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Nokia market losses fail to dent sector confidence
Tuesday April 6, 12:03 pm ET
By Eric Auchard


NEW YORK, April 6 (Reuters) - A sales shortfall by mobile phone market leader Nokia (NOK1V.HE) sent its stock tumbling 18 percent but its impact on the broader wireless sector was confined to the Finnish company's most immediate suppliers.
The damage done to investor confidence in Finland's Nokia, which for years has served as the world's bellwether stock in the wireless industry, did little to undermine the growing confidence in the sector as a whole.

"Nokia is a blip. Other stocks in the sector are actually quite strong," said Ren Zamora, an analyst with Loop Capital Markets in Chicago.

Nokia said first-quarter sales fell 2 percent to 6.6 billion euros ($8.13 billion) against 3 percent to 7 percent growth it had expected. Earnings are now expected to be at the low end of previous expectations of 17 to 19 euro cents, it said.

Nokia blamed its troubles on the growing percentage of lower-priced phones it sold during the first-quarter, which cut into operating profits but has dampened sales very little. It acknowledged it was losing market share even as the industry as a whole performed well.

"A lot of people are taking the Nokia warning as really quite specific to Nokia's handset business," Zamora said.

Nokia (NYSE:NOK - News) stock fell $3.81, or 18 percent, to $17.34 in heavy trading on the New York Stock Exchange (News - Websites) , where it was the most active issue.

Nokia's biggest chip suppliers also saw their stocks fall. Texas Instruments (NYSE:TXN - News) fell 5.3 percent to $29.30 and STMicroelectronics (Paris:STM.PA - News) fell 4.53 percent to $23.63, both on the New York Stock Exchange. RF Micro Devices (NasdaqNM:RFMD - News) dropped 5.4 percent to $8.42 on Nasdaq.

"They have a little more connection with Nokia and as a result are getting a little more sting this morning," Zamora said.

However, shares of rival equipment makers such as Qualcomm Inc. (NasdaqNM:QCOM - News), Motorola Inc. (NYSE:MOT - News) and Ericsson (Stockholm:ERICb.ST - News; NasdaqNM:ERICY - News) declined by only 1 percent or less amid recent signs that global demand for mobile phones is picking up steam.

"Companies like Ericsson, Motorola, Qualcomm and Comverse (NasdaqNM:CMVT - News) are all benefiting from favorable trends," said James Faucette of Pacific Crest Securities in Portland, Oregon. "From what we are seeing of the trends, the move up to new phones and accompanying increase in network capabilities is strong."

Zamora sought to separate the product problems in Nokia's handset unit from its smaller network gear business, which the company reaffirmed was expected to grow at 16 percent to around 1.4 billion euros.

"Ericsson isn't getting hit as much because the network business at Nokia looks like it is doing very well," Zamora said. "In a lot of ways it is one more promising sign. It looks like the network business is definitely turning," he said.

He said this confirmed his thesis that the network business of rival Ericsson was showing clear signs of improvement. Zamora raised his first-quarter profit estimate on Ericsson to 12 cents an American Depositary Share from 7 cents previously.

Faucette said that Nokia must reassert itself in the market for mid to high-end phones. "They are going to have to be more aggressive in their designs," he said.

Nokia's strength is in manufacturing low-priced "bar" phones but demand is increasingly shifting to "flip-open" phones in many markets, he said.

http://biz.yahoo.com/rc/040406/tech_nokia_sector_1.html