Nokia’s slide continues in 2Q: warns of troubled times ahead

16 Jul 2004

The world’s leading mobile handset manufacturer Nokia has reported a 5% fall in sales to EUR6.64 billion and a 39% drop in operating profits at its core mobile phone division to EUR797 million for the three months to 30 June, and warned that sales and profits would continue to slide as it cuts prices and spends more to cling on to its market share. The group’s pessimistic prediction for the remainder of the year wiped 12% off its share price at the close yesterday and marked a sharp contrast to the fortunes of rising star Sony Ericsson which yesterday posted a 34% year-on-year rise in sales to EUR1.504 billion and a 55% improvement in units shipped to 10.4 million. Nokia’s continuing woes stem from its weak product range and lack of popular design formats such as ‘clamshell’ and mid-priced camera phone models. In the second quarter Nokia saw mobile phone sales drop by 13%, prompting the manufacturer to announce its third warning since 6 April. Although the company hopes to launch new handset models to address the problem, it is coming under increasing pressure from rivals such as Motorola, Samsung, Siemens and, of course, Sony Ericsson, and its share of the market has dropped to 31%, from 32% in 1Q 2004 and 38% in 2003. Added to this, it is unlikely that the manufacturer will be able to introduce the new phones in sufficient numbers until the fourth quarter, making it all the more likely it will have to keep cutting prices in the face of unpopular product lines.

Nokia’s chief executive Jorma Ollila has attempted to put a brave face on the situation, saying that there had been a reversal in fortunes since mid-May, and that his company had performed well in June. However, whilst handset shipments are bearing up well – the company sold 45.4 million units in Q2 compared with 44.7 million the previous quarter – the sales are coming at a cost in terms of profitability. The vendor has been cutting handset prices and increasing its adspend, resulting in a worrying fall in quarterly operating margins for the mobile phone division from 27.2% to 19.1%.

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