Four years ago, the world's biggest cellphone maker, Nokia, made on average about €38 from every handset it sold. In 2004, that had slumped to around €18.
The drop shows how even the number one firm, despite positively surprising investors with its fourth-quarter earnings and proclaiming it was back on a growth path, is feeling the pinch from the competition.
The handset market is adopting some of the less appealing characteristics of the digital consumer electronics industry, where many players have access to the same technology and components, making it harder to stand out and retain a lead.
Nokia, which gets some three-quarters of its sales from handsets, booked a 23-per cent drop in its operating profit from phone sales in 2004 versus 2000, despite selling 62 per cent more handsets, annual results showed last week.
The operating profit comparison cannot be exact since Nokia expanded to four divisions from three in 2004.
The realisation that life has become tough in the handset industry is evident in Nokia's share price, which has dropped from a high of €65 in 2000 to under €12 now.
In 2004, its shares fell 15 per cent, helping to knock the DJ Stoxx European technology index into the red. It was hit by a string of grim trading statements as the firm missed out on the market boom due to a lack of flip and camera phones.
For the current quarter, Nokia predicts a possible further earnings decline to between €0.12 and €0.15 per share from €0.17 a year ago, hit in part by a one-time charge linked to job cuts at its Multimedia phones unit.
But Nokia also forecast sales would rise by up to 10 per cent in January-March, helped by a revamped phones portfolio that may stem the trend of falling handset prices and help Nokia claw back market share lost to rivals in 2004.
The last time first-quarter sales rose on an annual basis was in 2001.
Nokia's handset margins, while down from peak levels of over 25 per cent, remain among the strongest in the business, and at end-2004 it sat on a massive €11.5 billion in cash and other liquid assets.
"Everybody (in the industry) has had their bad times. Nokia had an investment phase last year, but they are now ramping up new products," said FIM Securities analyst Jussi Hyoty, who rates Nokia stock a "buy".
But after robust market growth seen in 2003 and 2004, this year looks tougher for Nokia and main rivals Motorola, Samsung Electronics and LG Electronics.
Handset unit sales are forecast to grow by just eight per cent, according to market research group Strategy Analytics, a quarter of the growth pace seen in 2004 and below Nokia's forecast of around 10 per cent.
And this growth could be offset by continued pricing pressure, leaving no revenue growth for the total market.
"Market revenue growth looks limited. We have not really seen it for years, and I don't see that as being any different in 2005," said Mandatum Stockbrokers analyst Erkki Vesola.