Weekly Wrap: The Fickleness of Markets
By Carlo Longino, Fri Jul 18 10:00:00 GMT 2003

A slew of earnings reports this week remind us that the numbers aren't as important as managing expectations...

Nokia cast a cloud over European and tech stocks this week, when its second-quarter earnings disappointed analysts and investors, though it met their expectations. The company still turned about a USD 700 million profit, but it was off 28% from the same period last year. Nokia's networks unit continued to struggle, and its workhorse mobile phones unit was hit by the strong euro, which in effect makes its goods more expensive, and consequently less popular, in US dollar terms - though handset sales volume was up 14%, revenues increased only 2%. The company also gave a gloomy outlook for the third quarter, saying its networks business could make a small loss, and handset sales would continue to be depressed. The company did increase its global handset market share, however, to 39 percent.

On the other hand, Ericsson shares rallied Friday when it released its earnings report, though the company continued to lose money. The top mobile network equipment manufacturer posted a quarterly loss of 200 million Swedish crowns (about USD 25 million), when the consensus estimate was for a 2 billion crown loss, and markets seemed to believe that Ericsson's cost-cutting programs were starting to pay off, and that the company could finally pull out of the red after 11 straight quarterly losses. The company said its sales would be flat or slightly lower in the current third quarter, which gave investors some hope after Nokia's previous-day forecast of a 15 to 20 percent drop in its network sales.

The company's Sony Ericsson handset joint venture also reported this week, again delivering pretty weak results. Though sales rose to EUR 1.13 billion (from EUR 950 million a year ago), its loss widened to EUR 88 million (from EUR 83 million), thanks to costs from cutting jobs and shutting down some units. Sony Ericsson had earlier promised to turn a profit for the full year, but the venture said it will post a full-year loss, though it will be profitable for the second half. The company is under significant pressure to turn a profit, as parent Sony has said it won't continue to support a losing venture.

US manufacturer Motorola's shares were also hit this week after a disappointing earnings release that saw profits climb and sales fall and gave yet another dark third-quarter forecast. The company was hit and continues to be affected by local competitors in China, who now together hold an estimated 35 percent market share to Motorola's 30 percent. Motorola's second quarter was also stung by falling sales and orders from the company's main handset, chip, and network-equipment units. The company did announce this week that it would ship handsets with pre-loaded MTV content in time for the Christmas shopping season, the fruits of a deal announced in March.

Another US company, Lucent, also gave a profit warning this week, said third-quarter sales would fall 18% from the second, and in turn, the company wouldn't turn a profit for the year, blaming lower North American spending and a delay in a major deal.

Intel and Microsoft also reported earnings this week, with the software behemoth reporting strong sales and revenue growth, and the world's top chipmaker reporting quarterly earnings double those of last year. IBM also reported this week, meeting expectations but giving little hope for a tech recovery in the near future, while Philips eked out a small profit.