Nokia Sees It Getting Worse - TheStreet

Nokia Sees It Getting Worse

Third-quarter guidance comes down and the shares lose 18%.
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Updated from 7 a.m. EDT

Stubborn weakness in the market for cell-phone transmission equipment coupled with a new problem, the weak dollar, ate into

Nokia's

(NOK) - Get Report

second-quarter results and will pressure its second half.

The Finnish telecommunications giant earned $711 million, or 15 cents a share, using standard accounting (and a 1.13 euros/dollar exchange rate) in the second quarter, down from $974 million, or 20 cents a share, last year. Sales were $7.93 billion in the latest quarter, up from $7.83 billion last year.

Pro forma to exclude goodwill amortization, Nokia earned $750 million, or 16 cents a share, matching analysts' consensus estimate as compiled by Thomson First Call.

Nokia's stock was recently off $3.29, or 18%, to $14.66.

Ericsson

(ERICY)

fell 99 cents, or 8.5%, to $10.71, while

Motorola

(MOT)

fell 40 cents, or 4%, to $8.93 and

Alcatel

(ALA)

fell 46 cents, or 5%, to $8.52.

Sales in Nokia's core mobile-phone division were up 2% in the second quarter from a year ago on a 14% jump in volume.

"Sales were adversely affected by a weak U.S. dollar and, to a lesser extent, an increased proportion of lower-priced entry-level phone sales in emerging markets such as India," it noted.

Sales in the Nokia Networks infrastructure segment were unchanged, reflecting growth in the Americas, flat sales in Europe and lower sales in Asia Pacific. The company took a $451 million charge on the division in the quarter, reflecting impairments and project closures in research and development, among other things.

In the third quarter, the company expects mobile-phone volumes to grow by "well over 10%," representing faster-than-market growth, with strong profitability continuing. "However, sales of Nokia Mobile Phones in the third quarter are expected to be flat or slightly down year on year, largely due to a major depreciation of the U.S. dollar, compared with the same period in 2002."

For the third quarter, the company expects pro forma earnings of between 17 cents and 19 cents a share, and bottom-line net of 16 cents to 18 cents a share. Analysts had been projecting third-quarter pro forma earnings of 22 cents a share.

"In Nokia Networks, operating conditions show no sign of improvement, and the company is estimating a year-on-year sales decline of 15% to 20% for the third quarter," the company said. "Given this sales outlook, Nokia Networks is expected to show a small pro forma operating loss in the third quarter."