Nokia Profit Tops Target, Sees Slow Start

Nokia, the world's largest mobile phone maker, on Thursday posted resilient fourth-quarter earnings on the back of brisk Christmas sales of mobile phones, sending its shares 10 percent higher.

The company, which makes more than one in three of all mobile phones sold globally, forecast weaker sales and profits in the first three months of the year amid industry-wide weak demand for handsets and telecoms networks.

However, it expects markets to recover as the year goes on and stuck to its 2002 sales growth target of 15 percent for handsets and networks, which is considerably more bullish than its rivals, including loss-making U.S. group Motorola.

Nokia said it expected to ring in first-quarter pro forma earnings per share of 0.15-0.17 euros ($0.13-0.15), down from 0.22 euros in the first three months of last year -- but still a strong performance given weak industry and economic conditions.

Nokia and rivals such as Sweden's Ericsson and Motorola have been hit in 2001 by slower sales of handsets as several markets near saturation point.

They have also been squeezed as cash-strapped telecoms carriers cut back their spending on networks and infrastructure.

But the Finnish company showed yet again that despite a weak Christmas for the industry -- which experienced its first ever decline in annual sales --it performed relatively well due to its strong product portfolio, brand name and cost controls.

``Christmas sales for companies that have competitive products... was brisk,'' a smiling Nokia Chief Executive Jorma Ollila, credited with turning Nokia into the most profitable handset maker, told a news conference.

However, pre-tax profit fell eight percent to 1.63 billion euros in the October-December period from the previous year.

Nokia said the first quarter would be hit by seasonal factors and the impact of new product launches, leading to a sales fall of six to 10 percent against the same quarter last year.


But the Finnish company said it saw an improvement in market conditions during the current year and added it was well placed to exploit the upturn.

``As we enter 2002, our strategic position is better than ever, backed by a very strong brand, product range and operational ability,'' said Ollila.

Nokia shares, which have risen around 70 percent and outperformed European rivals by some 15 percent since September 11, rose 10 percent to 26.88 euros by 1300 GMT.

Loss-making rival Ericsson, which is expected to report fourth quarter losses on Friday, rose five percent to 50.0 crowns. Siemens gained 1.8 percent to 71.94 euros while Alcatel

gained six percent to 17.70 euros.

European markets also gained on Nokia's rally.

``Nokia is trading at around 27 times 2003 earnings, which is toward the bottom of their traditional range on expectations for a year out,'' said Hilary McElwaine, a European fund manager at SG Asset Management.

``The shares are not outrageously cheap, I would not normally rush out to buy a share in isolation trading on that valuation but if Nokia's earnings expectations continue to prove conservative then there is some potential upside in the price.''


Nokia posted fourth-quarter pro forma EPS of 0.24 euros, higher than analysts expected and above Nokia's own forecasts. The figure excludes charges of 736 million euros -- mostly related to its broadband and Internet communications businesses and was down from 0.25 euros in the same 2000 quarter.

``I am more than happy with Nokia's fourth quarter performance,'' Ollila said.

``We achieved significant market share gains maintaining excellent profitability in our mobile phone business and succeeded in substantially reducing the impact of a challenging environment on our networks business.''

Analysts agreed but said that Nokia would have a tough time in meeting its sales growth targets.

``They have done a fantastic job... We are not surprised that Nokia is keeping their forecasts for the full year, but we are less optimistic,'' said analyst Susan Anthony at Credit Lyonnais.

``Given the better-than-expected result at the end of the year, I will go through my forecasts, but Nokia may have to trim their forecasts as they seem ambitious in a weak economic environment.''

Revenues -- roughly 70 percent of which comes from mobile phone sales -- fell a less-than-expected five percent to 8.79 billion euros from the same quarter of 2000.

But it posted the industry's best operating margin, coming in at 18.1 percent, with margins in the mobile phone unit at 22 percent and in networks at 13 percent.

Ollila said he expected handset margins to remain in the high teens throughout 2002, helped by its strong brand and new product launches, such as color screen phones.

Nokia, which said it increased its market share in mobile phones to around 37 percent in 2001 from 32 percent in 2000, said it expected 420 to 440 million phones sold globally this year, a rise of 10-15 percent on 2001. This was roughly in line with the 420 million plus figure forecast by Motorola.

The Finnish company has in recent months been able to outperform many of its rivals thanks to its relatively strong product mix, orders for new third-generation (3G) networks, the shift by some U.S. operators to the more widely used GSM standard, and cost cuts -- including job losses.