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This column was originally published on RealMoney on Sept. 18 at 12:01 p.m. EDT. It's being republished as a bonus for readers.






-- three somewhat obscure European companies with close links to


(NOK) - Get Nokia Oyj Sponsored ADR Report

-- have warned over the past week. Judging from investor reactions, each one has come as a substantial surprise.

Based on these warnings, it seems likely that there has been an unanticipated shift in Nokia's product mix. The warnings could be a sign of wider softness in high-end mobile handset demand, perhaps stemming from the European upgrade market.

Multiple Explanations Still Plausible


recent warning cited European unit demand as one reason for its weaker second-half outlook. This company is a contract manufacturer like Perlos, and both are highly dependent on Nokia. Both have also had trouble in recent years keeping up with Nokia's outsourcing drive toward China.

Yet even after Elcoteq's foreshadowing last week, Perlos warned on Monday and saw its shares plunge 17%. However, Perlos didn't cite weaker sales or units; it hung its warning on "weaker profitability due to low value-added products comprising a greater share of net sales."

So the Elcoteq and Perlos warnings are not entirely similar. But Elcoteq does have a notable role in producing relatively expensive and sophisticated Nokia models aimed at the European upgrade market. So where Elcoteq sees unit softness and Perlos sees profitability issues, the common factor might be the upscale European phone market.

It's worth noting that while U.S. consumer spending in August was fine, electronics sales were not. The recent strength in U.S. retail spending has been driven by cars. We don't have much evidence of a strong consumer electronics market this fall in either North America or Europe: The latest comments from

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Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

on phones were cryptic at best.

The warnings from Elcoteq and Perlos could be linked to a narrow issue of certain Nokia phone sales trends failing to materialize in Europe; I would guess that W-CDMA (wideband code division multiple access) phone lines aren't catching on as fast as expected. Or the warnings may be a sign of wider softness in the global upgrade market. The Chinese and Indian low-end phone sales are probably still rock solid -- and still dominated by Western brands.

Third Warning

CSR is a different beast than either Elcoteq or Perlos. Its original name was Cambridge Silicon Radio, and it specializes in components needed for Bluetooth technology. CSR's warning for both the third and fourth quarters was sufficiently creepy to drive the stock down by more than 25% in Europe on Monday.

Bluetooth chips go to both phones and Bluetooth headsets, of course, and Bluetooth connectivity is one of the factors defining the mid- to high-end phone market in Europe and North America. In 2006, roughly one-third of handsets sold globally will feature Bluetooth technology, enabling phone owners to use a wireless headset.

Basically all of the fancy music, multimedia and fashion phones sold in Western Europe and America this winter feature Bluetooth. Most of the phones sold to first-time buyers in China and India don't.

Of course,


(PLT) - Get Plantronics, Inc. Report

, a leading Bluetooth headset manufacturer, issued a stiff

warning months ago. Is there specific weakness in the headset market, or is the problem in the phone-upgrade market in general?

Taken in isolation, the warnings from CSR and Plantronics could be interpreted as just a headset-market issue. Taken together with Elcoteq and Perlos, though, the problem seems to be wider. The most likely common factor is the mid- to high-end upgrade phone market in Western Europe and possibly North America.

The markets already have priced in a weak quarter for Nokia, but there hasn't been much concern about Texas Instruments or

RF Micro Devices


. The phone-chip sector isn't likely to avoid investor anxiety if there's a notable wobble in the Western upgrade market.

At time of publication, Kuittinen had no positions in any stocks mentioned in this column, although holdings can change at any time.

Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback;

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