SAN FRANCISCO—Cellular handset vendor Nokia Corp. said Tuesday (May 31) it now expects net sales from devices and services to be substantially below its previously expected second quarter range of between 6.1 billion euro ($8.8 billion) and 6.6 billion euro ($9.5 billion).
Nokia (Espoo, Finland) blamed the anticipated shortfall on the competitive dynamics and market trends across multiple price categories, particularly in China and Europe; a product mix shift towards devices with lower average selling prices and lower gross margins; and pricing tactics by Nokia and certain competitors.
Nokia, which previously said it expected third quarter sales to be roughly flat compared to the second quarter and that it expected a seasonal pick up in sales in the fourth quarter, said Tuesday that those targets were no longer valid. "Given the unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011," the company said through a statement.
"Nokia’s loss of ground in the smartphone market has been well documented, but this performance indicates that it’s also now struggling in the low-end, low-cost market where the company had been particularly strong," said Kevin Burden a vice president and practice director at market research firm ABI Research.
Burden said Nokia had expected its low-end models to continue performing well in developing markets and to help the firm through its transitions in software platforms as well as leadership. "This news indicates that pressure is intensifying at both ends of the market, and Nokia can no longer count on any of its product lines to be a bridge from its industry-leading past to what it hopes would be a competitive future," Burden said.
Burden said the Nokia announcement also intensifies doubts about whether Nokia will be able to deliver handsets running Microsoft's Windows Phone OS in 2012 that are superior to competitors' offerings.
"Key to Nokia’s strategy is its belief that, with its initial line of Windows phones, it can vault ahead of competitors that are currently building Windows-powered phones," Burden. "The turmoil within Nokia—started by the changes in management, intensified by the shifts in strategy, and now boiling over into weak market performance—is cementing doubts that Nokia can pull it off."
Nokia said Tuesday it remains pleased with its progress on its Windows Phone strategy. The company said it has increased confidence that the first Nokia product with Windows Phone will ship in the fourth quarter 2011.
Nokia said it also remains committed to its target to reduce its pro forma Devices and Services operating expenses by 1 billion euro ($1.4 billion) for the full year 2013, compared to the full year 2010. The company said it plans to implement these reductions as quickly and effectively as possible.
"Strategy transitions are difficult," said Stephen Elop, president and CEO of Nokia. "We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition. Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011."