UPDATE: Nokia Shares -11% After Warning on 3Q Market Share
STOCKHOLM -(Dow Jones)- Shares in Nokia tumbled Friday after the world's biggest handset maker downgraded its third-quarter market-share outlook, attributing the revision to the weaker global economy and its tactical decision to stay out of a handset price war.
The warning is the latest sign of the double impact of spreading economic gloom and fierce price competition between mobile companies.
Nokia rival Sony Ericsson, a joint venture between Japan's Sony and Sweden's Ericsson, barely broke even in the second quarter as average selling prices fell sharply. It has issued two profit warnings this year.
Europe's largest mobile operator, Vodafone Group spooked the market in July with poor first-quarter results and a wavering full-year outlook that sent it shares sharply lower. At the time, Vodafone cited difficult trading conditions in important markets including Spain and Turkey, and rising costs.
Nokia said Friday it expects its third-quarter market share to be lower than it flagged in July, when it forecast it to be at the same level as in the second quarter, at 40%. It still targets an increase in its full-year 2008 market share, however.
At 1443 GMT, Nokia shares traded down 11% at EUR13.98, a near three-year low. At the same time, the OMXN40 index was down 3.9%.
Shares in wireless chip companies also fell sharply. U.K.-based CSR tumbled over 18% before recovering slightly, while Franco-Italian STMicroelectronics initially fell 5.5%.
Nokia said the overall mobile phone market this year is being hit by weaker consumer confidence in several markets. It attributed its lower forecast to its decision to refrain from the aggressive pricing of some rivals and the temporary impact of a slower ramp-up of its mid-range devices.
Still, Nokia expects the total device volume to grow by 10% or more this year, boosted by sales in emerging markets.
"Certain price action by those who don't have certain core advantages might not be as long lasting as they might think," said Nokia's Chief Financial Officer Rick Simonson in a conference call Friday, referring to cost cutting by rivals.
Research firm Gartner said late last month that it expects 11% unit growth in handset sales in 2008, but with revenue growth at just 9% as competition and the economic slowdown weigh on average selling prices.
To be sure, Nokia's revision was surprising, said Glitnir analyst Michael Schroeder.
"However, Nokia keeping its full-year expectation of increasing market share is helping to offset the negative news," he said. Schroeder has a buy rating on the share, and a EUR23 target price.
"To some extent this is almost reassuring," said Gartner Inc. research director for mobile devices, Carolina Milanesi, and shows it took longer for Nokia to feel the impact of the weakening economy than its rivals.
Milanesi said both South Korea's Samsung Electronics and Sony Ericsson made price cuts in Asia during the past month, and Samsung is also aggressivly going after the European market.
Samsung's cellphone division had an operating profit margin of 12.8% in the second quarter, up from 7.8% a year prior but below the first-quarter's 15.5%. Samsung executives said the company boosted marketing expenses sharply in the period.
Nokia, meanwhile, said Friday it expects product launches and the start of new product shipments to be on track during the rest of the third quarter and in the fourth quarter.
-By Adam Ewing, Dow Jones Newswires; +46 8 545 130 95; adam.ewing@dowjones.com
(Ian Edmondson contributed to this report.)
(END) Dow Jones Newswires
Posted to the site on 5th September 2008
