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Nokia ‘giving away phones at cost’

With margins so thin you need a microscope to see them

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Nokia's financial results for the second quarter of 2011 are due tomorrow, and the company has already warned investors of very bad news coming. Yesterday, it issued a peek into just how tough things have got in 2011. Nokia said its smartphone profit margins were down to 6.2 per cent in Q1 2011, with margins of 16.4 per cent on basic phones.

In other words, Nokia's bargain basement models, sold to emerging markets and typically making use of very old technology, make it more money than its premium "flagship" models which boast its "state of the art" features.

"There are no very big cuts per model, but the scale – across the portfolio – is unseen for a very, very long time," Reuters quotes one unnamed source at a European operator as saying.

This is a completely arse-backwards approach for any technology company, of course, since all the expensive R&D should appear first in high-margin products before being amortised over the years in cheaper models. It's a sign of how uncompetitive and undesirable Nokia's high-end offerings have become that the company practically has to give them away. In May, Nokia warned that "operating margin will be substantially below its previously expected range of 6 per cent to 9 per cent for the second quarter 2011. This update is primarily due to lower than previously expected net sales. While visibility is very limited, Nokia's current view is that second quarter 2011 Devices & Services non-IFRS operating margin could be around breakeven.”

Translation: we're going to have to give our kit away at cost.

And despite the availability of two more Symbian models in the last quarter, there's little sign of change until Microsoft-based phones appear, possibly at the end of the year. The "contractual obligation" Meego device won raves from bloggers who hadn't seen it – but appears to have been given only a limited release. The UK will probably not be taking the N9.

We'll know more by this time tomorrow. ®

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