Nokia sends European tech stocks tumbling with grim forecast
Pakistan Times Business & Commerce Desk

HELSINKI (Finland): Mobile phone giant Nokia sent European tech stocks skidding on Thursday after it forecast a grim third quarter, as its dominance on the world handset market continued to slide amid plunging handset sales.

Nokia's issue was down 16.11 percent in mid-afternoon trading in Helsinki, changing hands at 9.53 euros. Rival Ericsson was down 4.29 percent at 20.10 in Stockholm while Alcatel fell 2.20 percent to 11.55 euros in Paris.

"The result (for the second quarter) was better than expected, but the guidance for the third quarter was bad. Mobile phone margins are still under pressure and that is the worst thing," one analyst said of the Finnish company's earnings report.

Nokia reported a 14 percent rise in net profit in the second quarter, to 712 million euros (880 million dollars), but that little bit of good news -- attributed to one-off gains -- was overshadowed by a five percent drop in sales and tumbling market share despite a bid to regain lost ground by cutting handset prices. Turnover fell to 6.64 billion euros (8.2 billion dollars) in the March-June period.

Chief executive Jorma Ollila said Nokia's mobile phone sales in Europe and the United States "remained challenging" but added that he would continue to cut handset prices for the rest of the year in an effort to boost its market share. "As a result, we expect our profitability to continue to come under pressure during the second half of the year," Ollila said.

The company predicted earnings per share of between 0.08 and 0.10 euros for the third quarter, compared to 0.17 euros a year earlier. Investors focused on the negative trend and the gloomy short-term outlook. "It looks pretty bad. The sales continue to fall, but the major drop will come in the third quarter and there is also pressure on the fourth quarter," Jussi Hyoty, an analyst with FIM Securities, told a French news agency. "This is a major shift that will not turn quickly, and our eyes are on next year now, because this year is lost," he said.

In February the Finnish giant shocked investors when it said that it had failed to pick up on the rising popularity of fold-out clamshell handsets and left them out of its phone portfolio altogether.

As a result, consumers have instead opted for models made by rivals LG and Samsung of South Korea and Japanese-Swedish SonyEricsson, leaving the Finnish firm with an increasingly shrinking market share.

It now holds 31 percent of the market compared to 39 percent a year ago. Nokia's predicament is in stark contrast to the overall handset market, which the Finnish giant now expects to grow by over 15 percent this year. "The global mobile device market continued to grow during the second quarter 2004 reaching 148 million units," Ollila pointed out. "We expect the total market volume to surpass 600 million units for the full year 2004."

Analysts had expected Nokia's market share to stabilize or even turn around after the company slashed prices on key models. "Usually, when you cut prices, this is reflected in the market share, but now they have cut their prices and still their market share is falling," Hyoty said.

As a result Nokia's mobile phones sales decreased by 13 percent year-on-year to 4.17 billion euros in second quarter, the company said.

The turnover of the firm's multimedia division, which includes the sales of the N-Gage game deck, grew by 24 percent to 739 million euros during the same period however, while Nokia's network unit saw a revenue increase of six percent to 1.58 billion euros.

Last year the infrastructure division, which had suffered flagging sales for years, posted an operating loss of 349 million euros in second quarter, prompting Nokia to take a 399-million-euro restructuring charge then.●