Nokia ($22.40 - $ 24) see's YOY of only 10% ,warns of slow second 1/2
Stock rebounds, analysts trim forecasts but see recovery
By Peter Bale, FTMarketWatch
Last Update: 11:59 AM ET June 13, 2001
LONDON (FTMW) - The love affair with Nokia goes on despite its profit warning.
Nokia (SE:000053994: news, alerts) (NOK: news, msgs, alerts) stock rebounded on Wednesday, closing 6 percent higher at €28.10 in Helsinki after a 23 percent fall on Tuesday as investors appeared convinced the fall was a buying opportunity rather than the end of the world as we know it.
"For the long-term you have to think 'how often do you get to pick up this stock at 25 euros. You've got to invest in them," said one senior London analyst who declined to be named.
Analysts on Wednesday slashed profit and margin forecasts for the world's largest mobile phone maker and in one case - Merrill Lynch - downgraded the stock to "neutral" from "accumulate" - that means if you've got it hold it but don't buy more right now.
Jolted not jilted
But even Merrill couldn't completely turn its back on Nokia and retained it as a long-term "buy". Other analysts just couldn't bring themselves to downgrade beloved Nokia. See FTMarketWatch analyst ratings.
"We are long term believers in the industry," Merrill said in what amounted to a statement of faith and almost an apology for its downgrade. "More importantly (we) believe that when a turn-around does occur, Nokia will be at the forefront..."
Only Sweden's Enskilda Securities, which probably knows Nokia and Ericsson better than most, expressed serious irritation at Nokia's surprise warning and forecast a further fall in its stock price.
"Nokia's credibility has been severely hurt as it again failed to meet too bullish guidance," Enskilda said in a note to clients. It saw up to a 15 percent further fall in the stock yet kept it an "accumulate".
Nokia on Tuesday shocked the entire tech and telecoms market with a sharp downward revision of its profit forecasts for the second quarter and warned that the downturn would hit the second half.
It said year-on-year sales growth in the second quarter would be "somewhat below" 10 percent, compared with its earlier estimate of 20 percent. Diluted pro forma earnings per share in Q2 would be between €0.15 and €0.17 (corrected from €1.17), compared with previous estimates of €0.20. See story on Nokia warning.
Yet even after the cuts analyst still see Nokia making margins on its handsets business around 16 percent - impressive for a business many say is fast becoming a commodity industry.
Finnish line
The Nokia warning jolted markets globally, just as analysts had been claiming they could see green shoots of recovery in the shattered mobile telecoms equipment and technology sectors. Few stocks have the power to influence markets as much as Nokia, the super Finn.
Investors have grown used to Nokia thriving no matter what. Even as Ericsson (SE:000010865: news, alerts) (ERICY: news, msgs, alerts) , Motorola (MOT: news, msgs, alerts) , Alcatel (FR:013000: news, alerts) (ALA: news, msgs, alerts) and Philips (NL:PHI: news, alerts) (PHG: news, msgs, alerts) warned and ran into trouble Nokia seemed immune from the downturn - growing market share and margins at their expense.
Even after the warning that abiding faith in Nokia was reflected in the analyst ratings. They seemed to prefer taking out their concern at the Nokia warning on Ericsson. Lehman increased its estimate of Ericsson's 2001 losses to SEK 2 billion from SEK 1.6 billion. Ericsson shares were flat on Wednesday at SEK57.50, having fallen as much as 12 percent on Tuesday after the Nokia warning.
Merrill cut its estimates for global mobile phone handsets to 390 million from 450 million for this year - even lower than Nokia's revised estimates. But it clearly thinks Nokia will continue to command the lion's share of the market, producing more attractive handsets at lower cost than its competitors.
Nokia rules
Morgan Stanley, which kept its "neutral" rating on Nokia, said the whole industry was being hit both in handset sales and in the all important provision of mobile communications infrastructure.
"We believe the further cost-cutting efforts, which the company is taking at both Nokia Mobile Phones and Nokia Networks, highlight the ongoing difficult conditions in the wireless industry," Morgan Stanley Dean Witter analyst Angela Dean said in a note.
But no one doubts that through it all the Finnish company will be the one left standing with the prize of global mobile domination.
"Even the best cannot escape," Goldman Sachs.
Goldman Sachs, which had already cut Nokia to the pretty strong "market outperfomer" from the very strong "recommended list" in February, seemed almost reluctant to trim its earnings forecasts by 18 percent and 26 percent for the next two years in a note titled: "Even the best cannot escape".
Its passion for Nokia was undimmed: "We continue to believe that in the long term, the company remains a strong market share story in both handsets and mobile systems."
But there was grumpiness among analysts - and their clients - who felt Nokia's repeatedly bullish comments about the outlook both in public and in recent broker meetings had misled them, leaving them caught out by Tuesday's warning.
"We have some major problems with clients who feel this caught them by surprise," said one senior analyst.
Enskilda gave vent to some of that concern at Nokia management's apparent lack of foresight: "With this profit warning, credibility has been severely hurt and the hit to confidence in management is likely to increase the risk premium..."
Enskilda said Nokia could fall as low as €22. |
