Nokia in the fourth quarter: trouble ahead, trouble behind: Mobile device vendor ships 113 million units, down 15% year-on-year

Nokia Corp. confirmed today that the fourth quarter – typically the year’s retail high point – was dismal and said the year ahead would far worse than it anticipated just a month ago.
The company said the first quarter would reflect more extreme “seasonality” than usual; sales and shipments typically drop off after a robust fourth quarter, which did not materialize this year.
The vendor shipped 113 million units, down 15% year-on-year and 4% sequentially.
Citing “extremely limited visibility” ahead, Nokia again cut its forecast for annual growth this year from negative 5% to negative 10%. Last year, overall, device shipments were down 9% over the prior year. The company said it would cut more than $900 million in costs from its handset unit.
The grim news from the world’s largest handset vendor was sobering for an industry that has awaited holiday numbers with trepidation. And Nokia’s earnings reflected the pain.
Nokia’s fourth-quarter revenue sank more than 19%, year-on-year, with device-related sales – Nokia’s bread-and-butter – down 27% year-on-year and down 5% sequentially. That’s the first time in more than six years that the company’s quarterly revenue has contracted.
Operating profit hurtled downward more than 80%, year-on-year.
Fourth quarter numbers, reflecting holiday spending, typically show a significant jump from third quarter. Sequential declines in the fourth quarter show that consumers trimmed spending radically in the face of global headlines about company failures, job losses and an uncertain future.
Bleakness
“The main problem was China,” wrote analyst Tero Kuittinen at Global Crown Capital L.L.C. in a note to investors, “where shipments declined nearly 7 million units sequentially to 12.9 million units. Europe and Latin America were surprisingly robust – European volumes perked up more than 7 million units sequentially to 34.7 million in fourth quarter.”
Kuittinen said that the “bleakest moment in Nokia’s commentary” was the company’s guidance that operating margins for devices in the first half of the year would be “more than 10%” growing into “the teens” in the back half of the year.
This explained the drop in Nokia’s stock today, according to the analyst.
By midday, Nokia’s stock dropped more than 12% on the New York Stock Exchange to about $12.03 per share, setting a new 52-week low; its 52-week range had been $12.08 to $38.64 per share.
On smartphones
Nokia did record a sequential uptick in smartphone sales – the industry’s bright spot – to 48 million industrywide in fourth quarter from 44.2 million in the third quarter, but its own share of that market declined to 15.1 million units from 15.5 million, sequentially. With Apple also recording a sharp downturn in iPhone sales for the quarter – it sold 4.4 million iPhone 3Gs, down from 6.9 million the prior quarter – that might reflect market share growth by Research In Motion Ltd., according to Maynard Um, analyst at UBS.
Gartner analyst Carolina Milanesi said Nokia’s drop in revenue reflected the “relative weakness” of Nokia’s smartphone lineup in Western Europe. Still, Nokia would fare better than most due to its scale and global distribution, Milanesi said. The company should focus on usability of its devices so that consumers can access its Ovi-branded suite of software and services, the Gartner analyst suggested.
Nokia’s market share slipped as well, to 37% in the fourth quarter, from a high of 40% in the year-ago quarter and down a point sequentially. The Finnish vendor estimated, however, that its overall market share for last year stood at 39%.
Nokia’s CEO, Olli-Pekka Kallasvuo, cited rapid deterioration of the macro-economy, weak consumer confidence, volatile currency rates and credit tightness for the company’s weak numbers.