Nokias Q1 network sales fall sharply

Mumbai: Nokia, the world’s largest mobile phone manufacturer, has said it is on track to meet or exceed earnings guidance for the first quarter, but it warned that sales of network equipment will see a sharper decline than previously forecast.

Nokia chief financial operator Olli-Pekka Kallasvuo said its networks unit has been hit by weakness in the Chinese and European markets for second-generation mobile phone infrastructure. “The company is still not recognising revenue from sales of third-generation mobile phone equipment, which it is currently supplying to 35 customers.”

The underlying business volume is higher than you can see in our topline, Kallasvuo said. “Nokia will begin recognising 3G sales by the middle of this year. Shares in the Finnish company are down nearly 5 per cent at E25.80 in early afternoon trading and investors focused on the lowered sales targets.”

Nokia’s caution on revenues, which was followed by a revenue warning from Lucent, the US network equipment, pulled Ericsson shares down 7 per cent to Skr45.90, a New York Times report said.

Ericsson gains more than 80 per cent of its revenues from network infrastructure, and investors will be watching the company’s presentation at the Cebit trade show in Hanover for hints of whether the Swedish company will follow its rivals in lowering forecasts. “By the end of the day we should have a clearer grasp of whether this is a company-specific or an industry-wide problem,” Dresdner Kleinwort Wasserstein analyst Per Lindberg said.

In its mid-quarter earnings update Nokia said earnings per share will be at the upper end or slightly above the E0.15 to E0.17 range it forecast in January, but sales will be slightly below its previous estimate of a 6-10 per cent year-on-year decline. Revenues in the network business will be down 25 per cent year-on-year in the first quarter, rather than the 16-20 per cent decline it estimated in January. It maintained its forecast for its handset unit, with sales expected to decline 3-7 per cent year-on-year.

Nokia’s assurances that it could maintain profit targets despite the decline in sales were met with some scepticism on Tuesday. “The mystery is being repeated. This is the third time in a year that Nokia has met its self-proclaimed earnings guidance despite missing its sales targets,” Lindberg said. “If Nokia gains income from an increase in sales, I can’t understand why the opposite isn’t true. It defies all forms of logic.”

The sharper-than-expected decline in sales also raised more concerns about Nokia’s ability to meet its full-year target of 15-per cent revenue growth. Analysts have already expressed doubts about this target, arguing that in order to get back on track after the first quarter, for the rest of year Nokia will need to achieve a sales growth of about 27 per cent in the networks unit and 22 per cent for handsets.

The guidance came as Nokia unveiled six new mobile phones, including one long-awaited colour-screen handset at Cebit. Investors have focused on colour screens as a key move in invigorating the stagnating European mobile phone market, and Nokia has come under increasing pressure to rollout a colour product after Swedish rival Ericsson brought out a hugely popular colour-screen model, the T68, last year.

Nokia said the colour-screen phone will go on sale in the third quarter, while the other phones, which include features such as polyphonic ringtones, multimedia messaging and Java-based applications, will go on the market in the second quarter. The company also briefly outlined plans to launch third-generation mobile phones on 26 September 2002.