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Nokia Feels High-End Heat in Q2 Warning

Nokia Corp. (NYSE: NOK) today warned that revenues and operating margin for devices and services will be lower than expected in the second quarter and that it expects its mobile device value market share to shrink this year as it fights to fend off rivals like Apple Inc. (Nasdaq: AAPL).

Nokia's share price slumped 9 percent on the Helsinki stock exchange on the news.

The Finnish phone maker said several factors have had a bigger negative effect on the business than previously expected, including competition at the high end of the market, a shift to "somewhat lower gross margin products," and, to top it all off, the depreciation of the euro, which has affected the company's cost of goods sold, operating expenses, and global pricing tactics.

The timing of Nokia's second-quarter profit warning is painfully ironic given that it comes the day after consumers flocked to pre-order Apple's new iPhone 4. (See Does iPhone 4 Dash Nokia's High-End Hopes? )

Nokia said it expected second-quarter revenues to come in at the lower end or below its previously expected range of €6.7 billion (US$8.2 billion) to €7.2 billion ($8.2 billion) due to lower average selling prices and device volumes.

The company said second-quarter operating margins will be slightly below or at the lower end of its previously expected range of 9 percent to 12 percent.

Nokia also lowered the outlook for its mobile device value market share, which refers to the percentage of revenue derived from products sold. The company had expected higher device value market share this year compared with last year, but now the company says its device value market share in 2010 will be lower than in 2009. This is mainly due to the "competitive situation at the high-end of the market and shifts in product mix," the company said in a statement.

Nokia is going through a "painful product transition at the high end," said Nokia CFO Timo Ihamuotila on a call with media and analysts today. "There's bigger pressure on the N-series... the higher end of our touch portfolio." (See Nokia's Not Giving Up on Symbian, Gadget Watch: Nokia Has Symbian 3 Phone, and Smartphone Showdown: Nokia Ships N900.)

The company has not changed its view on overall industry device volumes and its share of the device market, however. Nokia still expects device volumes to be up 10 percent this year compared with 2009, and Nokia still expects its device volume market share to be flat this year, compared with last year. (See Nokia: Device Volumes up 10% in 2010.)

— Michelle Donegan, European Editor, Light Reading Mobile

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