Will Nokia herald 2001 mobile "gap year"?
By Paul de Bendern
HELSINKI, Jan 24 (Reuters) - Nokia Oyj Abp will be under scrutiny next week to see if 2001 forecasts from the world's
largest mobile phone maker's will herald a ``gap year'' of low growth for the industry.
The question is: Can Nokia hold the line in a sector battered by profit warnings, the sell-off in tech stocks and fears over
possible delays in rolling out high-speed mobile Internet products and services?
Any backtracking in this year's outlooks from Nokia, which has 31.6 percent of the global market share in handsets, will deal a
further blow to already battered mobile and tech shares.
The market will get a taste of the health of the wireless world when Sweden's Ericsson , the world's third largest handset
maker, unveils Q4 results on Friday.
Ericsson, the leading mobile network equipment maker, is expected to report a 125 million crown ($13.12 million) pre-tax loss
for the fourth quarter, hit by heavy losses at its troubled wireless phone division, according to a Reuters poll.
However Nokia, the world's most profitable handset maker, is seen posting a 34 percent jump in pre-tax profit to 1.70 billion
euros ($1.60 billion) on sales of 8.93 billion euros in the fourth quarter, according to another Reuters survey.
Commerzbank analyst Peter Knox, who has a ``buy'' rating on Ericsson and Nokia, said investors will want to be reassured
that Nokia was sticking to its own earlier forecasts.
He sees Nokia keeping its estimate of revenue growth at the upper end of 25-35 percent in the first half of 2001.
But Evli Securities analyst Petri Korpineva, who has a ``buy'' rating on Nokia, said the company may soften its predictions.
``Nokia can't fight against a weaker market forever,'' he said.
Nokia has a revenue growth target of 25-35 percent for full-year 2001 through 2003, with continued high profitability.
INDUSTRY-WIDE OUTLOOK
Attention will also focus on whether Nokia will cut its 2001 industry-wide mobile phone sale forecast of 550 units.
Earlier this month Motorola Inc. (NYSE:MOT - news), the world's second largest handset maker, reduced its 2001 estimate
to the low end of the 525-575 million range, indicating that the strong growth the sector has enjoyed in recent years may be
coming to an end.
``If Nokia doesn't cut the figure I don't expect much of a negative reaction as (a cut) has already been discounted into the share
and so the market will cheer,'' said Korpineva.
Nokia has seen its share price fall sharply along with the rest of the tech sector in recent months, with the stock trading around
42 euros, well off its June 2000 life-high of 65 euros.
Despite the decline it still trades at a premium to its peers, indicating investor confidence in the firm. Its 2001 price-to-earnings
ratio (P/E) of over 40 is above Ericsson's P/E of 37 and 24 for Motorola.
Nokia took the industry by surprise earlier this month when it announced sales of over 128 million phones in 2000 and forecast
industry-wide global sales of 405 million.
Several investment banks saw both figures as weaker-than-expected and have cut their share price targets.
Comments about the pace of the replacement cycle for handsets would also be in focus next Tuesday.
Analysts will also want to know about the market position of Nokia's networks unit, which only accounts for around 25 percent
of its net sales versus a share of some 72 percent for handsets.
Nokia is battling Ericsson over orders for high-speed General Packet Radio Service (GPRS) mobile phone networks and even
more advanced third-generation (3G) systems.
The market is increasingly worried about possible delays in the full launch of GPRS and 3G by European telecom operators.
GPRS networks are now being introduced in limited form in some European countries and 3G networks are officially due in
2002.
Analysts fear that if the networks are delayed and sales of GPRS and 3G phones do not pick up as fast as hoped due to
consumer caution, it could hit the likes of Nokia.
``There's talk that GPRS is slipping to the latter stages of 2001,'' said Commerzbank's Knox.
But analysts say that even if 2001 is a ``year out'' for mobile phone makers, they expect Nokia to be best positioned due to its
leading brand name and position, strong management team and ability to get products to the market fast at low costs.
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