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Nokia Expects Cell Phone Sales to Rise by More Than 10 Percent in 2004

Posted on: Tuesday, 25 November 2003, 06:00 CST

Nov. 25--IRVING, Texas--Sales of cell phones continue to rebound and should increase by more than 10 percent next year, according to Finnish mobile phone giant Nokia Oyj.

That's good news to an industry that saw sales decline in 2001 and increase only slightly last year. Manufacturers such as industry leader Nokia have hinged their hopes for increased sales this year on new phones with cameras, color screens and built-in digital music and game players.

"In these past seven weeks, it really has been a well-developing market," said Nokia Chief Executive Jorma Ollila, adding that the industry could sell more than the estimated 460 million phones. "The mobile phone market has been strong. The industry demand has been healthy."

At its analyst meeting Monday at the Four Seasons Hotel in Irving, Ollila confirmed Nokia's fourth quarter profit and revenue guidance. Historically, cell phone sales spike in the fourth quarter as many consumers upgrade their phones or buy cell phones to give as Christmas gifts.

The company -- which has about 4,000 employees in North Texas, including 1,300 at its distribution center in Fort Worth -- is expected to generate earnings per share in the range of 18 cents to 20 cents for the fourth quarter, with revenues flat to slightly up for its mobile phones group and about $1.19 billion for its network group. Fourth-quarter profitability will be down compared with the same quarter last year, partly because of weak sales in its wireless network infrastructure group.

Nokia also said it predicts the industry will increase handset sales by a 10 percent next year with more than 500 million phones shipped to retailers. That estimate is similar to estimates from other handset manufacturers, including No. 3 Samsung.

In past years, Nokia had predicted more than 10 percent growth for the industry in the winter, only to back away from those estimates later in the year. But Paul Sagawa, a research analyst at Sanford C. Bernstein, said Nokia is probably "low-balling" this year.

"Listening to their remarks, they feel confident," Sagawa said. "What you have is a company that's head and shoulders above its competition."

Nokia also increased its prediction for total users to 2 billion by 2008.

"If you look at the growth in the next five years in China, Russia, Brazil and India, the bulk of the new subscriber numbers will actually come from those four countries," Ollila said, adding that that growth could account for more than 50 percent of new subscribers.

With the continued growth of the industry, Ollila said Nokia could have 10 percent revenue growth per year in the next few years. The company is already closing in on the 40 percent market-share number that Nokia executives had targeted a few years ago. Nokia may reach that goal early next year and already has double the market share of its nearest competitor, Motorola.

Despite the rosy outlook for 2004 and the industry, Nokia shares dropped 10 cents to close at $17.69 on the New York Stock Exchange on Monday.

As part of its analyst meeting, Nokia outlined a new corporate structure, the company's third restructuring in the past two years. In January, the company will separate into four divisions: mobile phones, multimedia, networks and enterprise solutions.

Nokia also hired Hewlett-Packard executive Mary McDowell to head its enterprise solutions group, which the company says represents 5 percent of its revenues. With enterprise solutions, Nokia will sell its products to large companies that are looking for devices to help their employees be more productive.

Analysts applauded the reorganization, saying it makes it easier to understand where the company is spending its research and development budget. Nokia said it will report profit and loss information for each division.

"The restructuring will take the focus off of handset and focus it on business segments profitability," said John Bucher, a research analyst with Harris Nesbitt Co.

Neither the enterprise solutions nor the multimedia division is expected to be profitable next year as the company continues to invest in those markets and sales remain small. Although the multimedia division will represent about 10 percent of the company's revenues, Nokia said the group will probably become profitable in the fourth quarter of 2004.

That division, which is responsible for developing and marketing cell phone devices that have digital cameras and built-in entertainment players, launched Nokia's entry into the portable game console market, called the N-Gage, a portable game device that doubles as a cell phone.

The N-Gage was launched worldwide in September with about 400,000 units shipped. It has met with tepid response from gamers. The security code for the game device, which is being sold by Grapevine-based retailer GameStop, was also recently hacked.

Ollila said he will not comment on whether the new device will be considered a success or failure for another two years. The company expects to have 100 games available to play on the N-Gage by the end of next year.

"I think is a little better in Europe than the U.S. because of certain factors of distribution, but the indications are good," Ollila said.

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To see more of the Fort Worth Star-Telegram, or to subscribe to the newspaper, go to http://www.dfw.com

(c) 2003, Fort Worth Star-Telegram, Texas. Distributed by Knight Ridder/Tribune Business News.

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