Nokia's Q2 result expected to be mixed
Nokia Corp. is expected to report mixed results on Thursday, as the world's largest handset maker struggles against tough competition in the high-end smart phone market amid speculation about the future of President and CEO Olli-Pekka Kallasvuo.
OVERVIEW: Both profits and sales grew in the last quarter but the Finnish company's stock took a dive as markets signaled disappointment in performance and outlook. That plunge has continued, aided by a profit warning in June and Kallasvuo's acknowledgment that Nokia faces "tough competition ... and has plenty of work to do" to keep up with the competition, particularly from Apple Inc., and Research in Motion Ltd.
In its worst market, North America, sales have plummeted, by 27 percent in the last quarter, against stiff competition from RIM's Blackberry, Apple's iPhone and Google's Android.
Markets will be looking for signs on how Nokia plans to fix the problem, which Kallasvuo singled out as a top priority when he took over the reins in 2006.
"These problems have been bubbling in the background for the best part of a decade but they have accelerated under his watch so I think it's time for a change at the top," said Neil Mawston from Strategy Analytics. "If he can't fix the problem then someone else has to come along who can."
Nokia has declined comment on Kallasvuo's future.
BY THE NUMBERS: Twenty-three of 28 analysts surveyed by Zacks Equity Research lowered their earnings estimates for Nokia, forecasting a 30 percent drop from a year earlier. "We believe this negative outlook clearly reflects Nokia's inability to properly penetrate the high margin, lucrative smart phone market."
WHAT'S AHEAD: Nokia has been the top handset maker since 1998 and it continues its grip on the global market. It sold 432 million devices last year — more than its three closest rivals combined. In the first quarter, handset sales grew to 108 million — up 16 percent on 2009 and smart phone sales surged 57 percent to 21.5 million units. Its market share inched up to 33 percent from 32 percent a year earlier.
Its networks operations — Nokia Siemens Networks — have continued to perform poorly, although a $1.2 billion deal to buy some of Motorola's network operations announced Monday likely will improve performance and increase its presence in global markets, including in the U.S., Japan and China.
The Espoo-based company has been wary of giving precise forecasts of its own performance saying only that it expects flat growth this year while predicting the global industry to grow by some 10 percent.
ANALYST TAKE: London-based Strategy Analytics predicts that operating margins will fall in the quarter, to 9 percent from 12 percent in the previous quarter, but that handset sales volumes will grow to 112 million — up from 103 million a year earlier and 108 million in the previous quarter.
"Volume should be up but value will be down. Nokia seems to be coming under huge pressure from Asian vendors in the low-end and American vendors in the high-end," Mawston said. "To maintain their volume share they are having to cut prices and that's affecting their profits."
STOCK PERFORMANCE: Nokia's share price has fallen more than 20 percent since the beginning of the year, falling to as low as €6.58 at the end of June.
Buoyed by rumors of a CEO change, Nokia stock on Wednesday jumped almost 4 percent to €7.02 ($9.10) in early afternoon trading on the Helsinki Stock Exchange.
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