The mobile phone industry as a whole has remained relatively stable amidst the ongoing global financial crisis, but that doesn’t mean industry leaders aren’t feeling the crunch. Case and point, Nokia’s net profits for the first quarter of this year are down to just €122 million from €1.22 billion a year ago. That’s a staggering 90% drop in profits.
Granted they were already expecting things to get worse, it’s still a bit shocking to actually see how much of a toll consumers' curbed spending has affected the company. Here’s what Nokia CEO Olli-Pekka Kallasuvo had to say about their performance in Q1 and their outlook for the future:
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.
On the upside, Nokia still managed to ship 93.2 million phones in the first quarter which is down by a respectable 19%. This is partly thanks to the wide variety of products they have which practically covers every inch of the market, from the very basic entry-level to the sophisticated and expensive high-end phones. With consumers becoming more wary of their spending, it wouldn’t be surprising if Nokia’s entry- and mid-level phones are the ones that keep the company afloat during these trying times. After all, they’ve managed to sell 3 million units of their affordable 5800 XpressMusic phone in Q1 alone. This should be a good indication where their true strengths are. Couple that with poor sales of their expensive Nseries line which has dropped to 5 million in Q1 from 8 million in Q4 of 2008 and LG making a killing with their affordable Cookie, it’s pretty clear as to what’s really selling and what’s not in the market today.
Another positive note is Nokia's decision to finally join the services industry with OVI. This could be a new source of revenue for the Finnish mobile phone giant that they have yet to fully tap. That is, of course, if they can pull a hat trick out of the bag and get consumers to hop on board since they are considerably late in joining the bandwagon. It's still pretty early to judge whether they'll succeed or fail in this regard, and we’ll definitely keep an eye on this one as the months go by. Things are looking pretty dark and grim at the moment, but there is indeed a light at the end of the tunnel.
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