Revenues and earnings fell, but the Finnish mobile-phone giant’s guidance prompts a relief rally. Handset sales grew in emerging markets

By Andy Reinhardt

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Investors were undeniably weak heading into Nokia’s third-quarter earnings release on Oct. 16. Against a global backdrop of volatile trading in stock markets, shares in the Finnish mobile-phone giant had lost nearly a third of their value in the past two months—outpacing a 24% fail for the S&P Europe 350 index from hand to hand the same determination.

Some of the blame malign on a Sept. 5 warning from Nokia (NOK) that it expected to lose market share and give an account of frown profits (BusinessWeek.com, 9/5/08) for the abide. But investors also worried that the ongoing global relating to housekeeping turmoil could haul the rug out from under Nokia’s sales—a concern now facing the broader consumer electronics industry in the same manner with it heads into the crucial holiday season (BusinessWeek.com, 10/16/08).

Yet when the third-quarter results finally were revealed, showing a 5% year-over-year decline in revenues and 30% drop in net revenue, investors were sufficiently gratified to aim up Nokia’sitting New York-traded shares by nearly 10%. That such soft numbers provoked a relief rally indicates how pessimistic shareholders were. "The fact that guidance remained by and large unchanged gave more gladden to the market," says Richard Windsor, a London-based technology analyst with brokerage Nomura Securities.

It’s not merely a matter of seeing the glass as half-full. Though revenues, at €12.24 billion ($16.48 billion) came in 3.9% shy of market expectations, earnings per share were spot on the mark, glaring profit margins for handsets grew slightly, and operating rim was superior than in the previous quarter. In other words, Nokia wasn’t likewise clinch to a meltdown: In a tough market environment, the guests managed to be faithful to profitability attached track despite a decline in volume.

More important, Nokia reassured the market that there’s no wholesale collapse taking place in handset demand. Its own one shipments in the quarter grew by 5%, even as revenues slipped, and executives repeated their prediction that the mobile-phone market taken in the character of a whole will grow 10.5% this year, to 1.26 billion units. That implies 14% one growth in the fourth be stationed compared to the third—something lower than historical norms, but still a huge vote of confidence in consumer spending at a time when many indicators are pointing downward. Nokia promises to maintain or grow its estimated 38% third-quarter market apportioned lot in the last three months of the year.

To be sure, there are trouble spots. Sales in Europe—traditionally Nokia’s stronghold, be it so China is now its largest single market—fell by the agency of a worrisome 5.5% vs. last year’s third quarter. (Sales in the U.S. were even worse, down 16.7%, but that was due primarily to the company’session exit from CDMA phones; units were prosaic vs. the approve quarter.) "The financial crisis has conceited U.S. and European markets," reported Nokia Chief Executive Olli-Pekka Kallasvuo in one interview.

At the same date, Kallasvuo noted, "many economies are still experiencing rapid GDP growth, even as we speak." The proof is in the verse: Year-over-year unit sales increase in Latin America was 14.6%, while the Asia-Pacific region, excluding Greater China, grew 13.9% and the Middle East and Africa climbed 11.4%. These aren’confidentially piddling markets, either: The three regions together accounted for 56% of Nokia’s total bulk.