Nokia surprises with strong results, but future may hold less buzz
By Paal Aarsaether, Jan 24 2003
HELSINKI (AFP) - Nokia surprised investors with strong fourth-quarter results on Thursday, as the company's glitzy new phone models, featuring colour screens and cameras, raked in unexpectedly high profits. But applause for the world's biggest mobile phone manufacturer died down quickly, as its stock fell with analysts saying that signals about future performance were unclear.
Nokia reported an eight-percent increase in comparable-basis pro-forma net profit to 1.247 billion euros (1.343 billion dollars) in the fourth quarter from the equivalent 2001 figure.
Group sales increased by one percent to 8.788 billion euros.
The company clocked up record sales volumes of 46 million units in the fourth quarter, giving it an estimated 39 percent market share, "our highest ever", chief executive Jorma Ollila said.
Nokia, closely watched as a barometer for the telecoms and related industries, said it now expected mobile phone operations to see sales growth of up to nine percent in the first quarter of 2003 compared with the equivalent figure in 2002.
"The strong margin, 24.7 percent, for the handset unit is really spectacular," Karri Rinta, analyst with Evli bank in Helsinki, told AFP.
But the company's vague prediction that sales growth in the first quarter of 2003 could be anywhere between zero and nine percent was perceived as less than reassuring.
"Visibility is very poor ... so the near-term outlook is certainly not much to cheer about," Rinta said.
After the initial applause and a sharp upturn in Nokia shares, both analysts and the stock price came back down to earth, and plunged well into negative territory.
It closed Thursday at 13.59 euros, down 4.7 percent on Wednesday's closing price and more than one euro off its high earlier in the day, seen just after the results were released.
"As the pro-forma figures include assets sales, and the reported figures do deviate quite a lot from the pro forma figures, the results come out as slightly disappointing in terms of sales and profitability," Mika Metsaelae, analyst with brokerage Kaupthing Sofi, told AFP's financial news subsidiary AFX.
Analysts said that Nokia's best chance to grow its mobile phones business further and reach its long-term market share target of 40 percent was to crack open the American market.
The Americas, as well as Japan and South Korea, use the CDMA standard, where Nokia's market share is only 10 percent, compared to almost 50 percent in Europe, where GSM dominates.
Nokia said it hoped for a market share of close to 40 percent in CDMA countries in the medium term.
Nokia expected global mobile phone sales, including those by competitors, to increase by 10 percent this year from 2002's 400 million, the main driver being a replacement market fuelled by new phones featuring colour screens and built-in cameras, which are expensive and yield high profit margins.
"We had a good start for the replacement market, and that will show the way to 2003," Ollila said.
The mobile phone outlook may be dogged by uncertainties, but it still looks positively glowing compared with Nokia's network division, which remains Nokia's major headache.
The division, accounting for one-quarter of group turnover, is charged with building networks for third-generation mobile telephones in Europe, but frustrating delays in their launch are driving the infrastructure providers to despair.
While networks sales increased by six percent to 2.084 billion euros in fourth quarter compared to the same period in 2001, the profit margin was poor, only 0.9 percent, and achieved only because of aggressive cost-cutting and massive lay-offs, analysts said.
"They managed a small profit, which is better than expected, thanks to the higher sales volume, but it obviously cannot continue," Rinta said.
Ollila, seemingly unperturbed, went through the motions of making upbeat comments on the future of the third generation, saying that the first commercial services in Europe should be launched during the first half of this year.
But even he had to concede it will take time before the new technology actually begins to make an impact.
thefeature.com
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