Nokia Corp.(NOK) recently slashed its profit outlook for the forthcoming quarters citing stiff competition, market share losses stemming from the lack of innovative products in its portfolio.
Earlier, Nokia teamed up with Microsoft Corp. (MSFT) to launch their first Windows-based smartphones. But the move was not at all accretive for the company as it sold 12 million smartphones in the first quarter of fiscal 2012 versus 19.6 million smartphones in the fourth quarter of fiscal 2011. Moreover, the company sold a mere 2 million Lumia series of handsets in the first quarter of fiscal 2012 while Apple, Inc. (AAPL) sold a million iPhone 4S devices within first six days of its release.
According to a data released by IDC, Nokia continued to hold the top spot at the end of the fourth quarter of fiscal 2011, with 26.6% market share versus 30.7% market share by the end of the fourth quarter of fiscal 2010 followed by Samsung Electronics and Apple.
During the ongoing quarter, Nokia sold 71 million mobile devices versus 108.5 million devices in the first quarter of fiscal 2011. The steep decline in mobile device sales is mainly attributable to poor performance of the company’s handset business in the emerging nations of India, China, and Middle East and Africa.
Developing nations have for long been Nokia’s stronghold. However, with the advent of cheaper Android-based mobile phones in those price-sensitive regions, Nokia is again losing market share.
In the fourth quarter of fiscal 2011, Nokia reported a 9% decline in Average Selling Price (ASP) for smartphones to €140 while ASPs for traditional mobile phones declined 24% to €32 in the same period. Therefore, with both volumes and prices taking a hit, the company’s margins are likely to remain under pressure. The $100 compensation promised to the new users of Lumia 900 in U.S. that encountered software problems will make matters worse.
During the first quarter of 2012, Nokia expects the operating margin to be a negative 3%, much lower than the previously mentioned guidance of breakeven operating margin for its non-IFRS Devices & Services.
Likewise, Nokia expects its second quarter 2012 operating margin for its non-IFRS Devices & Services to be flat or below the first quarter operating margin.
Currently, Nokia has a Zacks#5 Rank, implying a short-term Strong Sell rating on the stock.
Based in Espoo, Finland, Nokia Corporation is the largest mobile phone maker of the world. The company also provides Internet services, comprehensive digital map information and equipment, and other solutions and services throughout the world.
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