April 20, 2011 – By Tarmo Virki, European Technology Correspondent
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Nokia is expected to report a 29 percent fall in earnings per share as nimbler Asian rivals eat into its dominant market share in cheaper phones and it continues to lose out in more expensive smartphones to Apple and others.
To turn around its smartphone fortunes, Nokia unveiled in February a deal to start using Microsoft software instead of its own Symbian platform. Investors are waiting for details on the cost savings stemming from the switch.
"We expect to hear new details about the contract on Thursday. Broader knowledge of what the agreement contains would reduce the uncertainty relating to the share and would thus support the share price," said Pohjola analyst Hannu Rauhala.
Nokia shares have dropped some 30 percent following the Microsoft deal as investors have doubted the success of the new hardware-centric strategy.
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Nokia has said the deal will enable it to cut a significant number of jobs, and Chairman Jorma Ollila flagged the end of April as the targeted time for announcements. The final deal between the two is also expected to be signed this month.
Finnish unions have said the firm will cut thousands of jobs in its home country alone, with analysts pointing to possible annual savings of 1 billion euros ($1.4 billion) from the cuts.
The underlying operating profit margin at Nokia's phone unit, a key metric for the group, is expected to fall to 8.6 percent from 11.3 percent in the previous quarter, hurt by market share losses and price cuts of its key models.
The operator price of its key smartphones, the N8 and the C7, was cut by close to 10 percent during the first quarter in Western European markets, according to data from consultancy CCS Insight, as Nokia battled to attract customers.
Nonetheless, its market share is expected to fall to 29.6 percent from 33.4 percent a year ago.
JAPAN HIT EYED
Analysts say that, despite its bigger bargaining power, Nokia is likely to be among the phone makers worst hit by the disruption to supplies from last month's devastating Japanese earthquake due to its scale. It makes 450 million phones a year, making quick and big changes in component supply difficult.
Nokia warned last month it would have shortages of some of its phones, but said the impact on earnings would be limited.
"There is a huge competition for components," said analyst Neil Mawston from Strategy Analytics.
Nokia's smaller rival Sony Ericsson said this week there were shortages of displays, batteries, camera modules and some printed circuit boards due to the quake.
Chief Executive Bert Nordberg said the problem was stabilizing but would have a bigger impact in the second quarter.
Apple reports March quarter earnings late on Wednesday, while Samsung Electronics and LG Electronics, which have won a share of the smartphone market with models running Google's
Android software, will report on April 27 and April 29.
(Editing by Mark Potter)