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Nokia sees slower growth
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January 30, 2001: 1:42 p.m. ET
World's biggest mobile phone maker sees drop in unit sales in first quarter
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LONDON (CNNfn) - Finland's Nokia said Tuesday its fourth-quarter profit soared 41 percent, but the world's leading supplier of mobile phones warned that growth will slow in the first three months of 2001.
Nokia lowered its sales growth forecast to 25-to-30 percent for the first quarter from 30-to-35 percent previously envisioned, and cut its forecast for industrywide sales to 500 million-to-550 million phones for the full year from 550 million.
"This is just a slight blip," Matthew Lewis, an analyst at Daiwa SBCM Europe, told CNNfn.com. "The markets focused on uncertainties in the world economic environment and a possible slowdown in mobile phone sales."
 The Helsinki, Finland-based company said net profit rose to  1.2 billion, or 0.25 euros a share, from 853 million, or 0.18 euros a share. The figures were in line with expectations, but the forecast weighed on Nokia's (NOK: Research, Estimates) stock, which fell 2.7 percent to $34.26 in afternoon trade on the New York Stock Exchange.
Investors dumped Nokia's stock on Jan. 9 after the company said it sold more than 128 million mobile phones last year. While that's up 64 percent from 1999, it's short of the 140 million units some analysts had expected. The shares fell 11.5 percent that day in New York and are down about 15 percent for the year.
After racking up $1.1 billion in losses and losing market share to Siemens, the No. 4 handset maker, as well as Nokia, cross-border rival Ericsson last week said it would farm out 100 percent production of its wireless handsets to contract manufacturers, the bulk of which is being awarded to Flextronics International (FLEX: Research, Estimates).
 In a teleconference with analysts Tuesday, Nokia Chief Executive Jorma Ollila said the company was considering outsourcing as much as 20 percent of its wireless handset production this year, compared with 10 percent last year.
"Nokia will go on conquering the mobile phone market at the expense of its rivals," said Lewis, who is telling clients to buy Nokia's stock. "Nokia has reiterated (its) forecast for the next three years, which makes a refreshing change for companies in this sector."
Analysts have been concerned Nokia's profit margins at its mobile phone unit could deteriorate as service providers pressure phone makers to cut prices to attract more customers. The company's operating margin fell to 21.3 percent in the fourth quarter from 24.9 percent a year earlier while operating profit at the unit climbed to 1.43 billion from 1.06 billion a year earlier.
"This reflects somewhat slower-than-anticipated market growth during the first quarter and the company's strategy of aggressively gaining market share especially in mobile phones," Nokia said.
 Nokia expects operating margins for its mobile phone business to fall to 20 percent by the fourth quarter of 2001.
For the first half of 2001, Nokia reiterated it sees sales growing 25-to-35 percent, with similar growth in coming years.
Per Lindberg, an analyst with Dresdner Kleinwort Wasserstein in London, told CNNfn he doesn't believe there will be an improvement in the second half as Nokia has suggested. "This is a price war -- a price war which Nokia started – and as the largest player it's not going to thrive in this," Lindberg said.
Lindberg, who has a "sell" rating on Nokia, expects the company's profit margins to collapse to around 10 percent.
Daiwa's Lewis believes the Finnish company, the biggest on the Helsinki stock exchange, is a victim of its own success. As the industry leader, with more than a third of global sales, it is closely scrutinized for the slightest bit of bad news, he said. Nokia's mobile phone business represents 70 percent of sales.
Nokia's operating profit from its network business, which provides base stations for service providers, rose to 388 million from 334 million. 
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