To: 49thMIMOMander who wrote (19164 ) 3/27/2002 9:17:24 AM From: Eric L Read Replies (2) | Respond to of 34857 re: Tish on Handset Forecast Skepticism >> Doubt Grows On Nokia's Cell-Phone Forecast Tish Williams TheStreet.com 03/27/2002 It's not a widely voiced thought yet, but a select few who follow the wireless market are starting to wonder if the 2002 forecast from market leader Nokia (NOK:NYSE ADR) for the mobile-phone industry forecast is too high. Nokia forecast that 420 million to 440 million handsets would make their way into consumers' hands worldwide this year, but that number will require strong sales in the second half of the year to wireless customers who already have phones. As earnings season approaches, the whispers have begun to circulate that new phone models might not do the trick and Nokia will have to tone down its forecast. Following a stellar fourth quarter, Nokia, which has more than 35% of the worldwide market, will have to deliver first-quarter magic to prove its forecast for the whole industry is on target. Back in January, Nokia felt confident enough in a rebound to report worldwide 2001 shipments of 380 million and predict 2002 sales of 420 million to 440 million. The company projected that 90 million mobile phones would ship in the first quarter, adding up to a heavily back-end loaded estimate. Nokia stuck to its numbers in a March update, despite warnings that the equipment market was even more putrid than expected. Industry players spent 2001 watching the channel digest inventory, and in 2002 there are high hopes that snazzy color screens and alluring data features such as text messaging will get the sector cooking again. Still, dissenters are popping up on Wall Street. Nokia's 19% drop in share price since the beginning of the year could be attributable to more than this month's equipment warning. Estimates for worldwide subscriber growth in 2002 call for a decline. We know that this would mean 55% of the mobile-phone sales this year will come as replacement phones. In the past two weeks, handset makers rolled out several models each at Europe's CeBIT show and the U.S. CTIA conference. Not all analysts were swayed that the models would spur the kind of growth vendors need to hit the 420 million target. Not Enough Reasons To Buy W.R. Hambrecht's Peter Friedland isn't impressed with Nokia's lineup and doesn't believe the worldwide market will make its numbers. "It's possible that things could accelerate, but there's no concrete reason to think there will be a huge pickup," he says. He thinks sluggish Nokia shares reflect that. "Yes, negative news on the wireless infrastructure business hit the stock, but at the end of the day the success or failure of the handset market drives the price." Friedland was disappointed to see only three color-screened GPRS phones on the market with seven more planned for launch later in 2002 -- two of those from Nokia. He projects that at the current rate, Nokia and the other handset makers will ship closer to 400 million phones. Taking a look at Nokia's 90 million first-quarter market estimate, a smaller contingent of skeptics think the sector may miss even that number by 4 million to 5 million. The chance of that happening seems unlikely following Nokia's midquarter report, when it could have easily combined bad equipment news with worse handset news. Instead, Nokia said its quarter would live up to expectations and didn't update guidance. It is not so unthinkable, however, that the sector would fall short of providing an end-of-the-year push. Shipping 90 million phones to customers in the first quarter still leaves at least 330 million phones to ship in the next three quarters. Last year's seasonal patterns were atypical for most of the year, but even the valiant fourth-quarter surge saw an 18% sequential jump in sales; in 2000, that figure was more like 40%. With fewer new customers snapping up phones, the industry could be moving away from the fourth-quarter magic. Even an 18% jump in the fourth quarter of 2001 won't meet estimates, unless there's a second- and third-quarter boost from 90 million to move the numbers along. Many of the advanced phone models don't ship until the third quarter, however, and U.S. carriers have spent the past quarter saying they won't be able to sign up customers at the hectic rate they did in 2001. UBS Warburg's Jeffrey Schlesinger believes the market will shape up to about 400 million phones sold in to the channel as the industry finishes the third year in a "transition" period. Until Nokia's April 18 earnings report, the naysayers will have their say. Should Nokia tweak its forecast, the pressure will be on in earnest. << - Eric -