Nokia warns of huge write-off on its Nokia Siemens networks unit
16 Oct 2009
Mobile phone maker Nokia has reported a 5 per cent sequential increase in the overall sale of devices in the third quarter of the current year and expects demand for high-end mobile phones to improve. However, the company has warned of a huge write-off related to its joint venture Nokia Siemens Networks, sending its shares down sharply.
According to Nokia, the Nokia Siemens Networks unit, which makes telecom equipment, is expected to shed significant market share this year. The company had previously said the decline would be moderate. The largest mobile phone maker globally, booked a €908 million impairment charge related to the division pushing the company into red during the quarter.
Nokia recorded a €559 million loss in the three-month period with a 20 per cent fall in sales and an unexpected write-down in the value of its networks division, but the company missed analyst forecasts significantly triggering an immediate four per cent drop in the share price at €9.90.
According to Olli-Pekka Kallasvuo, chief executive of Nokia, the company continued to support Nokia Siemens Networks' actions to improve its performance. The joint venture with Siemens was formed in 2006 with the aim of creating the world's largest telecom infrastructure and service company.
The warning comes even as the overall telecom infrastructure and service market is expected to decline five per cent in euro terms, compared to its earlier forecast of a 10 per cent fall.
The handset side of the business holds out better prospects on a five per cent growth compared to the second quarter, maintaining its average selling price. The mobile phone maker said it expected to retain the market share level in the final quarter of the year.
According to Nokia, volumes across the industry are expected to rise from the 288 million recorded in the third quarter and grow in line with the sector. Nokia expects mobile phone manufacturers to sell 1.12 billion phones this year, which amounts to a seven per cent decline from 2008.
Overall, excluding the Nokia Siemens Networks write-offs, profit was higher than expectated, volumes remained strong and device margins too improved.