April 21 (Bloomberg) -- Nokia Oyj, the world’s biggest maker of mobile phones, may report its second-lowest profit in more than a decade for the first quarter as competitors reduce prices in both smartphones and standard handsets.
Net income may have more than tripled to 404 million euros ($544 million) from 122 million euros a year earlier when orders dried up during the recession, according to the average estimate of 22 analysts surveyed by Bloomberg. Profit in the first quarter of 2008 was 1.22 billion euros.
“This level of profitability is the new normal,” said Michael Schroeder, head of research at Helsinki-based FIM Bank. “It’s far away from the levels before 2009. It’s quite clear the competition is much tougher these days than it was a couple of years ago.”
Apple Inc. has brought the iPhone down from a luxury to an upscale mass-market handset, while Google Inc.’s Android platform is available on dozens of smartphones including a Google-branded device. A boom in low-priced mobile phones sold by so-called grey market vendors in Asia led Nokia to revise its market share figures lower in March.
Sales in the first quarter probably rose 5.4 percent to 9.78 billion euros, the average analyst estimate showed. Nokia releases figures at 1 p.m. in Helsinki on April 22.
Nokia lost overall market share last year, according to Gartner Inc. figures. Telecom operators have subsidized the iPhone, bringing its sticker price to as low as $99 in the U.S. The device from Cupertino, California-based Apple was also boosted by continuous additions of third-party software to Apple’s online App Store.
Apple yesterday reported a 90 percent increase in net income for its second quarter ended March 27 as sales rose 49 percent to $13.5 billion. iPhone shipments almost doubled to 8.75 million, helped by the addition of eight carrier partners in Europe and Asia.
The operating margin in Nokia’s main handset business narrowed to 11.9 percent in 2009 from more than 21 percent in 2007, before a reorganization. The company has forecast an adjusted operating margin in devices and services of about 12 percent for the first quarter.
Nokia has lost about half its market value since the iPhone debuted in June 2007, making it cheap relative to other mobile stocks. The company has forecast 10 percent growth in industry shipments this year and expects to retain its market share in units and increase its “value share” slightly.
Of the analysts following Nokia in the Bloomberg database, 29 rate the stock “buy,” 12 advise selling it and six are neutral. The share has gained 27 percent this year, while the 148-member MSCI World/Information Technology Index, which includes chipmakers and software companies as well as peers including Apple, gained 6.5 percent.
Nokia shares rose the most in 10 months in January after reporting fourth-quarter profit that jumped 65 percent, beating analysts’ estimates. The company surprised investors by posting gains in smartphone share and in emerging markets.
Intel Corp., which is working with Nokia on software platforms for large pocket-sized devices and other applications, said last week that consumers and businesses are spending money on electronics again and forecast record profit margins for 2010.
“In the short term I’m not worried about volume strength, but I’m still skeptical about the mid- to long-term positioning of the company as smartphones decrease in price,” said Thomas Langer, a Dusseldorf-based analyst with WestLB.
Nokia’s decision to include services such as maps, music and games with its handsets isn’t good for margins, Langer said. The company needs to introduce more high-priced hardware such as tablets and laptops to shore up its margins, he said. Apple’s iPad looks set to repeat the iPhone’s success, and Nokia already makes one notebook computer, the Booklet.
“There’s a profitable, value-enhancing business in the high-end, but selling zillions of devices for 20 or 25 euros -- that’s not something that will make investors’ hearts jump for joy,” Langer said. He has a “neutral” rating on the shares.
Nokia will start to see this year whether it can defend its market share by adding services such as turn-by-turn navigation and music tracks to phones at no extra charge. The company is still working on high-end touchscreen models that are supposed to restore its reputation for technical execution by providing an iPhone-class user experience.
“Nokia’s gap with the smartphone leaders in terms of ease of use and applications strength remains,” James Dawson of Morgan Stanley wrote in a report April 19. He rates the shares “underweight” and said he expects first-quarter shipments of 113.4 million, above consensus, with Asia particularly strong.
Analysts said they will be looking for updates to the product schedule following speculation that a new version of Symbian, Nokia’s main smartphone operating system, may be taking longer than predicted.
“Free navigation will support Symbian sales to some extent but still the competition from Android is coming up so rapidly now that they need a new platform as well,” Schroeder said.
Nokia revised its first-quarter 2009 market share to 32 percent on March 12 from 37 percent, based on better estimates for the growth of new Asian vendors making gray-market and other phones.
Forecast Reported 1st quarter 2010 1st quarter 2009 Sales Average estimate 9.78 billion 9.27 billion Highest estimate 10.23 billion Lowest estimate 9.40 billion Net income Average estimate 404.0 million 122 million Highest estimate 518.0 million Lowest estimate 285.0 million Non-IFRS net income Average estimate 529.6 million 357 million Highest estimate 696.0 million Lowest estimate 353.0 million Earnings per share Average estimate 0.11 euros 0.03 euros Highest estimate 0.15 euros Lowest estimate 0.08 euros Adjusted earnings per share Average estimate 0.15 euros 0.10 euros Highest estimate 0.20 euros Lowest estimate 0.11 euros Nokia first-quarter device shipments (10 estimates) Average estimate 108.1 million 93.2 million Industry first-quarter device shipments (6 estimates) Average estimate 286.6 million NA Nokia first-quarter average selling price (7 estimates) Average estimate 61.6 65
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