FRIDAY: Nokia forecast for 2Q disappoints investors; stock falls 9% in afternoon trading

Gap in mid-range portfolio has led to loss of market share to rivals

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The stock of Nokia, the world's largest mobile phone manufacturer, took a further severe pounding on Friday after the company warned that its net sales outlook for April through June would be flat or slightly below the second quarter of 2003, with earnings per share expected in the range of EUR 0.13 to EUR 0.15. Pre-tax profits for the first quarter were EUR 1,210 million (1Q/2003: EUR 1,446 million) on sales of EUR 6,625 million (1Q/2003: EUR 6,773).
      The company’s profitability has been hit as it seeks to defend its share of the mobile handset business by compromising on margins.
     
In the first three months of the year Nokia clearly lost market share, with Siemens and the South Korean manufacturer Samsung numbering among the companies that benefited.
      As if to rub things in, Samsung, the world’s third largest handset manufacturer, posted record profits for the first quarter in an almost simultaneous announcement made on Friday. Net sales for the company, which is also strong in flat screens and other electronics items, were up by around 50% and profit by a huge 178% to roughly EUR 2,300 million.
      Already at the beginning of this year Nokia’s operating profit in Mobile Phones was down by 25% from 2003 figures to EUR 1,089 million. If Friday’s assessment comes to pass over the coming months, the profit figures should slide still further by June.
     
Nokia warned of its first quarter problems a week ago, and the market responded by slicing more than 16% off the share price. In the space of slightly less than a fortnight, the company’s market valuation has declined by roughly EUR 25,000 million.
      The reason behind Nokia’s current travails is apparently that the product portfolio is lacking in catchy and competitive mid-priced models. The absence of the colour screens, cameras, and “clamshell” foldaway designs that consumers are looking for in this segment of the market has caused the first comments that Nokia’s hitherto unerring eye may have been taken off the ball.
      The company expects these popular funky models to come onstream only towards the end of this year. Over the coming months the company will endeavour to hold on to its still impressive market share by cutting prices and by increased efforts on the marketing front. Some analysts believe nevertheless that it will only be at year’s end that Nokia can claw back the ground it has recently lost.
     
The stock price, already depressed by last week’s profit warning, fell away a further 9.3% in afternoon trading in Helsinki, sending the HEX All-Share Index down by more than 4%.
      Nokia also fell by nearly 8% in New York and was the most actively traded stock on the NYSE in early dealing.
     


Previously in HS International Edition:
  Nokia stock tumbles 17% on profit warning (7.4.2004)

Links:
  Nokia 1Q/2004 Results

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