Nokia Downgrades Sales Forecast As Competition Bites

Nokia, the world’s largest handset maker has proved it is not immune to the frenetic competition in the mobile sector, and has cut back sales estimates for its mobile devices and services business for the second-quarter of 2010, as well as the rest of the year.

Second-quarter sales, it said in a 16 June statement, are more likely to be toward the lower end of, if not below, its previously expected range of 6.7 billion Euro (£5.6 billion) to 7.2 billion Euro (£6 billion).

Competition Pain

Nokia blamed the decrease on “the competitive environment, particularly at the high-end of the market, and shifts in product mix towards somewhat lower gross margin products.” Also factoring in, said the statement, was “the recent depreciation of the Euro [which] affects Nokia’s cost of goods sold, operating expenses and global pricing tactics.”

The phone-maker’s competitors at the high end of the market include, most notably, Apple and both its iPhone 3G S and soon-to-arrive iPhone 4, as well as Research In Motion’s BlackBerry smartphones and the growing variety of devices running Google’s Android OS.

Nokia’s plans to retain its crown have included the introduction of the Symbian 3 OS, which will run on its newest flagship phone, the N8. With Intel, it also announced a new mobile OS called MeeGo. These introductions, however, may prove to have arrived too late.

“The interesting point here is that Nokia is lowering its outlook for the full year as well, meaning they recognise that Symbian 3 likely will not be enough to lift sales and that a turnaround probably won’t happen until Symbian 4 products hit the street in 2011,” noted Ken Hyers, a senior analyst with Technology Business Research (TBR).

“Nokia sees 2010 industry volumes increasing by 10 percent, but its own volumes are expected to be flat [year-to-year], and its ASP will be lower [year-to-year] as its own device sales shift away from high-end smartphones,” Hyers added. “This is not the direction Nokia wants to see itself going, obviously, and it is likely to face intensified competition in both the mid-tier from Samsung’s Bada platform, LG and lower-cost Android devices, while the low-end competition will intensify as ZTE ups shipment volumes in 2010 and Samsung remains strong in the high end of the low-cost market.”

Must Do Better

Struggling through recent quarters, Nokia – which also creates a wealth of feature phones and lower-end devices for developing markets – recognised the need to step up its smartphone offerings.

During the fourth quarter of 2009, research firm iSuppli reported that Nokia, shipping 126.9 million handsets, saw its best performance since the first half of 2008. And in the first quarter of 2010, analysts at Canalys noted that for the first time, touch screens were included in 50 percent of the smartphones Nokia shipped – a smart move, but still not enough to stop the recent sales forecast cut.

For the full year, Nokia said it continues to expect mobile device volumes to be up approximately 10 percent, compared to 2009, and “continues to target its mobile device volume market share to be flat in 2010, compared to 2009.”

TBR’s Hyers added, “I suspect that a leadership change may be in the offing if Nokia cannot soon show signs of progress and accelerate the revamp of its portfolio.”

Nokia will report its second-quarter results, and full guidance for 2010, on 22 July.