< "Right now, the confidence in Nokia's management is at a
many-year low," said Johan Brostroem, an analyst with
Hagstromer & Qviberg in Stockholm. "People, including myself,
are going to be quite skeptical of their statements.">
Investors Hope Nokia, Ericsson
Offer Signs of Sector Turnaround
By Buster Kantrow
Dow Jones Newswires
STOCKHOLM -- Nokia Corp., the world's largest
manufacturer of mobile phones, isn't likely to provide much
comfort to beleaguered telecommunications investors when it
reports second-quarter results next week.
Meanwhile, rival Telefon AB L.M. Ericsson is expected to post
a larger loss for the second quarter than it did in the first. But
investors hope the company feels confident enough about the
future and its massive restructuring program to declare that the
worst is over.
Nokia is expected to post earnings near the bottom end of the
guidance it gave last month, when the Finnish company warned
that profits would be 15% to 25% less than previously
projected.
That news, coupled with the general gloom in the sector, sent
Nokia's shares to a 22-month low. According to a Dow Jones
survey of analysts, Nokia is expected to report second-quarter
earnings Thursday of 15 European cents a share on sales of
about 7.54 billion euros ($6.44 billion). Nokia said last month it
expected to post earnings per share of between 15 and 17
European cents, compared with its previously forecast 20
European cents.
In the year-earlier second quarter, Nokia earned 21 European
cents a share on sales of 6.98 billion euros.
Analysts also expect the company to lower its sales and
earnings expectations for the rest of the year, as it continues to
adjust to slowing world-wide demand for mobile phones and
sluggish capital spending by telecommunications operators.
ABN Amro, for instance, projects that Nokia will cut its sales
growth forecast to 10% from 20%.
Focus on Phone Unit
As always with Nokia, the focus will be on its phone unit, which
accounts for about 70% of sales, with investors keen to see
whether the company stands by its forecast for overall global
handset sales this year.
Nokia trimmed its forecast when it gave a profit warning in
June, saying it expected "modest growth" from 2000, when
around 405 million phones were sold world-wide. But some of
Nokia's competitors, industry suppliers and analysts have since
reduced their own forecasts even further.
Analysts will be watching for any indication that the company
sees an end to the current malaise in the sector. Nonetheless,
Nokia's projections will be taken with a grain of salt, given its
string of retreats from prior rosy forecasts.
"Right now, the confidence in Nokia's management is at a
many-year low," said Johan Brostroem, an analyst with
Hagstromer & Qviberg in Stockholm. "People, including myself,
are going to be quite skeptical of their statements."
Hope for Ericsson?
Ericsson, due to release its second-quarter results next Friday,
reported a pretax loss of nearly five billion kronor ($461
million) in the first quarter, excluding a one-time capital gain. At
the time, the Swedish company said its pretax results "will not
improve" for the second quarter, and observers now expect
results that are at least slightly worse.
According to a Dow Jones survey of analysts, Ericsson is
expected to post a pretax loss of about 5.5 billion kornor,
excluding restructuring charges, on sales of around 56 billion
kronor, and warn that business conditions for the rest of the
year will remain extremely difficult.
After the first-quarter loss, Ericsson announced a major
restructuring program, including 12,000 job cuts, that it said
would cut 20 billion kronor in annual operating expenses by
next year. The company is expected to provide a detailed
update on the progress of the cost-cutting next week, but
analysts say the measures won't bolster the bottom line much in
the just-concluded quarter.
Operating margins in Ericsson's core systems unit, which
accounts for roughly 70% of its sales, likely remained under
pressure in the second quarter. U.S. and European wireless
carriers have continued to postpone spending on new network
capacity given the economic uncertainty and their anticipation of
investments in next-generation mobile systems. Ericsson is the
world's largest maker of wireless-equipment gear.
Analysts expect another wide loss from the phone unit, which
has been troubled for more than a year and which posted an
operating loss of 5.7 billion kronor in the first quarter. Ericsson
fell to fourth from third in world-wide handset market share in
the first quarter, and analysts say it has likely lost further ground
to Nokia and Motorola Corp.
Ericsson, which sold off most of its handset manufacturing
facilities earlier this year, plans to combine its remaining phone
operations into a joint venture with Sony Corp. beginning Oct.
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