Nokia Profit Warning: It's Been Outmaneuvered by Apple

Nokia phones

Nokia may be the biggest cell phone maker in the world, but this doesn't insulate its business from market failures. The firm is now officially warning the markets that its grip is slipping, and its market share may be sliding.

In an alert today Nokia warns that its sales are so far below expectations that it has to revise its second quarter fiscal predictions downwards. Instead of a ceiling of €7.2 billion as it had predicted, Nokia's calculations suggest that the actual net sales figure may be "slightly below" the €6.7 billion lower limit. This is sales from its Devices and Services division, so it maps absolutely to failings in Nokia's operations in the cell phone markets around the world—and Nokia directly attributes the slip to "lower than previously expected average selling prices and mobile device volumes."

Nokia also warned its operating margin was likely to slip too, being again at the lower end of or "slightly below" the earlier predicted range of 9% to 12%. That's bad enough, but the very worst news is that Nokia expects its volume market share in the "mobile device" markets to be "flat" compared to 2009, and that its 2010 value market share will be "slightly lower" in 2010 compared to last year. This is because of the "competitive situation at the high end of the market and shifts in the product mix." It's also evidence that the cell phone king's crown is slipping, and it's an acknowledgment that Nokia has been deftly and powerfully outmaneuvered in the market—other players have new better products that Nokia doesn't and that the public wants.

What are these mystery devices? It's the iPhone, and its host of touchscreen wannabes, which have changed the cell phone market to align with a ubiquitous smartphone future. For years Nokia relied on its mass market presence to sell phones that were only slightly, incrementally better than previous ones—and it was totally side-swiped in the brand new all-touchscreen market by Apple's device, which was radical and innovative and user-friendly. In Australia there's fresh news from analysts at IDC that by the end of this year Apple may even unseat Nokia and become the nation's number one smartphone vendor.

Nokia's not failing, per se, and it's still significantly profitable at the moment with its sales of low-end phones in the poorer nations of the world propping up its business. But the tide of the company's fortunes may have seriously turned, and market watchers will be scrutinizing it to see if efforts like its touchscreen N8 can reverse the downward trend when the third quarter finances roll in.

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