re: swaam Caution replaces euphoria after Nokia Q3...

re: swaam Caution replaces euphoria after Nokia Q3 upgrade
September 10, 2004 7:19am ET (Reuters)

By Brett Young

HELSINKI, Sept 10 (Reuters) - Analysts differed over whether improved third-quarter guidance from top mobile phone maker Nokia was the start of a turnaround or a brief reprieve in a grim year and the share's rally cooled on Friday.

The stock gained 6 percent gain on Thursday after Nokia said earnings would fall by less than expected in the third quarter and sales could be flat compared with last year thanks to strong cellphone demand and a tight rein on costs.

At 1019 GMT on Friday Nokia shares were 0.2 percent firmer at 11.17 euros, off a session peak of 11.31 euros and lagging the sector index .

Nokia's upgrade showed aggressive cost cutting on some phone models had helped stem market share loss to rivals like Korea's Samsung Electronics and U.S. Motorola , while some phone models, like the 6230, are selling well.

On Friday brokerages Opstock and Mandatum raised their recommendations to "accumulate" from "hold". ABN AMRO, Evli Bank and Deutsche Bank hiked estimates but kept their ratings steady.

Analysts generally welcomed the first positive outlook from the Finnish firm since April, when it said it lacked phones with fold-away design and cameras that consumers wanted, a stunning admission from a company once known for setting industry trends.

Some said it proved the worst had passed for Nokia while others argued that upcoming phone launches -- it unveiled three new high-end phones on Thursday -- put the company in a good position to win back share.

"We do not believe that Nokia's better-than-expected performance in Q3 would yet reflect the positive (impact) from new handsets (to be released)," Evli said in a research note.

"Based on the new guidance it seems like Nokia has been able to get through the difficult Q3 with the help of price cuts," Opstock said. "The uncertainty around Nokia has decreased, which in our view creates upside potential in the valuation."

ONE-OFF WONDER?

But others cautioned that the good news may be fleeting, stressing Nokia's rivals are coming out with more phones and market demand could cool after a robust 2004 in which research group Gartner says a hefty 650 million phones could be sold.

While Nokia has called for group sales in the quarter to be flat at best, Motorola said this week revenues at its handset unit would rise by 30 percent to 40 percent from 2003 as it rolls out a host of new models for the holiday season.

JP Morgan cut its Nokia rating to "underweight" from "neutral", although it raised its earnings forecasts for 2004 and 2005. Goldman Sachs also raised its estimates, but said it was cautious.

"While Nokia is doing an excellent job of stopping the slide in its competitive fortunes, this is coming at a significant cost and will be difficult to sustain," JP Morgan said.

"Unless Nokia can make dramatic improvements in either share or margins, the earnings outlook is sluggish at best -- and we do not think that a return to the good old days ... looks likely," it said.