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Nokia’s Troubles Continue as Q1 Results Disappoint

By Rakesh Raman

Nokia has provided preliminary information on certain aspects of its first quarter 2012 financial performance, including a lowered first quarter 2012 outlook for Devices & Services.

During the first quarter 2012, multiple factors negatively affected Nokia’s Devices & Services business to a greater extent than previously expected, Nokia said today, April 11.

These factors, according to Nokia, include 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.

Gross margin declined particularly in the Smart Devices business unit. The impact of these factors on the non-IFRS Devices & Services operating margin in the first quarter 2012 was partially offset by benefit from lower warranty costs, says the company.

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Nokia has also planned to reduce its global workforce by about 4,000 employees by the end of 2012, with the majority of reductions in Denmark, Finland and the UK. (Read: Nokia to Lay Off 4,000 Workers to Cut Costs)

“Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition,” said Stephen Elop (pictured above), president and CEO of Nokia.

“Within our Smart Devices business unit, we have established early momentum with Lumia, and we are increasing our investments in Lumia to achieve market success. Our operator and distributor partners are providing solid support for Windows Phone as a third ecosystem, as evidenced most recently by the launch of the Lumia 900 by AT&T in the United States.”

[ Also Read: Nokia’s First CDMA Windows Phone in China ]

Nokia’s biggest trouble is its over-dependence on handsets like Lumia that lack any brand differentiation. Nokia bosses have failed to realize that mobiles have already become tasteless commodities with the same set of features on all the products from different mobile makers. Consumers have stopped looking for brands. They buy mobiles as they buy potatoes.

But Nokia is still under the wrong impression that its brand name sells in the market. That’s why instead of conserving costs, it’s spending lavishly on mobile launch parties.

Its association with superstar Nicki Minaj is among the latest wastes. Nokia teamed up with the international superstar to bring a building in Times Square alive and create one of the biggest LED displays to celebrate the launch of the Windows Phone-based Nokia Lumia 900.

[ Also Read: Can a Mobile Device Double as Phone and TV? ]

Obviously, its market performance will deteriorate. Nokia currently estimates that its non-IFRS Devices & Services operating margin in the first quarter 2012 was approximately negative 3 percent, compared to the previously expected range of “around breakeven, ranging either above or below by approximately 2 percentage points” primarily due to the factors stated above.

Nokia expects its non-IFRS Devices & Services operating margin in the second quarter 2012 to be similar to or below the first quarter 2012 level.

This outlook reflects that the first quarter 2012 benefit related to lower warranty costs is expected to be non-recurring, as well as expectations regarding a number of factors including  competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phones business units.

By Rakesh Raman, the managing editor of RMN Digital.

Photo courtesy: Nokia

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