Nokia Raises 3Q Sales Guidance;Shares Gain
STOCKHOLM -(Dow Jones)- Nokia Corp. (NOK) Tuesday raised its third-quarter earnings forecast, saying prices have fallen less than expected and handset sales have grown at a faster pace than originally envisaged.
The world's largest mobile phone maker said it expects earnings per share to rise to between EUR0.18 to EUR0.19 in the third quarter from EUR0.15 a year earlier. Previously, the company had predicted EPS of as much as EUR0.17.
Sales will gain to EUR8.4 billion to EUR8.5 billion from EUR7.1 billion a year earlier. That tops the range of EUR7.9 billion to EUR8.2 billion predicted by Nokia in July.
The surprise announcement sparked a jump in Nokia shares, which were up 4.8%, or EUR0.62, at EUR13.67 at 1401 GMT. It also fueled gains in other European technology stocks, with chipmaker STMicroelectronics NV (STM) - a Nokia supplier - reversing intraday losses to gain EUR0.07, or 0.5%, to EUR14.29.
"We view the preliminary results positively, and believe that Nokia is the best way to play the strong handset market based on product recovery, emerging market strength, and valuation," said Banc of America Securities Analyst Tim Long, who has a buy recommendation on the stock.
After a mixed 2004, Nokia has recovered this year, boosting market share in the second quarter at the expense of smaller rivals like Siemens AG (SI) and Sony Ericsson and widening its lead over South Korea's Samsung Electronics Co. Ltd. (005930.SE). The Espoo, Finland-based company has profited from a beefed-up product range and has also exploited its scale to improve performance in China over homegrown competitors.
Nokia's market share rose to 31.9% in the second quarter from 29.6% a year earlier, according to figures from technology research firm Gartner Inc. Its nearest rival - Motorola Inc. (MOT) - had a share of 17.9% in the period.
On a conference call with analysts and media, Nokia's chief financial officer Rick Simonson said Nokia has continued to gain market share in the third quarter.
In its statement, Nokia said the mobile phone market has continued to be strong, and the company's deliveries in the third quarter will exceed earlier expectations. Management predicts its mobile phone volumes will exceed overall market growth during the quarter.
The new EPS guidance from Nokia includes a contribution of EUR0.01, or slightly higher, from divestments, including a gain of EUR61 million from the sale of its public mobile radio unit to European Aeronautic Defence & Space Co. (5730.FR). "Good cost control" is another reason for the forecast hike, it said.
"Operational expenditure will be down sequentially, both as share of sales and in absolute terms," Simonson said on the conference call.
Nokia had been expected to post EPS of EUR0.17 in the third quarter, according to a survey of 38 analysts by SME Direkt at the end of August.
Simonson said operating margins at Nokia's mobile devices units will rise from the 13% seen in the second quarter, while gross margins will still decline, albeit less than the company expected earlier.
"The decline in gross margins remain a worry," said Greger Johansson, an analyst at independent equity research firm Redeye in Stockholm, who rates Nokia at sell.
Both research and development and sales and marketing expenses are now projected to fall, with sales and marketing contributing most to the fall, he added.
The geographical sales mix and relatively firm pricing mean the average sales price, or ASP's, of Nokia's handsets - a key benchmark for financial analysts - is expected to decline less than initially anticipated in the third quarter, Nokia said. It said better sales in Europe would offset a weaker than expected performance in Latin America, where ASP's are lower on average.
The company said in July that ASP's would fall due to growth in emerging markets outpacing gains in more mature regions like Europe. In particular, Nokia said it expected Western European growth to be below average and uptake of third-generation mobile phones to be muted. The ASP was EUR105 in the second quarter.
Simonson reiterated Nokia's cautious view on 3G on the conference call, saying that was not behind the improvement in Europe.
Nokia said the underlying business performance of its networks division, which sells wireless infrastructure, will still be largely in line with the earlier expectations.
Company Web site: http://www.nokia.com
-By Magnus Hansson, Dow Jones Newswires; +46 8 545 130 91; magnus.hansson@dowjones.com
(END) Dow Jones Newswires"
Posted to the site on 13th September 2005