Nokia reported strong sales and profits for the fourth quarter and year end but had a couple of dark spots, namely continued declines in North America and a slipping average selling price of phones.
Net profit for the quarter was 1.3 billion euros (US$1.7 billion as of Dec. 31, the last day of the reported period), up 19 percent from the same quarter last year. Net sales reached 11.7 billion euros in the fourth quarter, up 13 percent from 10.3 billion euros in the corresponding quarter for 2005.
Nokia sold 106 million phones during the quarter, an increase of 26 percent over the previous year’s period. Those sales helped the number-one handset maker to retain a 36 percent market share, up two percentage points from a year earlier.
While the overall results keep Nokia firmly in first place, the phone giant continues to show a couple of weaknesses. Net sales of phones declined significantly in North America, driven by Nokia’s exit from the code division multiple access business and by a lack of acceptance of certain products, Nokia said.
The company is disappointed in its performance in North America and hopes to change its fortunes there soon, said Olli-Pekka Kallasvuo, Nokia’s chief executive officer, speaking during a press conference to discuss the earnings. “We are not happy with the position in North America,” he said. “We are taking concrete and clear action to improve the situation.” He was referring to an announcement from last summer that the company opened a research center in San Diego, where it intends to develop products specifically for the North American market.
Nokia’s average selling price (ASP) per phone continued to decline, as it has for others in the market. Nokia’s ASP for the fourth quarter was 89 euros, compared to 93 euros in the third quarter and 99 in the fourth quarter of 2005. In part, that drop was caused by a lower percentage of sales coming from high-end products, although the decline was offset by stable ASPs in Nokia’s entry-level product sales, Nokia said.
Nokia expects to see a continued decline in average selling price across the industry due to competitive pressure and the growing importance of emerging markets.
While emerging economies are likely to make up a growing portion of sales, those markets won’t necessarily always be attracted to low-end phones, Kallasvuo said. “What is today an entry market will be a more mature market tomorrow,” he said. By building a strong base in emerging markets now, Nokia will be better positioned to continue to lead in such regions when phone users start to upgrade to higher-end phones, he said. In 2006, China was already the biggest market for Nokia multimedia devices, he said.
Multifunction phones will definitely be the way of the future, in both mature and emerging markets, he said. “I think the market will continue to move in this direction, and single-purpose devices are, if not marginalized, at least will get much less attractive in the future.” In 2006, Nokia sold the most cameras and digital music players of any manufacturer in the world, delivering 140 million camera phones and 70 million phones with music players, he said.
For the full year, net sales rose 20 percent, growing to 41.1 billion euros from 34.2 billion in 2005. Net profit grew to 4.3 billion euros, up 19 percent over 3.6 billion in 2005. Nokia gained market share in China, Asia-Pacific and Latin America, while losing share in Europe. The more mature markets, such as Europe, continue to challenge the mobile industry while emerging markets are likely to produce the bulk of sales into the future, Nokia said.
-Nancy Gohring, IDG News Service (Dublin Bureau)
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