Nokia: Sales at low end or below guidance

One day after rival Motorola lowered its earnings and revenue projections, Nokia, the world's largest mobile phone maker, said it expects second-quarter growth from its mobile phone business to be at the low end of its earlier guidance or even below it.

"We expect sales growth, but that growth could be below our guidance of 4 percent to 12 percent," Lauri Kivinen, a Nokia spokesman, said Tuesday.

In addition, second-quarter sales of network infrastructure equipment are expected to drop by zero percent to 5 percent year on year, Nokia said in a statement.

The Espoo, Finland, manufacturer has yet to see any signs of recovery in the mobile phone infrastructure market, as operators continue to delay network investments, said Nokia Chief Financial Officer Olli-Pekka Kallasvuo in a conference call.

Nokia said the general economic downturn in Europe and the U.S., currency fluctuations and the severe acute respiratory syndrome (SARS) outbreak, particularly in China, have had a negative impact on sales in the first two months of its second quarter.

Currency fluctuations alone have lowered revenue expectations by 8 percent, Kallasvuo said.

As for SARS, the CFO said "it's difficult to verify" how severely the outbreak has affected sales. The company's efficient inventory system, he said, has been able to cope reasonably well with the situation.

Some analysts question, however, how Nokia can't be feeling some major inventory pain.

"Normal inventory levels in China are between four and six weeks at around 5 million units," said Ben Wood, an analyst at the London office of Gartner. "Now they're 10 to 12 weeks at around 15 million units. So despite what Nokia is saying about their efficient distribution system, it's difficult to believe that they could see SARS coming and could react as quickly as they stated."

That said, Nokia has probably been able to respond to the sales slowdown more quickly than local suppliers that have "never accounted a problem like this before," Wood said.

Nokia accounts for around 17 percent of the Chinese market, according to Wood. Motorola and Nokia combined have an approximate 40 percent market share.

Nokia still expects diluted earnings per share (EPS) to be within the group's guidance range of €0.12 (US$0.14) and €0.15, and estimates that its second quarter market share will higher than the first quarter of 2003, according to the statement.

Thanks to several new products, Nokia is "seeing good performance in the U.S.," Kallasvuo said, adding that handsets based on CDMA (Code Division Multiple Access) technology have contributed to the group's "substantial gains" in the country.

"We have invested much in CDMA in the past two years and expect that investment to pay off," he said.

Separately, Motorola on Monday scaled back its revenue projections for its second quarter and full year fiscal 2003, saying the outbreak of SARS (Severe Acute Respiratory Syndrome) in Asia is having a greater impact on handset sales than anticipated. The company also said it is being affected by local handset makers' excess inventory levels.

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