Emerging markets drive Nokia sales

Nokia, the world’s largest mobile phone maker, said on Thursday that net sales in 2006 rose 20 per cent to €41.1bn ($5.32bn) from €34.1bn previously as sales of phones to emerging markets continued to power ahead.

The result offsets widespread concerns that its results might be weaker than expected after US rival Motorola issued a profit warning due to falling sales margins. Nokia’s shares in Nokia rose 3.9 per cent to €16.1 in Helsinki.

The Finnish company, which controls a third of the global market for mobile phones, said 2006 operating profit increased 18 per cent from €4.6bn to €5.5bn, although there were signs that increases in sales volumes had eroded profit margins slightly.

The overall margin dropped from 13.6 per cent in 2005 to 13.3 per cent in 2006, but for its mobile phone division the decline was more marked, falling from 17.3 per cent last year to 16.6 per cent.

This trend was also borne out in the average selling price of its phones, which dropped in the fourth quarter of last year to €89 compared with €93 in the third quarter.

There have been concerns that Nokia might be sacrificing profitability in order to gain market share in countries such as China and India, but these fears have been offset by the latest results.

Nokia has responded to these criticisms by arguing that a strong presence in large emerging markets will give it a foothold from which to sell other products and services.

It has calculated that more than 50 per cent of all emerging market business now comes from upgrades to other Nokia devices, indicating that securing initial market share is essential and that future sales could be lucrative.

Nokia said it expected industry-wide mobile volumes in 2007 to grow by up to 10 per cent from around 978m handsets and that average selling prices would continue to decline, “reflecting the increasing impact of the emerging markets and competitive factors in general”.