Nokia Q1/2007 results show slight year-on-year decline, no real surprises

Market share unchanged, operating margin up from Q4/2006

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Nokia released its first quarter figures for 2007 this afternoon. After restructuring charges totalling around EUR 70 million, net profit for the quarter of EUR 979 was slightly down on Q1/2006, on increased turnover of EUR 9,856 million. Basic and diluted EPS were unchanged from the corresponding period in 2006 at EUR 0.25.
      Contrary to market expectations in the wake of disastrous results on Wednesday from rivals Motorola, Nokia's global market share in mobile telephones - around 36 per cent - was unchanged from the last quarter of 2006.
      The markets responded favourably to the latest set of figures, with the company's stock rising by around 4% in early trading in Helsinki.
     
Nokia's profitability improved slightly from the end of last year, with operating margin up to 13.6% from 13.3% in 4Q/2006. The greatest boost to productivity was from the Multimedia unit, and Enterprise Solutions, which Nokia expects will turn a profit already during the second quarter.
      According to Nokia's press release, sales of mobile phones have been affected by the impact on the market from the excess inventory of certain of the competitors' products.
      This is an apparent reference to Motorola, which is believed to have two months' sales worth of handsets in storage. Getting rid of the excess stock through discount prices could have affected Nokia sales, especially in developing markets.
      Sales of devices were down 14% sequentially, but showed an increase of 21% year-on-year from early 2006. Mobile Phones saw a reduction in net sales of around 5% from the first quarter of last year.
     
Nokia CEO Olli-Pekka Kallasvuo commented in the company's press release: "I'm encouraged by Nokia's first quarter 2007 performance. Our profitability was strong, with both gross and operating margins up sequentially, excluding special items. We also saw good year-on-year device volume growth that led to an increase in our market share, further solidifying our number one position in the industry." Kallasvuo's last reference was to the increase over the past 12 months from 35% to 36%.
      No less important for the company's wellbeing is the average price gained for handsets, and the operating margin generated.
      The Q1/2007 Nokia device ASP of EUR 89 held up at the same level as Q4/2006. At the same time, the handset division's operating margin - one key benchmark in assessing profitability - shrank slightly to 16.8% from 18.5% a year earlier. This is probably a reflection of the shift towards sales of cheaper entry-level phones in emerging markets. Sales of Nokia handsets in China, for example, grew by 7.8% from the previous quarter and by more than 43% from Q1/2006, while in Europe the corresponding numbers were -28.3% from Q4/2006 and +17.7% since last March.


Links:
  Nokia
  Nokia press release 19.4.2007
  Nordic Exchanges, Helsinki: Nokia Oyj

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