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Nokia scorched as sales slump in second quarter

The flames are licking higher around Nokia after the struggling mobile phone giant was forced to warn on profits yesterday, blaming falling phone sales and lower prices.

The Finnish company released a statement revealing that "multiple factors" had hit its handset division. The slump means that its full-year profit forecasts were "no longer valid". The bad news saw its share price drop by as much as 18 per cent in trading yesterday.

The company's new president and chief executive, Stephen Elop, who famously compared Nokia's plight to a man standing on a burning oil platform, said: "Strategy transitions are difficult. We recognise the need to deliver great mobile products, and therefore we must accelerate the pace of our transition." Sales at the devices and services arm of the group will now be "substantially below" its previously expected range of €6.1bn-€6.6bn (£5.3bn-£5.7bn) for the second quarter.

Carolina Milanesi, an analyst at Gartner, said: "This shouldn't come as a huge surprise. Nokia factored it in, although perhaps it was still too optimistic. Things will get worse before they get better."

Nokia said the slump was "primarily due to lower than previously expected average selling prices and mobile device volumes". As a result of the worse-than-expected second-quarter performance, it was "no longer appropriate" to provide full-year targets for 2011. Nokia added it was taking "immediate action to address the issues that are impacting its Devices and Services business".

The company has suffered from greater competition on price, particularly in China and Europe, as well as a shift towards devices with lower average selling prices and lower margins.

Analysts from CCS Insight said the news "underlines the severity of Nokia's situation in multiple segments and markets". It said the group needed to launch a dual-sim device for the emerging markets and a high-end Windows smartphone to "swiftly to prop up its ailing low- and high-tier portfolios".

Earlier this year, Mr Elop sent a memo to staff outlining the company's difficulties and his proposals to overhaul it. He compared its plight to a man "on a burning platform", adding "we must decide how we are going to change our behaviour".

Nokia has suffered particularly from a lack of competition to high-end smartphones, such as the iPhone, and those running the Android operating system. The new chief executive sealed a partnership deal with Microsoft this year to reverse this trend. Much is riding on the tie-up for both companies, and Mr Elop yesterday announced that the first Nokia and Windows tie-up will be shipped between October and the end of December, adding the companies' "teams are aligned".

Mr Elop has also introduced a cost-cutting program to strip €1bn out of the company, in a drive that will include 4,000 job cuts.