Nokia warns of falling mobile phone demand

Despite efforts on both sides of the Atlantic to kick-start consumer spending, shoppers are holding off on non-essential purchases such as new phones, Nokia has warned.

Pointing to data that showed sales of mobile phones are shrinking faster than expected as consumers are cutting spending, Nokia issued its second warning in three weeks on the state of the market for new handsets.

"Consumers are continuing dramatically to cut back their spending," Nokia chief financial officer Rick Simonson said at the company's investor day in New York, adding that he was under "no illusions" that the market would recover any time soon. " We're facing it across the world. What's recently accelerated is the slowdown in emerging markets," he said.

Nokia said handset market volumes are expected to fall by at least five per cent next year, something many analysts were already expecting. But it sees its market share rising, helping to lift its stock four percent to 11.02 (9.58) in Europe and $13.84 (9.43) in the US.

Some analysts are worried, however, that handset sales could fall a lot further next year, as even Nokia acknowledged that it does not have a good view of the market for 2009. Nokia's comments echo a similar warning from Samsung.

"We're surprised they didn't cut (its forecast) more for 2009," said Charter Equity Research analyst Ed Snyder. "I don't think we'll see February 1 without another cut."

In addition to ailing consumer demand, operator and retail distributors will go through a period of destocking, resulting in lower sales volumes of manufacturers than purchase volumes by consumers in the first half of 2009, Nokia said.

The mobile phone market has grown at well over 10 per cent for years, having dipped only in 2001, amid that year's economic downturn; but it will face a new challenge next year.

"Next year will be the most challenging year the mobile industry has ever faced," said Ben Wood, research director at CCS Insight.

But Nokia said it was in a good position to weather the downturn because of the large scale of its global business.

"2009 will be challenging for our industry; however we have a strong, enviable base to build on, and I believe we will continue to strengthen our position on many fronts," Nokia chief executive Olli-Pekka Kallasvuo said in a statement.

"Building on our operational flexibility, Nokia is acting to reduce costs appropriately in the current slowing environment," he said.

But the company said that in the meantime fourth quarter earnings will suffer, as it has not been able to cut costs quickly enough in response to the rapid deterioration of the handset market in the last few weeks.

Analysts expect Nokia to fare better than its smaller rivals in the downturn.

"Despite the challenging environment, Nokia remains best positioned ... thanks to their economies of scale and channel strategy," said Gartner analyst Carolina Milanesi.

Nokia cut its forecast a day after the world's fifth and sixth largest handset makers, LG and RIM, warned on sales and profit growth. Motorola and Sony Ericsson are already struggling to make a profit.

Nokia said it expects also to win back market share in smartphones, where it has lost ground to RIM and Apple. Simonson said that the smartphone market should grow in 2009, but he did not give a specific estimate.