Zero Margins For Nokia As Consumers Snub The Brand

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Outdated mobile phones and consumers who see the Nokia brand as yesterday’s technology, coupled with management incompetence has resulted in Nokia warning of plunging net sales and zero profit margins.Yesterday Stephen Elop, chief executive of Nokia dismissed speculation that Microsoft was set to be his $19 Billion dollar saviour, when he told the market that Nokia is to sell their phones at almost zero margin. He said that their 2011 second quarter was set to be ‘substantially below’ previous forecasts due to a drop in sales margins from between six and nine per cent to break-even.

The huge downgrading comes as consumers snap up phones like the iPhone 4, Samsung Galaxy S 2 and the HTC Sensation which is set to be launched in Australia shortly.

Shares in the Finnish company fell 18 percent from $8 to less than $6.50 after earlier in the week falling 15 percent.

Earlier this week the market was rife with speculation that Microsoft and Nokia were in talks to buy the Finnish company’s mobile handsets division.

The rumours were denied by Stephen Elop, CEO of Nokia, at the All Things D conference in Los Angeles during an on-stage interview with Walt Mossberg of the Wall Street Journal. Microsoft’s only response is that ‘Microsoft does not comment on rumours or speculation’.

In Australia two carriers have told ChannelNews that they are close to dropping Nokia products that compete in the Smartphone market because of “limited sales”.

One vendor said “there are a lot of other brands competing for shelf space and Android and iPhones are flavour of the day”. 

Nokia is pinning hopes of a recovery on its strategic partnership with Microsoft and the Windows Phone 7 models that it plans to release in the third quarter of 2011. However several analysts doubt that this will happen.

They cite recent sales figures of Windows 7 based phones made by Samsung, LG and HTC which show that even on popular brands of phones WP7 devices are not selling.

“There are a lot of  Windows 7 phones in the Channel that are not selling” said a Samsung executive at the recent Samsung Galaxy S 2 launch.

Elop is betting his company’s future on the fact that the move to Microsoft will save Nokia who has seen their shares slide over 60 percent in value since the Apple iPhone was launched.

The Finnish company yesterday scrapped its full-year sales and margin forecasts for handsets and services and said sales at the unit would “substantially” fall short of its projected range this quarter. The stock slumped 18 percent to a 13-year low, exceeding the 14 percent slide on Feb. 11, when Elop announced a deal to adopt Microsoft’s operating system.

 “There is no question that Elop inherited a situation considerably worse than he’d anticipated,” said Ben Wood, a London-based analyst at CCS Insight, in a telephone interview. “Common courtesy would dictate that they’d give him a year, but I think the critical point will be when the new strategy is implemented in 2012. That’s when he absolutely needs to deliver.”

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