November 14, 2008 / 1:45 PM / in 10 years

Nokia sees cellphone, gear market falling in 2009

HELSINKI (Reuters) - Top handset maker Nokia Oyj said on Friday the world’s mobile phone market would fall in the fourth quarter and next year as an economic slowdown crimps consumer demand around the world.

A woman uses her mobile phone as she walks next to an outsized Nokia mobile phone advertisment in Berlin October 16, 2008. REUTERS/Fabrizio Bensch

It forecast 1.24 billion phones would be sold worldwide this year, down from a previous estimate of 1.26 billion, and said handset market volumes and the overall telecommunications equipment market was expected to fall next year.

“The warning dovetails well with Qualcomm and Intel — rapid recent deterioration of consumer electronics demand,” said analyst Tero Kuittinen at Global Crown Capital.

The worst financial crisis in 80 years has weakened economies around the world and official data on Friday showed the economy of the 15-nation euro zone shrank for the second quarter in a row.

“In the last few weeks, the global economic slowdown, combined with unprecedented currency volatility, has resulted in a sharp pull back in global consumer spending,” Nokia said in a statement.

The strengthening U.S. dollar and yen are pushing up component prices for handset manufacturers, while weakening currencies in emerging markets are hurting the purchasing power of consumers in Nokia’s key markets.

“Developed markets will fare worse and developing markets will fare better,” Nokia Chief Financial Officer Rick Simonson told an investor call.

Nokia said the increasingly limited availability of credit was also hurting, something analysts agreed with.

“We have been hearing about operators and distributors reducing their handset stock to an absolute minimum due to a credit shortage for the past few weeks,” said analyst Neil Mawston of Strategy Analytics.

Nokia shares fell more than 7 percent to 9.56 euros on Thursday, their lowest since August 2004, but later recovered and closed down 3.7 percent at 9.95 euros in Helsinki. In New York, Nokia’s ADRs closed 11.02 percent lower at $12.59.

Kulbinder Garcha, an analyst with CSFB, said companies heavily exposed to the North American and Western European markets — such as Motorola Inc and Sony Ericsson — faced tough times.

“The one segment of the market that will grow in 2009 is smartphones, so in the industry, Apple, HTC and RIM will outpace the others,” Garcha said.

BLACK CHRISTMAS

Nokia now expects fourth-quarter industry volumes to be around 330 million mobile devices, down from a year ago, and well below the 346 million average forecast in a Reuters poll earlier this month.

“As the dominant handset vendor, Nokia’s warning bodes poorly for the entire handset industry and the supply chain as a whole,” analyst Mark Sue from RBC Capital Markets, said in a research note.

Nokia’s forecasts sent wireless stocks lower in Europe and North America, with Alcatel-Lucent falling 3.4 percent, Motorola down 10.9 percent, RIM losing 8.5 percent and Apple off 6.4 percent.

Nokia expected its market share in the fourth quarter to be around 38 percent or slightly higher, but sales and profitability for key devices and services would be hurt. Reaching a 20 percent operating profit margin at the unit was not on the horizon and it would take decisive action to reduce its cost base significantly.

“You absolutely have to be brutal about prioritizing what you are going to continue to invest (at) the right pace and that means you have to cut some things off the bottom that would be nice to do, but they aren’t necessary to do. We are absolutely going through that process,” said Simonson.

Nokia’s network gear making venture, Nokia Siemens Networks, said earlier this week it would cut 1,820 jobs, most in Finland and Germany. Nokia said earlier this month it would cut some 600 jobs in marketing and research.

Additional reporting by Brett Young, editing by Rupert Winchester and Andre Grenon

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