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Nokia losses: “Competitive, particularly at high-end”

There’s been a lot of head-shaking going on around the industry over the last day or so since Nokia released their statement (below) to the marketplace. I had to read it twice to check I wasn’t seeing things.

The company explained that it’s lowered it’s Q2 and full year estimation for it’s Devices and Services business. The reasons? Well, there are ‘multiple factors’ that are ‘negatively impacting’ business. And guess what, they’re doing so ‘to a greater extent than previously expected’.

It wasn’t a surprise for me. Or for many of the readers of this site. We’ve been seeing this on the horizon for quite a long time.

Here are the factors that Nokia cites:

– a competitive environment, particularly at the high-end of the market

(I had to wince when I read this)

– shifts in the product mix towards somewhat lower gross margin products

(no surprise, especially when the N97 Mini was the last ‘big’ high-end consumer handset to hit the market)

– and the Euro — the currency fluctuations haven’t been helping

The statement makes for depressing reading. As I said, it’s no surprise. But this is the first time I can actually see where Nokia has pointed out it’s having difficulty in the top-end of the market and that this is one of the key reasons impacting it’s revenue expectations. This on the day that Apple announced it had taken 600,000 orders for their $740 iPhone 4 (netting almost HALF A BILLION dollars in revenue).

[I’m assuming, for the sake of argument, that the iPhone 4 16GB costs £499 or $740 unsubsidised. I then multiplied that by 600,000.]

Half a billion dollars in revenue. In 24 hours. Or $20m an hour.

That, Nokia, is where some of your shortfall has gone.

Here’s the company’s statement in full:

Nokia today commented on factors impacting its business and updated its second quarter and full year 2010 outlook for Devices & Services. During the second quarter 2010, multiple factors are negatively impacting Nokia’s business to a greater extent than previously expected. These factors include: the competitive environment, particularly at the high-end of the market, and shifts in product mix towards somewhat lower gross margin products. In addition, the recent depreciation of the Euro affects Nokia’s cost of goods sold, operating expenses and global pricing tactics.

Updated outlook for Devices & Services for the second quarter 2010:
– Nokia now expects Devices & Services net sales to be at the lower end of, or slightly below, its previously expected range of EUR 6.7 billion to EUR 7.2 billion for the second quarter 2010. 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 at the lower end of, or slightly below, its previously expected range of 9% to 12% for the second quarter 2010. This update is primarily due to a lower than previously expected gross margin.

Updated outlook for Devices & Services and mobile device market for the full year 2010:
– Nokia continues to expect industry mobile device volumes to be up approximately 10% in 2010, compared to 2009 (based on its revised definition of the industry mobile device market applicable beginning in 2010).
– Nokia continues to target its mobile device volume market share to be flat in 2010, compared to 2009.
– Nokia now expects its mobile device value market share to be slightly lower in 2010, compared to 2009. This update is primarily due to the competitive situation at the high-end of the market and shifts in product mix. This is an update to our previous target to increase our mobile device value market share slightly in 2010, compared to 2009.
– Nokia continues to target non-IFRS operating expenses in Devices & Services of approximately EUR 5.7 billion in 2010.
– Nokia now expects Devices & Services non-IFRS operating margin to be at the lower end of, or below, its previously targeted range of 11% to 13% for the full year 2010. This update is primarily due to the currently estimated gross margin, which is lower than previously estimated. Nokia expects Devices & Services non-IFRS operating margin during the fourth quarter 2010 to be higher than the currently expected full year Devices & Services non-IFRS operating margin.

Nokia will provide its second quarter results and more details on its 2010 full year outlook when it reports its Q2 2010 results on July 22, 2010.

I hope the N8 will go some way to help boost Q3 and Q4 revenues.

By Ewan

Ewan is Founder and Editor of Mobile Industry Review. He writes about a wide variety of industry issues and is usually active on Twitter most days. You can read more about him or reach him with these details.

3 replies on “Nokia losses: “Competitive, particularly at high-end””

It is no surprise indeed. But it does not imply that Nokia have got everything horribly wrong and are doomed to failure. On the contrary they grew sales (of smartphones) by 35% Q1 last year to Q1 this year, grew market share in the pre-Christmas quarter while iPhone was flat, and by some accounts grew market share a little this year too.

Remember profits are one thing, popularity is another – there is a disconnect between the two. And don't even bring fickle share price into it 🙂

Anyway, Nokia have become increasingly uncompetitive, and hopefully that will now start to be reversed with the N8 and N9. Remember also it's a rosy outlook because the growth in mobile, and in smartphones, is in emerging markets and the developing world, where there is a whole lot of Nokia love, and where Symbian currently dominates. And those markets love cheap. And Nokia owns the cheap end of the smartphone market – it doesn't even have competitors currently I think? Nokia's S60 smartphones are pushing down hard into the top end of the featurephone bracket, which matches nicely up with growth areas I've outlined. As for the high end the N8 is by the rave (p)reviews it's getting across the web very well endowed indeed to take on iPhone 4 and the best Androids.

Rafe at AAS also has a solid and balanced analysis here (comments and replies worth a read also): http://www.allaboutsymbian.com/news/item/11683_

Definitely. But certainly not automatically. After serious observation and consideration of it's capabilities in relation to iPhone and leading Androids. Every time a new iPhone has come out I have wanted to want one, have leant towards getting one, and seriously considered switching from Nokia (I could get both, but I'm talking about as my main device). But each time despite me expecting and wanting iPhone to be 'the one' it has been disappointing.

Each iPhone is excellent compared to the one before it, but still falls well short for me, of the power and flexibility of leading Nokias. iPhone still for me feels like a Fisher-Price toy. And that's not an insult, it's simply the difference. I again tried to convince myself to like iPhones the other day with an extended play on a friend's 3GS and it's restrictions and inflexibility was just frustrating.

As for Android, again it is getting better and better relative to itself, and offers much power and freedom relative to iPhone (hence it's growth in the US), but it is still the case that I put Android up against the latest Nokia/Symbian device (this time specifically the N8 rather than any earlier device) and I just simply can't see any plus points for Android, and yet lots of superiority for the Nokia/Symbian alternative.

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