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Nokia posts $1.2 billion Q1 loss as sales plunge

Thu, 04/19/2012 - 6:20am
MATTI HUUHTANEN - Associated Press - Associated Press

Struggling cellphone maker Nokia Corp. blamed tougher-than-expected competition, particularly in the smartphone market, for a huge €929 million ($1.2 billion) net loss in the first three months of the year.

The loss, reported Thursday, compared with a profit of €344 million in the equivalent period a year earlier and came as revenues slid 30 percent to €7.4 billion from €10.4 billion in 2011.

The result represents one of the company's worst ever quarters and came as it faced stiff competition from the likes of Apple Inc.'s iPhone and handset makers using Google Inc.'s popular Android software — such as Samsung Electronics Inc. and HTC of Taiwan

The Finnish company said net sales of devices crashed 40 percent to €4.2 billion, with smartphone sales down by more than half to €1.7 billion. It also issued a fairly grim outlook and the company's share price fell 4 percent to €2.90 ($3.80) in Helsinki.

Nokia said operating margins in the second quarter would be "similar to, or below the first quarter 2012 level of negative 3 percent," and that it would speed up a cost cutting goal of €1 billion by 2013.

Further details would emerge "as quickly as possible," Nokia said.

CEO Stephen Elop conceded Nokia had faced "greater than expected competitive challenges" and some challenging markets, including Britain.

"We exceeded expectations in markets including the United States but establishing momentum in certain markets ... has been more challenging," he said. "We are navigating through a significant company transition in an industry environment that continues to evolve and shift quickly."

Nokia also said Colin Giles, head of global sales since January 2010, will leave the company as it restructures the sales unit, "reducing a layer of sales management."

Nokia has been the leading handset maker since 1998, but after reaching a global goal of 40 percent market share in 2008, its share had shrunk to below 29 percent last year.

There are now expectations that Nokia will soon lose its status as the biggest maker of handsets.

"This was definitely one of Nokia's worst quarters ever," said Neil Mawston from Strategy Analytics. "Nokia's problem in developed markets is spreading to developing markets and that is causing a lot of their challenges. I think we'll see Samsung overtaking Nokia as the biggest volume maker of handsets."

Mawston reckons Nokia's global market share fell to some 22 percent in the first quarter with smartphone share plunging to a record-low of 8 percent.

The former bellwether of the industry has lost its dominant position against the likes of Apple and Google in the growing smartphone segment. It has also been squeezed in the low-end by Asian manufacturers making cheaper phones, such as China's ZTE.

Nokia hopes to remedy its slide with the new Windows Phone 7, launched in October, eight months after Elop announced a partnership with Microsoft Corp. Nokia says the Windows operating system will be the main platform in its new phones, phasing out the MeeGo and Symbian platforms, considered clumsy by many operators.

Nokia has since launched several versions of Windows-based Lumia phones. Its cheapest — the Lumia 610 — was unveiled Thursday for Asian markets with an expected price tag of some €190 ($249).

Still, sales of smartphones dropped to 12 million in the first quarter, from 24 million a year earlier, while volume sales of cellphones fell to 83 million from 108 million in 2011.

Elop, who described the first-quarter as disappointing, said Nokia had sold more than 2 million Windows-based Lumia phones in the first quarter and that it had a "clear sense of urgency to move our strategy forward even faster."

In 2011, Nokia announced more than 10,000 layoffs to lower expenses and has not ruled out more cutbacks.

The company has said it would not provide annual targets for 2012 since it was in a "year of transition."

It said operating margins in the network operations — called Nokia Siemens Networks — would "clearly improve in the second quarter 2012 compared to the first quarter 2012 level of negative 5 percent," but it gave no figures.

Last year, Nokia was still the world's top cellphone maker with annual unit sales of some 419 million devices, but in the last quarter of the year it posted a net loss of €1.07 billion, a marked reverse from the 745 million profit a year earlier.

Nokia stock has fallen by half since Elop announced the deal with Microsoft, and it dropped to a 15-year low of €2.98 earlier this week after Moody's ratings agency downgraded its debt grade to near junk status.

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