Nokia warns of decline in handset sales

Liz Vaughan-Adams
Friday 03 January 2014 03:18

The world's biggest mobile phone maker, Nokia, yesterday slashed its revenue expectations for the second quarter of the year after consumers held off buying new handsets and as telecoms companies cut spending on networks.

Shares in Nokia initially plunged 8 per cent after the Finnish phone maker predicted sales in the second quarter would now fall rather than grow. Analysts, who had been preparing for the company to issue a warning, were concerned that mobile phones from rival handset makers such as Samsung and Ericsson were starting to prove more popular.

Nokia stock rallied sharply later in the session, to close up 79 cents at¤14.10, on relief that the alert was not any worse, forcing some short-sellers to close their positions.

Furthermore analysts were pleased that Nokia maintained its previous earnings estimates for the quarter and that it said it could increase market share.

Nokia said yesterday that it expected second-quarter sales to fall by 2 to 6 per cent to about¤6.9bn (£4bn) to ¤7.2bn compared with previous guidance of 2 to 7 per cent growth.

Mobile phone sales, it said, were expected to grow just 0 to 4 per cent in the second quarter ­ a dramatic reduction from previous guidance of growth of 5 to 10 per cent.

Analysts worried that competitors, particularly in the Far East, were starting to bite into its market share particularly after the success of two colour handsets in Samsung's T100 and Ericsson's T68 model. "Nokia is under pressure as high-end customers are buying phones from Sony and Samsung. If Nokia's new camera phone and their new colour screen phone, the 7210, don't sell well, then they will face declining market share and declining prices," one analyst said.

Nokia insisted yesterday, however, that it expected its market share for the second quarter to rise to 38 per cent and estimated overall mobile phone market volume to grow about 5 per cent. But the company is yet to launch its mass-market colour handset, the 7210, into the UK market while its first camera phone, the 7650, is not due to arrive until next month.

Analysts were also concerned that average selling prices for handsets were also under pressure and behind the cut in the company's sales forecast.

Nokia also said that its network sales were expected to fall by 20 to 25 per cent in the second quarter ­ again, a dramatic reduction from earlier guidance of a 5 to 10 per cent drop. The company is due to report its second-quarter figures in full on 18 July.

Despite the downgrades, however, Nokia said it believed earnings per share would fall within the previously indicated range of ¤0.18 to ¤0.20 a share. It predicts operating margins at its mobile phone unit in the second quarter will be in excess of 20 per cent.

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