It was revealed on Wednesday that Nokia's (NYSE:
) stock is taking a beating after it reported guidance that
predicts an operating loss in its devices and services unit for
the first quarter. It was previously though that the unit would
break even but, apparently, recent math is working against the
Evidently, Nokia is struggling to keep up with its rivals,
particularly due to competitive industry dynamics in areas like
India, the Middle East, Africa and China. Following the release
of the cut guidance, Nokia's stock fell 11% in pre-market
A press release confirms the above, as well as the fact that
the company has been hit by gross margin declines, particularly
in the Smart Devices business unit.
Apparently, Nokia's estimates see its non-IFRS Devices &
Services operating margin for 1Q12 at roughly negative 3%. What's
more, it is expecting guidance for the second quarter to be
similar to the first. This horrible outlook reflects the fact
that the first quarter 2012 benefit related to lower warranty
costs is expected to be non-recurring. In addition, the numbers
reflect expectations regarding competitive industry dymanics,
which continue to negatively affect the Smart Devices and Mobile
Phones business unit. Also, timing, ramp-up, and consumer demand
related to new products. Finally, the macroeconomic environment
also plays a part.
"Our disappointing Devices & Services first quarter 2012
financial results and outlook for the second quarter 2012
illustrates that our Devices & Services business continues to
be in the midst of transition," said Stephen Elop, President and
CEO of Nokia. "Within our Smart Devices business unit, we have
established early momentum with Lumia, and we are increasing our
investments in Lumia to achieve market success. Our operator and
distributor partners are providing solid support for Windows
Phone as a third ecosystem, as evidenced most recently by the
launch of the Lumia 900 by AT&T in the United States."
It's enough to make one wonder - why was the math so off the
first time around? Current estimates from Nokia have the Devices
& Services net sales for 1Q12 at 4.2 billion euros, but who
knows when that figure will change.
So what is Nokia doing to turn things around? Well, it is
increasing investments in Lumia to bring more products to more
consumers in more markets. In the Mobile Phones business unit,
Nokia is taking tactical pricing actions in the near term and
plans to bring new products to market in the second quarter 2012.
Finally, Nokia will accelerate planned cost reductions and will
pursue additional significant structural actions if and when
Elop says that he is proud of the way in which NOK employees
are quickly responding to the needs of consumers and partners,
and that is great. Confidence in your employees is vital. But you
have to wonder if it is enough to turn these numbers around.
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