Nokia shares plunge on first quarter profit warning

1 / 2

Nokia, the world's biggest mobile phone maker is struggling on the highly competitive smartphone market

Nokia cut its first quarter operating margin outlook as fierce competition hurt its mobile phone sales, sending the company's share price plunging more than 16 percent

Nokia cut on Wednesday its first quarter operating margin outlook as fierce competition hurt its mobile phone sales, sending the company's share price plunging more than 14 percent.

"Nokia today provided preliminary information on certain aspects of its first quarter 2012 financial performance, including a lowered first quarter 2012 outlook for Devices & Services," the Finnish company said.

It said its operating margin in the first quarter was "approximately negative 3.0 percent, compared to the previously expected range of 'around breakeven, ranging either above or below by approximately 2.0 percentage points'."

The world's biggest mobile phone maker, which is struggling on the highly competitive smartphone market, said several factors negatively affected Nokia's Devices & Services business to a greater extent during the first quarter than previously expected.

Those factors included "competitive industry dynamics, which negatively affected net sales in the Mobile Phones and Smart Devices business units, particularly in India, the Middle East and Africa and China; and gross margin declines, particularly in the Smart Devices business unit," it said.

Nokia said it expected Devices & Services net sales in the first quarter of 4.2 billion euros, including 2.3 billion euros for Mobile Phones and 1.7 billion euros for Smart Devices.

The company is scheduled to publish its first quarter earnings report on April 19.

For the second quarter, Nokia said its Devices & Services operating margin would be "similar to or below the first quarter 2012 level."

Nokia shares closed down 14.5 percent on the Helsinki stock exchange on a flat market.

Nokia chief executive Stephen Elop said the first quarter results were "disappointing" but noted the Devices & Services business was "in the midst of transition."

The Finnish company is undergoing a major restructuring, phasing out its Symbian line of smartphones in favour of a partnership with Microsoft that has produced a first line of Lumia smartphones.

Nokia is depending heavily on the new phones to help maintain its ranking as the world's largest mobile phone maker as it operates in a rapidly changing landscape with RiM's Blackberry, Apple's iPhone and handsets running Google's Android platform take growing bites out of its market share.

But just days after launching its new flagship Lumia 900 model in the United States, the company admitted Wednesday the smartphone contained a software bug that could lead users to lose their Internet connection.

"A memory management issue was discovered that could, in some cases, lead to loss of data connectivity. This issue is purely in the phone software, and is not related to either phone hardware or the network itself," the company said in a statement.

Nokia said it would provide a solution by April 21 and offer affected users a 100-dollar (76-euro) credit.

The company said meanwhile in its profit warning that it had sold more than two million Lumia devices in the first quarter, at an average selling price of approximately 220 euros.

It said it was "quickly taking action" to address its woes, stressing it would "continue to increase its focus on accelerating Lumia sales, as well as on lowering the company's cost structure, improving cash flow and maintaining a strong financial position."

In February, Nokia said it would cut 4,000 jobs at its smartphone manufacturing facilities in Finland, Hungary and Mexico by the end of this year, shifting manufacturing to Asia in order to boost competitiveness.

Nokia registered a net loss of 1.2 billion euros ($1.5 billion) in 2011, compared to a net profit of 1.8 billion euros a year earlier, while the final quarter of the year was hammered with a 1.07-billion-euro net loss after a profit of 745 million in the same period a year earlier.