Updated from 7:24 a.m. Nokia's ( NOK) stumbles worsened Thursday. The Finnish handset leader plunged 14% after warning that a price war it started with rivals will punish earnings in the third quarter. For its second quarter ended June 13, Nokia earned 712 million euros, or 13 euro cents a share, on sales of 6.64 billion euros. The earnings work out at about 16 cents (U.S.) a share, which is a penny shy of the Wall Street estimate. Latest-quarter earnings were flat with a year ago, including a pair of one-time gains. Sales fell 5% from a year earlier, roughly in line with Wall Street estimates. Nokia also forecast a third-quarter profit of about 12 cents (U.S.) a share, which is far short of the Wall Street consensus estimate of 19 cents. The company expects to post sales of around $8.2 billion, which is again well short of the $8.5 billion estimate. In early action Thursday, Nokia dropped $1.92 to $12.32. The company said mobile-phone sales fell 13% from a year earlier as Nokia slashed prices in an effort to win back market share from fast-gaining rivals such as Motorola ( MOT) and Samsung. On Thursday, Nokia said it had held onto its market share in the latest quarter but that holding the line had taken its toll. "In the second quarter, our pricing moves were successful in stabilizing our market share," CEO Jorma Ollila said. "We will continue to use pricing selectively and aim to strengthen the competitiveness of our product portfolio in order to increase our market share in the highly competitive mobile device market. As a result, we expect our profitability to continue to come under pressure during the second half of the year. We currently expect that the impact of these pricing adjustments on profitability will more than offset the higher margins we seek to realize from new products as the currently available products will make up a majority of our sales during the second half of this year."
The news comes in the wake of a rough couple of quarters for the onetime Wall Street favorite. The company hemorrhaged market share in the first quarter after its mulish insistence on selling unfashionable, blocky phones locked it out of the hottest part of the handset business. The phone fashion disaster set off this spring's
flurry of warnings . Humbled, Nokia has since embraced design imitation, introducing its own color screen flip phones just in time to catch the last of that fad. Nokia has also cut phone prices in an effort to regain lost ground.