Nokia profits, shipments up; phone prices continue decline

Nokia saw record sales in fourth quarter as it continues to ramp up its handset shipments. The sales resulted in a Q4 boost of 19% in profits, but despite the positive news Nokia’s average selling price per handset continued to decline, signaling Nokia’s growth is coming from cheaper devices and the developing markets.

Nokia reported Q4 net sales of Euro 11.7 billion (U.S. $15.1 billion), an increase of 13% year-over-year, and total 2006 sales of Euro 41.1 billion (U.S. $53.1 billion), a 20% gain over last 2005. Its quarterly net profit increased 19% to Euro 1.2 billion (U.S. $1.6 billion) and its annual earnings rose by the same percentage to Euro 4.3 billion (U.S. $5.6 billion).

Nokia shipped 106 million handsets in the fourth quarter, and estimated its global handset market share reached 36%, putting distance between itself and Motorola, which has been catching back up to the No. 1 phone maker in the last two years. Motorola also saw, but it saw its profits plummet by 48%, forcing the company to announce workforce cuts of 5%. While Nokia maintained by sales and profits growth, its handset price dropped below the 90 Euro mark to 89 Euros. Even though Nokia was able to sell 6 million of its high-end N-Series multimedia, the vast majority of its sales came from mid-range and budget handsets.

Another reason for the price drop was spelled out clearly in its regional volume breakdown. Its biggest growth markets were in Latin America, Asia and the Middle East, all regions with developing markets fed by low-priced devices. Nokia continues to suffer in North America after scaling back its CDMA unit, seeing shipments dropping from 9.8 million in the fourth quarter of 2005 to 5.9 million last quarter.

At Nokia’s earnings call, CEO Olli-Pekka Kallasvuo singled out the U.S. in particular, saying Nokia was disappointed with its slump there and was taking “concrete and clear” steps to reinvigorate itself in that market.

On the networks side, saw 12% quarterly growth to Euro 2.2 billion (U.S. $2.8 billion), but its operating profits plummeted 52% to Euro 129 million. Part of that shortfall came from Euro 39 million in costs related to its upcoming networks merger with Siemens, but sales were also down in North America. Nokia, however, has a lot to look forward to in North America on the networks side. It just won a contract to build T-Mobile’s U.S. UMTS network along with Ericsson, and it was named the third vendor in Sprint’s massive rollout of WiMAX in 2008.