The world's top mobile phone maker Nokia shocked investors with a weak third-quarter profit forecast on Thursday after fierce price competition hit its second quarter, sending its shares spiralling. The Finnish firm also disappointed the market with second-quarter earnings per share of 0.18 euro, up from 0.15 euro a year ago, but below the average estimate of 0.19 euro in a Reuters poll of 30 analysts.
EPS was boosted by one euro cent of non-recurring items. Shares in the company had fallen 10.4 percent to 13.17 euros by 1247 GMT. They are still up about 12 percent, however, since the firm showed in April that growth was returning after a stagnant 2004. The DJ Stoxx technology index is up 18.5 percent over that period.
Nokia predicted its third-quarter earnings per share would be between 0.14 and 0.17 euro versus 0.15 a year ago, well below the 0.20 euro analysts had said they would be expecting. The company predicted third-quarter sales between 7.9 billion and 8.2 billion euros, up from 7.1 billion a year ago, compared with the analysts' forecast of 8.16 billion euros.
"The second quarter was slightly below (the market) forecast, and the guidance was well below, which suggests that their margins are going to be a lot lower than people expected," said Akber Khan of Deutsche Bank.
While mobile phone shipments jumped 34 percent to 60.8 million units, clearly more than expected, the average selling price (ASP) dropped to 105 euros from 110 in the first quarter.
This was due to price competition with rivals like LG Electronics and Samsung Electronics and a growing proportion of cheap handsets sold in emerging markets. Second-quarter sales therefore rose only 25 percent to 8.1 billion euros ($9.78 billion).
Chief Executive Jorma Ollila said its phones will continue to become cheaper on average in the remainder of the year, because Nokia was committed to emerging markets like China and Brazil, where most of the future sales growth will take place.
Of the world's top six handset vendors, only number two Motorola managed to grow unit sales faster, by 41 percent, as Nokia chased to grab back market share after losing ground last year.
"The market share is crucial, crucial, crucial," CEO Ollila told CNBC television. "You get the scale, you get the leverage from your volumes. We will have the best margins (in the sector) also in the future, but they might be under a little bit of pressure," he added.
Nokia's operating margin slipped to 12.5 percent in April-June from 13.7 percent a year ago.
Nokia's eroding margins, close to 20 percent a few years ago, underlines the increased competitiveness of the global mobile phone market. Nokia has been unable to grow profits over recent years, even when the total mobile phone market and Nokia's shipments have roughly doubled in just four years.
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