Earnings: Nokia Claims 39 Percent Marketshare; Revenues Up 28 Percent

Nokia (NYSE: NOK) reported net sales of $12.898 billion euros (US$18.386 billion) for Q307, an increase of 28 percent year-on-year (32 percent if currency fluctuations are taken into account). Operating profit was $1.862 billion euros (US$2.654 billion) up 69 percent year-on-year. The company had device volumes of 111.7 million units, up 11 percent sequentially and 26 percent year-on-year. Nokia estimated its marketshare of the mobile handset market to be 39 percent, up from 38 percent in the second quarter and from 36 percent in the third quarter of 2006. The volume increase offset a steadily declining average selling price…lots more after the jump….

Device breakdown: Nokia’s mobile phone unit (which excludes “multimedia computers” or whatever they’re being called) grew revenue by 3 percent to 6.1 billion euros (US$8.7 billion). Operating profit grew 78 percent to 1.4 billion euros (US$2.0 billion), with the operating margin increasing to 22.6 percent. This is despite a significant decline in average selling price year-on-year, and the take-away is that Nokia has perfected making a profit from mass-market phones. In its multimedia section (which include its N-series devices) net sales increased 23 percent year-on-year to 2.6 billion euros (US$3.7 billion), with operating profit growing 57 percent year-on-year to 575 million euros (US$820 million), with the operating margin increasing to 22.3 percent. Nokia’s converged device volume rose to 16.0 million units for the quarter, a 58.3 percent increase over the same period in 2006. The company estimated the total market for converged devices was 31.7 million units, giving Nokia a 61.5 percent marketshare. Nokia had some component issues, and these may continue in the fourth quarter, traditionally a strong sales period.

Region breakdown: Nokia saw double-digit year-on-year growth in the sales of its mobile devices in the Middle East & Africa (45.1 percent), Asia-Pacific (41.1 percent), China (37 percent) and Europe (16.9 percent). It saw a fall in year-on-year sales in North America (-1.7 percent) and Latin America (-3 percent). The quarterly changes are different for those last two regions, with Latin America falling 12.7 percent sequentially and North America gaining 39 percent sequentially — although it was still the lowest region in terms of volume. In contrast, Nokia’s multimedia section saw its strongest sales growth in the Americas, although from a low base. The company’s average selling price in the third quarter 2007 was 82 euros (US$117), down from 93 euros (US$133) in the third quarter 2006 and down from 90 euros (US$128) in the second quarter 2007.

From the conference call:

Mobile services: Nokia’s CEO Olli-Pekka Kallasvuo spoke about the manufacturer’s move into mobile services, listing all the recent acquisitions it has made. He said the intent of the move was for both incremental revenue and — most importantly — the belief that linking the devices and services will result in stickiness from the customers. When asked about the difficulty in convincing operators to use Ovi, Kallasvuo said that the recent deal with Telefonica is a good example of what will happen in the future, and Nokia is in ongoing discussions with carriers around the world. “We have a lot to bring to the table when it comes to services [such as the global services platform]…and the operators are increasingly seeing value in that…we also see value in what the operator can bring to the table” said Kallasvuo. He said that Nokia would get good support for the high-end phones it has introduced (N95 8GB, N81) and the phones would be more visible as they are marketed in the lead-up to Xmas. He specifically included the UK in this, probably due to press speculation that the handsets would be ignored by operators and quickly sink into obvilion there.

New challengers: Kallasvuo said that in the future Nokia’s competitors would expand to include companies like RIM (NSDQ: RIMM) and Apple. “I am paranoid about all the competition…this keeps us focused.” He was questioned on this later, replying that “I’m paying a lot of attention to what Apple (NSDQ: AAPL) and Rim, as examples, are doing”, and adding that Nokia needed to not only match the competition, but to beat it. He seems to be banking on the series 60 platform to do this.

Low-end Loving: What sets Nokia apart from its fellow mobile handset manufacturers is its ability to make a profit from the extreme low-end of the handset market. Kallasvuo said that Nokia’s competitors seem to be avoiding that market, probably because Nokia made it too difficult for them to compete. “In the markets where we are selling these products we are also selling other products, and we are putting a lot of marketing money into our brand…there is some overflow of that marketing money,” said Kallasvuo. He said a company needs to invest in a lot of R&D to tackle that market, and emphasized one of the key points in success: “The point here is not to be as cheap as possible, the point here is to be cheaper than the competition to make money.”

The US: Nokia is starting to sell its multimedia computers through alternative channels in the US, but the volumes are not meaningful at this time.

Press release (PDF)

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