Bloomberg News

Nokia’s Slump Quickens as Consumers Shun Outmoded Handsets

June 01, 2011

(Updates with closing share price in sixth paragraph.)

June 1 (Bloomberg) -- Nokia Oyj replaced Chief Executive Officer Olli-Pekka Kallasvuo last year after the stock sank 55 percent during his four-year tenure. Successor Stephen Elop has presided over a 37 percent loss in just eight months.

The Finnish company yesterday scrapped its full-year sales and margin forecasts for handsets and services and said sales at the unit would “substantially” fall short of its projected range this quarter. The stock slumped 18 percent to a 13-year low, exceeding the 14 percent slide on Feb. 11, when Elop announced a deal to adopt Microsoft Corp.’s operating system.

Elop, 47, told investors yesterday he has “increased confidence” that Nokia can ship its first phone based on Windows Phone 7 in the final quarter. Before that happens, the CEO still has to cope with consumers fleeing its Symbian handsets, based on the operating system Nokia decided to abandon after failing to keep up with Apple Inc.’s iPhone and Google Inc.’s Android, the fastest-growing smartphone platform.

“No question he inherited a situation considerably worse than he’d anticipated,” said Ben Wood, a London-based analyst at CCS Insight, in a telephone interview. “Common courtesy would dictate that they’d give him a year, but I think the critical point will be when the new strategy is implemented in 2012. That’s when he absolutely needs to deliver.”

Wiped Out

Today, Nokia lost as much as 10 percent, as analysts including at Goldman Sachs Group Inc., Sanford C Bernstein & Co. and Nordea Bank AB cut their ratings on the stock.

The shares recovered in afternoon Helsinki trading after BoyGeniusReport said on its website, citing blogger Eldar Murtazin, that Microsoft had agreed a deal to buy Nokia’s mobile-phone business for $19 billion. Nokia spokesman Doug Dawson called the speculation “completely baseless.” Nokia closed 0.8 percent lower at 4.71 euros, valuing the Espoo, Finland-based company at 17.7 billion euros ($25.5 billion).

Yesterday’s decline took Nokia to the lowest level since January 1998 and erases the stock’s gains since the boom for shares of technology and Internet companies in 1999 and 2000.

Foxconn International Holdings Ltd., the contract manufacturer of handsets that counts Nokia as its biggest customer, fell 5 percent in Hong Kong trading today.

Nokia has lost about three-quarters of its value since Apple’s 2007 introduction of the iPhone, which raised consumer expectations for handsets that can handle corporate e-mail and play movies. Apple has a market value of $321 billion, while HTC Corp., the largest maker of handsets using Android and Microsoft operating systems, is valued at $35.6 billion.

HTC, Samsung

Nokia’s smartphone market share has fallen by half, to 25.5 percent in the first quarter from 50.8 percent in the second quarter of 2007, according to Gartner Inc. Its first-quarter handset revenue rose 6.4 percent to 7.09 billion euros, surpassed for the first time by iPhone sales of $12.3 billion.

In Frankfurt near the Zeil main shopping street, an outlet of The Phone House had 31 handsets on display, including 16 Nokia models, although many were offered as part of cheaper prepaid packages.

“The design is totally OK, but then I downloaded apps and the latest software, and realized that it’s good for calling but that’s about it,” said Mansur Sharifi, a 35-year-old marketing executive in Frankfurt, who plans to ditch his Nokia E71 for an iPhone. “Nokia hasn’t gotten it right anymore in the last few years. HTC is very good at that, Samsung as well.”

U.K. consumers are also less likely to pick up a Nokia phone, a survey by Enders Analysis in April showed. About 16 percent of individuals polled said they would purchase a Nokia device in 2011, compared with 27 percent last year.

China, India

Even in emerging markets such as China, where lower-priced handsets are in demand from rural populations, Nokia faces intensifying rivalry from local suppliers that is eating into average selling prices, the company said yesterday. Starting this quarter, Nokia will ship the 45-euro dual-SIM C2-00, about half a year later than the model’s planned introduction.

“We knew about the lack of dual-SIM phones in India -- what’s new is that China has been problematic on account of Android,” said Michael Schroeder, an analyst at FIM Bank in Helsinki, who has a “‘reduce” rating on Nokia. “It’s looking worrying on the feature phone side, where Nokia has traditionally been strong. That adds to the risk that the company becomes marginalized across the range.”

Second-quarter sales for devices and services will be “substantially” less than its projected range of 6.1 billion euros to 6.6 billion euros, Nokia said yesterday. The unit’s operating margin will fall short of a forecast range of 6 percent to 9 percent and will be about breakeven, it said.

‘Icy Water’

“They’ve jumped into the icy water,” said Alexander Peterc, a London-based analyst with Exane BNP Paribas. “They could have worked on Windows in the background and provided moral support to Symbian while it was the only platform they had to offer. What if the Windows phone doesn’t sell?”

Nokia said yesterday it started shipping the X7 and E6 smartphones that run the updated Symbian Anna operating system. Nokia is transferring its Symbian software development to Accenture Plc as part of a program to eliminate 7,000 positions that was announced in April.

“We must accelerate the pace of our transition,” Elop told investors on a conference call yesterday. “Strategy transitions are difficult.”

Once Finland’s largest company by market value, Nokia yesterday slid to fourth place on the Nasdaq OMX Helsinki index behind Fortum Oyj, the country’s biggest utility.

At $24 billion, the stock has reached its break-up value, Bank of America Corp. Merrill Lynch analysts led by Andrew Griffin wrote in a note today. Nokia’s uncertain outlook could turn potential bidders away, Exane BNP Paribas’s Peterc and FIM Bank’s Schroeder say.

“A company with such uncertain and negative prospects isn’t a particularly alluring takeover target,” Schroeder said. “Still, everything has its price.”

--With assistance from Kati Pohjanpalo in Helsinki and Beth Mellor in London. Editors: Kenneth Wong, Simon Thiel

To contact the reporters on this story: Jonathan Browning in London jbrowning9@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net; Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.netvroot@bloomberg.net.


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