Bloomberg News

Nokia Cuts Forecast, Shares Slide

April 11, 2012

The Nokia Oyj Lumia 900 smartphone. Photographer: David Paul Morris/Bloomberg

The Nokia Oyj Lumia 900 smartphone. Photographer: David Paul Morris/Bloomberg

Nokia Oyj (NOK1V) reported an operating loss for its mobile-phone division and forecast earnings won’t recover this quarter as emerging market handsets sales slumped and margins on smartphones shrank.

Nokia fell 14.5 percent in Helsinki, wiping 2.1 billion euros ($2.8 billion) off its market value, after saying its devices and services unit probably had a first-quarter operating loss of about 3 percent of sales. The figure for the current period will be “similar to or below” the first quarter. Espoo, Finland-based Nokia plans to release detailed earnings April 19.

Fourteen months after deciding its Symbian system couldn’t keep up with Google Inc. (GOOG:US)’s Android platform and Apple Inc. (AAPL:US)'s iPhone, and linking up with Microsoft Corp. (MSFT:US)’s Windows Phone, Nokia is still struggling to convince investors of its turnaround strategy. Chief Executive Officer Stephen Elop said today he's reviewing options including asset sales, vowing to take “significant structural actions if and when necessary.”

“It’s a disaster,” said Thomas Langer, an analyst with WestLB Equity Markets in Dusseldorf who advises investors sell the stock. “It looks like a lost year 2012 and there is increasing uncertainty about 2013 and the company’s future.”

Margin Forecasts

Nokia fell 55.4 cents to 3.27 euros at the close of trading in Helsinki, the steepest decline since May 2011. The stock declined as much as 19 percent after the release. The company has a market value of 12.2 billion euros.

Apple added 0.5 percent to $631.81 at 11:42 a.m. in New York, valuing the Cupertino, California-based company at about $589 billion.

Credit-default swaps on Nokia soared 62 basis points today to a record 435, according to CMA at 4 p.m. in London. The contracts rose every day since April 2, when they cost 350 basis points. An increase signals deterioration in perceptions of credit quality.

Nokia’s handset margins, adjusted for some items, declined from more than 20 percent in 2007, when Apple Inc. introduced the iPhone, to 4.9 percent in the final quarter of 2011. Along with Research In Motion Ltd. (RIM), maker of the BlackBerry smartphone, Nokia has seen its market pared by competition from Apple’s expansion and from devices running Android software.

Nokia last month agreed with unions to cut 1,000 positions at its only factory in Finland, adding to more than 10,000 jobs reductions Elop has announced since Nokia linked up with Microsoft in February last year.

Past Products

The first-quarter operating loss of about 3 percent of sales for the devices and services business is based on the non- IFRS accounting standard, Nokia said. The company had predicted “around breakeven” with a range of 2 percentage points in either direction.

Nokia’s smartphone revenues for the first quarter were 1.7 billion euros on 12 million units, a decline of about 50 percent by both measures. The company sold “more than 2 million” handsets from its new Lumia Windows Phone line in the first quarter for an average price of about 220 euros, it said.

“The problem is their past products, the Symbian products,” said Robert Jakobsen, an analyst at Jyske Bank A/S (JYSK). “I assume it is the high end of the Symbian phones that are not selling well. On the other hand, there is increasing momentum on Lumia, and that is the future.”

The company’s low-end mobile-phone sales declined to 2.3 billion euros on 71 million units from 3.4 billion euros and 84.3 million units a year earlier. Nokia cited India, the Middle East, Africa and China as regions and countries suffering “competitive industry dynamics.”

‘Structural Changes’

The Finnish company is shrinking the number of main handset assembly plants to five from nine at the beginning of 2011, and building a new factory in Vietnam for low-end phones.

Nokia’s net cash and other liquid assets stood at 4.9 billion euros at the end of the first quarter. On a conference call, Elop said he wouldn’t rule out structural changes to restore the company’s “long-term health.”

“When we talk about what those structural changes might be, we have to make decisions about, are we concentrating on certain markets, are we emphasizing certain product opportunities over others, do we sell off certain non-core assets along the way,” Elop said.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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


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