Nokia price cut worries investors ahead of Q2 results

HELSINKI Mon Jul 16, 2012 7:36am EDT

Models of the Nokia Lumia 900 cellular telephone are pictured in San Francisco, California April 11, 2012. REUTERS/Robert Galbraith

Models of the Nokia Lumia 900 cellular telephone are pictured in San Francisco, California April 11, 2012.

Credit: Reuters/Robert Galbraith

HELSINKI (Reuters) - Shares in Nokia Oyj fell over 3 percent on Monday after the company slashed the price of its flagship smartphone, with investors seeing it as a sign of desperation in its battle against Apple Inc and Samsung Electronics Co Ltd.

Analysts also cited caution ahead of Thursday's second-quarter report and short-selling of the stock reached record highs. The results are expected to show a widening loss for the world's second-largest cellphone maker.

Once the world's dominant mobile phone provider, Nokia was late to embrace smartphones, and has lost out to Apple and Samsung in the most profitable part of the market.

Nokia halved the price of the Lumia 900 phone in the United States over the weekend to try and lure customers away from its rivals.

"They are stuck between a rock and a hard place - to drive sales of their devices they are going to have to spend money on marketing and promotions, but at the same time the stock market is demanding they do anything other than spend money," said Ovum analyst Nick Dillon.

Analysts expect Samsung to sell 50 million smartphones in the second quarter, a Reuters poll showed on Monday, compared with Apple selling around 30 million iPhones and Nokia around 10 million smartphones.

Nokia shares were 2.33 percent lower at 1.476 euros by 7:16 a.m. EDT, after falling more than 3 percent earlier in the session and still near a 16-year low of 1.434 euros reached last week.

The proportion of Nokia shares out on loan has risen to 13.2 percent in the last month, Markit data showed, as speculative investors took bearish positions ahead of the report.

"I don't think that the company will have anything positive to say on Thursday," said Mikael Rautanen, analyst at equity research firm Inderes in Helsinki. "The third quarter will be very difficult ... The fight to survival will continue."

Nokia is expected to report a net loss roughly doubling to 706 million euros ($864.4 million) and burn through more than a billion of cash in just three months, according to a Reuters poll of 38 analysts.

In the three months to June, all three major credit ratings agencies cut Nokia bonds to "junk" while the company warned twice on profits and said it planned to cut one in five jobs.

PRICE CUT

Nokia is fighting back with its new Lumia phones, which use Microsoft Corp's untried Windows software.

The phones have won some good reviews, but have had relatively little success among consumers who are preferring iPhone and phones running Google's Android software, and slow sales have so far thwarted Nokia's recovery efforts.

The price cut on its Lumia 900 Windows smartphone in the United States came barely three months after its launch. The company reduced the cost of the phone to $49.99 from $99 with a two-year agreement at AT&T Inc stores.

In Europe the company has so far left the prices largely untouched, two industry sources told Reuters, but analysts said they expect Nokia to soon cut prices of its high-end Lumia 900 and Lumia 800 models outside the United States.

Nokia has said the price cut was part of its "ongoing lifecycle management" but analysts said it was earlier than usual. The likely reason was Microsoft's recent announcement that its new Windows Phone 8 software will not run on current Lumia phones, rendering them obsolete.

"The announcement of Windows Phone 8 was a kick in the teeth for Nokia and its high end Lumia handsets which forces it to be more aggressive with the pricing of these devices from now on," said Canalys analyst Pete Cunningham. ($1 = 0.8167 euros)

(Additional reporting By Terhi Kinnunen in Helsinki and Francesco Canepa in London; editing by Anna Willard)

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Comments (6)
macgregor54 wrote:
Microsoft recently announced that their new OS, Win8, would not run on the Lumia, basically drilling a hole in the last lifeboat of their partner, Nokia. Not a good thing. I can’t believe it, but can this company possibly go bust?

Jul 16, 2012 7:47am EDT  --  Report as abuse
Atlant wrote:
In the United States, Amazon has been selling the Lumia 900 for US$0.01 for at least a week or two. It’s clear that the Lumia line of phones gained very little traction and whatever little they had was destroyed when Microsoft poured the oily “not upgradeable” news all over Nokia’s road to fiscal recovery.

Now, the question is: can Nokia survive until the Win Phone 8 phones ship? And having burned their customer base several times in a row (with the sudden abandonment of Symbian and Maemo/MeeGo, all of the various ecosystems that got torched in that process, followed by the sudden confirmation that even newly-purchased the Lumia phones won’t be upgradeable), will anyone be willing to trust Nokia so far as to buy a Win Phone 8 device from them?

It’s almost starting to look like Jolla, the Maemo/MeeGo spin-off, has a better chance of success than their parent Nokia.

Jul 16, 2012 7:58am EDT  --  Report as abuse
Guntis wrote:
It is interesting to see what is the reaction on price reduction “by half” as headlines put it. If we assume that price of Nokia Lumia 900 without commitment (AT&T) is 399.99 USD then price reduction is only about 12.5% that is ok if we again assume that new Nokia phone models with Windows Phone 8 operating system will be available in autumn of 2012 and Nokia needs to empty stock to prepare for launch of new models. Company still has time for turnaround and it should spend it wisely and be focused. I see focus in Nokia’s actions.

Jul 16, 2012 8:21am EDT  --  Report as abuse
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