Profits for the Finnish phone firm fall by 90 percent in quarter just ended, but are they crying?
For all those who find the stock market maddening, here's something else to add to your list: After digesting reports that mobile-phone makers Nokia saw a 90.6% year-to-year drop in net profit, the stock market sent shares in the Finnish firm up ten percent.
A few things are happening in this latest financial snapshot from the company. First, as you may have heard, things are tough all over. We're just hours away from the announcement of first-quarter results from Sony Ericsson, another major player in the mobile market, but no one's expecting miraculous growth for this or any other player in the sphere not named Apple, Research In Motion, or Palm.
But as bad as it is -- for Q1, net sales are down 26.7%, operating profits are down 96.4%, and you'll look long at the numbers before you find any division of the company that didn't report double-digit drops -- the company believes that it has reached a plateau, or perhaps the bottom of the well. The company stated on Thursday that it expects the mobile industry as a whole to be flat or maybe a bit up during Q2 (with greater improvement during the latter half of the year), and that it expects to increase its market share.
It's an interesting claim, since the company did not announce plans to change its name to Apple, Research In Motion, or Palm. But Nokia doesn't seem to feel it's lacking a contender in the high-end smartphone market; instead, CEO Olli-Pekka Kallasvuo spoke on Thursday of the company's pleasure with early sales results for the Nokia 5800 XpressMusic, the company's first touchscreen offering. The company has shipped more than 3 million 5800s since November, 2.6 million of those during Q1, and Kallasvuo estimates that Nokia now already owns nearly 20% of the touchscreen-phone market.
There's also the delicate art of managing expectations, and Nokia's done that well. Analysts in recent days spoke of sales expectations for Nokia that were fairly cataclysmic, so when results were only relatively bad, the analyst community felt relatively good. (To experience the exciting world of stock analysis at home, take two hammers and start smashing them into either side of your head. Then put down one hammer. See how great that feels?)
The company says it sold 93 million mobile phones in Q1; analysts expected somewhere between 90 and 92 million. (Q1 2008, which was an excellent quarter for the company, saw 115 million Nokia phones move, though the market being what it is those 2008 phones were about $7 more expensive on average than the offerings now. In other words, lower sales were made worse by lower revenues per sale.) Nokia's networking unit also saw decreases, and the company now says that business (a partnership with Siemens) will decline by around 10%, a steeper drop than the 5% previously predicted.
And expectations are a third factor in making sense of the numbers. Nokia said today that it believes that the worst is over -- flat or slightly up for Q2, as mentioned -- but also that things are getting more predictable again. Predictable sales numbers mean more predictable expenses, more predictable dealings with suppliers, and a general sense that we're not all taking cover under our desks wondering what we're supposed to do after the going gets weird, the weird turn pro, and the pros form a league.
Nokia's a big firm, and an expectation of calm emanating from a big firm can make investors feel calm, and then maybe even a little optimistic. Maybe it's the return of sunlight and warmth to Finland's northern tundras, but on the whole, the mood at and around Nokia isn't as bleak as a 90.6% drop would have you think.