Associated Press
07.15.2004

Nokia Corp. reported its profit rose 14 percent in the second quarter but sales fell 5.7 percent and it warned its future profitability remains threatened by increased competition, lower prices and a lack of popular new models. Its shares skidded nearly 16 percent.

The world's biggest mobile handset maker said Thursday it earned 712 million euros ($865 million) in the April-June period, up from 624 million euros a year earlier.

The earnings included a charge of 399 million euros ($494.3 million) for a restructuring charge in the networks business.

Revenue fell to 6.6 billion euros ($8 billion) from 7 billion euros in 2003.

Although the report matched analyst expectations, Nokia shares tumbled 15.7 percent to 9.57 euros ($11.85) in afternoon trading on the Helsinki Exchange.

For the first six months of the year, Nokia reported a profit of 1.5 billion euros ($1.9 billion), down from the 1.6 billion euros in the year-ago period.

Sales fell 5 percent to 13.3 billion euros for the six months, down from 13.8 billion euros a year earlier.

The company warned that its earnings and sales would fall through the rest of the year and forecast third-quarter earnings per share of 8 euro cents to 10 euro cents a share, down from 17 euro cents in the third-quarter of last year.

Third-quarter net sales were estimated at between 6.6 billion euros to 6.8 billion euros ($818 million to $842 million), down from 6.87 billion euros last year.

Chief executive Jorma Ollila said European and U.S. phone markets "remained challenging," but that gains in emerging markets were on the rise, particularly in Russia, China, and Brazil.

Nokia's figures left other cell phone makers down across European stock markets after analysts said its outlook was dreadful and didn't bode well for the sector.

In Paris, STMicroelectronics NV, a chipmaker that is a major Nokia supplier, saw its shares slump 3.8 percent, while Germany's Siemens, the world's fourth biggest cell phone maker, fell 1.4 percent in Frankfurt.

Shares in LM Ericsson, which has a joint venture with Sony in the form of Sony Ericsson, the world's fifth-largest cell phone maker, were down nearly 2 percent on the Swedish stock exchange.

Nokia has been losing market share to other manufacturers throughout the year. In a move to strike back at competitors' mid-range and low-end models, Nokia in June unveiled a new design look in phones - including a selection of clamshell phones - modeled after competitors' styling.

Ollila said sales of the new models exceeded expectations.

"Toward the end of the quarter, our market share started stabilizing in many of the Western European markets," he said.

Ollila said the company is still trying to make its phone selection more appealing to consumers.

"We will continue to focus our resources and actions on offering a broad product portfolio that best matches the usability, design, technology and customization needs of consumers," Ollila said.

He also said recent price cuts to regain market share had boosted sales, but dropped margins.

Nokia forecast that a total of 600 million mobile phones will be sold throughout the world in 2004. Nokia estimated it had sold 45.4 million phones in the second quarter and said it held 31 percent of the market.

The company has said it expects revenue to pick up toward the third and fourth quarters as it introduces more new models.

The Finnish company, whose mobile phone sales account for 80 percent of total revenue, has focused increasingly on the handset market.

Nokia, based in Espoo, just outside the Finnish capital, has sales in 130 countries with 53,000 employees.

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