Nokia slumps after Q1 handset profit warning

Nokia shocked stock markets around the world Wednesday with a warning that its key Devices & Services unit will post a financial loss in the first quarter of this year. This unexpected news saw the company's share price fall by as much as 18 per cent to their lowest level since 1997, according to the Financial Times.

Nokia CEO Stephen Elop

Elop

"During the first quarter 2012, multiple factors negatively affected Nokia's Devices & Services business to a greater extent than previously expected," Nokia said in a statement, citing competition in smartphones, the macroeconomic environment and demand for its new products.

Nokia said it expects its non-IFRS Devices & Services to be around negative 3 percent in the first quarter, compared with the previously expected range of "around breakeven, ranging either above or below by approximately 2 percentage points." For the second quarter, Nokia said it expects its Devices & Services operating margin to be similar to or below the level of the first quarter. Industry analysts had been expecting a profit margin of 0.4 per cent for the first quarter, and a much improved 2.1 per cent for the second quarter, according to Reuters.

Nokia CEO Stephen Elip said that these first quarter 2012 results and the outlook for the second quarter illustrate that Nokia's devices and services business continues to be in the midst of transition to using Microsoft's Windows Phone as its primary smartphone platform."We are continuing to increase the clock speed of the company," he said in a statement. One bright spot was that in the first quarter, Nokia sold more than two million Lumia devices at an average selling price of around €220.

"It's a disaster," Thomas Langer at WestLB told Reuters. "Shipments of Symbian devices are declining faster than we anticipated ...(and) the ramp up of Lumia devices is not fast enough to compensate for the shortfall." Langer added that Nokia's problems are not expected to end in the second quarter. "In Q3 we will have the iPhone 5 and (Samsung's) Galaxy S3 and so on, so [Nokia's earnings per share] for 2012 is now somewhere in limbo," he said. "I think they need to start the second or maybe the third phase of a restructuring program. It's a very difficult situation for them."

Making matters worse, Nokia has admitted that a sNokia acknowledged a software glitch in its flagship Lumia 900 smartphone, which AT&T Mobility began selling Sunday for $99.99 (€76) with a two-year contract. Some users had complained that they were unable to connect to any of AT&T's data networks. In a company blog post, Chris Weber, the head of Nokia Americas, and Jo Harlow, Nokia's smartphones chief, wrote that a memory management issue was discovered that could, in some cases, lead to loss of data connectivity.

Nokia said if customers have purchased a Lumia 900 already they will be able to download a software patch to fix the issue on or around April 16, or they can swap their existing Lumia 900 for an updated one. Nokia also said every individual who has already purchased a Nokia Lumia 900--or who will purchase one between now and April 21--will receive a $100 credit to their AT&T bill from Nokia, essentially making the phone free. An analyst who asked to remain anonymous told Reuters the software bug could cost Nokia around $10 million on likely sales before the problem is resolved.

For more:
- see this release
- see this Financial Times article (reg. req.)
- see this Reuters article
- see this Bloomberg article
- see this WSJ blog post (sub. req.)

Related Articles:
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S&P cuts Nokia rating to near junk; upbeat on Lumia prospects
Analyzing the world's 10 biggest handset makers in Q4 2011
Nokia's Lumia sales show promise in Q4, but Symbian continues to slide
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