Despite posting worse-than-expected results and a 90 percent drop in net profit, shares of Nokia spiked almost 12 percent in early morning trading on better-than-expected device shipments. The stock eventually fell back to more reasonable levels, but still boasted an 8.4 percent increase.
The company shipped 93.2 million units in the first quarter ended March 31, surpassing analysts’ shipment estimates of 90 million units. Nokia also beat its own sales estimates for the 5800 XpressMusic “budget Smartphone,” which accounted for 2.6 million units of the total units sold. Still, device shipments were down 19 percent compared to last year’s first quarter and down 18 percent sequentially.
“Although the trajectory of end-demand remains unclear, we believe the market is no longer falling in an uncontrolled manner,” said Nokia CEO Olli-Pekka Kallasvuo in a conference call, adding that he was “encouraged” by recent signs of economic stabilization but that it was too early to say demand had touched bottom.
Nokia CFO Rick Simonson shared Kallasvuo’s caution: “We have a realistic view on the macro economic downturn and we do not expect a quick or strong recovery.” The company maintained its previous forecast that demand for mobile devices would be down 10 percent in 2009.
The company posted earnings of just euro122 million, or .03 per share, compared with euro1.2 billion, or .32 per share, a 90 percent drop from the same period last year. Sales were also worse than expected, falling 27 percent to euro 9.27 billion from euro 12.66 billion a year earlier.
Still, Nokia reiterated that it would maintain its 37 percent market share for the upcoming year. The company stands to benefit from emerging markets in China and India, where low-end handsets are in high demand. “Nokia has the sheer economies of scale to create low-end handsets as the cheaper price point, and they have more margin built into those handsets,” says Frost & Sullivan analyst James Brehm. “People in emerging markets are not going out and buying the most expensive handsets. They can’t afford to.”
Nokia has also taken steps to shore up its position in the increasingly important smartphone market. The company’s 5800 XpressMusic and its slick, slim E71 qwerty smartphone should help it better compete with small, innovative competitors.
Nokia has also benefitted from its historically efficient supply chain. “They have been able to stabilize and shrink their inventory… to pull their belt a little bit tighter. That’s going to allow them to weather the tight times and allow them to be a little bit more nimble,” Brehm says.