Nokia Starts To Slowly Turn Around
By Carlo Longino, Thu Oct 14 16:00:00 GMT 2004

Earnings season is here again, with Nokia offering a mixed bag of results, while Sony Ericsson continues to thrive.

Reports of third-quarter earnings in the mobile industry kicked off with a bang as Nokia delivered its verdict on the quarter, giving some positive news in figures largely in line with expectations. The company earned EUR 660 million in the period, off from EUR 823 million a year ago, on slightly increased sales of EUR 6.94 billion, just edging ahead of analyst expectations for both revenues and profits. A 21 percent increase in sales of network equipment helped offset some weakness in mobile-phone sales, where the company said it increased market share from 31% last quarter to 32.5%, indicating the company's strategy of cutting prices to claw back share was working.

This, however, lead to a drop in the company's average selling price to EUR 105 from EUR 110, and its fourth-quarter guidance showing higher-than-expected sales with earnings on par with analyst expectations reflects margins will continue to feel pressure. The fourth quarter will be important for the company, which is banking on the price cuts to hold the low end of the market and new products to help it retake the middle and high segments. One potential obstacle is component shortages: the company said back in August it couldn't keep up with demand for the hot-selling 6230 handset, and Nokia CEO Jorma Ollila said a lack of parts cost the company sales of at least a million devices.

Sony Ericsson, on the other hand, saw its profits jump by 45% to EUR 90 million, with sales up to EUR 1.68 billion from 1.31 billion in the same quarter last year. The company sold 10.3 million phones in the period, two-thirds more than last year, and in sharp contrast to Nokia, its average selling price rose nearly 10 percent from the second quarter to 157 euros.

The company's focus on mid- and high-range handsets has helped it here, as well as its concentration on cameraphones. Nokia estimates that a third of all phones sold globally this year will have integrated cameras, while over 60 percent of Sony Ericsson's phones do. The company, which overtook LG as the world's number-five handset maker earlier this year, will be waiting until Siemens earnings report in November to see if it can steal fourth place from the German company.

The fourth quarter is traditionally strong for handset sales, and competition will be incredibly fierce this year as traditional powerhouses like Nokia and Motorola look to win back lost share while newer rivals like Samsung and Sony Ericsson hope to keep stealing sales. All the companies have new models coming to market in the run up to Christmas, and supply-chain management again looks like it will be of the utmost importance.