--Nokia warns first-quarter operating handset margin will be a negative 3%
--Had earlier quided for a margin around breakeven
--Nokia sold more than 2 million Lumia devices in 1Q
(Recasts and updates with background and analyst comments throughout.)
By Arild Moen
Of DOW JONES NEWSWIRES
HELSINKI (Dow Jones)--Nokia Corp. (NOK) on Wednesday warned that intense competition in fast-growing markets -- formerly its stronghold -- would hit its performance in the first half of this year, underscoring the depth of the challenges it faces as it switches to Microsoft's Windows software for its handsets.
The latest profit warning--the second in less than a year--sent its shares plunging to a 15-year low and shows the scale of the task faced by Chief Executive Stephen Elop as he looks to reinvigorate the company's smartphone line-up and combat a proliferation of cheap mobile devices based on Google Inc.'s Android software.
Nokia, still the world's largest handset maker by volume, warned the operating margin at its key mobile handset unit would be negative by about 3% in the first quarter of the year, due to harsh competition in India, the Middle East, Africa and China, It added it doesn't expect any improvement in the second quarter.
Nokia had previously guided for a first-quarter margin "around breakeven, ranging either above or below by about 2 percentage points."
Chief Executive Stephen Elop said the profit warning shows that the business is still in transition, but said he was pleased by the initial success of the company's new line of Windows phones.
"Within our Smart Devices business unit, we have established early momentum with [the Lumia brand of mobile phones using Windows software] and we are increasing our investments in Lumia to achieve market success," the CEO said.
CEO Elop announced last year that the company would ditch its own smartphone software Symbian and join forces with Microsoft Corp.'s (MSFT) to build a new family of phones using Microsoft's Windows operating system. The strategy overhaul aimed to recover ground Nokia has lost to rivals like Apple Inc. (AAPL) with its popular iPhone and phones based on Google Inc.'s (GOOG) Android software.
But Wednesday's warning showed the company is now feeling the pinch of competition at the low end of the market as well.
Roberta Cozza, an industry analyst at information technology research firm Gartner said Nokia's warning is partly a result of the company being unable to match competition from handsets using Android software on emerging markets, such as those made by China's Huawei.
"We're seeing that many consumers on emerging markets are shifting towards low-end smartphones, rather than feature phones, and Nokia doesn't have much to offer in this space," Cozza said. "Nokia won't have a full range Windows portfolio until late 2012, and I don't expect to see a turnaround until 2013," she said.
Elop said the turnaround of the business was proceeding quickly. "The change is tangible, and we are proud of the way Nokia employees are quickly responding to the needs of consumers and partners," he said.
Industry analyst Ben Wood at research firm CCS Insight said Nokia's announcement wasn't a surprise in view of the cut-throat competition in the industry, with many manufacturers facing challenges.
"Nokia is at least in a period of regenerating the company," Wood said.
Nokia last warned of falling profits in May, blaming its weak position in the lucrative smartphone market. On Wednesday, Nokia said it will accelerate sales of its Lumia Windows phones and reduce its cost structure. The company said it sold more than 2 million Lumia devices in the first quarter at an average selling price of EUR220.
Nokia is scheduled to report its full results for the first quarter on April 19.
At 1310 GMT, Nokia shares were down 16% at EUR3.20.
-By Arild Moen, Dow Jones Newswires; +358-45-2059 755; arild.moen@dowjones.com
(Sven Grundberg in Stockholm contributed to this report.)
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