Nokia Revises Handset Numbers and Pays for It

The cell-phone leader says handset shipments will drop this quarter, but 2002 will bring growth in its equipment business.
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Nokia

(NOK) - Get Report

caught the market in a nervous mood Tuesday.

Expecting a positive tone from the mobile-phone giant in its daylong analyst meeting in New York City, the market reacted skittishly when Nokia revised its outlook for full-year worldwide phone sales down to 380 million. When it reported third-quarter earnings on Oct. 19, Nokia had estimated that the company and other manufacturers would ship 390 million handsets by year-end. Investors were not pleased with a lower number a little more than a month later, driving Nokia's stock down 8% to $23.19, docking

Motorola

(MOT)

2% and trimming

Ericsson

(ERICY)

by more than 5% in morning trading.

At the close of the morning session, CFO Olli-Pekka Kallasvuo attempted to clarify the 380 million figure, given the market's reaction. "The change mainly relates to previous quarters," he said, explaining that the 10 million drop-off will not be fueled by a lower-than-expected fourth quarter, but stems from a more precise understanding of what has already been shipped this year. With 34% of the market, Nokia is the dominant cell-phone seller. Nokia said it still plans to turn in 16 cents to 18 cents a share profit and 20% sales growth in the fourth quarter.

Nonetheless, Nokia's Tuesday morning comments reflected a changed fourth-quarter handset market outlook that went from 110 million phones to a range of 105 million to 110 million. During the third-quarter earnings wrap-up in October, CEO Jorma Ollila confidently asserted, "I don't think 110 million is aggressive ... we have two and a half weeks in our pocket, and there is a healthy start to the quarter." Obviously, Nokia's confidence has been tempered in the almost six weeks since. The company expects 2002 handset shipments to rise 10% to 15% over the revised 2001 number, or 420 million to 440 million.

On a more pleasing note, Nokia projected sales growth of 15% in 2002, its first projections for the coming year. Current analyst consensus expectations for 2001 revenue are notched at $27.4 billion, according to Multex.com, pegging 2002 revenue at $35.1 billion. Nokia wants a boost from new wireless technologies and says that it projects 25% to 35% growth in the fourth quarter of 2002's holiday season "at the latest." The company outlined a 2002 with slimmed revenue in the first quarter and "low double-digit" growth in the second quarter, leading to a late surge.

Nokia saved some positive scraps for the network equipment industry, forecasting that the market would have flat to 10% growth in 2002. In October, Ericsson predicted a 10% contraction of sales in 2002 compared with already depressed 2001 numbers. Nokia didn't sketch out sales projections, but said that margins would climb slightly from the 9.3% posted in the third quarter to 10% in the first half of 2002, improving to the midteens later in the year. Additionally, Nokia says the market for its base station technologies would grow 10%, as seen in several North American carriers' recent moves from TDMA equipment not in Nokia's equipment portfolio to more familiar GSM territory.

Cingular's

recent adoption of GSM and EDGE technology benefited Nokia and Ericsson, among others.