Two weeks ago, the wireless handset and equipment maker ruined hopes that it would remain immune to the handset slump depressing the competitive outlooks of
Thursday, the company gave investors more to be worried about as the Finnish cell- phone king announced it would cut 1,000 of its 23,000 positions on the network equipment side of the business "to align the organization to the current business environment."
The Street widely interpreted the move as an indicator that Nokia's business is still going soft when it comes to equipment, and that the company is trying to maintain its margins by cutting costs.
Dresdner Kleinwort Wasserstein
argued that the announcement "highlights the severity and the rapidity of the sequential decline in its mobile systems operations" and reaffirmed its sell rating on the stock.
Jeffrey Schlesinger was slightly kinder -- inferring that the layoffs indicated Nokia might not meet his 2002 earnings growth estimate of 16% -- but he also stressed that "the stock is likely to be 'dead money' for the next quarter."
Its time to start hoping for a 2002 recovery, when general packet radio service (GPRS) rollouts are expected to spur demand in equipment. Schlesinger cautions that weakness could continue if GPRS doesn't save the day. Nokia's stock has fallen 25% since its June 12 announcement. The stock was up slightly on a strong day for the markets, inching up 11 cents to $21.56.
Nokia's 1,000 cuts are nowhere near the magnitude of Ericsson's back-to-efficiency campaign or Motorola's plans -- each are cutting more than 10,000 employees in their under-performing handset businesses. CEO Jorma Ollila emphasized Nokia's need to "counter changing market conditions by accelerating ongoing programs and generating efficiencies and cost savings," when it warned that its first-quarter revenues would be 13 cents to 14 cents, 4 cents less than consensus estimates.
Nokia expects to take a $212 million charge in its second quarter for costs of restructuring and on certain Internet communications investments. Nokia's network business grew 35% in the third quarter, but in its June warning, the company explained its growth would be more modest.
Expect More Bad News
As a sign of continuing pressure caused by a downturn in the worldwide appetite for cell phones and wireless equipment, electronics giant Philips
on Tuesday followed in Ericsson's footsteps by outsourcing its handset business. Philips was expected to abandon its business, which has less than 3% worldwide market share, to
Instead it decided on outsourcing and will share some of its operations in a joint venture with China Electronic. Philips will take a $335 million charge with the restructuring.
Dresdner advised investors to "brace themselves for further negative news from the world's dominant handset maker in the coming months." Given Nokia was the blessed stock in the sector, expect bad reports from its competitors to keep rolling in too.