Nokia gains ground in Q2 but charge nips profits

Nokia, the world’s largest cell phone maker, reported a slight increase in sales for the second quarter of the year Thursday, offset by a steep decline in profit due to a restructuring charge in the company’s network division. 

However the Espoo, Finland, company said that it is continuing to gain market share, aided by the shipment of 13 new models in the quarter, and that it had gained ground in both the U.S. market and the global CDMA (Code Division Multiple Access) market, bringing its overall mobile phone market share to 39 percent.

Net sales for the second quarter came in at €7 billion ($8 billion as of June 30, the end of the period being reported), representing a 1 percent increase over net sales of €6.9 billion for the year-ago quarter.

Net profit fell 28 percent to €624 million, compared to profit of €862 million in the second quarter of last year, while diluted earnings per share also fell, landing at €0.13 (15 cents) for the second quarter, compared to €0.18 for the year-ago quarter.

Analysts polled by Thomson First Call predicted earnings of 16 cents a share.

Nokia pinned much of its profit decrease on restructuring charges in the company’s networks division. The company took a €399 million charge during the second quarter.

Furthermore, the company said last month that it expected second-quarter sales growth to come in at the low end of its guidance of 4 percent to 12 percent, citing the economic downturn in North America and Europe, currency fluctuations and the outbreak of SARS (severe acute respiratory syndrome).

During a conference call on the results Thursday, Nokia Chairman and Chief Executive Officer Jorma Ollila said that he expects networking sales to be down 15 percent to 20 percent in 2003.

As the company restructures its network division, it plans to continue to pare down staff, Ollila said, reducing Nokia Networks employees from more than 17,300 to 15,000 by the end of 2003.

Ollila said that Nokia is looking at other opportunities, however, and announced a new Nokia Enterprise Solutions group, which will concentrate on providing mobile phones and business applications to companies.

The company also expects to reap increased business from the growing WCDMA (Wideband Code Division Multiple Access) market, saying that it expects 20 network providers to launch WCDMA this year. Ollila said he expects Nokia to supply to at least half of this market.

Ollila also predicted that the mobile phone market would grow 10 percent for the full year 2003. The company said that it will have introduced a record 35 new model phones in 2003, many with advanced features and capabilities to help supply this demand.

The market for phone replacement in Europe and the Americas continues to be high, Ollila said, and markets like China and India are grabbing entry-level models.

Looking ahead, the company said that it expects strong profit in the third quarter, with earnings per share coming in at between €0.14 and €0.16. However, it said that it expects sales of Nokia mobile phones to be flat or down year-over-year during the third quarter.

Shares of Nokia closed up 1.47 percent on the New York Stock Exchange Wednesday to $17.95 a share.