Nokia Corporation (NOK), the world’s largest mobile phone maker, stuns everyone by lowering its second quarter revenue guidance. The company reduced its guidance based on lower Average Selling Price (ASP) and handsets sales. In the aftermarket trade in NYSE, shares of Nokia plunged $1.18 (14.39%) to $7.02.
Nokia expects second quarter revenue to miss its previous guidance of $8.34 billion-$9.02 billion. The company also anticipates a decline in adjusted margin from its prior range of 6%-9%. It was imminent that Nokia will fail to achieve the previous mentioned guidance for the second quarter of 2011 as well as all future guidance, as the company adopted a cautious stance while providing its full-year outlook. Nokia’s future looks very bleak unless they launch a powerful product or enter into accretive partnerships and mergers.
Nokia faces stiff competition from Google Inc’s (GOOG) Android-based smartphones and Apple Inc’s (AAPL) iPhones. Moreover, with the popularity of tablets, which Nokia lacks in its product portfolio, will hurt profitability in the long run. Nokia desperately needs a smartphone to outperform the broader mobile phone market. Nokia has thus teamed with Microsoft Corporation (MSFT) to install Windows Phone 7 software into their mobile phones, as an attempt to retain its market share.
However, we do not expect any Windows 7-based smartphone before the end of 2011. Further, we expect Nokia to gradually lose market share since we do not find any product in Nokia’s existing portfolio, which is unique in the market and will allow the company to drive revenues.
Apart from stiff competition and lack of new products, there are other factors including rising costs and slow economic growth that may act as headwinds for the company going forward. Recently, the company has announced its intent to lay off at least 4000 staffs by the end of 2012, across different offices located in Finland, Denmark and U.K to counter its rising input costs and Research and Development (R&D) expenditures.
We, thus, maintain our long-term Neutral recommendation for Nokia. Currently, Nokia has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
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