Jul 16, 2012

Nokia caught between rock and a hard place

Saravana | 11:31 AM | |
nokia-cell-phones.jpg

Shares in Nokia Oyj fell over 3 percent on Monday after the company slashed the price of its flagship smartphone, with investors seeing it as a sign of desperation in its battle against Apple Inc and Samsung Electronics Co Ltd.
Analysts also cited caution ahead of Thursday's second-quarter report and short-selling of the stock reached record highs. The results are expected to show a widening loss for the world's second-largest cellphone maker.

Once the world's dominant mobile phone provider, Nokia was late to embrace smartphones, and has lost out to Apple and Samsung in the most profitable part of the market.
Nokia halved the price of the Lumia 900 phone in the United States over the weekend to try and lure customers away from its rivals.

"They are stuck between a rock and a hard place - to drive sales of their devices they are going to have to spend money on marketing and promotions, but at the same time the stock market is demanding they do anything other than spend money," said Ovum analyst Nick Dillon.

Analysts expect Samsung to sell 50 million smartphones in the second quarter, a Reuters poll showed on Monday, compared with Apple selling around 30 million iPhones and Nokia around 10 million smartphones.

Nokia shares were 2.33 percent lower at 1.476 euros by 1116 GMT, after falling more than 3 percent earlier in the session and still near a 16-year low of 1.434 euros reached last week.

The proportion of Nokia shares out on loan has risen to 13.2 percent in the last month, Markit data showed, as speculative investors took bearish positions ahead of the report.

"I don't think that the company will have anything positive to say on Thursday," said Mikael Rautanen, analyst at equity research firm Inderes in Helsinki. "The third quarter will be very difficult ... The fight to survival will continue."

Nokia is expected to report a net loss roughly doubling to 706 million euros and burn through more than a billion of cash in just three months, according to a Reuters poll of 38 analysts.
In the three months to June, all three major credit ratings agencies cut Nokia bonds to "junk" while the company warned twice on profits and said it planned to cut one in five jobs.
Price cut
Nokia is fighting back with its new Lumia phones, which use Microsoft Corp's untried Windows software.

The phones have won some good reviews, but have had relatively little success among consumers who are preferring iPhone and phones running Google's Android software, and slow sales have so far thwarted Nokia's recovery efforts.

The price cut on its Lumia 900 Windows smartphone in the United States came barely three months after its launch. The company reduced the cost of the phone to $49.99 from $99 with a two-year agreement at AT&T Inc stores.

In Europe the company has so far left the prices largely untouched, two industry sources told Reuters, but analysts said they expect Nokia to soon cut prices of its high-end Lumia 900 and Lumia 800 models outside the United States.

Nokia has said the price cut was part of its "ongoing lifecycle management" but analysts said it was earlier than usual. The likely reason was Microsoft's recent announcement that its new Windows Phone 8 software will not run on current Lumia phones, rendering them obsolete.

"The announcement of Windows Phone 8 was a kick in the teeth for Nokia and its high end Lumia handsets which forces it to be more aggressive with the pricing of these devices from now on," said Canalys analyst Pete Cunningham.
Copyright Thomson Reuters 2012

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