NEWS SNAP: Nokia Weak 3Q Outlook Overshadows 2Q Strength

LONDON -(Dow Jones)- Nokia Corp. (NOK), the world's largest mobile phone manufacturer, Thursday reported strong second-quarter progress just shy of optimistic expectations, but a weak third-quarter outlook overshadowed the results.

Nokia's sales and earnings guidance for the third quarter immediately had shares reeling, down over 7% as soon as the results were published. At 1137 GMT, Nokia shares were down 9.5%, or EUR1.4, at EUR13.31.

Nokia upped its full-year handset volume target to 760 million, from 740 million units previously, but said it expects most of this growth in emerging markets where low-end products dominate.

Third quarter sales are expected to be in the range of EUR7.9 billion and EUR8.2 billion, Nokia said, while earnings per share is expected within a range of EUR0.14 to EUR0.17. Analysts had expected Nokia to target EPS of around EUR0.20.

Additionally, Nokia said it expects a weaker performance in the second half of the year from its networks division.

Nomura Securities analyst Richard Windsor said the results "aren't a complete disaster," but profitability is weaker than expected. Windsor, who rates Nokia at neutral and prefers Motorola Inc. (MOT), expects forecasts to be revised down sharply on the weaker than expected outlook.

Nokia's second quarter revenues rose to EUR8.1 billion, from EUR6.5 billion a year earlier, and earnings per share climbed to EUR0.18 from EUR0.15 as the company continued to recover from a slump that hit the company last year when it failed to get attractive products to market fast enough.

It reported net profit of EUR799 million compared to EUR695 million in the comparable period a year ago. Profit at the operating level was below expectations while sales growth was shy of market forecasts.

The average selling price of a Nokia phone dropped to EUR105 in the second quarter from EUR110 in the first quarter.

Speaking on CNBC, Nokia Chief Executive Jorma Ollila said that despite the mobile phone industry growing strongly, industry turbulence has resulted in pricing and margin pressure. He said that as the competitive dynamics of the market stabilize, margin pressure will continue, but it will only be a short-term effect.

ING Financial Markets analyst Damien Chew, with a hold rating on Nokia, said the results are indicative of the state of the mobile phone industry with good sales volume undermined by pricing pressure and tighter margins.

Nokia said its share of the handset market increased to 33% from 30.7% a year ago, according to the company's own estimates.

Ollila said it is "crucial" Nokia maintains its market share and was unfazed by Motorola's comments that it would target Nokia in emerging markets like Latin America. Ollila said Nokia is "very confident" it can withstand the threat.

Nokia's second-quarter results compare well with some of its smaller rivals in the handsets market.Samsung Electronics Co. Ltd. (005930.SE), LG Electronics Inc. (066570.SE) and Sony Ericsson all had a relatively weak quarter, with LG reporting a loss for the handset operations for the first time.

Motorola Inc. (MOT), the world's No. 2 mobile phone maker, Tuesday, however reported second-quarter results ahead of expectations and claimed a 3.3 on-year percentage point rise in handset market share to 18.1%.

Company Web site: http://www.nokia.com

-By Nic Fildes, Dow Jones Newswires;+44 20 7842 9264, nicolas.fildes@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 21st July 2005