Nokia pops wireless bubble

Nokia shares fell 13 1/16, or 23 percent, to 42 3/4 Thursday, leading a broad sell-off in wireless communication and chip stocks after the Finnish telecom giant warned that its third-quarter sales and profits would fall short of analysts' estimates.

Despite meeting analysts' estimates in its second quarter, Nokia (NYSE: NOK) said a seasonal slowdown combined with the added expense of introducing new wireless phone models will water down earnings in its third quarter.

In its second quarter, Nokia posted a profit of $1.32 billion on sales of $6.55 billion, in line with most analysts' expectations.

On Thursday, a flock of analysts downgraded the stock.

Bear Stearns cut it from a "buy" rating to "attractive." DLJ downgraded it from its "top pick" list to a "buy" while Morgan Stanley Dean Witter and Banc of America Securities cut it from a "strong buy" rating to an "outperform" and "buy" recommendation, respectively. Lehman Brothers slashed it from a "buy" to an "outperform."

Nokia officials said it expects third-quarter earnings per share to fall below the second quarter's 0.20 euros as the market awaits the arrival of new, Internet-enabled handset models.

"I understand that this prediction may have been disappointing to some of you, but let me assure you that my confidence in the overall prospects of Nokia remain unchanged," CEO Jorma Ollila said during a conference call with analysts.

He also said he was convinced the company would achieve revenue growth above 30 percent to 40 percent this year.

Nokia's warning had a chilling effect on the rest of the wireless phone and chip manufacturers.

Texas Instruments (NYSE: TXN) shares fell 5 5/8 to 58 3/8 while Motorola (NYSE: MOT) and Ericsson (NYSE: ERICY) tumbled 2 1/2 and 1 1/2 a share, respectively. Atmel (Nasdaq: ATML) got sucked into the sell-off too, falling 5 1/4, or 15 percent, to 28 3/4.

First Call Corp. consensus expects Nokia to earn 5 cents a share in its third quarter and 27 cents a share in the fiscal year.