Nokia reports earnings down 40 percent on flat Q2 sales

Poor sales of lucrative high-end smartphones are still dragging on Nokia's performance

Nokia reported flat sales for the second quarter, with a 40 percent year-on-year drop in earnings. The company is still seeing customers shun its high-end smartphones.

Sales for the quarter totalled €10 billion (US$12.21 billion as of June 30, the last day of the period reported), up less than 1 percent on a year earlier, and slightly lower than analysts' expectations of $12.87 billion, according to a consensus poll conducted by Thomson Financial Network.

The analysts had become much more gloomy about Nokia's profitability over the last three months, but not gloomy enough. Although they cut their estimates of the company's earnings by up to a third as the end of the quarter approached, to $0.15 per share, the company reported earnings of only €0.06 (US$0.073) per share, for a net profit of €227 million, down from €380 million a year earlier.

Nokia confirmed analysts' expectations that there is little hope for revenue improvements this year.

It said it expects sales of mobile phones to grow by 10 percent this year, but for its share of the number of phones sold to remain unchanged.

On the other hand, Nokia said it expects its share of the value of those phones to dip, indicating that its sales mix is shifting towards the cheaper end of the market. The company has so far failed to find a strong response to Apple's iPhone and handsets running Google's Android operating system, which are taking an increasing share of the high-end mobile phone market.

Second-quarter sales of phones and related services, which account for around two-thirds of Nokia's revenue, grew 3 percent, while sales fell 5 percent at its network infrastructure joint venture, Nokia Siemens Networks, which accounts for most of the remaining third. Navteq, the company's mapping and navigation data subsidiary, saw revenue grow 71 percent, but at €253 million it represents about one-fortieth of Nokia's total revenue.

CEO Olli-Pekka Kallasvuo will comment on the results in a conference call with analysts at 8 a.m. Eastern Time. This may be his last chance to do so: recent media reports say Nokia's board has begun searching for his successor.

Peter Sayer covers open source software, European intellectual property legislation and general technology breaking news for IDG News Service. Send comments and news tips to Peter at peter_sayer@idg.com.

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