The prediction earlier this year by Nokia of a tough second quarter has been borne out after the Finnish giant’s domination of the world mobile handset market continued to slide amid plunging handset sales.
For the quarter ending June 30, Nokia posted an 11% rise in operating profits aided by gains in the company’s multimedia and networks divisions. It reported operating profits of 907m euros ($1.12bn), up from 818m euros ($1.01bn) in the year-ago quarter. Sales however declined 5% to 6.64bn euros ($8.20bn) from 7.02bn euros ($8.67bn) in the year-ago quarter.
What is causing the most concern is the 39% fall in operating profits in Nokia’s core mobile phone division. Operating profits fell to 797m euros ($986m) down from 1.308bn euros ($1.62bn) a year ago. Sales also declined 13% to 4.16bn euros ($5.15bn).
The company cited fierce competition and a weak handset range, and issued a warning about profit for the rest of 2004 that sent its shares sharply lower. The company’s shares fell 14.8% to $12.13 on the New York Stock Exchange, as of 3.30pm GMT.
Looking forward to the third quarter, Nokia expects earnings per share of between 0.08 euros ($0.09) and 0.10 euros ($0.12), down from 0.17 euros ($0.21) a year ago. Sales are also expected to fall to between 6.6bn euros ($8.16bn) to 6.8bn euros ($8.41bn).
The world’s largest maker of mobile phones was hit hard earlier this year when it admitted it had failed to exploit the demand for clamshell (or foldaway) mobile phones. Nokia responded to the lack of demand for its candybar phones by cutting prices and rushing out eight new handsets during the period – including new camera phones and clamshell designs.
Chief executive Jorma Ollila said that sales of the new models exceeded expectations. Toward the end of the quarter, our market share started stabilizing in many of the Western European markets, he said, although he admitted the company was still trying to make its phone selection more appealing to consumers.
Nokia said it did particularly well in Latin America, where mobile penetration is on the rise. However, it said Europe and the United States remained challenging for the company, and it has been trying to stem losses.
Nokia predicted that its recent price cuts and product introductions will begin to reap awards, bringing the company a rosier second-half of 2004, although not at last year’s levels.
Nokia’s predicament is in stark contrast to the overall handset market, which it expects to grow by over 15% this year. It forecasts a total of 600 million mobile phones will be sold throughout the world in 2004.
Nokia estimates it has sold 45.4 million phones in the second quarter, and believes it holds 31% of the market. Yet over the past six months, rivals such as Motorola Inc and Samsung Electronics Co have been busy eating into its market share. Another competitor, Sony Ericsson, today reported higher-than-expected profit and a 34% rise in sales due to robust demand.
Nokia is based in Espoo, just outside the Finnish capital, and employs roughly 53,000 people.