Cell phone giants Nokia, Qualcomm post strong earnings

In a market with healthy but slowing growth, both companies are looking forward to building even more market share.

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 1/25/2008

Helsinki, Finland-based cell phone giant Nokia reported Thursday Q4 2007 that net sales rose 34% year-over-year to $23 billion (15.7 billion euros), earnings per share (EPS) of 69 cents (0.47 euro), and full year 2007 net sales that increased by 24% to $75 billion (51.1 billion euros), EPS of $2.68 (1.83 euros) as its estimated device market share reached 40%, with significantly increased margins and quarterly operating cash flow of $4 billion (2.7 billion euros).

Nokia also said its board of directors is set to propose a dividend of 78 cents (0.53 euro) per share for 2007, compared to 63 cents (0.43 euro) per share for 2006.

Earlier this week, market research firm Strategy Analytics confirmed Nokia now owns more than 40% of the global share of mobile phone shipments, placing it firmly at the top of a market with healthy, but slowing, growth.

According to the research company, global mobile phone shipments grew a modest 12% year over year in 2007, to reach 1.12 billion units. Nokia had a strong Q4 and gained 0.8% sequentially to reach more than 40% share for the first time ever in the quarter.

Other analysts at market research company Ovum noted that Nokia stellar results widened the gap between it and the other handset vendors.

Q4 2007 handset shipments were 133.5 million, up 20% sequentially and 27% year-on-year while the average sale price rose slightly to 83, yielding total revenues that were 22% sequentially higher and 34% higher year-over-year.

Nokia also improved its profitability with operating margin at 15.9%, up from 13% for Q4 2006 thanks to gains in all divisions except Nokia Siemens Networks, which was up sequentially.

For the fully year 2007, handset shipments were 437 million, revenue was up 24% and operating profit was up 46%.

President and CEO Olli-Pekka Kallasvuo described this as an impressive performance for the quarter, and estimated that Nokia's market share has now reached the much-anticipated 40% mark and stressed that Nokia will continue trying to build market share.

In looking ahead, Nokia said there is currently no sign of a slowdown in mobile phone sales.

If Q1 follows normal seasonal trends, guidance for 2008 is volume growth of 10% to 1.25 billion.

“Impressive understates this performance,” said Martin Garner, mobile director at Ovum, in a statement. “Nokia is now as big as Samsung, Motorola, Sony Ericsson and LG added together. These numbers were delivered in spite of some component shortages, a drop in Nokia's shipments in the US and a slight loss of market share in China. Also inventory levels going into 2008 are lower than they were a year ago, so the extra volumes have not just been filling up the channels. It's hard to see any other vendor getting close to this level for a long time.

Nokia rival Qualcomm Inc reported Wednesday strong results as well for its fiscal Q1 and raised its outlook for Q2.

Qualcomm reported revenues of $2.44 billion, 6% sequential growth and 21% year-over-year growth powered by strong growth in chipset shipments. Chipset revenues were $1.57 billion up 11% sequentially and 28% year-over-year. Net income was $767 million, up 18% year-over-year but down 32% sequentially.

Diluted EPS was 46 cents, up 21% year-over-year, but down 31% sequentially.

Qualcomm’s fiscal Q1 operating cash flow was $880 million, up 12% year-over-year.

CEO Paul Jacobs described this as a strong quarter and pointed to continued high demand for CDMA technology based devices around the world as the reason for raising his revenue guidance slightly for the 2008 financial year.

Management changes announced this week are aimed at providing greater focus and resources on growth areas. The company believes that, in addition to technical strength, it now also has strong relationships with key players around the world and is in a position to accelerate the growth of the business, especially the services side. It also believes, as highlighted above, that the market is at an inflection point and that is behind the timing of the changes, noted Ovum’s Garner.

“Before 2007 we had seen 3G growing, but not realizing its full potential, thanks to a self-fulfilling cycle of inadequate coverage giving a poor user experience, delivering poor returns and hence a low willingness to invest more fully. In 2007 high-speed 3G (HSDPA) arrived and finally delivered a broadband experience on mobile, which has unlocked the growth potential - leaving Qualcomm in a happy place. Interestingly, though, Qualcomm said that WCDMA was a bit weaker than anticipated in calendar Q4 spread across a number of markets, but that it is optimistic about demand in 2008,” Garner observed.

Qualcomm’s QCT chipset division was the star in these results, he said as shipments were up 16% sequentially and 34% for the year to 79 million. “Qualcomm has positioned strongly on 3G technologies and 3G is now 80% of the user base in Japan, eating into the 2G installed base in Europe, it is growing well in other regions and yet to be licensed in some large areas such as China and India.. But with 49% year on year growth of EBT, this division's share of the overall business is growing nicely. Qualcomm estimated that average selling price of devices based on CDMA / WCDMA rose in calendar Q4 07 from $211 to $216, although it expects chipset ASPs to fall in the next quarter, thanks to Qualcomm price reductions and a shift in the product mix,” he continued.

Qualcomm’s IPR licensing division saw annual revenue growth of 8% to $650 million, roughly a quarter of the total, while its wireless and Internet services group grew revenues over the year 12% to $210 million.

Looking ahead to fiscal Q2, Qualcomm expects pro forma revenues of $2.4 to $25 billion, an 8 to 13% increase over fiscal Q2 2007 results.

In other Qualcomm news, Motorola Inc said this week it has expanded its relationship with Qualcomm to include next-generation UMTS 3G chipsets and will design the Qualcomm chipsets into certain UMTS 3G handsets beginning at the end of 2008 and in 2009.NEX