Nokia Corp. appeared to be the only mobilephone manufacturer to emerge unscathed from a tumultuous their quarter that saw Motorola Inc. and Ericsson Inc. stumble and their stock prices fall after global handset sales shifted and slowed.
Nokia moved its earnings release up a week and reported last Thursday healthy net sales for the third quarter ended Sept. 30 of $6.4 billion, an approximate 50-percent increase from the $4.2 billion in sales it reported for third-quarter 1999. Nokia had net earnings of $748.4 million, or 16 cents per share, compared with earning of $535.3 million, or 12 cents per share, for the same period last year. Shares of Nokia were up 56 cents, trading at $38.68 at RCR Wireless News press time.
L.M. Ericsson reported similar sales, with $6.7 billion for the quarter, compared with $3.6 billion in sales for third-quarter 1999, also about a 50-percent increase. Ericsson’s earnings lagged far behind however, at $434.2 million, or 5 cents per share, compared with $259.8 million, or 3 cents per share, reported for the same period last year. Upon release of the earnings, the share price of Ericsson dropped 15.2 percent to $11.88, but recovered a bit at RCR when Ericsson shares were trading at $12.38.
“We believe we gained market share both in new infrastructure technologies and especially handsets,” said Jorma Ollila, chairman and chief executive officer of Nokia. “Our view of the market development fundamentals remains unchanged, with more than 400 million mobile phones estimated to be sold in 2000, leading to an estimated 1 billion users in total during 2002.”
Nokia’s ability to manage component shortages and introduce aesthetically pleasing and affordable handsets catapulted it to its leading position in the mobile-phone market.
“Unlike many of its competitors, Nokia has been able to combine growth with high profitability,” said Marc Cabi, managing director of equity research with Credit Suisse First Boston.
Cabi said if Nokia continues to execute, investors will be rewarded with its stock price returning to the $60 level during the next 12 months.
The same could not be said for Ericsson, which did fairly well in all its divisions except the Consumer Products unit, which manufactures the mobile phones. One analyst noted, “Nokia is succeeding fabulously and Ericsson is in the throes of death in that business.”
Consumer Products reported an expected operating loss of $407.5 million for the quarter, largely driven by component shortages caused by a major supplier, Ericsson said. This expected loss moved Ericsson in July to announce it was instigating a “Back to Profit” program. The program is expected to reduce the cost base by almost $994 million per year by 2002. Analysts had been forecasting full-year losses from the handset unit of $745 million to $895 million.
“That (handsets) is something our customers expect from us and we are going to get out of our problems, but there are no easy solutions,” said Kurt Hellstrom, president of Ericsson.
Part of that solution involves retraining 7,100 of its workers in the struggling handset division for jobs in its healthy network systems business, Ericsson said. The company also plans to transfer the production of mobile phones from Sweden and the United States to Asia, Eastern Europe and Latin America.
The Swedish company further moved to remedy its handset problems by canceling the launch of its Bluetooth-enabled T36 World Phone, according to Reuters. The company instead will focus more on the Bluetooth-enabled R520 phone, which does not have the multimodal capabilities of the World Phone.
Analysts with UBS Warburg L.L.C. said the near-term outlook for Ericsson’s stock remains negative, and will remain so until the “Back to Profit” program gains traction, although there is apprehension.
“Mobile systems growth probably can no longer offset the poor performance of the mobile-phone business,” the firm said. “Frankly, we do not believe the current outsourcing plan will work long-term given the changing nature of the mobile-phone industry with respect to shorter product cycles and further market segmentation.”
Ericsson said it is banking on the increased rollout of third-generation networks by carriers in Europe and Japan in the next few years to boost its revenues as well.
Two weeks ago, Motorola’s stock tumbled nearly 18 percent after the company lowered its fourth-quarter and 2001 earnings estimates despite positive third-quarter results. Motorola’s handset manufacturing unit also is struggling with the unstable and fickle consumer market.
