From bad to worse: Nokia stares into the abyss - Mobile World Live

From bad to worse: Nokia stares into the abyss

01 JUN 2011

If Nokia was already a patient in critical condition, this week’s profits warning from the ailing Finnish firm felt like someone unplugging the life support machine. Having already set rather low expectations, Nokia was forced to admit that sales at its key devices segment would now be “substantially below” the forecast EUR6.1 billion–EUR6.6 billion in Q2. Moreover, the firm has scrapped full-year guidance altogether, prompting some to ask if Nokia will even exist in its current form a year from now.

Nokia’s problems have been well documented – a weak top-end portfolio, a clunky operating system, slow time-to-market etc. But the worrying detail in this week’s announcement concerns hitherto unknown problems in areas that had previously been thought to be propping up the firm through the bad times. It may not have a killer smartphone portfolio, but surely it is shifting enough units in places like China to keep the wolf from the door?

Not anymore. While Chinese shipment numbers have been a rare positive for Nokia in recent quarters, CEO Stephen Elop revealed this week that a “mismanagement” with regards to its channel inventory means that Nokia is now struggling just as much in China as elsewhere. Either Nokia has been selling excessively into the channel to artificially inflate its Chinese shipment figures or the handsets just aren’t selling as well as expected. Either way, the result is the same: warehouses full of unsold Nokia phones. In Europe, the firm cited increasing competition from the Android camp for its woes and the firm has never had much of a presence in North America anyway. Which begs the question: where is Nokia now doing well? India? Finland?

As Elop himself admitted this week, problems that were once limited to Nokia’s smartphone strategy have now infected its entire portfolio – and this is what’s really panicking investors. Nokia is suffering rapidly declining sales across all its major markets and at the same time cutting prices to stay competitive, which means it is selling fewer phones for less money. It’s no wonder the stock is taking a killing, slumping to a 13-year low this week.

This deepening crisis means that there’s now a heck of a lot riding on the success of its first Microsoft Windows Phone device, which is scheduled to arrive in Q4. As Nokia still builds the best phones, and the Windows Phone OS is generally thought to have plenty of potential, there’s every reason to think that the device will be a winner. The question is: can Nokia survive that long? Even if it gets its first Windows Phone device out in time for the holiday season it won’t see the financial upside until well into 2012, which seems a long, long way off.

People scoffed at reports last month suggesting that Microsoft was poised to leverage its OS relationship with Nokia to acquire the Finnish firm’s devices business outright. That scenario now looks increasingly credible. And the price tag is dropping by the day.

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members

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