Nokia Corp. (NOK), the world's biggest maker of mobile phones, on Thursday lowered its forecast for mobile device industry volumes for the fourth quarter of 2008 saying that the slowdown in the mobile devices market has continued more rapidly than previously expected. The company also said it was unable to confirm its prior forecast for its share of the mobile devices market in the fourth quarter. For 2009, Nokia forecasts industry mobile device volumes to decline 5% or more from 2008 levels. This is the second time in as many months that the company has lowered its industrywide outlook for the fourth quarter.
According to the Finland-based company, the industry continued to be impacted by the effects of a global consumer pullback in spending, currency volatility, and decreased availability of credit. Nokia noted that the slowdown is apparent in varying degrees across all markets, while the most recent incremental impact in the emerging markets has been more pronounced than in other markets.
Earlier in November, the company had lowered its outlook for industry wide mobile device volumes for the fourth quarter and the full year 2008, citing a sharp pullback in global consumer spending amid the global economic slowdown and unprecedented currency volatility.
Nokia now estimates that industry mobile device volumes for the fourth quarter of 2008 will be lower than its previous estimate of approximately 330 million units. The estimated industry mobile device volumes for the third quarter of 2008 were 310 million, up 8% from the same period of the prior year.
The company noted that the lower outlook for the fourth quarter would result in industry mobile device volumes for full-year 2008 coming below the earlier estimate of 1.24 billion units. While reporting its financial results for the third quarter in October, the company had forecast industry mobile volume to be about 1.26 billion units in 2008.
The company said it was unable to confirm the prior estimate for its share of the mobile device market for the fourth quarter, which was expected to be at the same level or slightly up from an estimated 38% in the third quarter of 2008. The company's mobile device market share in the third quarter had declined from 39% in the year-ago period and from 40% in the preceding second quarter.
For 2009, Nokia forecasts industry mobile device volumes to decline 5% or more from 2008 levels. The company also said it expects the four billion mobile subscriptions mark to be reached in the first quarter of 2009. In November, the company had said that based on preliminary estimates, 2009 industry mobile device volumes will be lower than that of 2008 due to the overall economic slowdown.
However, the company now targets an increase in its market share in mobile devices in 2009 compared to 2008, including an increased share in smartphones.
Nokia estimates targeted portions of the Internet services market will be approximately EUR 40 billion in 2011. In December 2007, Nokia estimated that the total Internet services market would be approximately EUR 100 billion in 2010. The company had previously announced that it has adjusted its Internet services market focus to the areas of music, maps, media, messaging and gaming.
The company forecasts services & software net sales of EUR 2 billion or more in 2011. The company also forecast its services & software business to have 300 million unique services users by 2012.
Nokia said it was currently effecting appropriate cost reductions that would continue in its plans for 2009 and 2010.
Rick Simonson, CFO of Nokia said, "Nokia's highly variable, low fixed cost business model allows us to scale to a declining market. We are also acting on all fronts to reduce our costs beyond what may be attributable solely to the scalable aspects of the business model - moving to reduce cost of goods sold even further, reduce operational expenditure appropriately, and scale back capital expenditure. We expect these strong actions to offset, in part, the negative impact of slowing sales."
Nokia said that on account of unprecedented environment, it will not provide operating margin targets for the period beyond 2009. The company expects devices and services operating margin to be in the teens in 2009, while the NAVTEQ operating margin is forecast to be somewhat above the operating margin for devices and services. Meanwhile, the operating margin for Nokia Siemens Networks is expected to be in the single digits in the year.
Nokia and Nokia Siemens Networks continue to expect the mobile infrastructure, fixed infrastructure and related services market to be flat in euro terms in 2008 compared to the preceding year. However, for 2009, the companies forecast mobile and fixed infrastructure as well as related services market to decline 5% or more in euro terms from 2008 levels.
The companies' continued cost synergy target for Nokia Siemens Networks is to achieve substantially all of the EUR 2.0 billion of targeted annual cost synergies by the end of 2008.
Consumers are reigning in their spending in view of the worst economic crisis in decades. This has particularly hurt the consumer-related industries badly. The retailers have already given a gloomy outlook for the current quarter and technology companies including Intel Corp. (INTC) had earlier issued warnings. Nokia's warning is the latest sign of the impact of sharply slowing consumer confidence.
Earlier in the year, Nokia's peer Motorola Inc. (MOT) had announced the initiation of a process to create two independent, publicly-traded companies by splitting off its Mobile Devices business. However, in October, Motorola said it no longer targets to complete the transaction in the third quarter of 2009, primarily due to the macro-economic environment, stresses in the financial markets and the changes underway in Mobile Devices. The separation of the businesses is now targeted beyond 2009.
Earlier on Thursday, Nokia announced that the company and Research In Motion Ltd. (RIMM) have renewed a multi year patent license agreement. The agreement covers the worldwide use of standards essential patents for GSM, WCDMA and CDMA2000 technologies. The financial terms of the agreement consist of an up-front payment and on-going royalties payable to Nokia.
NOK closed Wednesday's regular trading session at $13.30. In Thursday's pre-market trading, the stock is currently up $0.51 or 3.83% to $13.81. The stock has been trading in a range of $12.08-$40.33 in the past 52 weeks.
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