Nokia surprises markets with improved sales prices of mobile phones

Analysts forecast greater rise in turnover than previously expected

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The average sales price of Nokia mobile telephones rose against all expectations in the early part of the year. In January, Nokia itself predicted that the average price of handsets would not exceed the EUR 99 of late last year. On Tuesday the company announced that the average Nokia phone sold for EUR 103.
      The news came as a complete surprise to financial markets. Analysts had expected the average handset price to be EUR 98. Sales prices were widely expected to continue to decline, because the telephone market is growing most rapidly in the developing economies of Asia, where the most popular handsets are inexpensive basic models.
      Nokia attributes the rise in the average price to the fact that the proportion of cheap models in overall sales has been smaller than expected.
     
Tuesday’s press release was the second piece of good news from Nokia within a fairly short time. Two weeks ago, the company’s President and CEO Jorma Ollila predicted that worldwide sales of mobile telephones would grow by more than 15 percent, up from the previous forecast of ten percent.
      Tuesday’s news raised Nokia’s share price to EUR 17.60, its highest level in more than two years.
      Jussi Hyöty, head analyst at FIM Group, says that the rise in Nokia sales prices will boost the company’s turnover considerably above previous forecasts. Before Tuesday, the expectation was for 13 percent growth from January-March last year.
     
Expensive models bring a greater profit margin than cheap ones.
      "This will probably be seen also in profitability, but in our view, the growth in turnover is the main matter", Hyöty says.
      After Tuesday’s news Karri Rinta a Nokia analyst at Nordea Bank, expects improvements in turnover, result, and relative profitability.
      "There still is a small question mark with respect to growth in the volume of market share and sales", Rinta says.
      Nokia itself has predicted that its market share will remain unchanged, or that it will grow in the early part of the year from the 34 percent where it stood at the end of 2005. The matter was not mentioned in Tuesday’s press release.
      Analysts were also surprised at the fact that sales prices improved already in the early part of the year, even though Nokia’s newest models are only coming onto the market. Telephone computers and fancy multimedia telephones are expected to be major sales hits at the end of the year, but sales have been quite brisk with models that are currently in stores.
     
Surprising news, such as the information that was given out on Tuesday, always raises the question, of why it was given out at all. According to the press release, "This announcement is made solely to comply with the Standards of the Finnish Financial Supervision as amended in August 2005."
      The information rules of the Financial Supervision Authority (RATA) have not actually changed. However, a year ago RATA and the Helsinki Stock Exchange criticised Nokia for not warning the market of the unexpectedly good result for the fourth quarter of 2004. Now it appears that Nokia is being cautious, and is reporting in minute detail on all changes with any relevance to the market.


Previously in HS International Edition:
  Jorma Ollila presides over Nokia shareholders´ meeting for the last time (31.3.2006)

Links:
  Nokia press release: Nokia Q1 2006 device average selling price (ASP) above earlier expectations April 11, 2006

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