Nokia's strong earnings boost tech demand

By SHIHOKO GOTO, UPI Senior Business Correspondent  |  Jan. 8, 2004 at 4:55 PM
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Mobile phone giant's Nokia announcement Thursday that its fourth quarter earnings would be considerably higher than initially expected provided a boost not only for the European bourses, but also gave impetus to U.S. investors as well. In fact, the Dow Jones Industrial Average ended the session at its highest level since March 2002, while Nasdaq surged to its highest close since July 2001.

The world's biggest cell phone manufacturer said strong demand for its phones and networks should lead network sales to increase to $2.15 billion (1.7 billion euros), up from its preliminary forecast of $1.77 billion (1.4 billion euros).

Mobile phone sales, meanwhile, is pegged at $8.85 billion (7 billion euros), up 4 percent from a year ago, with unit sales reaching 55.3 million.

"I'm pleased to report that Nokia achieved excellent fourth quarter results", stated Nokia chairman Jorma Ollila. "The strong seasonal development in both Nokia Mobile Phones and Nokia Networks exceeded even our own expectations. High volumes and an excellent mix in Nokia Mobile Phones delivered healthy sales and an average selling price that was up sequentially. Nokia Networks results were impacted by stronger than expected year-end operator investments and product mix which resulted in much stronger than expected sales and stronger than expected operating profits," he added.

Moreover, brokers JP Morgan had raised its rating of the Finnish telecommunications company the previous day, and the brokerage house reported that the outlook for telecom equipment firms in general were expected to stabilize in 2004.

"After an unsatisfactory 2003, the pieces are coming into place for stronger share price performance from Nokia in 2004," JP Morgan reported.

In light of such positive projections from analysts, and backed up by the strong earnings forecast on Thursday, Nokia's shares surged 13 percent. Still, Ollila wasn't the only one who was happy with the company's performance.

The Dow ended up 63.41 points, or 0.60 percent, at 10,592.44, while the tech-heavy Nasdaq closed up 1.09 percent, or 22.57 points, to close at 2,100.25 as investors snapped up telecom, semiconductor, and other high-tech shares.

While the telecom sector was the darling of Wall Street analysts at the height of the dot-com bubble, the industry has continued to suffer from a glut of investments at the time and investors have shied away from telecommunications companies since. But Nokia's latest performance indicated that some investors may be more willing to put their money back into improving the telecom infrastructure, and fueled demand for shares in the sector during Thursday's trade.

Indeed, investors' appetite for companies that had seen far better days in the late 1990s including Cisco Systems and Lucent Technologies was strong, as expectations of a quicker-than-expected recovery in the business environment prevailed during the trading day.

Meanwhile, Verizon Wireless's announcement that it would spend $3 billion over the next two years to upgrade its high-speed data networks also let to brisk buying in the telecommunications sector. The decision by the nation's biggest wireless carrier to boost investments led to a surge in demand for Nortel, which saw its share price gain nearly 8 percent, while Lucent Technologies soared over 12 percent on the day, suggesting that the worst is now over for the industry.

The Finnish phone company's rallying effect was felt across Europe Thursday as well, with most major telecommunications companies rising as a direct result of Nokia's upward earnings revision, including French telecom equipment manufacturer Alcatel. Meanwhile, Ericsson saw its shares rise in value even before Nokia's announcement and gain further momentum afterwards as its communications subsidiary Nortel signed a deal with Verizon to bolster capital expenditure.

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