On Tuesday, an earnings warning issued by cell phone giant Nokia
The warning certainly took investors by surprise. After issuing guidance earlier this year of sales growth in the 3% to 7% range, the company dropped a bomb on the markets by indicating that first-quarter sales would actually fall 2% from last year's first quarter and earnings would hit the low end of the predicted EUR 0.17 to 0.19 range (about $0.20). Thinking shareholders might want to know what happened, the company confessed to some uncomfortable facts.
Nokia's market share in the global cell phone market dropped from 38% in the fourth quarter of 2003 to 35.7% in the most recent quarter, one of the worst market-share losses in company history. While Nokia is still far and away the market-share leader, a few more quarters like this will call that leadership into question. And not only did market share drop off, but the average price of a Nokia cell phone sold in the first quarter dropped 10%, thanks to a product mix skewed toward low-end models.
Analysts predict that global cell phone shipments increased 25% in the first quarter, while Nokia's volume grew by only 19%. A lack of cell phone offerings in the mid-range, particularly flip phones, created a gap in Nokia's product portfolio that the competition was only too happy to fill. Management placed part of the blame on slow reaction time, resulting from the company's reorganization. I think it's more likely that someone just wasn't paying attention to the customers.
Knocking the stock down almost 20% is probably an overreaction. Nokia's mobile phones segment remains highly profitable, and the company did capture the largest share of camera phone shipments in the fourth quarter of 2003, beating out product leader NEC
Let's hope management learned from Motorola's
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Fool contributor Chris Mallon owns shares of Nokia through his private investment partnership.