Nokia Warns on Second Quarter

By TSC Staff ,

Updated from 8:54 a.m. ET

Nokia

(NOK) - Get Report

expects the global mobile-phone market to show only "very modest growth" this year, and the cell-phone maker said the weaker market conditions will hurt its financial performance during the second quarter, forcing the company to lower its guidance.

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In 2000, about 405 million phones were sold. During the second half of 2001, the company expects the market to be "significantly larger" than during the first half. The slowdown will lead to lower-than-anticipated sales growth for Nokia, but the company believes that its mobile-phone business will continue to grow "significantly faster" than the market during 2001. The company also forecast that its network business will achieve an annual growth rate "at least on par" with overall market growth.

Shares of Nokia dropped 18% in Instinet action before the opening bell. Ericsson (ERICY) fell 9.1% in the wake of the news.

Based on the first two months of the current quarter, the company estimates year-on-year sales growth for the second quarter to be "somewhat below 10%" compared with its earlier estimate of 20%. It forecast pro forma earnings of 0.15 euros to 0.17 euros a share (13 cents to 14 cents a share) in the second quarter, down from the previous estimate of about 0.20 euros (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.The company still expects to record strong positive cash flow in the second quarter.

Nokia is also revisiting its outlook for the second half of the year, as the company expects the market slowdown to continue hurting its results. The company will release updated estimates for the second half on July 19 along with its second-quarter earnings report.

"The market was just kind of quietly churning around, and then Nokia announced and they took it down," said Jim Volk, co-director of institutional trading at

D.A. Davidson

. "People are going to trash technology today."

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