Update: Nokia's first-quarter profit jumps 18 percent

Handset maker reports $1.1 billion in net profits

Higher demand for handsets in the first quarter gave Nokia a welcome boost. The world's largest handset maker reported an 18 percent jump in net profit coupled with a 17 percent gain in net sales, it said Thursday.

Nokia, in Espoo, Finland, posted a net profit of €863 million ($1.1 billion as of March 31, the last day of the period reported), or €0.19 per share, up from €729 million, or €0.16 per share, in the same period last year, the company said.

First-quarter net sales were €7.4 billion, up from €6.35 billion in the same quarter of 2004. Nokia shipped 53.8 million units in the period.

The figures beat Nokia's own best estimates. On Jan. 27, the company said it expected first-quarter earnings per share of €0.12 to €0.15 on sales of €7 billion to €7.3 billion.

In a conference call to discuss the results, Chief Executive Officer Jorma Ollila said he was "extremely satisfied" with Nokia's performance. He highlighted price cuts, higher marketing spending and new mobile phones with cameras and music players as driving the gains.

On a regional basis, sales growth during the quarter was fastest in China, followed by the Asia Pacific region and EMEA (Europe, Middle East, and Africa), Ollila said.

"In China, GSM [Global System for Mobile Communications] has had strong momentum as it is picked up in rural areas. In China, we are now number one by a clear margin based on the strength of our product portfolio," Ollila said.

In Europe, Nokia continued to make progress in selling handsets based on the WCDMA (Wideband Code Division Multiple Access) standard, he said.

The picture was less rosy in North America and Latin America where Nokia suffered volume declines of 33 percent and 12 percent, respectively. "Especially in North America, our product portfolio is not where we want it to be," Ollila said.

He blamed the decline, in part, on the switch to GSM and CDMA wireless standards from the older TDMA (Time Division Multiple Access) standard. "We were not aggressive enough in tackling those changes," Ollila said.

Nokia will continue to invest in the region, but is taking a conservative view and doesn't expect a recovery in its North America market until the end of 2005 or 2006, Ollila said.

First quarter growth for the handset market as a whole was greater than expected, at 20 percent, according to Nokia, with the company growing at about the same pace as the market. Nokia's mobile phones sold for an average of €110 during the quarter, the company said.

Nokia's market share currently stands at 32 percent, a loss of two percentage points in the quarter, but Ollila said he expects the company to make up for the loss during the year.

The positive financial report is a boost for Nokia, which has been locked in competition with its closest rival, Motorola. The Schaumburg, Illinois, company has posted strong gains in six consecutive quarters.

On Wednesday, Motorola beat market expectations by reporting a 48 percent rise in first-quarter income to $692 million. It shipped 28.7 million mobile devices during the period, up 13 percent year on year, and posted sales of $8.16 billion, a gain of 10 percent. Motorola credited its success to new product launches, in particular its slim Razr phone.

The tough market conditions had a dampening effect on smaller handset makers who, like Nokia, have been forced to cut prices to woo customers. Samsung Electronics and Sony Ericsson Mobile Communications, the third and sixth largest handset makers respectively, both released first quarter reports on April 15 highlighting weaker profit margins.

In Samsung's case, despite shipping a record 24.5 million units for the quarter, it said the decision to cut handset prices resulted in a 33 percent decline in operating profit for its telecommunications division. Sony Ericsson also shipped more phones in the quarter, but sales dipped to €1.29 billion, while its profit plunged by 61 percent year on year.

Overall, shipment volumes are expected to remain robust. Based on the gains in the first quarter, Nokia revised its forecast for the overall mobile phone market upwards for 2005 to about 740 million units, from an estimated 643 million in 2004. Nokia had previously estimated 10 percent growth in the overall market for 2005.

In Nokia's shorter term future, its CEO forecasted second-quarter earnings per share of €0.15 to €0.18 on net sales of €7.9 billion to €8.2 billion. That compares to €6.5 billion], or €0.15 per share, in the second quarter of 2004.


Copyright © 2005 IDG Communications, Inc.

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