Dixons Carphone shares plunge 30 percent after handset sales falter

By Paul Sandle

LONDON (Reuters) - Shares in Britain's Dixons Carphone dived as much as 30 percent after the retailer cut its full-year profit forecast on Thursday, blaming tougher conditions in the mobile market as customers keep their handsets longer.

Dixons Carphone, which trades as Currys, PC World and Carphone Warehouse in Britain and Ireland, said the weakness of the pound was also making new devices more expensive at a time when technical innovation has been limited.

A market leader in both the electricals and mobile phone market, Dixons Carphone said headline pretax profit for the year was expected to be in a broad range of 360 million pounds to 440 million pounds ($460-562 million).

The group reported profit of 501 million pounds in the year to 29 April, and analysts had expected a similar number this year. On average they had forecast 495 million pounds, according to Thomson Reuters data.

Chief Executive Seb James said that customers were taking their time before upgrading their phones to the latest model.

"The cause of that really is that people are holding on to handsets longer, on average we are seeing four to five months longer," he said.

The shares traded 24 pecent lower at 179p at 0945 GMT. They had already fallen by a third this year as investors feared Britain's biggest electricals retailer would suffer from the growing inflationary pressures on consumers.

Analysts said the fact the group was trading well in its electricals business, which sells more expensive items, suggested the problem had its roots in a lack of innovation in the mobile phone market.

"Unfortunately that's not something Carphone Warehouse can do a great deal about," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

"The forthcoming generation of Samsung Galaxy and iPhone handsets claim to make big steps forward, but recent history hasn't delivered much that's revolutionary. Seb James will be hoping (Apple boss) Tim Cook has something big up his sleeve."

The share fall was the latest in a series of dramatic declines this week with WPP and Provident Financial tumbling after company statements.

ALL EYES ON APPLE

James said he believed there was a group of phone owners who were ready for an upgrade.

But he said the company was assuming that the longer upgrade cycle, which has lengthened to 29 months from 23 months, was here to stay.

New phones coming to the market include Samsung Electronics Galaxy Note 8 "phablet", and a widely expected 10th anniversary iPhone from U.S. rival Apple Inc, set to be unveiled next month.

"We know that for half of the premium market, which is the bit that we like, the Apple base more or less rejected the iPhone 7," he said.

"We are optimistic, without betting the farm in anyway, that iPhone 8 will be a good release for Apple, significantly better than 7."

"Demand is very much there and we think it will come back," he told analysts, adding that most customers would choose to buy the devices with a long-term contract with an operator.

The group has also been hit by the removal of roaming fees in Europe.

It shares the lifetime value of a customer contract with the mobile operator, and so it will lose some of the revenue it previously received from customers using their phones abroad.

It expects this to have a negative impact of between 10 and 40 million pounds this year.

($1 = 0.7825 pounds)

(Editing by Kate Holton/Keith Weir)