School of hard knocks for Nokia

The mobile phone giant forecasts losses for the first and second quarters of 2012 as Apple and Samsung gobble up yet more market share.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
If the mobile phone industry were a playground, Nokia would be the weedy kid, Microsoft would be the jock, Samsung would be the cheerleader and Apple would be head boy. And right now, the weedy kid is getting a kicking.

After February’s job cuts and massive losses (1.08bn euros to be precise), Nokia CEO Stephen Elop would have liked to have some good news to share. No such luck. Sales of Nokia handsets have been falling rapidly. It flogged just 12 million smartphones in the first quarter of 2012, compared to the whopping great 37 million iPhones shifted by Apple in its last three month stretch. And Nokia’s global reach is looking rather stunted too: in the US, Nokia has but a 1% share of the mobile loot. And sales in the fast-growing markets of India, the Middle East, Africa and China are also poor, mainly due to fierce competition from other brands.

‘Nokia's challenges have been exacerbated by rampant competition,’ explains Ben Wood, analyst at CCS Insight. ‘Notably Apple and Samsung, who are extracting a disproportionate amount of margin from the industry at present.’ In contrast, Nokia’s margins have slipped to 16% from 20% in 2011 as the firm attempts to switch platforms, ditching Symbian in favour of the new (and possibly buggy) Windows platform.

Things aren’t looking up for the next half either. In the business equivalent of having its head shoved down the u-bend, Nokia is having to swallow operating losses of around 3% of revenue for the first quarter, with similar losses predicted for Q2. The firm had expected to break even.

Even worse luck, the company has just found a nasty software bug in its new Lumia 900 smartphone, the model that was pipped to be Nokia’s rival to the mighty iPhone. So, until the crease in the code is ironed out, Nokia is effectively giving the model away.

The market reacted quickly to Nokia’s forthright announcement, and shares fell 19% to just 3.10 euros after the news broke, their lowest level since 1997. Elop better have an airtight turnaround strategy up his sleeve, or Nokia’s going to struggle to get out of the playground alive…

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