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Nokia, Motorola Search for Spark

The wireless industry is under pressure, and these companies' results are likely to show it.

Wall Street's hoping to pick up a strong signal this week from the wireless sector, but problems overseas are likely to weaken the reception.

Starting tomorrow, the big three wireless gearmakers --

Motorola

(MOT)

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,

Nokia

(NOK) - Get Report

and

Ericsson

(ERICY)

-- are due to post second-quarter results. Though observers are hoping for signs of progress at all three, static could come from the waning sales outlooks in Europe and Asia.

Of course, no one is expecting great things from any of these giants, what with growth in their once-hot industry having slowed to a trickle. Indeed, both Nokia and Motorola lowered their second-quarter projections last month. Motorola

warned that Asian sales were suffering largely due to SARS, and Nokia cautioned that handset sales weren't likely to be as solid as it first thought. The pride of Finland

cut its 2003 growth projection in half.

But it was

Juniper

(JNPR) - Get Report

that most memorably splashed cold water on the big wireless players. During its earnings call Thursday, the networking gearmaker blamed its third-quarter caution on new reports of weak sales in Europe among its big partners Ericsson and

Siemens

(SI) - Get Report

. This strongly suggests that the already sluggish spending on 3G network upgrades is slumping further. If investors get another whiff of that notion this week, expect these downtrodden stocks to take on more water.

One More Fix

Motorola leads off Tuesday. Some optimists say the Schaumburg, Ill., wireless tech giant may have put some of its

worst stumbling in the rearview mirror. Bulls say one of these quarters Motorola will have nowhere but up to go with its network infrastructure, chip and handset businesses.

In fact, one analyst -- J.P. Morgan Chase's Ehud Gelblum, who started coverage of the company last week -- says Motorola has at last come to a corner. Now all it needs to do is turn it.

Among the things that may help, says Gelblum, is the array of 30 new handsets Motorola plans to introduce by year's end. Gelblum rates the world's No. 2 handset maker a neutral but says he's leaning toward the optimistic side, especially if the company can gain some market-share momentum.

That said, Motorola faces several stiff challenges, including the rapidly growing strength of Asian handset rivals

Samsung

,

Sanyo

and

LG

. These companies and Nokia have jumped well ahead of Motorola with camera and color-screen phones.

But even more important for investors is how well Motorola is navigating its own deep financial morass. After two years of sobering restructuring efforts, Motorola is once again fighting its red-ink demons. And while the company has been able to chip away about $800 million in debt this year, it still has an industry-leading $8.4 billion in obligations. With credit bills staked that high, analysts like Gelblum say it will be 2006 before Motorola has more cash than debt.

Analysts expect the company to eek out break-even earnings on $6 billion in sales. Some investors are bracing for a downward adjustment in full-year revenue expectations, since the current pace would call for as much as 15% revenue growth in the fourth quarter -- an unlikely event in this stagnant market. Motorola rose 4 cents Friday to $9.51.

Surge to the Finnish Line

Nokia, meanwhile, is scheduled to post its earnings Thursday. Analysts polled by Multex expect the company to post a 17-cent profit on $8 billion in revenue, which is a 3-cent sequential dip despite a slight top-line improvement.

Investors will be carefully tuned into Nokia's comments on margins and average per-phone selling prices. Any indication that either of those two metrics are holding flat will likely be seen as very good news. Phone prices typically fall steadily, but if Nokia reports that prices are flat it suggests consumers are buying some of the handset king's more expensive new phones. Nokia dropped 9 cents to close the week at $17.77.

And then there's Ericsson, which is supposed to report Friday. Analysts are looking for the Swedish gearmaker to post a loss of 19 cents on $3.2 billion in sales. Some investors say the company could even miss its lowered target and bring down its second-half projections due to the continued weakness of its wireless-infrastructure sales. The stock was up 20 cents Friday at $10.89.

One positive to look for with Ericsson is the gross margin department. One investor with no position in the stock says if Ericsson manages to bump its margins up a few points to 34%, the bulls will likely see it as a sign that the company has effectively lowered costs. This could add fuel to the common tech investment thesis that the companies with the lowest costs will fly the highest on those as yet elusive revenue upswings.

But, adds the hedge fund manager, "you can't cut your way to glory."