Nokia upsets markets despite profit rise

17-04-2008

by Charlie Taylor

The world's largest mobile manufacturer, Nokia, saw profits rise by 25 percent for its first quarter of 2008, but upset the markets by missing its targets.

The Finnish-based firm said net profit in the three months ended 31 March rose to EUR1.22 billion, or EUR0.32 a share, compared to EUR979 million, or EUR0.25 a share, for the first quarter of 2007. Excluding one-time costs for pensions and closing a plant, the latest quarter's earnings came in at EUR0.38 a share.

Nokia also upset the markets on Thursday by saying that it expects the mobile device market to decline in value in euro terms, compared to last year. It blamed the weak dollar, the economic slowdown in the US, and a potential slowdown in Europe.

Though Nokia posted a jump in sales of 28 percent year-on-year to EUR12.7 billion, its share price fell mid-morning on Thursday losing as much as 7.5 percent. The mobile maker's sales figures were well below analysts' expectations of approximately EUR13.9 billion for the first quarter.

Nokia said it shipped 115.5 million phones during the quarter, up 27 percent year-on-year and giving it a market share of 39 percent up from 36 percent for the first quarter of 2007. However, market share was down 1 percent sequentially.

The average selling price of a Nokia device came in slightly below expectations, at EUR79.

"Nokia had strong profitability in the first quarter, with both operating profit and EPS up significantly year on year. The overall device market developed as expected, with the greatest demand in emerging markets, where our position is very strong. The competitiveness of our product portfolio is reflected in our market share and we target market share gains in the second quarter," said Olli-Pekka Kallasvuo, Nokia CEO.

Nokia said it expected the global mobile device market to grow by around 10 percent this year. It added that it expects industry mobile device volumes in 2008 to grow approximately 10 percent from 1.14 billion units last year.

Analysts from research firm Strategy Analytics said that a strong performance in emerging markets has helped Nokia to defy the threat of a global economic recession, but added that its plunging shipments in the high-value North American market remained a key weak spot during the first quarter.

"North America, which despite a slowdown still accounts for 16 percent of global handset demand, remains a serious problem-child for Nokia. It is the only major region of the world where Nokia is not number one," said Neil Mawston, director, Strategy Analytics, in a statement.

"A lacklustre CDMA handset portfolio and weak relationships with some major operators have caused its market share in North America to collapse from 20 percent in Q1 2006 to an estimated 7 percent in Q1 2008. With global handset revenues coming under increasing pressure in 2008, the high-value North American market is one Nokia simply cannot afford to ignore," he added.