Updated from 7:50 a.m. EST

Investors flinched Thursday after

Nextel

(NXTL)

said subscriber growth will slow and spending will grow this year.

Shares of the No. 5 cellphone service fell 75 cents, or nearly 3%, to $27.87 in afternoon trading Thursday after the walkie-talkie giant

posted stronger-than-expected fourth quarter results and boosted 2004 profit guidance.

But the sunny business outlook also included a projected drop in net subscriber additions to 1.8 million from the 2.3 million level last year. And capital spending, the favorite knob phone companies twist to save cash and enhance bottom lines, will actually rise 20% this year, as the company adds 2,200 antennas to its national network.

Nextel fans say the company is notoriously conservative on subscriber projections and will likely exceed the new user targets. And Nextel's decision to pump more money into network expansion is seen by some as a sign of strength.

With two larger competitors

Cingular

, a

BellSouth

(BLS)

SBC

(SBC)

joint venture, and

AT&T Wireless

(AWE)

preoccupied with their $41 billion merger, Nextel may have a prime shot at taking market share," says Blaylock & Partners analyst Rick Black.

"They will be spending to increase the size of their network coverage. And by improving services in certain areas, they'll have the ability to add more customers," says Black, who has a buy rating on Nextel. Blaylock and Partners has performed underwriting for Nextel in the past year.

For the fourth quarter ended Dec. 31, earnings hit $637 million, or 56 cents a share, on revenue of $3 billion. Excluding one-time items, so-called adjusted net income surged to $530 million, or 48 cents a share, from the year-ago $209 million, or 21 cents a share. The Thomson First Call analyst estimate called for earnings of 40 cents a share on revenue of $2.9 billion.

For the year, Nextel added 2.3 million new subscribers, including 553,000 in the fourth quarter. Total subscribers hit 12.9 million at year-end. Nextel said average monthly service revenue per subscriber rose to $70 for the fourth quarter and $69 for the full year, while churn slipped to an average of 1.6% for the year and was 1.5% for the fourth quarter of 2003.

Nextel bulls, and there are many of them, have long noted the company's industry-leading customer loyalty and per-customer yield numbers. The Reston, Va., tech shop's stock has risen some 500% in the last two years, but has been flat throughout 2004 as the industry undergoes a sorting-out period.

For 2004, Nextel said it would earn at least $2 a share, which is a solid 10% above the Thomson First Call analyst consensus. The company said operating income before depreciation and amortization will be $4.9 billion, with cash flow of $1.6 billion or so.

In a post earnings interview, COO Tom Kelly said he was confident that the company's defining characteristics like distinctive two-way radio features and an appeal to technicians and mobile professionals would still be a draw over the coming months. These strengths, he says will benefit Nextel's market share at the expense of its rivals.

"Historically, 90% of our gross adds are from subscribers leaving our competitors, and we expect that will continue," says Kelly.

Investors didn't seem to be questioning the momentum Thursday, just whether Nextel has lost a step or two.