Handset maker Nokia (NYSE: NOK ) gave investors an unpleasant surprise today when it lowered its profit forecast. Even though everyone (and their grandmother) is snapping up new cell phones these days, Nokia somehow missed the boat by not offering handsets at the attractive mid-price level.
Nokia said its first-quarter sales will be just shy of $8 billion, a 2% decrease from the same quarter a year ago. And since Nokia missed opportunities in the mid-price range in the U.S. and Europe, traditionally two strong markets, it allowed rivals such as Motorola (NYSE: MOT ) and Ericsson (Nasdaq: ERICY ) to pick up the slack and swipe customers.
Much has been made of the popularity of fancier cell phones recently. Improving consumer confidence results in people eyeing their antiquated ones and mulling over new models. Number portability has given people an added incentive to upgrade their cell phones and maybe even spring for new, fancy models with neat-o features. Those that integrate digital cameras are gaining in popularity.
What was Nokia thinking? If consumers, especially here in the U.S., are breaking free from their tight budgets after a long period of economic uncertainty, it stands to reason that they're not quite ready for the top of the line and want a phone with exciting features but won't break the bank. And apparently, that's what rivals had that Nokia didn't have.
As much as Nokia's news stinks, it does bear some resemblance to Motorola's situation several months ago, when the latter reported disappointing handset sales after it delayed shipment of some long-awaited models and thus missed the crucial holiday shopping season.
Nokia shares were down 18% in recent trading as investors made their displeasure known. They also dragged down shares of competitors and tech stocks at large. However, despite the panicky feeling Nokia's warning brings, the response across the tech industry seems overblown. In this case, it's poor execution, not that consumers have suddenly lost interest in newfangled gadgets.
According to Nokia, it continues to achieve profitability, although it also said in its conference call (transcript courtesy of CCBN StreetEvents) that the reorganization of its handset division has "slightly slowed" its "reaction and operational effectiveness." That's an element to watch.
It may not be the end of the world, but it's a warning sign nonetheless. Nokia said it has 40 new products on the way, with the first half of the year remaining "difficult." Investors need to watch carefully to make sure it returns to the right track later this year. However, given the recent appetite for fancy new phones and the post-holiday buying season, investors have real reason for disappointment.
Do you want to talk over the outlook for Nokia and the handset market with other interested parties? Fools are talking about today's news on the Nokia discussion board.
Alyce Lomax does not own shares of any companies mentioned.
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