Nokia's flat Q1 warning prompts fears

Fears are growing that the mobile sector is facing a slowdown following the announcement by Nokia Tuesday, that it has lowered expectations for handset sales growth in 2001.

The Finnish manufacturer expects sales growth of around 25 to 30 percent in Q1, down on its previous prediction of 25 to 35 percent. This represents flat growth on the same period in 2000. The company also lowered sales forecasts for handsets during 2001 to between 500 and 550 million, down from an earlier prediction of 550 million.

Nokia's share price dropped 7.5 percent on the news, despite the company having met market expectation for sales and profits during 2000.

Nokia chairman and CEO Jorma Ollila explained that the predicted sales figures had been cut due to uncertainly in the industry. "We just don't know exactly what is going to happen and therefore we have come out with a band of 500 to 550 (million). It's just not possible to predict in the same way as it was in previous years," he said in a conference call Tuesday afternoon.

Several recent announcements from leading mobile companies, including Nokia, Ericsson and Motorola, have led analysts to predict an imminent slowdown in the mobile market. Earlier this month, Nokia warned it had sold fewer than expected handsets in 2000, while only last week Ericsson, whose consumer product division recorded a £1.1bn loss in 2000, announced plans to outsource its entire handset manufacturing.

Tim Sheedy, senior telecoms analyst for IDC, believes growth in mobile phone sales will inevitably decline as the market runs short of first-time buyers. "The whole mobile market is facing a slowdown in mobile growth, as replacement buying becomes as great a part of the market as the buying of new handsets", he said.

Competition between manufacturers has meant entry-level phones, such as Nokia's 3310, have become increasingly advanced. Sheedy explained that this makes an upgrade more unlikely.

"People used to have to choose a more expensive type of mobile if they wanted better features. Now, because basic phones have more features, existing mobile users can choose a new phone in the same sector," Sheedy said. This behaviour has a knock-on effect on mobile maker's profits. "Mobile companies lose money, because the margin on a cheaper phone is less," he added.

In the past, Nokia has achieved operating profits from mobile phone sales of over 20 percent, but it admitted that it might take until Q4 2001 to hit the 20 percent figure this year.

Nokia also announced that its first GPRS (General Packet Radio Service) phone wouldn't be launched until the third quarter of 2001, three months later than expected. Concerns now centre on whether this high-speed technology will catch on with the phone-buying public.

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