Phone
Third-quarter net income may have fallen 66 percent to 367 million euros ($546 million) from 1.09 billion euros a year earlier, according to the average estimate of 25 analysts surveyed by Bloomberg. Sales probably slipped 18 percent to 10.03 billion euros, 41 analysts said.
Investors will be looking for “what management says about the fourth quarter,” said David Hallden, chief of research at HQ Bank in Stockholm. “They took down expectations last time and there will be drama on the theme of fourth-quarter competition in the smart-phone space.”
Chief Executive Officer Olli-Pekka Kallasvuo lowered profit guidance last quarter, saying the adjusted operating margin for phones and related services would be flat, not higher, in the second half. Espoo, Finland-based Nokia blamed demand, pricing and component shortages for the revision. It also said its full- year market share would be unchanged from 2008, when it was 39 percent. Profit fell 90 percent in the first quarter and 66 percent in the second.
“They can get away with just restating their guidance as long as there are signs that the margins in the device business are turning up in the fourth quarter,” said Jan Ihrfelt, a Stockholm-based analyst at Swedbank Markets with a “buy” rating on Nokia shares.
Nokia has lost 7.6 percent this year, giving it a market value of 38.5 billion euros. It was trading 4 percent higher to 10.43 euros at 2:03 p.m. in Helsinki. Of the 64 analysts who cover Nokia, 31 rate it a “buy,” 15 recommend selling it and 16 suggest holding the shares, according to Bloomberg data.
iPhone Challenge
Nokia ramped up shipments of its N97 touchscreen phone in the third quarter and announced a Linux-based touchscreen handset, new music phones, and smart phones priced as low as 149 euros. That may not be enough as Apple Inc. continues to cut prices and build software libraries for its two-year-old iPhone line. Apple has sold 30 million iPhones and users have downloaded more than 1.8 billion programs from the Apps store, CEO Steve Jobs said on Sept. 9.
“Theres a lot of concern with respect to the upcoming market share and average selling price of devices,” said Helsinki-based eQ Bank analyst Jari Honko, who has a “reduce” rating on Nokia shares. “Theyre lacking a competitive position with their present portfolio and it would lead to a loss of market share.”
Nokia Siemens
Nokia also started shipping the 5530, a touchscreen music phone that offers most of the features of the best-selling 5800, at a lower price.
“Theyve launched 12 percent more products year-to-date than last year, at the same time as the market is down 13 percent or 14 percent,” Hallden said. He said he expects that research and development expenses will weigh on profits for the next year at least, while helping market share rise back to 40 percent. He rates the shares “buy.”
“Our recent meetings with operators suggested that Nokia Siemens has become the leading price aggressor in the industry as it struggles to preserve critical mass after recent market- share losses,” Goldman Sachs analyst Tim Boddy said in a Sept. 25 note, rating the company “neutral.”
Active Users
Nokia will have shipped about 108 million handsets into its channels in the quarter, according to 28 analysts in a separate survey by Bloomberg News. Thats up from 103.2 million in the second quarter, when resellers were clearing out inventory left over from last years slump, and less than the 117.8 million in the year-earlier period. Global handset sales for the third quarter will be 284 million units, 27 analysts surveyed said.
Nokia forged alliances with Microsoft Corp. and Facebook Inc. to link phones more closely with their software. It also installed an electronic board at its headquarters cafeteria to display the number of “active users” on Nokias services. The board displayed about 57 million such users on Sept. 11. CEO Kallasvuos goal is 300 million users by end-2011.
“The key thing for Nokia is whether well see a real, visible improvement in operating margin,” said Geoff Blaber, an industry analyst with U.K.-based CCS Insight. “We need to see that they are creating value.”
Market Share
The average analyst estimate for Nokias market share was around 38 percent, the same as the company reported in the second quarter and a year ago. The calculation is approximate since global handset sales are also affected by changing inventories at resellers.