Investors Punish Nokia After
It Says That Profits Will Decline
By ALMAR LATOUR
Staff Reporter of THE WALL STREET JOURNAL
A flurry of worries that the world's mobile-telephone market may encounter
complications knocked cellular-phone giant Nokia Corp. off its stock-market
pedestal and sent a new shiver through Wall Street's skittish technology
sector.
Shares of the Finnish telecommunications-equipment maker fell 25% as
investors dumped Nokia's shares after a warning about third-quarter results.
In all, about $64.3 billion of market capitalization was erased from its
previously soaring market value. Nokia started the day with a market cap of
about $257.2 billion and finished at about $192.9 billion in 4 p.m. New York
Stock Exchange composite trading.
The company's forecast came as it
released second-quarter earnings that
edged past analysts' consensus estimate
but fell short of the exceptional results the
market has come to expect of the world's
No. 1 maker of mobile-phone handsets.
Nokia reported second-quarter pretax
profit of 1.42 billion euros ($1.32 billion), up
62% from a year ago and better than
official market estimates of 1.4 billion
euros. Still, that was short of unofficial
expectations of about 1.5 billion euros. Revenue rose 55% to 6.98 billion
euros and earnings per share were 20 European cents, up 54%.
The company cautioned that its earnings are likely to drop during the third
quarter because of the cost and timing of several new product introductions.
But Nokia's chairman, Jorma Ollila, said the company expects earnings per
share for the third quarter to at least equal year-ago levels of 13.5 European
cents, and that it remains on track to meet full-year forecasts. "Overall
growth prospects for Nokia in the later part of the year, as well as for the
long term, remain unchanged, stimulated by the strong mobile
communications market," he said.
Many investors took Nokia's
announcements as a signal to sell.
"The company performed only slightly
better than expected, which in
Nokia's case means worse than
expected," said Mika Paloranta, a
telecom analyst at Aros Securities in
Helsinki, Finland.
Nokia shares fell 21% in Helsinki to
45 euros, then continued their slide in
New York. They dragged down other
tech-related stocks as well: Texas
Instruments Inc., one of Nokia's
largest suppliers, dropped $7.4375, or
12%, to $56.875 in 4 p.m. Big Board composite trading despite reporting
robust second-quarter earnings. The selling also pulled down Nokia's main
rivals, Telefon AB L.M. Ericsson and Motorola Inc., which like Nokia
benefited early this year when investors fled battered Internet stocks and
bought mobile-telecom shares in the hope of catching tech's next wave.
Now, analysts aren't so sure that is the place to be. They worry that the
huge fees phone-network operators around the world are paying for
so-called third-generation cellular licenses, which will allow them to offer
mobile data-communications services, may cut into the funds available for
developing and marketing such services. European countries already have
started auctioning off those licenses -- drawing tens of billions of dollars of
bids -- and the U.S. will join the process in September.
Sales at equipment makers such as Nokia, the logic goes, could suffer if
third-generation networks are delayed due to a funds shortage after the
auctions. "Will operators have money left to invest in building 3G networks?"
asks Lars Waagstein, an analyst with Jupiter Communications in Stockholm.
For now, Nokia insists, handset sales are on track. The company saw
second-quarter handset sales grow 67% compared with a year ago, while
Motorola, of Schaumburg, Ill., the world's second-largest handset maker,
reported an increase of 20% for the quarter and Sweden's Ericsson, the
third-largest, saw a rise of 57% for the quarter.
Some big-name investors had a rough ride on Nokia's slide Thursday.
According to Bigdough.com, Janus Capital Corp., the large Denver fund
firm, owned 5.7% of the company's shares outstanding as of the end of the
first quarter. If its ownership stake remains the same, Janus would have had
nearly $4 billion of paper losses from Thursday's trading. According to
Morningstar, the Chicago mutual-fund tracker, at least three Janus mutual
funds counted Nokia as their largest holding as of the most recent disclosure:
Janus Twenty Fund, Janus Olympus Fund and Janus Mercury Fund. Five
more count the European wireless giant among their top five holdings.
Janus took the Nokia developments in stride, mindful that it has made billions
of dollars in gains on the stock. Indeed, five Janus funds held shares in the
wireless company as early as 1995. "While we don't comment on intraday
trading, we take a long-term view of Nokia as we do with all of our
holdings," a spokeswoman said. The move in Nokia sent Janus funds reeling:
Janus Twenty and Janus Mercury Fund both dropped 4.5%, Janus Global
Technology Fund fell 5.3% and Janus Olympus Fund was down 3.75%,
according to fund tracker Lipper Inc.
The Philadelphia Wireless Telecom Index fell 12.50, or 5.4%, to 220.48. At
4 p.m. Thursday, Motorola fell $3.375, or 9.2%, to $33.50 in Big Board
trading and Ericsson's American depositary receipts fell $1.875, or 9.2%, to
$18.50 on the Nasdaq Stock Market.
--Aaron Lucchetti contributed to this article.
Write to Almar Latour at almar.latour@wsj.com |
