The painful contrast between the fortunes of Nokia and Motorola was apparent again as the two handset makers reported fourth quarter results, with the Finn achieving its long held goal of 40% market share, while the troubled US company reported a huge loss, saw market share plummet to 12% and warned that turnaround in its cellphone unit would have to wait until 2009.
Nokia saw Q4 profits rise 44% year-on-year, shipping over 133 million handsets to gain the 40% share it has targeted for years. This was helped by Motorola’s weakness, but also by its strong volume ramp-up in emerging markets, especially India.
The Finnish giant reported quarterly net income of €1.8 billion ($2.6 billion ), or €0.47 a share, compared with €1.27 billion a year earlier. Revenues grew 34% to €15.7 billion ($22.9 billion ).
Nokia, like Sony Ericsson the week before, pledged to increase share in the US, its weakest major market, and also pinpointed Japan for special focus in the coming months. The company played up its dominance in India and China and the fact that its huge volumes make it more able to compete profitably in the fastest growing sector in unit terms, sub €30 devices. However, there were notes of caution. Nokia forecast that the handset market as a whole would grow by about 10% globally in 2008, despite the expected economic downturn, but warned that in the first quarter there would be a slight decline from the fourth quarter of 2007. It also cautioned that the average selling price of Nokia devices was down at €83 in the fourth quarter from €89 a year earlier, although despite the focus on India, it did improve from the third quarter level of €82, lifted by strong growth in multimedia handsets. And despite pressure on ASPs, Nokia achieved what most rivals have found impossible ‘ chasing the low cost market without sacrificing margin as Motorola did so disastrously. The Finn’s operating margin in mobile devices was 25%, up from 17.8% a year earlier, because of the popularity of its high end products as well as its economies of scale and ever-more efficient supply chains.
Even the Nokia Siemens Networks (NSN) infrastructure joint venture was looking healthier than in the previous quarter, when there were rumors that the German parent was keen to pull out. NSN broke even in Q4 on sharply higher sales, and Nokia said it expected the company to grow faster than the overall telecoms infrastructure market in 2008. The Finnish company said it expected ‘very slight growth’ in euro terms for the overall market in telecoms gear and services in 2008, a marginally brighter outlook than those of rivals Alcatel-Lucent and Ericsson. Asked whether he also saw a slowdown in carrier capex, Nokia CEO Olli-Pekka Kallasvuo told CNBC TV: ‘It’s very diversified.’ He reckoned capex increases in developing markets like India could compensate for a likely US slowdown and reiterated that NSN should achieve almost all the €2 billion ($2.9 billion ) it has targeted in annual cost savings by the end of this year.
In the fourth quarter, it posted exactly zero operating profit, after a reported operating loss of €120 million in the third quarter. Stripping out special items, operating profit was €66m, compared with a loss of €34 million. Sales rose 25% sequentially to €4.583 billion, mainly due to seasonal factors.
NSN gained market share from Ericsson in the third quarter, with its slice rising from 25.2% in Q2 to 35.5% in Q3, according to research by Dell’Oro (Q4 figures are not yet available). Ericsson had 41.1%. Ericsson and Alcatel-Lucent have warned of tightening demand in the US and Europe, but NSN made almost half its sales in Europe in Q4. Growth was strongest in north America, and sales slipped slightly in Asia-Pacific.
Motorola saw an 84% year-on-year drop in net profit in the same period, with handset sales down 83% on the year-ago quarter and only 41m units shipped. Once again, Motorola ceded its usual number two spot in the market to Samsung (now on 14%) and its market share has halved since 2006. The stock fell more than 22% on the results announcement and the acknowledgement by executives that recovery in handsets would be delayed until 2009.
‘The recovery in mobile devices will take longer than expected,’ said new CEO Greg Brown. ‘Our primary focus is on improving profitability and enhancing our product portfolio.’ He said a new round of cost cutting, including layoffs, was necessary to restore profitability to the mobile devices division. ‘We didn’t say this is the bottom,’ he said in an interview. ‘There is a lot more work to be done.’ The priority is to enhance the portfolio of cellphones, and it announced an expanded deal with Qualcomm to work on this, but this is not expected to yield major results until 2009.
Overall, Motorola’s fourth quarter revenue dropped to $9.6 billion from $11.8 billion a year earlier, and earnings plummeted to $100m from $623m. In the vital handsets unit, Q4 revenue fell 38% to $4.8 billion , with an operating loss of $388m, down from earnings of $341m a year earlier. For the full year, revenue dropped to $36.6 billion from the prior year’s $42.8 billion and the company lost $49m, down from the $3.6 billion it earned in 2006.
Brown tried to focus on some points of light, including ‘strong performance’ in the home and networks mobility and enterprise mobility businesses. The home and networks mobility business posted $2.7 billion in revenue in the fourth quarter, up 11%, though earnings fell to $192 million from $223 million. Full year revenue in the unit rose 9% to $10 billion , though earnings decreased to $709 million, compared with $787 million in 2006. Enterprise mobility revenue in Q4 was up 35% to $2.1 billion , which Motorola attributed to its purchase of Symbol Technologies early last year. Earnings reached $451 million, up from $323 million. Full year revenue jumped 43% to $7.7 billion , while earnings reached $1.2 billion , up from $958 million in 2006.
LG is feeling the benefits of its recent strong performance in the US, especially its position as Verizon Wireless’ chief partner in countering the impact of AT&T’s iPhone.
The Korean vendor shipped 23.7 million handsets in the fourth quarter, up nearly 40% year-on-year, and its handset revenue for the period rose 12% to about $3 billion . For 2007, operating profit in the handset business was up twelvefold over 2006, although that was a fairly weak year for the company’s cellphone activities and ended in a major reshuffle in December 2006, which is now bearing fruit.
Strength in handsets and LCD displays were the main factors in strong overall performance at the conglomerate, which has four main divisions – digital appliances, digital displays, digital media and mobile communications.
LG attributed much of its revenue growth to successful cellphone sales in the US, with its Voyager and Venus handsets, and in western Europe, where its Viewty sold well. It also saw a strong increase in the uptake of its 3G phones. Its priority in 2008 is to build channel and increase sales in emerging markets. It forecast that its 2008 shipments would rise to 100m units, which would represent 25% growth year-on-year and be about double the industry’s overall predicted growth rate (Nokia forecasts that its own unit growth rates will be 10%, while analysts are saying about 13% for the sector as a whole).
LG had 7.1% of global market share in the fourth quarter, two points behind Sony Ericsson.