Nokia is being sued by one of its investors for allegedly misleading shareholders to believe that its Lumia line of Windows Phone devices could reposition it as a leader in the smartphone space.
Shareholder Robert Chmielinski claims in the class action suit, which was filed Thursday in New York, that Nokia executives, including CEO Stephen Elop, committed fraud by convincing shareholders that its transition from its homegrown Symbian OS to Microsoft’s Windows Phone platform would breathe new life into the company’s line of smartphones.
"Defendants [Nokia executives] told investors that Nokia’s conversion to a Windows platform would halt its deteriorating position in the smartphone market. It did not," the suit said. "This became apparent on April 11, 2012, when Nokia disclosed that its first-quarter performance would be worse than expected."
On its first-quarter earnings statement, Nokia reported a net loss of $1.8 billion, which it attributed to "greater-than-expected competitive challenges" in the mobile market. It also said it sold approximately two million of its Windows Phone-based Lumia smartphones.
Apple, by point of comparison, sold 35 million iPhones during the same three-month period.
Nokia issued a statement Friday in response to the suit, saying it would defend itself against the claims. The company said it is "reviewing the allegations contained in the complaint and believes that they are without merit."
In the filing, Chmielinski made note of Nokia’s once industry-leading position in the market with its own mobile OS, Symbian. But in light of increased competition from Apple and Google, its share of the market began to wane in 2010. The suit said between June 2010 and the second quarter of 2011, Nokia's worldwide market share dropped from 38 percent to 15 percent.
In an effort to regain some of its lost ground, Nokia struck an alliance with Microsoft in February 2011 through which its smartphones would run exclusively on the software giant’s Windows Phone platform.
"Nokia is at a critical juncture, where significant change is necessary and inevitable in our journey forward," Elop said in a press conference announcing the new partnership. "Today we are accelerating that change through a new path, aimed at regaining our smartphone leadership, reinforcing our mobile device platform and realizing our investments in the future."
In addition to weaker-than-expected profits and lackluster smartphone sales, Chmielinski claimed that Nokia knowingly launched its higher-end Lumia 900 smartphone with a software glitch that compromised its connectivity to certain high-speed wireless networks. The glitch, which was unveiled publicly two days after the phone hit the market, resulted in Nokia offering a $100 rebate to customers, "making the phone essentially free," the suit said.