Nokia Turns the Light Out on Carrier Rebound

Updated from 7:55 a.m. EST

The telecommunications infrastructure market that turned Ericsson into an intermittent penny stock continues to bite Nokia(NOK - Cramer's Take - Stockpickr), which Tuesday trimmed its outlook for sales and earnings in the current quarter.

The handset giant predicted sales in its Nokia Networks operation would fall as much as 20% from a year ago, resulting in a sizable pro forma loss at the unit and eating into the parent's bottom line. Nokia shares were recently down about 3% on the Instinet premarket session, and pain was being felt in rivals Ericsson and Alcatel.

Overall, Nokia sees pro forma earnings of 17 cents to 19 cents a share, a range that reduces the high end by 2 cents but is in line with the First Call consensus of 18 cents. Sales will fall slightly from a year ago on flat sales in the cell-phone division.

The previous prediction had been for quarterly sales to be unchanged to up 9%, making it five quarters in a row the Finnish handset leader has been forced to ratchet back its top-line outlook.

Nokia also cited higher costs for launching a line of feature-rich handsets around the turn of the year, phones that were said Monday to have helped boost its market share in 2002. But it also said it expects industry shipments of mobile phones in the quarter to rise year over year and said its own volume increase will be better than the industry's.

On a conference call with analysts, Nokia Chief Financial Officer Olli-Pekka Kallasvuo said the average selling price of phones appears to have stabilized. At the end of the fourth quarter, consumers were buying cheaper models, which was considered a disturbing trend as phone manufacturers rushed pricier feature-laden phones onto shelves.

"Our new models are selling well," Kallasvuo said. The company recently launched two new phones, the 3300, targeted at the youth market, features a color screen, a full thumboard keypad and will store and plays digital music. Nokia also launched the 6220, designed for upcoming high-speed wireless networks.

Separately, channel inventory, or the amount of product the company has shipped to its retailers, also appears to have improved, both for the company and the industry as a whole. At the tail end of the holiday shopping season, analysts said retailers were stuffed with inventory amid a skittish consumer market. Kallusvuo said Nokia's inventory had improved in all regional markets.

But none of that helped offset the pain in its networks division. While the segment makes up only about 20% of Nokia's overall revenue, its performance is a bellwether for telecommunications spending on an industrywide basis and weakness within it will likely force analysts to scale back predictions of a rebound in the sector.