Nokia, the world's largest mobile phone maker, sent European telecom stocks reeling this afternoon on a weaker-than-expected mid-quarter forecast of a drop in second quarter sales. The company nonetheless maintained its previous earnings prediction.
Nokia's share price plummeted 9% on the news, before bouncing back and changing hands at €13.43, close to today's opening price. Swedish rival Ericsson tumbled 7.2% in Stockholm, while Alcatel of France dropped 1.4% in Paris and British mobile operator Vodafone gave up 1.3% in London. Vodafone subsequently closed up 2.5% at 98.5.
In a mid-quarter update ahead of its second quarter earnings report on July 18, Nokia said it expected net sales in the second quarter to drop by 2-6% year-on-year to €6.9 to €7.2 billion, compared to earlier forecasts of 2-7% growth.
Worst hit was Nokia's networks division, where the Finnish group predicted second quarter sales would drop by 20-25%, compared to the same period last year. Earlier forecasts were for a drop of 5-10%.
However, the group's mobile phone division would fare better, Nokia said. It forecast handset sales in the second quarter would grow by zero to 4% year-on-year, compared to a previous estimate of 5-10%.
Earnings per share were however expected to remain within the previously expected range of 18 to 20 cent, compared to 17 cent in the same quarter a year ago, reflecting a healthy 20% operating profit in the all-important handset sector.
Telecoms analysts said the main reason for Nokia's abysmal estimates was the weak handset replacement sales, which was the main driver for the mobile telecom sector this year. Instead, customers are postponing the purchase of new handsets until new services like sound and image messaging and mobile e-mail, expected later this year, become available.
Nokia said it expected its market share in mobile phones to reach 38% by the end of the second quarter. The increasing market share was an indication Nokia had succeeded in attracting customers buying low-end handsets from its main rivals, who are suffering accordingly, analysts said.
