Nokia Corp has added to the mood of optimism sweeping the IT industry with its announcement that strong demand in the fourth quarter will enable it to comfortably exceed its original guidance for sales and profits.
Shares in the company rose 12.69% to $20.25 in New York on the news, and other equipment suppliers including Nortel, Lucent, Ericsson and Alcatel all registered gains on hopes that the famine in spending on equipment may be over.
While an excellent performance from its mobile handset business is not unexpected given the company’s position as market leader, what is surprising is the growth of its networks division, which had been hard hit by the reluctance of carriers to invest in new equipment.
The Espoo, Finland-based telecoms equipment giant said that operators across all regions, but particularly in the US and China, had money left over in their budgets and it benefited from a rush of orders. As a result, Nokia Networks sales reached 1.7bn euros ($2.2bn) in the fourth quarter, way above its original estimate of 1.4bn euros ($1.8bn). CEO Jorma Ollila said the results were the result of stronger than expected year-end operator investments and product mix.
The company axed 2,300 jobs in its loss-making networks division last year after sales tumbled but the fourth-quarter upsurge suggests a market that has been savagely hit by reduced spending may be about to recover. While Nokia originally estimated that its networking business would break even in the fourth quarter it now expects a pro forma operating margin of approximately 12%.
On the handset side, sales increased 4% to 7bn euros ($8.9bn), while Nokia previously expected them to be flat to slightly up. It said this was due to strong unit sales. With a favorable product mix, pro forma operating margin continued at what the company described as an excellent level of between 24% and 25% for the quarter.
The company ducked a forecast for overall mobile industry sales in the fourth quarter. However, Nokia’s unit sales were 55.3 million, 20% up on last year’s figure suggesting the company’s strong brand name enabled it to resist the onslaught of Far Eastern consumer electronics companies such as Samsung.
Nokia’s overall sales in the fourth quarter were 8.8bn euros ($11.2bn), about the same level as last year. But with costs trimmed, it expects to report earnings per share in a range of 0.24 to 0.25 euros ($0.30 to $0.31) compared with its previous guidance of 0.20 to 0.22 euros ($0.25 to $0.28). Full results will be released later this month.
This article is based on material originally produced by ComputerWire.