Shaky Market Outlook Sinks Nokia
Updated from 8:52 a.m. EDT
Nokia
(NOK) - Get Report
exceeded Wall Street's first-quarter earnings targets, but its stock was hit Thursday by shrinking market share and a warning about the expected impact of an economic slowdown.
The Finnish mobile-phone giant posted earnings for the quarter of 1.22 billion euros, or 32 euro cents a share, an increase of 24.8% over the year-ago quarter. Excluding one-time items related to pension liabilities and restructuring charges, Nokia said it earned 38 euro cents a share, 2 cents better than expectations.
Sales for the quarter ended last month were 12.66 billion euros, up 28.4% from a year earlier. Those results were in line with expectations.
"Nokia had strong profitability in the first quarter, with both operating profit and EPS up significantly year on year," CEO Olli-Pekka Kallasvuo said in a press release.
Looking ahead, Nokia said it expects the mobile-device market to decline in euro terms in 2008 compared with the previous year. The change in its outlook reflects the negative impact of a weakening U.S. dollar and the general economic slowdown in the U.S. and in Europe, the company said.
Shares of Nokia fell more than 14% to $28.82. Competing phone maker
Motorola
(MOT)
was losing 2.7%, and wireless technology firm
Qualcomm
(QCOM) - Get Report
slid 1.1%.
Ericsson
(ERIC) - Get Report
, which warned of slowing sales in its line of mid-range and high-end cell phones in March, was down 4.7%.
Meanwhile,
Texas Instruments
(TXN) - Get Report
, which makes chips used in advanced 3G cell phones, were falling 3.8%.
Handset shipments hit 115.5 million in the quarter, Nokia said, matching expectations. Shipments were up 27% from a year ago, but were 13% lower than the previous quarter, dropping Nokia's market share to 39% from 40%.
By geographic area, mobile-device volume sank in North America by 49% from the fourth quarter. Volume in China rose 4% from the previous quarter, while Europe volume slid nearly 31% sequentially.
"We are seeing a normal market situation in Europe," said Kallasvuo during the company's conference call. "The target is to take markets in a very meaningful way in Europe during
the second quarter."
Nokia also said its smart-phone sales fell to 14.6 million units in the first quarter from 18.8 million units in the last quarter. The company's market share for smart phones in the quarter fell to 43.8% from 46.9% in the fourth quarter.
Analysts were also disappointed that the average sales price per phone, or ASP, fell to 79 euros from the 83 euro level in the fourth quarter. Nokia cited a higher proportion of lower-priced products and the negative impact of the weaker U.S. dollar.
"The fact that the dollar has declined quite dramatically and the fact that we report in euros exacerbates that," said CFO Rick Simonson during the company's conference call.
Nokia said it continues to expect some drop-off in industry ASPs this year, primarily reflecting the increasing effect of the emerging markets and general competitive factors.
On the positive side, Nokia reaffirmed that it expects industry mobile-device volume this year to grow approximately 10% from the roughly 1.14 billion units the company estimated for 2007.
American Technology Research analyst Mark McKechnie said he is maintaining his buy rating on the stock, even after Nokia provided a disappointing contrast to strong reports from tech giants
Intel
(INTC) - Get Report
and
IBM
(IBM) - Get Report
.
"Valuation is very attractive at current levels with support at the $30 level, but performance-oriented investors may wait for the summer," McKechnie said in a note. "The outlook for June suggests a lull in new products with more impact in the second half of 2008."
As the company does not expect to introduce new products during the second quarter, Kallasvuo said Nokia's ability to respond to the market and customer needs will help the company maintain and grow its share in Europe.