April 16, 2009 / 10:20 AM / 9 years ago

Nokia shares rally after calming forecast

HELSINKI (Reuters) - The world’s top cell phone maker Nokia calmed jittery investors on Thursday when it said it saw signs of stabilizing demand in the tumbling handset market.

A Nokia N97 is demonstrated at the Nokia Capital Markets Day in New York, December 4, 2008. REUTERS/Brendan McDermid

“Although the trajectory of end-demand remains unclear, we believe the market is no longer falling in an uncontrolled manner,” Nokia Chief Executive Olli-Pekka Kallasvuo said.

“I am encouraged by the signs of stabilization we saw at the end of the first quarter,” he told investors after the company reported a 27-percent fall in January-March sales and its first-ever quarterly loss of 12 million euros ($15.8 million) before tax.

The cell phone market is facing its toughest year as consumers rein in spending, and Nokia repeated its forecast for market volumes to fall around 10 percent in 2009.

Nokia shares rose more than 13 percent on the report — helping to lift stock markets in Europe and United States — as investors were cheered by the firm holding steady on its outlook after a grim quarter marked by mostly negative news.

“Nevertheless, it is too early to conclude that the end-user demand has touched bottom,” Kallasvuo added. “The global economy as a whole remains weak, and we are planning our business accordingly.”

Kallasvuo said the demand outlook was more predictable entering the second quarter as the amount of unsold cell phones in stores and warehouses had decreased substantially in the first quarter and stocks were now cleared in most markets.

To cope with slowing demand Nokia has focused on cost cuts in early 2009, slashing some 3,000 jobs across operations, while also halting the use of subcontractors in phone manufacturing.

Shares in Nokia closed 9.4 percent higher at 11.08 euros on the Helsinki bourse, lifting the European technology shares index 3 percent.

Shares in Nokia’s chip makers also rose, with Infineon up 8.4 percent, STMicro 5.4 percent, and Terxas Instruments 3.2 percent higher.

HOLDING STEADY

The margin at the handset unit roughly halved to 10.4 percent in the quarter, but beat analysts’ average forecast of 8.6 percent.

“I think the key number is the handset margin which is above 10 percent, and that’s better than expected,” said analyst James Dawson from Morgan Stanley.

Nokia repeated that the underlying operating margin at its key phones unit would top 10 percent in the first half of the year, and be in the range of 13-19 percent for the second half.

Analysts said Nokia should be able to hold on to a margin above 10 percent in the second quarter, helped by the success of its first touch screen phone, the Nokia 5800.

“It is ramping well, there is very little low-end smartphone competition this quarter, and price cuts should arrive by May,” said analyst Tero Kuittinen from GC Capital.

The focus in the phone market this year has shifted increasingly to smartphones, as operators move subsidies to support consumers buying the feature-packed devices, which can generate more data revenue.

Sales of smartphones such as the Blackberry are expected to rise some 10-20 percent, compared with a fall of 10 percent or more in the overall market.

Nokia said it expects the market fall to slow in the second half of the year.

“Although it’s another poor performance we maintain our belief that Nokia is in a stronger relative position than its competitors with greater margins and the significant advantage of scale and distribution,” said CCS Insight analyst Geoff Blaber.

Sony Ericsson has said it will report a massive first quarter loss on Friday, with smaller rival Motorola also struggling.

Nokia cut its network infrastructure market outlook, saying it expected a contraction of some 10 percent in euro terms in 2009 versus a previous call for a fall of 5 percent or more.

Additional reporting by Brett Young, Georgina Prodhan, Niklas Pollard, Johan Ahlander and Johannes Hellstrom; Editing by David Cowell

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