HELSINKI, Finland

Nokia Corp yesterday warned its second-quarter sales and margins will be much lower than expected as rivals challenge the world’s largest handset maker in both smartphones and low-end devices.

The announcement sent Nokia shares down more than 17 per cent to a 13-year low of 4.75 euro (US$6.83) in late Helsinki trading.

The Finnish company said net sales in its key devices and services unit will be “substantially below its previously expected range of 6.1 billion to 6.6 billion” in the second quarter.

Operating margins in the period will be well below the earlier predicted six per cent to nine per cent, Nokia said, adding that the lower-than-expected performance made it no longer “appropriate to provide annual targets for 2011.”

The Finland-based company has been struggling against tough competition in the top end smartphone market, especially against Apple Inc’s iPhone, Research in Motion’s Blackberry and on the software front against Android, which has emerged as the top choice for phone makers that want to challenge the iPhone.

But Nokia has also felt the pinch in China and emerging markets, where numerous phone makers are producing cheaper handsets, including lower-end smartphones and copycat models.

CEO Stephen Elop acknowledged Nokia has been too slow to meet the challenge and hinted that the company would drop its cellphone prices.

“Certain competitive forces, particularly Android, are really gaining momentum in certain regions for example in China there is indication of some very substantial movement in the growth of market share for Android,” Elop said. “We need to be faster to the market as relates to pricing action, as to the likes of how we range our products.”

In February, Nokia announced a major strategy shift when it partnered with Microsoft Corp, and said it would produce the first Nokia Windows cellphone before the year-end.

“We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition,” Elop said. “Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011.”

Jussi Hyoty, analyst at Front Capital in Helsinki, said Nokia continues to suffer from “a pincer movement” where both high-end and cheaper producers are challenging it.

“But we have to remember that it’s in the smartphone sector where the strategy changes are taking place,” he said.

Since 1998 Nokia has been the biggest seller of cellphones but in the first quarter of this year Apple overtook it as the world’s top handset vendor in revenue terms — reaching sales of US$11.9 billion on shipments of 18.6 million devices against Nokia’s revenue of US$9.4 billion on shipments of 108.5 million units.

Despite the profit warning, Nokia said it was pleased with progress on its Windows phone strategy, and that it was on track to cut operating expenses by one billion euros for the full year 2013, compared to the full year 2010.

The company said it will continue to invest in its Symbian platform currently used in Nokia smartphones, offer more competitive prices of its smartphones and make marketing more efficient.