Nokia cuts forecasts amid tough competition

THE WORLD’S top mobile-phone maker, Nokia, cut its profitability and market-share forecasts due to tough competition at the top end of the market, hammering its shares yesterday.

Nokia, whose rivals include Apple, Samsung and Research In Motion (RIM), downgraded its expectations for second-half underlying operating margin to the first-half level of 11.3 per cent, well below analysts’ expectations.

The phone maker, which reported an expected slump in second-quarter profits, also cut its forecast for 2009 market share, seeing it on a par with last year compared with earlier hopes for a rise. Shares in Nokia, little changed in six months, fell 13 per cent on the news to €9.66, dragging the DJ Stoxx technology index 4 per cent lower.

Nokia said it would suffer from some component constraints in the third quarter, which will cut sales of its pricier phones by hundreds of thousands.

Analysts said a sharp fall in Nokia’s average sales price and the company’s outlook imply increasingly aggressive pricing – mostly from Korean rivals Samsung and LG Electronics, which are benefiting from a weak Korean won.

“Handset makers are being really, really aggressive,” said Gartner analyst Carolina Milanesi.

“A lot of companies cannot really afford it: Sony Ericsson, Motorola, to some extent LG.”

Earlier yesterday, Sony Ericsson, the market number five, reported a deep loss for the period from April to June.

Nokia’s second-quarter underlying earnings per share more than halved to €0.15 from €0.37, but beat analysts’ forecasts.

Sales came in at €9.9 billion, down 25 per cent from a year ago as recession hit demand but within the forecast range.

“Amid the doom and gloom Nokia have delivered some excellent results . . . Nokia’s high-tier performance continues to be the biggest concern,” said CCS Insight analyst Geoff Blaber.

Nokia is facing tough competition at the top end of the market from Apple’s iPhone and RIM’s BlackBerry. It lost further market share in North America, its weakest region, in the quarter.

Nokia said the smartphone market grew 10.5 per cent from a year ago in the second quarter, with sales of the cheap Nokia 5800 boosting its smartphone market share to 41 per cent.