Nokia takes another knock

Nokia cuts its sales forecast as consumer demand weakens and competition grows

LONDON, England (CNN) -- Nokia, the world's biggest mobile phone company, was once one of Europe's largest companies by market value. But after cutting sales forecasts five times last year and once this year, investors are cashing in their chips.

More than 60 billion euros ($60.7 billion) have been wiped off the company's market value this year. Its stock closed at 13.34 euros after it issued its second sales warning in as many weeks on Thursday. (Full story)

Nokia is facing stiff competition from its rivals -- Samsung and Siemens in Europe, and Motorola in China -- as its market share shrinks. Merrill Lynch has predicted Nokia's share will fall from around 35 percent this year to 34 percent in 2003 and 33 percent in 2004.

At the same time, sales are stagnating as many consumers hold off buying new handsets until the launch of high-speed, or third generation, mobile phone services.

Given these challenges, analysts are saying Nokia is still overvalued and could see its stock fall even further.

Philip Townsend: Nokia's share price could fall as low as 4 euros

Some, like Philip Townsend, director of Telecom Research at Arnhold and S. Bleichroeder in London, are predicting Nokia's share price could plunge to as low as 4 euros.

CNN spoke to Townsend about Nokia's latest sales forecast and the outlook for the mobile phone market.

Q: What is your reaction to Nokia's market update?

A: Nokia is forever putting estimates out that are too high or misleading. The question now becomes: Is Nokia window dressing? I think it is. Nokia in my view is a straight sell.

Q: You have a price on Nokia of approximately 5 euros, that is some 50 percent or more down from current levels. Why?

A: Simple, there are three issues facing Nokia. 1) demand for sales of handsets worldwide 2) the price movements of the average unit price of handsets 3) its market share.

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If you look at the forecast of the market that it is making for the sale of handsets this year of 400-420 million units, they are way too high.

Our own estimates are somewhere in the region of 330-370 million units depending on factors like how big China really is because clearly you can't cover the whole Chinese market with cellular.

Really the market is probably 390 million, then you worry about the price per unit. It is a mature market now. Prices have to come down. Then finally the market share and Nokia's figures for its market share are too high.

Nokia faces challenges as it attempts to expand in the Chinese market

Q: The other side is its networks systems business, both of these rely on the success of third-generation (3G) mobile phones. Are you convinced?

A: No, I haven't been for a considerable period of time, in fact I am probably one of the market's earliest bears on 3G. We don't really need 3G, I don't think.

So if we don't need 3G, Nokia has a real problem on its plate. Which is, frankly, it becomes a consumer electronics product with just one product. It isn't even like Sony, which has a least a whole [range] of VCRs, colour TVs, and all the rest of it. Nokia just has one thing -- the sale of handsets, a market which is declining.

Q: Expectations for second-half sales growth are underpinned by management confidence in the appeal of the record 13 new phone models scheduled for shipment for 2002. These are going to be colour screens not black and white. In the old days of black and white TV, we probably never expected to get colour. No one would have a black and white TV now, so why wouldn't we buy into this new arena?

A: You might but the reality behind it is these are upmarket handsets; they are priced for the business market. The business market doesn't suddenly lurch and grow, it simply goes through a 2.2 year replacement cycle; everybody replaces with the best handset, they will go for this one.

Although it has to be admitted that there are battery issues associated with coloured screens which have not been overcome yet. In that result, it doesn't really add to anything. All it does is, it is part of the replacement cycle. The result, therefore, yeah you do it, but you do it slowly and it doesn't help this company.