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A Closer Look At the Headlines: “Nokia Sees Profits Plunge by 90%”

April 16, 2009

The headline above, found at the BBC News web site, introduces a story about the cellular phone maker, Nokia, and the state of its income and sales in the last fiscal quarter. A loss of 90% sounds catastrophic and, indeed, the story indicates that the company is planning to lay off 1,700 workers. But a closer look at the story reveals how skewed the headline is and, arguably, how the conclusion to be drawn from the story is the opposite of the one indicated by the headline. Foremost, a plunge of 90% in profits leaves a profit of 10% for the company. In fact, according to the story, Nolia made almost $160 million dollars in profit in the last quarter. That equals a profit of more than $600 million for an entire year, if prorated over four business quarters. So, what this story tells us is that Nokia looks to make a profit of more than $600 million in one year, in the worst world economy in more than 7 decades. Shouldn’t that be the headline? Confirming this reading of the facts, and in response to the news that Nokia’s profit fell 90%, the stock price of the company rose 8%. While this may not be the time to start putting faith in the wisdom of the stock market, a rise in the price of the company’s stock reveals that investors want in on Nokia. Even if they only make a $600 million profit this year.

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