Nokia blames destocking for 88% profit fall in Q1

Nokia blames destocking for 88% profit fall in Q1

The handset market was dealt a further blow when Nokia reported an 88% fall in profit to £107m in Q1 last week, from £107bn one year earlier.

The manufacturer said it expects conditions to worsen before improving in the second half of the year, and stuck with its prediction of a 10% decline in the handset market in 2009.

Nokia also blamed operators and distributors for extensive destocking – where operators and retailers cut back on stock to free up cashflow because of credit conditions – which it said impacted on sales volumes.

Analysts said there has already been six to nine months of destocking, which will be followed by five to six months of restocking before returning to normal levels.

Sales were down by 27% to £8.2bn on the same period in 2008, and down 24% on the previous quarter, as it sold phones on smaller margins. Gross margin dropped both quarterly and year on year, reaching 8%.

However, while shipments have decreased 19% year on year to 93.2 million, Nokia’s 5800 smartphone had three million shipments since its late November 2008 launch.

In January, Nokia reported a 69% dip in profit and a 19% fall in sales for the final quarter of 2008. At the time, Nokia chief executive Olli-Pekka Kallasvuo (pictured) outlined plans to focus on the internet services market for future growth.

However, 2009 could still be a successful year for Nokia. It launched an outdoor advertising campaign for the 5800 earlier this month; and it has high hopes for the E75 business device, which was launched last week. Later this year it will release its much-anticipated N97 model.

Analysts remain positive about Nokia despite negativity
Analysts dismissed Nokia’s further fall in profits as ‘consistent with expectations’, and said the extent to which the channel is destocking led to a tough Q1 for the manufacturer.

CSS analyst Geoff Blaber said: ‘The second quarter will start to see the beginnings of a recovery, at least within the channels.’

However, Blaber said the one area that Nokia is lacking, despite the 5800, is in the high-end smartphones. He added: ‘The 5800 was a stellar performer – it was the leading product to some extent – but it hides problems in their smartphone portfolio. Nokia needs to look at the high-end market, which is an area of weakness, as it needs margin uplift in those segments.

‘In terms of scale, supply and distribution, no one beats Nokia. Nokia’s strength is that it has a dominant presence in every segment of the market. In terms of where it needs to prioritise, its strategy at the low end of the market is the right one, but undoubtedly Nokia needs to focus on the high-end smartphone market.’

Written by Mobile Today
Mobile Today


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