Nokia sees profits fall, new competition in emerging markets

By Geoff Duncan January 28, 2011

Finland’s Nokia might still be the biggest mobile phone maker on the planet, but the company has been dealt repeated body blows in the smartphone market first by the Apple iPhone and more recently by the Android ecosystem. And while the world waits for Nokia to respond, the company’s latest financial results give little cause for celebration: while Nokia is still earning money, it say its operating profit fall by 26 percent during the fourth quarter of 2010, with net earnings declining by 21 percent. And by Nokia’s own estimates, its share of the worldwide handset market shrank from 4 percent in 2009 to 32 percent in 2010.

“In Q4 we delivered solid performance across all three of our businesses, and generated outstanding cash flow,” said Nokia’s new CEO Stephen Elop, in a statement. “Yet, Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it’s time for Nokia to change faster.”

As one might expect, Nokia saw even more of its smartphone market lost to the likes of the iPhone and Android: where Nokia accounted for 38 percent of the global smartphone market in the third quarter of 2010, that dropped to 31 percent in the fourth quarter. However, perhaps more troubling was a drop in what has traditionally been Nokia’s cash cow: feature phones. Nokia has seen its global marketshare in feature phones drop by 10 percent compared to a year ago, with its position largely being eroded by vendors like Spice, Micromax, and China’s ZTE, which are offering low-cost handsets that can handle SIM cards from multiple operators, enabling users to switch between operators on a location-by-location (or call-by-call) basis. According to market research firm IDC, ZTE is now the fourth-largest handset maker on the planet—and that position has largely come at the expect of LG, Samsung, and number-one Nokia.

Nokia warned investors that its operating profit margin for the first quarter of 2011 will likely drop to seven to ten percent compared to 11.3 percent last year.

New Nokia CEO Stephen Elop has indicated Nokia plans to land with a bang at next month’s Mobile World Congress in Barcelona, outlining Nokia’s new strategy, along with new devices based on the MeeGo operating system developed in collaboration with chipmaker Intel. Elop has also indicated Nokia intends to re-establish Nokia’s presence in markets like North America, where the presence the company’s one-ubiquitous phones has dwindled to virtual non-existence.

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