Nokia still getting burned by red-hot iPhone and Android

Nokia is struggling to turn a profit on its phones, as it gets squeezed at both ends of the price spectrum. An awful lot rests on the quality of its new handsets...

by James Taylor
Last Updated: 19 Aug 2013
Things just get worse for Nokia: Europe's biggest technology company has just been forced to issue a profit warning and rip up its full-year forecasts, as its mobile phone sales continue to plummet at both ends of the price spectrum. CEO Stephen Elop, who famously compared the company to a man standing on a burning platform, seems to be banking on Nokia's new Windows-based smartphones as his metaphorical fire extinguisher. And while a great new product can get you a long way, Nokia now has an awful lot of ground to make up...

All is not lost for Nokia; it does, after all, still sell more handsets and smartphones than anyone else. But it's going backwards fast in terms of both volumes and margins: having previously expected operating margins on its phones to be somewhere between 6% and 9% in the second quarter, it's now suggesting it could be ‘about breakeven'. That's worth repeating: Nokia, once the king of mobile handsets, might well make no profit whatsoever on its phones this quarter. Elop admitted that it's being undercut on price by Chinese manufacturers at the lower end, and losing market shares to iPhone and Android devices at the top end. Sales for the quarter would, it said, be 'substantially below' its previous estimate of €6.1bn-€6.6bn.

Elop has already launched a big cost-cutting drive to boost the bottom line by €1bn - which will mean at least 4,000 job cuts. But his turnaround plan seems to rely heavily on the launch of new handsets at the back end of this year, which as part of a new tie-up with Microsoft will run on Windows Phone software (instead of the current Symbian OS). This isn't entirely implausible: the likes of Apple and even Microsoft (with Windows 7) have shown that jazzy new products can provide a massive boost to a company's commercial fortunes and reputation. But Nokia has seen its market share in smartphones almost halve in the last couple of years - and it's hard to reverse the sort of negative spiral it seems to be experiencing. Has it left it too late to start playing catch-up?

After all, the likes of Apple won’t stand still – Steve Job is set to announce the launch of its new online services offering iCloud next week. And these days it commands a special kind of devotion:  according to a new BBC series, neuroscientists at a company called Neurosense have discovered that Apple fans experience something akin to religious fervour when they look at new Apple products. Can you ever imagine feeling that way about a new Nokia/ Microsoft smartphone?

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