is suffering from a case of erratic guidance syndrome, with ambitious expectations giving way to a warning on more than one occasion.
After sending investors on a roller-coaster ride with its ever-changing outlook in 2008, analysts now expect the world's biggest handset maker to turn decidedly negative in order to temper expectations for an industry that has always been built for growth.
On Friday, Nokia warned that industry mobile-device shipment volumes will be down in 2009 compared with this year, impacted by the continuing overall economic slowdown. If handset volumes were to decline next year, it would be the first contraction since 2001 -- and that was the only time it has happened in the history of cell phones.
Nokia said it will further cut operating expenses next year to respond appropriately to the market conditions. Some analysts lament the fact that Nokia wasn't more specific with its own targets for 2009, instead opting to offer a preliminary view for the entire handset industry.
"All they have given are industry numbers," says Mark McKechnie, research analyst with American Technology Research. "They really didn't get into whether they're talking inventories or market volume or a combination of both. As the market leader, it's really important for Nokia to set the bar right. You don't want to see 1.3 billion phones made and only 1.1 billion consumed."
Additionally, Nokia lowered its estimate for industry mobile volume to 1.24 billion in 2008, down slightly from its previous target, but still up from 1.14 billion units for 2007. Only one month earlier, Nokia's management had endorsed a projection of 10.5% year-over-year global unit growth to 1.26 billion. The change came as Nokia said it now expects that industry mobile-device volumes will be lower in the fourth quarter than previously expected.
"When Nokia guided the December quarter for sequential growth, everyone knew they were going to miss it," says McKechnie. "It was a question of by how much and when they would acknowledge it."
The timing of Nokia's warning could not be worse, given that fellow tech giants
have also offered weak outlooks that rattled the market.
This isn't the first time the Finnish mobile-phone giant has needed to backtrack on optimistic guidance. In July, Nokia's management predicted industry mobile-device volumes in the third quarter would be up sequentially and that its market share would remain the same in the third quarter.
But in a September announcement, Nokia said it expected its mobile-device market share in the third quarter to be lower sequentially. That outlook reflected its decision to not meet certain aggressive pricing of some competitors, increasing competition and the temporary impact of a slower ramp-up of a mid-range device.
"Nokia appears to have particular guidance problems this year," says Tero Kuittinen, senior director of research with Global Crown Capital. "The
third-quarter market share guidance was glaringly optimistic and its upbeat
fourth-quarter unit volume guidance raised eyebrows when it was issued."
Analysts and investors now hope that Nokia will be more specific with its 2009 forecasts and its cost-saving actions at a presentation in New York on Dec. 4. McKechnie says the company will drop the optimistic approach to projections and will try to properly temper expectations for the industry's future.
"The sooner Nokia brings down their industry forecasts for 2009, the better it is so that everyone in the industry will try to make sure we don't have a nasty glut of handsets," McKechnie says.
Kuittinen agrees that Nokia should get tough with its outlook at the upcoming event. He says that Nokia set the bar so high with its third- and fourth-quarter guidance that the company was left no wiggle room in deteriorating economic conditions.
"This is something the company is likely to correct," Kuittinen says. "The tone will probably be bleak at the New York event as Nokia tries to tack back to cautious commentary."
Analysts now believe the best-case scenario involves burning inventory over the first half of next year as the industry begins to regain control, giving a reason to be optimistic further down the road. However, it may hinge on whether Nokia acts as a leader and sets the tone for other handset makers like
, the joint venture between
"If handset makers back off and make sure they don't build too many handsets so you don't have to have fire sales, we could see a relatively more healthy situation than we were in back in 2001 and 2002 when everyone was scaled for super growth," says McKechnie. "This time, we're scaled for growth, but we smelled this coming."