Ronnie05's Blog

Nokia Slumps! (on profit warning)

Posted in Mobile Devices and Company Updates by Manas Ganguly on June 1, 2011

Nokia stocks took the hammer today and haemorrhaged 17.5%, following a dramatic downgrade of its 2Q,2011 outlook. Nokia expects net sales from its Devices and Services division to be substantially below its previously expected range of 6.1 billion euros to 6.6 billion euros ($8.77 billion to to $9.48 billion) it previously expected. Nokia expected to earn somewhere between $530 and $850 million off its Devices and Services business this quarter, and now expects those figures to be “substantially lower”—right around a breakeven point. The second quarter results are expected by July 2011.

Nokia’s full market capitalization now stands at $25 billion, a figure that analysts say that Apple Inc. could earn in net profit alone during 2011.

Nokia in a statement has indicated that it could no longer give a full year forecast which effectively means that Nokia is pessimistic/unable to react to and contain losses that the phone major is beginning to see all around its business units. The lack of revenue assurance is a psychological set-back which manifested itself by a free-fall in share prices. Nokia was trading at 4.34 Euros, its lowest in the last 13 years. Bernstein Research downgraded Nokia from “market perform” to “underperform” on Wednesday, cutting its price target to 3.00 euros from 5.50, and Goldman Sachs removed its “buy” tag on Nokia, labling it only as “neutral”.

Nokia attributes the lowered forecast to three primary factors, including aggressive pricing from competitors, lower average prices and margins across its own product line, and “competitive dynamics and market trends,” particularly in China and Europe. However, the bottom line is that Nokia isn’t selling as many phones as it would like. Check Gartner reports here.

The problem with Nokia is that they are losing market share at such a pace that there’s a risk that consumers won’t be interested in buying Nokia phones anymore. That could whiplash into inventory blockages globally which could further dent the channel confidence in Nokia. Nokia’s market share had fallen to 29 percent from 33 percent in the first quarter of 2010, and compared with 40 percent in the first half of 2008. The numbers are stark. In the first quarter, Google’s Android operating system ran on 34% of smartphones in Western Europe, up from only 8% a year ago. By comparison, the percentage of smartphones that ran Symbian fell by half to 21% in Europe from 40% a year ago.The influx of Android devices aimed at both the premium and mass markets has Nokia cornered.

Nokia states that sharp outlook downgrade was part of a rocky transition period as it phases out its Symbian smartphone platform in favour of a tie-in with Microsoft Phone, and hopes to regain lost ground when it starts shipping its first Microsoft handsets at the end of this year. While Nokia has been announcing launch of its Windows phones by 4Q,2011, there are unanswered questions about costs, eco-system and consumer acceptance. Then again, a 4Q,2011 launch would mean that Symbian led smartphones would continue bleeding in volumes as well as ASPs. In an initial estimate I had predicted that the next 3 quarters could see the Symbian-Nokia at 10% of the smartphone sales. Nokia already has transferred maintenance of the out moded Symbian platform to Accenture and laid of 7000 jobs thereby saving its $1billion this fiscal.
Nokia has started shipping dual SIM phones, a trend that it missed altogether in 2007-08 and has also announced the E7 shipping start. It is doubtful that these are going to alter the balance any more in favour of the beleaguered mobile giant.

Bottomlines

Nokia’s crisis has been in the making for the last 3 years. There has hardly been a Nokia phone to write home about except the E70 in 2008. Each of its flagships failed post that as Nokia was stuck in its device and hardware focus and Android / iOS stole the march with swanky OSs and smartphones. Nokia misread the evolution of the smartphone category, touch and did not execute most of the elements in its service strategy well (Ovi??). Worse, the organization as such was a sloth and as the joke goes, Nokia was the proverbial oil tanker that took ages manoeuvring in any direction. For 3 years after the launch of the iPhone, the writing and the trend was on Nokia’s face but it did not react compounding the crisis. The Q2,2011 outlook downgrade is the proverbial tipping point and I expect small disasters ahead. We will wait to know if Elop’s Windows Phone association does anything to reverse the fortunes of the beleaguered giant.

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One Response

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  1. Quora said, on June 9, 2011 at 1:05 pm

    Can Nokia ever regain its market dominance in India?…

    It is difficult for Nokia to regain market dominance (the 70% market share situation) in India. Here are the reasons 1. Trade fragmentation: With commoditization of the handset category, the channel power is increasingly shifting to retail. Nokia still…


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