Nokia Q3 hints at wireless telecoms revival

Nokia Corp brought some cheer to the deflated wireless telecoms industry yesterday with a set of third-quarter financials that continued the company's recent upturn in fortunes. However, the news may bode less well for the Espoo, Finland-based company's rivals as it continues to gain market share in the all-important handset segment.

Revenue for Nokia Mobile Phones grew 7% year-on-year in the three months to September 30, reaching 5.6bn euros ($5.5bn) - 80% of Nokia's total revenue - with operating margin on the business also growing, up from 18.6% to 21.8%.

According to Nokia's calculations, the global market for handsets grew 13% during the third quarter 2002, some 103 million units, with Nokia claiming 17% of the total, increasing its market leadership.

CEO, Jorma Ollila, attributed much of Nokia's handset success in the quarter to the growing acceptance in the mainly GSM/GPRS European and African segment of the market of phones featuring innovations such as color displays and MMS multimedia messaging.

Ollila said he now expects the necessary interoperability and roaming necessary to maximize the potential of MMS to be in place by the end of the year, a factor that should lead to improved consumer take-up and revenue for all handset vendors.

Ollila was also bullish about the prospects for its high-end smart phone platform, Series 60, claiming "very high levels of satisfaction" - some 94% - for Nokia's recently introduced 7650, the first handset to feature the Symbian-derived software. With Matsushita, Siemens and, most recently, Samsung on board, Nokia's Series 60 now has representation in vendors that control 60% of the total handset space.

Ollila also expects Nokia to build its presence in the market for CDMA handsets, despite a slight downturn in the quarter due largely to the "particular situation in Latin America" but also a smaller drop off in the US. Ollila said he was "very disappointed" with the CDMA handset sales so far but guaranteed improved sales in the next quarter, driven by new CDMA2000 1X models.

It remains unclear as to what extent Nokia's success in reversing the downward trend is indicative of a general market upturn or simply its own ability to take advantage of its less successful rivals. What is clear, however, is that Nokia is now, more than ever, primarily a handset vendor.

Nokia's success in growing handset revenues contributed to overall sales growth of 2% in the quarter, hitting 7.2bn euros ($7.0bn), and net profit up 228% at 610m euros ($593m). Sales in its networking and ventures businesses were harder to come by.

Nokia Networks revenue dropped 7% to 1.5bn euros ($1.5bn), albeit with an improved operating margin over the year ago period. Ollila blamed the limited number of operators that make up the potential market and the lack of WCDMA equipment-related revenue recognition so far for the shortfall.

However, Nokia does not see the market changing in the near future. "We don't see any major catalysts that would change the current outlook," Ollila said. However, he does not foresee Nokia cutting back on R&D spending in the area. Instead it will maintain its current level, hoping to capitalize when the market returns.

Nokia Ventures Organization also suffered a less than productive quarter, with revenue falling 36% to 89m euros ($87m). Operating margin on the business improved somewhat, from -68.9% a year ago to -34.8%.

© ComputerWire