Nokia's Week Started Poorly and Got Worse - TheStreet

Finnish mobile giant

Nokia

(NOK) - Get Report

took a drubbing this week, whipped by a less-than-encouraging industry report and followed by persistent rumors trickling out of Europe that it might reduce revenue estimates. Nokia's shares fell more than 14% since last Friday's close, finishing yesterday at $14.25.

Despite the market pressures midweek, which led to a one-day decline Tuesday of 6%, the leading handset manufacturer kept quiet, as most U.S. analysts and brokers had expected. Industry watchers said the company is likely to leave the highly anticipated task of revising its estimates downward for its intraquarter update on June 11.

"If Nokia is losing more market share than we suspect, then it's possible that they'll revise guidance," said analyst Mark Roberts at Wachovia Securities, a firm that has not done any banking with Nokia. "They'll try to couch it as being an industrywide problem -- continued weakness in global handset demand -- and not that it's Nokia-specific."

In April, the company forecast that full-year sales would gain between 4% to 9%, instead of an earlier estimate of 15%.

Nokia's bad week was touched off by a Gartner Group report Monday. The report suggested that while the company managed to register a slight bump in market share of sales to end-users, gaining 0.2% to 34.7% in the first quarter compared with the first-quarter last year, sequential comparisons were grim. Nokia actually dropped share in sales to the end-user category from 36.9% in the fourth quarter last year to 34.7% in the first quarter this year, according to the report. Overall handset sales dropped 3.8% worldwide year over year, to 93.8 million units in this year's first quarter.

More bad news followed after one of Nokia's plastics suppliers,

Eimo

(EIMO)

, reduced its sales forecasts midweek, citing "significantly lower estimated volumes in Europe by several customers." The news launched rumors among the brokerage community in Europe about a potential revision on Nokia's guidance this week. Some analysts discounted the news, saying the plastics industry is not the best indicator of performance in the handset sector. "Given that plastics are a commodity business, share loss or share wins are volatile," said wireless-equipment analyst Matthew Hoffman at SoundView Technology Group. "There's no direct correlation." SoundView does not have a banking relationship with Nokia.

At the heart of the concerns is Nokia's ambitious estimate for an industrywide projection of between 400 million and 420 million handsets shipped by year-end, which was already revised from an estimate of 420 million to 440 million earlier this year. The lion's share of sales are expected to come in the second half, on next-generation models consumers will need to take advantage of upcoming high-speed wireless data services from the major national carriers. But slower-than-expected deployment may crimp sales of these snazzy handsets, said analysts, leading many to reduce their forecasts.

In May, Deutsche Bank Securities reduced its global handset shipment forecasts to 386 million units shipped, a far cry from its own previous projection of 410 million units.

Oddly, few of those worries plagued competitor

Motorola

(MOT)

, which, although also victim to industrywide concerns, managed to gain market share at Nokia's expense, according to the same Gartner Group report. In one of several surprises, Motorola gained 2% to 15.6% to defend its second-place position on sales of 14.5 million units. Gains were attributed to growth in China, due to strong sales in the region during Chinese lunar New Year promotions in the first quarter.

But Motorola's short-term boost in the region is not without caveats:

Reuters

reported Friday morning that the Chinese government is prepared to institute stricter cell-phone radiation laws that will depress carriers and handset makers: Carriers will need to upgrade their towers to emit stronger signals, while handset makers may soon be required to sell modified phones. It remains to be seen what Motorola's strength as the No. 1 handset maker in China will bear.

Motorola shares finished the week up 0.4% to $16.85.

Samsung

emerged as the strongest gainer, jumping to third place, with 9.6% share, compared with 6.2% in the same period a year ago.