Nokia Reports Heavy Losses

It was revealed on Thursday that Nokia (NYSE: NOK ) reported heavy losses in the first quarter. The world's biggest handset manufacturer said that it has faced greater than expected competitive challenges in its ongoing strategy overhaul.

The Finland-based company said in a statement that total operating costs for the three months ending March 31 was 1.34 billion euros ($1.76 billion). This seems all the more dramatic when compared to the 439 million operating profit the previous year. Analysts had expected a 734 million euro loss.

Net loss came in at 929 million euros, from a 344 million euro profit the previous year. Expectations had been a 554 million euro loss. Revenue, meanwhile, fell 29% to 7.35 billion euros.

CEO Stephen Elop said that, "We are navigating through a significant company transition in an industry environment that continues to evolve and shift quickly. Over the last year we have made progress on our new strategy, but we have faced greater than expected competitive challenges."

With an ever-increasing level of competition hitting performance, NOK is abandoning the in-house Symbian software in favor of Microsoft's (NASDAQ: MSFT ) Windows for its handsets. Like every other handset maker in the industry, Nokia is struggling against Apple's (NASDAQ: AAPL ) iPhone, plus more traditional makers like Samsung and HTC.

On Thursday, Morgan Stanley released a research report stating that Nokia's Devices & Services EBIT margin of -3% was in line with recently lowered guidance. The EBIT margin in smartphones collapsed to -18% and feature phones reached only 5%, both because of significantly lower revenues (50% and 30% down YoY, respectively). Q2 margins are still expected to be at or below -3%, no change vs last week.

Morgan Stanley also said that there is currently no new guidance for cost-saving, but management indicated that it is working on new measures to be announced in due course. It is now guiding towards a €900m restructuring charge in Devices (vs no guidance before and our previous €500m estimate, implying higher cash burn for FY2012).

On Wednesday, Deutsche Bank said that it assumes that Apple royalty revenues will be lower in Q2 vs Q1. This is because it expects a seasonally lower quarter for Apple iOS shipments in Q1 (36m) vs Q4 (52.5m), which it believes Nokia recognizes with a 1-quarter lag. Deutsche estimates lower Apple royalty revenues could impact device revenues and gross profit by ~E50m or c. 100-50bps.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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