Nokia has reported a 28% decrease in Q3 net profits.
Nokia’s cautious outlook for the third quarter has dampened hopes of a recovery in the tech sector. The world’s largest mobile handset maker revealed a 28% decline in net profits, to $699 million, as the weaker US dollar offset increased handset sales.
Handset sales continued to make up the bulk of the company’s business and remained strong in Europe, although they declined in Asia-Pacific and the Americas. Mobile phone sales generated 78% of revenue and all of the company’s profit.
During the second quarter there was 14% growth in mobile phone volumes with 13 new models shipped. However, year-on-year mobile phone sales only rose 2% to reach $6.17 billion. The company blamed the weak US dollar, and to a lesser extent, a preference for cheaper phones in emerging markets such as India.
Although Nokia has reiterated its forecast of 10% growth in volume for the handset industry, it now bases the figures on hopes of a seasonal sales uptake at Christmas.
However, its move into the CDMA handset market seems to be paying off, as it reported a second-quarter increase in its CDMA market share, although no figures were provided.
What is concerning industry analysts is that Nokia has long been viewed as holding an almost unassailable position in the mobile handset market due to its strong brand. This allowed the company to sell its phones at premium prices. However, as the market slowed, the company has seen sales fall below forecasts, as consumer opt for cheaper phones, especially in new markets such as China.
Nokia now faces tougher competition from other manufacturers with improved handsets, while operators such as Vodafone [VOD.L] flex their muscles in handset purchasing policies, which in turn push prices down.
Moreover, the weak US dollar and the SARS epidemic, which dented consumer confidence in the important Asian market, have also played their part in hitting Nokia’s profitability.
