Nokia remains afloat while telecoms industry dives

  • 2002-07-25

Finland's Nokia, the world leader in mobile phones, bucked the trend in a gloomy telecom market by announcing a 10 percent rise in first-half profits amid concern for the future of the sector.

But despite relatively strong profits, Nokia disappointed markets by trimming its full-year earnings, networks operating margins and global handsets sales projections, with Chief Executive Jorma Ollila warning the sector would not turn up before next year.

"Economic conditions in the latter part of the year will continue to be hard," he said.

The Finnish group's profits were in the upper range of analysts' estimates, and the price of a Nokia share initially rose on the news in Helsinki before falling back to close down 4.6 percent at 13.70 euros ($13.84).

Other telecom stocks across Europe reacted mildly to the Nokia report, with analysts saying the figures were largely expected following a mid-quarter update in June.

Nokia announced net profits had risen to 1.72 billion euros but slipped by 3 percent to 1.82 billion euros excluding goodwill amortization and non-recurring items.

Sales dropped to 13.9 billion euros in the second half, and the group trimmed its full-year earnings per share guidance to 0.79-0.84 euros from the 0.83 euros previously announced.

Recent months have seen growing concerns about the future of the telecom industry, which is crippled by debts, amid doubt about whether new technology will be as profitable as forecast.

In addition, there have been repeated delays in the launch of third-generation mobile telephony technology, or 3G, featuring sound and image messaging and mobile e-mail and which is considered key to the sector's revival.

As a result, Nokia's networks division posted a 52 percent decline in operating profit in the first half, but said it expected 3G to represent over 25 percent of infrastructure revenues in the second half of the year.

The group said its overall sales growth would be driven by volume deliveries of a number of advanced high value-added models during the second half and revenue from 3G network sales, "assuming the necessary technology milestones are satisfied."

The delays have also affected mobile phone sales, as customers postpone the purchase of new handsets until the new services are available.

Nokia cut its full-year global handset sales forecast to 400 million euros from the 400 million - 420 million euros seen previously. The new outlook is in line with that predicted July 17 by U.S.A. mobile phone maker Motorola.

"I was expecting neutral or slightly negative results and this is slightly disappointing," said Mika Metsaelae, telecoms analyst at Kaupthing Sofi. "Important is Nokia's third-quarter guidance which is considerably lower. If they want to reach their full year earnings per share, there is a big pressure for the fourth quarter," he said.

Nokia said meanwhile it expected its full-year market share to show an increase on last year's 37 percent, leaving its rivals in the dust.

Last month, Alcatel issued a profit warning and announced plans to slash 10,000 jobs, while Motorola on July 23 posted a tripling in second-quarter net losses to 2.3 billion dollars (1.02 dollars per share).