No Illusions About Nokia's News - TheStreet

With just a day before

Nokia

(NOK) - Get Report

updates its midquarter guidance, the question was whether realism about the wireless handset sector finally has set in?

Perhaps, was the answer today, after Nokia shares were

not

pummeled this morning, showing remarkable resilience most of the day, despite having estimates cut by both Merrill Lynch and J.P. Morgan.

Merrill Lynch's European wireless-equipment analyst team ratcheted down global handset shipment forecasts for 2002 to 385 million from 410 million, reflecting similar sentiments at Deutsche Bank Securities earlier last month. For 2003, volume was reduced to 410 million from 460 million handset units. In April, Nokia forecast global handset sales for 2002 between 400 million and 420 million, reducing an earlier projection of 420 million to 440 million.

Merrill analyst Adnaan Ahmad reduced estimates of Nokia's fiscal 2002 revenues by 7% to $29 billion, which is a 1% decline year over year, compared with previous forecasts of a year-over-year gain of 6%, or $31.3 billion. Nokia's own forecasts given after the end of the first quarter were for an annual sales growth of between 4% to 9%

After staging a short rally earlier in the day, Nokia closed the day down 30 cents, or 2.44% to $12.

Ericsson

(ERICY)

, which is in a joint venture with Sony to produce handsets, dropped 6 cents or 2.94% to $1.98.

Some analysts say Nokia shares already reflect reduced outlook on the sector. That belief drove J.P. Morgan's decision to upgrade Nokia and Ericsson to market perform from market underperform this morning, while Nokia's price target was slashed to $13 from $15. "While at this stage we don't see any signs of a rebound in handset replacement sales or substantive 3G infrastructure deployments, we do see a number of very substantial POTENTIAL catalysts to move the stock into the $15 to $17 range," wrote J.P. Morgan analyst Ed Snyder. "Incremental bad news at the current price looks limited to us, especially given the very severe selloff."

Snyder is referring to last week's brutal selloff of technology shares, instigated by

Intel

(INTC) - Get Report

, which cut revenue forecast for its second quarter last week. It was followed by a warning from one of Nokia's key component supplier

RF Micro Devices

(RFMD)

, which also reduced sales and earnings estimates. The selloff helped shave 12% off Nokia shares since Intel's warning Thursday. Since the beginning of the year, Nokia has seen its value halved.

All eyes will be on Nokia tomorrow morning as it updates the company's guidance, which could send European stocks and the wireless sector into a repeat of last week's performance, or help stage a near-term rally for the handset sector until the company's second-quarter earnings report on July 18.

By and large, analysts predict Nokia will pare its sales number for the quarter toward the lower end of its projected 2% to 7% year-over-year comparison, but maintain second quarter earnings per share guidance of 17 cents to 19 cents, due in part to the company being able to maintain the average selling price of its phones. J.P. Morgan expects Nokia to reduce handset sales forecasts to flat to 5% growth in the quarter, from its current projections of 5% to 10% growth.

Observers do not expect the company to comment on fiscal year estimates until it reports earnings in July.

Sometimes, it's what didn't happen -- more bloodletting today -- that's more important.