Nokia surprises markets with good first quarter performance
Mobile telephone company fails to completely shore up reduced market share
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The better-than-expected first quarter results announced by Nokia on Thursday sent shares of the Finnish manufacturer up 4.8 percent on the Helsinki Stock Exchange. The news also pushed up Nokia’s key subcontractors, such as Perlos, Elcoteq, and Elektrobit.
The earnings per share (EPS) figure of EUR 0.19 sharply exceeded the predictions that Nokia had made in January. The forecast at that time was seen as overly pessimistic by many, but few would have dared expect as good a result as the one that came out on Thursday afternoon.
Psychologically, perhaps the most encouraging message was that the company’s turnover had grown by 17% from what it was a year earlier.
Nokia’s turnover had previously stagnated, even though the number of mobile handsets sold worldwide had grown by 30% over the previous year’s level.
The company raised its own forecast on the growth in the number of handsets that it expects to be sold this year to about 15%. In terms of money, the rise should be lower than that, as the average price of handsets is going down. In January through March the average price of a Nokia mobile phone was EUR 110.
Much of the growth is attributed to brisk sales in emerging markets such as Nigeria and India. Meanwhile, in industrialised countries users are increasingly trading in their old handsets for new ones.
Nokia Chairman and CEO Jorma Ollila says that both markets are giving an approximately equal boost to the company’s growth.
The worst news in the first quarter was that Nokia’s share in the world market for mobile phones went down to 32% from the 34% it had in the fourth quarter of 2004.
Before last spring’s dip, Nokia’s market share was about 38%, and Ollila feels that this is still a realistic goal for the company.
The drop was attributed to a poor showing in North and South America.
This has been attributed to changes in technology. Nokia has had a very strong position in so-called TDMA telephones, but now people in the Americas are switching over to other technologies where Nokia is not as strong. Ollila therefore sees a need to develop its selection of products on the American market.
Another factor affecting the market share is that Japan and South Korea have a high season similar to Christmas at the beginning of the year. As Nokia does not have a very strong market position in those two countries, its rivals were able to reap the holiday benefit.
Nokia reported operating profit of EUR 1.1 billion in January-March, which represents around 15% of turnover. Basic handsets brought in a margin of 19% on net sales, which is significantly less than last year.
Nokia’s profit margin declined sharply last year when the company noticed that it was losing market share and launched a competitive price war. In spite of this, the profitability of Nokia’s handset sales was higher than with its competitors.
In the first quarter, a Nokia handset sold for EUR 100 earned the company EUR 17 in profit - about the same as for South Korea’s Samsung. The equivalent figure for Motorola was ten euros, and for Sony-Ericsson it was just five.
The greatest leap in net sales, 52%, was recorded by the Nokia Multimedia unit, which manufactures camera, game, and music telephones.
The company’s Enterprise Solutions, which had previously sustained a loss, more or less broke even in the first quarter. The unit benefited from the introduction of the new 9500 and 9300 Communicator models which reached the market at the beginning of the year.
Nokia Networks raised its sales by six percent, and pushed its profit margin to 15% of sales. Last year’s corresponding figure was 11%. Networks saw an encouraging 44% growth in operating profit on 1Q/2004. The improvement left even Jorma Ollila rather surprised.
The earnings per share (EPS) figure of EUR 0.19 sharply exceeded the predictions that Nokia had made in January. The forecast at that time was seen as overly pessimistic by many, but few would have dared expect as good a result as the one that came out on Thursday afternoon.
Psychologically, perhaps the most encouraging message was that the company’s turnover had grown by 17% from what it was a year earlier.
Nokia’s turnover had previously stagnated, even though the number of mobile handsets sold worldwide had grown by 30% over the previous year’s level.
The company raised its own forecast on the growth in the number of handsets that it expects to be sold this year to about 15%. In terms of money, the rise should be lower than that, as the average price of handsets is going down. In January through March the average price of a Nokia mobile phone was EUR 110.
Much of the growth is attributed to brisk sales in emerging markets such as Nigeria and India. Meanwhile, in industrialised countries users are increasingly trading in their old handsets for new ones.
Nokia Chairman and CEO Jorma Ollila says that both markets are giving an approximately equal boost to the company’s growth.
The worst news in the first quarter was that Nokia’s share in the world market for mobile phones went down to 32% from the 34% it had in the fourth quarter of 2004.
Before last spring’s dip, Nokia’s market share was about 38%, and Ollila feels that this is still a realistic goal for the company.
The drop was attributed to a poor showing in North and South America.
This has been attributed to changes in technology. Nokia has had a very strong position in so-called TDMA telephones, but now people in the Americas are switching over to other technologies where Nokia is not as strong. Ollila therefore sees a need to develop its selection of products on the American market.
Another factor affecting the market share is that Japan and South Korea have a high season similar to Christmas at the beginning of the year. As Nokia does not have a very strong market position in those two countries, its rivals were able to reap the holiday benefit.
Nokia reported operating profit of EUR 1.1 billion in January-March, which represents around 15% of turnover. Basic handsets brought in a margin of 19% on net sales, which is significantly less than last year.
Nokia’s profit margin declined sharply last year when the company noticed that it was losing market share and launched a competitive price war. In spite of this, the profitability of Nokia’s handset sales was higher than with its competitors.
In the first quarter, a Nokia handset sold for EUR 100 earned the company EUR 17 in profit - about the same as for South Korea’s Samsung. The equivalent figure for Motorola was ten euros, and for Sony-Ericsson it was just five.
The greatest leap in net sales, 52%, was recorded by the Nokia Multimedia unit, which manufactures camera, game, and music telephones.
The company’s Enterprise Solutions, which had previously sustained a loss, more or less broke even in the first quarter. The unit benefited from the introduction of the new 9500 and 9300 Communicator models which reached the market at the beginning of the year.
Nokia Networks raised its sales by six percent, and pushed its profit margin to 15% of sales. Last year’s corresponding figure was 11%. Networks saw an encouraging 44% growth in operating profit on 1Q/2004. The improvement left even Jorma Ollila rather surprised.
Helsingin Sanomat