Nokia: On target but still trimming

The mobile phone maker posts higher second-quarter profits in line with expectations, but shares fall as analysts say Nokia's forecasts leave room for disappointment.

Nokia posted higher second-quarter profits in line with expectations on Thursday, but shares in the mobile phone maker fell as analysts said its forecasts left room for disappointment.

Nokia, in the process of launching a record number of new phone models to keep ahead of fiercer competition, said it would post second-half sales growth of 3 percent to 10 percent, compared to an earlier target of up to 10 percent growth.

Nokia also forecast earnings per share, excluding goodwill amortization and nonrecurring items, of 80 cents to 84 cents (0.79 to 0.84 euros) for 2002, compared with a previous estimate of 83 cents.

Though the forecasts were basically unchanged, the company gave itself greater margin for error by broadening the range and putting pressure on Nokia shares.

"Everything seems to have come down a bit in terms of their outlook," said analyst Susan Anthony at Credit Lyonnais.

The mobile industry is entering its second year of annual decline as cash-strapped telecommunications operators are unable to spend money to upgrade their networks, and consumers are reluctant to buy new handsets.

Nokia shares bounced up and down after the statement, trading 3 percent lower at $14.01 in morning trade, after rising 3 percent earlier.

Nokia disappointed the market by saying it would take a material charge in the third quarter against its $756 million financing exposure to German operator Mobilcom.

Nokia shares have halved this year and have underperformed the Dow Jones tech index by around 10 percent. The stock is also about 80 percent off its June 2000 peak.

The figures are expected to help set the tone for European markets as the reporting season gets into full swing.

Mobile sales stall
Nokia is a bellwether for the mobile phone sector and was a must-have stock for many fund managers in Europe and the United States during the runaway growth era for mobile phone companies in the late 1990s.

Nokia said it now only expected 400 million handsets to be sold this year, compared with a previous forecast of industry sales of up to 420 million units. The new target is in line with that of its nearest rival Motorola and represents a second successive year of flat sales.

Analysts said Nokia's third-quarter profit and sales forecasts were slightly cautious, with a pro forma earnings per share EPS range of 15 cents to 17 cents and net sales of $7.23 billion to $7.64 billion.

"I am somewhat disappointed by third quarter EPS (earnings per share) guidance, which is slightly below what I am forecasting--but then I am ahead of consensus," said Hendrik Zonnenberg, wireless analyst at ING Barings in Amsterdam.

Nokia posted a pro forma earnings per share of 19 cents in the second quarter, within the range of 18 cents to 20 cents it had set in June. Last year's quarter earnings per share was 17 cents.

"Thanks to our consistent record of strong execution and tight cost control, we were able to put in a solid second quarter," company Chief Executive Jorma Ollila said in a statement.

Nokia's huge brand, economies of scale and ability to quickly adjust to changing demand has enabled it to ring in strong profit figures despite falling sales.

Pretax profit totaled $1.3 billion in the quarter, up from $1.18 billion a year ago. Net sales came at the low end of the company's forecast, down 6 percent to $6.97 billion--hurt by a 22 percent drop in sales of its hard-hit networks equipment division.

Market share rises
Nokia said its market share in mobile phones grew to over 38 percent in the April-June quarter.

It also said it expected 2002 market share to be higher than last year's 37 percent. The company also managed to ring in the industry's strongest margins for phones, coming in at 22 percent in the second quarter. It said it expected operating margins of around 20 percent for handsets in the second-half of 2002.

Nokia hopes that the recent launch of new devices, this time based on so-called multimedia messaging services (MMS) technology, will kick-start the market in the second-half, particularly because many models have color screens.

The company also cast some uncertainty about the outlook for the third-generation mobile phone market by saying it did not expect to start commercial shipments of 3G phones until early 2003.

Nokia had said it would start shipments in the third quarter with volume deliveries in the fourth quarter.

Story Copyright © 2002 Reuters Limited. All rights reserved.

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