Finland: Nokia is battling against time

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Nokia is improving its product development, cutting 1,800 jobs in the process. In Helsinki the share price was up 6%, in New York 4%

The Finnish mobile phone giant Nokia’s problems at the top end of the smartphone market do not seem to be easing off, even though the company sold more smartphones in July-September than in any other quarter to date.

According to Strategy Analytics, the number of smartphones sold worldwide during the third quarter was 77 million, which is 78 per cent more than in the corresponding period a year ago.
In the comparative period, the sales of Nokia’s own smartphones increased by 61 per cent. Competition in the lucrative smartphone market is stiff, as numerous manufacturers keep bringing new models into the market.
However, Nokia CFO Timo Ihamuotila says that he is still optimistic.

”In the current quarter, Nokia will see the impact of its new models on the bottom line. The company’s present range of smartphones is much broader than the one we had in the two pervious quarters”, Ihamuotila notes.
Nokia commenced sales of its new smartphone, the N8, only at the end of September, after several months’ delay.

The sales of the slightly less expensive C7 model started two weeks ago, and in the course of the fourth quarter of 2010, Nokia is to introduce three new smartphones.
The main thing is that the gross profit margins on the N8 and C7 are a little better than those on Nokia’s devices on average, Ihamuotila estimates.
The gross profit margin is the difference between the net sales and the production costs excluding product development, sales, and marketing costs.

Nokia’s goal is very clear.
”We will have to get back into the touch-screen device market with large sales volumes”, Ihamuotila notes.

During the third quarter, a shortage of components disrupted particularly the sales of Nokia’s cheaper handsets.
The average sales price (ASP)bof Nokia’s devices was EUR 65, an improvement both on the previous year and the ptrevious quarter, albeit not a huge one.
This probably reflected the higher incidence of smartphones in the product mix, but it will have to be greater still before the company starts turning the corner and turning out profit figures like those boasted by Apple. 

Considering the investors’ expectations, Nokia’s net sales figure for the third quarter was good, even though it showed a decline compared with the same period in 2009.
According to a survey conducted by the news agency Reuters among 36 analysts, the median forecast for Nokia’s non-IFRS operating profit without one-time items was EUR 605 million. In other words, Nokia exceeded their expectations by EUR 29 million.
The median of a list of numbers can be found by arranging all numbers from the lowest value to highest value and picking the middle one.

At the same time, the company’s share price was strengthened after Nokia announced that it plans to cut a total of 1,800 jobs worldwide, with Finland’s share of the losses likely to be as many as 850.

”The planned reductions are attributable to the streamlining of our product development, which in turn is linked with the new organisation adopted at the beginning of July, whereupon the Symbian product management and software development were combined”, says Juha Äkräs, Nokia’s Executive Vice President of Human Resources.
According to Äkräs, the reductions will affect all countries in which Nokia’s smartphones are being developed, while he was not willing to comment on precise figures here or elsewhere.

Nokia has major product development units in Denmark, Great Britain, the USA, and India.
In Äkräs’s view, it is clear that the fact that Nokia’s business operations are increasingly focusing on software and services will call for even more software know-how.
”If we are looking at the productivity of our product development, we will have a lot to do”, Äkräs notes.
In the third quarter, the R&D costs of Nokia’s Devices and Services unit amounted to EUR 706 million.

Nokia has to keep pedalling faster in the smartphone market to keep up with competitors.
This last quarter’s results revealed that the company’s overall global share of the smartphone market fell to 34% from 38% one year ago.
Apple and RIM (manufacturers of the Blackberry) also saw a decline in their market share, as the Android-powered phones continued to surge in the market.
The “Others” category was up from 26% to 31% on the year.

Even though the net sales value of Nokia’s smartphones rose by 16% year-on-year in Q3 2010, it was significant that the ASP for these phones declined by nearly 30%, to stand at EUR 136.
There is still much work for the team under new President and CEO Stephen Elop to do, and not a great deal of time in which to do it.


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