Nokia Cellphones Sell, but Too Cheaply
Tuesday September 9, 12:19 pm ET
By Brett Young
HELSINKI (Reuters) - The world's top cellphone maker Nokia said on Tuesday brisk handset demand might allow it to top its third quarter earnings forecast, but lower prices and a weak dollar could mean falling revenues at its main unit.
ADVERTISEMENT
Nokia's comments in its mid-quarter update underlined how even the world's strongest mobile phone maker is being hit by ferocious competition mainly from Asian rivals as its profit margins, the sector's highest, are under pressure.
Mobile phone demand is once again on the rise after three years of stagnation, fueled by robust growth in developing markets such as India and China, but the Finnish technology bellwether also said every phone was sold much cheaper than last year due to increased competition and weakness in the dollar.
A soft dollar means Nokia gets less in terms of euros for each phone it sells in countries in the Americas and Asia.
"(Third-quarter) ASPs are estimated to be down... both year-on-year and sequentially," Chief Financial Officer Olli-Pekka Kallasvuo told a conference call. He declined to say how profit margins would develop in the fourth quarter.
The comments sent Nokia's shares lower, with the stock off up to 5.7 percent before trimming losses to close official trade 4.4 percent lower at 14.42 euros, dragging the Dow Jones Stoxx Eurotech Index 2.7 percent lower.
In New York, the company's shares were off 5.2 percent at $16.16 at 1557 GMT.
Nokia shares are still below July levels when it revealed profit margins would fall from the second quarter. Nokia now said pro forma earnings for the quarter ending September 30 would be at the top end of, or slightly above, its previously announced range of 0.15-0.17 euros per share, versus 0.18 euros a year ago.
WHAT ABOUT Q4?
While the guidance was a slight improvement on Nokia's earlier, disappointing, forecast, investors were mainly concerned that the larger than usual price declines will dent profit margins beyond the third quarter results, due October 16.
"Despite all the positive comments by Nokia, the coin has another side -- average selling prices for phones are falling I believe... by between 15-20 percent year-on-year and this is not encouraging," said Conventum Securities analyst Jari Honko.
"Investors are now extremely scared about what sort of average phone prices we'll see in the fourth quarter," he said.
Nokia repeated unit volumes at its core mobile phone handsets division would rise well above 10 percent in the quarter, but revenues at the business would be flat to lower year-on-year due to a stronger dollar in the comparable period.
"Overall it is hard to extrapolate the third quarter results to the fourth quarter," said analyst Stuart Jeffrey at Lehman Brothers in London.
Although sales are under pressure, Nokia still has the highest profit margins in an increasingly crowded market thanks to its global reach, economies of scale and tight logistics.
The Finnish company sells more than twice as many phones as its nearest competitor, Motorola, and is approaching a global market share of 40 percent.
Recent data from companies and research groups show mobile phone sales have been strong especially in countries such as India and China that offer firms hundreds of millions of potential new clients.
Nokia has targeted these markets, and last month launched its first mobile phone in China running on the CDMA (code division multiple access) standard, part of a broader drive to raise its share of the world's second largest mobile standard.
Kallasvuo said the efforts were already paying off, and singled out the Americas and China where it increased sales.
Nokia also repeated third-quarter sales at its wireless telecoms networks unit would sink by 15-20 percent year-on-year, with the pro-forma operating profit expected to be close to break-even.
It said the networks market appeared to be stabilizing, but it remained to be seen how and what pace it would recover. Kallasvuo said the firm was still expecting the market to fall by over 15 percent in 2003.
(Additional reporting by Pekka Lahteenmaki, Lucas van Grinsven in Amsterdam and Peter Starck in Stockholm) |
