Thursday, October 18, 2007

Nokia 3Q results soar - global market share reaches 39%

The strong third quarter results of Nokia portrays the continuous dominance of mobile phone maker giant on the world telecom market. The profit soared by 85% to €1.56 billion from €0.85 billion. The company believes that around a billion cell phones were sold in year 2007 and Nokia sold 39% of them, up 4% from last year. Nokia expects that the mobile device market volume will be approximately 1.1 billion units in 2007, up from the approximately 978 million units Nokia estimated for 2006, approximately 12% increase.

The company sold mobile phones to new users in developing markets such as Asia-Pacific, Middle-East, Africa and China, where millions of new customers are entering the market every month. The company registered the net sales increase of 3% to €6.1 Billion and the operating profit increase of 78% to €1.4 Billion. In developed markets such as North America and Europe, multimedia rich mobile phones dominate the sales. The net sales increased 23% to €2.6 billion while the operating profit grew 57% to €575 million. Nokia says that the growth was primarily driven by N series phones, especially the Nokia N70, Nokia N73 and Nokia N95.

The strong growth of Nokia underlines the strong marketing, operations and global strategy, all of which Nokia seems to have implemented perfectly in a competent market. In addition, there is no doubt that Nokia has a broad as well as tightly targeted product portfolio that remains the key differentiating factor compared to its competitors.

To win the emerging market, Nokia has worked hard to increase the profit margins by reducing the operating cost and introduced several new phones to keep the prices up, thus selling more profitable phones across its range. Nokia understands that in these markets, customers have limited buying power and the use of mobile phone increases their standard of living and brings them information more quickly than without a mobile phone. Additionally, poor infrastructure and limited access to fixed line phones further increases the need of a cell phone.

However, its profit in developed market has come from net sales growth of multimedia rich mobile phones and improved profit margin from solid product portfolio. The situation in the developed markets is different than that of emerging markets. In these markets, new technologies and network upgrades has created a market for the mobile phones which can support high speed data access. In North America, most mobile phones are accessible to users thorough the telecom operators who sell the mobile phones at subsidized rate bundled with their rate plans. Thus the subscribers have relatively small range of mobile phones to choose from. And on top of it, telecom providers urge to offer different mobile phones to the customer than their competitors.

While it will be extremely difficult for Nokia to increase its market share beyond 40%, in the strong market conditions with growing demand of around 12% mobile devices every year, maintaining the market share is a challenge and reward both, huge enough. Despite the falling prices of mobile phones every year, Nokia has not only managed to sustain the profit margin but also increase it. Further, Nokia has started to expand its breadth with the acquisition of enpocket, to enter the mobile advertising industry and launch of Ovi, to enter the internet mobile services industry.


Qais said...

Nice post. Thanks.
How much do you think Motorola decline helped Nokia? I think esp in developed markets, Motorola's stumble has brought big cheers to Nokia.
I think Nokia still has to work on US and Japanese markets. They are undisputed king of emerging markets but only little better than first among equals in developed markets.

Manish Singh said...

That is actually correct. But, in developed markets, as in US, the telecom operators dominate the industry by buying the phones from Nokia and providing users the selected choices. If Nokia tries to sell the phone outside a service plan, the developed industry, which is completely run on price (excuse iPhone) will be unwilling to buy the phone. Thus Nokia does not gain anything by selling only the handset in US.