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Nokia sounds earnings warning

Cell phone heavyweight Nokia on Tuesday warned second-quarter earnings will fall below estimates and it expects to revise its outlook for the remainder of the year.

Cell phone heavyweight Nokia on Tuesday warned second-quarter earnings will fall below estimates and it expects to revise its outlook for the remainder of the year.

Nokia now expects second-quarter earnings to be in the range of US$0.13 to US$0.14 per share. The company expected to earn US$0.17 per share.

Analysts surveyed by First Call expected the Finnish company to earn US$0.18 a share in the quarter.

By market close, shares of Nokia fell US$5.45, or 19 percent, to US$23.26. Nokia's warning fell hard on its competitors, causing their shares to slip. Ericsson, Motorola and RF Micro Devices also traded lower.

Nokia said the overall economic slowdown in the United States and in the wireless communications sector has spilled over to other regions, affecting cell phone sales and growth. Unlike its rivals, Nokia maintained its earlier predictions, including a bold one that cell phone sales will reach the 500 million level for the year.

When Nokia President Jorma Olilla made the prediction in April, he acknowledged the difficulty in hitting that mark. "We are sticking our head out a lot on this," he said at the time.

The company also expects the global mobile phone market to soften and show only modest growth this year compared with 2000, when about 405 million phones were sold.

Based on the first two months of its second quarter, Nokia estimates sales growth to come below 10 percent, compared with its prior outlook of 20 percent. Although the company sees slower sales, it also expects it to pick up a bit during the second half of 2001.

According to a recent Gartner study, a half-billion cell phones will be sold worldwide regardless of the slowdown that has hurt many players. The market research firm found that Nokia stood out from the crowd, selling 35.3 percent of the nearly 97 million cell phones sold in the first three months of 2001.

Rival Ericsson has also lowered its own estimates of cell phone sales. Ericsson once predicted global cell phone sales in 2001 to be between 450 million and 525 million. Earlier this year, the company cut that target to between 430 million and 480 million.

Nokia said it intends to take "determined actions" in all areas of its business to better align operations with the changing market landscape. The company has announced several moves including layoffs and other operational changes to help achieve this goal.

Earlier this month, the company made production changes at its Bochum, Germany facility. That unit is now focusing on the final assembly of mobile phones while part of the product assembly process has been moved to other Nokia facilities and to contract manufacturers. As a result of the changes, the company also intends to cut about 300 jobs from the Bochum plant.

For the quarter, Nokia said it will take a one-time charge of approximately US$160.3 million as a result of some the recent changes that will include restructuring charges, as well as goodwill write-offs at Nokia Internet Communications.

Nokia said it is revisiting its outlook for the second half of the year. Updated estimates for the second half will be released July 19 when Nokia is slated to report second-quarter earnings.