New handset saves Nokia

  • 2003-04-24
  • Paal Aarsaether

Nokia, the world's leading mobile phone maker, posted a 13 percent rise in profits in the first quarter from a year ago mainly due to unexpectedly high margins on handsets that analysts said would likely continue, the company reported April 17.

"Nokia Mobile Phones is doing extremely well, margins were clearly above expectations," said analyst Esa Nurkka at Conventum Securities.

Nokia reported a 23.9 percent profit margin on phones, which represent 81 percent of group sales, beating analysts' forecasts.

"It's excellent, it's an extremely good profitability that will probably hold during the second quarter," said Mika Paloranta, an analyst with the investment bank Carnegie.

The group's net profit totaled 977 million euros in the quarter.

Nokia also added to the good news by upgrading its full-year global mobile phone sales forecast from 440 million units to approximately 445 million.

In the first three months of the year, global handset sales increased by 10 percent on the same period a year ago to 98 million units, of which 38 percent bear the Nokia brand.

For the second quarter, Nokia now expects its mobile phone sales to increase 4 percent to 12 percent year-on-year, largely in line with analysts' expectations.

The Finnish group, which is seen as a bellwether for the telecom sector, registered a 3 percent dip in overall sales in the period, to 6.77 billion euros, a decline it attributed to its ailing networks division.

"With this strong performance from our mobile phones, we succeeded in substantially reducing the impact of difficult operating conditions in our network infrastructure business and were able to post solid overall first-quarter results," said Jorma Ollila, chief executive of Nokia.

The infrastructure division, which suffered a sales slump of minus 15 percent, last week announced that it would slash 1,800 jobs.

Excluding good-will amortization and nonrecurring items, the unit posted an operating loss of 127 million euros, compared with a profit of 146 million a year earlier.

The company also said it planned to take a charge of 350 million to 400 million euros during the second quarter due to the restructuring of the division.

"The magnitude of the charge was a bit surprising, and it's hiding the underlying results of the network sector," Paloranta pointed out.

The results also reflected that the new, more expensive handsets with higher profit margins, and featuring color screens and the ability to surf the Internet — so-called GPRS or 2.5G phones, are catching on in Europe.

"In early 2003, we began seeing an increased impact of color and multimedia on the mobile phone market," Ollila said.

"Strong sales growth in Europe was virtually offset by somewhat slower sales in the Asia-Pacific region and substantially weaker sales in the Americas," he added.

This was largely expected, analysts noted, as U.S.-based Motorola in its quarterly results last week reported an increased market share in Asia.

But both companies' stakes in the important Chinese market are slipping, according to statistics. Last year, Nokia's market share in China was 18.17 percent, down from 22.28 percent in 2001, while Motorola's stake at the same time slipped from 29.26 to 25.76 percent.

The Chinese market is dominated by cheap, low-end handsets, providing rather modest profits, analysts pointed out.

"We are a strong number two player (in the Chinese market), lagging a couple of percentage points behind the market leader," Ollila conceded.

The situation has now stabilized, and "we see our share responding favorably during the year in China," he added.

Motorola posted a net profit of $169 million in the first quarter, compared with a loss of $449 million a year ago.

But it was still too early to say whether the good results from the two telecom giants signaled a turnaround for a sector badly battered by the global economic downturn, analysts said.

"It's still to early to say. The lack of transparency doesn't permit any long-term predictions, but I would say that we are nearer to the bottom of the market than before," Paloranta concluded.