Nokia Sees Soft Sales, Shares Drop
Tuesday December 10, 11:05 am ET
By Brett Young
Reuters
HELSINKI (Reuters) - Nokia, the world's largest mobile phone maker, warned on Tuesday that fourth-quarter sales would likely be weaker than expected as demand for networks remained grim and color-screen phones failed to take off.
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The outlook came just one week after the company gave a cautious 2003 forecast for the entire industry and, together with a downbeat conference call with analysts, sent Nokia shares down 3.9 percent to close at 17.24 euros.
Nokia said that while it was gaining market share in handsets as planned and while earnings per share would remain comfortably within its forecasts, overall sales could be somewhat lower than expected.
"Sales in (both the) handsets and systems divisions are lower than originally estimated," Chief Financial Officer Olli-Pekka Kallasvuo told the conference call, adding that sales to the U.S. market in particular had been soft.
Nokia stock, which rose in past weeks on hopes the corner has been turned for the struggling industry, pulled the Dow Jones Stoxx tech index down 2.2 percent. The shares are still 64 percent above a year-low of 10.52 euros in July.
Nokia now sees revenues of 8.8-9.0 billion euros as its cheaper phone models have been more popular than pricier handsets with lots of features. It shifted the range downwards from previous guidance of 8.9-9.2 billion, with sales in the fourth quarter last year at 8.8 billion euros ($8.89 billion).
The cut is the sixth such move this year by the firm, once known for its prescience in forecasting, and shows that the industry is still struggling to return to growth after the heady years of the late 1990s.
Analysts said Nokia had overestimated the demand for high-end color-screen and camera phones, on which cellphone makers are pinning hopes to spark dormant demand.
Sales growth of both mobile phones and networks has ground to a virtual halt as markets become saturated and many telecoms operators forego spending to strengthen their balance sheets.
"We are looking at the situation where the mix of our sales and that of the overall market has shifted more toward the lower end," Kallasvuo said, adding that average selling prices in the quarter looked to be lower than in the third quarter.
Also on Tuesday, Tom Lynch, handset chief at U.S. rival Motorola, told a Lehman Brothers conference in Florida that average selling prices will decline slightly this year.
Nokia's outlook, which is closely watched as the firm makes roughly two out of every five mobile phones sold globally, confirms industry expectations of a solid, but not spectacular, Christmas sales season.
And competition has become more fierce, with Samsung, Sharp and other Asian firms launching competing high-end products that have big color screens packed into handsets that are smaller than Nokia's picture phone.
Nokia said pro forma diluted earnings per share in October-December were seen well within its previously indicated range of 0.23-0.25 euros. The company had a fourth-quarter pro forma EPS of 0.24 euros a year ago.
BAD VIBES
Analysts said they were surprised at the gloomy tone of the conference call, which caused Nokia shares to accelerate their earlier slide.
"The CFO didn't sound half as upbeat as a week ago in Dallas. The company is clearly surprised it didn't sell as many high-end handsets with color screens," one London-based analyst said.
"Demand came from areas it didn't expect and it had to reorganize production. It doesn't bode well for Q1 because if people are not buying color-screen handsets for Christmas, why would they in Q1?" he added.
"Investors need more proof that (picture-messaging) handsets are selling well, and we won't get that until January," said Mandatum Stockbrokers analyst Erkki Vesola.
Nokia has now disappointed the market twice in a week. It earlier said that it expected just 10 percent unit growth for the world's handset market in 2003, when investors had been stoked for growth of up to 15 percent.
Nokia raised its outlook for pro forma operating margins in its key mobile phones unit, which generates the majority of the company's profits, saying it would exceed the 22 percent reported in the third quarter. Nokia previously expected flat margins quarter-on-quarter.
NETWORKS A WORRY
But it signaled more misery for the hard-hit networks industry, saying it now expected a pro forma operating margin of around zero in the quarter, down from a previous forecast of around five percent. Sales were seen up year-on-year.
Nokia's networks unit has reported pro forma profits since the company shifted to quarterly reporting in 1996.
"As far as we can remember Nokia has been at least at breakeven in networks. The market will be distracted by this," said CSFB analyst Kulbinder Garcha. "But overall we don't see a massive change to our numbers."
The outlook sent shares in Swedish rival Ericsson, the world leader in networks, 3.6 percent lower to 8.15 Swedish crowns.
Nokia reiterated it expected global sales of 400 million mobile phones in 2002, a slight rise from last year.
Nokia said it was on track to win significant market share in handsets in the fourth quarter versus July-September when it had a 36 percent share, and it was gaining ground in all markets. Nokia has said it expects a record share of the global handset market in the fourth quarter.
Nokia is due to give full fourth-quarter results along with its 2002 annual report on January 23.
(Additional reporting by Lucas van Grinsven in Amsterdam and Ott Ummelas and Alistair Holloway in Helsinki and Ben Klayman in Chicago.)
($1=.9902 Euro) |
