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Nokia Dives on Lowered Device Outlook

Nokia Corp. (NYSE: NOK)'s share price dropped 18 percent to €3.13 (US$4.10) in afternoon trading on the Helsinki stock exchange after the Finnish phone maker lowered the first-quarter outlook for its device and services business.

And that's not the only bad news the company suffered on Wednesday as a phone software glitch has marred the launch of its flagship Lumia 900 smartphone in the U.S. (See Lumia Software Bug Dims Nokia's US Hopes and Euronews: Nokia Hit by Lumia 900 Glitch.)

Nokia announced today that rather than the previously expected first quarter operating margin of about breakeven, ranging to above or below 2 percentage points, Nokia now expects an operating margin of negative 3 percentage points.

The company said the reasons for the outlook change in the first quarter were lower than expected net sales in phones and smart devices, particularly in India, the Middle East, Africa and China, as well as gross margin declines.

Nokia also said it expects second-quarter operating margin for the device and services business to be at or below the revised first-quarter margin estimate.

The second-quarter outlook is due to competitive industry dynamics continuing to negatively affect device sales, timing and consumer demand related to new products and the macroeconomic environment.

Nokia CEO Stephen Elop said on a call with media and analysts that the outlook showed that the company was "at the heart of its transition." He added, "We recognized greater than previously foreseen challenges."

More changes to come?
Nokia said it will respond to its revised financial situation by continuing to increase investment in Lumia smartphones, taking "tactical pricing actions" for its lower-end devices, as well as accelerating "planned cost reductions and [pursuing] additional significant structural actions if and when necessary."

— Michelle Donegan, European Editor, Light Reading Mobile

Michelle Donegan 12/5/2012 | 5:36:43 PM
re: Nokia Dives on Lowered Device Outlook

On the conference call, CEO Elop mentioned "momentum" several times, for example:


"We're pleased with the momentum with the Windows Phone ecosystem"


or


"... we have to really break through to continue to build the momentum..."


Looks to me that Elop's momentum is moving in the wrong direction just now.


Although, the so-called third ecosystem was never going to be built overnight, and today's financial warning shouldn't be a surprise given the big change Elop is attempting to achieve at Nokia. He may well see some momentum, but it's a question of whether time will be on his side to turn it into real growth. 


The specter of "structural" changes was also raised in today's news release and on the call -- will Nokia have to cut more jobs?


Elop said he'll make sure "we have the right levels of investment to break through where we need to," and he said he will be asking, do we sell off non-core assets along the way? are we focused on products we need to be? and are we focused on the markets where we need to be? 

Michelle Donegan 12/5/2012 | 5:36:43 PM
re: Nokia Dives on Lowered Device Outlook

Nokia also shared some preliminary Q1 numbers today:


It sold more than 2 million Lumia devices in Q1 2012 with an average selling price of 220 euros (US$288).


Q1 net sales estimated at 4.2 billion euros


It sold 71 million "mobile phones" units and 12 million "smart devices" in Q1.


(In 2011, Nokia recorded Q1 net sales 10.4 billion euros.)


 


When Nokia announces full Q1 results on April 19, what will be the good news?


 





Michelle Donegan 12/5/2012 | 5:36:41 PM
re: Nokia Dives on Lowered Device Outlook

I would definitely put RIM in that category of not making big changes quickly enough to revive the company, but Elop is putting Nokia through the most radical strategy changes.


Either he's making the wrong changes at Nokia or executing them badly. Is it too soon to make that call? Lumia, for example, is only just getting started...


Though, it does look like Nokia has taken its eye off its emerging markets, and that is worrying for the company. 


 

leclarks2030 12/5/2012 | 5:36:41 PM
re: Nokia Dives on Lowered Device Outlook

The comment by the CEO that Nokia has recognized greater than anticipated challenges is stupefying.


Nokia and RIM are equal to Kodak in their avoidance of the simple truth... legacies will not keep you alive. They can choose to bleed to death or accept that change is demanded NOW, and do everything you can 24 hours a day to make the change a reality. 


For Elop to say he (and the board and management?) did not fully recognize the challenges in the current marketplace borders on complete ignorance or criminal negligence. Oblivion awaits if you keep the course.

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