Nokia's shares nosedive on dire profits warning
Company says Q2 sales will be "substantially below" guidance and tears up forecasts for the full year
Published: 31 May, 2011
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Though it can hardly have been a surprise, Nokia's shares slumped by up to 13% on its latest profit warning, which was worse than anticipated, with the firm saying previous forecasts for the full year are "no longer valid". Meanwhile, revenues for the Devices and Services unit in the second quarter will be "substantially below" former guidance of €6.1bn to €6.6bn, while operating margin could be only breakeven.
The painful warning came as a shock to some analysts, despite the obvious challenges of undergoing a major transition to Windows Phone 7. Nokia is trying to maintain momentum behind its legacy platform Symbian, which it said recently it would support at least until 2016, as well as its Series 40 for featurephones. However, despite their huge installed bases in emerging economies, they are under increasing pressure from low cost Android devices. Meanwhile, Nokia's smartphone lead has been eroding steadily for several years, and it still has to wait for at least another six months before it has WP7 products to pitch at the high end, and probably a year before it has a full range.
In its statement, the Finnish firm said: "Multiple factors are negatively impacting Nokia's Devices & Services business to a greater extent than previously expected." Device volumes and average selling prices will both be lower than originally expected, and it added: "While visibility is very limited, Nokia's current view is that the second quarter of 2011 Devices & Services non-IFRS operating margin could be around breakeven" (rather than between 6% and 9% as previously targeted).
Nor is this a one-quarter agony, with the rest of the year looking bleak. The firm went on to day that, in light of the "unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011". The company reports its Q2 results on July 21.
CEO Stephen Elop sought to reassure investors and customers that action was already being taken to address the issues facing Nokia, particularly the urgent need to launch a convincing WP7 device - indeed, with smartphone share slipping away to Android vendors plus Apple by the day, it needs to be more than convincing. A launch of iPhone impact is required, and that is where confidence in Nokia's powers of delivery starts to falter. Elop said he had "increased confidence" that Nokia would ship its first WP7 product in time for the holiday season, and commented: "Strategy transitions are difficult. We must accelerate the pace of our transition."
In the meantime, Nokia only has ageing products to sell, destroying its famous margins and reducing its economies of scale. "They are forced to discount a lot," Lee Simpson of Jefferies International told Bloomberg News. "No-one wants these handsets. This is the real terrible year for these guys."
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