterprise Firewall business to network security company Check Point Software Technologies.

For Q109, Nokia expects its market share to be flat with Q408 but continues to target an increase in market share in 2009. It revised its outlook for 2009 industry mobile device volumes from a 5% to a 10% decline.

The stock is currently trading around $12 with a market cap of around $45 billion. It hit a 52-week low of $11.75.