HELSINKI/LONDON Analysts predicted more gloom ahead for Nokia NOK1V.HE on Wednesday and the struggling phone maker was forced to deny talk it would sell its core business to Microsoft Corp (MSFT.O).
A day after the latest in a string of profit warnings from what was once the industry No. 1, the stock fell as much as 10 percent to a 13-year low, compounding Tuesday's 18 percent fall, before recovering sharply to close just 0.8 percent lower at 4.71 euros on talk of the buyout.
The recovery took place in heavy late trading and was sparked by a website report that said its software partner Microsoft would buy its phones business for $19 billion.
Nokia called the report "100 percent baseless." Chief Executive Stephen Elop, a former Microsoft executive, later told U.S. financial news channel CNBC that "those rumors are baseless, there are no conversations" with Microsoft.
Microsoft declined to comment.
Nokia said on Tuesday mobile phone sales in the second quarter would be substantially below a previous forecast and abandoned its full-year outlook, blaming difficult conditions in China and Europe.
Part of the predicted decline was expected as Nokia is moving to Microsoft's Windows software from its own Symbian platform, a plan set three months ago by Elop. But customers are fleeing faster than expected.
Analysts said they were not sure if the company can catch up even after it starts selling Windows-based phones in the fourth quarter.
"We would continue to avoid the stock as Symbian smartphone sales are falling off faster than expected, and we are skeptical that new Windows Phone models will be able to replace lost profits," said Gleacher & Co analyst Stephen Patel.
Nokia faces tough competition from Apple Inc (AAPL.O) and Google Inc (GOOG.O) as well as lower-end handset makers.
Shares of BlackBerry maker Research in Motion RIM.TORIMM.O -- also seen as a potential loser in the smartphone shakeout -- fell for a second day.
In a sign of worse to come, mobile operators in Europe told Reuters that Nokia's new Symbian phones -- a stopgap until the end of the year -- were of little interest.
European operators are seen as crucial to the success of devices in the region because of the subsidies they provide.
Last quarter, Nokia made 29 percent of its devices and services sales in Europe, a year-on-year decline of 5 percent.
"We are concerned that the erosion that the company has suffered in Q2 is just the beginning and that there could be worse to follow," Nomura's Global Technology Specialist Richard Windsor wrote in a note.
Nomura cut its price target on Nokia shares to 4.00 euros from 4.75 euros and kept its "reduce" recommendation.
J.P. Morgan cut its price target to 4.25 euros from 5 euros, while Credit Suisse cut its to 4 euros from 5.5 euros.
Nokia has begun shipping its new Symbian phones, the business-focused E6 and multimedia X7, but most European operators contacted by Reuters had no plans to offer them.
"Nokia is some way behind, I'm afraid, in terms of the smartphone user experience," said a spokesman for one British operator who asked not to be named.
Gartner analyst Carolina Milanesi said Nokia's problem, particularly in operator-controlled Europe, was that it needs to reduce prices considerably to stay competitive.
"Operators are not going to be prepared to subsidize handsets where they don't see demand," said Milanesi.
A spokeswoman for Telekom Austria (TELA.VI), which is offering the E7 in all the countries in which it operates but not the X7, said: "In general, Nokia handsets in the ultra-low cost area are still interesting devices for our customers, but in the smartphone space we can ignore them for the moment."
In Britain, Vodafone (VOD.L) will offer the E6, and Hutchison Whampoa's 0013.HK 3, the country's smallest operator, will offer the X7. T-Mobile (DTEGn.DE) and Orange FTE.PA have no plans to offer either.
A spokeswoman for Deutsche Telekom (DTEGn.DE) in Germany said its T-Mobile unit would be launching the X7 in four weeks' time, but not the E6.
Like T-Mobile in the UK, she welcomed the advent of Android-based smartphones from Chinese vendors such as ZTE (0763.HK)(000063.SZ), which makes phones for operators to put their own brand on, as well as ZTE-branded phones.
"The challenge we see with Nokia is that the Symbian phones are quite expensive," she said. "ZTE has an advantage as they offer smartphones that are less pricey."
Pohjola Markets analyst Hannu Rauhala cut his recommendation on Nokia shares to "accumulate" from "buy" but was still more optimistic than others, saying it was unclear whether Asian rivals could keep taking market share through price cuts.
"We have seen these kinds of situations in history before," he said. "I wouldn't make far-reaching conclusions yet if we are talking about device manufacturing."
(Additional reporting by Nicola Leske in Frankfurt, Dominic Lau in London and Bill Rigby in Seattle; Editing by Louise Heavens, Andrew Callus and Richard Chang)