Ah, but sequels almost always disappoint
In a nice bit of irony, investors last Thursday suddenly realised that the 3G growth might not materialise because of the high auction costs. High prices for the licenses - think of them like a government tax on the wireless industry - could limit how attractively the operators can price the services. That might result in a slower-than-expected uptake or more modest penetration at peak.

Hellstroem's comments
Investors were helped to this realisation by some rather mild comments from Ericsson president Kurt Hellstroem in a Swedish newspaper last week to that effect. Stock buyers also began realising that the operators might not be the only ones paying for the licenses. Some of the burden surely will be shared by the phone-equipment makers, like Hellstroem's company and Nokia of Finland.

None of this should be too surprising. Nevertheless, investors reacted strongly last Thursday. Telecom stocks fell across the board. The phone-equipment makers got whacked, too. Telefon AB L.M. Ericsson fell 7.8 per cent to 166.50 Swedish kronor (19.82 euros or $18.86) a share, down 14 kronor. Nokia Corp. fared worse, falling 11 per cent, or 5.80 euros, to 48.90 euros a share. Before that, both had performed strongly this year, even as their compatriots slumped. Nokia stock had been up about 22 per cent; Ericsson shares about 32 per cent.In a sign of the market's schizophrenia, shares in both companies on Friday regained some of their Thursday losses.

Shares in Ericsson gained 4.8 per cent, or eight kronor, to 174.50 kronor, while Nokia rose 9.3 per cent, or 4.55 euros, to 53.45 euros. Each received a boost from reports by big US securities firms, but the American firepower from the likes of Goldman Sachs still wasn't enough for the two telecom giants to recapture all the ground lost in Thursday's bloodbath.

Last week's retreat is all about malaise. Investors have been steadily chipping away at highly priced telecommunications, technology and media companies since early March, of course. But to react like cockroaches every time someone turns on a light - even though the room is already well-lit - speaks to something different.

Not unforseeable
Take a look at what has happened with Amazon.com Inc Yahoo! Inc and Priceline.com Inc in the last couple of weeks in the US Amazon fell when a Lehman Brothers analyst pointed out that it burns through a lot of cash. Yahoo buyers got scared when an analyst said that growth might not be as fast as it has been historically. Priceline investors got worried when airlines set up a potential competitor. None of these things were fundamental changes in any of these high-fliers' businesses, nor were they unforeseeable occurrences.

Sentiment is clearly turning
Actually, it's none too soon. Leave aside Ericsson, which has a less-smooth operating history than its Finnish counterpart. Nokia is the more highly rated and the more beloved. Sure, it's a wonderful company with extraordinary growth, perhaps in the 30 per cent-per-year range for the top line over the next three to five years.

But how much should investors pay for that? Nokia is trading at around 48 times its projected 2001 earnings. Margins before interest and taxes should be about 22 per cent this year, according to a Credit Suisse First Boston estimate. This is historically extremely high for the company. Next year, CSFB predicts pretax margins of 20 per cent, though the firm holds out hope that margins might actually expand. Most analysts think handset margins will likely revert eventually to around 15 per cent, perhaps sooner rather than later.

The mass of analysts who cover Nokia generally recommend its purchase. It's a Finnish national treasure. It's a core holding for fund managers. There was once even a feeling that the company could do no wrong. But all good things come to an end.

-- The Wall Street Journal