Nokias stock plunged 14% Thursday after the worlds No. 1 handset maker missed first-quarter earnings views and hinted at a global slowdown in cell phone shipments.
The Finland-based company expects a weaker dollar and slower economic growth in the U.S. and parts of Europe to dampen the overall handset market this year. About half of Nokias (NYSE:NOK - News) sales are in dollars or currencies tied to it; a weaker dollar makes imports more expensive.
"What spooked us was its outlook for the industry in general," said Rick Franklin, equities analyst at Edward Jones.
Nokia reiterated projections that the industry shipments of handsets will grow 10% this year over last. In the first quarter, though, global shipments rose 17%, suggesting a slowdown in the remainder of the year.
For the quarter that ended March 31, Nokia earned $1.9 billion (1.2 euros), up 25% from the same quarter last year but short of an expected $2.3 billion. Overall sales rose 28% to $20.1 billion (12.6 billion euros), roughly in line with views.
Handset sales rose 13% to $14.6billion (9.2 billion euros), missing views. And handset operating margins fell to 21.2% -- up from 16% a year ago but down from 22.8% the previous quarter.
Nokia shipped 155.5 million handsets in the quarter, 27% over last year.
Nokias other line of business, Nokia Siemens Networks, posted an operating loss of $117 million (74 million euros) on sales of $5.4 billion (3.4 billion euros).
"The overall device market developed as expected, with the greatest demand in emerging markets where our position is very strong," Nokia chief executive Olli-Pekka Kallasvuo said in a conference call.
Handset shipments rose 63% in Latin America, 34% in China and 29% in the Middle East and Africa. Those regions accounted for 46% of handset shipments in the quarter.
But the average selling price of phones in emerging markets is less than that of Europe and the U.S., muting overall growth.
Nokia said the average sales price of its phones in the quarter fell to $125 (79 euros), down from $132 in the prior quarter and $141 in the same quarter a year ago.
"Its falling, especially in developing countries, due to increased competition from other low cost producers," said Jack Gold, founder and principal of research firm J. Gold Associates. "That helped depress Nokias overall earnings."
The company also faces pressure on the high end of the market, thanks to tougher competition from Samsung, LG Electronics, BlackBerry maker Research In Motion (NasdaqGS:RIMM - News) and Apple (NasdaqGS:AAPL - News) with its iPhone.
"At the high end, where Nokia has previously enjoyed a roughly 50% market share, we saw slower growth," Martin Garner, mobile director at research firm Ovum, wrote in a report.
Nokia shipped 14.6 million high-end phones in the quarter, up 24%, compared with market growth of 42%.
Nokias overall share of handset shipments slipped to 39% in the first quarter from 40% a quarter earlier.
"Nokia is still in a strong position in this segment, but we should expect to see gradual erosion of its share over the coming years" as a 3G-capable version of the iPhone launches and other companies beef up their offerings, Garner said.
Mark McKechnie, analyst at American Technology Research, singled out LG as a particularly well-matched rival.
"A lot of analysts think it was Apple (with its iPhone) and RIM," he said. "But Im thinking it was due more to LG."
Nokias Kallasvuo said Nokia "continues to expect some decline in industry (selling prices) in 2008, primarily reflecting the increasing impact of the emerging markets and competitive factors in general."
Analysts also questioned Nokias slowing product rollout.
While Nokia wont ship any major new products in the second quarter, Kallasvuo said several big product launches planned for the second half should boost results.
"That product lag has people scratching their heads," McKechnie said. "Well need to see something soon if they want to be well-positioned for the second half."
For all of Nokias challenges, analysts remain upbeat about the companys prospects.
"Nokia continues to demonstrate it is the dominant leader in this industry," said Franklin of Edward Jones, which rates the stock a buy.
Ovums Garner agreed.
"Nokia is better placed than any other vendor to ride a slowdown and even emerge strong from it," he said. "It has a broader portfolio of competitive products across all segments than any other and somewhat higher margins as a buffer against harsher price competition."
The Finland-based company expects a weaker dollar and slower economic growth in the U.S. and parts of Europe to dampen the overall handset market this year. About half of Nokias (NYSE:NOK - News) sales are in dollars or currencies tied to it; a weaker dollar makes imports more expensive.
"What spooked us was its outlook for the industry in general," said Rick Franklin, equities analyst at Edward Jones.
Nokia reiterated projections that the industry shipments of handsets will grow 10% this year over last. In the first quarter, though, global shipments rose 17%, suggesting a slowdown in the remainder of the year.
For the quarter that ended March 31, Nokia earned $1.9 billion (1.2 euros), up 25% from the same quarter last year but short of an expected $2.3 billion. Overall sales rose 28% to $20.1 billion (12.6 billion euros), roughly in line with views.
Handset sales rose 13% to $14.6billion (9.2 billion euros), missing views. And handset operating margins fell to 21.2% -- up from 16% a year ago but down from 22.8% the previous quarter.
Nokia shipped 155.5 million handsets in the quarter, 27% over last year.
Nokias other line of business, Nokia Siemens Networks, posted an operating loss of $117 million (74 million euros) on sales of $5.4 billion (3.4 billion euros).
"The overall device market developed as expected, with the greatest demand in emerging markets where our position is very strong," Nokia chief executive Olli-Pekka Kallasvuo said in a conference call.
Handset shipments rose 63% in Latin America, 34% in China and 29% in the Middle East and Africa. Those regions accounted for 46% of handset shipments in the quarter.
But the average selling price of phones in emerging markets is less than that of Europe and the U.S., muting overall growth.
Nokia said the average sales price of its phones in the quarter fell to $125 (79 euros), down from $132 in the prior quarter and $141 in the same quarter a year ago.
"Its falling, especially in developing countries, due to increased competition from other low cost producers," said Jack Gold, founder and principal of research firm J. Gold Associates. "That helped depress Nokias overall earnings."
The company also faces pressure on the high end of the market, thanks to tougher competition from Samsung, LG Electronics, BlackBerry maker Research In Motion (NasdaqGS:RIMM - News) and Apple (NasdaqGS:AAPL - News) with its iPhone.
"At the high end, where Nokia has previously enjoyed a roughly 50% market share, we saw slower growth," Martin Garner, mobile director at research firm Ovum, wrote in a report.
Nokia shipped 14.6 million high-end phones in the quarter, up 24%, compared with market growth of 42%.
Nokias overall share of handset shipments slipped to 39% in the first quarter from 40% a quarter earlier.
"Nokia is still in a strong position in this segment, but we should expect to see gradual erosion of its share over the coming years" as a 3G-capable version of the iPhone launches and other companies beef up their offerings, Garner said.
Mark McKechnie, analyst at American Technology Research, singled out LG as a particularly well-matched rival.
"A lot of analysts think it was Apple (with its iPhone) and RIM," he said. "But Im thinking it was due more to LG."
Nokias Kallasvuo said Nokia "continues to expect some decline in industry (selling prices) in 2008, primarily reflecting the increasing impact of the emerging markets and competitive factors in general."
Analysts also questioned Nokias slowing product rollout.
While Nokia wont ship any major new products in the second quarter, Kallasvuo said several big product launches planned for the second half should boost results.
"That product lag has people scratching their heads," McKechnie said. "Well need to see something soon if they want to be well-positioned for the second half."
For all of Nokias challenges, analysts remain upbeat about the companys prospects.
"Nokia continues to demonstrate it is the dominant leader in this industry," said Franklin of Edward Jones, which rates the stock a buy.
Ovums Garner agreed.
"Nokia is better placed than any other vendor to ride a slowdown and even emerge strong from it," he said. "It has a broader portfolio of competitive products across all segments than any other and somewhat higher margins as a buffer against harsher price competition."
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