Nokia and Sprint Earnings Spur Rally
A handful of major telecommunications companies, led by cell phone giant Nokia, on Thursday unveiled quarterly financial results that met or exceeded expectations, giving investors hope that the worst is over for some segments of the struggling industry.
News that Nokia finished at the high end of expectations cheered investors and helped send U.S. markets up in early trading, before earnings news from other technology sectors erased the gains.
For the most part, though, the telecommunications news of the day--earnings results from Nokia as well as Sprint Corp. and its Sprint PCS wireless unit--contained no unpleasant surprises and sparked a small “relief” rally in the sector.
After the market closed, troubled communications equipment maker Nortel Networks Corp. reported a staggering $19.4-billion loss, although its actual operating loss was roughly in line with analysts’ sharply lowered expectations.
Nokia reported profit of 15 cents a share, a figure at the high end of analysts’ expectations. Nokia said it expects sales to grow a modest 5% in the next quarter, and did not give specific guidance beyond that, citing economic uncertainty. Even with the clouded outlook, analysts were pleased enough, and Nokia American depositary receipts rose $2.51, or nearly 15%, to $19.51 on the New York Stock Exchange.
“I think the visibility over the long term is still very poor, but the message we’re getting here is that investors were expecting the worst and we didn’t see that today,” said Michael Ching of Merrill Lynch & Co.
As the financial results are starting to show, different segments of the telecom business can have different near-term prospects even in an overall downturn.
“Wireless is in pretty healthy shape because, by and large, the industry is still growing and people felt like there was a bottom there with Nokia,” said Ned Zachar of Thomas Weisel Partners. “Industrywide, I don’t think it’s going to get much worse, but it may not get better for a while.”
Sprint said profits in its main local and long-distance telephone and data operations dropped to $290 million, or 33 cents a share, compared with $443 million, or 50 cents a share, a year ago. Last year’s figures exclude one-time charges and gains.
The results topped forecasts by Wall Street analysts, who expected Sprint to earn 27 cents to 30 cents a share, after twice lowering the target based on profit warnings from the company. Second-quarter revenue fell 3% to $4.41 billion.
Sprint PCS impressed Wall Street with solid subscriber gains and 53% higher revenue of $2.26 billion in the quarter, up from $1.48 billion in the year-ago quarter. In addition, the unit’s quarterly net loss of 26 cents a share, compared with 33 cents last year, was considerably better than analysts expected.
Sprint closed at $22.60, up 67 cents, while Sprint PCS jumped $2.45, or 10.6%to close at $25.49. Both are traded on the NYSE.
Nortel Networks said its second-quarter loss widened to $19.4 billion, or $6.08 a share, compared with a loss of $745 million, or 26 cents a share, for the same quarter last year.
Without $12.3 billion in write-downs for goodwill in this year’s second period and nearly $6 billion in other one-time charges, Nortel would have posted a loss of $1.15 billion, or 48 cents a share--a figure in line with estimates. Sales for the quarter were $4.61 billion, down 36% from the same period a year ago.
The company, reeling from plummeting sales, has announced 30,000 job cuts to help trim costs. Nortel shares rose 17 cents, or 2.2%, to close at $7.75--a long way from its 52-week high of $89 on July 25 last year.
“It’s astonishing when you look at where Nortel was last year and where it is now . . . and it doesn’t appear to be coming back any time soon,” said Ken McGee of the research firm GartnerGroup. “For now, they just have to drive down the inventory and wait for the next wave of demand.”
