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Nokia Warning Puts Rivals on Notice

Though Nokia's (NOK - Get Report) sales warning caused most Wall Streeters to duck and run, some steadfast observers see Thursday's comments as a shot across the bow of its rivals.

The Finnish handset king delivered a disappointing outlook , saying a weak dollar will make third-quarter sales stagnant at best. But the key issue for wireless watchers -- and the one that sparked avid dissent in some camps -- was the prediction that Nokia's lush 23% operating margin could drop some 3 points as the launch of new phones rings up larger marketing and research costs.

Critics were quick to point to the coming margin weakness as a clear sign that the world's top handset maker is suffering under competitive pressure. With Motorola (MOT) launching more than 30 new phones by year-end and Korean rival Samsung set to unveil 20 new phones in the coming months, the bears hailed Nokia's adjustment as the beginning of a long-predicted slide in handset prices.

Investors were running with that theme Thursday. Nokia shares fell $3.54, or 20%, to $14.41 in midday trading.


However outnumbered, bulls stormed to the company's defense, saying that if there's any suffering to be felt, it will be experienced by rivals at the hands of another determined effort by Nokia to gain market share.

In fact, fans say Nokia is rehearsing for its upcoming role as the Grinch who stole the other cellphone maker's Christmas.

Samsung, Motorola and the cellphone joint venture SonyEricsson have all predicted phone prices will rise, notes Sanford Bernstein analyst Paul Sagawa, who has a buy rating on Nokia and a sell on Motorola.

"All of these competitors are counting on their new model introductions in the holiday season," says Sagawa. But "Nokia is planning to spoil the party."

Industry watchers point out that Nokia was willing to let its operating margins dip below 20% a couple years ago as it battled Motorola in a European turf war. Nokia went on to take a commanding lead in handset sales, while Motorola swooned close to bankruptcy.
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