Nokia Forecast May Be Attempt
To Skew Market-Share Figures
By JESSE EISINGER
Staff Reporter of THE WALL STREET JOURNAL
Market share isn't actually about numbers, it's about spin.
Nokia, which dominates the cell-phone market, reduced its forecast of the global market for handsets this year to about 380 million phones from its previous estimate of 390 million. Siemens, however, reiterated its view that the market will be about 400 million this year.
Why does Nokia sound gloomier than its rivals? Perhaps because the Finnish giant is losing market share.
Last week Gartner Dataquest put out its estimates for the third quarter, reckoning that Nokia had a 33.4% share of the market, down from 34.8% in the second quarter and 35.3% in the first.
No one really knows how many handsets are sold around the world. There are plenty of dinky mobile-phone makers. Sales in China, for instance, aren't counted accurately. Per Lindberg, analyst for Dresdner Kleinwort Wasserstein, estimates that actually the number of handsets sold this year will be 415 million. All the handset makers have an incentive to underestimate just how many handsets are sold so that their own shares look better. But how much a company low balls its estimate depends on the relative strength in the market at any given time. Right now, Nokia's rivals have the incentive to estimate that the market is bigger to emphasize how much share Nokia is losing. And so it isn't surprising that Ericsson and Motorola are at around 400 million, just like Siemens.
A Nokia spokesman says it's not losing share, but gaining it. The company forecasts market-share gains this quarter from what it says was its share in the third quarter of about 34% of global handset sales. The company says it had about 35% in the first half. And Nokia is back to talking boldly about its aspiration of a 40% share. Earlier this year, the company had a tendency to be coy about that and say that, while it wants to have a 40% share eventually, it also wants to emphasize profitability. That's investor code for a willingness to lose share to preserve margins. Competitors were dumping excess inventories at bargain basement prices.
Nokia Cuts Sales Forecast for 2001 But Says Outlook for 2002 Is Good
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Nokia's Lead in Phone Market Narrowed in Third Quarter, Research Firm Reports (Nov. 19)
Of course, if the market is bigger than is thought, Nokia's slice of the pie is, in fact, smaller. As long as analysts and investors think the market is smaller than it is, they won't be as alarmed. Nokia could be losing share because of price competition. Mr. Lindberg's theory, however, is that Motorola and Ericsson are catching up with Nokia in handsets because of design, which could be an ominous development for Nokia. The Nokia spokesman says the company is confident about its product portfolio.
If Mr. Lindberg is right, then in fact the Nokia estimates aren't bad for the rest of the handset makers -- only for Nokia. This, however, seems to be optimistic. Nokia has long overshadowed its competitors in design. And a dramatic recovery of handset sales -- which many investors appear to be counting on -- seems increasingly unrealistic. What this suggests is that investors should be suspicious of the estimates for next year in general.
Though companies tend to be adept spindoctors, they usually are lousy at forecasting. The barber of Helsinki has trimmed and clipped its estimate of the global market by about 170 million handsets in a little over a year. A month ago, the Finnish giant's estimate stood about 10 million higher, but it lopped that off Tuesday. So, when Nokia says that the handset market should be between 420 million and 440 million units next year, investors should keep that in mind.
Same goes with the other forecasts that Nokia is making. The company expects that revenue growth next year will hit 25% to 35% "by the fourth quarter at the latest." That figure has much to do with when it can recognize revenue from infrastructure deals and could see delays. The company expects sales at Club Nokia portal to reach 1 billion euros ($880.4 million) in 2004, which smacks of being just a finger-in-the-wind sort of number.
The company's meeting for investors and analysts, in contrast to last year's ill-timed hubris, was low-key, according to attendees. The reason is fairly clear: As the slowdown takes even more dramatic shape, Nokia could face a grim next two quarters. Inventories look like they will rise fairly dramatically. If it's not evident in the fourth quarter, it will likely be true in the first quarter of next year, a period that historically has been seasonally slow.
Look for Nokia's outlook, and therefore consensus earnings estimates of 78 cents a share for 2002, to continue to suffer additional shaves-and-haircuts.
Write to Jesse Eisinger at jesse.eisinger@wsj.com |
