Nokia CEO Ollila to Step Up Defense as Rivals Stage Rebound
By Ville Heiskanen
04/17 19:02
Espoo, Finland, April 18 (Bloomberg) -- Nokia Oyj Chief Executive Officer Jorma Ollila will today deliver the fourth straight quarterly profit drop for the top mobile phone company.
To stop the declines, Ollila, 52, will have to defend a 37 percent share of the $50 billion handset market against rivals the likes of Motorola Inc., which have taken a leaf out of the Finnish company's book and are introducing funky new phones faster.
Investors are concerned. Nokia shares have lost 20 percent so far this year, giving Nokia a market value of 111 billion euros ($99 billion). In June 2000, it had a market capitalization of 307 billion euros and was Europe's most valuable company.
``Rivals are rolling out attractive phones,'' said Patrick Nielsen, who manages $1 billion at Mapfre Inversion in Madrid, including Nokia. ``They are very capable of taking market share.''
Motorola has introduced the V70 silver model, which features a rotating cover instead of one that flips open. Sony Ericsson Mobile Communications Ltd. has already introduced three cellular phones with color screens since it was set up last year.
Ollila has presented one color-screen phone. What's more, a survey by Nadiga Oy this month showed a quarter of Nokia's phones have been returned to Finnish retailers to fix displays. Nokia has said an unidentified supplier will bear the costs.
Decline
Shares in Motorola, which Tuesday said its first-quarter loss narrowed to $449 million from $533 million, are little changed this year. Siemens has declined 3 percent. Shares in Sony Corp., Ericsson's mobile-phone partner, are up 20 percent.
Only Ericsson, which generates 80 percent of its revenue from phone networks, has lost more and is down about 30 percent. Nokia's biggest shareholders include Janus Capital Corp., the Texas Teacher Retirement System, as well as Vanguard Group.
Nokia's first-quarter profit probably fell 16 percent to 817 million euros, according to a Bloomberg News survey of 12 analysts. Handset sales probably dropped as much as 7 percent.
``Nokia is nearing its upside limit'' in profitability, said Mikael Naeslund, who helps manage 1.8 billion kronor ($170 million) in stocks at Lannebo Fonder, including Nokia shares.
In the fourth quarter, Nokia had an operating margin -- profit before interest and tax as a percentage of sales -- of 21.7 percent in mobile phones. For all of 2002, the company in January predicted a mobile-phone margin ``in the high teens.''
Earnings at Nokia slid for the first time since 1995 last year, and Ollila was forced to lower his estimate for industry handset sales five times by a total of 31 percent. Some investors said he may have to lower his estimate for 2002 today.
Lower Forecasts?
Analysts at HSBC Holdings Plc already cut their global sales estimates from 430 million units to 415 million. Nokia has so far stuck to its estimate that phone sales this year will rebound to as many as 440 million units from 400 million phones in 2001. Sales dropped 3 percent last year, according to Gartner Inc.
To be sure, Ollila is fighting back. Nokia plans to introduce 20 new models in the first half, compared with 14 new phones in all of 2001. He's also said he expects handset sales to pick up after slipping as much as 7 percent in first quarter.
And some investors and analysts said Ollila, who transformed Nokia from a producer of rubber boots and toilet paper into the dominant cell-phone maker during his 10-year rein, will be able to capitalize on Nokia's brand name and deliver on his targets.
``Soon it will be time for consumers to start buying again,'' said Jukka Linden, a money manager who helps oversee about 2 billion euros at Opstock Securities, including Nokia.
Big Share
Also, Nokia's rivals have a lot of catching up to do. Motorola, the No. 2, had a market share of just 14.8 percent last year, according to Gartner Inc., while Siemens had 7.1 percent.
Nokia in March said first-quarter earnings per share may exceed a previous estimate of 15 cents to 17 cents. Sales will miss Nokia's targets because revenue at the networks unit, which accounts for 20 percent of sales, again lagged estimates. The unit already had an operating loss in the fourth quarter.
Analysts have said Nokia may have to cut jobs at the unit as telecommunications companies including Deutsche Telekom, BT Group Plc and France Telecom SA rein in spending as losses mount.
``Networks are troublesome at the moment, but Nokia's fate will be decided by handsets,'' said Linden at Opstock.
Ollila, whose income from stock options fell to 8 million euros from a combined base salary and options package of 50.6 million euros a year earlier, declined to be interviewed.
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