Nokia Misses Smartphone Boom as Customers Flock to IPhone

As Apple Inc. struggles to meet demand for the latest version of the iPhone, Nokia Oyj is still waiting to ship its only model that may compete.

The Finnish company has announced just one handset, the N8, from its new high-end line based on revamped Symbian 3 software, while Apple’s recently unveiled iPhone 4 is flying off virtual shelves with 600,000 pre-orders and other vendors are rolling out models with Google Inc.’s Android software.

“The smartphone revolution has started and Nokia is not there,” said Helena Nordman-Knutson, a Stockholm-based analyst at Oehman. The N8 “will be old when it’s out because everybody has taken the next step.”

The world’s largest mobile-phone maker yesterday lowered revenue and margin forecasts, citing competition in the high-end smartphone market and showing that its fortunes in the application-rich iPhone segment may not turn before 2011. Chief Executive Officer Olli-Pekka Kallasvuo has struggled to deliver on a touchscreen model on a par with the Apple device.

Nokia said in April that the N8 will be shipped sometime in the third quarter. It is also slated to introduce a second line of high-end devices running the MeeGo operating system developed with Intel Corp. at an unspecified date this year.

Investors punished Nokia, sending its shares down 9 percent to 7.22 euros in Helsinki yesterday, the lowest level since March 9, 2009. The stock drop put the market value of Nokia at 27 billion euros ($33.3 billion), below the $34.4 billion of rival Research In Motion Ltd. and Apple’s $240 billion.

Margin Forecasts

Nokia yesterday said its second-quarter handset revenue and margins will be “at the lower end of or slightly below” its earlier forecast range of 9 to 12 percent. The Espoo, Finland- based company also cut its outlook for 2010 for the second time this year. The full-year adjusted operating margin in handsets could come in below the 11 to 13 percent range forecast earlier, mainly because of its weakness in high-end smartphones, it said.

Sales in the devices and services division may fall below 6.7 billion euros in the second quarter, Nokia said.

The lowered outlook is “an implicit statement that the Symbian user experience won’t be fixed this year and MeeGo won’t arrive in time to make a difference to 2010 either,” Gartner Inc. analyst Nick Jones said in e-mailed comments.

‘Out of Patience’

The less-than-perfect implementation of the company’s strategy might prompt calls for management changes, he said.

“It’s looking now as if 2010 won’t be the year in which Nokia’s problems get fixed and I suspect investors are running out of patience and will want to hold someone accountable,” he said. “That makes me wonder if the recent reorganization may not be the last of the executive changes we’ll see in 2010.”

The company never comments on speculation, said Nokia spokeswoman Arja Suominen. On May 11, Nokia said it was promoting Anssi Vanjoki, a 20-year company veteran, to head a new smartphone division.

Nokia’s outlook showed that the company’s fortunes are not likely to charge in the immediate future, analysts said.

“What this did is crystallize people’s awareness that the portfolio in the third quarter is not going to be that much better than in the second,” said Stuart Jeffrey, an analyst at Nomura Securities. “So it’s all or nothing in the fourth quarter.”

The company expects the fourth-quarter margin to rise above the average for the year, Chief Financial Officer Timo Ihamuotila said in a teleconference yesterday.

Not About Volumes

“The smartphone unit is in trouble and has been for basically two years now,” said Tero Kuittinen, an analyst at Greenwich, Conn.-based MKM Partners. “The question is whether they can stabilize the situation there and I think they have a shot at doing it in the second half of the year.

Nokia held on to its smartphone market share of 41 percent in the first quarter as it introduced cheaper models and trimmed prices. It expects its share of industry handset revenue to decline this year, after earlier saying it would increase. It still expects unit market share to be flat.

“It’s not about volumes anymore -- the competition is taking place over the money,” Nordman-Knutson said. “Of course you can take market share by redefining the smartphone segment and adding volume through massive price reductions.”

The market share of Symbian, Nokia’s main smartphone operating system, fell to 44.3 percent in the first quarter from 48.8 percent a year ago, according to market researcher Gartner. Although mostly on Nokia phones, Symbian is also used by Samsung Electronics Co. and Sony Ericsson. IPhone’s share rose to 15.4 percent from 10.5 percent, while Android soared to 9.6 percent from 1.6 percent.

Not ‘Fully Baked’

The N8 will enter the market at 370 euros ($443), about a third lower than the 550-euro price tag of the N97, last year’s flagship device. The company has unveiled low-end smartphones phones costing as little as 135 euros this year.

CFO Ihamuotila said that the company is aiming for multiple Symbian 3 products in the second half, not just the N8.

Nokia allowed some handset reviewers to demo the N8 at events in London and Singapore this week. The events were followed by a spate of blog posts on the device.

“Nokia has put together a growling multimedia powerhouse, but the OS is so far from being fully baked; we can still see the dough,” Engadget, a closely followed blog said.

SlashGear, another popular blog, said the device was “decently peppy,” adding that it “isn’t perfect yet.”

“It doesn’t mean Nokia will never come back, but it does say they will not come back in 2010 or not before the fourth quarter,” said Nordman-Knutson. “We can’t expect one single phone to change the world for them.”

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

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