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Nokia reports drop in handset sales

Nokia has reported a 5% decline in net sales for the second-quarter, after being shaken by a dramatic drop in sales of mobile phones.

The Finnish mobile phone manufacturer said the European and US markets remain "challenging".

Nokia reported net sales of €6.6bn (£3.6bn) for the second quarter compared with €7b for the same period a year ago.

Net profit was up 14% from €624m in the second quarter of 2003 to €712m, aided by gains in the company's multimedia and networks divisions.

Operating profit for the period was also up, climbing 11% from €818m a year ago to €907m in the second quarter of this year, boosted by a one-time €90m insurance programme return.

The company's mobile phones group continued to take hits due to pricing pressures and a late start into certain product areas. Mobile phone sales fell 13% from €4.8bn in the year-ago quarter to €4.2bn in the second quarter.

The drop in Nokia's sales was reflected in market share numbers, which showed the company losing ground to competitors, from a first-quarter 2004 market share of 32% to a second quarter share of 31%.

"Obviously, we are lower than we want to be but we have managed to limit negative market share through product introductions and selective price cuts," Nokia chairman and chief executive officer Jorma Ollila said.

The handset leader found itself behind the times recently when a demand for camera and clamshell phones sparked the market.

Sony Ericsson Mobile Communications, for example, pushed aggressively into the camera phone market and reaped the rewards. It also reported its second-quarter results which beat its unit shipment forecast for the period.

Nokia has been trying to introduce products to fill its gaps, and Ollila said that camera phones now make up around half of its mobile sales. The company also launched three new clamshell models during the second quarter, looking to snap up more sales.

While Nokia looks to steady itself, the same cannot be said of the global mobile device market, which was on the move. The market grew to 148 million units in the second quarter and is on track to surpass 600 million units by the end of the year, Nokia said.

Emerging markets such as India, Brazil and Russia have opened up new opportunities to vendors, it added.

The company did particularly well in Latin America, Ollila said, where mobile penetration is on the rise.

Nokia has predicted that its recent price cuts and product introductions will begin to reap awards, bringing the company a rosier second-half of 2004, although not at last year's levels.

Nokia group sales are expected to be in the range of €6.6bn to €6.8bn for the third-quarter of 2004, compared with net sales of €6.9bn for the year-ago period.

Ollila underscored that continued strength in the company's network division - which has had recent success netting WCDMA (Wideband Code Division Multiple Access) contracts - and steady investments in research and development would boost the company during the second half of the year.

Scarlet Pruitt writes for IDG News Service
IDG News Service (London Bureau)


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