Nokia feels the pinch due to credit crunch

Nokia Corp., the world's largest maker of mobile phones, reported Thursday a 69% drop in fourth-quarter profit as demand for its handsets fell sharply during the key holiday season, particularly in China, and as it lost market share in the lucrative high-end segment.

The European tech bellwether also lowered its dividend, slashed its 2009 forecast of global demand for phones and said it would cut roughly 1,000 jobs to keep a lid on expenses.

The results mark a reversal of fortune for the Finnish company, which earlier this year seemed to have all but crushed even its nearest competitor with its stronghold on emerging markets, efficient cost control and extraordinary distribution power.

Quarterly sales declined 19% to 12.66 billion euros, missing forecasts calling for a top line of 13 billion euros, as demand for phones dropped sharply.

The number of handsets shipped in the latest three months fell 15% to 113.1 million units. Sequentially, shipments slipped 4% -- an unusual development considering the fourth quarter is customarily the strongest one for phone makers.

Phone makers have been suffering in the past few months as consumers rein in their discretionary spending. In developed markets, many are delaying replacing their old mobile phones. In emerging markets, handset users often simply aren't buying new ones.

Underscoring this, Sony Ericsson, the phone-making joint venture of Japan's Sony Corp. (SNE) and Sweden's L.M. Ericsson (ERICY), posted its second straight quarterly loss last week and warned the market would deteriorate further in 2009.

Also last week, Motorola Inc. (MOT) said it would report a fourth-quarter loss and slash 4,000 jobs after its sales collapsed over the holiday season.

And on Thursday, Nokia lowered its outlook for global industry mobile-device volumes, saying it now expects them to fall 10% in 2009, compared to an earlier forecast of a 5% drop.

The projected decline would be sharper in the first half than in the second half, with volumes dropping more sharply than is customary between the fourth and the first quarter, Nokia said.

Higher profile for digital mapping

Among Nokia's individual divisions, the handset business suffered the most, with sales down 27% to 8.1 billion euros. The sharpest decline in the number of handsets shipped happened in China, which registered a 36% drop, followed by the Middle East and Africa, with a 23% fall.

Nokia estimated its market share at 37% in the quarter, down from 40% a year ago and 38% in the third quarter. It said it lost ground in the Middle East and Africa, North America and China. It also lost ground in the high-end, smart- phone category, which worried investors.

Nevertheless the phone maker said it expects to maintain its market share at 37% in the first quarter.

The average selling price of a Nokia handset slipped to 71 euros from 72 euros in the third quarter, even though many new handsets, such as the 5800 XpressMusic, hit the shelves in time for Christmas. The decline put pressure on gross margins, which narrowed to 33.8% from 36.5% in the third quarter.

The division's operating profit decreased 70%, to 766 million euros, in the latest quarter.

At the Nokia Siemens networks joint venture, sales fell 5% to 4.3 billion euros.

The division, half owned by Siemens (SI) of Germany, achieved most of its targeted cost savings but reported an operating loss of 179 million euros while it broke even in the same period last year.

At the Navteq digital mapping business, sales jumped 31% sequentially to 205 million euros. The unit's operating loss shrank to 73 million euros from 80 million euros in the third quarter.