Listen to this article
Nokia, the world’s largest mobile phone maker, has lowered its profitability targets in spite of rising sales, highlighting the growing difference in its performance with that of rival Ericsson.
The Finnish company told analysts in Amsterdam on Tuesday it expected an operating profit margin of 15 per cent in one to two years, down from an earlier target of 17 per cent.
Nokia’s group margin for the first nine months of this year was 13.5 per cent, compared with about 20 per cent at Ericsson, the Swedish telecommunications equipment company.
The contrast in the profitability of the two leading Nordic telecommunications companies highlights the growing operational differences between them.
Nokia has a strong reliance on handset sales, which generate the bulk of its revenues, while Ericsson is focused on the design, manufacture, sale and servicing of systems, although it also makes handsets in association with Sony of Japan.
The Finnish group controls 36 per cent of the world’s mobile phone market and is selling an increasing number to emerging economies. In the third quarter, sales in the Asia-Pacific region rose 65.9 per cent year-on-year but the prices it can charge these customers is lower than elsewhere in the world and competition is also intense.
Units prices dropped 9 per cent year-on-year in the third quarter.
Nokia is keen to build market share in Asia. The company estimates that over 50 per cent of all emerging market business now comes from upgrades, indicating securing initial market share is essential.
But as its handset margins have contracted, margins at its systems business have also dropped compared with those at Ericsson, according to analysts’ calculations.
Margins in this area are about 20 per cent for Ericsson and about 7 per cent for Nokia, according to analysts’ estimates. In an attempt to close the gap with Ericsson, Nokia announced this year the merger of its systems business with that of Siemens, the German company, to create Nokia Siemens Networks.
Get alerts on Telecoms when a new story is published