Ina Fried

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Nokia Sees Challenging Second Quarter Amid Japan Quake Impact, Start of Transition to Windows Phone

Nokia warned on Thursday that despite seeing solid results in the first quarter, it expects things to be more difficult in the current quarter as the company begins its long transition away from Symbian and toward Microsoft’s Windows Phone as its key smartphone operating system.

“Following a solid first quarter, we expect a more challenging second quarter,” Nokia CEO Stephen Elop said in a statement. “However, we are encouraged by our roadmap of mobile phones and Symbian smartphones, which we will ship through the balance of the year. We are fully focused on delivering the needed accountability, speed and results to positively drive our future financial performance.”

As for the numbers, Nokia said it saw sales for the quarter of 10.4 billion euros, up 9 percent from a year ago and down 18 percent from the fourth quarter. Its key devices and sales unit posted revenue of 7.1 billion euros, but the company sees that figure dropping in the current quarter to somewhere between 6.1 billion and 6.6 billion euros.

Nokia cited a number of reasons for the expected sales drop including overall competition and the impact of the Japan earthquake on component supply, as well as Nokia’s lack of phones that support more than one SIM card. The Japan quake effects should stretch into the third quarter, and Nokia said its devices business should be about the same in the third quarter as it is for the second quarter.

In addition to releasing results, Nokia announced earlier on Thursday that it has finalized its pact with Microsoft with regards to Windows Phone. In an exclusive interview, Microsoft mobile unit president Andy Lees and Nokia Executive VP Kai Oistamo talked about the pact as well as the technical progress, including the fact that Nokia now has prototype versions of its hardware running the next iteration of Windows Phone software.

“We’ve gotten to where we have gotten to faster than we thought,” Lees said. “Now we know who is exactly writing each piece of code.”

In the company’s earnings release, Elop echoed that sentiment.

“In the first quarter, we shifted from defining our strategy to executing our strategy,” he said.

In the meantime, however, Nokia has seen its share of the smartphone market continue to decline as the company cedes share to rivals, including Apple’s iPhone and devices running Google’s Android operating system. The company estimates its share of the global smartphone market last quarter was 26 percent, down from 31 percent in the prior quarter and 41 percent a year earlier. Nokia also sold more lower-end smartphones in the quarter, resulting in a 6 percent drop in average smartphone selling prices from the prior quarter.

The company hopes to shave 1 billion euros in expenses in the current year as it cuts operating expenses, including through layoffs. However, Nokia warned that most of its current employees–even those being cut–will be on the company’s payroll through the remainder of 2011.

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