Last updated: June 17, 2010 1:56 pm

High-end rivals turn the screws on Nokia

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Nokia warned second-quarter financial results could miss previous guidance, in another sign of pressure on the world’s largest mobile phone maker. The shares fell 9 per cent to €7.22.

The Finnish group said tough competition at the high end of the market and a shift towards less profitable products were among the factors behind its reduced earnings estimates.

The profit warning, rumoured in the market for several days, highlighted the challenge facing Nokia as it struggles to compete with Apple’s iPhone, Research in Motion’s BlackBerry and a growing range of devices based on Google’s Android software.

The move marked the second cut in guidance this year and is sure to intensify pressure on Olli-Pekka Kallasvuo, chief executive, after a series of disappointing results and underwhelming product launches.

Nick Jones, analyst at Gartner, a technology consultancy, said the reshuffle of top management last month may not be the last leadership change at Nokia this year as investor frustration grows.

“It’s looking now as if 2010 won’t be the year in which Nokia’s problems get fixed, and I suspect the investors are running out of patience and will want to hold someone accountable,” he said.

Nokia staged a wide-ranging organisational and management shake-up last month in a bid to raise its game. But the board gave a vote of confidence in Mr Kallasvuo, in spite of rising unrest among investors.

Speaking to the Financial Times last month, Mr Kallasvuo said that Nokia had a “clear direction” as it shifts its focus from hardware to the software and online services, such as e-mail and music downloads, that increasingly sell phones.

Nokia still has by far the biggest share of the global market for smartphones – mobile phones that double as mini computers – but it is losing ground to Apple and others at the high end, where margins are greatest and where brand image is forged.

Data from IDC, the market research company, last month showed Nokia’s share of the smartphone market was flat at 39 per cent in the first three months of 2010, while Apple’s share jumped to 16 per cent from 11 per cent a year ago.

Total smartphone sales rose 57 per cent in the quarter, showing how Nokia is struggling to exploit the fastest-growing part of the market.

The average selling price of a Nokia smartphone fell to €155 ($196) in the first quarter from €190 a year ago, compared with the $600 average price for Apple’s iPhone.

Nokia is also facing pressure at the lower end of the mobile phone market from South Korean rivals Samsung and LG and, in emerging markets, from a growing range of low-cost Chinese manufacturers.

Depreciation of the euro amid the European debt crisis has also hurt performance through disruptions in pricing and costs, Nokia said.

The group now expects second quarter sales in its core mobile devices and services business to be at the lower end of its previous guidance of €6.7bn to €7.2bn, due to lower-than-expected average selling prices and volumes.

Operating margins in the devices and services division were expected to be at the lower end of, or slightly below, its previously guided range of 9-12 per cent, which was itself cut in April from an earlier target of 11-13 per cent.

The group, which reports second quarter earnings on July 22, said it also expects a slight fall in its share of the overall mobile market in 2010 by value, compared with previous expectations for a slight rise.

“We know where we are going. But we have had difficulties with execution at times,” Mr Kallasvuo added.

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