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Nokia cuts quarterly forecast, again: Vendor’s visibility is poor heading into next year

Nokia Corp. said last week that holiday-related handset sales will likely fall short of the company’s last estimate, issued in mid-November. Three weeks ago, Nokia had forecast 330 million units, a slight drop from the year-ago quarter.
Even with its much-vaunted visibility into the global market, however, Nokia declined to give clear guidance for 2009.
One possible upshot, suggested by deteriorating, global economic metrics: Market conditions, based on weakening demand, may be changing too rapidly to create a rational forecast worth sharing.
Investors initially were relieved by Nokia’s frank assessment of the current quarter and sent its stock up more than 5% on Thursday. But dismal unemployment data on Friday sent the stock tumbling nearly 6%, along with others.
In mid-November, Nokia had projected 5% negative growth for the industry next year and, last week, company executives said only that the market might be even weaker. Broadpoint.AmTech analyst Mark McKechnie pegged 2009 growth at negative 12%.
Nokia CEO Olli-Pekka Kallasvuo told analysts that some consumers may actually trade down when they replace their current handset, according to reports. Replacing one’s handset is typically referred to as “the upgrade cycle.”
The CEO also said the company would further cut costs but, according to analyst Gareth Jenkins at UBS, no details were given.
What struck observers, however, was Nokia’s inability or unwillingness to provide visibility on the year to come. The company noted weaknesses in China and Russia, two former global hotspots.
“What is likely to be concerning to investors is the lack of clear guidance for 2009,” wrote analyst Ittai Kidron at Oppenheimer, in a note to investors.
McKechnie at Broadpoint.-AmTech said, however, that he was somewhat relieved.
“We are encouraged that Nokia has taken down the bar, which hopefully will mitigate the industry overbuild effects in 2009,” McKechnie wrote to investors.

U.S. troubles
Despite an assurance from Kai Oistamo, head of Nokia’s devices business, that “relationships with carriers in the U.S. are stronger than they have been in years,” data from Strategy Analytics reflected a full-scale slide in Nokia’s U.S. fortunes.
From a high of 27% share here in 2003, the Finnish vendor’s share has steadily dwindled to approximately 8% this year.
According to analyst Bonny Joy at Strategy Analytics, Nokia cannot afford to ignore the U.S., which is the largest global market for handsets and services in terms of revenue. But the company’s focus on GSM-based products constrains it to 40% of the U.S. market, while its “Co-DM” strategy for CDMA carriers is only a placeholder for now, Joy said. (Nokia has said it will co-develop CDMA handsets with original design manufacturers, or ODMs, for the U.S. market.)
Nokia’s best hope – and possible strategy – for substantially increasing U.S. market share lies, in part, in Verizon Wireless’ announcement that it will pursue LTE as a so-called 4G roadmap, according to Joy. At that point, several years out, Nokia will have the economies of scale to provide cost-effective, LTE-based handsets to much of the other half of the U.S. market, according to Joy.
Last week, Nokia cited only its “long-term potential” in the U.S.

Smartphone battle building
Though Nokia also cited an improved smartphone portfolio – it just announced a top-end touchscreen-plus-QWERTY N97 model ($700 unsubsidized), due next year – Gartner issued a sobering assessment of that market, whose growth has far outpaced the overall handset market.
Gartner said that during the third quarter smartphone growth slowed to less than 12% year-on-year. And that was before consumer spending plummeted in October and November.
In the third quarter, in terms of year-on-year smartphone growth, Nokia was utterly eclipsed by smartphone pure-plays Apple Inc., Research In Motion Ltd. and HTC Corp.
Where Nokia saw a 3% drop in shipments from the year-ago quarter, Apple had 328% growth, RIM had 82% growth and HTC had 26% growth (not counting operator-branded devices).
Still, Nokia remained the world’s leading smartphone maker, with 42% of the global market. RIM held 16%, Apple achieved 13% and HTC roughly 5%.
“Nokia still needs models that are directly comparable to (Apple’s) iPhone and (Research In Motion’s BlackBerry) Storm – slim, light, stylish smartphones with selected high-end features,” wrote analyst Tero Kuittinen at Global Crown Capital L.L.C., “and we believe they are arriving in 2009.”

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