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Nokia Warns of Slowing Market Growth

Finland's Nokia Tuesday warned that it would downwardly revise its estimates for the second half of 2001, citing signs that the economic slowdown in the U.S. is extending to other regions.

Based on the first two months of the current quarter, the firm said it now anticipates year-on-year sales growth in second quarter 2001 to be somewhat below 10 percent, down from its earlier estimate of 20 percent. The diluted pro form earnings per share is estimated to be in the range of EUR 0.15 to 0.17 in the second quarter, down from the previous estimate of EUR 0.20.

"We have been able to successfully follow our set strategy of increasing market share in phones and heading for the leadership position in third generation mobile networks," said Jorma Ollila, chairman and chief executive officer of Nokia. "However, we have recently seen a weakening in market conditions to levels below our earlier estimates. We believe this slowdown is a result of a general market deterioration -- driven by economic uncertainty, the ongoing technology transition and less aggressive marketing by the operators."

The company said it now estimates only very modest growth in the global mobile phone market this year as compared to 2000, when about 405 million phones were sold. Nokia noted that it expects the market for phones will be significantly larger in the second half of 2001 than it was in the first half, but slower growth is still expected to affect capacity-driven network investments of some operators.

Still, the company tried to keep investors upbeat, telling them that although it now foresees slower-than-expected growth in its sales, it believes that its mobile phone business will continue to grow "significantly" faster than the market during 2001, and that its network business will achieve an annual growth rate at least on par with overall market growth.

Nokia also said that it will continue to pursue increased efficiency, including operational changes intended to "enhance customer focus" in Nokia Networks and refocusing on production at Nokia Mobile Phones factories in Texas and Bochum, Germany. It also plans a re-alignment of Nokia Internet Communications. These actions will lead to a one-time charge of about EUR 190 million.

"While market deterioration has had an inevitable impact on Nokia's sales growth, our products have remained strong, our market position has strengthened and we've been able to find further efficiencies through tight control of our own performance," Ollila said. "As a result, Nokia has been able to maintain a high level of profitability."

He added, "We have intensified our efforts to counter changing market conditions by accelerating ongoing programs and generating efficiencies and cost savings. This, in combination with our current financial health and proven performance, should enable us to exit the current slowdown in a stronger position than before. We will, together with our operator customers, continue the implementation of the new technologies with full speed in order to support the transition into next generation services."

The company will release a revised outlook for the second half of 2001 on July 19 in conjunction with its second quarter earnings release.



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