Nokia Slumps to Lowest in 13 Years After Cutting Forecasts

Nokia Lowers Devices & Services Second-Quarter Outlook
An employee displays a Nokia Oyj E7 business handset. Photographer: Henrik Kettunen/Bloomberg

Nokia Oyj slumped to the lowest price in 13 years in Helsinki trading after cutting its forecasts for the devices and services unit on lower prices and competition from Google Inc. and Apple Inc.

Second-quarter sales at the devices and services division will be “substantially” less than its projected range of 6.1 billion euros ($8.8 billion) to 6.6 billion euros, Espoo, Finland-based Nokia said today. The unit’s operating margin will also fall short of a forecast range, the company said.

Nokia’s stock has lost about three-quarters of its value since Apple introduced the iPhone in 2007, raising consumer expectations for handsets that can surf the Web and show movies. Chief Executive Officer Stephen Elop turned to Microsoft Corp.’s Windows Phone 7 after determining that its own Symbian and MeeGo systems couldn’t keep up with the iPhone and Google’s Android, the fastest-growing smartphone platform.

“They are forced to discount a lot,” said Lee Simpson, an analyst at Jefferies International Ltd. in London with a “sell” rating on Nokia’s stock. “No one wants these handsets. This is the real terrible year for these guys.”

Nokia dropped 1.01 euros, or 18 percent, to 4.75 euros, the lowest intraday price since February 1998.

Tech Bubble

The stock’s decline erases the market value gains since the boom for shares of technology and Internet companies in 1999 and 2000.

On Feb. 28 in 1998, Nokia said fourth-quarter profit rose a greater-than-expected 23 percent as demand for its networks soared and profitability in the mobile-phone unit gained. Phone sales rose 5 percent and Nokia said it would introduce a range of new products including the 6100, a model with general packet radio service that allowed users swap messages containing sound, pictures and graphs.

Nokia has declined 39 percent this year, cutting the company’s market value to 17.8 billion euros ($25.6 billion).

That compares to a market value of $316 billion for Apple and about $35 billion for HTC Corp., the world’s largest maker of handsets using Android and Microsoft operating systems. Nokia’s market value also represents three times the $8.5 billion that Microsoft in May agreed to pay for Internet-calling service Skype Technologies SA.

Nokia was overtaken last quarter by Cupertino, California-based Apple as the largest maker of mobile phones by revenue. On Feb. 11, the day Nokia struck its agreement with Microsoft, the Finnish company’s shares fell 14 percent.

Market Share Losses

“The new models based on Windows Mobile should get on the market not earlier than December,” said Saverio Papagno, an analyst at AZ Fund Management in Luxembourg. “In the meantime Nokia is suffering from Apple and Google’s competition, especially in the consumer market.”

Nokia’s smartphone market share has fallen by half since the iPhone was introduced, from 50.8 percent in the second quarter of 2007 to 25.5 percent in the first quarter of this year, according to researcher Gartner Inc.

Nokia said today it’s no longer appropriate to provide full-year targets. The company called 2011 and 2012 “transition years” in its Feb. 11 statement.

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 the period.

“Strategy transitions are difficult,” Elop said today. “We must accelerate the pace of our transition.” The CEO said he has “increased confidence” that Nokia will ship its first Nokia product with the Windows operating system in the fourth quarter 2011.

Job Cuts

On April 27, Nokia said it will eliminate 7,000 jobs and transfer its Symbian software development to Accenture Plc in the Finnish company’s biggest reorganization in two decades. The 7,000 positions account for almost 12 percent of Nokia’s workforce, excluding those employed at a venture with Siemens AG and at the Navteq maps division.

The Finnish company said today it is “taking immediate action to address the issues” and that its strategic objectives and targets remain unchanged. The company said it has “taken price actions on its current smartphone portfolio,” and is “intensifying its focus on retail point-of-sales marketing.”

The company reiterated it plans to slash 1 billion euros in expenses at the handset business by 2013 and said it still targets sales in the devices and services business to grow faster than the market after its revamp and the division’s non-IFRS operating margin to be 10 percent or more.

-- With assistance from Chiara Remondini in Milan and Jonathan Browning in London. Editor: Simon Thiel, Kenneth Wong.

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