Blog Post

When It Rains, It Pours: Nokia ‘Substantially’ Downgrades Q2 Forecast

We all know about Nokia’s trials and tribulations in the smartphone market today — the declining sales that have led its CEO Stephen Elop to describe its situation as being on a “burning platform” and its radical decision to adopt the Windows Phone OS from Microsoft (NSDQ: MSFT) to turn things around.

Today, we got some more frank words from Nokia (NYSE: NOK) itself about the state of affairs, as it released guidance that said earnings for Q2 and the full year 2011 will be “substantially” lower than previously forecast.

And, in what may have been Nokia’s attempt to temper the negatives with some positive news, the warning comes on the same day that the company began to ship its two newest handsets, the E6 and X7, running the newest edition of Symbian, called Anna.

Nokia has been working hard to try to show to its investors and consumers that it is firmly in control, despite the many knocks the company has been seeing over the past several quarters. Last week, CEO Stephen Elop reassured that Nokia would be supporting Symbian until 2016, even as it is preparing to outsource the operation and development of the OS to Accenture, as part of its transition to the Microsoft Windows Phone platform for the bulk of its smart devices.

Given the ongoing decline, the bottom line detailed today does not come as much of a surprise.

But what might be more worrying is that the attrition seems to be hitting areas that more recently have been some of Nokia’s stronger suits. Namely, Nokia says the declines are specifically affecting business in Europe (traditionally the strongest) and China (seeing the biggest growth). Here are more details:

Devices & Services: This division, Nokia’s biggest, is going to report Q2 sales “substantially below” the previous given range of €6.1 billion to €6.6 billion. Nokia says not only has it been selling less devices, but they are being sold, on average, for lower prices than before. Operating margins will also be lower than previous guidance of sic percent – nine percent. How much lower? Could be breakeven, Nokia says, but it doesn’t even want to commit to that.

No more full-year guidance: Perhaps more worryingly, the company says “it is no longer appropriate” to provide full-year targets. It has also noted that its previous quarterly targets are also now invalid.

Looking ahead: The company says it “remains pleased” with its Windows Phone strategy. It’s also officially confirmed that it expects to ship the first device in Q4 2011 (as we reported it might, given the targets of other OEMs using Windows Phone).

Nokia is aiming for an operating margin of 10 percent or more when it completes the transition to the Microsoft OS.

The full Q2 results will be reported July 21, 2011.