Nokia Misses the Call ... For Now
Thu Jul 27 13:09:00 EDT 2000
New York, Jul 27, 2000 (123Jump via COMTEX) -- Even after posting solid revenue
and earnings growth for the 2Q, Nokia's (NYSE:NOK) share price is in a freefall
after predicting its 3Q earnings will be lower than 2Q earnings.
Revenue grew by 55% to $6.61 billion in 2Q of 2000 from $4.25 billion in 2Q
1999. Earnings grew an impressive 64% year-over-year from $550 million to $900
million. EPS increased from $0.12 in 2Q 1999, to $0.19 in 2Q 2000, meeting the
average expectation of analysts.
However, Nokia, the world's leading cellular phone maker, expects 3Q EPS to be
below the 2Q EPS of $0.19. This warning drove Nokia's stock down over 20% by
mid-day. More importantly, this announcement has shocked the market and sent all
mobile phone companies into a nosedive.
Investors were still extremely skittish after Ericcson's (NASDAQ:ERICY) mobile
phone division posted operating losses of $223 million for the first half of
2000, with losses expected to mount further.
The only positive 2Q earnings report in the mobile phone arena came from
Motorola (NYSE:MOT), a company that has shown disappointing earnings results
since 1998. Motorola met analyst expectations of 23 cents EPS, excluding special
items, for 2Q 2000, up from 13 cents over the same period last year. More
importantly, Motorola's operating margins climbed from 2% in 1Q 2000 to 4% in
the second-quarter. However, even Motorola showed some weakness in its earnings
report as orders for personal communications fell by 1%.
Skittish Investors Missing a Good Buy
Many investors are falling into the trap of being shortsighted and concentrating
only on quarterly performance. This is a cardinal mistake. Many investors
concentrate solely on quarterly results rather than considering the company's
performance in the long-term.
The cause of Nokia's 3Q weakness is the introduction of many new products,
including WAP phones with Internet capability. This, combined with a typical
seasonal drop in sales, is the cause of the expected low, 3Q earnings. Moreover,
Nokia forecasts that earnings in the fourth quarter will exceed second-quarter
results.
Most importantly, the overall market for mobile phones is growing rapidly. Nokia
estimates that the number of mobile phone users worldwide rose to over 570
million at the end of June. Long-term growth estimates still project that there
will be over one billion mobile phone users by 2002. Nokia will claim the
majority of these sales as they already hold 30% of the total mobile phone
market. Thus, the huge drop in Nokia's share price is an excellent buying
opportunity for investors who can look beyond the next quarter.
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212-968-8700
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