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Nokia's slowing profit may be a drag on Finland

Finland may see slower economic growth after Nokia Oyj, which accounted for a third of the country's expansion last year, said profit will fall this quarter for the first time in five years.

Just ask Kim Linerva, a 26-year-old marketing student. He lost US$1,300, or about a fifth, from his savings when Nokia's stock dropped 23 percent after lowering its profit outlook on Tuesday.

"It's unbelievable how just one company can have an effect on everything in Finland," said Linerva.

Finland's economy grew at the second-fastest clip in the EU between 1996 and last year, partly driven by demand for products from the world's largest cellular phone maker. Profit at Nokia, which accounts for a quarter of Finland's exports, rose seven-fold over those four years.

"Nokia's influence on the Finnish economy is unparalleled anywhere else in Western Europe," said Pekka Ylae-Anttila, an analyst at the Research Institute of the Finnish economy, or ETLA.

As Finland's biggest company, Nokia comprises 61 percent of the Helsinki General Index. That's even after its shares have more than halved in value from a record 63.05 euros last year.

Tuesday's decline alone, the biggest percentage drop in more than a decade, slashed about 37 billion euros (US$31.4 billion) from the company's market value.

The country's economy expanded 5.7 percent last year, of which 1.9 percent was powered by Nokia. The company's slowdown will likely crimp growth this year to 3.8 percent, according to ETLA, as exports slacken. Nokia said sales will grow less than 10 percent in the second-quarter, down from an earlier prediction of 20 percent.

Exports account for 43 percent of Finland's GDP compared with a third in the UK. They will probably rise just 5 percent this year, plunging from 17 percent last year.

"Nokia's troubles have a huge symbolic and economic effect for us," said ETLA's Ylae-Anttila. "People outside the country associate us with phones and Mika Hakkinen," a two-time Formula One motor racing champion.

In the early 1990s, when Nokia was better know as a maker of toilet paper and rubber boots, the company accounted for just 5 percent of Finland's overseas sales.

Its subsequent shedding of those businesses and rise to become the top maker of mobile phones has helped push the jobless level down to 10.3 percent from a high of 19.9 percent in May 1994.

Some 24,000, or 40 percent, of Nokia's total employees are based in Finland, and lower demand for cellular phones and equipment is already rippling through the economy. Nokia trimmed 400 jobs in its network unit in March, and a number of its suppliers have also slashed jobs.
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