Nokia Paints a Rosy Picture
Nokia reaffirmed and extended its revenue growth projections today, and
accelerated its forecast for worldwide mobile phone user growth, leading
to a jump in the company's shares. While the company may be firing on
all cylinders now, however, it will face plenty of challenges in the years
ahead.
Leading handset manufacturer, Rule Maker, and
FOOL 50 Index component company Nokia
(NYSE: NOK) issued a spate of positive
announcements today at the company's annual
analysts' presentation in London. Nokia projected
healthy sales for itself and the mobile
communications industry generally, giving a shot in
the arm to its stock, which jumped $5.75 to $50.31
per share by midday.
Nokia's future projections
To begin with, Nokia extended its projected revenue
growth rate of 25% to 35% to 2003, and reaffirmed
that revenue for the first half of next year should grow in the "upper range" of 25%
to 35%. The company also stated that it believes it now has greater than 30%
worldwide market share in handsets. Nokia also projected that its market
for wireless infrastructure equipment, which makes up about a quarter of the
company's business, should grow 30% a year for the next three years, reaching
90 billion euros ($79.34 billion) by 2003. Nokia is aiming for 35% market share in
next-generation W-CDMA wireless network equipment.
In addition, the company stated that it plans to save 1 billion euros annually
(about $880 million) through various e-business cost-cutting initiatives, though it
did not provide any details. Given that Nokia's recent success results partly from
its strategy to cut prices and sacrifice a little margin in order to increase market
share, this improvement to its operating efficiency should only improve its
competitive position.
The mobile phone industry
Regarding the larger mobile phone industry, which has been subjected to worries
in recent months over slowing overall handset sales, Nokia now estimates that
there will be 1 billion mobile phones by the first half of 2002, rather than the
second half of that year, and up from about 700 million mobile phone users
worldwide today. Nokia also moved up its forecast for Web-connected phones,
estimating that they will surpass PCs on the 'Net by 2002, rather than 2003,
though the company did not estimate an actual number. Nokia did project that
there will be 60 million Web-enabled handsets worldwide by the end of this year,
and that this will increase to around 200 million next year.
In one interesting trend, Nokia estimates that 40-50% of mobile phone buyers this
year were replacing previous models, and that this will increase to 70-80% in
future years. This is an important dynamic, as companies face more challenges in
selling to current mobile phone users who may be locked into certain subscription
plans, transmission standards, or simply brand loyalties. Nokia expects it will
benefit from this trend, however, thanks to its deep product line and because the
company believes its customers are loyal.
Plenty of challenges ahead
While today's news provides plenty of evidence of Nokia's dominant position, this
doesn't necessarily mean easy times ahead for the Finnish company.
Nokia's ruthless efficiency may be slowly crushing its rivals Motorola (NYSE:
MOT) and Ericsson (Nasdaq: ERICY), but there is plenty of action elsewhere in
the mobile phone industry. Investors need to keep their eyes on Asian
manufacturers such as Matsushita (NYSE: MC), Mitsubishi (OTC: MIELY), and
Samsung (OTC: SSNLF), which will have greater opportunities to sell their
phones worldwide as wireless networks transition to data-centric 3G networks.
These companies have plenty of experience making phones for heavy wireless
data users in Japan, and therefore already have a sense of what consumers want
from Internet-enabled phones.
In addition, these companies aren't just waiting for 3G. Samsung is already
Sprint PCS' (NYSE: PCS) leading mobile phone provider, and Mitsubishi has
claimed the top spot in Internet-enabled phones for AT&T Wireless (NYSE:
AWE). Matsushita, which sells under the Panasonic brand in the U.S., is aiming
for 15% world market share by early 2005, according to a summer article in The
Wall Street Journal.
In short, Nokia may be firing on all cylinders, but as is to be expected in rapidly
evolving markets, there's little time for the company to rest on its laurels.
Article by: Chris Rugaber from The Motely Fool
fool.com |
