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Wednesday, April 11, 2012, 07:01 am PT (10:01 am ET)

Nokia warns of 'disappointing' smartphone sales in first half of 2012

Nokia on Wednesday issued a warning to investors that it was lowering its outlook for the first half of 2012 after the first quarter of the year proved "disappointing."

The Finnish handset maker had previously told investors it expected to break even on device sales during the quarter, but its operating margins proved to be around negative 3 percent. Nokia now expects its second quarter of 2012 to be similar to or below the first quarter.

"Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition," Stephen Elop, president and CEO of Nokia, said in a press release.

The company cited "competitive industry dynamics" as one of the chief reasons that its smartphones have struggled in the market, along with "timing, ramp-up, and consumer demand related to new products."

Nokia estimates that it sold 12 million "smart devices" in the first quarter of 2012, along with 71 million mobile phones. Its gross margins on smart device sales are estimated to have been around 16 percent.

Nokia said it sold more than 2 million of its new Windows Phone-powered Lumia handsets in the first quarter of 2012. The company said it has seen sequential growth in Lumia device activations every month since sales began in November of 2011.

"Within our Smart Devices business unit, we have established early momentum with Lumia, and we are increasing our investments in Lumia to achieve market success," Elop said. "Our operator and distributor partners are providing solid support for Windows Phone as a third ecosystem, as evidenced most recently by the launch of the Lumia 900 by AT&T in the United States."

Lumia 900


Nokia's estimated sales of just 12 million smartphones in the quarter compare poorly to Apple, which analysts expect sold about 30 million handsets over the first three months of 2012. Apple previously reported record sales of 37 million iPhones in the holiday quarter that concluded calendar 2011.

The struggles for Nokia stem from the company's transition from its own Symbian platform to Microsoft's Windows Phone. In an internal memo issued soon after he took over Nokia, Elop referred to Symbian as a "burning platform" that Nokia needed to abandon in order to survive.

Nokia's announcement on disappointing sales comes just as the company has begun offering a $100 credit on its $99 Lumia 900 flagship smartphone, due to a software bug affecting data connections. New handsets with the issue fixes are on their way to AT&T stores, and a software update will be available for current users on April 16.