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Nokia, ST face slow growth prospects

Visitors look at the latest cellphones from Nokia during a Information Technology exhibition in Beijing recently. Major foreign mobile phone companies such as Nokia, Motorola and Ericsson are competing for dominance in the massive China market. PHOTO: AP PHOTO

British Airways Plc, Deutsche Lufthansa AG and SEB AB, the fourth-biggest Nordic bank, are cutting spending on computers, phone networks and software to weather a slowdown, hurting suppliers such as Nokia Oyj.

Intel Corp, the world's largest computer-chip maker, cut its second-quarter sales forecast as demand slid in Europe. And Nokia this week may reduce sales estimates when the world's top mobile- phone maker gives its mid-quarter update, analysts said.

"Clients have become increasingly cautious about making investments," said Seamus Keating, finance director of Logica Plc, a UK computer-services company. "They will start spending when they're back to profitability."

Semiconductor, computer and phone equipment companies may not benefit anytime soon from an economic recovery because they're the first to get hit by client spending cuts and the last to benefit when investment resumes, analysts said.

"If you need to lay off people, you don't need to buy additional PCs. You can keep a PC for another year," said Anders Elbak, a research manager at International Data Corp.

Intel shares plunged 19 percent Friday to their lowest price since October. The forecast from Intel, a benchmark for semiconductor and computer companies because its chips power 80 percent of new computers worldwide, dragged down markets around the world. European stocks had their worst week since the Sept. 11 terrorist attacks.

ST, Europe's No. 1 chipmaker, and Royal Philips Electronics NV, fell more than 5 percent. Nokia declined 7.9 percent to 13.04 euros, their lowest since Dec. 30, 1998.

Intel's forecast calls into question demand for chips, PCs and semiconductor equipment, investors said. The second quarter typically is the weakest of the year for PC sales, and in recent weeks some Intel customers have predicted that sales this period will decline. Investors had been expecting some increase in demand from companies.

Espoo, Finland-based Nokia may lower its sales forecast for the second quarter when it releases its outlook on June 11, analysts have said. The company in April predicted a 2 percent increase in its second-quarter sales.

"There are big problems in the telecommunications and computers sectors" in Europe, said Thierry Girardet, who helps manage about US$50 million, including ST and Alcatel SA shares, at Fival SA. "People won't change their mobile phones and computers as often. There's a slowdown but it's not a crisis."

European companies spent heavily to upgrade their computer systems ahead of the Year 2000 date change and the arrival of the euro coins and notes.

A recovery in computer spending in the region was short-lived in the first half of last year. A slowdown in economies and the September attacks in the US prompted businesses to pare budgets and postpone large projects in the second half of the year.

West European shipments of personal computers fell 4 percent in the first quarter, according to Dataquest Inc, a unit of Gartner Inc.

In the past two months, shares of European computer-services companies such as Cap Gemini SA have slumped on concern spending on projects won't increase later this year as expected. Europe's economic growth is lagging that of the US.

That prompted businesses such Sonera Oyj, Finland's top phone company, to say they don't see the need to upgrade systems they installed about two years ago.

Companies are also paring budgets as they reduce their workforce. Resco AB Chief Executive Officer Kjell Jacobsson said his computer-services company, which is cutting 45 jobs, will now buy fewer computers.

SEB, the fourth-biggest Nordic bank, said last month first- quarter costs fell 6.2 percent partly because of a reduction in technology-related expenses.

Lufthansa and British Airways are cutting their technology-related spending after a decline in air travel following the Sept. 11 attacks.
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