Weak quarterly reports from Nokia's chipset suppliers prompted fears of a sales slump in the Finnish company's older smartphones, sending its shares more than 9 percent lower on Tuesday.
While Nokia dumped its old Symbian smartphone platform in February 2011 in favour of Microsoft's Windows Phone, Symbian was expected to account for a vast majority of its smartphone sales for a while longer.
Nokia needs Symbian to remain healthy to sustain it through this critical transition period. If the signals are right, the impact will be felt sharply at Nokia, said analyst John Jackson from CCS Insight.
Overnight, Nokia suppliers Texas Instruments, ST-Micro and ST-Ericsson forecast weakness in their wireless business for the current quarter.
All three have been key suppliers for legacy Nokia phones and none of them had anything good to say. Especially Texas Instruments' guidance for its Q1 (first quarter) baseband business was alarming, said Nordea analyst Sami Sarkamies.
Texas Instruments forecast revenue from its baseband telecommunications business, whose main customer is Nokia, would fall to about $75 million (48 million pound) this quarter from $279 million in the fourth quarter.
ST-Ericsson, a key Symbian supplier, posted a deeper fourth-quarter net loss and predicted a significant slowdown in sales during early 2012.
Nokia's struggles against Apple and Google have hit both suppliers to Nokia's volume products. In Windows Phones, Nokia uses Qualcomm's chipsets.
STMicro, which owns half of ST-Ericsson, said problems at the venture were deep rooted and would take time to resolve. Some 10 percent of venture's sales comes from Nokia, compared with 20 percent a few years ago.
We are focusing on expanding our customer base. But it's hard to cope with sudden, brutal cuts in volumes at your biggest customer, CEO Carlo Bozotti said in a conference call.
Danske downgraded its recommendation for Nokia shares on Tuesday to sell, citing expectations of a sales decline in legacy phones.
We believe a sudden decline in Symbian sales, which started in Q4, will result in a significant fall in unit shipments and operating losses in Q4 2011 and 2012, Danske analysts said in a note.
Francisco Jeronimo, an analyst at IDC, said he expects Nokia's Windows Phone sales at end-2011 to beat forecasts, but that would not be enough to outweigh falls in Symbian.
The biggest question is whether or not Symbian results did take Nokia to the red, Jeronimo said.
On average, analysts expect Nokia to report on Jan 26 fourth-quarter earnings per share of 0.04 euros, an 82 percent fall from a year ago, according to a Reuters poll.
Nokia's fourth-quarter smartphone sales are seen down 33 percent from a year ago to 18.7 million handsets, with Windows Phones accounting for 1-2 million of them.
Analysts expect Nokia to predict a slowdown in the overall cellphone market as a weaker global economy discourages consumers from replacing older handsets.
We also expect Nokia to show a soft performance in a lacklustre global low-end market. We do not expect Nokia's handset business to recover from these issues until 2013, Danske said.
(Additional reporting By Teis Jensen in Copenhagen, Editing by Mark Potter)