Nokia on target but warns of more pain

Nokia cheered the market with second-quarter figures yesterday that met forecasts, but the Finnish mobile phone giant warned of further pain in the third quarter and refused to comment on its outlook for the final three months.

"Current economic and industry uncertainties continue to limit our visibility for the remainder of 2001," the company said, adding that "the lack of visibility" prohibited it from giving specific growth guidance for the fourth quarter – the most crucial period for mobile phone companies containing the Christmas selling season. For the third quarter, Nokia predicts sales growth will range from "flat to 5 per cent".

Despite the uncertainty, Nokia shares jumped 14 per cent to 23 euros after it reported a 20 per cent drop in second- quarter profits to 1.17bn euros (£713m) on sales up 5 per cent at 7.35bn euros, in line with guidance the company gave in a profit warning in June when it said the market had deteriorated. Revenues from Nokia's network division fell 2 per cent while those from mobile phones were up 10 per cent. Analysts took heart that the figures were at the top end of forecasts.

Nokia hopes the pain will ease next year. "Economic conditions in general are expected to improve next year," the company said, adding it expects revenue growth to "pick up again and return to the level of 25-35 per cent at some time during 2002" as investments in new technologies accelerated. Jorma Ollila, the company's chairman and chief executive, said: "We believe firmly in the long-term opportunities of the mobile communications industry. With market growth expected to pick up again next year, we are in a unique position to build on our strengths."

The company believed it held its mobile phone market share at a level of more than 35 per cent in the second quarter and thought its mobile phone sales would continue to exceed yearly market growth, "resulting in a higher full-year market share in 2001 than 2000".

Mark Davies Jones, an analyst at Schroder Salomon Smith Barney said: "The market's been difficult but Nokia is in pretty strong shape both operationally and competitively." However, he said Nokia's third quarter guidance was beneath what he had been forecasting.

For the third quarter of the year, Nokia expected earnings to range between 0.14 euros and 0.16 euros and then improve on that in the fourth quarter. "It's clear that in terms of the whole group things won't really accelerate until the middle of next year," Mr Davies Jones said.

Nokia said it still stood by its June estimate that the global mobile phone market would show "very little or modest volume growth" in 2001 compared with the previous year when about 405 million phones were sold. In March, the company lowered its worldwide mobile phone sales predictions for the year to 450-500 million units from initial expectations of 500-550 million units.

Nokia, which launched 14 new mobile phone models during the first half of the year, said it had a strong product line-up for the remainder of 2001. "Plans are on track to commence deliveries of our first GPRS phone in the third quarter and this should start to impact earnings towards the fourth quarter," it said. While the company said it continued to maintain its 40 per cent market share target for the long term, it said it was placing more emphasis on sustaining "healthy profitability" given the difficult market conditions.