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Finnish mobile-phone king Nokia has strengthened its dominance in the wireless industry with an Oct. 19 announcement of powerful third-quarter results. Just days after sad-sack cell-phone reports from Motorola and Philips, Nokia's gains clear things up for the market: The wireless industry isn't ailing -- the also-rans are simply taking a beating at the hands of the leader.
Nokia registered 50% year-over-year sales growth, soaring to $6.4 billion, and its pretax profit of $1.1 billion topped analysts expectations by nearly 30%. In a conference call, Nokia Chairman Jorma Ollila predicted record fourth-quarter results, with margins on the rise. "We intend to continue to dominate in this space," he said. In European trading, Nokia shares jumped 20%, halting a slide in tech stocks.
DELAYS AND JITTERS. An exuberant Ollila announced that during the third quarter, Nokia had gained market share in the vital handset business. This came despite a delay in several models, one which led Nokia stock to shed 25% of its value in July. What's more, jitters in global tech markets continued to punish Nokia shares, dropping it to below $30 on Oct. 18 -- less than half of its March high. Fueling investors' fears were the disappointing results from Motorola and Philips.
Responding to these concerns, Nokia moved up its earnings announcement by a week. Now it's clear that in part by cutting prices, Nokia succeeded in boosting market share, driving it nearly to 40%. And when the company released the delayed models, in September, they promptly flew off the shelves: 2 million in the month alone. That helped rocket the company past growth and earnings targets. And the increased market share should pay off even more next year, Nokia predicts, as the industry grows from an estimated 400 million cell phones this year to 550 million in 2001.
Still, Ollila admitted that Nokia, like the rest of the mobile industry, is sailing into uncharted waters. Over the next two years, it must move its phone-company customers, as well as the public, into a brand-new technology: broadband wireless data, known as the Third Generation (3G). This entails spending hundreds of billions of dollars -- on new base stations, phones, and wireless licenses -- and all of it for a technology that has yet to prove itself as a viable business. "There's obviously a technology risk," Ollila said. "That's for sure. It's the same as any other major technology step. And here we have one that has not been commercialized."
FINANCING DEALS. One concern is that Nokia and other equipment manufacturers will be forced to finance the massive networks for their customers. Ollila acknowledged that Nokia would finance deals. But he predicted that the Finnish company would be less aggressive than its competitors, which include Sweden's Ericsson, Germany's Siemens, and North America's Lucent and Nortel.
Ollila predicted that most of the 3G licenses in Europe would be announced in the next six months and most of the rollouts would be in 2002. He said he expects a small number of companies to win most of the contracts. No wonder he's so happy.
By Stephen Baker in Paris Edited by Douglas Harbrecht
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Copyright 2000, Bloomberg L.P.
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