IHS Global Insight Perspective | |
Significance | Nokia is taking a realistic view of the global handset market, and there has been some relief that it is faring better than many had expected. However, the vendor itself admits the market has not yet touched bottom, so is expecting worse to come. |
Implications | As Sony Ericsson's key European markets stagnate, consumer spend drops and handset replacement rates slow, the vendor needs to expand into emerging growth markets, and break out of its current niche high-end handset mould. |
Outlook | There is a general feeling among telecoms players that the current storm will pass, and recovery is on the horizon—but with worse expected this year, the global recession is likely to claim more casualties. |
Nokia has reported that its first quarter net profit has plummeted 90%, to 122 million euro (US$161 million), compared to 1.2 billion euro in the same period of 2008, year-on-year (y/y). Revenues fell 27% to 9.3 billion euro in the first quarter of 2009, from 12.7 billion euro in the first quarter of 2008 y/y, with handset sales plunging 33% to 6.2 billion euro. The world's top mobile phone maker sold 93 million devices in the last quarter, down 19% from 115 million in the first quarter of 2008, but still managed to narrowly beat expectations. A recent survey of analysts was expecting Nokia to shift only 90 to 91 million handsets in the quarter, and profits to fall by up to 100%. The Finnish handset giant now holds a 37% share of the global handset market, which is the same as its share at the end of last year, but down 2% from the first quarter of 2008 y/y.
Meanwhile, Sony Ericsson reported a 293-million-euro net loss in the first quarter of 2009, down a massive 58% from losses of 187 million euro in the last quarter of 2008, and a marked slide from profits of 133 million euro in the first quarter of 2008. The handset vendor, a joint venture between Japan's Sony and Sweden's Ericsson, has also announced an additional 2,000 job losses, as it begins a fresh round of restructuring estimated to cost about 200 million euro. The job cuts are expected to affect staff worldwide. Sony Ericsson's sales revenues in the first quarter of 2009 slumped 36% to 1.74 billion euro, from 2.7 billion euro in the first quarter of 2008, while the number of units shipped by the vendor fell 35% in the first quarter of 2009, to 14.5 million, down from 22.3 in the same quarter a year ago. The vendor's losses also beat some expectations, including their own first-quarter forecast, but this included 19 million euro in restructuring charges, whereas the company booked 12 million euro of charges in the quarter.
Outlook and Implications
- Nokia Takes Heart from Beating Expectations: Nokia has largely predicted fading demand for mobile phones amid the worldwide downturn—but its shares rose more than 7% overnight, as analysts had expected an even gloomier report. Chief executive Olli-Pekka Kallasvuo said of the results: "In what has been an exceptionally tough environment, we continue to invest in a focused manner in consumer Internet services delivered across our broad portfolio of mobile devices... Combined these solutions will drive our future growth." Nokia maintained its previous estimate that mobile device market would shrink by 10% this year. However, it downgraded its outlook for the network infrastructure market, saying it expects also 10% contraction in 2009. Nokia's equipment vendor business Nokia Siemens Networks had predicted a 5% drop in the market this year. Nokia continues to struggle to cut costs, with the announcement of 1,700 job losses already this year (see World: 26 March 2009: Nokia Cuts Handset Manufacturing Contracts with Sub-Contractors). Although the vendor is maintaining its grim outlook, it still maintains there is hope on the horizon. Nokia CFO Rick Simonson told Finnish daily Helsingin Sanomat: "We don't believe that the mobile phone markets have touched the bottom of this recession yet... (But) the clearing out of inventories was brisk at the start of the year, which has increased our belief in the future." Nokia seems to be taking a realistic view of the global handset market, and there has been some relief that it is not faring as badly as some had expected. However, the vendor itself admits the market has not yet touched bottom, so is expecting worse to come.
- Sony Ericsson Sinks Further: Sony Ericsson is blaming weak demand, due to the ongoing financial crisis, but says it is aiming to return to profitability "as quickly as possible". The vendor said in a statement it would take an additional 200 million euro in restructuring charges due to the latest round of job cuts, something which is likely to further impact its financial performance over the coming year. Sony Ericsson has already laid off 2,000 workers as part of a previous cost-cutting programme, and has been very pessimistic about the handset market this year (see World: 20 March 2009: Sony Ericsson Warns Handset Market Could Fall 10% This Year). To add to its worries, rumours have been circulating concerning the future of Sony's stake in the handset joint venture, with suggestions that Ericsson may be on the verge of making an offer for the Japanese giant's share of the ailing vendor. As Sony Ericsson's key European markets stagnate, consumer spend drops and handset replacement rates slow because of lengthening operator contracts, the vendor needs to expand into emerging growth markets, and break out of its current niche high-end handset mould.
- Are There any Signs of Recovery for the Handset Market? A recent survey of analysts seemed to echo the expected 10-12% drop in the market this year, but optimistically predicted a return to growth in 2010 (see World: 16 April 2009: Handset Market Could Fall 11.4% in 2009—Report). BlackBerry handset-maker Research in Motion (RIM) has recently reported strong results for the last quarter (see World: 3 April 2009: RIM Posts Another Strong Quarter with Revenues Up 84% Y/Y), and demand for high-end smartphones is still very much on the rise. There is a general feeling among telecoms players that the current storm will pass, and recovery is on the horizon—but with worse expected this year, the global recession is likely to claim more casualties.