bullish news
Friday October 19, 11:41 am Eastern Time
Nokia forecasts robust Q4, lifted by new phones
(UPDATE: Updates closing share prices)
By Paul de Bendern
HELSINKI, Oct 19 (Reuters) - Nokia on Friday indicated it was weathering the current slowdown well after it forecast resilient earnings for the key fourth quarter Christmas sales period, bolstered by its new range of Internet phones.
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The news came as Nokia, which makes one-third of all handsets sold, posted a slightly smaller-than-expected drop in third-quarter profit, due to tough competition coupled with weak demand for handsets and mobile networks.
This year is the first time the mobile phone industry, which has become the world's biggest consumer electronics segment, is set to see sales fall year-on-year.
The Espoo-based company said as a consequence it expected fourth-quarter earnings per share to fall to 0.18-0.20 euros ($0.16-0.18), down from 0.25 euros in the same 2000 quarter.
But analysts welcomed the guidance as positive given gloomy telecoms sentiment and an economic slowdown that has been exacerbated by the September 11 attacks on the United States.
Although Nokia managed to display resilience in handsets, the networks division performed much worse than expected as telecoms operators put network orders on ice.
This has also hurt rivals Ericsson and Alcatel , which depend more heavily on networks. Shares in Ericsson and Alcatel both fell as a consequence.
Nokia shares closed 5.6 percent at 22.18 euros at 1500 GMT, outperforming a slightly positive Dow Jones Tech index. Nokia has seen its share rise 50 percent since September 11. It has outperformed the top 50 European stocks by over 30 percent and Ericsson by over 20 percent.
``While the market environment has had an inevitable impact on Nokia's topline growth, we have continued to translate our core strengths... into profitable results,'' said Nokia Chief Executive Jorma Ollila.
``Our market position is stronger than ever, we have very healthy balance sheet and cash flow.''
NOKIA POSTS 1.1 BLN EURO PRO FORMA PROFIT
Nokia posted Q3 pro forma earnings per share of 0.16 euros, at the high end of a Reuters poll, which expected 0.15 euros but within the 0.14-0.16 range the company gave on September 11 -- helped by job cuts of up to 4,700 from just under 60,000 staff.
``They matched the top line and they beat the EPS with excellent cost controls,'' said Justin McNichols, portfolio manager with San Francisco asset management firm Osborne Partners Capital Management, which owns Nokia shares.
July-September pro forma pre-tax profit fell 22 percent to 1.07 billion euros, better than expected, but including significant write-offs linked to Turkish operator Telsim and British carrier Dolphin, profits plunged 79 percent to 281 million euros. Sales fell seven percent to 7.05 billion euros.
``This result should be strong enough to restore general confidence in the company,'' said wireless analyst Mika Paloranta at Nordea Securities, which cut Nokia to ``hold'' from ``buy''.
``The guidance for Q4 was also confident, and quite well in line with what we are forecasting.''
Nokia said it expected fourth-quarter group sales to be higher than the third quarter but close to the fourth quarter's level of 9.28 billion last year.
It will be helped by its new range of phones, like the tiny Internet-enabled 8310 fashion phone and the 5510 youth phone.
ROBUST PHONE MARGINS, FOCUS BACK ON MARKET SHARE
Nokia outdid sceptics by announcing a strong 19 percent operating margin in phones, the highest in an industry Nokia dominates with a market share of 34 percent -- almost twice as much as that of its nearest rival Motorola.
Phone sales fell three percent to 5.27 billion euros, with growth in Asia and the U.S. offset by a fall in Europe -- a saturated market where handset subsidies were cut by operators.
Nokia, which earlier this year abandoned a goal of gaining market share to focus on profits due to the tough market conditions, said it was returning to gaining share.
``Nokia now sees market conditions stabilising and is placing renewed emphasis on capturing sustainable market share in line with the company's long-term target of achieving a 40 percent share of the market,'' Nokia said.
Ollila said Nokia's market share had dipped to 34 percent in the third quarter due to competition from rivals but he said the company aimed to raise it considerably in the fourth quarter.
Earlier this month, Motorola said it had raised its market share to as much as 18 percent, helped by a new range of mobile Internet-enabled GPRS (General Packet Radio Service) phones.
Nokia cut its industrywide mobile phone unit sales estimate for this year to 390 million from an earlier estimate of 405 million -- still somewhat higher than Motorola's estimate.
It failed to comment on 2002 mobile phone unit sales after earlier this month Motorola forecast sales to rise to 420 million-460 million units next year.
NETWORK PRESSURES
Nokia Networks, which makes up 24 percent of group sales, was most affected by the downturn. It reported a 14 percent fall in sales to 1.66 billion euros, with margins halved but still high compared with rivals at 9.3 percent.
Nokia also warned it expected fourth quarter network sales to drop 20 percent year-on-year and said this market would continue to be challenging, particularly in the first quarter of next year and possibly into the second quarter as well.
``Despite a continuing lack of visibility the company expects network sales in the second half of next year to be significantly higher than the first half,'' Ollila said. The second-half would be helped by orders for high-speed third-generation networks, he said.
But Nokia's first-half 2002 outlook is likely to put further pressure on Ericsson, the world's biggest producer of mobile networks and third biggest handsets supplier, which reports results on October 26.
Some were surprised at Nokia's reiteration of a sales growth goal of 25-35 percent some time during next year.
``The most interesting thing about their forecasts is that in this changing and uncertain environment they are holding on to their 25-35 percent sales growth forecast for next year,'' said Deutsche Bank analyst Lauri Rosendahl.
(Additional reporting by Ben Klayman in Chicago and Laura Vinha in Helsinki) |
