Sluggish sales seen haunting Nokia again in Q1
Wednesday March 5, 11:24 am ET
By Brett Young
HELSINKI, March 5 (Reuters) - Persistently sluggish demand and consumer reticence to shell out cash for flashy new phones with colour screens and cameras will force Nokia (NOK1V.HE) to lower its first-quarter sales outlook next week, analysts said.
The March 11 mid-quarter earnings statement from the world's largest mobile phone maker comes at a time that positive signals are scant from either the handset industry or the world economy and that fierce competition keeps prices under pressure.
Nokia, which makes more than one in three mobile phones sold globally, last year cut its sales outlook six times and reported an annual fall in revenues for the first time in more than a decade amid sputtering economies and a looming war in Iraq.
"Nokia's biggest threat right now is not Microsoft or Samsung, it's the economy," said Daiwa Europe analyst Matthew Lewis, who has a "market perform" rating on Nokia shares.
Nokia said in January it expected first-quarter conditions to remain tough, with pro forma diluted earnings per share to be between 0.15-0.19 euros -- at best flat on the year-ago figure of 0.19 euros.
It said sales would be slightly weaker than the flat to nine percent growth expected in the key mobile phones unit, which generated almost all of the group operating profit in 2002 due to the bearish markets for telecoms network equipment.
With most of the quarter now past, analysts said Nokia would probably tighten and lower its sales range to reflect weaker demand, with some saying sales could even contract.
But they expected the firm to meet its earnings guidance thanks to tight cost controls and efficient logistics.
CONCERN ABOUT HANDSET SALES DECLINE
"We expect Nokia to revise their revenue outlook downward. Our estimate is that... group revenues will be down four percent," said Evli Bank analyst Karri Rinta, who has a short-term "reduce" rating on Nokia shares.
"If they say zero to five percent revenue growth for the quarter, then that is not a disappointment. But if they allow for the possibility that revenues will decline, then most analysts will be disappointed," he added.
Nokia shares already reflect the gloomy sector outlook, having lost almost 20 percent in 2003 against a fall of 11 percent by the Dow Jones Stoxx Technology Index (Zurich:^SX8P - News).
Nokia's statement will come on the same day as its presentation at the CeBIT technology fair in Hanover, which is a traditional launching pad for new products.
Analysts said they would be looking for comments on average selling prices (ASPs) for phones in the quarter as well as on inventories to see how long phones would sit unsold on shop shelves.
Rivals Motorola (NYSE:MOT - News) and Sony Ericsson (Tokyo:6758.T - News; Stockholm:ERICb.ST - News) have already sounded a grim note on ASPs, saying they expect a further fall in 2003. Nokia has said it expects prices to rise in the April-June period after two quarters of weakness.
But analysts said that due to poor visibility in the market, which has been compounded by the threat of a war in Iraq, the company would probably remain vague on its outlook.
"Normally the mid-quarter updates are succinct and to the point, but I think that management will exercise more caution about the near term," said Dresdner Kleinwort Wasserstein analyst Per Lindberg.
Little good news was seen from Nokia's struggling networks division, which generates only a small part of total revenues but along with peers such as Ericsson (Stockholm:ERICb.ST - News) has been hammered as cash-strapped operators rein in spending and delay introducing new high-speed networks.
Nokia already said in February that it would cut 550 staff at networks due to the sluggish demand, more than three percent of the unit's total personnel.
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