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Nokia tops own forecast
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July 19, 2001: 9:42 a.m. ET
Finnish giant's second-quarter profit falls 16%, tops its own expectations
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LONDON (CNN) - Nokia, the biggest cellphone supplier, said on Thursday second-quarter profit fell 16 percent and expects growth to pick up next year.
Net profit, excluding one-time items, dipped to  830 million ($723 million), or 0.17 a share, at the top end of its lowered expectations. That compares to a profit of 984 million, or 0.21 a share, in the year earlier period.
Finland's biggest company took an accounting charge of 210 million to reorganise it operations and pay for jobs cuts – totalling 1,500 in 2001.
Nokia and rivals such as Motorola (MOT: Research, Estimates) of the U.S. and Sweden's Ericsson are suffering the effects of the economic slowdown in the U.S. and a reduction in orders from debt-laden phone companies.
At the same time, fewer people than expected are replacing their old mobile phones with new models.
'Industry uncertainties continue'
"Current economic and industry uncertainties continue to limit our visibility for the remainder of 2001," the company said. "With market growth expected to pick up again next year, we are in a unique position to build on our strengths."
Nokia expects third-quarter revenue growth to range from flat to 5 percent and operating margins – the difference between sales and costs, to be in the "mid-teens."
The Finnish company said it expects third-quarter earnings per share to be between 0.14 and 0.16, then improve in the fourth-quarter, but it did not give any further guidance.
"They met their own lowered targets," Chris Doyle, telecom analyst at Charles River Associates, said. "What is worrying is their reluctance to spell out where the market is going."
Chief Executive Jorma Ollila told CNN: "We have a very good picture about the fourth quarter, as we said EPS and revenue growth is expected to be higher, but we can't put an exact number on it in this uncertain environment."
Investors were hoping to see revenues rising and margins improving to justify Nokia's current stock price. Nokia is trading at 31 times next year's earnings.
Second-quarter revenue rose 5 percent to 7.3 billion. A further breakdown showed sales at its network business – which provides wireless communication networks to telecom operators – fell 2 percent to 1.9 billion.
Telecom operators cut back
The company said: "Markets were adversely affected by reduced investment by operators in their existing networks due to unfavourable economic conditions, weakened financial positions at certain operators and the anticipated shift to next-generation technologies.
"These factors were particularly pronounced in the Americas and Europe during the second quarter."
In Europe, telecom operators spent more than 100 billion, amassing huge debts, on acquiring third-generation mobile phone licences, giving them the right to offer high-speed Internet, video and voice communication. In a bid to cut back on debt, their spending on upgrading technology has dropped.
"There is question mark on the services operators will provide and when 2.5G services will be rolled out.. but we expect 3G roll out in the middle of next year," Ollila said.
2.5G is an interim service between those on offer now and the next generation 3G (third generation) high speed services mobile operators plan to offer.
Mobile handset sales rose 10 percent to 5.3 billion. According to Nokia, "The overall mobile phone market in the second-quarter was unchanged compared to the same period a year ago... the decline was most evident in Europe and the Americas."
Nokia now expects the worldwide mobile phone market in 2001 to show "very little or modest volume growth compared with 2000, when about 405 million phones were sold."
"In the handset market, until we see capacity falling by the removal of players such as Alcatel, Siemens and Philips in Europe and some Asian companies, margins will remain depressed," Paul Cooper, Director of Sarasin Asset Management told CNN before today's announcement.
"We expect to have market share of 40 percent in the handset business, from our current position of 35 percent," Ollila said.
"While Motorola's profits were down in the second quarter our mobile phone sales are up and we have increased our share of the infrastructure markets to about 20 percent," he added.
Nokia is now the only profitable mobile phone handset maker and cross-border rival Ericsson, which is farming out production of its cellphone to cut cost, is expected to post a loss of $1.8 billion on Friday.
Nokia's shares hit a new low on Tuesday, sliding 3.6 percent to 19.93 in Helsinki. The stock has fallen more than 45 percent to close at 20.20 on Wednesday from a high for the year of 48.50 in January.
The company's stock rose almost 12 percent to 21.43 in afternoon Helsinki trade on Thursday.
"(Nokia) did better than the worst expectations and their forecast for next year is agressive. That's the key," Jeff Currington, who manages over £6 billion of European funds for Morley Fund Management told Reuters.
"Some of the more extravagantly bearish analyst estimates appear not to have been justified and the share has bounced."
Nokia warned in June that it will post a lower-than-expected profit in the second quarter and said earnings per share in the period, excluding special items, would come in at 0.15 to 0.17($0.13-$0.15) a share.
The company earned 0.21, or $0.19, per share a year ago. Nokia blamed overcapacity in the mobile handset market and a slowdown in global telecom spending. 
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