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Analysts: Nokia's update won't be cheery

The handset maker is expected to disappoint investors again next week by warning on its second-quarter sales target. One analyst, however, says it's not Nokia's fault.

Nokia, which has seen its share price cut in half this year, is expected to disappoint investors again Tuesday by warning it will miss its second-quarter sales target but score on profits, analysts said.

Nokia's mid-quarter update on June 11 will be closely watched in a hard-hit industry desperate for positive news after chip giant Intel and telecom equipment maker Ericsson issued bleak outlooks this week.

The world's largest handset maker will find it hard to ensure top-line growth because the mobile phone industry has not shown signs of picking up from a decline in sales last year.

"Nokia's revenue (outlook) is likely to fall slightly. We expect them to reiterate the margins target but say that market conditions remain tough," said Stuart Jeffrey at investment bank Lehman Brothers, which rates Nokia a "buy".

Analysts are split as to whether such a scenario would send the stock into a tailspin, saying sentiment is too unstable.

The handset industry is suffering because consumers, particularly in Europe, are happy with their phones and don't see the need to buy newer ones. They are also disappointed with what is being offered when it comes to data services.

Add to that a weak global economy and the reluctance of cash-strapped telecom operators to expand their mobile networks, many of which are nearing maximum capacity.

"Nokia's hurting because of the weak market, not because of problems of its own," said Jan Ihrfelt, an analyst at Swedish bank Swedbank, which rates Nokia a "reduce."

Nokia, which says it will not comment Tuesday on the company's outlook for the rest of the year, will post full second-quarter results July 18.

Nokia's virtual grip of the handset market is expected to show signs of strain, with several analysts expecting its market share to fall for a second quarter in a row as Motorola and others gain ground.

"Our recent round of channel checks of top five selling phones validates our thesis that Nokia will likely lose share in the second quarter," said analyst Tim Long at CSFB in a recent research note. The bank rates Nokia a "buy."

Analysts are split as to whether Nokia can meet its handset sales growth target for the quarter of a 5 percent to 10 percent gain over $5.06 billion (5.35 billion euros) a year ago. A 20 percent operating margin on phones is even more challenging, they added.

Nokia's new range of color-screen phones are not yet on the market to boost results, and the new entry-level models, aimed at the huge teenager market, were just coming into stores.

Analysts expect Nokia will be forced to lower its already downgraded targets for networks, especially in light of bleak news from rivals such as Ericsson and Alcatel about the sector.

Story Copyright  © 2002 Reuters Limited.  All rights reserved.