Nokia Boosts Q1 Net Sales by 29% Y/Y on Strong Handset Demand in Asia, U.S.

The world's top mobile handset vendor reported a 29% y/y jump in first-quarter net sales to 9.51 billion euro, from 7.40 billion euro in the same period last year, on strong performances at its mobile phone and multimedia divisions. It posted a record 21% y/y rise in first-quarter net profit to 1.05 billion euro, or 0.25 euro per share, from 863 million euro or 0.19 euro per share in the first quarter of 2005. The group's operating profit margin fell to 14.4% in first quarter this year from 15.1% a year earlier, as increased sales of lower-end mobile handsets in high-growth emerging markets have put pressure on margins that has not necessarily been offset by lower costs. The average price per unit has fallen by more than 20% in the last two years. However, Nokia's average selling price (ASP) increased to a higher-than-expected 103 euro in the first quarter, up from 99 euro in the preceding quarter. 

Nokia's consumer mobile-device units, Mobile Phones and Multimedia, reported bumper growth owing to strong first-quarter sales in Asia and North America, as well as improvements in Nokia's portfolio of multimedia handsets. Mobile Phones posted a 30% y/y growth in like-for-like net sales to 5.87 billion euro in the first quarter of this year, from 4.53 billion euro in the previous year, with a 22% y/y increase in operating profit to 1.09 billion euro. Multimedia saw its first- quarter net sales rocket by 55% y/y to 1.76 billion euro, from 1.13 billion euro respectively, while operating profit more than doubled to 323 million euro. Nokia's smaller Enterprise Solutions unit, which provides mobile handsets for business users with access to company data, underperformed with a 39% y/y fall in net sales to 186 million euro in the first quarter , from 307 million euro in the same period of 2005. Operating losses deepened to 66 million euro, from 9 million euro respectively. Nokia's Networks division reported a 19% y/y rise in net sales to 1.70 billion euro, from 1.43 billion euro respectively, with a 33% y/y fall in operating profit to 149 million euro at the end of the first quarter of 2006.

Nokia sold 75.1 million mobile handset units in the first three months of this year, a 40% y/y increase in its global shipments. The surge lifted its global market share by three percentage points to 35%. This compares to 46.1 million units shipped in the first quarter of 2006 by its arch-rival, U.S.-based Motorola; however, the latter showed stronger like-for-like growth of 61% in the first quarter. Earlier this week, Motorola announced that it had widened its lead over the world's number-three handset maker Samsung Electronics, with its market- share gains up 4.8 percentage points since the first quarter of 2005 to an estimated 21% (see World: 19 April 2006:Motorola Q1 Phone Sales Up 61%, Network Sales Down 14%). Nokia experienced strong demand for its lower-end handsets in Asian markets, especially China and India, as well as robust growth in North America, where unit volumes were up by 95% y/y to 8.4 million in first quarter from 4.3 million a year earlier.

On the back of the strong first- quarter financial results, Nokia's stock jumped to its highest value in more than two years. On the New York Stock Exchange (NYSE), Nokia's American depositary shares gained US$1.07, or 4.9%, closing at US$22.81 in yesterday's (20 April) afternoon trade.

Outlook and Implications

Year of Growth: The global mobile handset market is set for another year of robust growth, with the market volume expected to increase by more than 15%, according to Nokia's estimates. Nokia expects to derive approximately 70% of its growth this year from the fast-paced emerging markets. This may put pressure on Nokia's ASP, as the company will have to remain more competitive in terms of lower- priced entry- level products. A decline in ASPs reflects the increasing impact of emerging markets and competitive factors in general. Nokia anticipates higher marketing expenses in the second quarter, compared with the first quarter, as some marketing campaigns have been delayed. Nokia will promote new mobile handsets in the high-end N-series range in particular. 

Aggressive Asian Mobile Handset Vendors: Undefeated champion Nokia has left a big gap in relation to its aggressive Asian rivals. Earlier this year, South Korean handset maker Samsung announced that it was planning to expand its position in Europe and become the clear number-two player there. Samsung is the world's number-three handset vendor, and in Europe is just slightly ahead of number-two player Motorola. The Samsung D600 model was a top-two seller in Europe in 2005. Samsung expects that the new D970 model - which works on 2G networks, is 13 mm thin and features a 3-megapixel digital camera - will drive its sales in 2006. The handset maker generates some 70% of its business from GSM handsets, with Europe being the main market for GSM. Samsung expects to increase unit sales by 20% this year, to between 115 million and 120 million (see Europe Regional: 10 March 2006: Samsung Aims to Become Europe's Clear Number-Two Handset Vendor in 2006 and Global: 6 October 2005: BenQ Eyes High-End Handset Gains). Its South Korean peer Pantech - currently the world's seventh-largest mobile phone manufacturer in terms of units - is aiming to become the world's number-five handset maker by 2008. To achieve its target, the company estimates it needs to sell 50 million handsets in 2008. The move signals a more aggressive strategy from Pantech, which is likely to challenge number-five and -six global vendors BenQ-Siemens and LG Electronics on price, especially in the high-end segment (see World: 13 March 2006: Pantech Aims for Number-Five Handset Vendor Slot by 2008).