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Nokia shares plunge on hint of slowing sales

Shares fall sharply after the cell phone maker warns that third-quarter sales will be lower than expected.

Nokia shares fell sharply today after the cell phone maker warned that third-quarter sales will be lower than expected.

The Finnish company reported that second-quarter earnings jumped 60 percent to $1.3 billion (1.41 billion euros), or 18 cents per share, from the same quarter last year. Sales reached $6.6 billion, a jump of 55 percent compared with the same quarter last year.

However, the company also warned that because of seasonal declines and problematic timing of product releases, third-quarter sales will likely be lower than expected.

Nokia shares at the 1 p.m. PT close of regular trading were down $14.56 to $41.25, or more than 26 percent. The company was downgraded today by DLJ, Morgan Stanley Dean Witter and Bank of America.

Nokia is planning to release several new high-end phones at the end of this year. The company is primarily known for its colorful, inexpensive cell phones with changeable face plates that are popular with teenagers. However, fancier phones with built-in Internet browsing technology obviously are a more lucrative market for the phone maker.

Nokia has signed a licensing deal with Palm to use the handheld maker's operating system and personal management software in upcoming high-end phones.

"We anticipate Nokia's earnings per share in the third quarter to be at least equal to the level achieved in the third quarter of 1999," CEO Jorma Ollila said in a statement. "However, due to the timing of the new product introductions as well as seasonality, they are projected to be lower than in the second quarter of this year."

The company reported earnings of 12 cents per share for the third quarter of 1999.

Merrill Lynch analyst Adnaan Ahmad, who predicts third-quarter earnings of 18 cents per share, reiterated a "buy" position on the company today but is looking for further clarification from the company on its prospects for the year.

"Worst-case scenario we would scale back our fiscal year earnings per share estimates by 7 percent," Ahmad said in a note to investors, explaining that the new handsets due to be introduced in the later part of the year will "provide scale and profitability."

Nokia must become more efficient to compete with rivals Ericsson, Motorola and Samsung, all of which have introduced high-end phones that use Wireless Application Protocol, the company said.

"We expect competition to remain fierce, making it necessary to continuously improve efficiency and master rapid growth without compromising customer satisfaction," Ollila said. "We feel we have an excellent opportunity to strengthen our market position."

Nokia's problems do not necessarily indicate trouble ahead for the entire industry, according to analysts.

"Handsets went up quarter over quarter sequentially and may erode longer term, but are not going to fall off a cliff," Ahmad said.