Nokia shocks market, posts $834M loss

Nokia reported a $834 million loss in the third quarter, the handset maker's first quarterly net loss since it started reporting quarterly in 1996. The results are largely due to a writedown Nokia was forced to take on its Nokia Siemens Networks joint venture, though flagging smartphones sales also contributed to the dramatic decline. The staggering loss contrasts sharply to the $1.62 billion profit Nokia scored in the year-ago quarter.

In the third quarter, Nokia's bottom line took a major hit from a $1.35 billion goodwill writedown of Nokia Siemens, its infrastructure joint venture with Germany's Siemens. Net sales for the quarter were $14.57 billion, down 20 percent from the third quarter of 2008.

"The challenging competitive factors and market conditions in the infrastructure and related services business necessitated non-cash impairment charges at Nokia Siemens Networks," Nokia CEO Olli-Pekka Kallasvuo said in a statement. "We continue to support Nokia Siemens Networks actions to improve its performance."

Investors punished the company, sending Nokia's stock down more than 10 percent immediately following the news to around $13.79 per share.

Nokia's handset business stagnated in the quarter. Nokia shipped 108.5 million units in the quarter, up sequentially but down 8 percent from the 117.8 million it shipped in the year-ago quarter. Nokia's total handset market share stood at 38 percent, unchanged from the second quarter or the year-ago quarter. "This continues to be a disappointment as Nokia was originally expecting to increase its market share in 2009," wrote JBB Research chief Julien Blin in a research note.

Nokia's average selling price fell to $92.19, down from $107 in the year-ago quarter.

Most troubling of all for Nokia was its struggles in the smartphone market. The company shipped 16.4 million smartphones in the quarter, down from 16.9 million in the second quarter. Its smartphone market share fell to 35 percent, down from 41 percent in the second quarter. Such figures are notable considering widely held expectations of significant growth in the smartphone market--at the expense of other types of devices. According to estimates from UBS analyst Maynard Um, Research In Motion will command 18 percent of the smartphone market in the third quarter, while Apple will enjoy 15 percent.

"We continue to believe that Nokia's plan to become a key player in the mobile services/app makes sense as it can leverage its dominance in the handset market," JBB Research's Blin wrote. "That said, we continue to believe that 2009 will be a transitional year for the company. We expect Nokia appears to continue to face increased competition in the smartphone market from companies like Samsung, LG, and Apple, among others. Apple's entry in the Chinese market, a country where the Finish company remains the leading player, in both the feature phone and smartphone market, is set to become one of Nokia's biggest competitors."

Added industry analyst Jeff Kagan: "The question we have is will Nokia be able to expand their brand into the smartphone market or will they continue to struggle going forward. Their brand is strong, but only on the traditional handset side, not on the smartphone side of the market. ... Much depends on what happens after the economic troubles we are facing are over. Will the traditional handset market pick back up again or is the growth now switched the the smartphone market for good? If that is the case can Nokia expand their brand into that area? They have not been able to do so yet."

As for Nokia Siemens Networks, sales slumped 21 percent to $4.16 billion. The joint venture had an operating loss of $1.64 billion in the quarter, compared with an operating loss of $1.48 million in the year-ago quarter. Nokia said that it now expects Nokia Siemens' market share to decline by more than previously expected in 2009, compared with 2008.

For more:
- see this release [1]
- see this Bloomberg article [2]
- see this Reuters article [3]