Nokia shares dive after sales warning

Finnish firm scraps full-year forecasts and says it may make no profit on phone sales in quarter to end of June Shares in the Finnish phone maker Nokia plunged by 15% on Tuesday as the company warned that it may make no profit on phone sales in the quarter to the end of June, and that overall phone sales will be “substantially below” its earlier forecast of €6.1bn to €6.6bn. The company said that for the period from April to June, operating margins will be “substantially below its previously expected range of 6% to 9% … primarily due to lower than previously expected net sales”. It also scrapped full-year forecasts, saying it was no longer “appropriate to provide annual targets for 2011″. Though it is still the biggest maker by volume of both handsets and smartphones, selling about 100m and 24m respectively per quarter, Nokia has been buffeted at the high end by Apple’s iPhone and smartphones using Google’s Android operating system, while at the low end it faces challenges from “white box” manufacturers from China that can undercut it on price for standard mobile handsets. That forced the company to admit that its operating margins for handsets this quarter “could be around breakeven”. In the second quarter of 2010 Nokia’s mobile phone business made €643m profit on revenues of €6.8bn, and in the first quarter of 2011 recorded €690m profit on €7.1bn of revenue. The collapse in the share price took it down to May 1998 levels. The announcement adds to the deepening sense of crisis around the company, once the undisputed leader in the mobile phone business. It was overtaken for total revenue in the first quarter by Apple, which sold 18.7m iPhones – at nearly five times the average price of a Nokia smartphone, and 10 times the average price of a Nokia handset. Nokia said that its products are coming under intense price pressure, especially in China and Europe, where the combination of cheap phones from other manufacturers running Google’s Android mobile operating system and Apple’s high-end iPhone have squeezed its position. The company reiterated its plan to dump its current Symbian operating system for Microsoft’s Windows Phone OS on its high-end smartphones from “the fourth quarter of 2011″ as part of a longer-term plan to restore the company’s fortunes. Carolina Milanesi, mobile phones analyst for the research company Gartner, said Tuesday’s warnings could mark the low point for Nokia, which has not made a loss in its handset division for more than a decade. “It’s going to get worse before it gets better,” Milanesi said. “The second quarter should be the worst – if it isn’t then they have worse problems than we thought they did. In the third and fourth quarter this year there will be new products. If they can’t get traction with those then it will be a big issue.” The Finnish company is undergoing a tumultuous upheaval under its new chief executive Stephen Elop, who took over the job in September. He decided that the long-running Symbian software that had powered previous Nokia phones was outdated and that in smartphones, which makes up about a quarter of the 100m handsets the company sells each year, would be replaced over the next two years by Microsoft’s Windows Phone software. Part of the change has involved cutting thousands of staff, including outsourcing many involved with Symbian to the consultancy Accenture. “Strategy transitions are difficult. We recognise the need to deliver great mobile products, and therefore we must accelerate the pace of our transition,” Elop said. “Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011.” Analysts said that they found the abrupt change worrying. Lee Simpson of Jefferies & Co said: “You clearly have a Symbian platform that [mobile] operators are avoiding … But it shouldn’t be too surprising that we get another profit warning from Nokia for the Q2 and Q3 periods. What does strike us as quite surprising is the level to which the markets have dropped, we’re talking about breakeven now which is quite a slide. I think this level of shareholder destruction is now starting to look dangerous: what can these guys do to reverse this? Our stance is that it’s very difficult to value this business right now, because it has to be a different animal if and when it gets into recovery.” Jari Honko of Swedbank said: “The truth about Nokia’s competitiveness has come out now. We know that the company is loss-making at a group level. Consensus estimates will react strongly, and so will the shares. We will see more and more reflection on Nokia’s market share, and that is the worst thing to happen to this company, when the scale is shrinking fast.” He added: “It remains to be seen how low [market share] could go, but for smartphones we are talking about going under 20% this year.” Only two years ago Nokia had a 40% share of the smartphone market, but it was passed in the first quarter of this year by Android, with 32%. Nokia had 24% and Apple 18%. Nokia Smartphones Mobile phones Telecommunications industry Charles Arthur guardian.co.uk

Posted by on May 31, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.