Fashion Faux Pas Clips Nokia

The company is late to market with the folding camera phones that consumers are demanding.
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Nokia (NOK) - Get Report got caught napping.

Like a sporting goods store peddling hockey sticks in the thick of T-ball season, the Finnish wireless giant paid the price Tuesday for a winter of pushing the wrong buttons with consumers.

As it turns out, what cell-phone users were demanding was the folding photo phone being churned out in quantity by outfits like





. But Nokia didn't have any of these so-called midprice color-screen models, as first-quarter numbers will amply demonstrate. The strategic shortfall cost the world's largest handset maker more than 2 percentage points of market share, along with a 2% sales decline.

The sharp miss shocked investors, who had been all set for a 5% sales rise on the heels of Nokia's

bullish January comments. Tuesday's reversal sent the shares down $3.47, or 16%, to $17.68.

Betting Wrong

Nokia's glowing remarks earlier this year had helped ignite a wireless sector rally. On Tuesday, rivals like






slipped fractionally. But even as Nokia remains the most widely watched wireless industry barometer, Tuesday's setback struck most observers as being almost purely company-specific.


observers had warned that there was a growing gap between what cell-phone buyers were shopping for and what Nokia was offering. Now it seems criticisms that Nokia was too slow to bend to the taste for clamshell-type folding phones may have been accurate.

On a conference call with analysts Tuesday, Nokia executives conceded a lack of clamshell phones was a contributing factor to the sales weakness. But the execs promised some sprucing-up was in store. The company expects to introduce 40 new phones this year, matching last year's efforts.

"There is plenty to come," said Nokia executives on a conference call Tuesday morning. "We've only seen the beginning of the array of products to come to market this year."

Delays in new model cell-phones can prove costly in the increasingly competitive handset market, as Motorola fans learned all too well last year. Motorola was late to market with some key camera-phone models and ended up ceding many of those sales to rivals. The screw-ups hampered Motorola's profitability and eventually helped force the departure of former CEO Chris Galvin.

That said, Nokia isn't quite in the same predicament that Motorola found itself in last year.

Nokia has a history of dropping behind on new designs in some quarters and even losing a little market share. But the company has always come roaring back, says a hedge fund manager who was short Nokia but considering a long position after the selloff.

Meanwhile, the industrywide picture remains rosy. Globally, cell-phone demand is at record levels as emerging markets begin to take off and customers in existing markets make handset upgrades.

Sales Slide

That won't ease Nokia shareholders' pain right now, though. Nokia said first-quarter sales would fall to $7.9 billion. That's well short of the 5% rise the company had projected in January, and the $8.6 billion in revenue analysts were looking for.

The company said it would post earnings of 17 euro cents a share, or about 20 cents (U.S.), for the first quarter. That's in line with the low end of analysts' estimates.

While Nokia's total handset volume for the first quarter dipped slightly to 44.7 million units, the weakness was move evident in the average phone sales price, which dropped 10%. That means Nokia sold more lower-priced phones.

Even more dramatic was the sudden slip in market share. Nokia accounted for 38% of all cell-phone sales in the quarter that ended in December. That tally fell to 35.7% in the most recent quarter, one of the largest declines in recent Nokia history.

One lingering concern among investors is whether Nokia's new crop of phones will be available in time to counter the sliding trend by the end of the current quarter.