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Mobile phone sales to take off
LONDON, England (CNN) -- As Nokia, the powerhouse behind the mobile phone revolution, prepares to tell investors how it plans to stay ahead of the competition, one of its biggest critics has given it a resounding slap on the back. Merrill Lynch told investors to "buy" Nokia's stocks because it was best prepared to take advantage of the booming replacement handset market next year. The investment bank now expects global handset sales to surge to 474 million in 2003, compared to a previous prediction of just 410 million. Nokia (NOK), for its part, expects the market to grow to between 440 million and 460 million handsets in 2003. But the consensus among analysts and other mobile phone companies is closer to 435 million units next year. Merrill's new optimism would be welcomed by the industry, which saw sales fall last year for the first time in more than two decades. And Nokia has been punished for lowering its targets through the year.
But Nokia and its rivals, like Sony Ericsson and Samsung, are betting new camera and colour screen phones will revive the stagnant market. Until now, consumers have been reluctant to splash out on new phones with little in the way of new technology and the spectacularly poor performance of Web-enabled phones. "We believe Europe is the major replacement market in 2003 with subscribers waiting to replace their handsets with new colour/camera capabilities," Adnaan Ahmad, an analyst at Merrill Lynch, wrote in a note to investors. "In this market, Nokia has a disproportionately higher market share and with its compelling product portfolio ... we anticipate its market share to continue to rise in this market region."
Nokia's stock, which has fallen by a third this year, rose 3 percent to 19.98 euros in mid-morning trading in Helsinki. The company's stock has risen about 80 percent from a year low of 10.52 euros hit in July. Merrill Lynch, which expects Nokia's stock to reach 24 euros in the next 12 months, believes handsets have a useful life of only five years. And it predicts mobile phone operators would continue to offer subsidies on phones to drum up business for new multimedia-messaging services (MMS). Vodafone (VOD), Europe's biggest phone company, has said it does not expect to see the impact of its new MMS service, Live, until about the first quarter of 2004, which means the company would subsidies and support the services through marketing, Merrill Lynch said. Nokia's Chief Executive Jorma Ollila, who is credited with turning Nokia into the world's largest and most profitable handset maker, is expected to comment on the company's and the industry's growth prospects at an annual strategy meeting on Tuesday. Some analysts also think Nokia will be tempted to give a hint of its performance in the fourth quarter, the key Christmas sales season. The meeting will take place in Dallas, the heartland of the U.S. telecom manufacturing industry. Nokia has already said it will give a detailed fourth quarter outlook during a mid-quarter update in London on December 10. And analysts don't expect the company to provide specific forecasts for 2003 performance until it unveils fourth-quarter results in January. Ollila has said there is a good chance the global handset market will grow by up to 15 percent in terms of unit sales in the next three years. Nokia has a target of more than 10 percent annual sales and earnings growth for 2003 and beyond. Merrill Lynch raised Nokia's 2003 earnings per share target by 41 percent to 1.02 euros from 0.73 euros, while Goldman Sachs estimates Nokia's EPS at 0.90 euros for next year. The consensus is for EPS of 0.85 euros. Nokia is expected to increase revenue by 21 percent to 35.9 billion euros in 2003 and is likely to increase its market share to 40.3 percent from 37 percent, Merrill said. Nokia's current share of the global mobile handset market is about 36 percent, more than double that of it nearest rival U.S.-based rival Motorola (MOT). Reuters contributed to this report.
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