Nokia has already frustrated recent Symbian device owners today, by releasing the Anna-toting E6 and X7 but not an upgrade for existing handsets to the newest version of the platform. Now the company is upsetting investors, with a warning that its Q2 2011 financial results will be worse than previously expected. Demand for existing handsets has slumped, leading Nokia to predict net sales "substantially below" the earlier estimate of €6.1bn to €6.6bn.
Meanwhile, operating margin for the second quarter is now envisaged as slipping from the 6- to 9-percent estimates to "around breakeven". The slump has led the Finnish number crunchers to conclude "it is no longer appropriate to provide annual targets for 2011" while CEO Stephen Elop has said "Strategy transitions are difficult. We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition."
Nokia is still confident that, once the first Windows Phone devices - which should take place in Q4 2011, using the new 7.1 Mango build - hit shelves, its market share will grow far more rapidly. Operating margin at that point should be 10-percent or more, the company promises.
Still, Q4 is looking a long way off right now, and for the moment there's only more painful cuts to come as Nokia targets a €1bn slash in expenses by 2013.
Nokia lowers Devices & Services second quarter 2011 outlook and updates full year 2011 outlook
Stock exchange release
May 31, 2011 at 15:00 (CET +1)
Espoo, Finland - Nokia today commented on factors impacting its business and updated its second quarter and full year 2011 outlook for Devices & Services. During the second quarter 2011, multiple factors are negatively impacting Nokia's Devices & Services business to a greater extent than previously expected. These factors include:
- the competitive dynamics and market trends across multiple price categories, particularly in China and Europe;
- a product mix shift towards devices with lower average selling prices and lower gross margins; and
- pricing tactics by Nokia and certain competitors.
Updated outlook for Devices & Services for the second quarter 2011:
- Nokia now expects Devices & Services net sales to be substantially below its previously expected range of EUR 6.1 billion to EUR 6.6 billion for the second quarter 2011. This update is primarily due to lower than previously expected average selling prices and mobile device volumes.
- Nokia now expects Devices & Services non-IFRS operating margin to be substantially below its previously expected range of 6% to 9% for the second quarter 2011. This update is primarily due to lower than previously expected net sales. While visibility is very limited, Nokia's current view is that second quarter 2011 Devices & Services non-IFRS operating margin could be around breakeven.
Updated outlook for Devices & Services for the full year 2011:
- Given the unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011. However, Nokia expects to continue to provide short-term quarterly forecasts in its interim reports as well as annual targets when circumstances allow it to do so.
- Nokia's previous targets for the third quarter, fourth quarter, and full year 2011 were: 1) Net sales in Devices & Services to be at approximately the same level in the third quarter 2011 as in the second quarter 2011, and seasonally higher in the fourth quarter 2011, compared to the third quarter 2011; 2) Devices & Services non-IFRS operating margin to be between 6% and 9% in 2011. These targets are no longer valid.
Nokia is taking immediate action to address the issues that are impacting its Devices & Services business. Nokia's high-level strategic objectives and targets remain unchanged.
- Nokia is continuing to invest to bring new innovative capabilities to its Symbian line up. In addition, Nokia has taken price actions on its current smartphone portfolio, and Nokia is intensifying its focus on retail point-of-sales marketing.
- Nokia started shipping its new dual-SIM devices last week.
- Nokia remains pleased with its progress on its Windows Phone strategy, and has increased confidence that the first Nokia product with Windows Phone will ship in the fourth quarter 2011.
- Nokia remains committed to its target to reduce its Devices & Services non-IFRS operating expenses by EUR 1 billion for the full year 2013, compared to the full year 2010, and plans to implement these reductions as quickly and effectively as possible.
- After the transition, Nokia continues to target Devices & Services net sales to grow faster than the market and Devices & Services non-IFRS operating margin to be 10% or more.
"Strategy transitions are difficult. We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition," said Stephen Elop, president and CEO of Nokia. "Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011."
Nokia will provide its second quarter results and more details when it reports its Q2 2011 results on July 21, 2011.
Nokia will be hosting a conference call at 13:30 UK time (8:30 EST). The dial-in number for media (listen only - the question and answer session will be limited to financial analysts and investors only) is +1 706 634 5012. Conference ID: 72156605.
The dial-in number for financial analysts and investors is US: +1 888 636 1561. Conference ID: 72156605. UK: +44 1452 560 299. Conference ID: 72175614.
A replay of the call will be available soon after the call completion. The replay number is US: +1 800 642 1687. Conference ID: 72156605. UK: +44 1452 55 0000. Conference ID: 72175614.