Nokia Reports Strong Numbers, but Don't Expect Rally to Hold - TheStreet

Nokia Reports Strong Numbers, but Don't Expect Rally to Hold

The stock is up in preopen action, but expectations are so great in the wireless area that Nokia investors tend to take profits on earnings day.
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Updated from 12:05 a.m. EST.

Nokia

(NOK) - Get Report

this morning reported fourth-quarter earnings of about 72 cents a share, 5 cents better than the 17-analyst

First Call/Thomson Financial

estimate. The wireless giant also said it's seeking a 4-for-1 stock split, and it reiterated a net sales growth target of 30% to 40% for 2000.

The stock lately was up 6 to 191 on

Instinet

.

Nokia reported strong fourth-quarter numbers Tuesday morning. But don't expect its preopen rally to last.

Wall Street, whose cooling ardor for the wireless sector was evident in the

Qualcomm

(QCOM) - Get Report

selloff last week, wanted to see Nokia post solid numbers and address its wireless-phone Achilles' heel -- its lagging sales in the CDMA wireless standard. Investors were also watching for data on market share and margins, as well as indications that an industrywide component shortage won't drag down revenue growth.

But if history is any guide, Nokia shares are likely to take a beating Tuesday despite the company's burying the 67-cent-a-share First Call/Thomson Financial earnings estimate. Nokia reported positive earnings surprises in each of the past four quarters, but investors nonetheless punished the stock immediately following three of those reports. The stock's recent run-up is partly to blame, analysts say.

Great Expectations

Nokia shares rose more than 200% last year as the fashionable Finnish phone fabricator continued to boost earnings by outselling its closest rivals

Motorola

(MOT)

and

Ericsson

(ERICY)

. The stock jumped 2% Monday to close at 184, just off its 52-week high of 196. Why? Execution: Preliminary estimates by research firm

Dataquest

put Nokia's 1999 worldwide handset market share at 27%, a 4-point increase over last year and 10 points more than Motorola.

"This is a market that is expecting a lot out of everyone," says

Deutsche Banc Alex. Brown

analyst Brian Modoff, who has a buy on Nokia. "This stock had a huge run last year, and so it is logical that people would be looking for reasons to take profit." (Deutsche Banc Alex. Brown has no banking ties to Nokia.)

That's been the pattern anyway. Last year, Nokia beat December-quarter estimates by 7 cents, but the stock fell 8.5% in the two days following. This year, analysts said they weren't aware of an informal Nokia "whisper" number, but it appears that a surprise of more than a few cents may be necessary to placate impatient investors.

Don't expect a repeat of last week's Qualcomm rout if Nokia fails to trounce the consensus estimates, but "there is a similar pressure to perform and they are going to have to be over by more than a penny," says an analyst who asked not to be identified.

Soft Spot

While Nokia dominates two of the three digital wireless technologies, it continues to be weak in CDMA, the fastest-growing technology in the U.S. For example, Nokia has been unable to successfully deliver CDMA Web phones to

Sprint PCS

(PCS)

, which is the fastest-growing wireless service provider in the nation.

The impact of Nokia's CDMA deficiency hasn't yet hurt revenue, but Motorola and

Samsung

, among others, stand to gain market share as they bring new CDMA models to stores this year.

CDMA weakness "is an issue Nokia has to resolve, but in terms of volume to its business, it doesn't mean a lot to the bottom line at this point," says Modoff. "Their strength in other areas can offset CDMA."

But with Wall Street taking a harder look at tech these days, distant problems can show up as an immediate shock to stock prices.