Another handset manufacturer saw its company stock drop then slowly rise again following the release of a quarterly report with stagnant earnings.
It’s the continuation of a process that began last year when the drop in handset prices began to noticeably affect percentage growth. Manufacturers have introduced new products in the hope of regaining the 50 percent margins of previous years, but expect some pressure to continue to plague financial reports this year.
The Nokia Group reported a 62 percent decrease in operating profit in an interim first-quarter report, and attributed that problem to Nokia Mobile Phones. Net sales for Nokia Mobile were up 10 percent compared to the first quarter 1995.
Nokia said it had warned investors that profits would be lower during this year’s first half; nevertheless, Nokia’s A stock fell 6 percent before beginning to recover.
Margins of the Helsinki, Finland-based company were particularly affected by three things. First, Nokia Mobile discounted the price of older-model phones to move them out of inventory. Also, margins were affected by the use of higher-priced components bought prior to the first quarter, the company said.
Thirdly, phone demand for Nokia was weak in Europe in the beginning of the first quarter, improving near the end of the period. The U.S. market is expected to remain weak for Nokia until 1997, when U.S. operators will have launched digital service, the company said.
“As anticipated, the U.S. market continued to lag behind other regions of the world as a result of the delayed establishment of digital cellular services,” said Jorma Ollila, Nokia president and chief executive officer. Nokia phone sales in the Asia-Pacific region remain strong.
Nokia recently discontinued its television business and closed TV manufacturing plants in Germany, but the transaction was reported as a discontinued operation in 1995.
To help Nokia Mobile recover, the company has introduced several new handsets this year to attract first-time users as well as mature users. The infrastructure division, Nokia Telecommunications, recorded a 39 percent increase in net sales for the first quarter.
The General Systems Sector of Motorola Inc. also reported lower operating profits for this year’s first quarter. However, cellular subscriber orders were higher than first quarter 1995 due to Pan American and Chinese agreements. Cellular infrastructure orders also were higher than the same time last year, with the highest growth coming from transactions in Japan, China and Europe.
Still, low handset prices (as well as weakening demand in the semiconductor market, for Motorola) can be expected to continue to put pressure on financial performance, said Gary Tooker, Motorola vice chairman and chief executive officer.
“They [factors] could cause difficult earnings comparisons with the prior year in the quarters ahead,” Tooker said.
Nokia’s rival, L.M. Ericsson of Sweden, reported a 28 percent increase in profits for the first quarter, and a 25 percent increase in sales. The company said it now has 31 percent of the North American market share and 28 percent of Asia.
