Nokia Takes Cautious View on Handsets

Updated from 7:04 a.m. EDT

Cell-phone giant Nokia ( NOK) affirmed its previously offered earnings guidance for the second quarter, but the company cautioned that mobile phone sales growth could be at the low end or even below the prior forecast.

The company provided a midquarter update before the opening bell in the U.S. Tuesday. Based on the first two months of the second quarter, Nokia said earnings, before items, should fall inside the expected range of 13 euro cents to 16 euro cents a share. At Monday's exchange rates, that would equate to roughly 15 U.S. cents to nearly 19 cents a share. The company is looking for reported earnings of 12 euro cents to 15 euro cents a share.

As for Nokia's mobile phones segment, second-quarter sales growth from a year ago "is expected to be positive but at the low end or below the guided range" of 4% to 12%. The company attributed the revision to ongoing economic weakness in Europe and the U.S., currency fluctuations and the effect of SARS on consumer spending, especially in China.

The company said it believes "strong profitability" will continue at Nokia Mobile Phones. Nokia estimated that its market share for the second quarter will be higher than the first quarter, when it stood at 35%.

Second-quarter sales at Nokia Networks are now seen coming in flat to down as much as 5% from a year ago, as operators in all major regions continue to decrease their investments. Excluding a restructuring charge, Nokia Networks should come close to reporting break-even operating profits in the second quarter, the company said. One analyst told Bloomberg that the market was counting on a decline of more than 10% in the segment's sales.

While accounting for about 20% of Nokia's business, networking gear has been a drag on the company's performance in recent months. The company said after releasing its first-quarter results that it expected to take a second-quarter charge, which should total 350 million to 400 million euros, to write down a portion of the networking equipment business.

Shares of Nokia were losing 23 cents, or 1.3%, to $17.73 in Instinet trading before the opening bell.

Analysts polled by Thomson First Call are looking for Nokia to earn 18 cents a share in the second quarter, with revenue of $7.6 billion.

On Monday, a Friedman Billings Ramsey analyst had said Nokia would likely "tighten" its revenue outlook to the downside considering the recent dollar/euro exchange rate, while maintaining its profit guidance. The analyst also speculated that the company would take down its 2003 mobile phone forecast because of growing inventories in Asia and the SARS outbreak. UBS PaineWebber expressed similar views.

In April, Nokia predicted a 15% decline in 2003 network infrastructure sales. At the time, the company predicted sales in its handset segment would rise 4% to 12%, and Nokia offered the second-quarter operating earnings view reiterated Tuesday. Nokia's cell-phone sales rose 1% in the first quarter, and it sold 98 million handsets.

Two months ago, the company projected industrywide handset sales growth of 10% in 2003, but Nokia didn't offer any guidance in that regard in its latest update.

On Monday, Motorola ( MOT) blamed this spring's SARS epidemic and the company's outdated phones for weak sales in Asia. Motorola reduced its second-quarter sales and earnings guidance, and the outlook sent that company's shares down 21 cents to $8.68 at the 4 p.m. close of New York Stock Exchange trading.

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