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Can Phone Giant Nokia Save Itself?

By    |   Thursday, 09 Jun 2011 04:34 PM

These are glory days for the cell phone industry, but not for Finland’s Nokia (NOK), the world’s biggest maker of mobile communications devices in terms of shipments. It has proven to be a laggard in the smartphone sector to the Apple (AAPL) iPhone and phones equipped with the Google (GOOG) Android operating system. At the low end of the market, Nokia is coming up short even against smaller Asian companies, such as ZTE Corp. of China.

The company jettisoned earnings targets it set only a few weeks ago. That raises major questions about whether CEO Stephen Elop, who took over last year, can produce the rebound he promised in February.

Second-quarter sales for Nokia’s devices and services division will come in “substantially” less than its earlier target of 6.1 billion euros ($8.9 billion) to 6.6 billion euros ($9.6 billion), the company announced. It also cut its estimate for the unit’s operating profit margin.

The company is shifting to the Microsoft (MSFT) Windows Phone 7 from its own Symbian platform. But Microsoft hasn’t exactly made itself cutting edge when it comes to cell phones and it needs Nokia as much as Nokia needs Windows.

At least Elop isn’t hiding Nokia’s weaknesses. "Android is gaining strength. Apple is Apple, of course," he told analysts on a conference call.

Apple of Nokia’s eye

Apple surpassed Nokia in the first quarter as the world’s No. 1 cell phone manufacturer in terms of revenue. Nokia’s share of the smartphone sector dropped to 30.8 percent as of Dec. 31, a plunge of 20 percentage points since Apple rolled out the iPhone in 2007, according Gartner research firm.

“Strategy transitions are difficult,” Elop says. “We must accelerate the pace of our transition.”

He might already be too late, though. In the wake of all the bad news, Fitch Ratings lowered Nokia’s credit rating to just one level above junk.

"The pace of deterioration has picked up since Nokia decided to switch to an alternative operating system, and it appears consumers are deserting these legacy handsets for cheaper Android versions or high-end Android or Apple smartphones," Fitch analysts wrote.

Nevertheless, analysts at IDC believe that Windows Phone 7 deployed on Nokia phones in the next few years will rise to second place and capture 20 percent of the market, just behind the Android system at 40 percent but ahead of Apple, which would fall to third.

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These are glory days for the cell phone industry, but not for Finland s Nokia (NOK), the world s biggest maker of mobile communications devices in terms of shipments. It has proven to be a laggard in the smartphone sector to the Apple (AAPL) iPhone and phones equipped with...
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Thursday, 09 Jun 2011 04:34 PM
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