Nokia Has Healthy Earnings, but Lowers Outlook

Mobile-phone giant Nokia (NOK Quote) this morning announced healthy fourth-quarter earnings results, but, like a cavalcade of companies before it, said the first quarter would be a challenge.

The Finnish company reported earnings of 0.25 euro (23 cents) a share on net sales that grew 46% and operating profit that was up 32%. That's better than the 21 cents a share that analysts were expecting. But the company said it only expects first-quarter results to match the year-ago period on sales growth that is now expected to be in the range of 25% to 30% because of "slower-than-anticipated market growth."

Hurt by the disappointing outlook for the first quarter, Nokia lately traded down $3.09, or 8.4%, to $33.90 in preopen trading. It's the slowing growth that's rattling the entire mobile-phone sector.

Nokia is the acknowledged leader when it comes to making mobile-phone handsets. Its market share is ever-widening, hitting 30.6% of the worldwide market in the third quarter, according to research firm Gartner Dataquest. Today, Nokia said it had 715 million users at the end of 2000.

It's also the most profitable of the handset makers. In the third quarter, it racked up operating profit margins of 17.5%, while No. 2 Motorola (MOT Quote) has struggled with single-digit margins and No. 3 Ericsson (ERICY Quote) loses money on its handsets.

Despite that, projections of lower industry-wide mobile-phone growth for this year have managed to spook even some of Nokia's acolytes. Already, Motorola and Ericsson have taken down their estimates and many analysts have followed suit. And it didn't help when the company said earlier this month that it sold 128 million mobile phones last year. Less than some on Wall Street expected, the figure sent the shares down 8.8% in one day. As the wireless industry's bulls come to grips with the end of the era of hypergrowth, many ignored the fact that selling 128 million phones was still a 64% rise from the year before.

Nokia has earlier given bullish forecasts for the year, especially its short-term target of 30% to 35% revenue growth in the first half. It might be helped by a spike in its network infrastructure business, which has made great gains of late and signed up at least two new customers -- AT&T Wireless (AWE Quote) and Deutsche Telekom (DT Quote) -- for third-generation system equipment that allows for the transmission of data, as well as voice, traffic. But a delay in the implementation of 3G networks could hurt Nokia as much as it will hurt Ericsson.