As if business weren't bad enough,

Nortel's

(NT)

announcement yesterday gave a downward shove to a cell-phone industry already facing challenges from slowing demand.

Mobile-phone maker

Ericsson

(ERICY)

was downgraded by

Lehman Brothers

to market perform from buy, pushed by

Nortel's

news of slower-than-expected spending by U.S. and European wireless carriers.

Gerard Klauer Mattison

lowered the rating of cell-phone leader

Nokia

(NOK) - Get Report

to neutral from outperform because of near-term challenges in selling mobile handsets.

The downgrades encompassed a double whammy facing cell-phone makers: a difficult environment for selling handsets and the weakening spending on upgrading mobile phone networks.

Nokia closed lower on the downgrade, dropping $1.92, or 6.8%, to $26.50. Ericsson dropped 59 cents, or 6.2%, to $9.

Unlike its rivals, Nokia held its value during the tech-tough fourth quarter of 2000 -- actually gaining 9% in share price. But as handset sales projections continue to lag, Nokia has lost 39% of its value since the beginning of the year. The end of last year was rough for both Ericsson and Motorola. Ericsson lost nearly 25%, while Motorola dropped 28%. Since the beginning of this year, Ericsson has lost another 19.6% and Motorola has fallen 8.1%.

GKM analyst Charles DiSanza said Nokia's mobile-phone rivals Ericsson and

Motorola

(MOT)

could dump phones into the market as a way to cut inventory. Nokia then faces the choice of cutting its own prices or losing some sales, the note said. (GKM has not done recent underwriting for Nokia.)

Nokia's earnings estimates also depend on the U.S. economy recovering at the end of the year, a possibility that is "increasingly tenuous," DiSanza wrote.

Ericsson, the No. 3 cell-phone maker, continues to lose handset market share to Nokia. Last month it turned over handset production to contract manufacturer

Flextronics

(FLEX) - Get Report

as a way to control costs.

But Ericsson does lead in making the infrastructure that supports mobile-phone service, and it was counting on increased business from the higher-speed networks being planned. But Lehman analyst Tim Luke wrote that his checks showed major carriers in Europe and the U.S. were slowing expenditures on infrastructure. Luke said checks at Motorola earlier this month had similar results. (Lehman has not done recent underwriting for Ericsson.) Luke reduced his price target for the stock from $14 to $11 and his earnings estimates for 2001 from 20 cents a share to 16 cents.

Wireless semiconductors also fell today.

RF Micro Devices

(RFMD)

, which sells mostly into the wireless market, closed lower, down $2.81, or 15.3%, to $15.63.

Texas Instruments

(TXN) - Get Report

, whose chips are in a majority of cell phones worldwide, was down $4.06, or 10%, to $36.60.