Economy dampens Nokia's fourth-quarter outlook
Consumers are buying fewer mobile handsets amid the worst economic crisis in a generation, causing Nokia to reduce expectations.
The economic downturn is taking its toll on the cell phone market, as Nokia, the world's largest maker of mobile devices, downgrades its outlook for the fourth quarter and 2009.
On Friday, Nokia announced that it now expects to only sell about 330 million mobile phones in the fourth quarter, bringing its total number of handsets sold in 2008 to 1.24 billion. The company had expected to sell 1.2 billion devices in 2008.
The company blames the weakening economy and currency volatility for its dismal outlook. Simply put, people aren't spending money on cell phones in these uncertain economic times.
"As a result of the rapid change in global consumer spending, which has impacted the mobile-device market, Nokia now expects that the industry mobile-device volumes will be lower in the fourth quarter of 2008 than previously expected," Nokia said in a statement.
In an effort to deal with the reduced outlook, Nokia also announced it will cut costs in 2009. Specifically, the company is looking to "curtail use of external contractors, consultants and professional services." It will also reduce other operational expenses. The company said it would provide more detail on its cost cutting plans in early December at a meeting in New York
Nokia still expects its mobile device market share to remain the same for the fourth quarter of 2008.
Nokia had reported a drop in earnings for the third quarter of 2008. Profits dipped about 30 percent and the company said it could lay off hundreds of workers.
A slowdown in the overall handset market will also likely affect other device makers, including Motorola, which recently reported dismal earnings. The company has been struggling to get back on track for more than a year, but the economic troubles certainly won't be a help.
Executives at the big wireless operators in the U.S. say they expect to weather the economic crisis unscathed. But a reduction in handset sales could mean that consumers may be unwilling to upgrade to a new device and more expensive service. While it's unlikely that large numbers of people would simply cancel cell phone service, these carriers could see a larger number of consumers reducing how much they spend on their service. And some may even see a higher rate of late payments and payment defaults. Sprint Nextel's CEO Dan Hesse has already mentioned this as a possible problem as the economy dips further.