Nokia downgraded ahead of results
Shares tumble as broker sets below market target price
By Emily Church, CBS.MarketWatch.com
11:27:00 AM GMT Jan 21, 2002
LONDON (CBS.MW) - Nokia shares tumbled 6 percent in Finland on Monday after broker Morgan Stanley downgraded its rating on the stock to "underperform" four days ahead of scheduled December quarter results from the world's largest mobile handset maker.
The week will be key for the handset makers with Nokia [US:NOK, News, Chart, Research] , number two Motorola [US:MOT, News, Chart, Research] , Ericsson [US:ERICY, News, Chart, Research] and Siemens [US:SI, News, Chart, Research] all slated to post December quarter results and wind up a difficult year in an industry beset by competitive pricing in the midst of a downturn.
The markets will be scrutinizing the results and outlooks from executives for an indication that the momentum is still slowing or that conditions are improving for handset sales and in related telecom equipment.
China sales decline?
Citing fears of a decline in telecom equipment sales in China this year, Morgan Stanley told clients it was cutting its earnings per share estimate for Nokia [SE:000053994, News, Chart, Research] by 6 percent to €0.73 and 2003 earnings per share by 4 percent to €0.81.
The broker also trimmed its forecast for global mobile phone sales in 2002 by 6 percent to 410 million units and raised concerns of an inventory build up at the end of the fourth quarter. It said it now has a price target on the stock of €15 ($13) - well below the €24.20 the stock traded at in Finland on Monday.
On average, analysts are predicting the global handset volumes of 420 million to 440 million phones this year, largely on the strength of new model sales in the second half of the year, according to Danske Securities.
"Our concern in 2002 remains the heavy reliance on a replacement market recovery, as well as some nervousness about the risk of decline in new subscribers," Morgan Stanley's analyst Angela Dean told clients. She had rated the stock at a less-than-enthusiastic "neutral" ahead of Monday.
Outlook for NOK, ERICY and MOT
Nokia is expected to release fourth quarter results on Thursday, and has already told investors it expects to meet or exceed its earning per share target of €0.18 to €0.20.
The market will be looking out for a response to concerns over a build up in inventory of the handsets, as well as Nokia's outlook for 2002 handset volumes.
Pricing conditions will be a key focus; the company in December said that pricing in the industry was stabilizing.
"It will be interesting to see how they closed out the year, and whether their margins at 19 percent are holding," said Ben Wood, industry analyst at Gartner Group.
Nokia is expected to report fourth quarter pre-tax profit of an average €1.374 billion, according to 28 analysts polled by SME Direkt in Stockholm, vs. €1.770 billion a year earlier.
Sales are seen at an average €8.55 billion, down some 8 percent from a year earlier. On Dec. 11, Nokia said it expects net sales to rise 20 percent from the third quarter.
Rival Ericsson [SE:000010865, News, Chart, Research] is slated to report on Friday. Analysts are anticipating sales at an average 54.87 billion Swedish kronor ($5.3 billion) and a pre-tax loss of Skr 4.313 million or 0.38 a share.
The results will include its joint venture in handsets with Sony [US:SNE, News, Chart, Research] for the first time.
U.S. Motorola is expected to be the first out of the gate with fourth quarter results on Tuesday.
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