When Nokia reports second-quarter earnings Thursday, it's not traditional income and sales data that Wall Street will be analyzing first -- it's key mobile-phone metrics affected by the economic slowdown, as well the handset maker's plan to reverse market-share losses.

The Finnish mobile-phone giant already tempered expectations for the second quarter as well as the remainder of 2008 in its last earnings release in April, when the company said it expected the mobile-device market to decline in euro terms compared with the previous year. Nokia said that outlook reflects the negative impact of a weakening U.S. dollar and the general economic slowdown in the U.S. and in Europe.

When it reports early Thursday morning, Nokia is expected to post a profit for the second quarter of 1.32 billion euros, or 36 euro cents a share, excluding items, according to Thomson Reuters. That would mark an increase of 12.5% from a year ago but a sequential decline of 5.2%. Revenue should reach 12.88 billion euros, an increase of just 2.4% from a year earlier.

Shipment and Price Watching

Analysts and investors, however, will be more interested in other metrics to gauge Nokia's performance. Among the most important are total handset shipments and how many of those units represent the company's so-called converged devices. The heightened attention to these figures follow disappointment with first-quarter shipments, which fell 13% from the final quarter of 2007 and dropped Nokia's market share to 39% from 40%. Shipments of converged devices fell to 14.6 million units in the first quarter from 18.8 million units in the previous quarter.

"Nokia may ship 120 million units during the quarter, implying the company maintained its market share," writes Mark Sue, analyst with RBC Capital Markets, in a research note. "Additionally, the stock seems to be shaking off additional estimates cuts which makes us believe near term expectations are pretty low."

Nokia has faced considerable pressure in the high-end phone market, losing market share because of new iterations of Apple's iPhone and Research In Motion's Blackberry. Compounding the problem is the fact that Nokia had no new handset introductions during the second quarter.

The average sales price, or ASP, of the company's handsets will also be closely scrutinized by analysts. In the first quarter, analysts were disappointed that the ASP fell to 79 euros from the 83 euro level in the fourth quarter. At the time, Nokia cited a higher proportion of lower priced products and the negative impact of the weaker U.S. dollar. With no new product introductions, the ASP of handsets is expected to continue to slide, primarily reflecting the increasing effect of the emerging markets and general competitive factors.

"ASPs may decline sequentially ... before stabilizing in the third quarter due to product mix," RBC's Sue writes. "ASPs may show modest improvements in the third quarter and the larger rate of improvement is slated for the fourth quarter."

Because of this, Mark McKechnie, analyst with American Technology Research, says a lot of bad news is currently priced into Nokia's stock and that more disappointment may be on the horizon. "Sentiment appears to anticipate this with the stock down 25% since Nokia's [first-quarter] report and numerous recent downgrades and number cuts," he writes in a pre-earnings preview.

Nokia's chief rival Motorola (MOT - Cramer's Take - Stockpickr) has also seen its stock price tumble 25% over the past three months as it deals with the same increasing competition and worsening economic conditions. However, other rivals have taken advantage of both Motorola's and Nokia's slide. Wireless technology firm Qualcomm has added 10% over the last three months, and Ericsson has gained 11%.

In order to stem these losses to Qualcomm and Ericsson, McKechnie asserts that Nokia needs to restore confidence in its smartphones or at the very least display a sustained bottoming of margins. "With the stock below historic trough levels, we would not argue with value investors 'legging in' in the with small positions ahead of the quarter," he writes.

One positive in the company's first-quarter report was Nokia's reaffirmation that it expects industry mobile-device volume this year to grow approximately 10% from the roughly 1.14 billion units it estimated for 2007. RBC's Sue says that Nokia's management could again endorse a 10% year-over-year global market unit growth, "allaying concerns of a broad industry slow down."

While demand in different geographic markets suffered in the first-quarter -- mobile-device volume sank by 49% sequentially in North America, 31% sequentially in Europe, and rose just 4% sequentially in China -- any hint at new product introductions in the second half of 2008 might buoy shares in the event of a second-quarter earnings miss.

"Factor in our view that product cycle momentum can lift ASPs, the company's major product refresh, and Nokia's strong cash flow generation, we would add to our position at current levels," RBC's Sue writes. "During the third quarter, Nokia may start recognizing the benefits of new models such as the N78, E71 and E66."

Source:thestreet.com