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Nokia Q1 heralds another gloomy year for mobile vendors

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ComputerWire: IT Industry Intelligence

Nokia Corp, the world's number-one mobile handset vendor has been forced to downgrade its sales forecasts for the entire year, after the mobile phone market failed to ignite in the first quarter of 2002.

The company reported first-quarter sales down 12% at 7.01bn euros ($6.23bn), and net profit down 11.4% at 863m euros ($767.0m). Nokia CEO Jorma Ollila was forced to admit that overall 2002 sales would miss earlier targets. It now expects mobile phone revenues up 5% to 10% on last year, with sales of network equipment rising between 0% and 5%. This is far below the forecasts of 15% growth for both units. This gloomy news sent Nokia shares down 11.8% to $18.19 in midday trading on the US markets.

The company also predicted that it had maintained its 37% global market share in the mobile handset business in the first quarter, where sales fell 7% to 5.43bn euros ($4.82bn). It now suggests that between 400 million and 420 million mobile handsets will be sold this year, which could make mobile sales flat on 2001, where sales declined 6% on 2001, indicated that the mobile market is recovering slowly from its first ever year of declining unit sales.

In the mobile network equipment business the story was even worse, with sales down 29% at 1.43bn euros ($1.27bn). Ollila blamed poor demand for second-generation networking equipment in Europe and China, and the business missed its own reduced sales estimates, although the Networks business apparently met its operating margin target of 10.2%. The network equipment business, Nokia Networks will continue to shed sales for the rest of the year, as mobile operators continue to try to find ways to reduce investment in next-generation networks.

On the handset side, Nokia's most worrying prediction for the mobile industry is that it maintained market share, which means that its own estimates for the market are likely to be followed by the other vendors, suggesting that operators decisions in Europe to reduce handset subsidies is significantly decreasing the replacement rate for mobile phones. Ollila claimed that this year "Nokia is working for industry renewal" for the mobile industry. Apparently this involves announcing 16 new phone models in the first quarter of 2002, with a plan to launch a "record number" in the first half of 2002.

The company highlighted multimedia messaging services (MMS) as the key technology of the year, and committed to over half of its new phone products to be MMS-enabled. But this bullish estimate for the prospect of a technology is also implicit within Nokia's estimates for the recovery of both handset and mobile network equipment sales. Nokia now calls the bottom of the market the first quarter of 2002, but this does not get away from the fact the Nokia is now being forced to predict the bottom of both the handset market, and the mobile equipment market.

In the second quarter, sales for the group are expected to grow between 2% and 7%, while in the second half overall growth is expected to range between 4% and 9%. This means that the company is predicting a smooth improvement in the market over the year. A bad second quarter will make these assumptions appear even more unrealistic. This is probably the reason why the share price fell so far.

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