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28 per cent fall in profits at Nokia gets bad reception

Posted on: Friday, 18 July 2003, 06:00 CDT

MOBILE phone giant Nokia has reported a 28 per cent fall in second-quarter profits and warned of flat or lower sales at both its handset and mobile network divisions over the coming three months.

For the three months to the end of June, the Finnish company posted a profit of GBP 439 million, while net sales remained almost unchanged at GBP 4.9 billion compared with the same period last year.

Nokia, the world's largest maker of mobile phone handsets, blamed the poor performance on the weak global economy and the fall in the value of the dollar.

The second-quarter profit drop was largely down to a one-off writedown at Nokia's ailing networks division, which posted a loss of GBP 235.3m.

The division was pushed into the red by a GBP 280m restructuring charge as it made redundant hundreds of staff at its research and development units to offset the effects of a spending freeze by telecom operators.

While the group's results were in line with market expectations, Nokia said there was no recovery in sight, with third-quarter sales at the networks unit likely to fall by 15 to 20 per cent.

By the end of the year, the group expects to have cut a total of 1700 jobs at the networks division, leaving it with a workforce of 15,000. Nokia, based in Espoo, just outside the Finnish capital Helsinki, employs 53,000 staff around the world.

Handset sales crept up by two per cent during the second quarter, well below the firm's predicted figure of just below four per cent.

Nokia produced 13 new handset models in the second quarter, and will launch 22 more during the second half for a record 35 models this year. Almost a third of the company's handsets sold now have colour screens and multimedia capabilities such as picture messaging.

Nokia chief executive Jorma Ollila said: "Sales of Nokia mobile phones in the third quarter are expected to be flat or slightly down year-on-year, largely due to a major depreciation of the US dollar compared with the same period in 2002."

But the company said it had managed to hang on to its commanding lead in global market share, with 39 per cent of mobile phone sales.

Nearest rival Motorola failed to give its usual estimate of market share with its latest set of results earlier this week, leading analysts to speculate it had lost ground.

Motorola's figures confirmed the grim conditions in the world's largest mobile phone market, China, with large numbers of handsets left unsold because of worries about the Sars virus. On Tuesday, loss-making handset maker Sony Ericsson said it had increased its market share to 6.4 per cent, with handset sales in Europe offsetting weakness in China, and the firm said it would edge into profit for the first time later this year.

Telecoms analyst Raj Karia said: "Nokia's results were disappointing.

"Second-quarter mobile phone sales were lower than I had expected and this is compounded by weakness in other areas.

"Margins held up quite well but the growth in Asian markets that everyone was expecting has not come through."

Nokia is still banking on a fourth-quarter Christmas sales boost for its handset unit, which generates around 80 per cent of its total sales and all of the firm's profits. But it sounded a warning about its European home turf, where it has a 50 per cent market share.

Mr Ollila said: "European economies are dead. There's no growth. Consumer confidence is low.

"You need a bit of optimism. You need people to be willing to try out something new. You don't really see that, other than in well- developed markets like the UK and Scandinavia."

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