Nokia feels the smartphone heat

Nokia's first quarter results disappointed across the board as the company cut its 2010 outlook, missed estimates and said it was facing tough competition at the high-end of its phone lineup.

Nokia reported revenue of euro 9.52 billion, up 3 percent from a year ago, but short of analyst expectations of euro 9.8 billion. Earnings of 0.14 euro per share also fell short of expectations of 0.15 euro per share.

Meanwhile, the company's outlook was short of expectations. Nokia still sees mobile device growth to be up 10 percent globally, but its market share will be flat. Operating margins of 9 percent to 12 percent in the second quarter will also miss targets.

What's the problem? In a statement, Nokia CEO Olli-Pekka Kallasvuo said:

We continue to face tough competition with respect to the high end of our mobile device portfolio, as well as challenging market conditions on the infrastructure side.

Kallasvuo said that Nokia is making smartphone progress with shipments up more than 50 percent from a year ago. Indeed, Nokia said converged mobile devices---smartphones---delivered revenue of euro 3.33 billion, up 28 percent from euro 2.6 billion. By units, Nokia shipped 21.5 million smartphone devices in the first quarter, up 57 percent from a year ago.

But here's the problem: Companies like Apple and Research in Motion are touting big gains in international sales, notably China. Nokia is dominant in most regions, but the competition will increase. Apple and RIM won't kill Nokia, but they will certainly make it tough to garner high profit margins.

Also: iPhone growth magnifies global smartphone potential -   Apple earnings: A blowout quarter; iPhone and Mac sales jump -   RIM’s Balsillie on Blackberry’s future: What? Me Worry?

In addition, Nokia's Symbian 3 updated devices are on tap in the second half. Symbian 4 may not show up at all in 2010.

Consider where Nokia is powerful:

And now note the plunge in Nokia's average selling prices for smartphones.

Simply put, Nokia is already feeling the smartphone squeeze a bit. The big question is what Nokia can cook up to fend off the invasion of the smartphones abroad.