Nokia Stock Rot

Just when the Unstrung index of wireless companies was doing well, December arrived and kicked it where it hurts. As if the first week wasn't bad enough, the past few days has seen the share price of Nokia Corp. (NYSE: NOK) deliver a further blow to market averages. In the past few days the Finnish vendor's stock has crashed from $19.50 to $16.80. That could have something to do with the company's news that revenues in this current quarter will be lower than previous guidance (see Nokia 4Q Earnings on Track). Sales will be in the range of €8.8 billion to €9 billion, and not the €8.9 billion to €9.2 billion previously stated. The main reason, it seems, is that people are buying its cheap phones instead of the mid- or top-range devices in the run-up to Christmas. Also, sales in the network infrastructure division will not be as high as expected. Despite the news, analysts at Lehman Brothers believe the "sharp fall in the share [price] may prove overdone." They believe -- they stated in a research note -- that the fundamentals, market momentum, and potential for positive earnings news in the coming two years mean the market has over-reacted to Nokia's statement. They believe new handset product launches will help boost the average selling price and that device replacement sales will also help boost volumes and revenues next year. On the networks side, while sales compared with the third quarter are expected to rise, they will not increase by as much, and "pro forma operating margins for Nokia Networks are now estimated to be approximately zero for the fourth quarter," states the vendor's official release. This may sound like bad news, but Richard Windsor, wireless equipment analyst at Nomura Holdings Inc., believes this might be because Nokia may have "been trimming prices to edge out competitors" in a bid to boost market share. This leads Windsor to believe that margins at the networks business are "under control, and can be prevented from going into the red." — Ray Le Maistre, European Editor, Unstrung
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