Finnish handset giant Nokia has downgraded its full-year 2010 outlook for its devices and services segment for a second time off the back of increased competition and a shift to lower gross margin products in the second quarter.
Nokia said that during the second quarter of 2010, multiple factors have negatively impacted its business to a greater extent than previously expected. These include a more competitive environment at the high-end of the market, almost referring directly to the announcement of Apple’s iPhone 4, and a shift in product mix towards lower gross margin products. In addition, Nokia said, the recent depreciation of the Euro affects its cost of goods sold, operating expenses and global pricing tactics.
As a result, Nokia has also downgraded the outlook for its devices and services segment in the second quarter, with net sales now expected to be at the lower end of, or slightly below, the previously expected range of €6.7 billion to €7.2 billion. This is primarily due to lower than previously expected average selling prices and mobile device volumes.
Nokia also expects its second quarter non-IFRS operating margin to be at the lower end of, or slightly below, its previously expected range of 9-12 per cent, primarily due to a lower than previously expected gross margin.
For the full year 2010 Nokia continues to expect industry mobile device volumes to be up approximately 10 per cent compared to 2009, but is predicting its mobile device volume market share to be flat. As a consequence, it is now preparing for 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, and is a reversal on its previously announced target to increase its mobile device value market share slightly in 2010.
Nokia now expects devices and services non-IFRS operating margin to be at the lower end of, or below, its previously targeted range of 11-13 per cent for the full year 2010. This update is primarily due to the currently estimated gross margin, which is lower than previously expected.
Informa Telecoms & Media senior analyst Gavin Byrne said: “2010 is a crunch year for Nokia where its two main challenges are to innovate and to execute.
“The Finnish vendor retains many strengths; including its scale and its impressive logistics and distribution capabilities. However, Nokia must improve its performance in the smartphone market if it is to renew its brand image, enhance its appeal to consumers and halt its downward slide in smartphone volume and value share. This can only be achieved if the company successfully delivers meaningful innovation that will at least match the user experience offered by its competitors.
“Nokia’s smartphone strategy is almost entirely focussed on the Symbian platform, a platform that has seen an erosion in its support from leading OEMs and developers since the entry of Apple and Android powered devices.
“Thus any failure from Nokia to deliver meaningful innovation, could transform the Symbian platform into Nokia’s straightjacket in the smartphone market as it loses out to growing operator demand for other devices using other OS platforms.”
Nokia will provide its second quarter results and more details on its 2010 full-year outlook on July 22.