Expensive multimedia phones boost Nokia first quarter result

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Nokia has established a strong foothold in the market for expensive computer telephones. According to outgoing CEO Jorma Ollila, the company’s N 70 model was the world’s best-selling third generation mobile phone. Nokia calculates that one in ten 3G handsets sold were of the N 70 model.
      The Nokia unit producing the N 70 reported a first quarter result that was double that of the same time last year. The unit’s business profit was a stunning 18 percent, in spite of considerable research and development costs.
      "The N 70 model has succeeded well both in Europe and Asia. It has some kind of design element that resonates with the present moment. It was expected to be successful, but that it happened so quickly came as a surprise even for us", Ollila said to Helsingin Sanomat.
      Of all of its mobile handset models, the N 70 brought Nokia the most revenue. Last year, the low-cost 1100 model was the company’s greatest money-earner.
     
More traditional mobile handset models also sold very well. In January-March this year Nokia sold 75 million phones, which was 40 percent more than a year ago.
      Nokia says that many medium-range phones, including the clamshell models, sold well. Ollila was also pleased with the success of the more ornate l’Amour model.
      Success of the more expensive models was anticipated already last week in a press release in which Nokia said that contrary to expectations, the average sales price of its telephones had gone up.
      Nevertheless, growth in sales was greatest in cheaper models.
      The successful selection of telephones raised Nokia’s turnover and result to levels that easily exceeded projections put forward by analysts.
      Turnover increased by 29 percent to EUR 9.5 billion. Business profit improved by over one fifth to EUR 1.367 billion. Of this, the multimedia unit brought in less than a quarter, and the more traditional phones almost 80 percent.
     
Nokia Networks showed a profit of EUR 149 million, while the Enterprise Solutions unit continued to operate at a loss.
      "Development of volume was stronger than expected. Not even in my most optimistic scenario did I anticipate such a strong amount of sales", said Nordea Bank analyst Karri Rinta.
      Especially the success of more expensive models came as a positive surprise to the market.
      "This shows that Nokia’s strategy is very successful. It is important to notice that when Nokia has a bad year, it usually starts with a bad first quarter result. But now we can see that the early part of the year has gone well, and it seems that the rest of the year will be strong", says analyst Richard Windsor of Nomura Bank.
     
Nokia estimates that its market share in handset sales rose by three percentage points to 35 percent. Growth was strongest in China, the Americas, and the Asia-Pacific region. In Europe, the market share declined.
      In the United States, Nokia sales doubled from last year.
      "However, what is most important is that considerable shifts have taken place there from phones in the lower price range to medium-range models", Ollila says.
      Ollila says that also in China, the average price of phones that have been sold has been fairly high, contrary to expectations.
     
Also on Thursday, Jorma Ollila came out to defend his upcoming successor, Olli-Pekka Kallasvuo against recent criticism.
      Ollila responded to an article published in the Wall Street Journal on Tuesday, in which analysts interviewed by the paper questioned Kallasvuo’s ability to make strategic choices.
      Ollila, whose post will be taken over by Kallasvuo in June, notes that the success of a strategy that is chosen can often be evaluated only years after a new executive has taken over.
      Ollila said that newspaper clippings from when he took over are quite revealing in this respect. "At Nokia we know what kind of a person has been chosen. It will take several years before it is noticed on the outside", Jorma Ollila said.


Links:
  Press release: Nokia reports Q1 2006 net sales of EUR 9.5 billion and EPS of EUR 0.25 April 20, 2006

Helsingin Sanomat