Nokia: Expect Just 10% Handset Unit Growth, Narrower Operating Margins

Includes: GOOG, NOK, TXN
by: Eric Savitz

Nokia (NYSE:NOK) today provided a cautious outlook for both the cell phone industry as a whole and for its own financial performance in the year ahead, which is putting some pressure on both its own shares and others with a stake in cellular industry.

Nokia sees 2007 global mobile device volumes growing 10% in 2007 from an estimated 970 million units in 2006. The company expects growth of at least 15% in Asia Pacific, China and Middle East/Africa, and below10% in Europe, Latin America and North America. The company expects “some decline” in average selling prices, “primarily reflecting the increasing impact of the emerging markets and competitive factors in general.” Nokia says it now expects that the 3 billion mobile subscriber mark will be reached in 2007, rather than 2008, as previously forecast. Nokia sees slight growth in mobile and fixed infrastructure and related services market in Euro terms in 2007.

Nokia set an operating margin target of 15% over the next 1-2 years; that is revused down from the 17% target Nokia set in December 2005, “primarily due to Nokia’s increased exposure to the infrastructure market following the expected start of operations of Nokia Siemens Networks.”

The company set an operating market target for devices - mobile phones and multimedia - of 17% for the next 1-2 years, revised slightly form the 17%-18% target set in December 2005.

For Nokia Siemens Networks, the company set an operating margin target of 10%-plus. The company said the unit maintains its target to achieve a double digit operating margin by year end 2007, before restructuring charges.

Nokia said it now targets an improvement in the ratio of Nokia gross margin to R&D expenses and an improvement in the ratio of Nokia gross margin to sales and marketing expenses in 2007, compared to 2006. The company says it expects to meet its previously stated target to reduce overall R&D expenditure to 9%-10% of net sales by the end of 2006.

Nokia’s 2007 handset forecast is identical to the Samsung forecast made earlier this month.

Nokia shares this morning are down 29 cents at $20.02. Motorola (MOT) shares are down 24 cents at $21.60. Texas Instruments (NYSE:TXN) shares are down 13 cents at $29.26.