New Nokia Warning Has Investors Feeling Skittish

Just six weeks after it offered cautionary sales guidance for the coming year, struggling phone giant Nokia this week issued a new warning for its current quarter and the fiscal year, noting that results would be even lower than previously expected. The news sent investors into a tizzy, with Nokia's stock price dropping 18 percent in the wake of the warning.

"Multiple factors are negatively impacting Nokia's Devices & Services business to a greater extent than previously expected," a Nokia statement reads. These factors include new competitive trends in key locales like China and Europe, a product mix shift towards lower-cost devices, and competitive pricing pressures.

"Nokia now expects Devices & Services net sales to be substantially below its previously expected range for the second quarter 2011," the statement continues. "Given the unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011." Nokia previously said it expected net sales for the second quarter to fall in the EUR 6.1 billion to EUR 6.6 billion range.

As for Windows Phone, Nokia says it remains pleased with its progress and now plans to have at least one Windows Phone device in the market by the end of the year.

"Strategy transitions are difficult," Nokia president and CEO Stephen Elop said. "We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition. Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011."

In a conference call with financial analysts and investors, Elop said that the company recognized the competitive challenges it faced early, and that its decision to transition to Windows Phone was driven by this reality. But some of its recent issues are related to unforeseen channel inventory management in China and other markets, and it's possible that some potential Nokia customers are holding off to see whether the company's Windows Phone efforts bear fruit.

Importantly, Elop said that Nokia's short-term issues have no bearing on the long-term success of Windows Phone. "2011 is going to be a difficult year," He said. "But progress on Windows Phone has been very, very good. We're looking forward to those first device shipments."

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