A Fair Knock on NOK

Over the past couple of days, there have been loud protests about why Nokia (NOK - commentary - Cramer's Take) and other key handset sector stocks have fallen so steeply. Some observers have claimed this is incomprehensible and even "unfair" considering how robust the phone market is.

Last night, things got a bit more comprehensible when Texas Instruments (TXN - commentary - Cramer's Take) warned on sales and earnings, and placed the blame squarely on high-end phones of one customer.

Conflicting Signals

Since last December, the mobile phone industry has been trying to interpret the puzzling contrasts among the guidance of various players. Smaller players like MediaTek, RF Micro Devices (RFMD - commentary - Cramer's Take), National Semiconductor (NSM - commentary - Cramer's Take), Infineon (IFX - commentary - Cramer's Take) and ARM have either missed revenue numbers slightly or issued sales guidance that missed the consensus expectations.

On the other hand, Nokia, Qualcomm (QCOM - commentary - Cramer's Take) and Texas Instruments all issued rock-solid guidance for the ongoing quarter and made pointedly upbeat comments about the most important part of the phone market: the 3G handsets. This has resulted in several intricately detailed scenarios crafted by leading analysts. Perhaps the China weakness discussed by Mediatek and RFMD was isolated to only domestic brands. Perhaps National Semiconductor and Infineon have been losing market share to Texas Instruments. The debate has raged on for weeks, and now we are getting the first sign of weakness from the Titanic Trio.

Texas Instruments' guidance for the ongoing quarter was already just a bit sketchy; revenues down 0%-9% sequentially from the seasonally strong fourth quarter was not a surprise, but it was supposed to leave the company plenty of wiggle room. The upper end of the sales range was lowered by $200 million from the previous guidance; hardly an earthquake, but a firm hint at a sequential revenue decline uncomfortably close to 10%. The size of the revision is a hint about the identity of the TXN customer cutting back on orders -- it is hard to see how anyone but Nokia would create this kind of shortfall for Texas Instruments.

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At time of publication, Kuittinen had no positions in the stocks mentioned, although holdings can change at any time.

Tero Kuittinen is managing director and senior analyst for Avian Securities, a brokerage firm specializing in technology companies. Although Kuittinen is an employee of Avian Securities the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Avian Securities, nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.