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Nokia drastically cuts sales outlook

Chinese shoppers look at the latest handsets from Nokia during an exhibition in Beijing. PHOTO: AP

Nokia, the world's biggest maker of mobile phones and an important standard bearer for global technology stocks, said on Thursday that it was drastically reducing its forecast for sales this year. The announcement sent shivers through European markets and pushed Nokia's own share price down 13 percent.

After spending much of last year at the optimistic end of the industry spectrum, Nokia has been ratcheting down expectations in recent months. The telecom business remains caught in a vise.

Because many of the main markets, especially in Europe, are now nearly saturated -- anyone who wants a cell phone probably already has one -- the industry must depend for much of its growth potential on users trading up to high-speed digital phones with many functions and services. But consumers who are watching their pennies in slow economies are putting off buying new phones until new services are available, while the debt-strapped operating companies are holding off on the building of new services until they have more cash.

Companies like Nokia and Ericsson, which make both the handsets consumers buy and the network equipment the operators need, are caught in the middle.

"The industry remains in transition," Nokia said in a statement. "The speed of this transition has been slower than was anticipated earlier this year, which has led the company to revisit its annual growth outlook."

Nokia said its group sales would grow by 4 to 9 percent this year, not 15 percent, as it had predicted. Nokia now expects 400 million to 420 million handsets to be sold this year by the industry as a whole, some 20 million less than before; that roughly matches the forecast released on Wednesday by Motorola, Nokia's nearest rival in the handset business. Nokia, based in Finland, has more than one-third of the handset market.

Nokia's profits remain fairly healthy, with an industry-leading operating margin of 22.2 percent in the first quarter. Net income for the period, also reported on Thursday, was US$768 million, or 18 euro cents a share, off a bit from a year earlier, but not as much as analysts had expected.

But for investors, that good news was overshadowed by the gloomy sales forecast, and they bid Nokia's American depositary receipts down 11 percent, to US$18.31. The fall in the share price, extending its slide this year to 28 percent, brought the company's total market value below 100 billion euros (US$89 billion); it was more than 300 billion euros (US$267 billion) in mid-2000.
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