Nokia's US depositary shares today dropped 13 per cent before the market opened, after the mobile phone maker lowered the first quarter 2012 outlook for its devices and services businesses. But it sold 2 million of its new Lumia phones during the period, about twice that of the previous quarter.
In a press release, Finnish-based Nokia said that fierce competition especially in key overseas markets such India, the Middle East and China, was slowing sales and warned that gross margins, an indication of profitability, were declining especially for its smart devices business unit.
Specifically Nokia estimates that its first quarter operating margin for January through March was negative 3 per cent, compared to an previously expected range of "around breakeven, ranging either above or below by approximately 2 percentage points." The company said it expects second quarter results to be similar or even lower.
In response, Nokia plans to boost investment in, and accelerate sales of, its new Lumia phones, running Microsoft's Windows Phone operating system and take "tactical pricing actions in the near term." It also will speed up planned cost cutting moves and promised to "pursue additional significant structural actions if and when necessary." None of these actions were fleshed out in any detail.
Though unwelcome, the Q-1 guidance change is not exactly a shock. The company, caught by surprise by the success of first Apple and then Google in the smartphone market, shifted last year from its own mobile operating system to Microsoft's Windows Phone. The first Nokia handsets, dubbed Lumia, running the new firmware appeared last year overseas, and Nokia just recently launched models for the American market, including the high-end, LTE Lumia 900.
In January, Nokia reported a big end-of-year loss of $13.2 billion, a drop of 21% over the previous fiscal year, as its Symbian-based phone sales continued to drop, and the new Windows Phone handsets were just ramping up. At the time, Nokia said it had "sold well over 1 million Lumia devices to date." Nokia began selling Lumia phones in November 2011, so that figure is for a partial quarter.
In announcing today's news, Nokia said it sold more than 2 million Lumia phones in the first quarter, and reported sequential growth of Lumia activations every month since sales began.
The same competitive pressures are behind the company's guidance for the second quarter: the continued success of phones running Apple's iOS and Google's Android firmware; the time needed to develop, introduce, and market new Nokia phones; and the "macroeconomic environment."
In other news, Nokia announced a version of its recently launched low-end Lumia 610, which is aimed at younger buyers, with a near field communications (NFC) chip to support NFC-based payment and ticketing applications. The technology has been certified for contactless payments with MasterCard PayPass and Visa's payWave.
John Cox covers wireless networking and mobile computing for Network World.
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