Nokia’s Net Income Probably Rose Less Than RevenueBloomberg writes…Nokia Oyj, the world’s biggest maker of mobile phones, may say fourth-quarter profit growth failed to keep up with revenue as margins suffered from rising sales of less-expensive models in emerging markets.
Net income may have gained 3.6 percent to 1.11 billion euros ($1.44 billion) from 1.07 billion euros a year earlier, a Bloomberg News survey of 10 analysts showed. Earnings probably increased to 28 cents a share from 25 cents as Espoo, Finland- based Nokia bought back stock. Revenue may have risen 12 percent to 11.6 billion euros, the slowest growth rate in a year.
Profit margins at Nokia and Motorola Inc. are under pressure as they compete for customers in China and India, the world’s fastest growing mobile-phone markets. Smaller competitor Sony Ericsson Mobile Communications Ltd., which focuses on more expensive models featuring music and cameras, last week said fourth-quarter profit tripled.
“Nokia has probably gone flat out in emerging markets with cheap phones and taken market share,'’ said Mika Heikkilae, an investment strategist at Arvo Omaisuudenhoito, which manages $440 million in Helsinki. “It remains to be seen when people start buying their more expensive models.'’
Nokia’s average selling price for handsets probably fell to an all-time low of 91 euros from 93 euros in the third quarter.
The company reports earnings Jan. 25 at noon in Helsinki. Spokeswoman Arja Suominen declined to comment before that. Nokia beat analysts’ estimates twice in the past four quarters. Of analysts covering the stock in the past year, 24 rate it “buy,'’ 12 have a “sell'’ and 12 a “hold,'’ Bloomberg data show.
Growing Market
Nokia Chief Executive Officer Olli-Pekka Kallasvuo, 53, predicts there will be 4 billion wireless subscribers by 2010 and that growth will come from emerging markets in the Asia-Pacific region. India is adding more than 6 million subscribers a month, while China is adding 5 million users.
Motorola on Jan. 19 said fourth-quarter profit fell 48 percent as the company slashed prices to compete with Nokia and Samsung Electronics Co. Schaumburg, Illinois-based Motorola’s stock had fallen the most in more than four years on Jan. 5 after it said sales and profit would miss analyst estimates.
Motorola also announced plans to cut 3,500 jobs, or about 5 percent of the workforce, to help trim costs by $400 million.
Shares of Nokia were little changed last year, while Motorola shares lost 9 percent. Nokia’s stock fell 16 cents, or 1.1 percent, to 15.14 euros as of 11 a.m. in Helsinki after Alcatel-Lucent, the world’s biggest maker of telecommunications equipment, said fourth-quarter operating profit and sales fell.
Kallasvuo was granted an annual base salary of 1 million euros, plus bonus, when he became the CEO in June 2006.
Samsung’s Struggle
Suwon, South Korea-based Samsung, the world’s third-largest mobile-phone maker, on Jan. 12 said fourth-quarter profit dropped, partly because it cut handset prices. Earnings at the telecommunications unit missed analysts’ estimates.
Both Nokia and Motorola introduced new models in January designed to win market share from each other. Nokia unveiled the slim N76 multimedia phone to rival Motorola’s half-inch Razr. Motorola in turn unveiled the Rizr Z6 with a music player and camera to take on Nokia’s high-end models such as the N93i.
Nokia in November forecast global handset market growth would be as high as 10 percent this year from 970 million units in 2006, when growth topped 20 percent. It also forecast a drop in average selling prices. Nokia on Oct. 19 said its fourth- quarter unit sales would rise at least 15 percent from the previous period, in line with the market. Nokia’s market share was 36 percent in the third quarter.
Reviving Margins
The company has an operating profit target of 15 percent of sales for the next two years. Nokia’s profit margin in the first nine months of 2006 was about 13.5 percent. The company cut its profitability goal in November, blaming its network venture with Siemens AG and cheaper phones in Asia.
Competition may heat up in the second half after Apple Inc. starts shipping its iPhone in June. The black-and-silver iPhone has a 3.5-inch touch-screen and features Internet access and the ability to sort and select voicemail. The Cupertino, California- based company expects to sell 10 million units in 2008.
“The iPhone will likely be so excruciatingly expensive that only a very select group of people will be able to buy it, therefore this will only affect the very top end of the market where volumes are very low,'’ Richard Windsor, an analyst at Nomura in London, said in an interview on Jan. 19.
Nokia in December delayed its network venture with Siemens AG as a bribery probe at the German company deepened. The new company is set to start this quarter rather than at the start of 2007. This may have prompted Nokia customers to postpone network orders, analyst Gulbinder Garcha at Credit Suisse said.
“Our concern is that in the near term the uncertainties of the merger going through as well as integration issues once the deal is completed is likely to see customers pause or postpone spending,'’ Garcha wrote in a note.
