Nokia issues 2Q profit warning, leading to crisis of confidence among investors; weak sales in smartphones to blame

Nokia stock down 9% in Helsinki

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Investors are having a hard time trying to keep faith in the future of the world’s largest mobile phone manufacturer, Nokia.
     
On Wednesday the Finnish company's share price plummeted by roughly 9%, when Nokia announced that it now expects its Devices & Services net sales to be at the lower end of, or slightly below, the previously expected range of EUR 6.7 billion to EUR 7.2 billion for the second quarter of 2010.
      Nokia’s stock exchange release noted further that the company now expects its Devices & Services non-IFRS operating margin to be at the lower end of, or slightly below, the previously expected target for Q2/2010, as well as for the full year.
      Moreover, Nokia now expects its mobile device value market share to be slightly lower in 2010, compared with 2009. This is an update to the company’s previous target to increase its mobile device value market share slightly in 2010.
     
The factors negatively impacting the company’s business include the competitive environment, particularly at the high end of the market, and shifts in product mix towards somewhat lower gross margin products.
      In other words, Nokia has still not managed to increase the sales of its smartphones.
      When it comes to the sales of low-cost models, Nokia has a strong position, even though competition is increasingly stiff even at the lower end of the market.
     
From the consumers’ perspective, the range of Nokia’s smartphones is simply not tempting enough.
      The Finnish company has long been criticised for having been unable to develop a convincing competitor to Apple’s iPhone. Hence analystis have put their faith in Apple instead of Nokia, which can be seen in the superimposed stock prices of these companies.
      At the moment, Nokia’s competitive position is being threatened by yet another range of mobile devices, namely Google’s Android-based handsets.
      ”The user experience provided by the Android operating system is superior to the present Symbian-based devices”, says analyst Richard Windsor from Nomura Bank. Symbian is the standard operating system for Nokia’s mobile phones.
     
Nokia also announced on Wednesday that in addition to the weak sales of high-end smartphones, the recent depreciation of the euro has affected Nokia's cost of goods sold, operating expenses, and global pricing tactics.
     
In terms of sales numbers of smartphones, Nokia continues to be the world’s largest manufacturer.
      Over the period from January to March, a total of 44% of smartphones sold worldwide were Symbian-based phones, according to the research company Gartner.
      In practice the figure is the same as Nokia’s market share. The share of the smartphones made by Research In Motion (RIM - the Blackberry) was 19%, while that of Apple’s devices was 15%, with the proportion of Android-powered phones being 10%.
      Nevertheless, there is a problem, and it is a twofold one: Nokia's share is declining, while that of the Apple and Android-based devices is on the up, and at the same time Apple is making more money on its phones than is Nokia.
      In essence, Nokia's market share advantage does not look quite so rosy when it is measured in euros rather than actual units sold.
     
As the attached graph shows, investors' patience with Nokia's product development problems is wearing rather thin.
      The comany's stock price has fallen steadily from the beginning of 2008, and aside from a blip in early 2009, it reached its lowest level on Wednesday since the end of the 1990s.


Previously in HS International Edition:
  Nokia expands its sales of smartphones combined with continuing success in emerging markets (29.1.2010)
  Nokia result comfortably exceeds analysts´ forecasts; stock soars 13% in early trading (28.1.2010)

See also:
  Analysts: Nokia has wasted 3 years trying to come up with challenger to iPhone (30.4.2010)
  Nokia Q1/2010 results improved, but share price hammered 14% in Helsinki (23.4.2010)

Links:
  Nokia share price dips below EUR 8.00 (21.5.2010)
  Nokia Corporation Stock Exchange Release 16.6.2010
  NASDAQ OMX: Nokia

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