Nokia increases market share, lowers prices

Nokia today claimed that the Finnish vendor boosted its global handset market share to 36%, broadening the gap between itself and rival Motorola, but it did so by slashing phone costs.

Nokia’s average handset price has stayed consistently above the 100 Euro mark, after dipping down to 99 Euros last fourth quarter, but its Q3 selling price plunged 93 Euros (U.S. $118). Nokia CEO Olli-Pekka Kallasvuo said that success in emerging markets for entry-level devices gave Nokia substantial market share, but the phones’ cheaper price tags drove down its sales averages.

“Catering mostly to emerging markets, our entry-level device business performed very well, driven by outstanding volume growth and a solid product portfolio,” Kallasvuo said in a statement. “The strong growth in the entry-level coupled with a lower percentage of sales in higher-end products impacted our margins.”

Nokia’s gross margins--a key indicator of how much it makes off of every handset across its three device divisions--fell to 29% in the third quarter, compared to 33% in both the previous quarter and the third quarter of 2005. In its mobile phones division, where its entry-level phones are produced, gross margins fell from 30.6% to 27.4%. But in its enterprise and multimedia divisions, which produce Nokia’s high-end entertainment and business handsets, gross margins also fell, signaling it is making less money off its high-end devices. Though Nokia’s 88.5 million Q3 phone shipments were up 33% from last year and though the revenue from those handset divisions increased 21% to 8.3 billion Euros ($10.5 billion), its operating profits in those divisions fell by 8 million euros.

The share gains that Nokia achieved through those price drops, however, were substantial. Units shipped in Asia-Pacific and China increased respectively 65.9% and 62.9%, year over year. In the Middle East and Africa, shipments increased buy 34.3% and in Latin America it increased 32%. Nokia even saw an 8% gain in its core European territory, but North America volumes stayed the same. North America is still Nokia’s weakest market with only 5.8 million handsets shipped last quarter. In fact, developing markets are becoming Nokia’s major breadwinners. Outside of Europe and North America, Nokia shipped 57.9 million handsets in the 3^rd quarter, 65% of its total.

Nokia Networks saw a 16% boost in sales to 1.8 billion Euros, driven by GSM equipment sales in the Middle East and Africa. But Nokia said its sales declined slightly in North and Latin America. The division, however, can expect an infusion from China in the near future. It recently announced several GSM contracts with Chinese operators, including 580 million euro deal with China Mobile.

The sales boost from Networks, however, contributed to an overall revenues of 10.1 billion Euros for the quarter, up 20% year over year. But it didn’t offset declining earnings performance from handsets, resulting in overall Q3 profits falling 4.2% to 1.1 billion ($1.4 billion).