Shares in Nokia rose Thursday despite the world’s largest handset manufacturer posting a lower profit in the first quarter as a result of increased shipments of lower-priced handsets in emerging markets.
For its first quarter ended March 31, Nokia posted a net profit of 979m euros ($1.33bn) down from 1.05bn euros ($1.42bn) in the year-ago quarter. Sales rose 3.7% to 9.86bn euros ($13.39bn) from 9.51bn euros ($12.92bn). Despite the profit fall, Nokia’s ADS shares on the New York Stock Exchange rose 3.48% to $24.70.
The market recognized that Nokia’s increased shipment into emerging markets is having an impact on its bottom line. It shipped 91.1 million devices during the quarter, down 14% from the fourth quarter. However, volume shipments were up 21% year-on-year.
Nokia reported a 43.4% rise in shipments in China, and a 44.7% rise in shipments in Asia Pacific. Europe rose 17.7%, while the Middle East and Africa recorded a 31.8% year-on-year rise in shipments. North America remained the only stumbling block, where shipments were down 42.5%.
Nokia said this gave it an estimated device market share of 36%, up from 35% in the first quarter of 2006. Emerging markets continue to the main driver of growth, said CEO Olli-Pekka Kallasvuo.
Nokia’s strong performance in emerging markets where it sells lower priced handsets was reflected by the fact that the average selling price of a Nokia device was 89 euros ($121), the same as the previous quarter, but down from 103 euros ($140) in the first quarter of 2006.
Kallasvuo also highlighted the strong performance of Nokia’s multimedia business group during the quarter, and three new devices in particular. The reception of the Nokia 6300 has been extremely positive, and the N95 has received extremely positive reviews, he said. The E65 is seeing high demand and very good initial traction in the market.
He compounded the misery of Motorola, its chief rival in the handset business, when he revealed that Nokia is working on a new low-end engine, which should allow it to roll out new low-cost handsets at a much quicker rate in the latter half of the year.
Earlier in the week, Motorola recorded a first-quarter net loss of 181m on revenue down 1.8% at $9.43bn. This was Motorola’s first fall in sales for nearly four years and reflected its efforts to cut prices and compete with Nokia. It managed to ship 45 million handsets during the quarter, compared to 91.1 million shipped by Nokia.
Motorola definitely has a channel inventory problem, said Nokia’s CFO Rick Simonson. Motorola’s handset unit has been struggling to match Nokia’s ability to build handsets for a low cost for the emerging markets. It has also struggled to introduce a successor for its popular Razr phone.
Nokia also touched on its ongoing legal issues with Qualcomm. The April 9 deadline past with any new agreement, it said. After April 9, Qualcomm’s patents are fully paid up and are now available royalty free to Nokia.
Any further payments address Qualcomm’s later patents only, it added. Qualcomm’s contribution to technology used in mobile phones today, especially in W-CDMA, is substantially less than in 1992.
Looking forward, Nokia expects industry mobile device volumes in the second quarter to be slightly up sequentially, and for the year 2007 to grow by up to 10% from the 978 million units it estimates for 2006.