NOKIA REPORTED a sharp drop in second-quarter profits yesterday and forecast a weak third quarter, increasing the pressure on embattled chief executive Olli-Pekka Kallasvuo.
The Finnish firm, which makes every third mobile phone sold in the world, was rocked by two profit warnings and a management shake-up in the second quarter as it struggles to keep pace with smartphone rivals Apple and Google.
Nokia has lacked a hit smartphone since the 2006 launch of its N95, and has lost out in the top end of the market to the iPhone.
Now Nokia is looking for a replacement for Mr Kallasvuo, who has spent more than half his life at the company, industry sources said this week. Mr Kallasvuo may be ousted as soon as this month, the Wall Street Journal reported.
Mr Kallasvuo (57) a former company lawyer and chief financial officer who married a lawyer with Nokia, told CNBC television that talk of his departure was hurting the company and had to stop.
“There has been a lot of speculation on my position, on myself, during the last couple of weeks and that is not good for Nokia and must be brought to an end one way or another,” he said.
Mr Kallasvuo declined to comment on whether he still enjoys the support of the board.
Nokia chairman Jorma Ollila, who has worked closely with Mr Kallasvuo since the 1980s, was not available to comment.
At the annual shareholder meeting in May, Mr Ollila strongly backed management’s strategy, but did not expressly support the chief executive.
“The topic of management change is more important for the share price than results at the moment,” said WestLB analyst Thomas Langer.
Shares in Nokia were 2.4 per cent higher in Helsinki at €7.16, helped by wider recovery in the technology sector, with the Stoxx 600 European technology index up 1.7 per cent. Analysts said investor sentiment towards Nokia had improved since the stock hit a 12-year low on July 7th.
“Markets are starting to increasingly believe in the value call. The bottom has been reached,” said Swedbank’s Jari Honko.
Nokia shares trade at 10 times expected 2011 earnings, according to Thomson Reuters data, a steep discount to the average of its major global peers.
Its dividend of €0.40 for the last fiscal year also implies an historical yield of 5.5 per cent – a rarity in the technology sector.
Nokia shares have dropped around 20 per cent this year, strongly lagging the technology index, which is up 7 per cent.
Nokia’s underlying second-quarter earnings per share fell 27 per cent from a year ago to €0.11, in line with market expectations. It warned on June 16th that phone sales and profits in the quarter would be weaker than forecast, with Nokia forced to slash prices to compete with Apple’s iPhone and smartphones using Google’s software.
Mr Kallasvuo, who is known as “OPK” in the company, said Nokia believes the Nokia N8, its first phone using new Symbian software, will have a user experience superior to that of any smartphone Nokia has created.
But Gartner analyst Carolina Milanesi says Nokia need to concentrate on their competitors more. “OPK is saying that N8 is going to deliver the best user experience that you’ve ever seen on Symbian.
“Well that’s great, but what about the best experience versus your competitors? That’s what matters and we just don’t think that it’s going to be enough,” she said.
Nokia said the underlying operating margin at its key mobilephone unit dropped to 9.5 per cent in the second quarter and warned it could fall further in the third quarter.
The company has cut thousands of jobs and aims to slash costs at the phone unit by €1 billion this year.
The N8, expected to reach the market by the end of this quarter, will go into battle with the new iPhone 4 and Google Android-based phones from Samsung and Sony Ericsson. – (Reuters)
