Nokia's net profit falls 90 percent
If you were wondering how bad things have gotten for the mobile handset market, just take a look at Nokia, the world's largest maker of cell phones. — The company on Thursday reported a 90 percent fall in first-quarter net profits as the global recession took …
Context & Ripple Effects
Nokia entered 2009 after a 30% profit decline that still preserved margins and a November warning that the cellphone market would contract. Its cut to the 2009 outlook after a grim fourth quarter established that the pressure was no longer limited to a single quarter.
The first-quarter result sharpens that arc as Nokia pursues U.S. distribution through AT&T and builds services around its devices, including an app store, Point & Find and an investment in Obopay. The breadth of same-day coverage also made Nokia’s results a proxy for handset-market conditions.
First-order effects
- Nokia’s 90% first-quarter profit decline deepens the earnings pressure that followed its reduced 2009 outlook, leaving less room for weak handset demand or pricing missteps.
- Nokia’s U.S. growth effort, including AT&T’s E71x offering, carries greater weight as the company seeks demand beyond a contracting broader handset market.
Second-order effects
- Nokia’s planned app store, Point & Find platform and Obopay investment become more important complements to device sales, tying its recovery effort to services as well as handset volumes.
- AT&T has a stronger incentive to make its Nokia smartphone offer competitive at its $100 price point, since carrier distribution is central to Nokia’s stated U.S. strategy.
Third-order effects
- If handset demand and device profitability stay under pressure, Nokia’s mix of phones, software, information services and payments points toward handset makers competing through ecosystems rather than hardware sales alone.
The trend: The handset downturn is increasing the strategic value of carrier distribution and software-and-services ecosystems for device makers such as Nokia.