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Nokia sees soft Q4 sales, narrows f’cast

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CIOL Bureau
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Brett Young



HELSINKI: Nokia, the world's largest mobile phone maker, warned that its fourth-quarter sales would likely be weaker than expected as demand for networks remained grim and colour-screen phones failed to take off.



The outlook comes just one week after the company gave a cautious 2003 forecast for the entire industry and sent Nokia shares 3.5 percent lower to 17.33 euros. The stock recovered slightly from an initial drop of more than five percent but still helped to drive the Dow Jones Stock tech index two percent lower.



Nokia said that while it was gaining market share in handsets as planned and while earnings per share would remain comfortably in the previously forecast range, overall sales in October-December could be somewhat lower than expected.



It now sees revenues of 8.8-9.0 billion euros as its cheaper phone models were more popular than pricier handsets with lots of features. The range was shifted downward from previous guidance of 8.9-9.2 billion, with sales in the fourth quarter last year at 8.8 billion euros ($8.89 billion).



"Handset sales, while being seasonally strong, have tended towards the mass-volume end of the product portfolio in the lead-up to the holiday season," Nokia said in a statement.



Nokia's outlook, which is closely watched as the firm makes roughly two out of every five mobile phones sold globally, confirms industry expectations of a solid, but not spectacular, Christmas sales season.



After years of growth at break-neck speed, sales growth of both mobile phones and networks have ground to a virtual halt as markets globally become saturated and many telecom operators forego spending to strengthen their balance sheets.



"It is very interesting that sales are tending towards the mass volume. It would reflect delays in shipping their color screen products and possibly less-than-anticipated interest from consumers in the light of strong competition in mid- and high-end phones," said analyst Ben Wood at Gartner Dataquest.



Samsung, Sharp and other Asian manufacturers have launched competing high-end products featuring big colour screens, packed into handsets that are smaller than Nokia's picture phone. Nokia said pro forma diluted earnings per share in October-December would be comfortably within its previously indicated range of 0.23-0.25 euros. The firm had a fourth-quarter pro forma EPS of 0.24 euros a year ago.



Networks hurry, handset margins strong


Nokia raised its outlook for pro forma operating margins in its key mobile phones unit, which generates the majority of the company's profits, saying it would exceed the 22 percent reported in the third quarter. Nokia previously expected flat margins quarter-on-quarter.



But it signalled more misery for the hard-hit networks industry, saying it now expected a pro forma operating margin of around zero in the quarter, down from a previous forecast of margins around five percent. Nokia's networks unit has reported pro forma profits since the company shifted to quarterly reporting in 1996.



The outlook sent shares in Swedish rival Ericsson, the world leader in networks, 7.1 percent lower to 7.85 Swedish crowns. "As far as we can remember Nokia has been at least at break even in networks. The market will be distracted by this," said CSFB analyst Kulbinder Garcha. "But overall we don't see a massive change to our numbers."



Analyst Marko Maunula at Conventum Securities said: "Basically the failure in the sales guidance on the group level for the fourth quarter is the most important thing, also that networks will reach only break-even profitability." Nokia reiterated it expected global sales of 400 million mobile phones in 2002, a slight rise from last year.



The firm said at its analysts' meeting in Dallas last week that it expects just 10 percent unit growth for the world's handset market in 2003, disappointing investors stoked for growth of up to 15 percent.



Nokia said it was on track to gain significant market share in handsets in the fourth quarter versus July-September when it achieved a 36 percent share. The company previously said it expects to gain a record share of the global handset market in the fourth quarter. Nokia is due to give full fourth-quarter earnings along with its 2002 annual report on January 23.



(Additional reporting by Lucas van Grinsven in Amsterdam and Ott Ummelas in Helsinki)



© Reuters

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