Diving consumer demand hits technology firms

By Tiffany Wu and Tarmo Virki

NEW YORK/HELSINKI (Reuters) - Top technology firms Microsoft, Nokia and Sony warned on Thursday of plummeting demand and pain to come as consumers rein in spending amid a brutal global economic downturn.

Consumer demand for gadgets has slumped as the financial crisis has grown into a broad recession that has already engulfed the United States and much of Europe and has damped demand in once-resilient emerging markets.

"The consumer electronics sector is following the housing market and car industry into negative territory," said Strategy Analytics' Neil Mawston.

"Consumers initially cut back on big purchases such as cars, and now they are starting to hold off on smaller purchases like cell phones."

Top cell phone maker Nokia reported a worse-than-expected dive in fourth-quarter profit, and warned the handset market had entered its worst year ever, with volumes to shrink 10 percent from 2008.

Japan's Sony, maker of Bravia flat TVs, Cyber-shot digital cameras and PlayStation games machines, said it would post a bigger-than-expected $2.9 billion operating loss this business year due to sliding demand, a stronger yen and restructuring at its ailing electronics operations.

MICROSOFT SHOCKS

And Microsoft Corp shocked Wall Street with disappointing results, and plans to slash up to 5,000 jobs and stop offering profit forecasts for the rest of the fiscal year.

The world's top software maker blamed PC market weakness and the popularity of low-cost netbook computers. Its shares fell 8.6 percent in early trading.

"Clearly business conditions are worse than people were expecting," said Richard Williams, analyst at Cross Research. "This is a substantial amount of jobs cuts. Microsoft has never had a layoff like this in my knowledge and it's sending a signal that the times are definitely changing."

NOKIA DISAPPOINTS

Nokia's said underlying fourth-quarter earnings per share plunged 46 percent year-on-year to 0.26 euros ($0.34), missing the average forecast of 0.30 euros in a Reuters poll.

Its shares fell to 4.5-year lows on the news.

Profitability at Nokia's key handset unit roughly halved to the lowest level this decade, and the firm said it aimed to cut annual costs at its key handset unit by 700 million euros.

Nokia's rival, global No. 3 LG Electronics, earlier posted a record quarterly net loss, hit by weakness in its flat-screen affiliate and mobile phones.