Earnings: Nokia Handset Sale Revenue Up 2.7 Percent Year-On-Year

By James Quintana Pearce - Thu 19 Apr 2007 03:10 PM PST

Nokia has released its earnings for the first quarter of 2006, with overall revenue from handset sales up 2.7 percent year-on-year. In the first quarter of this year it generated 7.835 billion euros (US$10.642 billion) in handset sales, compared to 7.627 billion euros (US$10.361 billion) in the first quarter of 2006. Nokia breaks that up into “mobile phones”, which fell 5 percent year-on-year to 5.583 billion (US$7.585 billion), and “multimedia”, which grew by 28% to 2.252 billion euros (US$3.060 billion). Total revenue increased by 4 percent year-on-year to 9.856 billion euros (US$13.392), while operating profit fell by 7 percent to 1.272 billion euros (US$1.728 billion). Operating profit for mobile phones fell 14 percent year-on-year to 936 million euros (US$1,272 million) and for multimedia operating profit grew by 31 percent to 424 million euros (US$576 million).

Handset sales: Nokia estimates that it sold 91.1 million devices across its mobile phones, multimedia and enterprise solutions businesses, a year-on-year growth of 21 percent and a sequential decline of 14 percent. It estimates that the overal industry sold 253 million units, a year-on-year growth of 18 percent and a sequential decline of 13 percent. That puts its marketshare at 36 percent globally, up from 35 percent a year ago. Its estimates for “converged devices” was 23.5 million units for the industry (up from 17 million units a year ago) and 11.8 million units for Nokia (compared to 8.5 million units a year ago). Nokia shipped almost 8 million Nseries phones and more than 1 million Eseries devices. The average selling price for Nokia handsets in the first quarter was 89 euros (US$121), the same as in Q4 2006 and down from 103 euros (US$140) a year ago. There’s a growth in low-end phone in emerging markets and in high-end phones, which off-set each other. As Motorola noted, the middle ground is shrinking. While Motorola did pretty well in North America and Latin America and crashed everywhere else, Nokia had the opposite results, increasing everywhere year-on-year except North America.
Nokia expects handset sales for the industry to increase slightly in the second quarter, and for its marketshare to remain the same...it’s expecting more than a billion handsets sold this year.

Update from the earnings call: There were some interesting thing brought up in the conference call. In regards to the US market, where Nokia’s marketshare is plummeting, president and CEO Olli-Pekka Kallasvuo said that “in China, we do have about 1.3 billion customers—or potential customers—meaning the consumers in that market. In the US, we have four”. The dominance of the carriers means handset vendors have to work with them separately. Of course, it’s probably not helped by Nokia’s decision to drop CDMA handsets. The upswing is expected in 2008 as Nokia works through a change in business model with Verizon and gets set for Sprint’s WiMAX service.

Motorola: There were a lot of references to Motorola’s crash-and-burn...Moto’s extra inventory in the marketplace affected the whole industry. “We have not seen a tier-one competitor have such a big change in operating fortunes in such a short period of time,” said Olli-Pekka Kallasvuo, adding later “Nokia’s key competitive advantages over the years have been its leading brand and world-class logistics and distribution. Having a few key products can make a big difference in the short term, and can pay you a lot in terms of share and margin, but that strategy does not form the basis of long-term competitive sustainability.”

Patent disputes: CFO Rick Simonson took the opportunity to talk about Nokia’s ongoing patent dispute with Qualcomm. “We continue to be in cross-license negotiations and are working to reach a mutually acceptable agreement as soon as possible. After April 9th, Qualcomm’s early patents are now fully paid up, royalty-free to Nokia. Any future royalty arrangement with Qualcomm needs to address Qualcomm’s latter patents only,” said Simonson, noting Nokia’s $20 million payment and plans to make similar payments in the future. “Since Qualcomm has indicated they will not accept our payouts, we have deposited them in an escrow account for Qualcomm’s benefit.” He said Nokia has invested almost 30 billino euros (US$40.87 billion) in R&D over the last 15 years, and has over 11,000 patent families.