Nokia Reports Declining Profit Margin

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6:50 am on January 28, 2006 | Category: Business, Cell Phones, Corporate

The world’s top mobile phone maker, Nokia, has reported its fourth-quarter earnings that are roughly equal to expectations, but shareholders aren’t happy about declining profit margins.

Worldwide demand for Nokia handsets drove market share up in the final months of 2005, especially in emerging markets such as China and India. But the popularity of entry-level phones in these markets has brought the average unit price down to just 99.

This decline in average price has in turn caused profit margins to sing to just 13.5%, considerably lower than the 14.1% that was expected by analysts. Not surprisingly, the lower profit margin has caused a bit of investor worry, with the company’s stock price falling 1.5% in Helsinki yesterday.

In the long run, however, this will likely make no difference to Nokia’s overall business model. They have chosen to target emerging markets with the expectation of greater future gains in revenue and market share. This may cause a few investors to worry along the way, but the company’s executives seem to believe that good access to these largely untapped markets will be well worth it in the long run.