Nokia Fallout Will Rain on Ericsson and Motorola

The telecom giant's forecast of lower handset sales industry-wide spells hard times for competitors.
By Tish Williams ,

Related Stories

Cramer: Nokia Offers a Brutal Surprise

Nokia Puts Its Chips in the Third-Generation Basket

Wireless' Comeback Might Be a Bit Premature

Handset Makers May Be Selling Into the Wind

Updated from 1:27 p.m. ET

It's not quite Armageddon, but

Nokia's

(NOK) - Get Report

second-quarter warning is a fine reason to grab a few jugs of fresh water and head for the nearest fallout shelter.

The Finnish wireless handset and equipment maker

stunned onlookers Tuesday by estimating that 2001 industry-wide sales for mobile phones would show only "very modest growth" over 2000's 405 million in handset sales. That lops around 100 million phones off its estimate from April 20, and is less than two-thirds the mobile handset maker's initial 650 million prediction for 2001's market.

Nokia, which also sees second-quarter earnings falling as much as 28% below the consensus estimate, said in its press release that only a stronger second half would create the modest uptick it expects.

Merrill Lynch

analyst Adnaan Ahmad said in a note to clients that "there is a real possibility of a number less than last year's." (Merrill hasn't done underwriting for Nokia.)

Nokia's stock plunged Tuesday, falling $5.45, or 19%, to $23.26.

"You miss a quarter, that happens every day. It's a disappointment, that's all," says Todd Bernier of

Morningstar

. "But when the handset number gets ratcheted down as much as it has, it's a telling sign. It says the industry is not growing." (Morningstar doesn't perform underwriting.)

All of which spells hard times for Nokia's competitors such as

Ericsson

(ERICY)

and

Motorola

(MOT)

. While Ericsson and Motorola were knocked unconscious by a poor first quarter, Nokia was still chugging away with 22% revenue growth and 20% growth in its handset business. Neither Ericsson or Motorola provided specific second-quarter estimates, but Nokia's announcement raises the possibility that they'll follow with similar outlooks.

Ericsson Tuesday fell 20 cents, or 3.6%, to $5.30, while Motorola dropped 86 cents, or 5.8%, to $14.

Ericsson said it hasn't given any indication that it'll offer guidance before its earnings announcement July 20. Motorola declined to comment.

Nokia, meanwhile, decreased its forecast for second-quarter revenue growth to 10% year-over-year from 20%. It also forecast pro forma earnings of 0.15 euro to 0.17 euro a share (13 cents to 14 cents a share) in the second quarter, down from the previous estimate of about 0.20 euro (17 cents). According to

Thomson Financial/First Call

, analysts expect the company to earn 18 cents a share in the second quarter. The company earned 19 cents in the year-ago period. It won't revise numbers for the year's second half until its July 19 earnings call.

CEO Jorma Ollila blamed "economic uncertainty, the ongoing technology transition and less aggressive marketing by the operators" for the slowdown in handset sales. Investors take note: That technology transition statement is the key. Nokia is grabbing market share from hobbled competitors, but there's no compelling reason for consumers to go out and buy today's phones from Nokia or anyone else.

"Everyone has a second-generation phone, whether it's TDMA or CDMA, but there's really been no reason to upgrade that phone," Bernier says. "We're two quarters away from a GPRS rollout and a couple of years away from a broad 3G

third-generation rollout. Why upgrade?"

Loading ...