Nokia signals crisis with Q2 profit warning

The once-mighty Nokia said its second quarter sales and profits would be substantially lower than expected. The company added that, given this unexpected change in its quarterly outlook, it would no longer be suitable to provide an annual target for 2011.


The market reacted badly to this news and drove Nokia's share price down 18 per cent, with one London-based analyst rating the company as a "sell." "No one wants these handsets. This is a real terrible year for these guys," Lee Simpson, an analyst at investment bank Jefferies International, told Bloomberg.

Nokia revealed that net sales of its handsets and services would fall below its earlier forecast of between €6.1 billion and €6.6 billion for the second quarter, adding in a statement, "while visibility is very limited, Nokia's current view is that second quarter 2011 Devices and Services non-IFRS operating margin could be around breakeven."

The root cause of Nokia's heightened problems has been blamed on an upsurge in competition, particularly in China and Europe, and a shift in demand for its less profitable low-end handsets. However, looking to deflect attention away from these immediate problems, Nokia CEO Stephen Elop said that the company is still planning to ship its first handset running on Microsoft's Windows Phone platform in the fourth quarter this year. But he conceded that the switch in strategy has been troublesome.

"Strategy transitions are difficult," he said in a statement. "We recognise the need to deliver great mobile products, and therefore we must accelerate the pace of our transition."

WestLB analyst, Thomas Langer, told Reuters: "Given the internal turmoil that will be generated by this news, it is increasingly difficult to see that Nokia can leapfrog one handset generation and be on par with the competition in early 2012. Investors should be more than concerned about the dividend possibility."

Adding further gloom, Dow Jones Newswires reported Swedbank analyst Jari Honko as saying that Nokia's profit warning looked grave and indicated that the competition was taking advantage of the company's current difficulties, and that its attempts to defend market share were failing. With the devices and services division unlikely to make a profit in the second quarter, Honko maintained that the whole group would make a loss, adding that there was the possibility of worse to come given that Nokia's third quarter may only see minor improvement.

For more:
- see this Bloomberg article
- see the Reuters article
- see this Dow Jones Newswires article (sub. req.)

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