Nokia profit slumps 69% as sales drop 19% Phone giant now sees 10% drop in industry volumes in 2009 By Aude Lagorce, MarketWatch Last update: 8:19 a.m. EST Jan. 22, 2009LONDON (MarketWatch) - Nokia Corp., the world's largest maker of mobile phones, on Thursday posted a 69% drop in fourth-quarter profit as demand for its phones fell sharply during the key holiday season, particularly in China, and as it lost market share at the more lucrative high end. Nokia also said it would cut roughly 1,000 jobs and lowered its forecast for global demand for phones this year. Net profit at the Finnish maker in the three months to Dec. 31 fell to 576 million euros ($751 million), or 0.15 euro a share, from 1.84 billion euros, or 0.47 euro a share, earned in the year-earlier quarter. Sales declined 19% to 12.66 billion euros, missing forecasts calling for 13 billion euros, as demand for phones dropped sharply. The number of handsets shipped in the quarter indeed 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. "In recent weeks, the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry," said Nokia Chief Executive Olli-Pekka Kallasvuo. Industry analysts didn't put it as mildly. "It's a bloodbath really. Much worse than what we ever expected from Nokia," said Geoff Blaber, senior analyst at U.K.-based telecoms consultancy CCS Insight. In particular, he noted the collapsed in the operating margin, to 9.8% from 16.7% a year earlier. In a separate statement, Nokia said it's proposing to pay an annual dividend of 0.40 euro a share, down from 0.53 euro a share in 2007. It also said that the board has no current plans to buy back shares in 2009. Nokia shares fell 7% in Helsinki midday trading. Phone makers have been suffering in the past few months as consumers rein in spending on discretionary items. In Western countries many are delaying replacing their old handset. In emerging markets they are often simply not buying one. Last week Sony Ericsson, the phone-making joint venture of Japan's Sony Corp. and Sweden's Ericsson AB posted its second straight quarterly loss warned the market would deteriorate further in 2009. Also last week Motorola, Inc. said it would report a fourth-quarter loss and slash 4,000 jobs after its sales collapsed over the holiday season. Lowered industry volume outlook Nokia on Thursday 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. It said the 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. Looking at individual divisions, it's the handset one that 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. "China was terrible. They posted a huge decline there. Emerging markets seems to be dragging global growth down and that's where Nokia is strongest," said Neil Mawston, director of the global wireless practice at telecoms consultancy Strategy Analytics. 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. 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 slipped to 33.8% from 36.5% in the third quarter. Operating profit at the division decreased 70% to 766 million euros. At the Nokia Siemens networks joint venture, sales fell 5% to 4.3 billion euros. The division 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. That venture is half owned by Siemens AG of Germany. 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.