1) After posting 88% year over year growth in the March quarter, expectations for 77% year over year growth in the June quarter were clearly too high so much so that the actual 67% year over year growth posted was totally ignored This, in and of itself, is remarkable because no other company with over E10 billion in sales is growing at this rate. The E286 million shortfall in handsets couldn't be offset by the E82 million outperformance in networks. That E204 million could have added about E0.03 to the bottomline, handily beating expectations.
2) More important, however, was the confirmation that Nokia is indeed ratcheting down the projected annual industry handset sales from the euphoric 660 million handsets earlier this year to a more pedestrian estimate of 400+ million handsets -- vis-a-vis 240 million handsets sold last year, or 67% growth yoy. I don't think think there is a fundamental problem with demand so much as with a supply line still trying to catch up, lead times and all. The earlier reports from Kyocera, Matsushita and other parts of the Japanese supply line were already giving signals that industry estimates were ratcheting down.
3) Aside from the usual uncertainties involved in the rollout of new consumer electronics products like handsets, the flat 3rd quarter also gives Nokia an opportunity to recalibrate the expectations for wireless data, particularly WAP which has met a mixed-reception so far. This also allows them to set up the traditionally strong December quarter for the numbers that will allow them to match or exceed their annual guidance.
4) Interesting geographic mix:
From 1H1999 to 1H2000
Europe.........from 56% to 51%
Asia-Pacific...from 23% to 25%
Americas.......from 21% to 24%
Top 5 markets:
1) USA
2) China
3) UK
4) Germany
5) Italy
4) Lastly, now that the damage has been done, Nokia might as well use the flat guidance for the 3rd quarter to continue its already successful campaign to keep spectrum costs down in Europe and Asia. Already, the ongoing spectrum auctions in Germany and the Netherlands are expected to rake in about 50% less than the equivalent spectrum auctioned in the UK. Just as important is the other part of the campaign to convince the international lending community to assume more of the financing burden for those new networks. This is clearly not an equity market that will take too kindly to ballooning vendor financing accounts in the balance sheets of the manufacturers. |
