Nokia Cuts Its Forecast As Sales of Phones Fall

Nokia, the world’s largest mobile phone maker, on Thursday reported a drop in sales in the second quarter and unexpectedly cut forecasts for the rest of the year as it continues to reduce prices to win back customers.

Jorma Ollila, Nokia chairman and chief executive, said that Nokia had seen “positive developments” in emerging markets, but that Europe and the United states “remained challenging.”

Total sales fell 5 percent from a year earlier to 6.64 billion, or $8.2 billion, and profits from mobile phones fell 39 percent to 797 million.

The overall net income was 712 million, up 12 percent from last year, though the 2003 figure was depressed by charges for job cuts.

Nokia also presented a grim third-quarter outlook that took markets by surprise. Nokia said its earnings per share would be between 8 and 10 euro cents per share, versus analysts’ earlier consensus of 14 cents a share. This is Nokia’s third earnings warning in three months.

Little improvement is predicted in the fourth quarter. “We expect our profitability to continue to come under pressure during the second half of the year,” Ollila said, as the company cuts prices again in order to recoup lost market share.

The triple whammy of negative news hurt Nokia stock, which sank 1.35, or 11.9 percent, in Finnish trading, to close at 10.01. Its American depository receipts trading in New York closed down $1.79, or 12.6 percent, at $12.45

The company’s lackluster results were in strong contrast with its Swedish-Japanese competitor, Sony Ericsson Mobile Communications, which on Thursday reported a 34 percent increase in second-quarter sales from a year earlier, to 1.5 billion. “Twelve months ago, some brave decisions were taken, and now they’re paying off significantly,” Miles Flint, Sony Ericsson’s president, said in an interview in London. The company closed research centers and discontinued some products in the United States in 2003 to cut costs. Sony Ericsson, which posted 879 million in losses in its first 21 months, estimates its market share at 7 percent. Motorola, Samsung, Siemens and Sony Ericsson all have taken market share from Nokia in recent months.

The overall mobile phone market continues to grow, even though many industrial nations have phone ownership rates of more than 70 percent of the population. But sales in markets like China, India and Latin America have more than made up for slowing Western growth, and several market researchers forecast global sales of 600 million units this year, up from 520 million last year. Nokia started cutting the price of its mobile phones last quarter, in an effort to bolster its market share to the company’s stated goal of 40 percent.

Ollila said the company estimated that it supplied 31 percent of the world’s mobile phones in the second quarter, compared with 32 percent in the first quarter. He said Nokia would cut prices again in coming quarters.

Analysts said that Nokia’s insistence on pursuing a price- cutting strategy could have a serious effect on the entire industry.

“Vendors who are already struggling to break even will probably go back into losses,” said James Crawshaw, an analyst with Commerzbank in London, as they try to keep up with Nokia’s lower prices.