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Nokia update cheers market

Profits might have dropped by 90 percent, but the world's leading maker of mobile phones indicates that the worst of the slump could be over.

Mobile handset giant Nokia is anticipating a return to a normal demand cycle in the current quarter, thanks to pre-emptive stock reductions by operators in the closing months of 2008.

That early action has prompted the Finnish company to predict that mobile device volumes, the most crucial market indicator for suppliers of GaAs-based RF components, would either be flat, or rise slightly over the coming months.

Despite Nokia s plunging profits, announced in its first-quarter financial results, investors warmed to the relatively positive outlook. After the results were released, the company s shares climbed by around 10 per cent in value on stock markets in the UK and US.

Shares in key Nokia supplier RF Micro Devices also rose strongly, along with those of other GaAs power amplifier (PA) providers.

Nokia s first-quarter results highlighted the extent of the slump in demand seen over the past few months. It sold 93.2 million mobile devices in the opening three months of 2009 "“ down nearly one-fifth on both the same period in 2008, and the closing quarter of 2008.

According to Nokia s estimates, it means that 255 million handsets were sold across the industry in the first quarter, representing a 14 per cent decline on the same period in 2008.

But that appears to be as bad as things will get. In its earnings release, the company said: "Nokia continues to expect 2009 industry mobile device volumes to decline approximately 10 per cent from 2008 levels."

While that might not seem like good news, it does indicate that Nokia feels conditions have not worsened in the past three months, since it first predicted the 10 per cent decline back in January.

GaAs industry analyst Asif Anwar from market intelligence firm Strategy Analytics backed up that forecast, reiterating his belief that GaAs revenues would fall "only" 5-6 per cent this year "“ in line with his previous estimates.

Looking back to 2001, when the GaAs industry suffered a 25 per cent crash in the wake of the telecoms bust, Anwar also highlighted that inventory corrections at the close of 2008 had had the desired effect of keeping the handset industry's supply chain free of unwanted stock.

"As we move into the second quarter, the GaAs industry will see an uptick in orders," he said, before warning: "Although admittedly in some cases, it may simply be a restocking exercise."

Both Anwar and Nokia now anticipate a return to genuine growth in the second half of 2009, following a flat second quarter, and assuming "no other surprises in the global macroeconomic environment", as Anwar puts it.

• For more insight into the impact of the global recession on the mobile handset and GaAs industries, look out for the forthcoming April/May issue of Compound Semiconductor.

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