Nokia sends markets tumbling

Nokia was hit by a double-whammy of tumbling market share figures and broker downgrades yesterday that sent its shares falling and added to the mobile phone company's mounting woes.

Nokia was hit by a double-whammy of tumbling market share figures and broker downgrades yesterday that sent its shares falling and added to the mobile phone company's mounting woes.

New figures show that Nokia lost nearly one-fifth of its global market share position between the first quarter of last year and the same three months in 2004. The alarming news for Nokia shareholders sent its shares down 4 per cent, enough to drag down leading share prices across Europe by the end of trading.

Nokia's policy of urgently cutting prices to defend market share was not working, analysts said. The fall in its share price was compounded by highly bearish assessments of Nokia's outlook from Goldman Sachs and Morgan Stanley. The two brokers cut their earnings and revenue forecasts for the Finnish company.

Goldman Sachs said growth would fall to 7 per cent in 2005, having forecast 19 per cent for 2004. It said maintaining and increasing market share would be crucial for handset manufacturers as growth slowed across the industry. It said Nokia's price cuts would only have the effect of stabilising its market share position, not growing it.

However, Strategy Analytics, which specialises in researching the mobile phone market, published figures yesterday which showed that Nokia's global market share had fallen from 34.9 per cent to 28.8 per cent between the first three months of 2003 and the same period this year.

Morgan Stanley said Nokia was "structurally challenged". It said that with an increasingly price-sensitive and lower-growth market, Nokia would see annual declines in earnings per share of 6.6 per cent. Goldman Sachs said revenues at Nokia would fall at an annual rate of 2 per cent over the next five years.

The figures from Strategy Analytics show that Nokia is losing market share to competitors such as Motorola, Samsung, Siemens and LG Electronics, whose phones are proving more popular among young consumers.

Nokia has been trying to sell too many low-value, entry-level phones and has missed out on camera phones, colour display phones and the "clam shell" or flip-top phones now dominating in Asia and increasingly popular in Europe.

Neil Mawston of Strategy Analytics said: "I put it down to the three Cs: cameras, colour and clam shell. Basically, the competition has been getting tougher and they have closed the gap [on Nokia]very quickly in the last few months."

Nokia has been trying to fight back. Two months ago, it finally launched its own clam shell phone and Carphone Warehouse, the leading UK mobile phone retailer, said the company was beginning to win back customers, at least in Western Europe.

Charles Dunstone, the chief executive of Carphone Warehouse, said: "We are probably selling more Nokia product as a percentage of our sales than four months ago."

But to defend its market share, Nokia has been cutting prices (see table) and shareholders are getting nervous.

The slump in Nokia's fortunes began to show in analysts' figures in November, although Nokia insisted at the time that all was well and that it was targeting a market share of 40 cent.

But last month it suffered the ignominy of having to issue a profits warning because it was selling too many basic handsets and not enough of the more sophisticated mobile phones that consumers in Europe and Asia are clamouring for.

After the profits warning, it was then hit by a lawsuit from American investors who accuse it of fraud and are suing the company in a class action on behalf of disgruntled investors.

A spokeswoman for Nokia said it was taking action in several areas to redress the problems it is facing. "Obviously market share is an important thing," she said. "We have taken action and we will be taking action in order to improve our market share."

Ailing Giant

*Nokia was founded in 1865 as a forest industry business by Fredrik Idestam. It merged with the Finnish Rubber Works and the Finnish Cable Works to form the Nokia Corporation in 1967.

*It employs 51,700 staff worldwide, with 22,400 workers in Finland alone.

*Nokia accounts for 20 per cent of Finland's exports.

*At its peak in the technology boom, Nokia was worth more than €300bn and was equal to 72.5 per cent of the Helsinki stock exchange. Now it is worth €53bn and accounts for 38 per cent of the total market value.