Nokia counts on smartphone, services combo for recovery

As the economy accelerates a consumer spending slowdown, Nokia today posted lower-than-expected fourth quarter earnings. The typically resilient handset manufacturer is counting on the expansion of its smartphone product line into cheaper devices coupled with its consumer services strategy to drive its recovery.

“Historically, Nokia’s competitive position has solidified in times of turmoil,” CEO Olli-Pekka Kallasvuo said in an earnings call today. “As always, the test is not what happens in a particular quarter but whether our investments allow us to give new, sustainable, competitive advantages.”

With steep declines in profit, Nokia’s fourth-quarter earnings continued to suffer from the consumer slowdown in spending that Kallasvuo warned of in the third quarter. Nokia’s profit plummeted 69% year-over-year, and revenue fell 19.2% from this quarter last year. In what is typically its strongest quarter, the Finnish handset maker shipped only 113 million phones, falling short of its lowered target of 115. The decline represents a 15% year-over-year fall and a 4% decline from the previous quarter. Kallasvuo said to expect mobile device volumes in the first quarter of 2009 to continue their sequential decline to a greater extent than the seasonal decrease in the first quarters of the past few years. For the mobile phone industry as a whole, Nokia anticipates a 10% fall in sales this year, adjusted from its 5% prediction last month.

“It is well understood that in the fourth quarter, the overall global macro environment deteriorated and negatively impacted our business,” Kallasvuo said. “The drivers were the ones we identified in our Capital Markets Day in December: the global pullback in consumers spending, credit volatility and credit tightness.”

Still the world leader in cell phone sales, Nokia’s global handset market share fell to 37%, down from 38% in the third quarter and 40% in the fourth quarter of 2007. To regain its lost share, Nokia is looking to add devices to its smartphone lineup that target a broader audience at lower price point but still include its consumer services, driven by the Ovi application and mobile web services platform.

“Our strategy is to sell our services combined with device sales,” said Rick Simonson, executive vice president and chief financial officer. “Product combinations are not the same thing as giving the services away for free. We are making the devices better and making revenue on the additional services we provide.”