Nokia expected to report drop in first-quarter earnings

Nokia, the world's leading mobile phone manufacturer, is expected to post a drop in pretax profits when it releases its first quarter earnings report April 18, amid slumping mobile phone sales and display problems on some models, analysts said.

The Finnish group is expected to report a pretax profit in the range of 1.16 billion- 1.41 billion euros ($1.02 billion), down from 1.48 billion euros in the corresponding period a year ago, analysts said.

Sales are expected to fall to somewhere between 7.11 and 7.27 billion euros, down from 8 billion last year.

While Nokia has been able to shield itself relatively well from the global economic downturn, declining handset sales have left analysts wondering whether the group would be forced to slash its 15 percent growth forecast for 2002.

"If the year-on-year first quarter reduction in sales is no greater than 4 percent, then they shouldn't have to change their outlook for the full year," said Marko Maunula of Conventum Securities.

Most analysts said they expected mobile phone sales to pick up dramatically in the autumn, when new, more affordable GPRS mobile phones, which offer high-speed Internet connections, become available.

Meanwhile, Nokia reported display problems on some models earlier this month, and as a result analysts questioned how much Nokia's reputation as a quality phone maker - enabling it to charge more per phone than its rivals - had suffered.

Since Nokia has said the display supplier will pay for the replacement charges, analysts were more worried about the negative impact on Nokia's long-term sales than the extra costs.

"It's obviously not a good thing for their brand or customer loyalty," said Karri Rinta at Evli Bank.

In network sales, Nokia has largely been able to buck the trend of slumping orders, with its relatively modest market share of 13 percent - compared to 35 percent in handsets - expected to rise by up to two percent this year.

But analysts said Nokia's 6.6 percent network sales growth target for the full year was overly optimistic, with Rinta forecasting it would end up around 4.3 percent.

Due to the overall weaker outlook, Rinta has also slashed his year-end target price for Nokia's share by 3 euros to 27 euros, but kept his "buy" rating as he still saw it as under-priced.