Nokia prepares for the worst

As dismal economic outlooks loom, Nokia became the first major telecom vendor to brace the industry for troubled times ahead in its third-quarter earnings call today. While Nokia reported a solid quarter despite global recession worries, Nokia CEO Olli-Pekka Kallasvuo sought to assure investors of Nokia’s resilience during what may prove to be a long downturn period.

“We would be naïve if we ignored what’s happening in the marco-economic environment in many markets, and we are fully prepared and are acting accordingly,” Kallasvuo said. “In this time of economic uncertainty, I like our relative position. Nokia is strong, we have scale, we have one of the best brands in the world, we are generating good cash flow, we have a flexible capital structure and we make continuing productive investments in technology and services—all of which will differentiate us from the competition.”

Nokia has traditionally weathered economic downturns well, Kallasvuo said, even using them as opportunities to increase its market share and outpace competitors. If the worst occurs, Nokia is prepared to take ahead on, Kallasvuo assured investors. Backing up his claims, Nokia delivered a relatively positive outlook for the rest of the year. The company’s third-quarter profit fell by 30%, its revenue dropped 2% , and the its average handset selling price continued to dip, but its profit margins held firm, even as its competitors slashed their prices in order to gain market share, Kallasvuo said. Not budging on margins did lead to a dip in market share, however —Nokia estimated its global share fell to 38% from 40% the prior quarter—but Kallasvuo claimed Nokia would make up that loss in the coming quarters. As for the industry in general, Nokia continues to maintain the global market will grow by 10% to 1.26 billion units.

RBC Capital Markets analyst Mark Sue concurred with Kallasvuo’s cautious but optimistic outlook. “It's tough out there, no question,” Sue said in a research note. “Yet as the market leader, Nokia appears to be holding its own.”