Nokia Says Earnings Hitting Target, but Sales Are Slowing

European markets cheered Thursday after Nokia (NOK Quote - Cramer on NOK - Stock Picks) said its earnings growth remains on target even though it sees first-quarter sales coming in lower than previously expected.

Shares of the cell phone giant were rallying about 10% overseas, helping to give a reprieve to the beleaguered telecom sector that has lately been whipped by negative news from Nokia competitors Motorola (MOT Quote - Cramer on MOT - Stock Picks) and Ericsson (ERICY Quote - Cramer on ERICY - Stock Picks). A first-quarter earnings warning from Ericsson had triggered rumors that Nokia too would guide-down its profit outlook, though a contingent of observers believed otherwise. Concerns about Nokia's financial health were a drag on European markets yesterday.

Now, the complete picture can be painted. Nokia today said it is "likely to reach" earnings per share of about 0.19 euro (17 cents) for the first quarter, "in line with its earlier statements." Still, the mobile phone giant lowered its sales growth estimates to 20%, down from its previous guidance of 25% to 30% growth. According to earnings tracker First Call/Thomson Financial, 17 analysts expect first-quarter earnings of 17 cents a share, compared with 18 cents a share a year ago.

Finnish-based Nokia also estimated the full-year 2001 mobile-phone market size at 450 million to 500 million units, "due to the slower growth and more difficult market conditions during the first months of the year," it said in a prepared statement. "We feel confident about our strengths and our performance during the early months of the year. Despite the more difficult market conditions, we have been able to show good progress. We expect to see solid growth for the first quarter as a whole, with better than anticipated margins."

This economic downturn has been marked by rising inventories. Nokia this morning said its inventory levels were "lower than at year end" and that it continues to achieve a strong positive cash-flow from its operations for the current quarter. Nokia said it would give guidance for the second quarter when it reports its first-quarter financial results on April 20.

Shares of Nokia yesterday closed down $21.80 on the New York Stock Exchange from an opening price of $22.05. The stock has a 52-week range of $20.55 to $62.50.