Nokia Issues Profit Warning Amidst Marketing Criticism

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Stephen Elop tries to smile as Nokia downgrades its devices and services profit outlook for the first quarter

Nokia has issued a profit warning for its devices and services division, blaming strong competition from smartphone kings like Apple and Samsung.

The troubled Finnish firm said it believed operating margin for the first quarter 2012 was approximately negative 3 percent, whereas it had expected to break even. Nokia expects similar results in the second quarter.

Stephen Elop, President and CEO of Nokia said the results indiucated Nokia is still “in the midst of transition”, although he pointed to the success of the company’s Lumia devices as a high point.

Lacking Lumia love?

“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,” Elop said.

The rollout of Lumia 900 phones has already been hit by a software flaw that would prevent some users connecting to mobile data networks. Nokia pledged to give customers $100 credit, effectively wiping out the $99 purchase price that many users see after subsidising the handset with a two-year contract with AT&T.

Nokia sold 12 million smartphone units in the first quarter, making the company €1.7 billion in net sales. Overall, the vendor’s devices and services division made €4.2 billion.

Last year, Nokia shocked the market when it completely cancelled its 2011 sales outlook. Last month, it was confirmed that another 1,000 workers would be made redundant in Finland.

Gartner analyst, Carolina Milanesi, told TechWeekEurope that Lumia sales were not growing fast enough.

“Volume for Lumia is ramping up slowly – only two million in Q1, which is not enough to make up for the decline in volume of Symbian,” Milanesi added. “We said last quarter that Nokia needed US and China to drive Lumia sales to start seeing a difference in the overall performance and this proved to be the case.

“It also seems that Nokia is feeling pressure in the mobile phones market as cheap Android products are hitting the streets in markets such as India and China. While Asha has been successful in the very low end, it is the mid tier that I feel is under pressure where Symbian has left a gap and Lumia has not moved in yet.”

Milanesi said that in the US, Nokia needed to get Verizon on board so it “can fire on all cylinders at the two key carriers”.

Marketing muck up?

Despite gaining positive reviews for its Lumia devices, Nokia has been unable to attract swathes of new customers. Some have put this down to weak marketing, something Windows Phone 7 maker Microsoft may have to take blame for too.

“Something is not quite right on the retail and marketing push on these devices, whether that is Nokia’s or Microsoft’s role. They both have to take responsibility for pushing these things,” Tony Cripps, analyst at Ovum, told TechWeekEurope.

“It’s going to be an expensive thing to push as hard as Nokia needs to. It is that retail and marketing push we need to see from them… There are some indications Nokia and Microsoft need to be working more closely.

“2012 is going to be critical for companies like Nokia and RIM because the financial community needs to see some signs they are getting back on track.”

Cripps said Nokia may be biding its time until it has a broader portfolio before it goes ahead with another major marketing push.

In the UK, Nokia is currently flogging the Lumia 800 and the Lumia 710, in terms of its Windows Phone 7 output. The Lumia 900 is expected to arrive on 27 April.

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