Nokia falls to first ever quarterly loss as handset makers suffer

Phone maker hit by global downturn and competition in the top end of the market

The crisis engulfing mobile phone handset makers was underlined yesterday as Nokia, the world's largest phone producer, slumped to its first ever quarterly pre-tax loss.

Nokia was forced last month to announce a €700m (£618m) cost-cutting programme, which includes axing 1,700 employees, as customer demand has plummeted. The market is bracing itself for more bad news today as Sony Ericsson announces its results, just weeks after issuing a profits warning.

Nokia has been hit hard by the financial crisis, and has also failed to compete effectively with Apple and Research in Motion in the high-end smartphone market, according to analysts. This resulted in yesterday's €12m (£11m) pre-tax loss in the first quarter, a reversal of its €1.6bn profit this time last year.

Net profits plunged 90 per cent to €122m, the company reported.

Olli-Pekka Kallasvuo, the chief executive of the Finnish telecoms giant, said the environment was "exceptionally tough," adding that the time was not right to call the bottom of the market.

"The lower sales volumes for Nokia and the industry, both year on year and sequentially, were primarily driven by the negative impact of the rapidly deteriorating global economic conditions, including weaker consumer and corporate spending, severely constrained credit availability and unprecedented currency market volatility," the group said.

Nokia shipped just over 93 million devices in the first quarter, down almost 20 per cent on 2008. Its operations in Latin America were worst hit, falling 40 per cent this quarter.

The total number of devices shipped by the industry was down 14 per cent at 255 million. The group expects devices shipped to remain flat in the second quarter, or possibly to see a slight rise.

The group's average selling price on handsets has been slashed from an average of €79 each last year to €65 in 2009. This was due to price pressure, a higher proportion of sales of lower-priced products, and lower-than-expected sales of its high-end N series phones.

While the company's smartphones have generally failed to capture the imagination of consumers wowed by the iPhone or BlackBerry, the company also blamed the operators and distributors for "extensive destocking" as contributing to the fall in sales.

Carolina Milanesi, a research director at Gartner, said: "Many people are either waiting to replace their phones or spending far less than they used to. Those who want to spend on smartphones aren't going to Nokia. There is a weakness in their high-end portfolio."

One ray of sunshine was the better-than-expected sales of its 5800 XpressMusic smartphone, which has shipped 3 million handsets since it launched in November.

The shares actually rallied 9 per cent. Despite the collapse in profits, the company maintained its outlook that the global handset market would be down 10 per cent this year. Some analysts have predicted a fall of 20 per cent.

Mr Kallasvuo said: "Although the trajectory of end demand remains unclear, we believe the market is no longer falling in an uncontrolled manner."

In response to the economic conditions, the group announced in March that it was to cut 1,700 employees from its devices and services business, "to match global consumer demand".

Ms Milanesi said: "The sales were a little bit better than expected, but on the financial side these results show just how challenging the market is. Nokia is a strong company, and with its size and distribution network is in the best position to ride out the storm. It's a scary position for its rivals."