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Last Updated: Thursday, 21 July, 2005, 14:22 GMT 15:22 UK
Nokia profit warning hits shares
Nokia phone screen
Nokia is facing ever more price competition in emerging markets
Shares in Nokia have fallen by as much as 11%, after it warned that tough competition was likely to drive down prices and margins this year.

The gloomy forecast took the edge off an apparently strong set of results, with shipments up 34% in April-June.

Net profits rose 15% to 799m euros (555m; $975m) during the quarter, with pre-tax profits of 1.1bn euros, just below what analysts had predicted.

But chief executive Jorma Ollila said that prices were under pressure.

Margin pressures

A broader range of phones, including more clamshell phones, camera phones and lower-priced models, contributed to an increase in market share to 33%.

Nokia 6280 and 6111 clamshell phones
Nokia benefited from expanding its range of clamshell phones

However, Mr Ollila said growth "came primarily from emerging markets, where low-end products predominate and pricing pressures are currently intense".

"Industry average selling prices continued to edge downwards," he added.

The results were weaker than analysts had expected.

"The guidance was well below [forecasts], which suggests that their margins are going to be a lot lower than people expected," said Deutsche Bank analyst Akber Khan.

Analysts said that profit margins were coming under pressure across the mobile sector.

"Motorola was stable, the others had declining margins and... Nokia's margins are not too good. It's very much a margins issue here," said FIM Securities Jussi Hyoty.

New growth

Mr Ollila said Nokia had the market-leading third-generation mobile (3G) phone.

Nokia clamshell mobile
Nokia plans to add to its low-cost mobiles for emerging markets

He added that he expected most mobile operators to start their 3G campaigns at the end of the third quarter.

"We often get large chunks of orders from operators in September, when they eventually decide on the (marketing) campaign themes that stick," he said.

Nokia said it was also taking steps to increase its leadership in emerging markets, such as Eastern Europe.

"We will introduce two new handsets based on our low-cost platform as well as integrating a new single-chip solution for low-cost phones," Mr Ollila said.

He added that doing some of its manufacturing in India would help to keep costs down.

Intellectual edge

Nokia concept device
Nokia is building up its intellectual property portfolio

The Finnish firm said intellectual property rights (IPR) would play a key role in the mobile market of the future.

"Intellectual property rights (IPR) are becoming increasingly important in our market place," said Mr Ollila.

The firm has more than 9,500 patents related to mobile phones and cellular devices, which it has been building up.

Mr Ollila believes "the industry is consolidating around a few players with the tools to compete".




SEE ALSO:
Mobile giants boost phone ranges
15 Jun 05 |  Business
Nokia warned by market regulators
26 May 05 |  Business
Profits up at Nokia and Motorola
21 Apr 05 |  Business
Nokia announces Microsoft tie-up
14 Feb 05 |  Business
Nokia to make handsets in India
01 Dec 04 |  Business


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