Nokia issues warning over Q1 results impacted by competition

Nokia warned of a weaker than expected performance in the first quarter of 2012, stating that “multiple factors negatively affected Nokia’s Devices & Services business to a greater extent than previously expected.” The news sent its stock plunging 19 per cent, to their lowest level since 1997.

Stephen Elop, the company’s president and CEO, noted issues including competitive industry dynamics in markets including India, the Middle East, Africa and China (markets where Nokia has traditionally been strong); and gross margin declines, particularly in its Smart Devices unit, where the drop-off of the legacy Symbian OS business has not been fully offset by growth in its Lumia range of Windows Phone-powered handsets.

In order to address these challenges, Nokia said it will “increase investments in Lumia to bring more products to more consumers in more markets,” with the CEO highlighting that this is focused on driving device costs down. In the mass market Mobile Phones unit, Nokia said it is taking “tactical pricing actions in the near term,” ahead of new product introductions in Q2.

Nokia also said it will accelerate its already planned cost reductions and will look at additional “significant structural actions if and when necessary,” although Elop declined to comment on the form these may take, or what the trigger will be.

It was specifically noted that Nokia is facing increased competition in the “low-end, full touch space,” which has impacted both the high-end of its Mobile Phone and low-end of its Smart Device businesses. Competitors have been very aggressive in this market, Elop said, in order to capitalise on Nokia’s weakness.

The company is estimating that net sales for Devices & Services will be €4.2 billion (US$5.94 billion), compared with €7.1 billion in the first quarter of 2011. Unit volumes are expected to be 71 million for mobile phones and 12 million for smart devices, compared with 84.3 million and 24.2 million respectively in Q111.

Highlighting the positives, Nokia said that in the first quarter of 2012, it sold more than two million Lumia devices with an average selling price of around €220. It said that “Lumia has gained market share with both distribution partners and consumers.”