NEW YORK-Industry analysts remain confident in the outlook for Nokia Corp., despite the mid-December drubbing its American Depository Receipts took after the Finnish electronics manufacturer announced poor profit performance in its sales of mobile phones in the United States and televisions in Europe.
By the close of the Dec. 26 trading day on the New York Stock Exchange, the share price of Nokia’s stock had partially rebounded to $40.13. In contrast, Nokia’s stock price had plummeted 27 percent to $33.50 by the close of the market Dec. 15, the day the company announced disappointing operating profits for the last four months of 1995. (Nokia reports in “tertials,” not quarters.) Before the announcement, Nokia’s stock was up around $50.
“The first day or two after the announcement, there was a definite overreaction, especially because the earnings shortfall was related to consumer electronics, particularly televisions,” said Alex Cena, a telecom equipment equities analyst for Lehman Brothers Inc. “I think the company was surprised as well as to how badly the consumer electronics business is going.”
Lehman Brothers, which maintained its “buy” recommendation for Nokia stock even in the wake of the company announcement, is sanguine about the future of the company’s core business, the manufacture of cellular phones. “Prospects for handsets were much less a factor in their announcement, and growth in handsets remains very strong worldwide,” Cena said.
Furthermore, he added, Nokia has indicated its willingness to take concrete actions to foster its continued growth, including investing in research and development to handle the increasing complexity of technology.
Nokia is well positioned for the impending transition in this country from analog to digital technology because Asian and European countries-a mainstay of its customer marketplace-already have adopted uniform standards, according to Mark Cabi, a vice president at Salomon Brothers Inc.
“The U.S. market ended up having fragmentation of standards, but in 1996 many of the transition problems with digital technology here will be resolved as the technology is unveiled and put into widespread use,” said Cabi, who follows the telecommunications equipment industry. “Digital technology offers customers a quality improvement in service and a cost advantage per voice channel to cellular companies.”
Like Cena of Lehman Brothers, Cabi said he believes the recent slowdown in the American market was a minor factor in Nokia’s operating profit decline in late 1995. However, Nokia and other industry players have been affected by “good, not robust” retail demand for cellular phones. Furthermore, as they await the transition from analog to the more profitable digital technology, cellular manufacturers “are not marketing their products as aggressively,” he said.
As part of its mid-December announcement, Nokia said it would break up Nokia Consumer Electronics into three independent divisions. “Some of the stock activity of 10 trading days ago responded to restructuring efforts Nokia has made over the past two to three years to divest itself of noncore activities,” Cabi said. “The television business deteriorated rapidly in Europe, and probably caused them to preannounce the earnings drop.”
