Skip to main content

Is the mobile-phone industry poised for a rebound? Not this quarter, and maybe not the next, unless


(NOK) - Get Free Report

delivers a surprise this week.

The world's largest handset maker will update the market in a midquarter review on Tuesday. Following a lackluster first half for the sector, few on Wall Street are expecting to be wowed. The Helsinki-based company will likely reiterate its third-quarter sales estimate of $7.14 billion to $7.54 billion (7.2 billion euros to 7.6 billion euros) and pro forma earnings per share of 14.8 cents to 16.8 cents (15 euro cents to 17 euro cents), according to company watchers.

Phone Hype

"I don't think they'll say anything new or negative at this point. They'll highlight the new phones and play up MMS," or multimedia messaging, which lets users send and receive pictures and short animation clips, said Deutsche Bank Securities wireless-equipment analyst Brian Modoff.

To be sure, spiffy new handsets being rolled out by Nokia,







in the second half may help restore some faith in the downtrodden market, which has seen Nokia's shares shed more than 45% since the beginning of the year, while Motorola's shares have dropped 21%. But next-generation handsets with color screens and cameras cost more to produce, and as a result, phone prices are starting to creep up.

"The overwhelming majority is not used to paying a lot for their handset," said Yankee Group handset analyst John Jackson. "Most people have no interest in paying over $150."

As for Nokia's midquarter update, expectations aren't too ambitious. U.S. Bancorp Piper Jaffray analyst Samuel May said, "They've been taking their numbers down and have been getting scared lately. There's not a lot of upside or downside. I'm expecting them to reaffirm guidance."

Tunnel Vision

Nonetheless, some analysts still hope for good news. "I think it will be positive," said J.P. Morgan wireless equipment analyst Ed Snyder, noting that "suppliers have seen pretty strong demand." However, he said he doesn't expect the company to raise its outlook just yet.

If Nokia sticks to its current estimates, this year's third-quarter sales would be an improvement on last year's sales of $6.33 billion for the same period, while net profit would be relatively steady with last year's profit of 14.5 cents a share for the period. Nokia will report this year's third-quarter earnings on Oct. 17.

Looking forward, handset manufacturers like Nokia are focusing on luring the gadget-obsessed in order to combat the market gloom. "We're seeing customers are more aware that phones have an intrinsic value," said Nokia spokesman Keith Nowak, pointing out that with carriers' handset subsidies waning in Europe, customers in the region are paying full value for most of their phones.

American wireless customers have come to rely on such subsidies, which are rebates on handset purchases offered by carriers to lure new customers. In recent months, however, debt-strapped American carriers have been following in the footsteps of European and Asian carriers, which have moved to curtail rebates. The South Korean government has gone as far as to suggest banning all subsidies in the region.

"People are placing more value to phones than $5 to $20

which Americans often pay. Will there always be a market for low-priced phones? Yeah.

But we think people will be willing to pay," Nowak said.

And what better place for Nokia to show off new models than at a trendy French festival? The company launched two new color-screen phones last week at a snowboarding and sports event in France. The 3650, a tri-mode, color-screen photo and video-camera phone, will arrive on U.S. soil in the first quarter of next year, while another color phone minus the camera, the 3510, will begin shipping in the fourth quarter. Built-in cameras, which let users shoot and send pictures by using the phone's keypad, are expected to boost multimedia-messaging usage.

"If we don't all converge on these services, you will be deprived of value of our phone," said Nokia's managing director of the mobile-phone division in France, Serge Ferre, whose rather passionate speech was broadcast live on the Web. "You will be deprived of the enjoyment of our phone, you will be deprived of the enjoyment of new forms of communications, you will want everybody to converge on this."

Judging from Ferre's words, it appears that the company's near-term strategy may very well be driven by some sort of techno-religious fervor. "And you will want this to happen fast," he said.