Nokia Oyj Chief Executive Officer Jorma Ollila's 10-year anniversary as head of the world's biggest mobile-phone maker was marked by falling sales and the first decline in annual earnings since 1995.
Now some investors are fretting that the 52-year-old Ollila, who delivered a 200-fold return to shareholders since 1992, may not be able to repeat the kind of performance that made Nokia one of Europe's biggest corporate success stories of the 1990s.
PHOTO: BLOOMBERG NEWS
Ollila has "got his job cut out with the slowdown in the handset market," said Mark Denham, who manages about US$2.8 billion of assets in Europe, including Nokia shares, at Clerical Medical Investment Group Ltd. "It's going to get tougher."
Nokia, worth US$300 billion at its peak in March 2000, now has a market value of US$102 billion. Today the company will probably report that net income last year fell to 3.6 billion euros (US$3.2 billion) from 3.9 billion, analysts estimate.
Ollila transformed the former maker of rubber boots and toilet paper into the dominant mobile-phone company, with a third of the market. Hiring by the Espoo-based company and its suppliers helped cut Finland's jobless rate to less than 9 percent from more than 19 percent in 1994.
Like rivals such as Ericsson AB, Motorola Inc and Siemens AG, Nokia is betting an economic recovery in the second half of the year, coupled with the introduction of new products, will help revive demand.
Sales have sputtered as economic growth stalled, phone companies cut subsidies on handsets and consumers saw little reason to upgrade phones. Nokia estimated in December that handset sales industry wide probably dropped 6 percent to 380 million in 2001, the first decline ever. Sales at Nokia's cellphone unit probably fell 3 percent to 6.62 billion euros, according to a Bloomberg News survey.
To be sure, Nokia is outpacing competitors such as Ericsson and Motorola. Even as demand slumped, the operating margin in the handset unit probably remained at 19.3 percent, analysts said.
Nokia has kept margins at industry-record levels by farming out 20 percent of its handset production and by introducing new phones based on older products' platforms.
At a technology conference in Gothenburg this week, mobile- phone chief Matti Alahuhta reiterated a November target of doubling Nokia phone users from today's 300 million in the years ahead. Nokia plans to introduce 20 new phones through June.
"If you already have a Nokia, you'll switch smoothly to a new Nokia," said Mika Heikkilae, a money manager at Pohjola Fund Management Co in Helsinki, who oversees 270 million euros in securities, including Nokia shares. ``It's such a strong brand.'' Still, if the company's strategy misses, there's less room to make adjustments after Nokia already eliminated 7 percent of the workforce in the past year.
"Pressure on demand isn't alleviating and the cost-cutting factor has already been used," said Heikkilae.
Ollila has predicted sales growth will recover to 15 percent this year as consumers snap up phones that allow faster access to the Internet. He's also betting the introduction of new phones will give Nokia a further edge over rivals such as Motorola, the No. 2 handset maker.
Last month, the company said it may exceed its fourth-quarter profit target of between 18 cents and 20 cents per share. On Monday, Nokia said it will sell luxury phones developed by its chief designer Frank Nuovo that cost up to US$21,200 each.
Money managers are skeptical, and analysts, including those at Morgan Stanley Dean Witter & Co., have already lowered their global handset forecasts for this year to about 410 million units. Ollila in December predicted unit sales of as much as 440 million for this year.
"There has been a lot of corporate spin in forward-looking statements recently," said James Clunie, who helps oversee US$4 billion as head of global equities at Aberdeen Asset Management, including Nokia shares. "You have to do your own analysis."
Signs are increasing that Ollila, who last year cut his sales forecast in five steps by a total of 31 percent, will have to reduce his prediction again, maybe as early as today.
RadioShack Corp, the US retailer, and Dixons Group Plc of the UK have said holiday sales didn't meet their expectations. RF Micro Devices Inc, a Nokia supplier, last week released a first-quarter sales forecast below analysts' predictions.
Balda AG, Europe's third-biggest maker of handset covers, this month lowered its sales forecast for last year. And Timo Leinilae, the CEO of Perlos Oyj, a bigger Balda rival, Friday said it's too early to say by how much demand will rebound in the second half.
Nokia shares, which rallied 80 percent from a Sept. 10 low, have fallen 15 percent so far this year. Some investors say the stock, which trades at 35 times expected 2002 earnings, is probably still expensive considering the outlook.
"Technology valuations look super-high," said Clunie.
"We're not off to races on the economy, but the stock markets have been priced as if we were, which is dangerous."
Nokia has yet to convince investors that consumers will buy handsets offering fast Internet access when phone service providers are delaying the rollout of the new networks.
"Based on retail news it is difficult to be very bullish on mobile phone sales," said Arnold Gast, who helps manage about US$5 billion at Theodoor Gilissen Bankiers NV and has Nokia shares.
Ollila, whose income from stock options fell to 8 million euros from a combined base salary and options package of 50.6 million euros a year earlier, declined to be interviewed.
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