Smartphone competition hits Nokia, shares dive

HELSINKI (Reuters) - The world's top cellphone maker Nokia NOK1V.HE cut its profit outlook and delayed the launch of phones it needs to compete with the iPhone and Blackberry in the fast-growing high end of the market.

Nokia still lacks a top-range model to challenge Apple's AAPL.O iPhone three years after its launch. It's last high-end hit phone was the N95, which was unveiled in 2006.

Nokia reported on Thursday a rise in January-March earnings and sales, roughly in line with expectations, but cut the outlook for its 2010 operating profit margin at its key phone unit to 11-13 percent from 12-14 percent.

The average forecast of 33 analysts in a Reuters poll was 13.7 percent.

Shares in Nokia were 14.5 percent lower at 9.64 euros by 1142 GMT, dragging the STOXX Europe 600 Technology Index .SX8P four percent lower.

The smartphone market continued to expand through the economic downturn, helped by cheaper models, and research firm Gartner has forecast it will grow a whopping 46 percent this year.

Nokia delayed the renewal of its Symbian software -- seen as crucial to improve its position in the high-end of the market -- to the third quarter from second quarter.

“This is pretty significant as Nokia and Symbian have lost a lot of market share in the last few years,” said analyst Neil Mawston from Strategy Analytics.

“Psychologically it is a blow as well as iPhone, Blackberry ad Android are surging ahead with software updates. Symbian cannot afford any delays,” said Mawston.


Nokia slashed prices of its cellphones across its portfolio this week, with the deepest cuts of around 10 percent seen for some smartphone models, data seen by Reuters showed on Thursday.

Nokia is struggling to battle with new rivals Apple and Blackberry maker Research in Motion RIMM.O at the high end of the cellphone market, and sees a cheaper price as its strongest weapon to hold on to market share, analysts said.

Nokia is benefiting from growth among cheap smartphones, which dragged the average sales price of a Nokia smartphone 17 percent from the previous quarter to just 155 euros ($208). This compares to more than $600 for iPhone.

Apple’s quarterly results blew past Wall Street expectations on the back of record iPhone sales earlier this week, and the company gave a strong revenue forecast, sending its shares to an all-time high.

For Nokia, underlying first-quarter earnings per share rose 40 percent from a year ago to 0.14 euros ($0.19), marking the first annual rise since the second quarter of 2008 but missing the average forecast of 0.15 in a Reuters poll of 43 analysts.

Earnings were boosted by massive cost cuts as Nokia slashed thousands of jobs last year, aiming to reduce costs at its key handset unit alone by more than 700 million euros to counter recession-hit demand.

January-March sales at the market leader, which makes one in three phones sold globally, grew 3 percent from a year ago, also rising for the first time since the second quarter of 2008.

Nokia shares had gained 26 percent in 2010 prior to the result, boosted by strong fourth-quarter results and hopes that its smartphones business was winning back lost market share. The share remains 8 percent higher for the year.

($1=.7439 Euro)

(Editing by Elaine Hardcastle)

additional reporting by Joanne Frearson in London, Brett Young, Eva Lamppu and Terhi Kinnunen in Helsinki; Simon Johnoson and Niklas Pollard in Stockholm