NEW YORK-Bolstered by their respective strengths in network infrastructure and mobile handsets, the Scandinavian giants, Ericsson Inc. of Sweden and Nokia Corp. of Finland, reported strong quarterly results last week.
Nokia, which released its earnings April 27, reported profits of $822 million, a 76-percent increase from the first quarter of 1999. Earnings per share followed suit, rising to 17 cents, up from 10 cents.
Ericsson, in its announcement April 28, said net income totaled $473 million, more than quadruple the $101 million posted in the year-ago quarter. Earnings per share tripled, to 28 cents, up from 9 cents.
Nokia Mobile Phones, the company’s largest business segment, reported operating profits of $1.07 billion on sales of $4.5 billion. Both operating profits and sales for the handset unit rose by 88 percent compared with the first quarter of 1999.
Ericsson’s Consumer Products group, which is responsible for wireless handsets, posted profits of $51.06 million on net sales of $1.65 billion. Sales increased by 53 percent, while margins increased to 3 percent from zero in the first quarter of 1999.
Ericsson’s Network Operators unit, its largest business sector, reported operating income of $643.4 million on sales of $4.32 billion. Sales rose by 36 percent compared with the first quarter of last year, and margins increased to 15 percent from 7 percent.
Nokia Networks posted operating profits of $252 million on sales of $1.38 billion. Operating profits rose by 21 percent and sales by 36 percent.
“Based on current market conditions and our globally strong position, we are confident we can achieve full-year revenue growth at, or higher than, the earlier stated 30 (percent) to 40 percent range, combined with continued strong profitability,” said Jorma Ollila, chairman and chief executive officer of Nokia in a statement accompanying the release of the results.
Ollila did not participate in Nokia’s conference call, which Ulla James, director of investor relations, and Sari Baldauf, president of Nokia Networks, led.
“The first quarter increased our belief in our clear market leadership in a more competitive (handset) environment, from entry-level to more complex terminals,” said James.
“Price erosion continues to be a factor, although there is a slowdown in the decline in average selling prices.”
James said the addition of new models and “opportunities to renew existing products with new features” offer the potential for Nokia to “maintain operating margins in the area of about 20 percent on phones.”
During Ericsson’s conference call, Kurt Hellstrom, president, and Sten Fornell, chief financial officer, said the company’s production of mobile phones is on schedule and sales are increasing. However, the preponderance of low-margin, entry-level phones in the product mix is dragging down profits, they said.
“We are not considering exiting the handset business. It is a core business, and our operator customers (for network infrastructure) think it is important that we also supply terminals,” Hellstrom said.
“We have a new (mobile phone) management team in place. There are a number of things we can do to improve, emphasizing high-end products and becoming more cost competitive on low and mid-range phones.”
Noting a worldwide shortage of components for mobile phones, Hellstrom nevertheless noted it is a priority for Ericsson “not to slip on the introduction of a number of high-end phone models we will bring to market this year.”
Fornell, the CFO, said the company is undertaking “a review … to improve the balance between volumes and profitability and will be more specific about [projections] next quarter.”
As Ericsson’s conference call was taking place, the company issued a press release saying it would replace its three existing business segments with six as of July 1 “to meet changes in the market, benefit from new growth opportunities (and) … support [our] strategy to focus on mobile Internet.”
Jan Wareby is the new head the Consumer Products division responsible for wireless handsets. The other divisions comprise Mobile Systems, Multi-Service Networks, Data Backbone and Optical Networks, Internet Applications and Solutions, System Services.
“Our strategy focuses on the marriage of mobility and the Internet. [General Packet Radio Service] is the first step. There has been some debate over our leadership and share, but we are a clear leader however you want to measure it,” Hellstrom said.
“Third generation is the next step. Of the four (infrastructure) supply contracts awarded so far worldwide, we are participating in all and a lead supplier in three. One year from now, there will be more than 80 operators with 3G licenses, all needing new networks.”
Perhaps not surprisingly, Baldauf, president of Nokia Networks, begged to differ with Ericsson’s assessment of GPRS market share.
“We have delivered more than 30 GPRS core networks, which we believe is more than anyone else,” she said.
“Messaging is the first step to data, and usage is exploding. We are in the top two [Wireless Application Protocol] infrastructure suppliers, and we aim to be the first company with wideband CDMA delivery.”
Both Hellstrom and Baldauf alluded to the overhead they carry by helping customers with financing to buy their network infrastructure products.
The negative cash flow Ericsson reported this quarter, while down substantially from a year earlier “resulted from $2 billion in loans to buyers, especially in Brazil,” Hellstrom said.
Nokia, like other manufacturers, “is looking to increase its competency in financing and studying new kinds of innovative models to better share responsibility,” Baldauf said.
“We continue with our policy of no equity investments in operators and our goal of transferring our credit to a bank and/or the capital markets.”
