Nokia Q1 2009 results - profits down, margins steady
Published by Rafe Blandford at 12:47 BST, April 16th 2009
Nokia today released its Q1 2009 results. Nokia had net sales of EUR 9.3 billion, down 27% year on year and down 27% sequentially (down 24% and up 25% at constant currency). Nokia sold 13.7 million converged (S60) devices, down from 14.6 million in Q1 2008 and 15.1 million in Q4 2008, of these 5 million were Nseries and 3 million were Eseries. An individual device highlight was the 5800 which sold 2.6 million units. Nokia's industry outlook sees similar device volumes and market share for Q2, but expect overall conditions to improve in the second half of the year
Olli-Pekka Kallasuvo, Nokia CEO, said:
"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. As an example in Q1, I am especially pleased with the performance of our first mass market touch product, the Nokia 5800 XpressMusic. Together with Comes With Music, it is a great example of Nokia providing solutions that consumers value.
Regarding the health of the overall mobile device market, the inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors. This adversely impacted our sales volumes in the quarter. However, it has also resulted in the demand picture becoming more predictable as we enter the second quarter."
Points of interest:
- Net profits fell to EUR 122 million, down from EUR 1.2 billion year on year. The fall in profits was slightly more than anticipated, but margins (gross margins at 33.8%) were ahead of expectations. Nokia Siemens Network performance was poor which dragged down the overall results, but the devices and services division performed slightly ahead of expectations. Consequently, at the time of writing, the share price was up about 7%.
- Nokia mobile device volumes were 93.2 million units, down 19% year on year and down 18% sequentially. This is set against estimated industry volumes of of 255 million units, down 16% year on year and down 14% sequentially. Nokia's market share was estimated at 37%, the same as Q4 2008 and down from 39% in Q1 2008. Nokia expect a similar market share in Q2 2009, but expects increased market share for later in the year.
- Services and software net sales of EUR 150 million, down 5% sequentially and up 79% year on year. This reflects reasonably good performance from Nokia's service strategy in the context of overall results.
- Gross margins in devices and services was flat sequentially at 33.8% and down from 38.5% year on year.
- Eseries remained strong at 3 million units (same as previous quarter); this takes total Eseries device sales in the last year 11 million units. This is a reflection of the continued success of the Nokia E71. With the E71x and E75 due out this quarter good Eseries performance looks set to continue.
- Nseries sales were very poor at 5 million units (down from 8 million in Q4); this takes total Nseries sales in the last year to 32 million. This reflects a weakness is Nokia's Nseries portfolio and increasing competition from Apple, HTC, Samsung and LG.
- Nokia sold 2.6 million Nokia 5800 units. This takes total sales to 3 million. This reflects Nokia's relative strength in the mid tier market for converged devices (open mobile platform devices). Overall numbered converged device sales were 5.7 million. It is worth noting that if you add the 5800 sales to the Nseries numbers the results are more in line with previous quarters and suggests that Nokia's mid tier smartphones may be canabalising sales of Nseries phones.
- Nokia's reduced sales and market share was primarily driven by economic conditions, which has resulted in weaker consumer and corporate spending and constrained credit availability. It is also worth noting that the sequential decline also reflect the traditional seasonal decline (usually around 10%).
Nokia noted that 'extensive destocking by operators and distributors of their mobile device inventories adversely affected sales volumes by manufacturers, including Nokia, during the first quarter 2009'.
Nokia Mobile Device Volume by Geographic Area:
(million units) Q1/2009 Q1/2008 YoY
ChangeQ4/2008 QoQ
ChangeEurope 22.3 25.7 -13.2% 34.7 -35.7% Middle East & Africa 14.8 20.2 -26.7% 18.2 -18.7% Greater China 17.9 21.0 -14.8% 12.9 38.8% Asia-Pacific 28.2 34.1 -17.3% 29.9 -5.7% North America 3.4 2.6 30.8% 4.1 -17.1% Latin America 6.6 11.9 -44.5% 13.3 -50.4% Total 93.2 115.5 -19.3% 117.8 -17.6% - The average device selling price was EUR 65, down from EUR 71 in Q4. This was due to general price pressures and weaker than expected Nseries device sales.
Notes from the conference call
- Destocking has meant that 'stock reserves' have decreased from 5-6 weeks to 4-5 weeks. Destocking appears to be over in most markets, which should lead to less market volatility. However it is too early to tell whether consumer spending has reached the bottom.
- Nokia 5800 sales of 2.6 million, which was some what limited by manufacturing capacity. This has largely been solved and more than 1 million 5800's are being shipped per month.
- Comes with Music has launched successfully in Australia and Singapore, especially when bundled with the 5800. Early trends are show consumers downloading both old and new songs, this suggests CwM can help labels monetise their back catalog. Approximately 20% of downloads have been over the air, suggesting potential data revenue for operators. In Singapore Comes with Music will increase the value of the digital music market by 30%.
- Nokia are confident that 'our high end portfolio is headed in the right direction'. The fastest growing smartphone segments are touch and QWERTY and Nokia plan to bring 'a much wider range' of such devices in the future. Nokia also highlighted the strength of the current portfolio - the 5800 captured an estimated 20% of the overall touch market and the E71 continued to sell strongly.
- 3.3 million Eseries devices were shipped in Q1. E75, E55 on the way and further introductions to come.
- In general there will be more mid-range and high end smartphones with a focus on combining them with Nokia services. However there is a lot to do and Nokia 'needs to move faster'.
- Tying in with QWERTY devices, the Nokia Messaging product was highlighted as a strong conumer email prouct offering, with attention drawn to deals with operators including Telefonica, Vodafone, Orange and SingTel.
- Most service revenue currently comes in conjunction with device sales (i.e. included with a device).
- Good progress is being made on cost cutting. Rick Simonson highlighted salary freeze, restricted travel, cuts in R&D and a total of 3,000 job losses. Nokia will continue to prune it device portfolio and manufacturing capacity as necessary. He also noted there had been good control over discretionary expenses in Q1, but expected a small rise in Q2 due to marketing costs associated with device launches.
See also
Earlier results: Q4 2008, Q3 2008, and Q2 2008
Categories: Industry, Editorial Thoughts
Platforms: General, S60 3rd Edition, S60 5th Edition
News Discussion
Tzer2
The positive stuff regarding the report is totally counter-intuitive and worth looking at:
-Nokia's share price actually went up significantly because the news wasn't as bad as expected.
-Nokia's sales in North America have gone up by 30% compared to this time last year. That's just plain weird, especially as the US is supposedly the source of this recession, Nokia sales everywhere else were going down, and Nokia has historically been weakest in North America. How on earth did that happen? Was it the 5800 finally chiming with the American market?
-5800 sales have been excellent despite other S60 device sales going down (maybe people are buying the 5800 instead of Nseries or Eseries?)
-Nokia's share price actually went up significantly because the news wasn't as bad as expected.
-Nokia's sales in North America have gone up by 30% compared to this time last year. That's just plain weird, especially as the US is supposedly the source of this recession, Nokia sales everywhere else were going down, and Nokia has historically been weakest in North America. How on earth did that happen? Was it the 5800 finally chiming with the American market?
-5800 sales have been excellent despite other S60 device sales going down (maybe people are buying the 5800 instead of Nseries or Eseries?)
ajck
I'm going to cross post this story at Forum Oxford because I think it gives a more rounded view than that currently expressed of solely "Nokia profits down 90%".
I think there's clearly improvements needed in the NSeries range, and I think that ties in with comments made in the recent N86 camera, and N82 on a pedestal articles. The N82 was the last real hilight of the NSeries range, and not just because of the Xenon flash. Subsequent NSeries devices have been OK at best, and mediocre at worst, due to poor design decisions such as LED flashes, video focussing, removal of 3D hardware and so on. Knowledgeable users (the kind Nokia SHOULD be listening to, not some ignorant street market research) are crying out for these features to be put back - for a reason. And Nokia just ignores these calls, in the light of all common sense. iPhone has shown that people will pay more for a perceived premium product, so coming out with so-so flawed handsets as recent NSeries have been is just not good enough. And the sales reflect this.
I think there's clearly improvements needed in the NSeries range, and I think that ties in with comments made in the recent N86 camera, and N82 on a pedestal articles. The N82 was the last real hilight of the NSeries range, and not just because of the Xenon flash. Subsequent NSeries devices have been OK at best, and mediocre at worst, due to poor design decisions such as LED flashes, video focussing, removal of 3D hardware and so on. Knowledgeable users (the kind Nokia SHOULD be listening to, not some ignorant street market research) are crying out for these features to be put back - for a reason. And Nokia just ignores these calls, in the light of all common sense. iPhone has shown that people will pay more for a perceived premium product, so coming out with so-so flawed handsets as recent NSeries have been is just not good enough. And the sales reflect this.
neilhoskins
Quote:
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Originally Posted by Tzer2
-Nokia's sales in North America have gone up by 30% compared to this time last year. That's just plain weird, <snip>
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(I should probably also point out, because he probably won't himself, that Steve predicted this when the iPhone first came out.)
neilhoskins
Quote:
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Originally Posted by ajck
... people will pay more for a perceived premium product, so coming out with so-so flawed handsets as recent NSeries have been is just not good enough. And the sales reflect this.<snip>
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Unregistered
The "knowledgeable users that Nokia should be listening to" are actually a very small market niche and I doubt anyone could care less about their needs. The banging on about Xenon flashes is getting boring. It's a no go in phones, for a number of well documented reasons, not least of which is the fact that digital compact prices are currently very low and they do a better job of imaging.
These are good results, better than to be expected in a recession and the trading reaction confirms that.
Well done again Nokia.
These are good results, better than to be expected in a recession and the trading reaction confirms that.
Well done again Nokia.
Rafe
Added a filtered version of my notes from the conference call.
I think the service revenue one is interesting as is the overall strength of QWERTY devices as a trend (tends to be obscured by touch frenzy). Will be interesting to see combined QWERTY/touch devices such as HTC Touch Pro and Nokia N97.
I've been banging on for a long time about how high end isn't the only thing. Addressable market etc etc. Of course high end needs to be addressed too, but you have to look at the market from an overall view point, not just the high end.
I think the service revenue one is interesting as is the overall strength of QWERTY devices as a trend (tends to be obscured by touch frenzy). Will be interesting to see combined QWERTY/touch devices such as HTC Touch Pro and Nokia N97.
I've been banging on for a long time about how high end isn't the only thing. Addressable market etc etc. Of course high end needs to be addressed too, but you have to look at the market from an overall view point, not just the high end.
Tzer2
Quote:
| I really hope that the decision hasn't been made behind closed doors to surrender the premium market to Apple. |
For example the N97 will feature the world premiere of the Ovi Store dedicated application, which is obviously meant to counter the iPhone Store.
The 5800 was Nokia going for the market that Apple has totally missed: people who want a touchscreen smartphone but don't want to pay through the nose for it or sign up to any expensive contracts. It was also a low-risk way of testing the S60 5th Edition platform before it made its outing on more expensive devices.
Quote:
| Knowledgeable users (the kind Nokia SHOULD be listening to, not some ignorant street market research) are crying out for these features to be put back |
The 5800 is probably Nokia's best-selling smartphone model right now, with sales comparable to the iPhone, yet it also has fairly middle-of-the-road specs (only 3.2 megapixel camera, 369mhz processor, no graphics hardware etc). What probably matters more to people is whether the hardware is "good enough" for popular functions, and whether the price offers value for money.
Let's face it, the iPhone's specs have never been that great either: it launched without 3G, without applications, without GPS, it STILL doesn't have a decent camera, there's no video recording, the GPS (when it came) lacked turn-by-turn, there's still no Flash support in the browser, there's still no multimedia message support, there's a limit on how many apps you can install... the iPhone is packed with very serious hardware spec problems if you look for them, but they're clearly not deal-breaking problems for those who have bought it.
It's not about raw specs, it's about the particular package of hardware and software that a manufacturer offers. What people want is a phone that does stuff they want, does it well enough to a particular standard (not according to specs but according to what they see on the screen), and is available for a price they're willing to pay.
The low price tag of the 5800 more than anything else showed what Nokia is best at, getting a lot of functionality into a solid mass market product at a very reasonable price. There's no shame in that, it's like Ford's Model T, it changes what people expect to pay for a particular class of product and so changes the market itself.
Whether Apple can match Nokia in price cutting is very unclear, because Apple have built the iPhone's interface and features around very expensive hardware. It will be a challenge for them to find a way to scale that down if they plan to sell cheaper models, as (for example) capacitive screens cost much more to manufacture than resistive screens. The iPhone interface also assumes unlimited internet access at no extra cost, but that wouldn't be the case if someone buys an iPhone on pay-as-you-go or SIM-free, or if they buy it on a cheaper contract than Apple demands. To some extent the iPhone has painted itself into a premium corner without an obvious way to move further down the price scale if required.
neilhoskins
Quote:
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Originally Posted by Tzer2
I doubt that, as the same-price-as-iPhone N97 is apparently having a lot of resources put behind it by Nokia for its launch in June.
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Tzer2
Quote:
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Originally Posted by neilhoskins
If people make direct comparisons between the N97 and the next iPhone, I'm worried that their abilities will have actually, finally, converged. Come on, OMAP2 and no graphics chip?
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And we know that there is much more advanced S60 hardware on the way because Samsung have already got there with the Omnia HD, and Nokia is bound to follow them:
Also, we don't know for sure what the N97's graphical abilities really are. There have been stories written by people who claim to know, but from what I understand no one has seen final hardware yet.
The N97 is going to get N-Gage, which at 640x360 resolution would require either more oomph from the processor than current QVGA models, or some kind of graphics hardware, or both. If the N97 can run fully 3D games at an acceptable frame rate at full resolution then it should be able to run a slick graphical interface very easily indeed.
Unregistered
Put it simply Nokia needs to get on teh OMAP3 bandwagon asap.
N/A
Quote:
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Originally Posted by Unregistered
Put it simply Nokia needs to get on teh OMAP3 bandwagon asap.
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StillUnreg'd
This is very bad news for Nokia no matter how it's glossed over. I mean profits down from 1.2 billion to 122 million. A whopping 90% down... Continue like this and soon they will be making a loss.. ;)
Even before I actually visited this site I already knew the headline won't be about Nokia reporting 90% less profit like many other tech sites.
If people keep sweeping the facts under the carpet it will be BAD for Nokia. I'm a big fan theirs and don't want to see them heading the same way as Motorola or even Sony Ericsson..
I honestly think Nokia has gone down hill ever since the N95, N82, E90 etc
The N and E series is not a niche market. People are fed up of rehashes regardless of their target market.
NO ONE can say for sure why the 5800 sold so well...
* iPhone created such a mass hysteria on anything touch screen?
* Mid level pricing for a decent handset?
NB. iPhone is taking a lot of Nokia's smartphone market share.
Even before I actually visited this site I already knew the headline won't be about Nokia reporting 90% less profit like many other tech sites.
If people keep sweeping the facts under the carpet it will be BAD for Nokia. I'm a big fan theirs and don't want to see them heading the same way as Motorola or even Sony Ericsson..
I honestly think Nokia has gone down hill ever since the N95, N82, E90 etc
The N and E series is not a niche market. People are fed up of rehashes regardless of their target market.
NO ONE can say for sure why the 5800 sold so well...
* iPhone created such a mass hysteria on anything touch screen?
* Mid level pricing for a decent handset?
NB. iPhone is taking a lot of Nokia's smartphone market share.
Mobile Observer
Yeah, Nokia fanboys try to polish the ... The fact is Nokia's half-assed attempt to piggy back a touch layer on the 8 year old S60 fossil is laughable. They should have started from scratch with a finger optimized new UI.
Unregistered
Mobile Observer keeps on repeating the same false statement in every thread like this. What can be so wrong in his life that he needs to do that?
The basic core OS is the youngest mobile one.
The touch capability in that OS pre-dates all the others.
The 5800 is an excellent phone and for its target market the touch capability is excellent.
MO is wrong on all counts but keeps coming back to make himself look silly. If it's humiliation you want, I'm sure there must be websites dedicated to that particular fetish. You don't need to come here.
The basic core OS is the youngest mobile one.
The touch capability in that OS pre-dates all the others.
The 5800 is an excellent phone and for its target market the touch capability is excellent.
MO is wrong on all counts but keeps coming back to make himself look silly. If it's humiliation you want, I'm sure there must be websites dedicated to that particular fetish. You don't need to come here.
Unregistered
It's best to ignore people like Mobile Observer, he's just a sad troll trying to get a rise. Don't bite.
Mobile Observer
LOL the typical Nokia fanboy in denial. The S60 left/right softkey UI is 8 year old, the iPhone fingeroptimized UI is 2, Palm's 1. WTF cares what's the "core" and X year ago there was same stylus based crap? The user experience right now is that counts. The 5800 is a mess.
neilhoskins
He really does have a point, you know, although the term "Nokia fanboy" smacks of trolling: they really don't exist in the same way as Apple fanboys. Personally I'd go out and buy a WM device or - yes - even an Apple one if it suited me.
Anyway, back to his last point, which is valid IMO, that the UI is what people care about. Joe User really doesn't give a toss about the underlying OS, except when it comes to things like the frequency of crashes and battery consumption. And while I'd argue that the S60 UI is perfect for the majority of users who want a small, one-handed device that's basically a phone, for touchscreen and qwerty it is utter pants. One simple example I've found while playing with a 5800: you have both an 'options' on the LH soft key, but also have the little box with three lines in it, which is the equivalent of a central keypress on a 'normal' S60 device. What's that all about? Messy and not at all intuitive. And although much is made of the current iPhone's inability to cut and paste, frankly I still haven't figured out how to do it on the 5800.
Anyway, back to his last point, which is valid IMO, that the UI is what people care about. Joe User really doesn't give a toss about the underlying OS, except when it comes to things like the frequency of crashes and battery consumption. And while I'd argue that the S60 UI is perfect for the majority of users who want a small, one-handed device that's basically a phone, for touchscreen and qwerty it is utter pants. One simple example I've found while playing with a 5800: you have both an 'options' on the LH soft key, but also have the little box with three lines in it, which is the equivalent of a central keypress on a 'normal' S60 device. What's that all about? Messy and not at all intuitive. And although much is made of the current iPhone's inability to cut and paste, frankly I still haven't figured out how to do it on the 5800.
Gerbil
I find the three line icon that shows a transparent panel with a set of large touch icons incredibly useful, and it must be part of the transition to touch and therefore a perfectly sensible idea.
True Nokia doesn't have fanboys like Apple does (except on the N82) and most coudn't care less. If you like the phone then buy it if you don't like it don't buy it. No need to constantly nag about how much you don't like it, seems a bit of a puerile thing to do.
True Nokia doesn't have fanboys like Apple does (except on the N82) and most coudn't care less. If you like the phone then buy it if you don't like it don't buy it. No need to constantly nag about how much you don't like it, seems a bit of a puerile thing to do.
Unregistered
I don't like anything Apple but they are doing well on all fronts.
http://www.gsmarena.com/apple_announ...s-news-889.php
http://www.gsmarena.com/apple_announ...s-news-889.php