Nokia Forecasts Drop in Third-Quarter Market Share (Update3)

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Nokia Forecasts Drop in Third-Quarter Market Share (Update3)

By Juho Erkheikki
Sept. 5 (Bloomberg) -- Nokia Oyj , the world's biggest maker of mobile phones, forecast a drop inthird-quarter market share after competitors slashed prices and anew handset was delayed.
Nokia fell 14 percent, the most since April 2004, in Helsinki trading . While demand will be hurt by ``weaker consumer confidence inmultiple markets,'' the Espoo, Finland-based company stuck to aforecast of 10 percent industry growth in 2008. Previously, Nokiahad said market share would be about the same as the secondquarter's 40 percent.
Price-cutting by Samsung Electronics Co. and growing sales of Apple Inc.'s iPhone may be hurting Nokia,according to Matthew Hoffman , an analyst at Cowen & Co. in Boston. Nokia didn't say whichcompetitors cut prices or identify the ``mid-range'' handset thatwas delayed.
``It's a shocker,'' Neil Mawston , an associate director at researcher Strategy Analytics Ltd. inMilton Keynes, England, said of today's announcement. ``Everybodyis scrapping for volume in the market, and it looks like that'scaught up with Nokia.''
Nokia fell 1.68 euros, or 11 percent, to 14.02 euros as of 6 p.m. inHelsinki. The shares touched the lowest in almost three years.
The global mobile-phone market probably will rise 10 percent ormore this year from the 1.14 billion units sold last year, Nokiareiterated today in a stock exchange statement. Industry sales inthe third quarter will also increase from the preceding threemonths, the company said.
Earnings, Forecast
In July, Nokia reported earnings and revenue that exceededanalysts' estimates and raised its forecast for industry sales onincreased demand in Russia and India. Chief Executive Officer Olli-Pekka Kallasvuo said at the time that Nokia's market share increased to 40 percentduring the quarter.
``There is an undercutter in the market and Nokia doesn't want tosacrifice its margins,'' said Michael Schroder , an analyst at Glitnir Bank in Helsinki who recommends buying Nokia shares. ``This wasn't expected.''
Mawston said Samsung was probably among the companies cuttingprices on phones most aggressively. A spokeswoman in California forthe Suwon, South Korea-based company couldn't immediately bereached for comment before office hours.
Samsung, the second-biggest mobile-phone maker, had 15.2 percent ofthe market in the second quarter, up from 13.3 percent a yearearlier. LG Electronics Co., fourth in the industry, also increasedits share, while Motorola Inc. and Sony Ericsson Mobile Communications Ltd., the third- andfifth-largest, lost share.
Sony Ericsson's Slump
Sony Ericsson, the mobile-phone venture of Ericsson AB and SonyCorp., said June 27 that declining sales of higher-priced handsetsand delays to new products almost wiped out second- quarterearnings. The company will cut about 2,000 jobs.
New products and handset shipments will be `on track'' for the restof the year, Nokia Chief Financial Officer Richard Simonson said on a conference call. The company plans to reportthird-quarter earnings on Oct. 16.
``Nokia's strategy is to take market share only when the companybelieves it to be sustainably profitable in the longer term,''according to the statement. ``Nokia has not broadly participated inthe recent aggressive pricing activity.'' Competitors' price cutsaren't sustainable, Simonson said.
Operating margin at the company's Devices & Software unit willbe below 20 percent in the third quarter, Simonson said. Thecompany has a target of ``plus or minus'' 20 percent.
Maps, Music
This year, Nokia bought Navteq Corp. for $8.1 billion to add navigation maps for phones. The companyalso has teamed up with record labels to sell portable music, in aneffort to boost revenue and attract customers to its handsets.Nokia plans to introduce touch-screen models this year, and thefirst devices will aim at the ``volume market,'' the company saidin July.
``The company is building up its portfolio, which is a bitold-fashioned,'' Schroder said.
Apple began selling the iPhone 3g model in July. Chief ExecutiveSteve Jobs plans to get the Web-surfing phone into 70 markets bythe end of the year, up from six earlier this year.
Hoffman at Cowen lowered his third-quarter sales estimate for Nokiato 12.7 billion euros from 13.5 billion euros, and reduced hisearnings estimate to 30 cents a share from 38 cents. He rates thestock ``outperform.''
Global mobile-phone sales will rise 11 percent this year, accordingto Gartner Inc. , a Stamford, Connecticut-based market researcher. Growth in theAsia-Pacific region is more than offsetting a decline in westernEurope, the firm said last month. In May, the company predictedgrowth of as much as 15 percent.
To contact the reporter on this story: Juho Erkheikki in Helsinki at jerkheikki@bloomberg.net . Last Updated: September 5, 2008 11:20 EDT