Nokia - Versus Motorola (Motley Fool)

Nokia's Dropped Call For InvestorsFriday July 22, 4:13 pm ET By Tom Taulli
In light of the strong results from Motorola (NYSE: MOT - News) this week, there was optimism about the earnings report for Nokia (NYSE: NOK - News). After all, it is the No. 1 mobile handset company in the world, right?
Well, investors made a bad call, as the stock fell 11.65% to $15.78 Thursday.
Net income increased 15% to 799 million euros in the second quarter. That came to 0.18 euros a share, which compares with the Street's expectations of 0.19 euros a share. Sales were up 25%, and net of special items from Q2 2005 and Q2 2004, net income was up 41%. No doubt, Nokia is selling large amounts of phones -- hitting 60.8 million units in the second quarter, which was a 34% increase from last year.
I know what you're looking at -- a 34% increase in handset volumes versus a 25% sales increase. So, what's the problem? To find growth, Nokia is venturing into emerging markets, such as China and Russia. Unfortunately, the pricing in these markets is tougher, with not as many opportunities to sell high-end phones, which is putting pressure on Nokia's overall margins. Now this isn't a horrible thing, but it also isn't quite the panacea the Street was seeking.
Nokia is looking out for the long term by penetrating emerging markets. But it will take some time for the margins to improve as these consumers upgrade to premium handsets. Nokia appears to have positioned itself well because gaining recognition in these markets while they're still developing will give it an important market presence moving forward. For the shorter term, Nokia will need to focus more on cost-cutting to deal with this market.
Unfortunately, Nokia thinks the weakness will continue. For the third quarter, the company pegs earnings per share at 0.14 to 0.17 euros. The Street was looking for 0.20 euros per share.
The growth story -- at least in the short term -- appears to belong to Motorola, which I wrote about this week. That company is growing its market share, most importantly with a premium product line.

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Motorola on the Razr's Edge
By Tom Taulli July 20, 2005
The fight for the global share of mobile phones is intense. And Motorola (NYSE: MOT) has been putting up a big fight that is starting to gain traction. In the second quarter, the company boosted its share by another 3.3% to 18.1%. That translates into 33.9 million handsets. In fact, this is a record for the company and makes it the No. 2 player. No. 1 is, of course, Nokia (NYSE: NOK) with 33%.
An example of getting share at the expense of profits? Not really. Motorola had a stellar quarter, generating net profits of $933 million, up from a $203 million loss a year ago that included a large restructuring charge from its semiconductor business. Income from continuing operations, net of restructuring charges, came in at $947 million, while in the year-ago period the number was $619 million. During the second quarter, revenues increased to $8.83 billion from $7.54 billion. Motorola had given the Street guidance of $8.3 billion to $8.5 billion in revenues.
Not long ago, Motorola looked like a tired business. Why the resurgence? It appears to be the result of its new CEO, Ed Zander. He did the typical restructuring (cost-cutting, improved operations, and so on) but also allowed for much more innovation. That is, as mobile phones become mainstream, it becomes increasingly important that they are fashionable. So Zander has been working hard on the "cool" factor.
And it appears that Motorola struck gold with its new Razr phone. In the second quarter, the company sold roughly 5 million units.
The success is taking a toll on the competition, such as Samsung Electronics and LG Electronics, both of which posted very weak quarters.
Can Motorola keep up the pace? The good news is that the company is in the midst of major product releases, such as the Slvr, which has a sliding keypad, and the Pebl, which has a cool round shape. But, of course, the one that's getting big buzz is the Rokr. It will play music using Apple's (Nasdaq: AAPL) technology.
Yes, in tech, even tired companies can be cool again. That said, those companies might well become uncool just as quickly. Not long ago, Motorola experienced ailing results because of lackluster product releases. The fact remains that consistent innovation remains an occupational hazard in Motorola's operational sphere.