Nokia Q1 sales seen rising, profits dipping

A couple of articles on Nokia's Q1 performance this morning. Reuters.com reports that "strong demand for cheap phones in emerging markets is expected to power January-March sales growth at the world's top handset maker Nokia, but lower prices will weigh on profits." Nokia also announced that "its average selling price (ASP) in the quarter was 103 euros ($124.8), up from its own forecast of at best 99 euros, but down from 110 euros a year earlier. The ASP for the fourth quarter was 99 euros."

Richard Windsor at Nomura Securities said, "If Nokia has problems, it has always been in the first quarter, and then it recovers towards the end of the year. If the first quarter is good, it's a good omen for the rest of the year."

At the end of March, "Nokia raised its global market growth forecast for this year to 15 percent or more, compared with the 795 million units sold by handset makers in 2005."

FIM Securities analyst Jussi Hyoty said, "What we are looking for especially in the first quarter is sales growth ... Growth is rewarded very nicely in the environment of low interest rates. It gives room for multiple expansion valuation."

One problem of note for Nokia is its enterprise unit, "which is expected to fall deeper into the red, with analysts predicting an operating loss of 69 million euros on turnover of 194 million, compared with a loss of 9 million euros a year ago."

The company is late delivering its new line-up of E-series handsets to the market. Windsor remarked, "Nokia's problems are largely based on the enterprise business. I haven't got an indication that it has recovered."

In a BusinessWeek article, Piper Jaffray analyst T. Michael Walkley wrote in a client note that "We expect the improving product portfolio could have a positive impact on margins throughout the course of 2006." The company's "mix of low-end phones was lower than expected due to better sales of mid-end products and some aggressive pricing by competitors in some emerging markets that Nokia decided not to match."

Prudential analyst Inder M. Singh wrote in a separate client note that "We believe that Nokia's ASPs (average selling prices) may come under pressure in the latter part of the year as emerging markets start contributing greater percentage of Nokia's handset sales." Singh added that "this will likely be mitigated by a recently announced Sanyo/Nokia joint venture, through which Nokia will offload a business to the venture."