Nokia shares slump 14% following profit warning

Finnish firm predicts €126m first half loss, blaming software problems and stiff smartphone competition in India and China

Charles Arthur, technology editor

guardian.co.uk, Wednesday 11 April 2012 15.55 EDT

Shares in Nokia plunged by 14% on Wednesday after it warned it expects to lose money for the first six months of this year, blaming strong competition for smartphone sales, "particularly in India, the Middle East, Africa and China", among other factors.

The once dominant Finnish mobile phone maker said in a statement that its mobile revenues will be about €4.2bn, a 40% year-on-year fall, which would translate to a loss of €126m (£104m). It would be the sixth quarter in a row in which Nokia's mobile operating profit has declined. The company expects no improvement in the second quarter. Full first-quarter results will be announced on 19 April.

Nokia's chief executive, Stephen Elop, said in February 2011 that its ageing Symbian smartphone software was a "burning platform" and that the firm needed to join the "war of ecosystems" being waged by Apple and Google with their own smartphone software, instead of a "battle of handsets". To do that, Nokia needed to adopt Microsoft's software. But so far there has been little sign of consumers or businesses moving with it.

Sales of Nokia's new top-end Lumia smartphones, which run the newer Windows Phone software, have been sluggish. More than 2m were sold in the first quarter, to add to around 1m in the previous three months. But the Lumia's average selling prices (ASPs) to mobile networks was €220 (£189). Across its entire smartphone range, the ASP was €140.

By contrast, Apple's iPhone average was $650, which has allowed the US firm to capture a substantial share of the profits in the handset market.

Nokia once dominated the smartphone market, defining it in the early part of the century. But the rise first of Apple and more recently of cheap handsets running Google's free Android software has devastated the Finnish firm's profits and sales, cutting its share of the smartphone market from about 40% a few years ago to less than 10% in the first quarter of this year.

Nokia's latest profit warning comes as the smartphone market is becoming increasingly polarised, even as it grows in importance.

Apple and the South Korean firm Samsung dominate the top end. The two accounted for almost half of the 149m worldwide smartphone sales in the last quarter of 2011. At the low end, Chinese handset makers such as ZTE and Huawei, using Android software, threaten to undercut many established brands, including HTC, Motorola, BlackBerry maker Research In Motion and Nokia.

The warning also comes after Nokia last week renewed its assault on the US smartphone market – where half of users have yet to shift from older so-called "feature" phones – with the Lumia 900 handset. But even that was hobbled after Nokia admitted that a software bug means its new smartphone drops data connections to the AT&T network on which it is being sold exclusively.

Nokia is offering a $100 credit to anyone who has bought one of the phones and expects to have a software update to fix the problem next week. "It's like they stalled their engine when everybody is looking at them at the start of the race," said Carolina Milanesi, an analyst at Gartner.

Elop, who ditched Nokia's own Symbian smartphone platform after being hired from Microsoft in 2010, described the results outlook as "disappointing" . He added: "We are increasing the clock speed of the company."

Pete Cunningham, an analyst at Canalys, said: "The main problem is that appetite for Symbian handsets has evaporated, and it can't ramp up Windows Phone volumes quick enough."

Milanesi said: "Nokia is feeling pressure in the mobile phones market as cheap Android products are hitting the streets in markets such as India and China."

Ben Wood, of CCS Insight, said: "Nokia's challenges have been exacerbated by rampant competition – notably Apple and Samsung, who are extracting a disproportionate amount of margin from the industry at present."

Though the world's biggest volume maker of handsets, Nokia lost the top spot in the smartphone market to Apple and others last year, owing in part to its weak performance in the US where its smartphone market share fell to less than a 1%.

Nokia's shares had dropped more than 50% since it announced the move to Microsoft in February 2011. By the end of Wednesday, Nokia was valued at €16.2bn.