So-So Season for Nokia

The Finnish handset giant reported 2Q gains in sales, revenues, and earnings. But a slip in global market share dents its image

Naysayers, take note: Mobile phone king Nokia isn't about to abdicate its throne anytime soon. The Finnish company said on July 20 that it sold 78.4 million phones in the second quarter, up 29% from a year earlier, and booked revenues up 22% to €9.8 billion ($12.4 billion), in line with analysts' expectations. Net earnings soared 43% from the previous year, to €1.14 billion. And despite a slightly reduced average selling price of €102 ($128.78) per unit, vs. €105 last year, it managed to squeeze out operating margins of 12.5%, up from 12% a year earlier, excluding special gains.

Still, Nokia's crown is looking a bit tarnished. Global market share sagged to 34% in the quarter, down a point from the first three months. Rival Motorola, meanwhile, continues to ride high on the success of its RAZR family of thin phones, even as Nokia has yet to release a challenger with a similar degree of buzz (see, 7/20/06, "Does Motorola Have Nokia's Number?").

U.S.-based Motorola, ranked No. 2 in the market, reported a 46% second-quarter increase in handset sales on July 19, and now claims 22% of the global market—its highest share since the 1990s. To compound matters, Nokia continues to suffer weakness on Motorola's home turf after losing a key U.S. customer in the second quarter. "Nokia will be glancing over its shoulder nervously, for certain," said Neil Mawston, associate director at market researcher Strategy Analytics in England.


  While it sorts out those problems, Nokia is banking on its competitive edge in emerging markets such as China, where second-quarter sales soared 58% year-over-year. And to ship more units in mature markets, Nokia is relying heavily on its new whiz-bang N-series phones and other multimedia gizmos to buoy its fortunes.

N-series sales rose almost 60% in the quarter, to 3 million units, helping feed 141% profit growth for Nokia's Multimedia division. That group, which specializes in camera and music phones, now contributes nearly 20% of Nokia's top line, up from 17% a year ago.

Things are also starting to look up for Nokia's money-losing Enterprise division, which sells corporate networking equipment and handsets decked out with e-mail and other features for mobile workers. Sales at the division rose 43% year-over-year, to €283 million, and Nokia cut losses to €63 million. The unit has started selling its E-series business phones in Europe and Asia, but U.S. deliveries are still lagging.

Nokia met the street's expectations, and its U.S.-traded ADRs rose 2% in afternoon trading on July 20. But the company could have done better—and analysts seemed lukewarm on its showing and outlook. Still, the company has defied doubters again and again, and it keeps pumping out new products at the high and low end that run rings around rivals. Investors may be feeling unsettled, but, says Strategy Analytics' Mawston, "Nokia won't be standing still." (see, 7/20/06, "Q&A With Nokia's CFO")

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