Nokia lowers devices and services outlook for Q2, increasingly confident about first Windows Phone in Q4

You know what happens when you tell the world that you're abandoning Symbian for Windows Phone? Right, Symbian sales dry up. No matter how many times you boast about plans to sell an additional 150 million new Symbian devices, and no matter how long you commit to supporting Symbian devices, the OS is essentially dead to developers and consumers alike. So, we're not surprised to hear that Nokia just lowered its devices and services outlook for Q2 of 2011. The updated guidance calls for devices and services net sales to be substantially below the EUR 6.1 billion to EUR 6.6 billion expected in Q2 due to lower than expected average selling prices on lower volumes. It also sees margins drifting below the expected range of 6 percent to 9 percent due to lower than expected net sales -- Nokia expects its non-IFRS operating margin to be "around breakeven." As a result, Nokia is also pulling back its annual targets for 2011 and will provide further updates as its situation becomes more clear.

On the positive side, Nokia does say that it has "increased confidence" that it will ship its first Windows Phone product in Q4 2011. Let's hope so.

Update: Stephen Elop highlighted the influx of new Android devices in China and Europe as a primary factor for Nokia's revised outlook. During a conference can today, the Nokia CEO said, "It is the case that certain competitive forces, in particular Android, are really gaining momentum in certain regions."

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Nokia lowers Devices & Services second quarter 2011 outlook and updates full year 2011 outlook


Published May 31, 2011
Nokia Corporation
Stock exchange release
May 31, 2011 at 15:00 (CET +1)

Espoo, Finland - Nokia today commented on factors impacting its business and updated its second quarter and full year 2011 outlook for Devices & Services. During the second quarter 2011, multiple factors are negatively impacting Nokia's Devices & Services business to a greater extent than previously expected. These factors include:

- the competitive dynamics and market trends across multiple price categories, particularly in China and Europe;
- a product mix shift towards devices with lower average selling prices and lower gross margins; and
- pricing tactics by Nokia and certain competitors.

Updated outlook for Devices & Services for the second quarter 2011:
- Nokia now expects Devices & Services net sales to be substantially below its previously expected range of EUR 6.1 billion to EUR 6.6 billion for the second quarter 2011. This update is primarily due to lower than previously expected average selling prices and mobile device volumes.
- Nokia now expects Devices & Services non-IFRS operating margin to be substantially below its previously expected range of 6% to 9% for the second quarter 2011. This update is primarily due to lower than previously expected net sales. While visibility is very limited, Nokia's current view is that second quarter 2011 Devices & Services non-IFRS operating margin could be around breakeven.

Updated outlook for Devices & Services for the full year 2011:
- Given the unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011. However, Nokia expects to continue to provide short-term quarterly forecasts in its interim reports as well as annual targets when circumstances allow it to do so.
- Nokia's previous targets for the third quarter, fourth quarter, and full year 2011 were: 1) Net sales in Devices & Services to be at approximately the same level in the third quarter 2011 as in the second quarter 2011, and seasonally higher in the fourth quarter 2011, compared to the third quarter 2011; 2) Devices & Services non-IFRS operating margin to be between 6% and 9% in 2011. These targets are no longer valid.

Nokia is taking immediate action to address the issues that are impacting its Devices & Services business. Nokia's high-level strategic objectives and targets remain unchanged.

- Nokia is continuing to invest to bring new innovative capabilities to its Symbian line up. In addition, Nokia has taken price actions on its current smartphone portfolio, and Nokia is intensifying its focus on retail point-of-sales marketing.
- Nokia started shipping its new dual-SIM devices last week.
- Nokia remains pleased with its progress on its Windows Phone strategy, and has increased confidence that the first Nokia product with Windows Phone will ship in the fourth quarter 2011.
- Nokia remains committed to its target to reduce its Devices & Services non-IFRS operating expenses by EUR 1 billion for the full year 2013, compared to the full year 2010, and plans to implement these reductions as quickly and effectively as possible.
- After the transition, Nokia continues to target Devices & Services net sales to grow faster than the market and Devices & Services non-IFRS operating margin to be 10% or more.

"Strategy transitions are difficult. We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition," said Stephen Elop, president and CEO of Nokia. "Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011."

Nokia will provide its second quarter results and more details when it reports its Q2 2011 results on July 21, 2011.