Nokia's handset strength shields it from telecoms slump

Not so comic relief

ComputerWire: IT Industry Intelligence

Nokia Corp substantially downgraded its second-quarter sales forecasts yesterday, but such is the misery surrounding the telecoms sector that its share price rose in relief that the news was not worse.

In a trading update, the Espoo, Finland-based company said it expected second quarter sales to fall between 2% to 6% to a range of 6.9m to 7.2m euros ($6.4bn to $6.7bn), well down on its earlier estimate that it would enjoy 2% to 7% growth.

Worst hit will be Nokia Networks sales where revenue is now expected to slide 20% to 25%, compared to earlier estimates in April of a 5% to 10% decline. Problem areas are Europe, where debt-laden carriers are cutting capital expenditure to a minimum, and China, where the initial build-out of networks is nearing completion. "In both markets, we have a situation where estimating has been difficult," said CFO Olli-Pekka Kallasvuo. He said the position in the US is unchanged.

On handsets, sales are expected to show a 0% to 4% growth, compared to previous guidance of 5% to 10%. While it expects the overall market volume to grow by 5% to 93.4m euros in the second quarter, Nokia is looking for volume growth of 10% to take its share of the market by volume to 38%.

Kallasvuo put the blame for slower growth in handsets on a higher proportion of low-end (or volume category as he delicately put it) shipments in the quarter, which reduced average selling prices. But with a camera-equipped phone in the pipeline, he expects average selling prices to increase in coming quarters.

With its strong brand, Nokia expects pro forma operating margins on its phone business to be above 20%. And the problems are not affecting its bottom line with pro forma earnings per share for the quarter expected to be in line with its earlier prediction of 0.18 to $0.20 euros, compared to 0.17 euros a year earlier.

Nokia's shares plunged on the statement, but a growing realization that it could have been a lot worse saw them end the day 2.2% higher at 13.33 euros. Nonetheless, it is only its strong position in handsets that is saving Nokia from the full impact of the downturn, and this is a sector of the market where it will face increased competition over coming quarters.

© ComputerWire.

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