Nokia Lowers Estimate for 1st Quarter Profit

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Published: April 11, 2012

BERLIN — Nokia lowered its first-quarter profit forecast on Wednesday as demand for its Symbian-based smartphones, which the company is phasing out, weakened sharply amid the transition to phones using Microsoft Windows.

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The world’s largest maker of cellphones by volume said its operating margin in the first quarter for devices and services, which make up 60 percent of sales, would be a 3 percent loss. Previously, it had forecast a margin of “around break-even, ranging either above or below by approximately 2 percentage points.”

Shares of Nokia fell 16 percent to €3.21, or $4.24, in Helsinki.

Pete Cunningham, an analyst at Canalys, a research firm in Reading, England, said Nokia was witnessing eroding demand for its Symbian handsets, which accelerated in the five months since Nokia introduced its first Lumia phones with Microsoft.

“The appetite for Symbian has evaporated quickly,” Mr. Cunningham said. “They haven’t been able to ramp up the Windows phone lineup to offset the balance.”

The Nokia president and chief executive, Stephen Elop, attributed the profit revision to Nokia’s transition to Windows, saying the company would accelerate cost-cutting measures and explore unspecified “structural changes” if necessary.

The company began selling Lumia phones in November. It offers four models of the phone.

In the first quarter, Nokia said it sold two million Lumia smartphones at an average price of €220. Sales of the new phones have increased sequentially since their introduction last year, the company said. But the transition has not been problem-free.

Nokia said Wednesday that it made available a software fix to buyers of its Lumia 900, a smartphone it began selling four days ago through AT&T Wireless in the United States, to correct “memory management” problems.

Nokia on Sunday began selling Lumia in the United States, a market it once dominated but which has been overrun by Apple’s iPhone and makers of phones using Google’s Android operating system.

Nokia offered to exchange Lumia 900s for new phones with the updated software. Buyers could also download the software update starting next Monday through Microsoft’s Zune service. Nokia also said that anyone who bought a Lumia 900 through April 21 would receive a $100 credit to their AT&T bill, paid by Nokia.

“Lumia has gained market share with both distribution partners and consumers,” Mr. Elop, a former Microsoft executive, said in a statement. Mr. Elop said Nokia’s transition to Microsoft phones like Lumia would continue to weigh on the company’s results at least into the summer.

For the second quarter, Nokia said it expected its operating margin to be similar to or lower than the 3 percent loss in the first quarter. Nokia plans to publish its first-quarter financial results on April 19.

To navigate the transition, Mr. Elop said Nokia would boost investment to expand its range of Lumia handsets. The company will also make short-term “tactical pricing actions” to improve sales of its basic cellphones, which account for the bulk of Nokia’s handset revenue.

He did not specify cost-cutting measures or the amount of investment.

Mr. Elop, who was the architect of Nokia’s decision to adopt Windows as its smartphone operating system, said the company was also open to larger structural moves, without being specific. Nokia owns 50 percent of the Nokia Siemens Networks equipment venture, which generated operating losses of €986 million in 2010 and 2011 combined.

“Nokia will accelerate planned cost reductions and will pursue additional significant structural actions if and when necessary,” Mr. Elop said. In a conference call today, Mr. Elop did not refer to Nokia Siemens or provide more specifics about potential structural moves.

Nokia said weak sales in several core markets, including India, the Middle East, Asia and China prompted the profit warning. Mr. Cunningham, the Canalys analyst, said Nokia’s Lumia lineup in China was being overshadowed by Apple’s iPhone 4S.

“Obviously, with the introduction of the iPhone 4S, the competitive landscape has become tougher there for Nokia,” Mr. Cunningham said. He said that he expected Nokia to continue to have “some tough quarters ahead” as it ramped up Lumia sales.

Canalys is forecasting that Microsoft’s share of the global smartphone operating market will increase from 1.3 percent last December to 6 percent by the end of this year, an increase being driven primarily by sales of Nokia’s Lumia handsets. Mr. Cunningham said Canalys did not plan to update the forecast until later this spring.

“I don’t think its fair to judge Nokia until the end of the year,” Mr. Cunningham said. “Then, we’ll be able to see whether they make it or not.”

Separately, Nokia said it would begin selling a new version of the Lumia 610, its least expensive Lumia phone, which will include wireless payment technology using near field communication, or NFC.

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