Nokia (NOK): The Cellphone Business Used To Be Great

October 16, 2008 by Douglas A. McIntyre

IphoneNokia (NOK) is a great company for two reasons. It has been run so well that it has nearly 40% of the global cellphone business even though it is headquartered in an obscure European country. But, it is also a perfect proxy for how well the cellular business is doing worldwide. For over a decade people from China to Italy have been buying handsets in increasing numbers. In the US some estimates say that there are more cellphones than there are people.

The earnings news from Nokia was particularly bad. The firm said said third-quarter net income fell 30% to 1.09 billion euros, or .29 euro a share, from 1.56 billion euros, or .40 euro a share, earned in the same quarter last year. Sales fell 5% to 12.2 billion euros, missing consensus forecasts for sales of 12.7 billion euros. Perhaps the most harsh number was that the firm shipped 117.8 million units, down 3% sequentially.

Nokia’s earnings mean the number of cellphones sold around the world could be flattening or even contracting.

Investors might be tempted to say that it is just one company’s problem, but if things are hard on Nokia, they are also probably hard on its most direct competitors which include Motorola (MOT), Samsung, Sony Ericsson and Apple (AAPL). The damage is almost certain to spread to the primary handset chip makers including Texas Instruments (TXN), Qualcomm (QCOM), and Broadcom (BRCM).

Cell carriers may be the largest causalities. Earnings at AT&T (T) and Verizon (VZ) have only increased the last three years because their cellular businesses have grown especially fast. The landline part of the industry which was so important to them for almost a century is shrinking.

Nokia’s numbers were bad and that puts it at the center of a destructive storm.

Douglas A. McIntyre

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