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Smartphone competition hits Nokia, shares dive
HELSINKI |
HELSINKI (Reuters) - The world's top cellphone maker Nokia (NOK1V.HE) cut its profit outlook and delayed the launch of phones it needs to compete with the iPhone and Blackberry in the fast-growing high end of the market.
Nokia still lacks a top-range model to challenge Apple's (AAPL.O) iPhone three years after its launch. It's last high-end hit phone was the N95, which was unveiled in 2006.
Nokia reported on Thursday a rise in January-March earnings and sales, roughly in line with expectations, but cut the outlook for its 2010 operating profit margin at its key phone unit to 11-13 percent from 12-14 percent.
The average forecast of 33 analysts in a Reuters poll was 13.7 percent.
Shares in Nokia were 14.5 percent lower at 9.64 euros by 1142 GMT, dragging the STOXX Europe 600 Technology Index .SX8P four percent lower.
The smartphone market continued to expand through the economic downturn, helped by cheaper models, and research firm Gartner has forecast it will grow a whopping 46 percent this year.
Nokia delayed the renewal of its Symbian software -- seen as crucial to improve its position in the high-end of the market -- to the third quarter from second quarter.
"This is pretty significant as Nokia and Symbian have lost a lot of market share in the last few years," said analyst Neil Mawston from Strategy Analytics.
"Psychologically it is a blow as well as iPhone, Blackberry ad Android are surging ahead with software updates. Symbian cannot afford any delays," said Mawston.
SMARTPHONE PRICES DROP 17 PCT IN ONE QUARTER
Nokia slashed prices of its cellphones across its portfolio this week, with the deepest cuts of around 10 percent seen for some smartphone models, data seen by Reuters showed on Thursday.
Nokia is struggling to battle with new rivals Apple and Blackberry maker Research in Motion RIMM.O at the high end of the cellphone market, and sees a cheaper price as its strongest weapon to hold on to market share, analysts said.
Nokia is benefiting from growth among cheap smartphones, which dragged the average sales price of a Nokia smartphone 17 percent from the previous quarter to just 155 euros ($208). This compares to more than $600 for iPhone.
Apple's quarterly results blew past Wall Street expectations on the back of record iPhone sales earlier this week, and the company gave a strong revenue forecast, sending its shares to an all-time high.
For Nokia, underlying first-quarter earnings per share rose 40 percent from a year ago to 0.14 euros ($0.19), marking the first annual rise since the second quarter of 2008 but missing the average forecast of 0.15 in a Reuters poll of 43 analysts.
Earnings were boosted by massive cost cuts as Nokia slashed thousands of jobs last year, aiming to reduce costs at its key handset unit alone by more than 700 million euros to counter recession-hit demand.
January-March sales at the market leader, which makes one in three phones sold globally, grew 3 percent from a year ago, also rising for the first time since the second quarter of 2008.
Nokia shares had gained 26 percent in 2010 prior to the result, boosted by strong fourth-quarter results and hopes that its smartphones business was winning back lost market share. The share remains 8 percent higher for the year.
($1=.7439 Euro)
(Editing by Elaine Hardcastle)
(additional reporting by Joanne Frearson in London, Brett Young, Eva Lamppu and Terhi Kinnunen in Helsinki; Simon Johnoson and Niklas Pollard in Stockholm)
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This is unlike Apple of course that use little on R&D and instead build up its large cash position. Nokia still made over $4B in gross profit the last quarter, not far away from what Apple made that quarter.
So is it really fair that Apple is worth 5 times more than Nokia in terms of market cap? After all Nokia is as I write this trading with a P/E of only 12.5. Competitors like Ericsson has a P/E of 25, the S&P is at 23 (or so), the technology sector at 30… It should be clear that Nokia is one of these few stocks that could double over the next year; what we´ve seen over the last year is that they´ve not lost smartphone market share despite its ageing Symbian platform (current iteration), they´ve cut prices on models but still make much more gross profit than most of their competitors which cannot I´m sure keep up with this price war. Nokia use 10-15% less money on producing a device than many of their competitors.
Now, 25 years later, Nokia seems to have established itself as the world’s leading manufacturer of high volume low-end mobile phones selling most of its products in the emerging markets of China, India and the like. The biggest problem with this strategy is that enlightened consumers even in the developing world clamour for something better than just the simple low-end mobile phone that Nokia sells. With rising incomes more people can afford to buy smart- phones. This is where the snag is: Nokia has not been able to catch up with the competition from Apple and RIM. All that Nokia’s senior executives including Nokia’s CEO have been able to do is just promise again and again for the past couple of years to bring Nokia’s “iPhone killer” to the market. This has not yet materialised. Now, Nokia again promises to launch a new Symbian 3 platform in fall this year.
No wonder then, that investor patience is running out. Nokia keeps on promising a more rosier future, whereas Apple delivers. When Nokia brings its new Symbian 3 platform mobile next fall Apple will have already launched its iPhone 4G on the market next summer.
So, can Nokia really catch up with the competition in the high- end smart phones? That is where the fat profit margins are. That is where the future of mobile phones is.
Nokia seems to have missed the bus. Nokia is once again back as the mobile phone maker, whose phones are sold in the low- end outlets like Radio Shack was 25 years ago. History repeats itself.Unfortunately.
I think this is a misunderstanding; Nokia makes a fat gross margin also on their low end devices(i.e. some 40% compared to Apple´s I don´t know 50% on their iPhone?), actually at present they use less on R&D on their lower end devices and hence the high profit margins on these low-end devices are to some extent subsidizing the price cuts on their higher-end devices. Note that Nokia now use a large amount of money on building up infrastructure/services, if it wasn´t for that of course profit would have been high and Wall Street may have cheered and the stock could double or triple (based on for example P/E and PEG). Of course if Apple did the same an invested equally much in R&D (i.e. hiring more people, building up cloud computing infrastructure or whatever), they wouldn´t have had this high net profit. So the point is that Nokia´s gross profit isn´t much lower than Apple´s still.
As for the competition in the very high end… well we´ll see how that goes. Nokia has been slow in the past, but they have usually gotten there eventually. We now know basically what Symbian 3 and Symbian 4 will be like and at least it is vastly superior to the current Symbian, it may be one month later to hit the market than Nokia has expected (and said all along), but this wouldn´t change much. They will also improve on Meego etc. Will this be enough to be competitive in the very high end and grab market share from the likes of Apple? Perhaps not. But managing to maintaining – even increasing – its smartphone market share with the current models and notoriuosly buggy software, what can we not expect when they improve upon this and also their services such as maps (even now their Ovi Maps are superior to Google´s in some ways and they continue to invest a lot in this).
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