WSJ: Warning From Nokia Sparks New Concerns About Strategy

Date : 06/14/2012 @ 2:06PM
Source : Dow Jones News
Stock : Nokia Corp. Sponsored American Depositary Shares (NOK)
Quote : 4.84  0.0 (0.00%) @ 4:19PM

WSJ: Warning From Nokia Sparks New Concerns About Strategy

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By Sven Grundberg and Anton Troianovski

Nokia Corp. (NOK), until this year the world's largest maker of mobile phones, sparked new doubts about its viability Thursday by warning its losses will be worse than the company expected just two months ago and by failing to predict when they might come to an end.

Nokia's shares were recently down 14.7% at $2.38 in U.S. trading. They have lost more than three-quarters of their value since Chief Executive Stephen Elop was brought in to turn the company around in September 2010.

The profit warning was the third in a little over a year for Nokia, which is getting chewed up by Apple Inc. (AAPL) and Google Inc. (GOOG) in the market for smartphones and by cheaper competitors that are doing a better job of selling basic phones to consumers in emerging markets.

The worsening results raise further doubts about Mr. Elop's strategy to turn around the company by focusing on smartphones powered by Microsoft Corp.'s Windows operating system. Nokia rolled out its first phones under the partnership in October. Yet while generally well reviewed, they are sold in the U.S. at heavy discounts and haven't stemmed the slide.

In an effort to cut costs as its market position erodes, Nokia said it will cut another 10,000 jobs in its mobile division by the end of next year. The cuts follow plans to eliminate about 14,000 jobs announced last year, but observers questioned whether it would be enough. Nokia's mobile devices division employs 53,000 people, compared with 20,500 at rival Motorola Mobility Holdings, which was bought this month by Google.

Mr. Elop also shook up the company's marketing and mobile phone leadership, naming his former Microsoft colleague and U.S. chief Chris Weber as head of sales.

Nokia, once one of the world's cutting-edge technology firms, failed to adjust quickly enough to key changes in how people used their phones. Analysts say that Samsung Electronics Co. (SSNHY) of Korea dethroned Nokia in the first quarter of the year as the world's biggest cellphone maker.

Nokia's failure to adapt to changing technology has spanned the globe. In the first quarter of this year, Nokia for the first time accounted for less than half of the total cellphone market in its home country of Finland, according to research firm IDC, which has been tracking the data since 2004. The company's market share of 48% in the first quarter was 15 percentage points lower than it was a year earlier while Samsung Electronics Co. and Apple Inc. rapidly gained ground.

Meanwhile, in Indonesia, Nokia's market share plummeted from 52% in early 2010 to 24% early this year, according to IDC. Nokia lagged behind smaller competitors in launching "dual-SIM" phones, which have been popular in developing countries for years because they let consumers save money by combining deals from two different service providers.

On Thursday, Nokia warned that the operating loss at its main mobile devices unit would be larger than it had earlier indicated, saying it would post a negative margin greater than 3%. The company doesn't appear to be gaining much traction in the important smartphone market, saying competition had hit that business "to a somewhat greater extent than previously expected."

On a conference call, Mr. Elop said Nokia is getting new help from Microsoft to more aggressively go after Android at the low end of the smartphone market, where its rival is quickly winning customers.

The new job cuts are aimed at saving an additional EUR1.6 billion in costs by 2013, the company said. The new round of restructuring measures comes as the combination of Nokia's accelerating cash burn along with its continued steep fall in handset sales is starting to fray investors' nerves.

Nokia held EUR4.87 billion in cash at the end of the first quarter, down EUR709 million from the end of the fourth quarter and down 24% from the same time last year. Restructuring efforts will send another EUR 1.25 billion out the door by the end of 2013, the company said.

Standard & Poor's cut Nokia's credit rating to junk in late April, saying the company's cost cuts and new phones weren't likely to offset the rapid decline in its business.

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