Instant view: Nokia warns on Q2, drops FY targets

Markets Reuters

STOCKHOLM (Reuters) - Nokia, the world's biggest phone maker by volume, warned on Tuesday that sales and margins would fall well below its previous guidance and dropped its full-year outlook, sending its shares down 12 percent.

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Nokia, which has been losing ground in the smartphone market to newcomers Apple Inc and Google Inc, said it expected its non-IFRS operating margin for Devices & Services could be around break-even in the second quarter.

That compared with previous guidance for a margin in the range of 6 percent to 9 percent in the period.

Following are analyst comments regarding the news:

CAROLINA MILANESI, GARTNER

The problem that Nokia is facing, especially in those markets that are operator-controlled like Europe, is that they're going to have to reduce prices considerably in order to stay competitive. Operators are not going to be prepared to subsidize handsets where they don't see demand.

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It sounds like there's intensive competition from the white box vendors in emerging markets like China.

All these were things that Nokia really should have expected.

JARI HONKO, SWEDBANK

"The truth about Nokia's competitiveness has come out now. We know that the company is loss-making at a group level. Consensus estimates will react strongly, and so will the shares."

"This is the first quarter in which Nokia started to be tactical in pricing, trying to defend its market share..."

"We will see more and more reflection on Nokia's market share, and that is the worst thing to happen to this company, when the scale is shrinking fast."

"It remains to be seen how low it (market share) could go, but for smartphones we are talking about going under 20 percent this year."

MORTEN IMSGARD, SYDBANK

"It seems like it's especially their emerging markets exposure in China where they are hit by competition in the low end of the market. They have been struggling a bit on the high end the last quarters, and now it seems as they are getting a squeeze also from the bottom of the market at the moment."

"Intense competition in both ends of the market is as I see it the primary reason why they have to lower their guidance today."

"If you look at the longer term the share looks very cheap, but I think the short term disturbances in the company creates a lot of uncertainty, and that's what we see today."

WESTLB ANALYST THOMAS LANGER

"I think it is devastating now that shortly after the AGM we have this very negative news out from Nokia. Q2 and Q3 is one story, but I think this will raise doubts about the potential recovery trend based on Mango."

"What worries more is that Nokia will not be the only one with Mango and the Nokia hardware and user interface has to be more compelling than those from competitors."

"Given the internal turmoil that will be generated by this news it is increasingly difficult to see that Nokia can leapfrog one handset generation and be on par with the competition in early 2012. Investors should be more than concerned about the dividend possibility."

Nokia shares were down 12 percent to 5.07 euros in Helsinki by 8:17 a.m. EDT.

(Reporting by Stockholm and Helsinki newsrooms, Georgina Prodhan in London)

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