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Nokia jumps despite slower sales

Nokia reiterated its projections for first-quarter growth, but indicated sales are slowing. Investors were expecting something much worse--thanks to recent warnings from Motorola and Ericsson--and applauded the news.

Shares in Nokia were up $3.40, more than 15 percent, to $25.20 at the opening bell. The Finnish company is the world's largest seller of mobile phones, and also competes in the mobile Internet, TV set-top box, and home networking markets.

News that Motorola's (NYSE: MOT) earnings and sales will fall short of estimates, along with a first-quarter warning from Ericsson (Nasdaq: ERICY) had triggered rumors that Nokia would also guide-down its outlook.

The company said Thursday that based on the first two months of 2001, it is likely to reach earnings of about 0.19 euros for the first quarter, or 17 cents a share, in line with its earlier statements. That's also in line with First Call's consensus estimate.

However, the company downwardly revised sales projections for two of its units. Nokia said it now expects year-on-year sales growth of between 30 percent and 35 percent in its Nokia Networks unit, and between 15 percent and 20 percent in its Nokia Mobile Phones unit. That would lead to total sales growth of about 20 percent, compared to an earlier estimate of 25 percent to 30 percent.

"We expect to see solid growth for the first quarter as a whole, with better than anticipated margins," said CEO Jorma Ollila in a statement. Nokia attributed this to a strengthening position in mobile communications during the last few months, as it has won agreements to deliver third generation network technology.

The slower than expected sales growth in the first quarter is due to the impact of market conditions, especially in the United States, Nokia said.

Its estimate for the full year 2001 mobile phone market size is now between 450 and 500 million units. Its previous forecast had been from 500 to 550 million units.

SG Cowen analyst Scott Searle lowered his expectations for handset sales and tweaked estimates after the news, but remained positive on the stock, reiterating his "buy" rating and price target of $47.

His forecasts for the handset market were still more optimistic than Nokia's--he lowered estimates to between 503 million and 603 million from a previous range of 530 million to 700 million.

"Despite the difficult environment, we believe that Nokia continues to profitably gain share with its strong product portfolio and well-controlled channel," Searle wrote in a research report.

"While near-term risks remain, the valuation is compelling," he added.

For 2001, the analyst said he now expects earnings of 80 cents a share, down from his previous estimate of 82 cents, and below First Call's consensus estimate of 83 cents. 2002's estimate went to $1.05 from $1.12; First Call is projecting $1.08.

Merrill Lynch analyst Sherief Bakr also saw Thursday's indications as good news.

"We believe that this is a positive announcement given the recent market turbulence and we maintain our long-term buy," Bakr said.

Though the company's sales and earnings estimates were downwardly revised, they are still slightly above his numbers. Bakr was also upbeat on news that Nokia's own inventory levels are lower than at the year end.

Nokia said that it will give further projections on the second quarter and full year when it reports full first quarter results on April 20.