Nokia's warning call

Nokia mobile phones dominate the world market

In this story: From paper to mobiles Industry hype RELATED STORIES, SITES

By Paul Sussman, CNN.com Europe writer

LONDON, England (CNN) -- Most companies predicting a 25 to 30 percent sales growth would be leaping for joy and shouting the news from the rooftops.

When the company is Nokia, however, the world's leading mobile phone manufacturer, such a forecast is a cause more for concern than jubilation.

On Tuesday, Nokia announced that its fourth-quarter pre-tax profits for 2000 had gone up by 39 percent, to $1.62 billion (1.77 billion euros).

CNN.com Europe More news from our Europe edition

At the same time, however, it admitted that its earnings per share for the first quarter of 2001 would remain at the same level as the previous year, and that it was revising its growth estimate for the same period to 25 to 30 percent (it had previously been 30 to 35 percent).

"In any other industry that sort of growth expectation would get massive applause," says Simon Fluendy of Britain's Financial Mail on Sunday. "With Nokia, however, we've got used to seeing such huge growth figures that it doesn't really impress."

ALSO Saturation for mobile market?

Nokia has also downgraded its forecast for industry-wide mobile phone sales in 2001, from 550 million to 500 million-550 million.

Taken with its sales growth and share-earnings forecasts, such figures could potentially spell trouble not merely for Nokia, but the mobile phone industry as a whole.

"Nokia is the barometer for the whole telecommunications industry," says Fluendy. "If there is nervousness there, then alarm bells start ringing throughout the business."

Helsinki, Finland-based Nokia has, for several years now, been the dominant force in the mobile phone world.

From being a little-known tyre-making and paper-pulping conglomerate, it has, in the last 15 years, transformed itself into a telecommunications giant, employing 60,000 people worldwide and controlling 30 percent of the world mobile phone market.

In 1999 it was listed as Europe's most valuable company, while in 2000 its net sales grew by 54 percent (to 3.38 billion euros, or $3.1 billion) and its operating profit by 48 percent (to 5.77 billion euros or $5.31 billion).

With the release of today's figures, however, speculation is growing that Nokia's bubble might be about to burst. Its shares have already lost 8 percent of their value on the back of the announcement.

"Basically it looks like growth is going to slow down and flatten out," says Fluendy. "And that could potentially be serious for Nokia."

Philip Townsend, a telecommunications analyst with bankers Arnhold and S. Bleichroeder, takes an even bleaker view.

"I can guarantee that their sales growth estimates will be pared back even further during the course of the year," he says. "It's a contrary view, but its based on independent research rather than simply relying on industry hype."

Townsend forecasts that worldwide mobile phone sales for 2001, rather than the 500 million-550 million estimated by Nokia, will be closer to 430 million.

"You're going to have a slowdown in handset demand at the same time as increased competition from the Japanese and the Koreans," he predicts, "which will spell disaster for Nokia."

Problems for Nokia would affect not merely the industry as a whole, but also the Finnish economy, of which the company is an integral part.

Its sales make up 4 percent of Finland's gross domestic product (GDP), while it contributes 70 percent of the value of Helsinki's stock exchange.

Of the country's top 50 income earners, all are past or present Nokia executives.

"If Nokia's market valuation goes down, then it will have a big effect on the whole financial market in Finland," says Antti Kasvio, research director at the University of Tampere.

"It will also impact on public-sector tax income, since Nokia and its employees are important taxpayers."

Ollila: Upbeat forecast

Nokia's chief executive, Jorma Ollila, has played down suggestions that the company is running into trouble.

In an interview with CNN, he blamed the reduced sales growth forecast on the downturn in the U.S. economy and pointed out that it was not the first time that Nokia had adjusted its expectations.

"I don't think we're struggling," he said. "We have been increasing our market share now for two years running, and our product portfolio, brand strength and the way we see ourselves positioned in the market vis-a-vis our competition gives us a lot of confidence that we will continue to take market share for the third year running."

Nor is anyone predicting the company's imminent collapse.

"It's way too early to talk about the company contracting or losing personnel," says Fluendy. "It's more a warning that industry predictions have been too bullish."

Kasvio agrees: "There has been turbulence around Nokia for some time," he says, "like last year when their stocks went down but then rose again.

"I think we'll have to wait a few months before we can see precisely what is happening."

That said, Townsend at least believes that Nokia, and indeed the entire industry, could be in for a rough ride over the forthcoming year.

"There's going to be a hiatus in demand for cell phones and, more significantly, no market for third generation mobiles until the second half of the decade," he says. "And that is going to be very, very damaging to those idiots who laid out vast sums for licences."

Nokia sees slower growth
January 30, 2001
Mobile phones: Hitting saturation point?
January 10, 2001

Nokia
Arnhold and S. Bleichroeder
Antto Kasvio

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.