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April 18, 2004

Nokia results confirm market fears

Nokia Corp, the world's largest maker of mobile phones and bellwether for the mobile industry, has reported a 16% drop in net profits in the first quarter due to weak sales of its mobile handsets. It also warned of a tough second quarter, which sent its stock tumbling for the second time in less than two weeks.

By CBR Staff Writer

Nokia’s share price, which had already shed almost 20% after it issued a shock profit warning on 6 April, fell 7.6% to $14.82 on the New York Stock Exchange.

For the first quarter, the Espoo, Finland-based company posted a net profit of 816m euros ($980.7m), down 16% from 977m euros ($1.17bn). Sales also declined 2% to 6.62bn euros ($7.96bn) from 6.733bn euros ($8.09bn) in the year-ago quarter.

What has caused so much concern is that Nokia’s mobile phone sales were down 15% during the quarter to 4.25bn euros ($5.11bn), from 4.98bn euros ($5.99bn) in the first quarter of 2003. This is despite a healthy mobile market that has seen rivals Samsung Electronics Co Ltd and Motorola Inc recently post record first-quarter results.

According to Nokia’s own preliminary estimates, overall shipments of mobile devices grew 29% in the first quarter of 2004. However, rivals have put the squeeze on the market leader, which has seen a 3% decline in its market share down to 35%.

Some good news though came from Nokia’s Networks division, which reported 16% increase in first quarter sales to 1.415bn euros ($1.70bn) compared with 1.217bn euros ($1.46bn) in the year-ago quarter. The division also reported a healthy profit, whcih was ascribed to the division’s success to higher than expected sales, and the extensive restructuring measures it undertook last year.

During a briefing with journalists and analysts, an occasionally flustered sounding chief executive Jorma Ollila confirmed that Nokia had been slow in releasing clamshell (or foldaway) mobile phones, but said that some models would be coming out this year.

Ollila had earlier this month admitted that Nokia lacked attractive medium-priced products in the Europe and North American market.

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The admission that its handset portfolio was not up to scratch is especially humiliating for Nokia, which for years prided itself on first identifying different segments within the market, and then setting the trend for many of them.

Looking forward, Nokia issued yet another shock for the market, warning that second-quarter earnings would fall, and sales could also drop.

It now expects second-quarter sales to be flat or slightly below the second quarter of 2003 sales of 7bn euros ($8.42bn). Reported earnings per share in the second quarter is expected to be in the range of 0.13 euros ($0.15) to 0.15 euros ($0.18).

Nokia expects mobile sales and margin to benefit towards the end of the year from new Nokia products launched in 2004.

This article is based on material originally published by ComputerWire

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