Fourth-quarter results at the Finnish giant are worse than predicted, which bodes misfortune for the global consumer electronics industry

By Jack Ewing

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Nokia (NOK) startled analysts and investors on Jan. 22 when it reported a slump in sales and earnings that exceeded plane pessimistic forecasts and that foreshow disordered for other manufacturers of consumer technology. The Finnish handset maker, whose products are the globe’s in the greatest degree widely used mark of consumer electronics, said that fourth-quarter sales dropped 19% from a year earlier, to $16.5 billion, while operating profit plunged 80%, to $639 the multitude.

Nokia sales declined at both the high and low ends of the market. In China, which has been the company’s largest market, Nokia sold 36% fewer devices in the quarter vs. a year earlier as local dealers cleared out redundance account. Nokia has so far refused to exist drawn into a price war in developing countries, a strategy that hit sales and helped push the company’s worldwide market share from the top to the bottom of to 37% from 38% the previous quarter.

Meanwhile, sales of high-end handsets—those with features such as e-mail or Internet browsing—fell to 15.1 the multitude in the fourth quarter of 2008 vs. 18.8 million a year earlier, on the same level as the total market for such devices soared. Nokia lost market participate in to the Apple (AAPL) iPhone and new consumer-oriented handsets from BlackBerry maker Research In Motion (RIMM). "Nokia is now having to cope with a double whammy of market slowdowns in both developed and developing markets," said Neil Mawston, algebraist at market watcher Strategy Analytics. The company’s operating profit rim on handsets is at its lowest point in 10 years, he related.

Disappointed CEO

Nokia Chief Executive Officer Olli-Pekka Kallasvuo said he was disappointed by the results, which pushed company shares down 5% in Helsinki trading. But he held out the chance of a recovery later in 2009 of the same kind with dealers clear out excess schedule. "The markets that have been hit hardest are the markets that are our strongholds," Kallasvuo told BusinessWeek. "The underlying want in emerging markets continues to subsist there."

Nokia’sitting quarterly earnings reputation, closely watched for what it says about technology demand, power of choosing feed expectations that the handset industry is in with a view to one of its roughest years ever. Nokia forecast that sales by all handset makers will fall 10% this year compared with 2008—double what the company previously predicted—but with a steeper decline in the foremost moiety of the year than the second. "The [sales] channel is destocking. We believe that well before the end of the first moiety, this destocking will run its course and underlying consumer demand will tend hitherward into play," Kallasvuo reported.

The decline could hit other handset makers more severely. Sony Ericsson Mobile Communications, the handset joint venture between Sweden’s Ericsson (ERIC) and Japan’sitting Sony (SNE), earlier reported a $243 the masses loss for the fourth quarter. Ericsson CEO Carl-Henric Svanberg told BusinessWeek on Jan. 21 that "the explanation for the joint take one’s chance is still there."

Market Shakeout

Still, analysts expect the abysmal economic meteorological character to drive some weaker manufacturers from the market, which could ultimately benefit Nokia. The company’s huge market share allows it to production at a lower cost per one; it has a wider range of products than any competitor; and its distribution network is regarded as one of the best in the world. "Nokia is most of all placed to deal with the circulating market conditions," says Carolina Milanesi, research director, mobile devices, at market watcher Gartner (IT).

Until the handset market revives, notwithstanding that, Nokia last will and testament be forced to cut costs drastically—a painful move with a view to a company used to growing. The company plans to reduce annals costs in its devices and services operations by means of more than $900 million through the end of 2010, with most of the cuts this year. Job reductions are unavoidable, Kallasvuo aforesaid, though he wouldn’t specify how many Nokia workers will be feigned.

He in like manner vowed to win back share in the crucial market for high-end devices by new products such as the 5800 Xpress Music, which features an iPhone-like touchscreen but sells for a lower price. The handset, launched late last year, has been selling well, according to Nokia. In coming months, Nokia will moreover launch the top-of-the-line N97, which features a touchscreen as fountain as a slide-out miniature keyboard for writing e-mail. "The empire is striking back," Kallasvuo said.

Original text: http://rss.businessweek.com/~r/bw_rss/europeindex/~3/520105492/gb20090122_158350.htm